Social Accounting and Responsibilities

Introduction:

The main emphasis for evaluation of a business unit was on commercial aspects i.e., profitability ; the social aspect has so far been ignored. No doubt earning profit is necessary for the survival and growth of business. But should business units have no consideration for the people from whom the profits emerge?

Many rules, regulations and laws relating to social responsibilities of the business have been framed by the government.

As a result people have become conscious of their rights and cannot tolerate the socially irresponsible behavior of business units.

Meaning of Social Accounting:

Social Accounting / Social responsibility accounting aims to measure and inform the general public about the social welfare activities undertaken by an organization and its impact on the society.

Social Accounting is defined as a process of measurement and reporting of information concerning the impact of an entity and its activities on society.

The term ‘social accounting’ is of recent origin.

Now-a-days it is being realized that commercial evaluation of business units is not sufficient to justify commitment of funds to a business units.

Rather evaluation will be complete only if it takes into consideration social cost and benefits associated with them.

Definition of Social Accounting:

“The measurement and reporting , internal and external, of information concerning the impact of an entity and its  activities on society ."

Social Responsibilities of Business:

1. Resources: It is the responsibility of business to use the various resources (i.e., materials, labour, capital , machines and management) employed by it in the best possible way and avoid wastage. Wastage is anti- social in a developing country like India where there is an acute shortage of resources.

2. Customers: It is the social responsibility of business to provide quality goods at reasonable prices. There should be no fraud done to customers by the business community.

3. Employees: Owners and management of a business unit should not treat employees as a commodity which can be hired and fired at their will. Employees are not to be treated as a machine, but they are to be treated as human beings who have economic , psychological and social needs.

4. Government: It is the responsibility of business to follow the policies declared by the government. Businessmen can also help the government by paying taxes honestly.

5. Society: The business community, being an important organ of the society, must play a definite role in solving the problems like environment pollution, increased urbanization, unemployment.

The business community can also help the society by constructing schools, colleges and hospitals.

Objectives of Social Accounting:
1. To identify and measure the contribution of a firm towards the society.
2. To determine if the firm’s strategies are consistent with social priorities.
3. To make available, relevant information about the firm's goals, programmes,
performances, use of scare resources.
4. To Quantify and properly present the social costs and benefits of an enterprise.

Need/Benefits of Social Accounting:
1. It improves the image of the firm.
2. It helps in marketing through greater customer support.
3. It acts as an evidence of social commitment..
4. A firm fulfills it’s social obligations and informs its members ,the govt. and the general public to enable everybody to form a correct opinion.
5. It counters the adverse publicity or criticism by hostile media.

Social Accounting in India:
Social Accounting concept is relatively new in India. Although it is very difficult to identify various social cost and benefit to the society and still more difficult to convert these cost to monetary equivalents. The UNIDO and COECD have published the methodology for measuring social costs and benefits . Yet, in India, very few business corporation are following the social accounting concept. Tata Iron and Steel Corporation ( TISCO) was the first concern of India which conducted social accounting with a sole aim to examine and report to what extent the company has been able to fulfil the social responsibility to shareholder, the society, and the local community.
Some of the other undertaking also started social accounting include NTPC , Cement corporation of India, ONGC, Bharat Heavy Electricals Limited, IDPL, Coal India Limited.

Social Accounting Approaches:

1. Classical Approach: Introduced by Milton friedman – There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits , as long as it stays within the rules of the game .Engage in free and open competition without deception or fraud.

2. Descriptive Approach: Social Activities of a business are presented alongwith financial statements in a narrative form .

3. Integral Welfare Theoretical Approach: This approach advocates the preparation of a social report comprising social benefits and social costs.

4. Social Indicator (Brummet Approach): This approach involves different areas of social contribution to be undertaken by the business.

Total Performance = Net Income + Human resource Contribution
+ Public Contribution
+ Environmental Contribution
+ Product/Service Contribution

5. Linowes Operating Statement Approach: (D.F.Linowes ) advocates preparation of a SEOS (Socio Economic Operating Statement). It includes tabulation of Firm’s expenditures for social benefits and estimated social costs of various programs and hence calculating the Social Contribution = Social Benefits – Social Costs.

Measurement of Social Cost Benefit:

It is difficult to measure in precise monetary terms the social cost and benefit of a particular project. Only a broad judgement can be made about the acceptability or rejection a project on social grounds by making an analysis of different social aspects associated with the project.

Following  methods/criteria can be used for measurement of social cost and benefit of a particular project:

1. Capital Output Ratio: It gives an idea of the expected output in relation to the capital invested in a project.

As per this method, the project giving higher output per unit of capital employed is to be given preference over any other project.

2. Value Added Method: The term “value added” may be taken as follows:

Sales value – cost of bought-out inputs (i.e., raw materials, components etc.)

It takes into consideration the net contribution made by the business to the nation’s economy.

The project having higher value addition is preferred over other projects.

3. Employment Potential: This criterion of measurement of social cost benefit is important  in a country like India which has acute problem of unemployment.

Society stands benefited when the project provides more employment opportunities to its members.

A project having higher employment potential is to be preferred over the project having a lower potential for employment.

4. Saving in Foreign Exchange: This is an important criterion for accepting and rejecting a project.

A project having a higher potential in terms of foreign exchange benefit will get priority over project having lower foreign exchange benefit.

5. Social Cost Benefit Ratio: In this method, a project having lower cost benefit ratio is preferred over a project having a higher cost benefit ratio.

i.e., the lower the social cost the better it 

Specimen of Social Accounts:

1. Social Income Statement

2. Social Balance Sheet

Specimen of Social Income Statement:

Specimen of Social Balance Sheet: