Social and ethical accounting (AS Level) flashcards

Topic 1.6: Social and ethical accounting

The five social contexts in 1.6.1

Local community, environment, workforce, health and safety, and use of natural resources.

Non-financial factor

Something relevant to a decision that cannot be measured reliably in money, such as morale, quality, reputation or community impact.

Social accounting

Considering the effects of accounting decisions on society, not only on profit.

A department has gross profit 30,000, its own wages 34,000 and apportioned overheads 8,000. Should it close?

Reported loss (12,000), but contribution is 30,000 − 34,000 = (4,000). Closing it raises total profit by 4,000 if the overheads remain. Then weigh staff and community effects.

Receivables 45,000. The owner cuts the allowance from 4% to 2% while bad debts are rising. Effect and concept broken?

Allowance falls from 1,800 to 900, so profit rises by 900. It breaks prudence.

Goods with a selling price of 6,000 (cost plus 25%) are recorded as sold before delivery. Effect and concept broken?

Cost 6,000 ÷ 1.25 = 4,800, so profit is overstated by 1,200. It breaks realisation.

Draft profit 18,600; current assets 21,360; current liabilities 12,000. A 1,350 electricity bill owed is left out. Correct figures?

Profit 18,600 − 1,350 = 17,250. Current ratio 21,360 ÷ 13,350 = 1.60 : 1, not 1.78 : 1. Leaving it out misleads lenders and suppliers.

Unethical vs illegal

Many unethical treatments are not crimes. Name the concept broken and the misleading effect instead of calling it illegal.

How can social harm return to the accounts as a cost?

Through fines, compensation claims, clean-up costs, higher staff turnover and lost customers.