Greatest problem in social accounting

The greatest problem in social accounting and reporting is an apparent lack of valid and reliable measurement technique. Social measurement often requires valuation of goods, services and effects that have not been exchanged in the market and consequently do not have recorded exchange or market prices. Exchange prices are considered to be the foundation of business accounting. However, exchange prices are often not available and are not very good indicators of social value. Therefore, some other measures of social benefits and costs need to be developed. Social measurement requires the estimation of benefits or utility provided by an entity, and the costs or sacrifices imposed on elements of society. Several approaches for social measurements can be used.

Surrogate Valuation: When a desired value can not be directly determined, a surrogate value needs to be estimated, that is, some item or phenomenon that is logically expected to involve approximately the same utility or sacrifice as the item in question.

Survey Techniques: Survey techniques involve obtaining information from those affected – elements of society who make the sacrifice or who receive the utility – for measurement of social cost and benefits.

Restoration or Avoidance Cost: Certain social costs may be valued by estimating the monetary outlay necessary to undo or prevent the damage. Some social effects can not be undone and, in such cases, the restoration cost estimate is supplemented with estimates of such additional damage.

Appraisals: Independent appraisals may be useful for valuing certain goods, buildings, and land. These will often reflect nothing more than an expert estimate of market value and are, thus, analogous to surrogate valuation performed by an outside expert. When appraisals are used, it is necessary that we understand the basis for them and interpret the results accordingly.

Analysis: Many times an economic and statistical analysis of available data produces a valid and reliable measure of value. Estimates of the increased earnings value of education have relied on present value analysis of comparative earnings rates and life expectancies. The above measurement approaches generally provide an adequate set of choice for virtually any social measurement problem. They must be used, however, with care and proper understanding in full recognition of their respective weaknesses and especially with careful attention to the attributes that are ultimately intended to be measured.