An audit is a verified independent check done by an external auditor stating that something is true and correct.
It is mainly known in connection with the financial accounts of public limited companies, which measure the financial performance of the business listed on the stock exchange. Final accounts of those businesses must be audited by independent auditing firms.
However, in recent years, some businesses have started using audits on voluntary basis to evaluate their own performance in aspects other than just profit and loss.
Social audits
A social audit is the annual report about the impact of a business on the society. It usually contains the following information:
- Targets to be reached to improve social responsibility.
- Treatment of suppliers of raw materials.
- Customer satisfaction levels.
- Firm’s contribution to the local community.
- Health and safety standards.
Details of the policies to be followed and steps to be taken to achieve these targets will also be included in the social audit. This will give the business clear directions for future improvements in Corporate Social Responsibility (CSR).
By preparing and making these detailed and independently verified social reports public, businesses are able to identify potentially anti-social behaviors. The next step will be to eliminate them in order to improve firm’s public image that may increase customer satisfaction and loyalty, therefore increasing sales in the long term.
The article ‘Social Audits – Checking on Corporate Social Responsibility (CSR)’ includes detailed advantages and disadvantages of conducting social audits.
Environmental audits
An environmental audit is often included in the social audit. It evaluates the impact of business’s activities on the natural environment. It usually contains the following information about the business:
- Pollution levels.
- Amount of waste produced.
- Energy usage and sources of energy.
- Methods of transportation.
- Recycling activities.
Managers of the business will compare current results with pre-set targets for the year, results from previous years and benchmark against other businesses in the same industry.
Evaluation of environmental audits
All of those companies that publish the results of their environmental audits expect to gain advantages from doing so – either to really become more environmentally friendly, or to make it look like they are doing something to take care of the natural environment.
Benefits of environmental audits include:
- Positive consumer feedback could increase sales.
- Favorable media coverage will provide free publicity.
- Working as a team to reduce harm to the environment could bring workers and managers together.
- Easier to hire qualified workers who want to join the company with good reputation.
However, drawbacks of environmental audits include:
- Preparing environmental audits is very time-consuming.
- It can be expensive to publish environmental audits on annual basis.
- Limited value to small businesses or start-up companies with very limited finance.
- Can be perceived as a publicity stunt only.
- The business can be accused of hiding true intentions of potentially damaging practices.
- Businesses which undertake environmental reports almost always have very good environmental records.
- Environmental factors are difficult to measure quantitatively.
- There is not general agreement about contents of environmental audits and how to verify them.
All in all, conducting social audits and environmental audits is currently entirely voluntary, and firms with poor reputation are unlikely to get involved unless publishing these reports becomes compulsory.
