Corporate Social Responsibility Reporting \u2013 CA Final FR Study Material<\/h2>\n
Question 1.
\nDiscuss whether any unspent amount of CSR expenditure is to be provided for?
\nAnswer:
\nSection 135(5) of the Companies Act, 2013, requires that the Board of every eligible company, \u201cshall ensure that the company spends, in every financial year, at least 296 of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy\u201d. A proviso to this Section states that \u201cif the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount\u201d.<\/p>\n
Further, Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, prescribes that the Board Report of a company under these Rules shall include an Annual Report on CSR, in the prescribed format.<\/p>\n
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The above provisions of the Act\/Rules clearly lay down that the expenditure on CSR activities is to be disclosed only in the Board\u2019s Report in accordance with the Rules made thereunder.<\/p>\n
In view of this, no provision for the amount which is not spent, (ie., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of a reporting period) may be made in the financial statements.<\/p>\n
The proviso to section 135(5) of the Act, makes it clear that if the specified amount is not spent by the company during the year, the Directors\u2019 Report should disclose the reasons for not spending the amount.<\/p>\n
However, if a company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, needs to be recognised in the financial statements.<\/p>\n
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Question 2.
\nState whether any unspent amount of CSR expenditure (any shortfall in the amount that was expected to be spent as per the provisions of the Companies Act on CSR activities) at the reporting date shall be provided for?<\/p>\n
Also state in case the excess amount has been spent (i.e. more than what is required as per the provisions of the Companies Act on CSR activities), can it be carry forward to set-off against future CSR expenditure.
\nAnswer:
\n(i) Treatment of any unspent amount of CSR expenditure
\nSince the expenditure on CSR activities is to be disclosed only in the Board’s Report, no provision for the amount which is not spent, (ie., any shortfall in the amount that was expected to be spent as per the provisions of the Act on CSR activities and the amount actually spent at the end of a reporting period) may be made in the financial statements.<\/p>\n
The Act requires that if the specified amount is not spent by the company during the year, the Directors\u2019 Report should disclose the reasons for not spending the amount.<\/p>\n
However, if a company has already undertaken certain CSR activity for which a liability has been incurred by entering into a contractual obligation, then in accordance with the generally accepted principles of accounting, a provision for the amount representing the extent to which the CSR activity was completed during the year, needs to be recognised in the financial statements.<\/p>\n
(ii) Treatment of excess amount spent on CSR Activities
\nSince 296 of average net profits of immediately preceding three years is the minimum amount which is required to be spent under section 135(5) of the Act, the excess amount cannot be carried forward for set off against the CSR expenditure required to be spent in future.<\/p>\n
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Question 3.
\n(i) When an entity is required to form a CSR committee? &
\n(ii) ABC Ltd. is a company which has a net worth of INR 200 crores, it manufactures rubber parts for automobiles. The sales of the company are affected due to low demand of its products.
\nThe previous year\u2019s financials state: (INR in Crores)<\/p>\n