Companies will have to disclose their CSR Expenditure as a separate head
in their profit and loss statements, accounting regulator ICAI has
said.
Besides, if a company spends more than the mandatory two per
cent of profit for Corporate Social Responsibility (CSR), the excess
amount can not be carried forward for any set off against future
CSR
expenses.
In its detailed guidance note on accounting for expenditure
on CSR activities, the ICAI (Institute of Chartered Accountants in
India) has also also said that no provision needs to be made in the
financial statements for any shortfall in the amount that was expected
to be spent on CSR.
However, if a company has already undertaken certain CSR
activity for which a liability has been incurred by entering into a
contract, a provision needs to be made in the financial statement for
the amount representing the extent to which the CSR activity was
completed in the year.
The Note also makes it clear that CSR expenditure is to be
recognised as an expense by debiting the profit and loss account,
putting to rest the confusion on whether such expenses could get
adjusted as an appropriation from reserves.
Under the new Companies Act, a company needs to spend at
least 2 per cent of its three-year-average net profit on CSR if it has a
minimum net worth of Rs 500 crore, or turnover of Rs 1,000 crore or a
net profit of Rs 5 crore.
If the required CSR amount is not spent during a year, the Directors' Report needs to disclose the reasons for the same.
The ICAI said its latest Guidance Note is aimed at providing a
"guidance on recognition, measurement, presentation and disclosure of
expenditure on activities relating to corporate social responsibility".
Commenting on this, Price Waterhouse Partner Sumit Seth said
that the Note clarifies several aspects related to measurement,
recognition and presentation of CSR expenditure in financial statements.
"The note also clarifies situations in which a liability
for CSR activities is to be recognised and its timing of recognition,
explaining also that rarely a company would recognise a CSR asset as it
will generally be difficult to demonstrate control over such assets,
that is 'excess CSR amounts spent' or 'CSR related capital assets," he
said.
On CSR Expenditure required to be disclosed as a separate line
item in the profit and loss account with detailed disclosures of various
items in the notes, Seth said this would ensure clarity and consistency
in reporting of CSR expenditure by the Corporate India.
The detailed disclosure, also to be mentioned as a note to the
cash flow statement, would need to provide details of related party
transactions, such as contribution to a trust controlled by the company
in relation to CSR expenditure.