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The OCR Glossary

Social Accounting

Robin W. Roberts

Social accounting is a term used to describe forms of accounting whose purpose is broader than that of conventional accounting. Whereas conventional accounting focuses almost exclusively on reporting to investors and creditors on the economic performance of an organization, social accounting is conceived as a way to report on an organization’s noneconomic performance. Social accounting is rooted in the notion of social accountability, which holds that organizations have responsibilities to the broader society and should be called to account for their disposition of these responsibilities. These organizational responsibilities are socially legitimate because they are determined and enforced through democratic processes.

All types of organizations can be held socially accountable, but most of the academic work on social accountability and social accounting focuses on the study of the social responsibilities of business, particularly corporations. Academic and policy debates continue over what should constitute a business’s social responsibilities, and therefore, debate also continues over what constitutes the scope and practice of social accounting. That said, a considerable body of work has been devoted to social accountability, the social responsibilities of business, and social accounting. This entry first discusses the relationship between the term social accounting and other terms used in the field of corporate reputation; it then discusses the historical context of social accounting, the basic concepts underlying social accounting, and social accounting practice.

Corporate noneconomic performance subsumes a potentially wide spectrum of corporate activities that affect the broader society. Thus, social accounting encompasses a wide range of possible accountings. Social accounting for the purpose discussed here typically generates publicly available reports on how a corporation’s activities affect its nonshareholder stakeholders, such as employees, customers, suppliers, communities, governments, and the natural environment. Because noneconomic performance topics covered under the term social accounting can be very broad, it is important to point out that social accounting as discussed here implicitly includes ideas related to narrower terms such as corporate social reportingcorporate responsibility reportingcorporate social responsibility (CSR) disclosurestakeholder reportingsustainability reporting, and environmental, social and governance reporting. The popularity of alternative terminology has faded in and out over time, depending on its purpose. For example, academic accounting researchers often still use the term social and environmental accounting because it provides a bridge to prior theoretical work, while newer entrants into social accounting research and practice are moving toward the term sustainability reporting. Although both of these terms are defined within the scope of social accounting, they can signal links to distinct segments of the social accounting literature.

Social accounting can best be explained once its historical context, its underlying concepts, and its current reporting practices are understood. Although research is fairly clear on the historical development of social accounting, rigorous debate continues over the underlying conceptual foundations of social accounting, and the standards governing the practice of social accounting are not yet generally accepted. Even so, forms of social accounting are widely practiced, with recent research reporting significant growth in the number of corporations that engage in some type of social accounting and reporting. Social accounting is important in understanding how the relationship between corporations and society can be described in a meaningful way and is useful for those interested in understanding corporate reputation. This is true because research has shown that social accounting and reporting help inform society of corporations’ noneconomic activities that directly affect their overall reputation.

The Historical Context of Social Accounting

The modern idea of social accounting is often traced back to an article published in 1940 by Theodore Kreps, who was a faculty member at Stanford University. Kreps and other leading scholars as well as influential civic and business leaders of the 1950s, 1960s, and 1970s began sharing ideas about corporate social responsibilities primarily in relation to their own views on the growing social and political power of business. Although each author provided a unique perspective, the general tone of these writings reflected the view that business and corporations exist to serve society beyond the strict economic purpose of providing maximum profits to shareholders. This idea, however, was challenged during the 1970s, most famously by economist Milton Friedman, who argued that the only social responsibility of business is to increase its profits through undertaking lawful and legitimate activities. Early attempts to theorize social accounting included work by K. V. Ramanathan, who developed a theory of corporate social accounting, and Charles Medawar, who analyzed the politics of the social audit. Concomitant with these theoretical advances, empirical researchers in accounting and management began examining how corporate social accounting information was interpreted and acted on by investors and other stakeholders.

During the 1980s and early 1990s, academic and practicing business interest in CSR and social accounting waned as the public policies of U.S. president Ronald Reagan and U.K. prime minister Margaret Thatcher became popularized. Their policies focused mainly on deregulating significant aspects of the corporate business environment. Deregulation was promoted with the express purpose of freeing corporations from a perceived undue regulatory burden, which was believed to stifle economic growth. A consequence of deregulation during this period was a rollback of significant economic, labor, and environmental regulations that had helped define and legislate corporate social responsibilities. Debates over CSR and social accounting continued during this time period, however, and noteworthy progress was made. Theoretical developments occurred that introduced the ideas of corporate legitimacy and corporate stakeholders into the CSR and social accounting literature. Researchers interested in social and environmental accounting began to coalesce, and in 1991, Rob Gray led an effort to found the Centre for Social and Environmental Accounting Research.

Partly in response to the political and research developments during the 1980s, a resurgence of academic interest in CSR and social accounting occurred in the mid-1990s, primarily around the issues of corporate environmental responsibilities and reporting. Researchers, policymakers, and environmental interest groups expressed growing concern over the environmental damage resulting from increases in pollution, consumption, and energy use. Many corporations responded to these concerns by releasing voluntary social and environmental disclosures and reports as a way to satisfy societal demands for accountability. Since the mid-1990s, civic concerns over corporate accountability have spread to include many environmental, social, and corporate governance issues. At present, social accounting still lacks a cohesive theoretical grounding and a generally accepted framework for corporate social reporting. However, the theory and practice of social accounting have built on these historical efforts.

Basic Concepts Underlying Social Accounting

Although serious debate continues over the role and domain of social accounting, the basic concepts most relevant to a current understanding of social accounting as presented here are the concepts of accountability, accounting, stakeholders, and sustainability. Social accounting takes as a given that civil society grants corporations the right to exist and operate as long as the terms of their social contract (i.e., democratically agreed-on conditions) are met. This social contract requires corporations to consider the interests of society beyond the economic interests of their current investors. It is based on our collective understanding of the importance of core societal values, such as the sanctity of basic human rights, respect for civil society, and safeguarding the natural environment. Thus, the social contract establishes the set of responsibilities that should govern corporations’ noneconomic activities and requires that corporations be held accountable for the manner in which they discharge these responsibilities. Accountability, in this context, refers to the obligation that corporations have to society to report whether and how their noneconomic activities satisfy the requirements of their social contract.

Accounting is the process of collecting and communicating the information necessary for society to judge whether or not these agreed-on noneconomic responsibilities are being met. It is impossible to design a social accounting system that meets all of society’s relevant information needs. Society is composed of many segments that have different and sometimes conflicting expectations concerning a corporation’s social responsibilities. Thus, it is difficult to define explicitly the segments of society that have an accountability relationship with a corporation. This problem has been addressed, at least in part, by focusing social accounting on those segments of society that most affect or are most affected by a corporation’s activities. These groups are called corporate stakeholders because they have a significant stake in the economic and/or noneconomic performance of a corporation. For example, employees are considered corporate stakeholders because their physical and economic well-being is significantly affected by how their employing corporation’s workplace safety requirements and employment contracts are structured. In addition to employees, corporate stakeholder groups commonly include customers, suppliers, communities, governments, and the natural environment. Social accounting focuses on developing corporate social reporting systems that most directly meet the information needs of these types of noninvestor stakeholder groups.

The importance of social accounting has grown as society becomes more concerned with issues of sustainability. Corporations are increasingly pressured by stakeholders, especially noninvestor stakeholders, to undertake only those economic and noneconomic activities that are sustainable. Sustainable activities are defined by the 1987 Brundtland Report as activities that meet the needs of the present without compromising the ability of future generations to meet their own needs. This definition implies that corporate decision making should balance the demands of investors for immediate financial returns with societal demands for sustainable development.

Social Accounting Practice

Social accounting practice, now often labeled sustainability reporting, is receiving significant public attention. Socially responsible investors, environmental activists, social justice advocates, socially conscious consumers, and concerned citizens are demanding greater social accountability from corporations. Many corporations, nongovernmental organizations, policymakers, politicians, and leaders of accounting practice have acknowledged the increasing corporate stakeholder concerns over sustainable development and have responded in a variety of ways. Thousands of corporations are voluntarily producing stand-alone sustainability reports. Many of these reports are archived at

Critics of sustainability reports express concern that the voluntary and selective nature of these reports fail to accurately and completely convey how a corporation has discharged its social responsibilities; however, this level of disclosure represents an opportunity for social disclosure quality to improve. Although standardized corporate social reporting standards have not been developed, several groups of policymakers and leaders of accounting practice have worked on standards they support, as evidenced by Accountability’s AA1000-Principles Standards, the Global Reporting Initiative, ISO (International Organization for Standardization) 26000, the Sustainability Accounting Standards Board, and the United Nations Global Compact. Socially responsible investors and other socially conscious actors are using quasi-public platforms such as shareholder meetings to push for improvements in corporate social reporting. As a result, many public corporations now follow standardized reporting guidelines when developing their sustainability reports and also have qualified third parties provide limited assurance on the veracity of their reports.

Friedman, M. (1970, September 13). The social responsibility of business is to increase its profits. The New York Times Magazine, pp. 122–126.

Gray, R. (2001). Thirty years of social accounting, reporting and auditing: What (if anything) have we learnt? Business Ethics: A European Review, 10(1), 9–15.

Gray, R. H., Kouhy, R., & Lavers, S. (1995). Corporate social and environmental reporting: A review of the literature and a longitudinal study of UK disclosure. Accounting, Auditing & Accountability Journal, 8(2), 47–77.

Medawar, C. (1976). The social audit: A political view. Accounting, Organizations and Society, 1(4), 389–394.

Owen, D. L., & Swift, T. (2001). Social accounting, reporting and auditing: Beyond the rhetoric. Business Ethics: A European Review, 10(1), 4–8.

Ramanathan, K. V. (1976). Toward a theory of corporate social accounting. The Accounting Review, 51(3), 516–528.

Tschopp, D., & Nastanski, M. (2014). The harmonization and convergence of corporate social responsibility reporting standards. Journal of Business Ethics, 125(1), 147–162.

See Also

Corporate Social Performance; Corporate Social Responsibility; Corporate Social Responsibility, Communication of; Environmental Performance; Stakeholder Theory; Stakeholders

See Also

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