Social Audit of the Corporate Management

After reading this article you will learn about Social Audit of the Corporate Management.

‘Social audit’ is primarily based on the recognition of social responsibility of corporate management. The recognition and desirability of social responsibility raise the question of how the actual performance of a business enterprise in this regard should be evaluated. This has led to the concept of the social audit.

According to Bowen, social audit is “a commitment to systematic assessment of and reporting on some meaningful, definable domain of the company’s activities that have social impact.”

In India, the idea of social audit had its birth possibly in the year 1965, when a serious attempt was made to define the social responsibilities of business by International Seminar.

This was followed a year later by another seminar in Calcutta which appointed a Study Group:

(i) To prepare a set of business norms for adoption by business community.

(ii) To examine hurdles in the way of implementation of such business norms, and

(iii) To recommend remedial measures to eliminate these hurdles.

A follow-up seminar held in Calcutta discussed the feasibility of implementing 1965 declaration:

The Seminar:

(i) Noticed a definite conviction that business owes obligations (as enunciated in the declaration) to the workers, employees consumers, society and the state, in addition to itself and its shareholders, and

(ii) Felt that a considerable section of the business community had an intrinsic and sincere desire to strengthen the ethical base of trade and industry.

Accordingly, it set up a Standing Committee and a Study Group to prepare a set of business norms, and recommended the formation of a permanent socio-economic forum to conduct research on social, political, and economic problems and to promote exchange of the ideas between business community and other sections of society.

The concept of Social Audit in India, though claimed to have been originated from the Declaration 1965, was fundamentally incorporated in Gandhiji’s concept of trusteeship, which is in a way the basis of social responsibilities.

According to the trusteeship doctrine, “The rich will be left in possession of his wealth of which he will use what he reasonably requires for his personal needs and will act as a trustee for the remainder to be used for society.”

Under the Gandhian economic order, “the character of production would be determined by social necessity and not by personal whim or greed.” Unfortunately, no adequate trial to this trusteeship principle was given in India, except in a mild form, in the Tata concerns. In India, a few progressive businessmen have taken up some ideas allied to trusteeship.

An interesting suggestion put forth by the 1965 Declaration is the creation of ‘Social Audit’, an instrument to supervise the social responsibilities of business.

The Declaration suggested:

“Factual assessment by trained and professional observers will be made of the company’s social performance. Men trained in the social sciences with the help of the universities and technical colleges will do for the social performance of the company what the financial auditor already does for the financial performance.”

Present State in auditing field:

Coming to the Government’s legislative measures, we find that in the cases of the certain companies (Manufacturing, Mining or Processing/Supplying and Rendering Services/Trading/Financing. Investment, Chit Fund, Nidhi, Mutual Benefit Societies, other than Banks), changes in the auditing and reporting requirements have been made as a result of Manufac­turing and Other Companies (Auditor’s Report) Order, 1988 and amended thereafter.

The professional auditors termed this order as ‘social audit order’. The criticism that can be levelled against this order is whether it is social audit or not. Some argue that even if the social objective is achieved by the statutory audit of companies it fails to fulfil the wider concept of ‘social audit’ which is “an assessment of what a company contributes to the society and what it takes always from it.”