Aspirant Academy

Society, Management and Accounting

Social Accounting

Financial Statements, Analysis Techniques, Cash Flow, Responsibility Accounting & Social Accounting

Paper I · Unit 3 Section 6 of 11 0 PYQs 23 min
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Social Accounting

5.1 Concept and Need

Traditional financial statements only measure monetary transactions between a firm and the market. They ignore:

  • Damage to the environment (pollution, deforestation)
  • Value created for the community (schools, hospitals built, employment generated)
  • Impact on employees' health, safety, satisfaction

Social Accounting (also called Social Responsibility Accounting or Corporate Social Reporting) attempts to account for these externalities — costs and benefits borne by society rather than the firm.

Drivers of social accounting:

  1. Growing stakeholder awareness and ESG investing
  2. Mandatory Business Responsibility and Sustainability Reporting (BRSR) — SEBI made BRSR mandatory from 2022-23 for top 1,000 listed companies by market capitalisation.
  3. Sustainable Development Goals (SDGs) — corporate reporting aligned to SDGs.
  4. Global Reporting Initiative (GRI) standards — international benchmark for sustainability reporting.

5.2 Types of Social Accounting

Type Focus Example
Human Resource Accounting (HRA) Value of human capital Capitalising employee training costs
Environmental Accounting Cost of environmental impact Carbon footprint costs, pollution abatement costs
Social Audit Assessment of social performance NGO programmes, CSR project outcomes
Value Added Statement Wealth created and its distribution How value is shared among employees, govt, owners
Social Balance Sheet Social assets and liabilities Community welfare assets, social obligations

5.3 Human Resource Accounting (HRA)

Introduced by Rensis Likert (University of Michigan) in the 1960s. The idea: employees are assets (not just costs) and their value should be measured and reported.

Approaches to HRA:

  1. Historical Cost Method: Records actual cost of recruiting, hiring, training, and developing employees. Simple but ignores future value.

  2. Replacement Cost Method: Estimates cost of replacing current employees with equivalent ones. More realistic for decision-making.

  3. Economic Value Method (Lev & Schwartz): Calculates present value of employees' future earnings — treats human capital like a financial asset.

  4. Opportunity Cost Method: Based on competitive bidding for scarce employees — what another division/company would pay.

Limitation: Not yet mandatory under Indian GAAP or Ind AS — reported only voluntarily by large companies (BHEL, Infosys, SAIL were early adopters in India).

5.4 Environmental Accounting

At the national level, Green GDP adjusts conventional GDP for:

  • Depletion of natural resources (forests, minerals, groundwater)
  • Cost of environmental degradation (air/water pollution damage)

Formula: Green GDP = GDP − Cost of Environmental Degradation − Resource Depletion Cost

India does not yet officially publish Green GDP, though the Ministry of Statistics (MoSPI) has been working on a Natural Capital Accounting framework under the SEEA (System of Environmental-Economic Accounting) methodology.

At corporate level: Triple Bottom Line (coined by John Elkington, 1994):

  • People — social equity, employee welfare, community impact
  • Planet — environmental sustainability, carbon footprint
  • Profit — economic value created