CSR spending: Corporates told to create accounting ‘liability’ for unspent amounts

CA Institute’s clarification follows MCA’s diktat on fulfilling ‘obligation’

Close on the heels of the Ministry of Copoarate Affairs(MCA) requiring companies to madatorily spend their Corporate Social Responsibility (CSR) obligation, the CA Institute has clarified on the accounting treatment of the unspent amounts, stipulating that Corporate India should create “liability” for such amount in their financial statements every year.

Both the MCA and the ICAI actions, when seen together, would mean that the corpoartes cannot excape form their CSR obliagtions by explaining the reasons for the under-spend. “They will have to provide as ” liability”, the amounts remaining unspent in a financial year”, said a top ICAI official.

‘FAQs issues’

This could now result in a hit on the bottomline of companies that hitherto opted not to fulfill their CSR spend and came with explanations for not doing so.

“This ICAI clarification has been made as FAQ and it follows the MCA bringing amendments in the CSR rule in January 2021. This will instill more discipline among corporates as they will have to spend ear-mark the unspent to certain designated accounts. Further, they would have to account for the unspent amount as liabilty in the same financial year”, Nihar Jambusaria, President, ICAI told BusinessLine. He said ICAI’s Accounting Standard Broad deliberated on the Accounting Standards and came to conclusion that at the end of the financial year, a provision has to be made on the unspent amount. Asked if a company does not still make provision for unspent amount of CSR, Jambusaria said that auditors will have to qualify the accounts.