Social And Environmental Auditing Is Gaining Popularity Accounting Essay



Social and environmental auditing is gaining popularity as one of the most effective strategies to develop customer loyalty and support from local communities. Due to the increase in environmental degradation across the world and the realization of the threat from the same, many consumers demand that firms produce services and goods in environmentally friendly ways. The current generation has realized that environmental pollution threatens the future survival of humanity and consumers have begun supporting environmental conservation initiatives (Hansen, 2000). As a result, many consumers only associate with firms and corporations which have environmental conservation initiatives. In addition, firms have realized the importance of social responsibility and ethics to society. Many corporate organizations have social responsibility programs aimed at empowering local communities through economic and other forms of support. This encourages local communities to support such firms and purchase their products. These environmental and social concerns are the basis with which social and environmental auditing is based.

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Social and environmental audits therefore strive to meet the expectations from consumers that firms will operate in environmentally friendly ways and that they will support initiatives of the society through using CSR programs and ethical practices to give back to society (Moizer, 2005). This has proven to be an effective way of attracting and maintaining consumers. It is important to discuss social and environmental auditing in more detail. This paper will discuss social and environmental auditing, impacts which it has in firms and benefits attributed to social and environmental concerns. Practices across the United States and United Kingdom will be assessed and recommendations made on how firms can effectively apply these forms of auditing to meet corporate objectives. The discussed issues will be summarized at the end.

Social and environmental auditing

Social and environmental programs have been seen to be some of the most effective ways which firms can attract and retain consumers. Social and environmental auditing therefore involves an audit of social and environmental programs to assess whether they have achieved their objectives (Harrison, 2005.). Environmental audits are audits performed to quantify environmental position and performance. They are audits performed to analyze the extent to which the performance and operations of an organization are consistent with environmental conservation concerns (Bragg, 2006). Social audits are audits which are performed to quantify the performance of an organization regarding its impacts on society in line with its organizational goals. These audits are important to organizations since they enable corporate bodies to assess their achievements as far as environmental and social goals as well as ethical principles are concerned. This facilitates a change of strategy or maintenance of current strategies depending on whether they are effective or not (Keeney, 2005). Social and environmental audits will be discussed separately in more detail below;

Social audits

Social audits have been seen to be audits which assess the effectiveness of an organization's processes with regards to the welfare of the society at large. Social audits usually target corporate social responsibility programs which are developed to empower the local communities as well as encourage ethical practices in the daily running of organizations (Friedlob & Plewa, 2004). These audits analyze the extent to which an organization has achieved its social and ethical goals and milestones. Organizations usually have a responsibility towards the society and they are expected to perform their functions while observing international norms, ethical standards and legal requirements (Eamon, 2008). Social audits therefore help in measuring, verifying, reporting and improving upon this performance. Social audits are representative of stakeholders including marginalized groups within society. It is closely linked to corporate governance and encouraging transparency and accountability in organizations. There are four major objectives of social audits. The first is assessment of financial and physical gaps between resources available and needs in order to encourage social development (Chambers & Rand, 2010.). The second is creating awareness among providers and beneficiaries of productive and social services. The third objective of social audits is increasing effectiveness and efficiency of social development programs. Finally, social audits aim at scrutinizing policy decisions in order to preserve stakeholder priorities and interests as far as social development is concerned.

There are various benefits of social audits. The first is that it trains communities on how to participate in social planning or projects aimed at empowering them. This is a benefit enjoyed by local communities since it provides opportunities to these communities either through financial aid, education, and employment or sponsorship activities. The second benefit especially to communities is that it benefits marginalize groups (Bateman, 2010). Projects or assistance provided by firms on social development usually targets marginalize groups which are the neediest in society. The third benefit of social audits is that they encourage ethical practices by organizations and these benefit organizations and the society at large. Finally, human resource is developed through encouraging social audits especially when firms use corporate social programs such as training and education to empower communities (Wells, 2002).

Environmental audits

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It has been discussed that environmental audits aim at analyzing whether organizations are meeting their goals as far as environmental conservation is concerned when undertaking day to day operations (Ruddiman, 2005). Environmental audits aim at ensuring operations of an organization has the least adverse effects on the environment. There are three main types of environmental audits. These are the functional audit, management audit and liability audit. The functional audit assesses specific areas of environmental conservation such as energy management and waste management within a firm. Each firm should have an environmental strategy which deals with various environmental issues affecting it. These include management of waste, water conservation, efficient resource utilization and others (Downs & Adrian, 2004). Such a strategy aims at not only ensuring the environment is conserved, but it also encourages effective utilization of resources thus reducing a firm's costs.

The management audit is another audit aimed at comparing environmental performance of an organization with the set environmental goals to assess whether these goals meet their objectives (Benbya, 2008). Every organization has a set of goals which are aimed at environmental conservation causes. It is imperative that organizations periodically assess their success in meeting these goals. The management audit enables such organizations to review their performance in environmental conservation and to adjust strategies which appear to be ineffective. Finally, the liability audit analyzes whether operations of an organization are in compliance with legal requirements as far as environmental conservation is concerned (Elliot & Elliot, 2004). There are various minimal standards which organizations are expected to meet by local authorities as far as environmental conservation is involved. These include proper waste management and lower levels of air pollution among other forms of pollution. The liability audit analyzes whether an organization is complying with these requirements. Failure to comply with these requirements may attract penalties such as fines, or complete closure of the firm (Kaiser, 2002). This makes liability audit an important process in the life of any organization.

How social and environmental audits are conducted

Social and environmental audits are conducted through a variety of ways including surveys, feedback from customers and employees, observation, questionnaires among other methods. There are three stages involved in social and environmental audits. These are the pre-audit, audit and post-audit stages. In the pre-audit stage, auditors explain the purpose of the audit to all stakeholders involved and seek support in the process. The scope of the audit is determined and benchmarks and metrics used established (Russell, 2004.). During this stage, the audit team is chosen and this may encompass employees together with external consultants. It is important to develop a "no blame" policy at this stage in order to encourage cooperation by stakeholders. The second stage is the auditing stage. In this stage, the firm's procedures and policies regarding social development and environmental conservation are assessed in detail. Observation and other data gathering techniques such as employee interviews, community surveys and others are also used (Morgan & Raaum, 2001).

It is important to note that this audit is done during normal business hours in order to acquire an accurate representation of the reality. Appropriate tests to evaluate environmental pollution are also performed to establish the environmental procedures and policies adapted by firms. The community projects developed to promote social development are also assessed through touring such projects and holding dialog with stakeholders. This assists auditors in preparing a report on social practices of the firm (Russell & Regel, 2000). The third stage is the post-audit stage. In this stage, data gathered is analyzed and conclusions developed on environmental and social development initiatives. The findings on documents collected are summarized and interpreted. After analysis of these findings, an action plan is developed on the best way the firm can uphold environmental and social development concerns (Rand & Chambers, 2007). The stakeholders involved are also briefed on the report and recommendations made. Finally, a time frame in which another audit will be undertaken is developed.

Role of social and environmental audits

Social and environmental audits play an important role in any organization. Some of the roles played are briefly discussed below


Social and environmental auditing encourages accountability by firms. The destruction of the environment and the development of ethical and social requirements by firms have encouraged firms to be more accountable to the society at large. Firms are expected to adhere to ethical norms and environmental conservation initiatives. They are also expected to give back to communities through empowering marginalized groups. In many states, ethical requirements and environmental responsibility is supported by legislation and firms which flout these requirements are punishable in a court of law. In addition, awareness by consumers on the role of firms to society has encouraged firms to follow social and environmental conservation initiatives. This is due to the reason that consumers do not want to be associated with firms which flout environmental and social conservation efforts and such firms are unlikely to attract and retain consumers.

Management control and decision making

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This is another important role which social and environmental audit plays in organizations. Social and environmental audits facilitate the achievement of an organization's objectives. There are various ways in which social and environmental audits facilitate achievement of these objectives. The first is through increasing information available for decision making (Hargie & Tourish, 2000). Social and environmental audits expose weaknesses present in procedures and practices of firms. These weaknesses may be either in environmental conservation, social development or entirely different aspects of the organization such as financial management. Exposure of these weaknesses enables the management to formulate strategies to solve them and enhance performance in the long run. These audits also analyze the effectiveness of different policies and processes. This information is used in decision making by the management and facilitates a timely decision making process. Timely decision making is a practice which any firms has to apply in the modern competitive world in order to achieve success.

Enhanced image

Another benefit of social and environmental audits is an enhanced image. It has been discussed that consumers are aware of environmental destruction and the importance of firms to apply environmental conservation initiatives (Binder, 2007). Consumers are also aware of the ethical and social responsibility which firms have towards the society. They therefore associate with firms which apply social development and environmental conservation strategies when developing products. Firms which undertake social and environmental auditing with the objective of enhancing social and environmental responsibility therefore benefit from an enhanced image to consumers. Consumers are likely to purchase products developed by such firms especially if they strongly believe in environmental conservation and social development endeavors (Kausek, 2006). This is an opinion held by an increasingly large number of consumers in developed societies.

Social and environmental auditing in US and UK

Social and environmental auditing is an established practice across firms in the UK and US. Many corporate firms in these two developed countries observe environmental and social development programs due to market demand and regulation enforcement by the government. In the US and UK, there are many lobby groups which advocate for environmental conservation due to the realization of the threats environmental destruction poses to mankind. These groups are very powerful and they encourage consumers to shun products of firms which do not observe environmental conservation practices (Drucker, 2000). These countries also possess regulatory authorities which assess compliance with ethical requirements of firms operating within the UK and US. These authorities are very strict in enforcing ethical regulations and firms are heavily fined if found not to be following them. The pressure to implement environmental conservation and operate in a socially acceptable and ethical way is one of the factors which have encouraged demand for environmental and social auditing in the US (Innes & Norris, 2005). This will be discussed in more detail below;

Social and environmental auditing in the US

In the United States, different states have diverse regulations which govern the social and environmental responsibility of corporate bodies. These environmental regulations are contained in several legislative acts which include Clean Water Act, Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response Act, Toxic Control Act and Energy Policy Act among others. Congress usually approves laws governing the environment and regulatory authorities such as the US Environmental Protection Agency usually enforce these laws (Larry & Bradley, 2008). These regulatory agencies also undertake education and public awareness campaigns in order to encourage corporate bodies to follow environmental laws. The strict enforcement of these laws has motivated firms to carry out periodic environmental audits in order to assess their compliance with these laws.

In terms of compliance to ethical principles, the US also enforces strict laws which discourage unethical acts. Due to the increase in huge scandals by corporate bodies including the Enron scandal where investors were defrauded of billions of dollars, corporate bodies are required to follow strict ethical requirements (Beach, 2007). One of the strongest laws which govern against unethical practices in the US is the Sarbanes-Oxley Act which governs against biased reporting of financial statements by management of firms. The management bears personal responsibility if such unethical acts are performed when they are in control of a firm (Fred, 2009). Other regulations which advocate for ethical responsibility include HIPAA, Joint Commission, FISMA, GLBA and others. Failure to comply to these regulations attracts criminal or civil liability. This has encouraged the implementation of social audits by firms in order to evaluate their compliance to these ethical regulations. The growth of social and environmental audits in the US may therefore be seen to have been due to the strong laws which protect the environment and which encourage ethical practices as well as huge demand by consumers.

Social and environmental auditing in the UK

The UK similarly has very strict laws which guide environmental conservation initiatives by corporate bodies. These laws are contained in two main acts which are the Freedom of Information Act and the Data Protection Act. As in the US, there are harsh repercussions for corporate firms which do not follow the environmental regulations. This attracts civil or criminal liability. There are also regulations which are enforced by the European Union which all member states are expected to enforce. These regulations aim at reducing carbon emissions by firms and effective management of waste to reduce environmental pollution and the effects of global warming. Due to the importance attached to these laws, many firms undertake environmental audits regularly in order to assess compliance to the laws and avoid paying penalties (Stephen & Ronell, 2009). The strong demand by consumers and lobby groups for corporate bodies to conserve the environment also motivates firms to undertake the audits.

In analyzing compliance to ethical requirements in the UK, there are various regulations and laws which are used to ensure that firms comply with these requirements. Some of these regulations are contained within the European Union while others are inherent in the UK laws (Miller, 2002). The various regulators who enforce the ethical regulatory laws and environmental laws include the Environmental Agency, Financial Services Authority, Information Commissioner's Office and Scottish Environmental Protection Agency among others. There are strict penalties for corporate which flout these regulations. This has led to regular social audits by firms to detect any weaknesses in following regulations.

Similarities and differences between social and environmental auditing in the two countries

There are various similarities between social and environmental auditing in the US and the UK. The first similarity is that in both countries, there are strict laws which enforce ethical regulations and environmental conservation by corporate firms. Failure to observe these regulations usually attracts penalties in civil or criminal courts. In the US, environmental regulations are contained in several legislative acts which include Clean Water Act, Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response Act, Toxic Control Act and Energy Policy Act among others. Ethical regulations are enforced by HIPAA, Joint Commission, FISMA, GLBA and others (Goodyear, 2003). In the UK, environmental laws are contained in the Freedom of Information Act and the Data Protection Act. Another similarity is that public demand and lobbying has put pressure on firms to follow these ethical and environmental regulations. Due to fears that consumers may shun products if corporate bodies do not follow these regulations, periodic audits are applied by firms to evaluate their progress as far as environmental protection and social practices are involved. Finally, the stages which are followed when undertaking the audit, which were previously discussed in the paper, are similar in both the US and UK.

There are also a few differences between social and environmental auditing practices in the US and UK. The first difference is that the various environmental and regulatory laws which are implemented in the US vary between states while in the UK, they are standardized since they are developed by the same government. Another difference is that the UK is governed by EU regulations especially regarding environmental conservation and ethical financial practices by firms whereas the US is only bound by domestic laws (Bures, 2000). However, these are minor differences and the overall intention and strategy for social and environmental auditing in the UK and the US is largely similar.

Summary and conclusion

The role of social and environmental auditing has been discussed in the paper. Social and environmental audits strive to ensure that firms produce services or goods in environmentally friendly ways and in ways which are ethical and acceptable by society. There are many reasons why firms strive to undertake social and environmental auditing. These include pressure from the consumers and lobby groups as well as regulatory and legal requirements by states. Consequently, there are many benefits which firms gain through undertaking social and environmental audits. These include enhanced image through support from the public, management control and decision making from information gathered during the audit and accountability due to the utilization of resources in efficient ways as well as operation in ethically principled ways (Bates, 2003). The US and UK are two countries which have embraced social and environmental auditing. Their application of environmental and ethical regulations is similar since they are both enforced by criminal and civil courts.

It is important for the management of any corporate body to follow social and ethical requirements and environmental conservation efforts due to the many benefits associated with the practice. Such corporations are likely to realize higher sales levels due to support from consumers and local communities which share these views on ethics and the environment. Audits should be undertaken periodically and not less than twice a year. This will enable the management to take adequate steps to correct any shortcomings as far as environmental and ethical concerns are involved. During the audit, all stakeholders should be involved in order to ensure the process is successful. The management should hire external auditors periodically in order to avoid bias when reporting the audit findings (Lerner & Wilmoth, 2006). This will ensure that more corporate firms enjoy the benefits of social and environmental auditing. Finally, proper interpretation of audit findings is necessary for the audit process to be successful. Interpretation facilitates the development of new strategies or maintenance of current strategies as far as social and environmental auditing is involved, depending on the success of the present strategies. When all firms embrace social and environmental auditing, the society will be empowered through social programs and environmental conservation initiatives will be achieved.