Material departure

Following the Social Impact Assessment Standards is not optional. For a social enterprise listed on a Social Stock Exchange, the workbook calls compliance with them mandatory.

But real assessments meet real obstacles. Records are missing. A community will not meet the assessor. A method the standard assumes simply cannot be run in that district.

The workbook does not pretend otherwise. It gives one instruction. If for any reason the assessor cannot perform the assessment in accordance with the standards, the report must draw attention to the material departures from them.

So the rule is not "always comply". It is "comply, or say where you did not".

A material departure is such a gap: a failure to follow the standards big enough that a reader of the report would want to know about it. Hiding one is worse than having one, because a reader who does not know cannot allow for it.

The rule (Chapter 5, section 5.5, "Compliance with SAS"). Three bullets, and the second carries this concept:

1. Compliance with the SAS is a mandatory requirement for a social impact assessment conducted for social enterprises listed on a Social Stock Exchange.
2. The assessor should ensure the guidance in the SAS is followed. "If for any reason a social impact assessor is not able to perform a social impact assessment in accordance with the SAS, his report should draw attention to the material departures therefrom."
3. Assessors follow the SAS in assessments commencing on or after the effective date specified in the SAS.

What the standards are. The Social Impact Assessment Standards run across 16 thematic areas, from SAS 100 (eradicating hunger, poverty, malnutrition and inequality) to SAS 1600 (welfare of migrants and displaced persons). The relevant thematic area is chosen according to the social project being assessed, so a departure is always a departure from a particular SAS, not from the set as a whole.

Where it surfaces in the report (5.14). The reporting rules give a material departure several places to appear, which is why disclosure is practical rather than merely principled:

• the fair presentation principle (5.2b) requires that significant obstacles encountered during the assessment, and unresolved diverging opinions between the assessment team and the assessee, be reported;
• report element 12 is any unresolved diverging opinions between the assessment team and the auditee;
• report element 13(b) is a summary of the assessment process including any obstacles encountered that may decrease the reliability of the conclusions;
• report element 13(d) is any areas within the assessment scope not covered — including issues of availability of evidence, resources or confidentiality — with related justifications;
• report element 15 is the statement that the engagement was performed in accordance with the SAS Framework or any other framework as applicable.

No threshold in the workbook. The workbook nowhere quantifies what makes a departure "material". No percentage, no rupee figure, no count of missed procedures. It leaves materiality to the assessor's judgement, exercised with due professional care — the ability to make reasoned judgements in all assessment situations. So there is no number to learn here, and a question offering one is offering an invention.

Illustrative assessment and figures.

An assessor is engaged on a listed ₹85,00,000 slum sanitation project in Pune, assessed under SAS 1100 (slum area development, affordable housing and resilient cities).

The relevant SAS expects beneficiary-level verification across the project area. Three things go wrong:

What the assessor does. She does not quietly report on the 7 settlements as though they were 9, and she does not abandon the engagement. Her report:

• states that inspection covered 7 of 9 settlements and why;
• states that 310 households (16%) have no baseline, so no before-and-after comparison is possible for them;
• records the declined interview as an obstacle that may reduce the reliability of the qualitative conclusions;
• and draws these together as material departures from SAS 1100.

Where it leads next. She still has enough evidence on the remaining 1,630 households to reach a conclusion, so she does not disclaim an opinion. But the missing baseline for 310 households is evidence she could not obtain — a scope limitation — and that pushes her towards a qualified opinion rather than a clean report. The departure is the disclosure; the qualification is the consequence.

Chapter 5 (10% weightage), section 5.5, sets out compliance with the SAS and the duty to draw attention to material departures; section 5.2 supplies the fair-presentation principle behind it; section 5.14 lists the report elements where obstacles, uncovered areas and diverging opinions must appear.

Expect a question on what an assessor must do when an assessment cannot be performed in accordance with the SAS — the answer is draw attention to the material departures in the report, not withdraw, and not comply anyway. The mandatory-for-listed-entities point in the same three bullets is examined alongside it.

• Disclose, do not withdraw. A material departure is reported. Withdrawal belongs to the more serious case where sufficient appropriate evidence cannot be obtained at all.
• Compliance with SAS is mandatory for social enterprises listed on an SSE. For other engagements, such as a CSR impact assessment, the SAS Framework principles may be applied by agreement.
• A material departure is not the same as a scope limitation. A scope limitation is a shortage of evidence; a material departure is a failure to follow the standard. One often causes the other, but they are reported differently — the departure in the report's process and scope disclosures, the scope limitation in the opinion.
• Nor is it the same as a qualified opinion. The departure is the disclosure; a qualified opinion is a possible conclusion drawn after it.
• The workbook sets no materiality threshold. There is no percentage or rupee test to quote.
• The effective date matters. Assessors follow a SAS in assessments commencing on or after its specified effective date, so an assessment begun earlier is not judged against a standard that had not yet taken effect.
• Significant obstacles and unresolved diverging opinions must be reported too, under the fair-presentation principle — the duty is wider than the SAS-compliance bullet alone suggests.