Social audit: meaning, objectives, steps in a social audit programme, the social audit report, advantages and limitations

Cost and Management Accounting · Unit V · Topic 18 of 18 · 4 min read

Social audit as a review of how a business meets its social responsibilities, its objectives and areas, the steps in a social audit programme, the contents and forms of the social audit report, advantages and limitations, and its Indian setting under CSR, BRSR and the MGNREGA.

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On this page

1. Meaning
2. Objectives and areas
3. Steps in a social audit programme
4. The social audit report
5. Advantages and limitations
6. The Indian setting
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. “Explain the advantages and disadvantages of social audit” (June 2025, 10 marks), “Social audit process” (June 2025 note) and “Social audit” as a short note (January 2026). The syllabus asks for the steps in the programme, the report and the limitations. A law student should add the Indian statutory setting in section 6.

1. Meaning

Social audit is a systematic study and evaluation of the social performance of a business, as distinguished from its economic performance: how far it meets its responsibilities to employees, consumers, the community, the government and the environment. The term is usually traced to Theodore Kreps (1940); in the 1970s firms in the United States and Europe began publishing social reports. In India the Tata Iron and Steel Company commissioned a social audit in 1979, often cited as the first by an Indian company.

A financial audit asks whether the business made a profit honestly; a social audit asks what the business did to and for society while making it.

2. Objectives and areas

Measure the social costs (pollution, displacement, health hazards) and social benefits (employment, community development, products) of the firm’s activities.
Check whether the firm’s social policies and programmes are being carried out.
Inform stakeholders and build public trust.
Help management integrate social goals into planning.

Areas: employees (wages, safety, welfare, training, equal opportunity); consumers (quality, fair prices, product safety, honest advertising); community (local development, education, health, CSR projects); environment (emissions, effluents, waste, energy and water use); government (taxes paid, compliance with law); shareholders (fair returns, disclosure).

3. Steps in a social audit programme

Commitment of top management and a statement of the firm’s social objectives.
Appoint the social audit team: internal staff with outside experts (sociologists, environmental engineers, accountants), to ensure independence.
Identify stakeholders and areas to be covered.
Inventory of social activities: list what the firm is doing in each area.
Set measures: decide how each activity will be measured: money cost, physical indicators (accident rate, emissions), or opinion surveys.
Collect data from records, site visits, interviews and public hearings.
Evaluate performance against objectives, legal standards and the practice of comparable firms.
Prepare and present the report, discuss it with management and stakeholders.
Follow up: action plans and a review in the next audit.

4. The social audit report

Forms of report: (a) a descriptive statement of social activities; (b) a cost or outlay statement of money spent on each area; (c) a social income statement setting social benefits against social costs, with a net social surplus or deficit; (d) a programme management report measuring results of each programme against goals; and (e) an indicators report with physical measures.

Contents: scope and period; the firm’s social objectives; methodology; performance in each area with figures; achievements and shortfalls; recommendations; and the auditors’ opinion. It may be published in the annual report or separately.

5. Advantages and limitations

Advantages: shows the firm’s social contribution and improves its public image; helps management find and correct harmful practices before regulators or courts do; builds employee and community goodwill; gives investors information on non-financial risks; encourages long-term thinking; and supports compliance with environmental and labour laws.

Limitations: no generally accepted standards or format, so reports are hard to compare; social costs and benefits are difficult to measure in money; subjectivity and the risk of the report being used as public relations; cost and time; lack of trained social auditors; reluctance to disclose adverse facts; and, where voluntary, little pressure to act on findings.

Management audit and social audit. Management audit examines efficiency in achieving the firm’s own goals and reports to top management; social audit examines the firm’s impact on society and is addressed to the public as well. Both are voluntary for most companies and look forward; social audit has a wider set of stakeholders.

6. The Indian setting

Corporate social responsibility: section 135 of the Companies Act 2013 requires companies above the net worth, turnover or profit thresholds to form a CSR committee, adopt a CSR policy, spend at least 2% of average net profits of the preceding three years on activities in Schedule VII, and report in the Board’s report. The Companies (CSR Policy) Rules, 2014, as amended, require an impact assessment for larger projects: a form of social audit.
Business Responsibility and Sustainability Report (BRSR): SEBI requires the top 1,000 listed companies by market capitalisation to file it with the annual report, disclosing environmental, social and governance performance.
Public schemes: section 17 of the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 requires the Gram Sabha to conduct regular social audits of all projects in the panchayat, under the Audit of Schemes Rules, 2011. This is the best-known statutory social audit in India.

How this is examined

For the 10-mark question: definition, objectives, then advantages and limitations as two lists of six. “Social audit process” is the nine steps. Close with one paragraph on section 135 and the MGNREGA social audit; it lifts an otherwise standard answer.

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