Relevance and development of Social Auditing in India

ICAI recently released the Exposure Draft Compendium of Social Audit Standards for Comments from its members.

As not many people are fully aware of what Social Audit really means, let us first understand that.

The primary objective of any business is to make profits. But as the trends are changing, businesses are looking to strike a balance between profits and social contribution.

This is where Social Audits come into the picture.

Social audits are an evaluation tool to measure the performance of a company on social terms. When a company sets goals, it takes into account the social impact and governance too. The social audit measures the standing of the company, narrowing the gap in the goal and practical effectiveness.

It enhances the governance of the company as the company measures, understands, reports, and ultimately improves the organizations ethical and social performance.

Social audit is not a very old term, as it first came into existence in 1988 when the first social audit was conducted in Sweden.

ICAI has been working on this for more than a decade when it published a Technical guide on Social Audit in 2010 under the guidance of then chairman of the Auditing and Assurance Board of ICAI, CA Rajkumar Adukia.

Link here

Increased pressure on corporates on being more transparent and socially responsible has made it even more vital to work on social audits.

Keeping this in mind, SEBI directed ICAI to come up with Social Audit standards, just like the Auditing standards, which will set the guidelines to conduct the Social audits under certain norms and rules.

ICAI is also entrusted with the responsibility of being the Self Regulatory Organization (SRO) for Social auditing professionals. ICAI has thus proposed to form ISAI – Institute of Social Auditors of India, which will regulate social audit professionals and social audits going forward.

Hon’ Finance Minister Nirmala Sitaraman in her speech on Budget 2019-20 mentioned the relevance of Social audits and their growing need in the functioning of organizations.

Sanjeev Kumar Singhal, Chairman of ICAI's Auditing and Assurance Standards Board, said that “Social Audit Standards (SAS) are being developed for the social enterprises engaged in at least one of the 16 activities (thematic areas) as listed in the SEBI notification of July 25, 2022.”

The general areas that will be covered under the social audits are –

1) Transparency within the organization

2) Volunteering events and charitable contributions

3) Salaries

4) Diversity in the workplace

5) Financial Transparency

“ ICAI also plans to develop and issue a single Comprehensive Framework for Social Audit Standards for audit of Impact Reporting of Social Enterprises listed on SSE and area-specific Social Audit Standards with respect to sub–themes of social impact, for example, poverty, nutrition , etc. The standards would cover all aspects of assurance of impact reporting like scope, engagement acceptance, basic principles, audit procedures, assurance report, documentation, etc,” said Aniket Talati, current Vice President of ICAI. He also said “Social Stock Exchange” and is in the process of finalizing the Code of Conduct for Social Auditors who would function under the regulatory framework of Social Stock Exchange (SSE) and conduct Social Audits. It will help to keep the check on those foundations, NGO spending on their CSR to ensure the beneficiary growth.”

ICAI will also be coming up with a Certification in Social Audit to equip the professionals with the right knowledge about Social auditing.

With the induction of the ISAI and Social audit standards, it is said that the role of Chartered Accountants will also increase in two ways.

One, it will definitely give increased opportunities in terms of work. Clients will be willing to prefer CA to take up the social audit projects too as their understanding of the audits will be any day better than other professionals entering the field.

Also, social audits will make the other auditing easier, as Chartered accountants will be able to trust the data, and internal controls better, as social audits will already take care of the transparency and accountability issues. This enhances the faith in stakeholders and CA's will be able to fulfill their duties of financial and other audits with ease.

The relevance of social audits is ranges wide. It will not only promote good governance and increased accountability, but the trust among different stakeholders will also enhance as the stakeholders will have higher faith in the financials and the decisions taken by the company.

Although Social audits might not be compulsory for all the organizations the utilization of conducting the audit and implementation of the results will definitely be beneficial to the organizations. It is seen as the requirement of strong company branding and reputation for both internal and external stakeholders.