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Social accounting is a type of accounting that a business performs to place a value on the influence its operations have on society. It requires that enterprises look closely at all that it does and what kind of impact its activities have on people, places, and the environment. This sort of accounting doesn't deal with the type of assets that financial accounting does; rather, it focuses on business behaviors and what kind of impact that behavior has. Any business can undergo this type of evaluation, regardless of its size.
Understanding Social Assets
The term “social assets” can be somewhat confusing, but it encompasses any of the many ways that consumers view a company. A lot of this is connected to how the company conducts itself in the marketplace. Actions that business leaders take, everything from how they treat their employees and the sorts of benefits provided to how careful they are to avoid pollution and environmental damage, can play in.
Most of the key components are things that a company is doing without really thinking about how they are impacting consumers, which is to say they are policies that are chosen for some other reason and consumer impression is more of a side effect. In these instances the accounting process can be very valuable because it can force leaders to think about the broader implications of their choices. Social accounting also encompasses the views of the public that are shaped by things like advertising, online presence, and media coverage — areas that are more traditionally associated with consumer impressions.
Main Goals of the Accounting Process
Unlike financial accounting, which focuses on money going in and out and the profit implications of certain choices, this practice looks to understand the contributions or lack thereof that businesses make to society and to the everyday lives of consumers. The overall impression the brand or business name leaves on people also plays in. The practice concerns itself with business behavior that contributes to the wellbeing of people and the planet. Consequently, this type of accounting often also goes by the names “social and environmental accounting,” “corporate social reporting,” or “corporate social responsibility reporting.”
The act of social accounting attempts to put a figure on the costs and benefits of an enterprise's operations in relation to society and the environment. An enterprise may measure the impact of its smokestack emissions on a surrounding region, for instance, or a business may measure the impact of its community involvement and charitable contributions in the city or town in which it operates. It could measure the effectiveness of its hiring program and whether the program influences a region's unemployment rate, and could calculate how many of its packaging and advertising materials are recyclable.
How the Phenomenon Arose
This process was an accounting phenomenon of the later portion of the 20th century. Its growth as an accounting discipline stems from the pressures the environmental movement placed on large corporations. Also, it stems from the demand from governments and the public that businesses be more transparent concerning activities and the implications of those activities.
Importance of Sustainability
The practice also allows businesses to analyze whether they are sustainable as an entity from a social, environmental, cultural, and financial perspective. In the course of the project, they can usually also ascertain whether they will be able to sustain their commitment to conducting activities in a way that benefits society and, if not, to make positive changes.
Outside of Business
Social accounting is a process that any kind of entity can perform, not just businesses that are focused on growth and profitability. This includes governmental agencies, not-for-profit businesses, and charitable organizations. In essence, the practice deals with accountability more broadly — it demands that organizations put in place practices that contribute to the planet's sustainability and to the overall well being of humanity.