In a detailed exposure draft of guidance note on ‘Treatment of Costs Relating to CSR Activities’, the Institute of Cost Accountants of India (ICAI) said that cost auditors should ensure that corporate social responsibility (CSR) expenses are treated properly and not wrongfully claimed as product or service costs.
Under the Companies Act, 2013 which came into force from April 1, 2014 – a certain class of profitable entities are required to spend at least 2% of their 3 year annual average net profit towards CSR activities.
According to the ICAI, all expenses relating to CSR activities “whether incurred up to the statutory limit of two per cent… or more, shall be treated as non-cost items and reflected separately in the profit reconciliation statement”. Similarly, all incomes generated out of assets created under CSR projects, programmes and activities, whether recognised as revenue in the profit and loss statement or not, should be treated as non-cost items and shown separately.
“The cost auditor has to be extra careful in such situations and check such expenses (or incomes) to ensure their proper treatment in the cost statements. The cost auditor should also bring such deviations to the notice of the Audit Committee or Board, as the case may be,” the draft elaborated. On whether excess amount spent on CSR activities under the law can be considered as cost, ICAI has said, “the entire amount is to be shown as non-cost item in the cost statements”.
On March 1, the Government had said a total of 460 listed firms have disclosed a spending INR 6,337.36 Cr towards CSR in 2014-15.