Question

Distinguish between the Concepts of Social Responsibility Accounting (SRA) and Corporate Governance (CG), Discuss how best the SRA and CG will contribute in increasing the wealth of the shareholders?

Answer 1

Social Responsibility Accounting (SRA) is company's sense of responsibility towards the community and environment (both ecological and social) in which it operates. Companies express this citizenship through their waste and pollution reduction processes, by contributing educational and social programs, and by earning adequate returns on the employed resources.

Corporate Governance is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals.

Corporate Governance emphasizes external regulation and internal control of the firm by legal means and assumes that the monitoring function is controlled by the board of directors and senior managers. Social Responsibility Accounting (SRA) is about how the firm regulates its own behavior with reference to social norms.

Corporate Governance is related to profit maximization and protection who have provided capital to firm and Social Responsibility Accounting (SRA) suggest a set of actions beneficial for external stake holders.

Implementation of effective Social Responsibility Accounting (SRA) and Corporate Governance benefits shareholders in the following ways:

First, it provides the necessary ‘pre-commitment’ between shareholders and managers regarding the goal of the firm.

Second, it necessitates a greater flow of firm-specific information and the disaggregation of financial information.

Third, Firm’s stakeholders gain value from the firm’s social efforts, the firm can obtain additional benefits from these activities, including: enhancing the firm’s reputation and the ability to generate profits by differentiating its product, the ability to attract more highly qualified personnel or the ability to extract a premium for its products.