Experts say while there is a huge increase in the compliance burden with the introduction of the Ministry of Corporate Affairs' extensive reporting format for accounting for corporate social responsibility (CSR), these changes will enable the government to create an extensive database of CSR activities in the country.
Ankit Singhi, partner at Corporate Professionals, stated, "The government is aware of the amount spent on corporate social responsibility, but now it can gain insight into where, how and where this money is being used."
In the Corporate India report, the government mandated that companies provide details of their CSR expenditure in the last three financial years, and details of their current projects. The new form notified by the MCA on February 11 will require companies to provide details of their CSR expenditure in the three preceding financial years.
The ministry of corporate affairs can use this additional information to draft effective CSR policies, according to experts. The focus on CSR spends has intensified over the past few years, and this mandate appears to be another step in that direction. "While it will add some compliance burden on corporations, it will improve transparency and disclosure around CSR activities as well as provide better oversight," said Pratiq Shah, partner at Deloitte India.
Besides the Form AOC-4 for filing a company's financial statement with the Registrar of Companies, companies will also have to file the new CSR-2 for the preceding financial year (2020-21) by March 31, 2022. These disclosures are also required as part of the annual reports the MCA had mandated companies to submit.
Covid-19 will burden companies with compliance costs and burden their finances, which is making them wary of it. Sonam Chandwani, managing partner of KS Legal & Associates, said, "Given CSR-2's policy, it may be helpful to the CSR department."
A company must provide details, such as the address, location, pincode of the property, along with the amount spent and its registered owner, if any capital assets have been created or acquired through CSR spend.
New mechanisms have been developed to ensure that the CSR sum is used in an appropriate and accountable manner, and that un-spent money is not added to the company's or promoter's coffers. Companies were also using CSR money for money laundering or funneling it back into their accounts, which prompted the stringent laws.
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