CSR and Social Governance · Social Impact Assessment and CSR Audit

CSR Audit: Meaning, Scope and Process

Updated 11 October 2026 · Fact-checked

A CSR audit is an independent check of whether a company's CSR spending followed Section 135, its Board-approved CSR policy and the CSR Rules. It tests the amount spent, the activities, fund utilisation, unspent transfers and disclosures. You answer by stating the rule, testing the facts and concluding.

Understand CSR Audit: Meaning, Scope and Process

A CSR audit is a systematic, evidence-based review of a company's CSR activity. It asks one question: did the company do what the law and its own policy required, and can it prove it?

The legal base is Section 135 of the Companies Act, 2013. The Board must approve a CSR policy after considering the CSR Committee's recommendations (Section 135(4)). It must ensure that the company spends, every financial year, at least two per cent of the average net profits of the three immediately preceding financial years (Section 135(5)). The audit tests compliance with these duties.

Objectives: confirm compliance with law and policy; verify that money was spent on eligible Schedule VII activities; check that unspent amounts were handled correctly; confirm that disclosures in the Board's report are complete and true; and give the Board assurance and suggestions for improvement.

Scope usually covers: applicability of Section 135 and the net profit computation under Section 198; constitution and functioning of the CSR Committee (or the Board where the amount does not exceed fifty lakh rupees, Section 135(9)); the CSR policy and annual action plan; project selection and local area preference; implementing agencies and their registration; utilisation of funds with supporting vouchers; unspent amounts; impact assessment where applicable; and reporting and website disclosure.

Who does it: the statutory auditor, an internal auditor or an independent professional may review CSR. A company secretary in practice often does the compliance review, and the company's secretarial team keeps the records the auditor needs. Under the CSR Rules, the Chief Financial Officer certifies that funds were utilised for the approved purposes and in the manner approved by the Board. The Rules also require the CSR Committee and the Board to monitor implementation. Treat the CFO certificate as management's assurance and the CSR audit as the independent check of that assurance.

A CSR audit is not the same as a social audit. A CSR audit is mainly financial and legal compliance of the company's CSR. A social audit assesses the social effects of an organisation or programme, often with community participation. Impact assessment measures outcomes, and it is a related but separate exercise.

Key rules to remember

Prescribed CSR amount: CSR obligation = 2% × average net profit of the three immediately preceding financial years; Net profit is calculated as per Section 198, excluding sums prescribed in the Rules. A company that has not completed three financial years uses the immediately preceding financial years available.
Applicability thresholds (Section 135(1)): Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore in the immediately preceding financial year; Any one test is enough. Committee needs three or more directors with at least one independent director; two or more directors if no independent director is required under Section 149(4).
No committee threshold (Section 135(9)): Amount to be spent ≤ ₹50 lakh → CSR Committee not required; Board discharges its functions; The CSR duty remains. Only the committee is dispensed with.
Unspent amount, ongoing project (Section 135(6)): Transfer to Unspent CSR Account within 30 days from the end of the financial year; spend within 3 financial years from the date of transfer; if not, transfer to a Schedule VII Fund within 30 days from completion of the third financial year; The account is opened in any scheduled bank, separately for each financial year.
Unspent amount, not ongoing project (Section 135(5), second proviso): Transfer to a Schedule VII Fund within six months of the expiry of the financial year; Board report states reasons for not spending; This applies unless the unspent amount relates to an ongoing project.
Penalty (Section 135(7)): Company: twice the amount required to be transferred or ₹1 crore, whichever is less. Officer in default: one-tenth of that amount or ₹2 lakh, whichever is less; Applies to default in complying with sub-section (5) or (6).
Set-off (third proviso to Section 135(5)): Excess spend may be set off against the requirement for succeeding financial years, as prescribed; The number of years and the manner come from the CSR Rules. Check them before quoting.

How to solve CSR Audit: Meaning, Scope and Process questions

Use the same four-part pattern for any CSR audit question: rule, facts, test, conclusion with action.

1Read the question and identify what is asked: meaning, scope, process, a CFO certificate, unspent amount, or a fact-based compliance check.
2State the legal base in plain words: Section 135 and the CSR Rules. Quote section numbers only for the provisions you are certain of, such as 135(5), 135(6), 135(7) and 135(9).
3List the facts given: net profit figures, amount spent, project type, dates, and who approved what.
4Apply the test. Compute the two per cent obligation if numbers are given. Check eligibility under Schedule VII, the committee and Board approvals, the dates for transfers, and the evidence available.
5Classify any shortfall: ongoing project (Unspent CSR Account within 30 days) or other (Schedule VII Fund within six months), and check whether the Board report gave reasons.
6Conclude clearly: compliant or not, the consequence such as penalty exposure, and the corrective action.
7Add a practical point: the document to draft or keep, such as the CFO certificate, utilisation statement, audit observation or Board report disclosure.

Quickest way: Audit in four checks: Amount, Activity, Account, Attestation

When to use it: Use this for short-note questions and for fact-based questions with little time.

Amount: compute two per cent of the three-year average net profit and compare it with the actual spend.
Activity: confirm each activity falls under Schedule VII and follows the Board-approved policy and annual action plan.
Account: for any shortfall, decide between the Unspent CSR Account (ongoing project, 30 days) and the Schedule VII Fund (six months or end of three years), and check the dates.
Attestation: confirm the CFO certification, Board report disclosure and website disclosure of the policy are in place.

Common mistakes in CSR Audit: Meaning, Scope and Process

Treating the CFO certificate as the CSR audit itself.
Both deal with fund utilisation, so they look the same.
Fix: Say the CFO certifies utilisation as management; the audit is an independent review of compliance, records and disclosures.
Applying one deadline to every unspent amount.
Students merge Section 135(5) and 135(6).
Fix: Ongoing project: Unspent CSR Account within 30 days, spend within three financial years. Other unspent: Schedule VII Fund within six months of the financial year's expiry.
Computing the two per cent on the current year's profit.
It feels natural to use the latest figure.
Fix: Use the average net profit of the three immediately preceding financial years, computed under Section 198.
Saying a company below the ₹50 lakh limit has no CSR duty.
Section 135(9) removes the committee, and students overread it.
Fix: Only the committee requirement goes. The Board discharges its functions and the spending duty continues.
Mixing up CSR audit, social audit and impact assessment.
All three evaluate CSR in some way.
Fix: CSR audit: compliance and utilisation. Social audit: social effects, often with community participation. Impact assessment: measured outcomes of projects.
Quoting penalty figures without the 'whichever is less' rule.
Students remember only the caps.
Fix: Company: twice the amount required to be transferred or ₹1 crore, whichever is less. Officer: one-tenth or ₹2 lakh, whichever is less.

Worked examples

Example 1

Sundaram Textiles Ltd had net profits (under Section 198) of ₹8 crore, ₹10 crore and ₹12 crore in the three preceding years. It spent ₹15 lakh on CSR in the current year, partly on an ongoing project. Compute the CSR obligation and the shortfall, and advise on the treatment of the unspent amount.

Show the solution

Average net profit = (8 + 10 + 12) ÷ 3 = ₹10 crore.
Obligation = 2% × ₹10 crore = ₹20 lakh.
Shortfall = ₹20 lakh − ₹15 lakh = ₹5 lakh.
Audit check: if the ₹5 lakh relates to an ongoing project meeting the prescribed conditions, it must be transferred to an Unspent CSR Account in a scheduled bank within 30 days from the end of the financial year, and spent within three financial years from the date of transfer.
If it is not ongoing project money, it must go to a Schedule VII Fund within six months of the expiry of the financial year, and the Board report must give reasons.
Default attracts penalty under Section 135(7). For the company it is twice the amount required to be transferred (₹10 lakh) or ₹1 crore, whichever is less, so ₹10 lakh.

Answer: The obligation is ₹20 lakh and the shortfall is ₹5 lakh. If it relates to an ongoing project, transfer it to the Unspent CSR Account within 30 days of year-end. Otherwise, transfer it to a Schedule VII Fund within six months. In default, the company's penalty would be ₹10 lakh.

Example 2

As a company secretary, list the main steps you would follow in a CSR audit of Kaveri Pharma Ltd and the evidence you would ask for.

Show the solution

Applicability: check net worth, turnover and net profit of the immediately preceding year against Section 135(1).
Governance: verify CSR Committee composition, or Board discharge if the amount is ₹50 lakh or less under Section 135(9). Obtain minutes of meetings.
Policy and plan: obtain the Board-approved CSR policy, the annual action plan and the website disclosure.
Amount: recompute two per cent of the three-year average net profit under Section 198 and compare it with actual spend.
Eligibility and implementation: test each project against Schedule VII, local area preference, and the registration and agreements of any implementing agency.
Utilisation: vouch expenditure with invoices, bank statements and utilisation reports, and obtain the CFO's certification of utilisation.
Unspent amounts: check the Unspent CSR Account, transfer dates and Fund transfers.
Reporting: check the Board report disclosures and reasons for shortfall, then issue findings with recommendations.

Answer: The audit moves from applicability to governance, policy, amount, eligibility, utilisation with CFO certification, unspent amounts and reporting. It ends with a report on observations and corrective actions.

Exam tips

Draw the line between ongoing and non-ongoing unspent amounts early in your answer. Examiners reward the correct deadline for each.
In numerical questions, show the average-profit computation line by line before applying two per cent.
Write the CFO certificate and the CSR audit as two different things, and mention who relies on whom.
For differences, use two or three clear points: purpose, who conducts it, and what it examines. Keep each point to one line.
Close fact-based answers with a practical action: draft the Board report disclosure, open the account, or fix the records.

Practice questions from Social Impact Assessment and CSR Audit

CSR Audit: Meaning, Scope and Process: frequently asked questions

What is the meaning of CSR audit?

A CSR audit is an independent review of whether a company met its CSR obligations under Section 135, its own CSR policy and the CSR Rules. It checks the amount spent, activities, utilisation of funds, unspent amount handling and disclosures.

Is a CSR audit different from a social audit?

Yes. A CSR audit focuses on legal and financial compliance of the company's CSR. A social audit looks at the social effects of a programme or organisation, often with community participation.

When must unspent CSR money be moved to the Unspent CSR Account?

For an ongoing project meeting the prescribed conditions, the amount goes to the Unspent CSR Account within 30 days from the end of the financial year (Section 135(6)). The company must spend it within three financial years from the date of transfer, failing which it goes to a Schedule VII Fund.

What happens if unspent CSR money is not transferred?

The company is liable to a penalty under Section 135(7): twice the amount required to be transferred or ₹1 crore, whichever is less. Each officer in default faces one-tenth of that amount or ₹2 lakh, whichever is less.