34
Guidance
Note
on
Accounting
for
Expenditure
on
Corporate
Social
Responsibility
Activities
(Issued
May
15,
2015)
(The
Council
of
the
Institute
of
Chartered
Accountants
of
India
(ICAI)
has
issued
this
Guidance
Note
on
Accounting
for
Expenditure
on
Corporate
Social
Responsibility
Activities
which
comes
into
effect
from
the
date
of
its
issuance.
Pending
finalisation
of
the
Guidance
Note,
as
it
was
under
discussion
with
the
relevant
authorities,
the
Corporate
Laws
&
Corporate
Governance
Committee
had
issued
'Frequently
Asked
Questions
on
the
provisions
of
Corporate
Social
Responsibility
under
Section
135
of
the
Companies
Act
2013
and
Rules
thereon'
which,
inter
alia,
provided
an
interim
guidance
with
regard
to
certain
accounting
issues.
On
issuance
of
this
Guidance
Note
on
Accounting
for
Expenditure
on
Corporate
Social
Responsibility
Activities,
the
FAQs
related
to
areas
covered
by
the
Guidance
Note
stand
withdrawn.)
Introduction
1.
Section 135 of the Companies Act, 2013 (the Act), requires the Board of
Directors of every company having a net worth of Rupees 500 crore or more, or
turnover of Rupees 1,000 crore or more or a net profit of Rupees 5 crore or more,
during any financial year, to ensure that the company spends in every financial
year atleast 2% of the average net profits of the company made during the three
immediately preceding financial years on Corporate Social Responsibility (CSR)
in pursuance of its policy in this regard. The Act requires such companies to
constitute a Corporate Social Responsibility Committee which shall formulate and
recommend to the Board a Corporate Social Responsibility Policy which shall
indicate the CSR activities to be undertaken by the company as specified in
Schedule VII to the Act.
Objective
2. The objective of this
Guidance Note is to provide guidance on recognition,
measurement, presentation and disclosure of expenditure on activities relating
to corporate social responsibility.
Scope
3. What
constitutes CSR activities is specified in Schedule VII to the Act.
Reference is also invited to the circular issued by the Ministry of Corporate
Affairs (MCA) No. 21/2014 dated October 24, 2014. Accordingly, the Guidance
Note does not deal with identification of activities that constitute CSR activities
but only provides guidance on accounting for expenditure on CSR activities in
line with the requirements of the generally accepted accounting principles
including the applicable Accounting Standards.
Definitions
4. For the purpose of this Guidance Note, the definitions mentioned at sl. nos. (a) to
(f) are reproduced from the Companies Act, 2013, and the Companies
(Corporate Social Responsibility Policy) Rules, 2014 and in the event of any
change in the Act or the Rules made thereunder, these definitions shall stand
automatically revised/modified to that extent:
(a) Any financial year: "any financial year" referred under sub-section (1) of
Section 135 of the Act read with Rule 3(2) of Companies CSR Rule, 2014,
implies 'any of the three preceding financial years'. (Clarification vide MCA
General Circular No. 21/2014)
(b) Average Net Profit: Average Net Profit is the amount as calculated in
accordance with the provisions of Section 198 of the Companies Act,
2013.
(c) Financial Year: "financial year", in relation to any company or body
corporate, means the period ending on the 31st day of March every year,
and where it has been incorporated on or after the 1st day of January of a
year, the period ending on the 31st day of March of the following year, in
respect whereof financial statement of the company or body corporate is
made up:
Provided that on an application made by a company or body corporate,
which is a holding company or a subsidiary of a company incorporated
outside India and is required to follow a different financial year for
consolidation of its accounts outside India, the Tribunal may, if it is
satisfied, allow any period as its financial year, whether or not that period
is a year:
Provided further that a company or body corporate, existing on the
commencement of this Act, shall, within a period of two years from such
commencement, align its financial year as per the provisions of this
clause;
(d) Net Profit: "net profit" means the net profit of a company as per its financial
statement prepared in accordance with the applicable provisions of the
Act, but shall not include the following, namely:(
i)
any profit arising from any overseas branch or branches of the
company, whether operated as a separate company or otherwise;
and
(ii)
any dividend received from other companies in India, which are
covered under and complying with the provisions of section 135 of
the Act:
Provided that net profit in respect of a financial year for which the relevant
financial statements were prepared in accordance with the provisions of
the Companies Act, 1956, (1 of 1956) shall not be required to be recalculated
in accordance with the provisions of the Act:
Provided further that in case of a foreign company covered under these
rules, net profit means the net profit of such company as per profit and
loss account prepared in terms of clause (a) of sub-section (1) of section
381 read with section 198 of the Act.
(e) Net worth: "net worth" means the aggregate value of the paid-up share
capital and all reserves created out of the profits and securities premium
account, after deducting the aggregate value of the accumulated losses,
deferred expenditure and miscellaneous expenditure not written off, as per
the audited balance sheet, but does not include reserves created out of
revaluation of assets, write-back of depreciation and amalgamation;
(f)
Turnover: "turnover" means the aggregate value of the realisation of
amount made from the sale, supply or distribution of goods or on account
of services rendered, or both, by the company during a financial year;
(g) Spend: The term
'spend' in accounting parlance generally means the
liabilities incurred during the relevant accounting period.
5. Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014,
requires that the CSR activities that shall be undertaken by the companies for
the purpose of Section 135 of the Act shall exclude activities undertaken in
pursuance of its 'normal course of business'. The Rules also specify that CSR
projects or programmes or activities that benefit only the employees of the
company and their families shall not be considered as CSR activities in
accordance with the requirements of the Act. Such programmes or projects or
activities, that are carried out as a pre-condition for setting up a business, or as
part of a contractual obligation undertaken by the company or in accordance
with any other Act, or as a part of the requirement in this regard by the relevant
authorities cannot be considered as a CSR activity within the meaning of the
Act. Similarly, the requirements under relevant regulations or otherwise
prescribed by the concerned regulators as a necessary part of running of the
business, would be considered to be the activities undertaken in the 'normal
course of business' of the company and, therefore, would not be considered
CSR activities.
Recognition and Measurement of CSR Expenditure in Financial Statements
Whether Provision for Unspent Amount required to be created?
6. Section 135 (5) of the Companies Act, 2013, requires that the Board of every
eligible company, "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". A proviso to this Section states that "if the
company fails to spend such amount, the Board shall, in its report … specify the
reasons for not spending the amount".
7. 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, containing particulars specified in the
Annexure to the said Rules, which provide a Format in this regard.
8.
The above provisions of the Act clearly lay down that the expenditure on CSR
activities is to be disclosed only in the Board's Report in accordance with the
Rules made thereunder. In view of this, no provision for the amount which is not
spent, i.e., 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. 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' Report should disclose the
reasons for not spending the amount. 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.
9.
Where a company spends more than that required under law, a question arises
as to whether the excess amount 'spent' can be carried forward to be adjusted
against amounts to be spent on CSR activities in future period. Since '2% 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 can not be carried forward for set off against the CSR
expenditure required to be spent in future.
Other Considerations in Recognition and Measurement
10.A company may decide to undertake its CSR activities approved by the CSR
Committee with a view to discharge its CSR obligation as arising under section
135 of the Act in the following three ways:
(a) making a contribution to the funds as specified in Schedule VII to the Act;
or
(b) through a registered trust or a registered society or a company established
under section 8 of the Act (or section 25 of the Companies Act, 1956) by
the company, either singly or along with its holding or subsidiary or
associate company or along with any other company or holding or
subsidiary or associate company of such other company, or otherwise ; or
(c) in any other way in accordance with the Companies (Corporate Social
Responsibility Policy) Rules, 2014, e.g. on its own.
11.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 amount is spent in the manner as specified in
paragraph10 (b) above the same will also be treated as expense for the year by
charging off to the statement of profit and loss. The accounting for expenditure
incurred by the company otherwise e.g. on its own would be accounted for in
accordance with the principles of accounting as explained hereinafter.
CSR activities carried out by the company covered under paragraph 10 (c)
12.In cases, where an expenditure of revenue nature is incurred on any of the
activities mentioned in Schedule VII to the Act by the company on its own, the
same should be charged as an expense to the statement of profit and loss. In
case the expenditure incurred by the company is of such nature which may give
rise to an 'asset', a question may arise as to whether such an 'asset' should be
recognised by the company in its balance sheet. In this context, it would be
relevant to note the definition of the term 'asset' as per the Framework for
Preparation and Presentation of Financial Statements issued by the Institute of
Chartered Accountants of India. As per the Framework, an 'asset' is a "resource
controlled by an enterprise as a result of past events from which future
economic benefits are expected to flow to the enterprise". Hence, in cases
where the control of the 'asset' is transferred by the company, e.g., a school
building is transferred to a Gram Panchayat for running and maintaining the
school, it should not be recognised as 'asset' in its books and such expenditure
would need to be charged to the statement of profit and loss as and when
incurred. In other cases, where the company retains the control of the 'asset'
then it would need to be examined whether any future economic benefits accrue
to the company. Invariably future economic benefits from a 'CSR asset' would
not flow to the company as any surplus from CSR cannot be included by the
company in business profits in view of Rule 6(2) of the Companies (Corporate
Social Responsibility Policy) Rules, 2014.
13.In some cases, a company may supply goods manufactured by it or render
services as CSR activities. In such cases, the expenditure incurred should be
recognised when the control on the goods manufactured by it is transferred or
the allowable services are rendered by the employees. The goods manufactured
by the company should be valued in accordance with the principles prescribed
in Accounting Standard (AS) 2, Valuation of Inventories. The services rendered
should be measured at cost.. Indirect taxes (like excise duty, service tax, VAT or
other applicable taxes) on the goods and services so contributed will also form
part of the CSR expenditure.
14.Where a company receives a grant from others for carrying out CSR activities,
the CSR expenditure should be measured net of the grant.
Recognition of Income Earned from CSR Projects/Programmes or During the
Course of Conduct of CSR Activities
15.Rule 6 (2) of the Companies (Corporate Social Responsibility Policy) Rules,
2014, requires that "the surplus arising out of the CSR projects or programs or
activities shall not form part of the business profit of a company". The term
'surplus' ordinarily means excess of income over expenditure pertaining to an
entity or an activity. Thus, in respect of a CSR project or programme or activity,
it needs to be determined whether any surplus is arising therefrom. A question
would arise as to whether such surplus should be recognised in the statement of
profit and loss of the company. It may be noted that paragraph 5 of Accounting
Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies, inter alia, requires that all items of income
which are recognised in a period should be included in the determination of net
profit or loss for the period unless an Accounting Standard requires or permits
otherwise. As to whether the surplus from CSR activities can be considered as
'income', the Framework for Preparation and Presentation of Financial
Statements issued by the Institute of Chartered Accountants of India, defines
'income' as "increase in economic benefits during the accounting period in the
form of inflows or enhancements of assets or decreases of liabilities that result
in increases in equity, other than those relating to contributions from equity
participants". Since the surplus arising from CSR activities is not arising from a
transaction with the owners, it would be considered as 'income' for accounting
purposes. In view of the aforesaid requirement any surplus arising out of CSR
project or programme or activities shall be recognised in the statement of profit
and loss and since this surplus can not be a part of business profits of the
company, the same should immediately be recognised as liability for CSR
expenditure in the balance sheet and recognised as a charge to the statement
of profit and loss. Accordingly, such surplus would not form part of the minimum
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.
Presentation and Disclosure in Financial Statements
16.Item 5 (A)(k) of the General Instructions for Preparation of Statement of Profit
and Loss under Schedule III to the Companies Act, 2013, requires that in case
of companies covered under Section 135, the amount of expenditure incurred
on 'Corporate Social Responsibility Activities' shall be disclosed by way of a
note to the statement of profit and loss. . From the perspective of better financial
reporting and in line with the requirements of Schedule III in this regard, it is
recommended that all expenditure on CSR activities, that qualify to be
recognised as expense in accordance with paragraphs 10-14 above should be
recognised as a separate line item as 'CSR expenditure' in the statement of
profit and loss. Further, the relevant note should disclose the break-up of
various heads of expenses included in the line item 'CSR expenditure'.
17.The notes to accounts relating to CSR expenditure should also contain the
following:
(a) Gross amount required to be spent by the company during the year.
(b) Amount spent during the year on:
In cash Yet to be
paid in
cash
Total
(i) Construction/acquisition
of any asset
(ii) On purposes other than
(i) above
The above disclosure, to the extent relevant, may also be made in the notes to
the cash flow statement, where applicable.
(c) Details
of related party transactions, e.g., contribution to a trust
controlled by the company in relation to CSR expenditure as per
Accounting Standard (AS) 18, Related Party Disclosures.
(d) Where a provision is made in accordance with paragraph 8 above the
same should be presented as per the requirements of Schedule III to the
Companies Act, 2013. Further, movements in the provision during the
year should be shown separately.
CIRCULAR
CIR/MRD/DP/ 10 /2015 June 05, 2015
To,
All Stock Exchanges
All Depositories
All Issuers & Registrar & Share Transfer Agents
All Depository Participants
Dear Sir / Madam,
Sub: Database for Distinctive Number (DN) of Shares
1. Share capital reconciliation of the entire issued capital of the company by the
issuer or its agent is a mandatory requirement under Regulation 55 of the
SEBI (Depositories & Participants) Regulations, 1996.
2. The Depository System Review Committee (DSRC) constituted by SEBI while
emphasising on the issuer's responsibility for reconciling records of total
issued capital, listed capital and capital held by depositories in dematerialized
form, recommended that the depositories may maintain complete reconciled
record of total issued and listed capital, including both physical and
dematerialized shares.
3. In order to ensure centralised record of all securities, including both physical
and dematerialised shares, issued by the company and its reconciliation
thereof, it has been decided that the Depositories shall create and maintain a
database of distinctive numbers (DN) of equity shares of listed companies
with details of DN in respect of all physical shares and overall DN range for
dematerialised shares.
4. The DN database shall make available, information in respect of issued
capital, such as DN Range, number of equity shares issued, name of stock
exchange where the shares are listed, date of in-principle listing / final trading
approval / dealing permission, shares held in physical or demat form, date of
allotment, shares dematerialized under temporary (frozen) ISIN (International
Securities Identification Number) or Permanent (active) ISIN etc., at one
place.
5. Based on consultations with the Depositories and Stock Exchanges, the
following guidelines are given for the operationalisation of the DN database -
5.1. Instructions to the Depositories
5.1.1. The depositories shall create and maintain a database to capture
DN in respect of all physical equity shares and overall DN range for
dematerialised equity shares issued by listed companies.
5.1.2. The depositories shall provide an interface to the Stock Exchange,
Issuers/RTAs for online updation and to the DPs for online enquiry.
The same shall be released for live updates latest by September 30,
2015.
5.1.3. The database shall include the following information -
i. Distinctive Numbers (From)
vii. Trading start date
ii. Distinctive Numbers (To)
viii. Physical/demat
iii. Number of Equity shares
ix. Date of allotment and date
of issue (date of credit to BO
account)
iv. Name of stock exchange
x. ISIN along with name of
company
v. Date of in-principle listing
approval
xi. Nature of ISIN [Temporary
(Frozen) or Permanent
(Active)]
vi. Date of final trading approval /
dealing permission
5.1.4. The depositories shall ensure that the database maintained by
them is continuously updated and synchronised. The initial
synchronisation may be in batch mode and shall thereafter shift to
online mode.
5.1.5. The Depositories, in co-ordination with the Stock Exchanges,
having nationwide trading terminals and the Issuers/RTAs, shall
facilitate the process of populating the database with details of equity
share capital and the corresponding DN information as on September
30, 2015.
5.2. Instructions to the Stock Exchanges
5.2.1. The Stock Exchanges shall provide the following information of all
companies listed on the concerned Stock Exchange as on September
30, 2015 -
i. Total number of equity shares (A) for which final trading
approval / dealing permission has been granted.
ii. Total number of equity shares (B) for which in-principle listing
approval has been granted but final trading approval / dealing
permission is pending.
iii. Total number of equity shares comprising the paid-up capital i.e.
(A+B).
5.2.2. The Stock Exchanges shall use the interface provided by the
Depositories for the following -
i. In respect of companies where the final trading approval /
dealing permission was awaited as on September 30, 2015,
consequent to update of DN information by Issuers/RTAs, the
stock exchange shall validate the DN information updated by
the Issuer/RTA and update the date of 'in-principle' listing
approval, date of final trading approval / dealing permission and
trading start date [as per point nos. (v), (vi) and (vii) of 5.1.3],
immediately upon granting of such permissions.
ii. In respect of further issue of shares by listed companies,
consequent to update of DN information by Issuers/RTAs, the
stock exchange shall validate the DN information updated by
the Issuer/RTA and update the date of 'in-principle' listing
approval, date of final trading approval / dealing permission and
trading start date [as per point nos. (v), (vi) and (vii) of 5.1.3],
immediately upon granting of such permissions.
iii. In respect of companies coming out with initial public offer or
new listings on stock exchanges, the stock exchange shall
update the DN database with the total number of equity shares
for which final trading approval / dealing permission has been
granted.
iv. In respect of companies whose capital is changed/altered for
any reason other than further issuance of shares such as buy-
back of shares, forfeiture of shares, capital reduction, etc., the
stock exchange shall confirm such change/alteration in the
capital as updated by the Issuer/RTA in the DN database.
5.2.3. In case the DN data on listed shares as per the records of
Issuers/RTAs does not match with records of the Stock Exchanges,
the Stock Exchanges shall coordinate with the Issuer/RTA to
reconcile such differences.
5.3. Instructions to the Issuers/RTAs
5.3.1. Issuers/RTAs shall use the interface provided by the Depositories
for the following -
i. To update DN information in respect of all physical share capital
and overall DN range for dematerialised share capital for all
listed companies.
ii. Updating the fields (i)-(iv), (viii) and (ix) given in para 5.1.3, on a
continuous basis for subsequent changes including changes in
case of further issue, fresh issuance / new listing and other
change / alteration in capital (such as buy-back of shares,
forfeiture of shares, capital reduction, etc.).
iii. Capturing / updating the DN information on a continuous basis
while processing, dematerialisation / rematerialisation requests
confirmation, executing corporate action, etc.
5.3.2. Issuers/RTAs shall take all necessary steps to update the DN
database. If there is mismatch in the DN information with the data
provided / updated by the Stock Exchanges in the DN database, the
Issuer/RTA shall take steps to match the records and update the
same latest by December 31, 2015.
5.3.3. Failure by the Issuers/RTAs to ensure reconciliation of the records
as required in terms of para above shall attract appropriate actions
under the extant laws.
5.4. Instructions to the DPs
5.4.1. The DPs shall use the interface provided by the Depositories to
check the DNs of certificates of equity shares submitted for
dematerialisation and ensure that appropriate ISIN is filled in
Dematerialisation Request Form, as applicable, while processing
request for dematerialisation.
6. Exchanges and Depositories are advised to
a) make necessary amendments to the relevant bye-laws, rules and
regulations for the implementation of the above decision.
b) bring the provisions of this Circular to the notice of the listed companies
of the Exchange and DPs and RTAs/Issuers and also to disseminate the
same on the website.
c) communicate the status of the implementation of this Circular in the
Monthly Development Report to SEBI.
7. This circular is being issued in exercise of powers conferred under Section 11
(1) of the Securities and Exchange Board of India Act, 1992 to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market.
Yours faithfully,
Maninder Cheema
Deputy General Manager
email: maninderc@sebi.gov.in
As per rule 7B of service tax rules 1994 revised service tax return can be filled with in 90 days from the date of submission of original retur - See more at: http://canextstep.com/forums/topic/time-limit-for-revising-service-tax-return/#.VXd0X1KZbIU
Sub: Comments submitted by ICAI on Exposure Draft on Classification of Liabilities, (Proposed Amendments to IAS 1)
The International Accounting Standards Board (IASB) had issued the Exposure Draft on Classification of Liabilities, (Proposed Amendments to IAS 1) in February 2015, for the purpose of inviting comments, with last date of receiving comments being June 10, 2015.
The Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India (ICAI) with a view to raise concerns of Indian stakeholders, mainly, with regard to carve-out made in Ind AS 1, Presentation of Financial Statements, at an early stage at the IASB level hosted the above mentioned IASB's Exposure Draft on ICAI's website namely, www.icai.org for inviting comments with last date of receiving comments being May 10, 2015.
The ASB considered all the comments received on the Exposure Draft and finalized its comments to be submitted to the IASB.
We are glad to inform you that the comments so finalised by the ASB have been submitted to the IASB. You can access the comments letter submitted to the IASB at the following link on Knowledge Sharing Page on the ASB at ICAI's website: http://220.227.161.86/37807asb-commentsonias1.pdf
With best regards,
- See more at: http://canextstep.com/comments-submitted-by-icai-on-exposure-draft-on-classification-of-liabilities-proposed-amendments-to-ias-1/#.VXduylKZbIU
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