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Social Audit

Updated on April 4, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is Social Audit?

A social audit can be defined as a mechanism that is taken into use for understanding, measuring, reporting, and enhancing the overall ethical performance of an organization and, for this purpose, the involvement of its stakeholders such as its clients, employees, customers, creditors, suppliers, vendors, shareholders, and society is very important.

Key Takeaways

  • A social audit evaluates an organization’s social and environmental performance, including its impact on stakeholders such as employees, customers, and the community.
  • Social audits ensure organizations meet their social responsibilities and identify improvement areas. This audit involves initiating, planning, implementing, and closing.
  • 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.

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Explanation

This can be learned as a process used to evaluate an entity’s involvement in social endeavors. In other words, a social audit aims to assess the social and environmental influence an entity has on society and enable the local social service providers to be aware of the ongoing needs of the local community.

Social-Audit (Main Image)

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Objectives of Social Audit

The objectives of a Social audit can be classified into two categories which are mentioned below:

Objectives of Social Audit

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#1 – Principal Objectives

These are concerned with paying fair and timely dividends to the stockholders, fair salaries, and wages to the employers and laborers. Also, fair, reasonable, and best possible prices are offered to clients and customers, and the extension, development, and enhancement of an entity’s business allows it to become financially independent.

#2 – Secondary Objectives

These are concerned with factors like creating a provision of incentives and bonuses for the employees and assisting in promoting and encouraging the amenities of the local community. Also, boosting the development of the industry in which the company operates. And promoting research and development framework in the techniques used by the company and the industry.

#3 – General Objectives

The other general objectives are to put an end to irregular activities to reduce or diminish the economic and social gaps. Also, to evaluate conditions in which the employees work, to evaluate the impact of a company’s business operations on the environment and the local community. To formulate the initiatives taken to develop the local communities, and so on.

If you want to learn more about Auditing, you may consider taking courses offered by Coursera

  1. Auditing I: Conceptual Foundations of Auditing
  2. Auditing II: The Practice of Auditing

Process of Social Audit

The process of social audit involves the following steps:

  1. Initiating

    In this phase, the users shall need to define a clear objective and evaluate what they want to audit, establish an individual responsible for the overall audit process, and secure funding accordingly.

  2. Planning

    In this phase, the users shall need to select a strategy and identify the stakeholders of the company and understand the government’s decision process and then, after, collaborate on various approaches and practices and accordingly engage the counterparts of the government.

  3. Implementing

    In this phase, the users will need to perform the audit function, source and analyze all the information, disseminate the results and the information, and then consider factors like sustainability and institutionalization.

  4. Closing

    In this phase, the users will need to follow up to ensure that the social audit is successful.

Social Audit Examples

  • ABC Limited is a company that purchases and sells household items, and it claims to make donations in the form of offering groceries to needy families. In this case, it can be performed by thoroughly evaluating charity records and other documents to check and confirm the validity of the claims made by ABC Limited.
  • After the research, it was found that ABC is doing a clean and green business, not causing any harm to the environment, and implementing only eco-friendly procedures. This assessment report will be updated on behalf of the company on its website. This report will be of great significance for investors who are planning to invest in the shares of ABC Limited.

Need

It has a vast need in today’s world, where every business player faces tough and neck-to-neck competition. Each business unit is not just connected with the internal stakeholders but is primarily connected to the external public too. Established companies are supposedly more persuasive and make use of enormous resources. This power can sometimes be misused, and the result of these activities can significantly impact the local community or society and the environment at large. To monitor and regulate the activities of the companies from time to time. Motivate the company to act in the best interest of society and the environment.

Importance

It is highly essential as it helps the local communities with planning function, supports democracy, encourages the involvement of the communities, and benefits not just individuals. Still, their families also assist the human resource development and growth, enhance the company’s image in the eyes of the investors, promote decision making, and so on.

Advantages

  • It helps the local community in planning.
  • It supports the democratic function in the community.
  • It promotes the active involvement of the local community;
  • It helps in enhancing the image of an organization in the eyes of the internal as well as the external public;
  • It assists in the growth and development of human resources.

Disadvantages

  • It can be not very easy and time taking for the users.
  • It does not offer any transparent methodology.
  • It defines the scope that might get difficult for the users.
  • It tends to be subjective is another reason why the same is highly discouraged.
  • It lacks qualified trainers.
  • The practical utility of social audit is minimal.

Conclusion

It is the need of the hour. It helps monitor unethical practices of the companies, raises social consciousness and accountability, offers a systematic evaluation, and measures the social performance of companies at regular intervals. Furthermore, it acts as a guide and encourages the participation of the local community, and helps in the development of social capital and human resources.

Frequently Asked Questions (FAQs)

What is the difference between a social audit and a financial audit?

While a financial audit focuses on an organization’s financial statements and accounting records, a social audit evaluates an organization’s social and environmental performance. Social audits assess the impact of the organization’s activities on stakeholders, such as employees and the community, while financial audits primarily focus on compliance with accounting standards and regulations.

Who typically conducts a social audit?

Social audits are typically conducted by external auditors who the organization hires. The auditor should be independent and objective to ensure the accuracy and reliability of the audit findings. In some cases, internal auditors may also be involved in the social audit process.

What are the types of social audits?

There are several types of social audits, including, Financial, environmental, labor, governance, and community social audits.

Is social audit mandatory?

These audits are optional in many countries; however, some countries have specific laws and regulations that require organizations to conduct social audits.

Recommended Articles

This article has been a guide to What is Social Audit & its Meaning. Here we discuss the objectives of social audit, process, and needs along with importance, examples, advantages, and disadvantages. You can learn more about it from the following articles –

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