Over the last two decades, corporate social responsibility has gained deep interest from accountants and auditors. It happens because substantial amounts of financial resources are invested in corporate social responsibility; yet there are not explicit accounting policies and standards to report on corporate social responsibility financials and activities (The Institute of Internal Auditors, 2016). Owing to this, there has been varied views and discourses on the conduct of corporate social reporting with many commentators focusing majorly on the triple bottom line reporting as a prelude to corporate social reporting. The current paper presents a detailed review of the ongoing discourse on corporate social reporting. The paper focuses on answering various questions about how various stakeholders view and perceive corporate social reporting. Of interest in this discussion will be the auditors and the big four auditing firms, the U.S Securities and Exchange Commission, and the accounting profession as a whole.
Social accounting or corporate social reporting has been a discursive subject, especially among the auditors. However, to understand the discourse on social reporting as advanced by U.S auditors, it is important to understand the concept of accounting and how it relates to the auditing profession. Different professionally authoritative bodies, including the FASB, define accounting differently (FASB, 2016). However, all the bodies recognize accounting as a tool of communication. What this means is that the accountant chooses the information to communicate and how to communicate this information. While financial accounting is regulated by the accounting standards and principles as provided under GAAP and IFRS, the reporting of social accounts is not regulated (GAAP, 2016). In other words, social accounting is voluntary and unregulated, meaning that the reporting entity chooses what to report and not to report (The Institute of Internal Auditors, 2016).
General Electric is one of the companies that voluntarily reports the corporate social responsibility activities and accounts in its financial reports. The CSR program is named GE Sustainability and in the past few years the corporation has continually presented the financials in the annual financial report. The voluntary nature of corporate social reporting has been causing stirs among the U.S auditors and other auditors across the globe. In fact, the big four audit firms have commented severally on the issue of auditing social accounts. Particularly, this happens because the lack of a standardized system of social reporting makes it difficult for the audit fraternity to conduct tests on the financial data reported concerning corporate social reporting. Secondly, the reporting of corporate social activities is not constantly pursued by the organization, meaning that an organization may choose to report in one year and remain non-committal in the following year. It suggests deriving comparative reports even for the same company. It poses audit challenges, and the U.S audit fraternity recognizes the hardships associated with this. The third concern relates to the issue of giving assurance concerning the reported social accounts. The role of the auditor is to give an opinion regarding a particular set of accounts. The opinion provided by the auditor is based on tests of samples that the auditor runs to determine the extent to which a certain set of accounts can be trusted. Without proper systems of running the audit tests, auditors find it difficult to assure the stakeholders about the existence and values of the items provided in the corporate social accounts. The last concern that the U.S auditor has raised severally is the issue of misrepresentation of information of the corporate social accounts. For instance, a company may perform poorly on its financial accounts but as per the social accounts, the company is found to be doing considerably well. Some companies do this to influence a particular group of the stakeholders and as a result, gain favor in their eyes. According to the U.S auditors, the lack of proper metrics to deal with social accounting does encourage skewed accounting (The Institute of Internal Auditors, 2016).
The discourse of social accounting from the audit perspective is an important phenomenon. In the first place, the discourse has led to increased research activities on the value of corporate social reporting. The research majorly pertains to how the organizations can create value through corporate social reporting while at the same time ensuring that the accounting value of the provided information is maintained. Secondly, the auditors' discussions on the audit practices employed in the metric testing of the corporate social accounts have been exploring the idea of how the testing practices can be harmonized with standards and policies. Such discussions are likely to yield guiding standards and policies on how to report the corporate social activities as well as the procedures that the auditors can use in testing the items of the corporate social accounts. The implications of this for the key stakeholders is that they help the investors in the company to get ascertained accounting information on the way the company engages in corporate social responsibilities. Lastly, the discussions by the U.S auditors have attracted the attention of other stakeholders in the industry including the regulatory bodies such as the U.S. Securities and Exchange Commission and other bodies. It also happens to the business leaders who are now considerably more keen on how they report the corporate social accounts. Overall, the discussions on the corporate social reporting by the U.S auditors and more so the big four audit firms ensures that the corporate social reporting environment improves (AICPA, 2016).
Talking about the impact of the discussions on the financial reporting practices, it is important to focus on how the companies report the corporate social activities in the financial reports. It is critical to reiterate at this point that there are no standard practices in the reporting of corporate social activities from the perspective of accounting. Secondly, it is also important to reiterate the fact that the reporting of corporate social activities is a voluntary activity by the organization. Thirdly, the regulatory bodies, such as the U.S Securities and Exchange Commission, have several prescription on the best reporting practices whose sole aim is to prevent the companies from providing misleading information in the financial reports. Based on this information, the reporting of corporate social activities in the financial reports involves disclosures through the notes to financial statements. It is employed where a company includes the corporate social reporting elements in particular financial statements. Even in that situation, the company must ensure that the key elements of the financial statements are distinctive from the corporate social reporting activities and items in the financial statements. One important factor to consider when reporting the corporate social activities for instance in the income statement is to ascertain that these activities are indicated at the bottom of the income statement after the computation of the net profit and also having explaining notes to financial statements (AICPA, 2016).
The other practice involves having a dedicated section on corporate social reporting. The section is often found in the first few pages of the financial reports with the aim of ensuring that the readers and users of the financial reports can see and read the corporate social report. Apparently, the concept of the triple bottom line reporting acts as the guide on why the companies provide the corporate social responsibility report in the first few pages of the report. As a practice, therefore, the existence of the social accounts in the financial reports of the company happens either through the notes to the financial statements or a separate report in the financial reports of the company (AICPA, 2016).
The last area of focus in this discussion is the issue of how the U.S Securities and Exchange Commission and how it responds to the issue and practice of corporate social reporting. As a rule of thumb, the SEC prohibits any form of skewed reporting or manipulation of accounting information, and this includes corporate social reporting activities. In addition to this, the U.S Securities and Exchange Commission provided guidelines for the handling of corporate social responsibility accounting information. The concern for the SEC is that the company may use the uncontrolled and voluntary corporate social reporting to manipulate the crucial accounting information and hence affect the investors’ view of the performance of the company. The guidelines were provided in 2013, and the objective of the guidelines is to provide a more clear framework on how the organizations choosing to report corporate social responsibility should report this information. For instance, the guidelines provided by the SEC permit the companies voluntarily choosing to report corporate social responsibility accounts can provide descriptive information on their activities and the information on the monetary aspects of corporate social responsibility. Most importantly, the guidelines also allow the companies to report the costs of compliance with regulatory requirements and also include these in the taxable income of the company. Therefore, many companies are currently highly attracted to the issue of corporate social responsibility reporting. So far, the U.S Securities and Exchange Commission provides the most comprehensive guidelines for the reporting of corporate social responsibility accounts and hence provides a framework for the preparation of proper reporting and disclosure practices, policies, and standards form the accounting bodies (SEC, 2013).
In conclusion, this paper discussed the issue of corporate social reporting. The paper addresses various aspects of corporate social reporting from the audit perspective and the U.S Securities and Exchange Commission perspective. The voluntary nature of corporate social reporting has been causing stirs among the U.S auditors and other auditors across the globe. Besides, the paper also addressed the importance of these activities and the discourse on corporate social reporting, especially from the audit and assurance perspective.
References
AICPA. (2016). Sustainable Reporting. Retrieved from http://www.aicpa.org/InterestAreas/BusinessIndustryAndGovernment/Resources/Sustainability/Pages/SustainabilityFAQs.aspx
FASB. (2016). Sustainability Accounting. Retrieved from http://www.sasb.org/
GAAP. (2016). Social Accounting. Retrieved from http://blogs.accaglobal.com/tag/gaap/
SEC. (2013). Corporate Social Responsibility Voluntary Guidelines 2013. Retrieved from http://www.secp.gov.pk/notification/pdf/2013/VoluntaryGuidelinesforCSR_2013.pdf
The Institute of Internal Auditors. (2016). Social Auditing. Retrieved from https://na.theiia.org/Pages/IIAHome.aspx
