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Social auditing of CSR spending can become a must

As part of an initiative to further tighten CSR standards in the country, the government plans to require companies to conduct social audits of their corporate social responsibility (CSR) spending.

Department for Corporate Affairs (MCA) officials said the social audit would start with public sector companies (PSUs) and then expand to all business units.

One of the officials said the market regulator Securities and Exchange Board of India (Sebi) has already commissioned the Institute of Chartered Accountants of India (ICAI) to work on drafting a social auditing standard.

While this is mainly used for NGOs and non-profit organizations, it could also be used for the broader impact assessment as part of CSR spending.

“Once the social testing framework is ready, we will begin it with PSUs,” the official added.

The Companies Act 2013 does not currently require companies to carry out social audits of their CSR activities.

From this year, with the introduction of the CSR 2 form, companies must submit a CSR report with detailed information on the projects they spend on to the registrar. “The new CSR-2 form will include a list of projects and information about where they’re doing it, what kind of money is being spent,” a senior official said.

With the introduction of social audits and impact assessments, the whole disclosure mechanism will become more transparent, the official told ET.

Earlier, in January 2021, MCA made many changes to the rules to make companies more accountable for CSR spending and introduced a provision for fines. If a company defaults on CSR, the penalty can start at ₹2 lakh and go up to ₹1 crore.

If a company spends more than the mandatory 2% of its average net profit on CSR in the last three years, it can offset this with future spending commitments.

Some companies have complained about the increasing compliance burden, but experts said social audits will make the CSR spending process more transparent.

“This, along with the various changes in CSR, has shifted CSR in India from a compliance-and-explain approach to a compliance-and-disclosure approach,” said Nemish Kapadia, Partner, Assurance, at Audit and Tax Practice Sudit K Parekh & Co LLP.

The new CSR norms oblige companies to provide information about CSR committees set up by companies, their members and details of welfare projects implemented. Even if an amount is not spent, it must be transferred to the accounts provided for this purpose.

“Compliance primarily includes the aggregation of all reportable CSR information, covering the criteria of CSR applicability, the amount of expenditure required, amounts spent and unspent, the amount of offsetting, if any, the pathways of CSR expenditure , details of investments purchased or created, and reasons for non-spending, among other things,” Kapadia said.

Recently, a Parliamentary Standing Committee on Finance, headed by former MoS Jayant Sinha, raised concerns about the oversight mechanism for CSR spending. “Information on corporate CSR spending is inadequate and difficult to access for laypersons,” the panel noted in its report.

https://economictimes.indiatimes.com/news/economy/policy/social-audit-of-csr-spend-may-become-must/articleshow/90650199.cms Social auditing of CSR spending can become a must

Russell Falcon

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