Social Audit | Definition | Objectives | Need | Disclosure of Information

The social audit movement was first started in U.S.A. Later it gathered momentum in U.K., Japan and one or two Western countries. In spite of this development the subject has not yet attained the status of a science in many countries. In India, social audit finds a place in company legislation.

Social Audit - definition, objectives, need, information disclosure

Image:Social Audit – definition, objectives, need, information disclosure

Meaning and Definition of Social Audit

Different people have interpreted the expression social audit differently. To some authors, it means the public disclosure of a company’s social performance; to others it means internal evaluation of a company’s social responsibility performance. Some authors think that social audit is a comprehensive evaluation of the way a company discharges all its responsibilities to its shareholders, customers, employees, and to the wider community. Thus, there is a total disagreement among the scholars as to the exact meaning, and the components of this novel concept. However, we shall give a brief account of the opinion of experts as below.

Definition of Melvin Aushen:

“The social audit is an idea whose time has come, but which is not ready to be taken off the drawing board and put to work”.

This definition is very vague and does not describe what social audit really means.

Definition of Boweni

“A commitment to systematic assessment of and reporting on some meaningful, definable domain of a company’s activities that have a social impact”.

This definition is worth mentioning. This definition highlights the various aspects of social audit.

Social accounting and Social Audit

Social accounting is a systematic assessment and reporting on those parts of a company’s activities, which have a social impact. It refers to the identification, measurement, recording and reporting the information as to social activities of the concern to its users (both internal and external). On the other hand, social audit refers to the systematic evaluation of an organization’s social performance. Here, its economic performance is not considered. It discloses the company’s involvement in socially oriented activities, activities taken for the well-being of the employers of the concern, activities as to prevention of environment from pollution etc.

Objectives of Social Audit

Goyder defined the objectives of social audit in clear terms. He classified the objectives into two broad categories namely,

  1. Principal objectives, and
  2. Secondary objectives.

Principal Objectives of Social Audit

The principal objectives according to Goyder are as follows.

1. The extension, development and improvement of the company’s business and building up of its financial independence.

2. The payment of a fair and regular dividend to the shareholders.

3. The payment of fair wages under the best possible conditions to the worker.

4. The reduction of prices to the consumers.

Secondary Objectives of Social Audit

1. Provision of a bonus to the workers.

2. Assist in promoting the amenities of the locality.

3. Assist in developing the industry in which the firm is a member.

4. Promote education, research and development in the techniques of the industry.

From these objectives, we can infer that social audit is really an extension of the principle of public disclosure to which corporations are subject.

Need for Social Audit

Each business enterprise is not only connected with internal public but intimately connected with external public also. The modem corporations are more powerful and command huge resources. This power should not be used indifferently, irresponsibly or in an antisocial way. Its activities can create much impact on the society. As such its impact over society cannot be ignored or taken lightly. Its behavior not only affects the society but also creates problems to the Government. Thus, social audit has become the need of the day.

“This is a matter not of ambition”, Prof. Galbraith says “but of necessity”.

Disclosure of Information during Social audit

It is now well settled that social audit must be taken in all organizations. But it should be remembered that mere undertaking of social audit is not sufficient but what is needed is a frank and full disclosure of its working. Prof. Robert.

A Dahl in this connection rightly remarked that-

“A major corporation can influence control and even coerce people (individuals or groups) and sometimes even the nation. Hence, the need for wide disclosure becomes inevitable”.

Information to be Disclosed during social audit

Both financial and non-financial information should be disclosed. The financial information can be disclosed through profit and loss account, balance sheet etc. Such information is mainly disclosed in quantitative form. The financial information reveals the true position of a company regarding its liquidity and bankruptcy. Non-financial information can be expressed both in qualitative and quantitative data. Quantitative data is generally preferred because they are precise and convincing.

Category of Information to be disclosed

National Association of Accountants Committee on Accounting for Corporate Social performance in Canada divided all such information into four broad categories. They are

1. Community Involvement: Under this category, socially oriented activities that are primarily of benefit to the general public must be specified.

2. Human Resources: Social performance directed to the well-being of the employees comes under this category.

3. Physical Resources and Environmental Contribution: This category refers to the activities directed towards alleviating (making easier to bear) or preventing environmental deterioration (Pollution). It, also Includes the adherence to the law and going beyond it in areas such as air quality, water quality etc. Conservation of scarce resources and the disposal of solid waste also come under this category.

4. Production or Service Contribution: It is mainly concerned with the impact of company’s product or service on society. This includes product quality, packaging, advertising, warranty provisions and product safety.

Persons Benefited by the Disclosure of information

D.R. Singh in his book “Performance of Public Enterprises in India” says that the following categories of persons are benefited by a frank disclosure of socially valuable information.

  1. Financial Institutions.
  2. Shareholders.
  3. Academic Institutions and Consultants.
  4. Government.
  5. Trade Unions and Political leaders.
  6. Environmentalists.