Assurance Gazette – February 2025 Edition

This edition provides insights into the evolving landscape of CSR accounting, focusing on the key updates introduced in the Revised Technical Guide on Accounting for Expenditure on Corporate Social Responsibility Activities (January 2025 Edition) issued by ICAI. By embracing these changes, companies can not only ensure compliance but also reinforce their commitment to ethical and sustainable business practices, thereby strengthening public trust and contributing to national development. In this edition, we also cover article that examines the capitalization of Annual Technical Support (ATS) charges during the development of an ERP system, based on an Expert Advisory Committee (EAC) opinion. Despite objections treating as an operational expense under Ind AS 38, A government-owned fertilizer company successfully defended capitalizing ATS charges for its ERP system development. We encourage you to share your feedback and suggestions on topics you’d like us to explore in future editions. Your input is invaluable in helping us tailor our content to meet your evolving need.

Accounting for Expenditure on Corporate Social Responsibility

Corporate Social Responsibility (CSR) has become a fundamental aspect of corporate governance, ensuring businesses contribute meaningfully to societal and environmental development. With evolving legal and regulatory frameworks, the ICAI has released the Revised Technical Guide to offer a detailed and practical understanding of the accounting treatment of CSR Expenditures and their presentation in the financial statements.

Key Updates in the 2025 Technical Guide summarises below and provides clarity on the amendments made thereof.

Aspect :Unspent CSR Amount “Other than on Ongoing Projects”

Update: Companies should transfer unspent amounts to a Schedule VII Fund within 6 months of the expiry of the financial year. Accordingly, a provision for liability for the amount representing the extent to which the amount is to be transferred needs to be recognised in the financial statements.

Aspect: Unspent CSR Amount “On Ongoing Projects”

Update: Unspent amount should be transferred to a special CSR account within 30 days from the end of the financial year and utilized within 3 years, failing which it should be transferred to a Schedule VII Fund within 30 days from the date of completion of the third financial year. Accordingly, the provision for liability for the amount representing the extent to which the amount is to be transferred within 30 days of the end of the financial year needs to be recognised in the financial statements.

Aspect: Carry Forward of excess CSR spent

Update: Excess CSR expenditure can be recognised as prepaid expense in the Balance Sheet under the head “Other Current Assets” and can be carried forward for up to 3 financial years, subject to Board approval. The prepaid expenditure would be reversed in the first interim period of the next financial year, at least to the extent of the CSR spend required to be effected in that financial year and shall not be pro-rated over the quarters for which interim financials are prepared (where applicable).