“Unlock the potential of social accountability and transparency with Social Audit. Explore how organizations can measure and communicate their social responsibilities, emphasizing the pluralistic concept of corporate social accountability. Discover the significant core values of Social Audit and its role as a new professional avenue, especially in the context of SEBI’s Social Stock Exchange (SSE) and the opportunities it presents for CMAs as social auditors.”
An organization is a social unit because of the significant impact its activities have on society and its members. It produces goods and services for which society is the ultimate consumer, utilizing society’s resources. Additionally, society provides the facilities and infrastructure necessary for the organization to function. As a result, society is responsible for the organization’s very existence and survival. Therefore, each organization must fulfill its social responsibility. Additionally, organizations play a crucial role in social change, helping the general public through quality gear, promoting development, and providing reliable support. Nowadays, it is becoming clear that the commercial evaluation of infrastructure development projects is insufficient to justify funding, particularly in the public sector. Projects in the public sector that involve the creation of infrastructure facilities or other initiatives necessary for the general welfare of society must not be overlooked due to their social aspect. Their assessment should consider the social costs and benefits associated with them.
Considering the above, there is a growing demand for reports and activities that reflect the contribution of an organization to society. It is argued that accounting should measure and communicate an organization’s performance in relation to its social responsibilities. Therefore, the pluralistic concept of corporate social accountability should be the primary focus of the corporate accounting and reporting system, which previously emphasized the owner and management.
Social Audit
The scope of audit has expanded beyond recognition, undergoing significant transformation. Various types of audits have emerged, including financial audits, cost audits, efficiency audits, performance audits, tax audits, management audits, E.D.P. audits, and the more recent social audit. Traditionally, the focus of audit scope has been on the authentication of financial data in an organization’s Annual Reports. However, the scope of audit has rapidly expanded from financial audits to cost audits and management audits. More recently, it has entered a relatively new field called social audit, which aims to evaluate the performance of an organization from a social perspective. The assets available to an organization belong to the general public and should be used for optimal social welfare. The purpose of social audit is to investigate how these resources have been utilized for the benefit of both business and society.
Social Audit is an independent assessment of an organization’s performance in achieving its social objectives. It serves as an organizational tool for social accountability. In other words, a social audit is an in-depth examination and analysis of the operations of a public utility, considering their social relevance. It evaluates and demonstrates an organization’s social, economic, and environmental benefits. It determines how closely an organization adheres to shared goals and values to which it has committed itself. Social auditing provides an evaluation of the impact of an organization’s nonfinancial goals through systematic and ongoing monitoring based on the perspectives of stakeholders. Stakeholders include employees, customers, volunteers, funders, contractors, suppliers, and the general public whose lives are affected by the organization. Stakeholders are individuals or organizations with an interest in or resources invested in the organization.
Social Audit can cover various subjects, including work practices, human rights, community engagement, environmental impact, product safety, diversity and inclusion, and ethical sourcing. The results of a social audit are often presented in a report that highlights the organization’s strengths, weaknesses, and recommendations for improvement.
By conducting social audits, organizations can demonstrate their commitment to social responsibility, increase transparency and accountability, and identify opportunities to align their business practices with sustainable development goals. It helps businesses track and manage their social impact, engage stakeholders, and work towards continuous improvement of their environmental and social performance.
Social audit is a valuable method for establishing conditions of public accountability. However, making social audit work at the field level requires an aware and demanding civil society.
Significant Core Values of Social Audit
1. Participation of the Public and a Social Approach: Social Audit adopts a collaborative approach, considering and integrating the perspectives of various stakeholders involved. It provides an excellent opportunity for individuals and organizations to discuss, consider, and express their thoughts and viewpoints. Stakeholders can freely represent and voice their opinions in a social audit forum.
2. Standard and Regular Activity: Social audit should be conducted regularly. Planning, scheduling, and carrying out social audits on a regular basis is necessary. Occasional or inconsistent social audits do not yield the expected results. Social audits and information sharing can help both the implementers and beneficiaries of social audits become socially accountable.
3. Readily Available Information: The social audit process, which aims for transparency and accountability, heavily relies on information. Social audit teams should have access to project-specific data for the purpose of conducting a social audit.
Social Audit – New Professional Avenue
SEBI amended the SEBI (ICDR) Regulations of 2018 and the SEBI (LODR) Regulations of 2015 in a notification dated July 25, 2022. This amendment introduced the Social Stock Exchange (SSE) as a new concept in India, providing additional funding sources for social enterprises. It defines eligibility criteria for participation in the Social Stock Exchange, categorizes organizations as “Not for Profit” or “For Profit” Social Enterprises, outlines how Social Enterprises can raise funds, and specifies their responsibilities. SEBI has also introduced the concept of an Annual Impact Report by a Social Auditor to enhance investor confidence and strengthen the governance framework of these organizations. The social audit aims to assess how the activities, interventions, programs, or projects of a Social Enterprise have impacted the community during the reporting period. The annual impact report will be reviewed by a Social Auditor. To select and regulate Social Auditors and establish Social Auditor Norms, the Institute of Cost Accountants of India (ICMAI) has incorporated a Section 8 organization named ICMAI Social Auditors Association (ICMAI SAO). ICMAI SAO will register qualified CMAs and other individuals as Social Auditors and focus on building their capacity through ongoing professional development, emphasizing adherence to the highest ethical standards and the requirements of the Social Stock Exchange.
Professional Opportunity
The newly developed mechanism for raising funds through the Social Stock Exchange (SSE) is expected to be utilized by many social enterprises, both not-for-profit and for-profit. Each social enterprise will be required to submit an annual impact report audited by a social auditor to the SSE. This presents ample opportunities for CMAs to work as social auditors.
Social auditors should have a minimum of three years of experience as a postgraduate from a university recognized by the University Grants Commission (UGC) or six years of experience as a graduate from a university recognized by the UGC. They can also be Cost and Management Accountants, Chartered Accountants, or Company Secretaries with a valid Certificate of Practice.
Utilization of the ICSI Institute of Social Auditors as Social Auditors:
To appoint social auditors, the Institute of Company Secretaries of India (ICSI) has established the Institute of Social Auditors (ICSI-ISA). The Institute has also published the ICSI Social Audit Standards (ICSI SAS 1 – ICSI SAS 16), which provide guidance on conducting social audits of social enterprises involved in activities listed in Regulation 292E(2)(a) of the SEBI (ICDR) Regulations, 2018.
ICSI has requested SEBI to designate the ICSI-ISA as the Self-Regulatory Organization (SRO) for appointing social auditors through the ICSI-ISA. Once SEBI approval is received, ICSI-ISA will begin the empanelment process. ICSI-ISA is currently seeking expressions of interest from experienced social auditors for the initial appointment of social auditors to conduct SEBI-required social audits of social enterprises. It is important to note that regular empanelment will be in accordance with SEBI guidelines, and the standards will be communicated accordingly.
ICSI also encourages its esteemed members to urge Not-for-Profit Organizations (NPOs) within the meaning of Regulation 292A(e) of the SEBI (ICDR) Regulations, 2018, to register on the Social Stock Exchange as Social Enterprises and benefit from successfully achieving their established purposes under Regulation 292E(2)(a) of the SEBI (ICDR) Regulations, 2018.
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