What do you mean by Corporate Social Responsibility?
- Corporate Social Responsibility means various social activities carried out by medium to big sized corporate houses, businesses and MNCs for the benefit of under-privileged sections of society.
- As per the Companies Act 2013, Corporate Social Responsibility is a set of mandatory guidelines, which a company must follow.
Which company need to constitute a Corporate Social Responsibility Committee
If a company satisfied any of the following condition during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
The conditions are as follows:
- net worth of Rs500crore or more,
- turnover of Rs1000crore or more
- net profit of Rs5crore or more
Minimum amount of expenditure on Corporate Social Responsibility
The board shall ensure that the company spends, in every financial year at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its corporate social responsibility policy.
What activities should be included by companies in their Corporate Social Responsibility?
- Encouraging education under poor sections of society
- Promoting gender equality
- Promoting women empowerment
- Eradicating extreme hunger and poverty
- Reducing child mortality and improving maternal health
- Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
- Ensuring environmental sustainability
- Employment enhancing vocational skills
- Social business projects
- Contribution to Prime Minister’s National Relief Fund
Accounting treatment of Corporate Social Responsibility expenditure
Schedule VII to the company’s bill, 2013 specifies a list of CSR activities. The accounting of CSR activities will be done as under:
- In case a contribution is made to a fund specified in Schedule VII to the Act, the same would be treated as an expense for the year and charged to the statement of profit and loss.
- In case the company incurs any expenditure on any of the activities as per schedule VII on its own, the company needs to analyse the nature of the expenditure keeping in mind the “Framework for Preparation and Presentation of Financial Statements issued by ICAI.
- In case the company incurs any expenditure on any of the activities as per schedule VII is of revenue nature, the same should be charged as an expense to the statement of profit or loss.
- In case the company incurs any expenditure which give rise to an asset, the company need to analyse whether the expenditure qualifies the definition of the term asset as per the Framework i.e. whether it has control over the asset and derives future economic benefits from it.
