The Institute of Chartered Accountants of India ( ICAI) recently issued a guidance note which will help India in accounting for its corporate social responsibility (CSR) expenses.

Points to Remember

1. When: April 1, 2014.
2. CSR expenses has to be in financial statement of March 31, 2015.
3. Sections: Section 135 of the Companies Act 2013 and schedule VII of the Act.

According to guiding Note:

1. To ensure transparent financial reporting, this guidance note requires the company to debit (charge) its profit and loss account (P&L a/c) with the CSR expenses incurred by it during the year.
2. Such expenses are to be shown as a separate line item in the P&L a/c.
3.  ICAI’s guidance note has also addressed issues of a shortfall by a company in meeting with the minimum CSR expenditure criteria and also those instances where a company has spent more than the minimum requirement.
4. The Companies Act requires the board of directors of a company to specify the reasons for not meeting with the CSR obligations
5. If there is any shortfall, no provision is required to be made in the profit and loss account of the company.
6. If Company expends more than the minimum requirement then, the excess amount of CSR spent can be carried forward to be adjusted against amounts to be spent on CSR activities in the future. However, No clarification has been notified in this regard.
7. If a company, as part of its CSR activities, supplies goods manufactured by it or renders services, these goods and services will also form part of the CSR expenditure and will be duly valued and charged to the company’s P&L a/c.
8. There is no penalty imposed for not complying with these norms for now.
9. Only a disclosure is required in the director’s report.

Advantages of ICAI regulations:

1. ICAI’s guidance note is clear and easy to implement.
2. It has stayed with the letter and the spirit of the legal provisions.  India is the first country in the world that mandates CSR expense.

Eligibility Criteria:

1. Companies having a
   1.  Net worth- Rs. 500 crore
   2.  Turnover- Rs 1,000 crore
   3. Net profit- Rs 5 crore respectively,have to comply with CSR norms.

Amount:

Such companies have to spend in each financial year ‘at least’ 2% of the average net profits made during the previous three financial years towards eligible CSR activities.

Objective:

The objective of this Guidance Note is to provide guidance on recognition, measurement, presentation and disclosure of expenditure on activities relating to corporate social responsibility.