The Institute of Chartered Accountants of India (ICAI) has issued Frequently Asked Questions (FAQ) on the Accounting for amounts to be incurred towards Corporate Social Responsibility (CSR) pursuant to the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021.
Earlier this year, the Government notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. Pursuant to the amendment rules, companies are required to spend the required amount (2% of average net profits of the company made during the three immediately preceding financial years) in every financial year for Corporate Social Responsibility (CSR) activities as prescribed under schedule VII or transfer the unspent amount of ongoing projects in a special account called Unspent CSR Account within 30 days of the end of the financial year for use within a period of three financial years from the date of such transfer (with the balance unspent out of such account at the end of the three financial years to be transferred to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year); or transfer an unspent amount not relating to ongoing projects to such funds as mentioned in Schedule VII like Clean Ganga Fund or PMNRF etc. within 6 months of the end of the financial year.
The FAQ released by the Institute deals with the question of effect of these amendments on the accounting of amounts to be incurred towards CSR.
“CSR expenditure would be recognized as an expense in the statement of profit or loss as and when such expenditure is incurred on the CSR activities undertaken as per the Board approved CSR Policy and CSR projects during the financial year. For the “unspent amount”, a legal obligation arises to transfer to specified accounts depending upon the fact whether such unspent amount relates to ongoing projects or not. Therefore, liability needs to be recognized for such “unspent amount” as at the end of the financial year as per para 17(a) of Ind AS 37,” the Institute clarified.