History

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.

The history of social audit goes back as far as the 1950s. Initially, the social audit was conceived as a means to make business more accountable to the community. It was also perceived to be a method to communicate both economic and non-economic impact of business to the community members. Social audit also refers to a very different kind of evaluation process in which an organization assesses and thereby improves its social performance. It gained relevance after the constitution’s 3rd amendment, which dealt with Panchayat Raj Institutions. Article 243J of the Constitution provides for the audit of Panchayat’s accounts. In India, Social Audit was first made statutory in 2005 through the Rural Employment Act.

Relevance

With the introduction of the Companies (Corporate Social Responsibility Policy) Amendment Rules 2020, Social Impact Assessment came under compliance. Through this amendment, it has been made obligatory for a company incurring CSR spending of Rs. 5 crore or more in the immediately preceding financial year, in pursuance of Section 135, to undertake an impact assessment for their CSR projects. With the launch of the social stock exchange, social audit has matured with well- defined deliverables.

What is Social Audit ?

Social Audit is also a way of measuring, understanding, reporting and ultimately improving an organization’s social and ethical performance.

Social audit –

  1. Assesses whether the project/program/ project-based activity is operating in accordance with the stated strategic intent and planning.
  2. Assesses the stated performance in terms of impacts/`outcomes.
  3. Suggests ways to improve the impact measurement and/ or performance by way of a management letter.

Social Auditing is a process that enables an organization to assess and demonstrate its social, economic, and environmental benefits and limitations. It measures the extent to which an organization lives up to the shared values and objectives it has committed. Social auditing assesses the impact of an organization’s non- financial objectives through systematically and regularly monitoring its performance and the views of its stakeholders.”

Difference between Social Audit and Financial Audit

The distinguishing features between the social audit, and financial Audit is given below:

Features of Financial Audit are as follows:

  • Involves Audit of financial statements and transactions.
  • Covers nonfinancial matters limited only to those aspects that provide additional information to stakeholders of the business who are mainly interested in the entity’s financial status.
  • Financial Audits are done keeping in mind the objective of issuing an opinion on the state of financial affairs.
  • Deals mainly with the study of financial data.

Features of Social Audit are as follows:

  • Looks at the impact caused on the society by the organization
  • Takes an “outside in” approach of looking at organization, dealing more with how the non-financial stakeholders view the business rather than how the managers/ owners of the organization plan it to be.
  • Deals with the study of social impact parameters, most of which can be gathered from outside the organisation which is being audited.
  • Involves the stakeholders of the enterprise and adopts a triple bottom line approach.

Who does Social Auditors?

The social audit process involves assessing the organization’s policies, practices, and performance in labor practices, community involvement, and environmental impact. External auditors hired by the organization typically conduct social audits, and the results are often made public. They are called Social Auditors .

Scope of Work for Social Auditors

The social auditor managing the audit programme should:

  1. Communicate the relevant parts of the audit programme, including the risks and opportunities involved, to relevant interested parties and inform them periodically of its progress, using established external and internal communication channels;
  2. Define objectives, scope and criteria for each individual audit;
  3. Select audit methods- The audit methods chosen for an audit depend on the defined audit objectives, scope and criteria, as well as duration and location ensure the audit teams have the necessary competence ;
  4. Provide necessary individual and overall resources to the audit teams
  5. Ensure the conduct of audits in accordance with the audit programme, managing all operational risks, opportunities and issues (i.e. unexpected events), as they arise during the deployment of the programme;
  6. Ensure relevant documented information regarding the auditing activities is properly managed and maintained
  7. Review the audit programme in order to identify opportunities for its improvement
  8. Assessing the demonstration of the social intent of the organisation
  9. Identify stakeholders and the targeted beneficiaries.
  10. Alignment of the objectives and goals with the NITI Aayog’s SDG India Index. NGRBC guidance etc.
  11. Assessment of implementation and review mechanism, e.g. variances between intended and actual targets, staff capacity development, benchmarking, key impact indicators, internal or external audit.
  12. Assessment of the methodology for data collections techniques, research methods, desk review of existing documents.
  13. Review stakeholder’s responses to evaluation questions in the impact report
  14. Evaluate subject matter information: whether the evidenced changes are traceable to the intervention and how much could have happened irrespective of the intervention, what are the unintended negative impacts as a result of the intervention and are they reported.
  15. Assessment of Evaluation criteria viz. the Key Impact indicators based on the subject matter information, quantitative and qualitative evaluation criteria to be identified against which impact needs to be mapped.
  16. Final assessment, including the audit opinion.
  17. Prepare audit report in compliance with SSE

Social Audit Standards

The development of sustainability reporting standards like the Global Reporting Initiative, ISO 26000: Guidance on Social Responsibility, Principle of Responsible Initiative (PRI), and Sustainability Accounting Standards Board (SASB) has contributed to our understanding of social responsibility.

Also the Social Audit Framework developed by ICAI provides a social auditor guidance for conducting a social audit. The social audit framework is applicable from the date of its hosting on ICAI website. Social Audit Framework does not cover any elements of a financial audit or review, which may be covered by relevant auditing/review standards.

List of Social Audit Standards (SAS)

The SAS has sixteen thematic areas which is listed below

SAS 100: Eradicating hunger, poverty, malnutrition, and inequality.

SAS 200: Promoting health care (including mental health) and sanitation; and making available safe drinking water

SAS 300: Promoting education, employability, and livelihoods

SAS 400: Promoting gender equality, empowerment of Women and LGBTQIA+ communities

SAS 500: Ensuring environmental sustainability, addressing climate change including mitigation and adaptation, forest, and wildlife conservation

SAS 600: Protection of national heritage, art, and culture

SAS 700: Training to promote rural sports, nationally recognised sports, Paralympic sports, and Olympic sports

SAS 800: Supporting incubators of social enterprises

SAS 900: Supporting other platforms that strengthen the non-profit ecosystem in fundraising and capacity building

SAS 1000: Promoting livelihoods for rural and urban poor including enhancing income of small and marginal farmers and workers in the non- farm sector

SAS 1100: Slum area development, affordable housing, and other interventions to build sustainable and resilient cities

SAS 1200: Disaster management, including relief, rehabilitation, and reconstruction activities

SAS 1300: Promotion of financial inclusion

SAS 1400: Facilitating access to land and property assets for disadvantaged communities

SAS 1500: Bridging the digital divide in internet and mobile phone access, addressing issues of misinformation and data protection

SAS 1600: Promoting welfare of migrants and displaced persons

Scope of Social Audit Standard

The Social Audit Standard should be applied while conducting a social audit. The relevant SAS thematic area should be chosen according to the activity (social project) which is being audited.

The social project may be for a social enterprise (for -profit or not-for-profit (NPO) and may also have appropriate application to other related functions of social auditors.

Compliance with SAS

  • Compliance with SAS is a mandatory requirement for social audit conducted for social enterprises listed on social stock exchange.
  • Social auditors should ensure that guidance available in SAS are followed while conducting social audits. If for any reason a social auditor is not able to perform a social audit in accordance with the SAS, his report should draw attention to the material departures therefrom.
  • Social Auditors are expected to follow SAS in the social audits commencing on or after the effective date specified in the SAS.

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.

Persons Benefited by the Disclosure of information

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

Conclusion

However, the results of social audits are extremely beneficial to the organization, as it makes us understand its strengths and weaknesses and identify areas for further improvement for the next social audit.

Social audits are a good way for businesses to evaluate how their social initiatives are being received by both their internal and external stakeholders. They strongly influence public relations and the public perception of organizations and companies, making them important to companies that highly value maintaining a positive public image.

Winning or losing of the election is less important than strengthening the country.

– Indira Gandhi

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