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Social accounting (also known as Social and Environmental Accounting, Corporate Social Reporting, Social Auditing) is a critical approach to accountancy.

It challenges conventional accounting, in particular financial accounting, for giving a narrow image of the interaction between society and organisations, and thus artificially constraining the subject of accounting.

Social accounting, a largely normative concept, seeks to broaden the scope of accounting in the sense that it should:

  • concern itself with more than only economic events;
  • not be exclusively expressed in financial terms;
  • be accountable to a broader group of stakeholders;
  • broaden its purpose beyond reporting financial success.

It points to the fact that companies influence their external environment (both positively and negatively) through their actions and should therefore account for these effects as part of their standard accounting practices. Social accounting is in this sense closely related to the economic concept of externality.


Social accounting has been defined as

  • "The process of communicating the social and environmental effects of organisations' economic actions to particular interest groups within society and to society at large."[1]


  • "An approach to reporting a firm’s activities which stresses the need for the identification of socially relevant behaviour, the determination of those to whom the company is accountable for its social performance and the development of appropriate measures and reporting techniques."[2]

Social accounting is often used as an umbrella term to describe a broad field of research and practice. The use of more narrow terms to express a specific interest is thus not uncommon. Environmental accounting may e.g. specifically refer to the research or practice of accounting for an organisation's impact on the natural environment. Sustainability accounting is often used to express the measuring and the quantitative analysis of social and economic sustainability.

Purpose of Social Accounting[edit]

Social accounting offers an alternative account of significant economic entities. It has the "potential to expose the tension between pursuing economic profit and the pursuit of social and environmental objectives".[3]
The purpose of social accounting can be approached from two different angles, namely for management control purposes or accountability purposes.

Accountability Purposes[edit]

Social accounting for accountability purposes is designed to support and facilitate the pursuit of society's objectives. These objectives can be manifold but can typically be described in terms of social and environmental desirability and sustainability. In order to make informed choices on these objectives, the flow of information in society in general, and in accounting in particular, needs to cater for democratic decision-making. In democratic systems, Gray argues, there must then be flows of information in which those controlling the resources provide accounts to society of their use of those resources: a system of corporate accountability.[4]

Society is seen to profit from implementing a social and environmental approach to accounting in a number of ways, e.g.:

  • Honouring stakeholders' rights of information;
  • Balancing corporate power with corporate responsibility;
  • Increasing transparency of corporate activity;
  • Identifying social and environmental costs of economic success.

Management Control Purposes[edit]

Social accounting for the purpose of management control is designed to support and facilitate the achievement of an organisation's own objectives.
Because social accounting is concerned with substantial self-reporting on a systemic level, individual reports are often referred to as social audits.

Organisations are seen to benefit from implementing social accounting practices in a number of ways, e.g.:[5]

  • Increased information for decision-making;
  • More accurate product or service costing;
  • Enhanced image management and Public Relations;
  • Identification of social responsibilities;
  • Identification of market development opportunities;
  • Maintaining legitimacy.

The management control view thus focuses on the individual organisation.
Critics of this approach point out that the benign nature of companies is assumed. Here, responsibility, and accountability, is largely left in the hands of the organisation concerned.[6]

Scope of Social Accounting[edit]

Formal accountability[edit]

In social accounting the focus tends to be on larger organisations such as multinational corporations (MNCs), and their visible, external accounts rather than informally produced accounts or accounts for internal use. The need for formality in making MNCs accountability is given by the spatial, financial and cultural distance of these organisations to those who are affecting and affected by it.[7]

Social accounting also questions the reduction of all meaningful information to financial form. Financial data is seen as only one element of the accounting language. [8]

Self-reporting and third party audits[edit]

In most countries, existing legislation only regulates a fraction of accounting for socially relevant corporate activity. In consequence, most available social, environmental and sustainability reports are produced voluntarily by organisations and in that sense often resemble financial statements. While companies' efforts in this regard are usually commended, there seems to be a tension between voluntary reporting and accountability, for companies are likely to produce reports favouring their interests.[9]

The re-arrangement of social and environmental data companies already produce as part of their normal reporting practice into an independent social audit is called a silent or shadow account.

An alternative phenomenon is the creation of external social audits by groups or individuals independent of the accountable organisation and typically without its encouragement. External social audits thus also attempt to blur the boundaries between organisations and society and to establish social accounting as a fluid two-way communication process. Companies are sought to be held accountable regardless of their approval.[10] It is in this sense that external audits part with attempts to establish social accounting as an intrinsic feature of organisational behaviour. The reports of Social Audit Ltd in the 1970s on e.g. Tube Investments, Avon Rubber and Coalite and Chemical, laid the foundations for much of the later work on social audits.[11]

Activities of concern[edit]

Unlike in financial accounting, the matter of interest is by definition less clear-cut in social accounting; this is due to an aspired all-encompassing approach to corporate activity. It is generally agreed that social accounting will cover an organisations relationship with the natural environment, its employees, and wider ethical issues concentrating upon consumers and products, as well as local and international communities. Other issues include corporate action on questions of ethnicity and gender.[12]

Ethical consumer, the alternative consumer organisation, collects and categorises information of more than 30.000 companies according to their performance in five main areas, composing the Ethiscore[13]:

  • Environment: Environmental Reporting, Nuclear Power, Climate Change, Pollution & Toxics, Habitats & Resources
  • People: Human Rights, Workers' Rights, Supply Chain Policy, Irresponsible Marketing, Armaments
  • Animals: Animal Testing, Factory Farming, Other Animal Rights
  • Politics: Political Activity, Boycott Call, Genetic Engineering, Anti-Social Finance, Company Ethos
  • Product Sustainability: Organic, Fairtrade, Positive Environmental Features, Other Sustainability


Social accounting supersedes the traditional audit audience, which is mainly composed of a company's shareholders and the financial community, by providing information to all of the organisation's stakeholders. A stakeholder of an organisation is anyone who can influence or is influenced by the organisation. This often includes, but is not limited to, suppliers of inputs, employees and trade unions, consumers, members of local communities, society at large and governments.[14] Different stakeholders have different rights of information. These rights can be stipulated by law, but also by non-legal codes, corporate values, mission statements and ]]moral rights]]. The rights of information are thus determined by "society, the organisation and its stakeholders".[15]

Applications of Social Accounting[edit]

Social accounting is a widespread practice in a number of large organisations in the United Kingdom. Royal Dutch Shell, BP, British Telecom, The Co-operative Bank, The Body Shop, and United Utilities all publish independently audited social and sustainability accounts.[16][17][18][19][20] [21] In many instances the reports are produced in (partial or full) compliance with the sustainability reporting guidelines set by the Global Reporting Initiative (GRI).

Traidcraft plc, the fair trade organisation, claims to be the first public limited company to publish audited social accounts in the UK, starting in 1993.[22][23]

History of Social Accounting[edit]

Modern forms of social accounting first produced widespread interest in the 1970s. Its concepts received serious consideration from professional and academic accounting bodies, e.g. the Accounting Standards Board's predecessor, the American Accounting Association and the American Institute of Certified Public Accountants.[24][25][26] Business-representative bodies, e.g. the Confederation of British Industry, likewise approached the issue.[27]
Abt Associates, the American consultancy firm, is one of the most cited early examples of businesses that experimented with social accounting. In the 1970s Abt Associates conducted a series of social audits incorporated into its annual reports. The social concerns addressed included "productivity, contribution to knowledge, employment security, fairness of employment opportunities, health, education and self-development, physical security, transportation, recreation, and environment".[28]
The social audits expressed Abt Associates performance in this areas in financial terms and thus aspired to determine the company's net social impact in balance sheet form.[29]
Other examples of early applications include Laventhal and Horvarth, then a reputable accounting firm, and the First National Bank of Minneapolis (now U.S. Bancorp).[30]

Yet social accounting practices were only rarely codified in legislation. The French bilan social poses a significant exception.[31]

Interest in social accounting cooled off in the 1980s and was only resurrected in the mid-1990s, partly nurtured by growing ecological and environmental awareness.[32]

See Also[edit]

External Links[edit]


  1. ^ R.H. Gray, D.L.Owen & K.T.Maunders, Corporate Social Reporting: Accounting and accountability (Hemel Hempstead: Prentice Hall, 1987)p. IX.
  2. ^ D. Crowther, Social and Environmental Accounting (London: Financial Times Prentice Hall, 2000), p. 20. (
  3. ^ Gray R.H., D.L. Owen & C.Adams (1996) Accounting and Accountability: Changes and Challenges in Corporate Social and Environmental Reporting (London: Prentice Hall), Ch 1
  4. ^ Ibid, esp Ch 3.
  5. ^ See R.H. Gray, 'Current Developments and Trends in Social and Environmental Auditing, Reporting & Attestation' , International Journal of Auditing 4(3) (2000): pp247-268; Crowther, Social and Environmental Accounting, esp Ch 2.
  6. ^ Gray, 'Current Developments', p. 17.
  7. ^ Gray et. al., Accountability, Ch 1.
  8. ^ See M.R. Mathews,'Towards a Mega-Theory of Accounting' in: Gray and Guthrie, Social Accounting, Mega Accounting and Beyond: A Festschrift in Honour of MR Mathews (CSEAR Publishing, 2007).
  9. ^ R.H. Gray, 'Thirty Years of Social Accounting, Reporting and Auditing: what (if anything) have we learnt?', Business Ethics: A European View 10(1) (2001), p. 14; Gray, 'Current Developments', p. 17.
  10. ^ Gray, 'Thirty Years of Social Accounting', p. 10.
  11. ^ Ibid, p. 9.
  12. ^ Gray et. al., Accountability, Ch 1.
  13. ^, accessed 07.07.08
  14. ^ Crowther, Social and Environmental Accounting, p. 19.
  15. ^ Gray, 'Thirty Years of Social Accounting'.
  16. ^ Shell Sustainability Report 2007:
  17. ^ BP Sustainability Reports:
  18. ^ BT Society & Environment Report:
  19. ^ The Co-operative Bank Sustainability Reporting:
  20. ^ The Body Shop Values Report 2007:
  21. ^ United Utilities Sustainable Development:
  22. ^
  23. ^ See C. Dey, 'Social accounting at Traidcraft plc: A struggle for the meaning of fair trade', Accounting, Auditing & Accountability Journal 20(3) (2007): pp.423 - 445.
  24. ^ See Accounting Standards Committee, The Corporate Report (London: ICAEW, 1975.
  25. ^ American Accounting Association, 'Report of the Committee on Human Resource Accounting', The Accounting Review Supplement to Vol. XLVIII.
  26. ^ American Institute of Certified Public Accountants, The Measurement of Corporate Social Performance (New York: AICPA, 1977).
  27. ^ Confederation of British Industry. The Responsibility of the British Public Company (London: CBI, 1971).
  28. ^ Abt Associates Annual Report and Social Audit 1974, quoted in D. Blake, W. Frederick, M. Myers, Social Auditing, (New York: Praeger Publishers, 1976), p.149.
  29. ^ R. A. Bauer and D. H. Fenn, What is a corporate social audit?, Harvard Business Review, 1973, pp.42-43.
  30. ^ Blake et. al., Social Auditing, p. 149. '
  31. ^ Gray, 'Current Developments', p. 5.
  32. ^ Gray, Thirty Years of Social Accounting, p. 9.