Developing a Social Accounting System for European Social Enterprises Based on Public Accounting

Introduction

The growing popularity of the Social Enterprises (SEs) discourse highlights the need for accounting-focused research. The SEs aim to create mainly social and environmental impact rather than merely economic value for shareholders; hence, conventional accounting measures are often not suitable for SEs (Fazzi, 2010; Andreaus & Costa, 2014; Mäkelä, 2021). Furthermore, the literature, unfolds that social accounting is defined as a metric for measuring social and environmental impact (Bebbington & Gray, 1993; Brown & Fraser, 2006; Yongvanich & Guthrie, 2006; Baba, Ishida & Aoki, 2015; Dey & Gibbon, 2017; Rinaldi, 2019).

The authors argue that this one-sided accounting worldview is not sufficient, and they propose a well-known and operational accounting system that is based on the relationship between SEs and public organizations in the broader context of accounting, social finance and public accounting. This study suggests adhering to the framework design and rationale of public accounting rather than conventional accounting without overlooking other operational or proposed models of social or non-conventional accounting. It should be considered that traditional accounting as Mook (2014) emphasizes developed for for-profit organisations, servicing other goals and underestimate the nonfinancial performance or as Retolaza et al. (2016) mention “conventional accounting is only concerned with reflecting value for shareholders” and not for stakeholders and society in general.

The features that the use of public accounting brings together are what prompted the authors to focus on this issue:

• (1)

  the accrual basis, which refers to recording the financial status of transactions when they occur rather than when cash settlement occurs. Many governments have already adopted the accrual accounting as point of reference, and many more are in the process of doing so.

Many international organizations also are pushing for the implementation of the accrual accounting because of the attempts of economic crime to use social enterprises as mob business. Taking into account the data collected for 150 governments, (International Federation of Accountants, 2018) the break-down of how they report their finances, reveal that 37 governments (25%) proceeded with accrual reporting in the last published financial statements, 68 governments (45%) are moving to accrual reporting or already have some elements of accrual reporting in their financial statements and 45 governments (30%) still report on a cash basis,

• (2)

  the organizational design of SEs, which is based on the classification of economic, operational, and administrative factors, that enables the recording of all SEs activities,

• (3)

  the accrual principle is the foundation of the uniform accounting scheme,

• (4)

  all SEs could receive access to a compact Enterprise Resource Planning (ERP) system that has been developed,

• (5)

  using GFS (Government Finance Statistics), one can assess each SE's financial information and assist it in becoming profitable, which will provide prosperity to its partners and society at large,

• (6)

  through COFOG (Classification of the Functions of Government) control is achieved in the spending areas and is developed based on the principles set by the COFOG International Standards issued by the United Nations,

• (7)

  the administrative classification reflects the organizational and hierarchical structure of the obliged entities and determines the administrative positions that are legally responsible for the management of expenses, income, assets, and obligations of the entities and

• (8)

  other classifications.

The plan of accounts, combined with the information system of each entity, allows the integration of other types of classifications, such as Classification by programme, which reflects sectoral programmes that consume resources and allows the measurement of their performance consumed resources, classification by source of financing, which reflects the main sources of financing of expenses, as well as the connection between them, geographic classification, which reflects the spatial distribution of financial reporting data and classification for costing purposes.