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IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers

A listed Indian company's annual CSR obligation is Rs 2.4 crore. It spends Rs 1.9 crore on eligible projects in the year, none of it on ongoing projects. Under the usual framework, what is the correct treatment of the shortfall of Rs 0.5 crore?

The Rs 0.5 crore shortfall must be transferred to a fund specified in the Companies Act within the stipulated period, because it does not relate to ongoing projects. It cannot be ignored or carried forward automatically, and the board must disclose the reasons.

  1. AIt must be transferred to a fund specified in the Act within the stipulated period, as the spending was not on ongoing projectsCorrect
  2. BIt is carried forward automatically with no action needed
  3. CIt is written off against retained earnings
  4. DIt is added to next year's dividend
  5. It is ignored because CSR spending is voluntary

Explanation

Shortfall = 2.4 - 1.9 = Rs 0.5 crore. Where the unspent amount does not relate to ongoing projects, it must be transferred to a specified fund within the stipulated time, with disclosure by the board. Unspent amounts for ongoing projects go to a separate unspent CSR account instead. Voluntary treatment is incorrect because the spend is mandatory for covered companies on a comply-or-explain basis with transfer duties.

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