May-2015

THE INTERNAL AUDITOR, WHO HAS AUDIT
EXPERIENCE AND A CLEAR UNDERSTANDING OF THE
BUSINESS, IS THE RIGHT PERSON TO COORDINATE
WITH THE TEAM CONSTITUTED FOR EIA
in the rural market, empowers village women, which
in turn moves the community towards gender equality.
Firm’s business might also impact the society negatively.
For example, firm’s processes and products might
degrade natural resources (e.g., pure air and water),
which are public goods, causing harm to the community.
Similarly, firm’s products and advertisements for
products might have negative social impacts, such as,
encouraging un-healthy food habits or habit of conspicuous
consumption.
Social Impact of CSR
Corporate social responsibility (CSR) has evolved as
an integral part of corporate governance. Companies
spend money on community development as a measure
to ensure availability and affordability of human and
natural resources in the long run. For example, companies
create facilities in rural areas to extend health
and educational services to marginalised section of the
society to ensure availability of healthy and skilled employees
in future. The Companies Act 2013 (section
135) requires that every company having net worth
of rupees five hundred crore or more, or turnover of
rupees one thousand crore or more, or a net profit of
rupees five crore or more during any financial year
shall ensure that it spends at least two per cent of the
average net profit (before tax) of the company made
during the three immediately preceding financial years
on corporate social responsibility (CSR) projects. The
Board is required to form a CSR Committee, which
will formulate the CSR policy, identify CSR projects
and monitor their implementation. Only social audit
can help the Board in monitoring the social impact of
CSR projects.
Methodology
Social audit focuses on outcome rather than on output.
It is difficult to audit social changes. Usually a
team of social scientists drawn from various disciplines
work together to assess how a proposed project will
bring environmental and social changes. Social impact
assessment (SIA) is a component of the Environment
impact assessment (EIA). EIA is generally carried out
before commencing work on a proposed project.
However, environmental and social impact of business
and CSR projects are assessed periodically while the
business continues or the CSR project is in progress.
This makes the task little easier, as it is easier to identify
those who are or likely to be impacted by the business
or the CSR project. Techniques are available for EIA
and SIA. It requires collation and analysis of reliable
public data. It is common to involve those who hear
and feel the business or the CSR project in assessing
the social change. For example, in case of CSR
projects, target beneficiaries are involved in assessing
changes in social and natural environment caused by
intervention of the company through one or more
CSR projects.
Companies constitute a team of reputed social scientists
and other experts for EIA in order to enhance
credibility of the social audit report. It uses the report
for taking strategic decisions and for building reputation
by circulating the same among various stakeholders.
Internal auditor, who has audit experience and
clear understanding of the business, is the right person
to coordinate with the team constituted for EIA.
Internal audit and corporate governace
Long back internal audit objective was to prevent
and detect financial frauds in locations away from the
central operating location of the firm. Subsequently,
internal audit was used to achieve another objective,
which was to reduce the cost of mandatory financial
audit by an external auditor. In order to achieve both
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MAY 2015 the MANAGEMENT ACCOUNTANT 67