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Corporate social responsibility PPT | 2015

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CSR, Global impact, Indian scenario, clause 135, companies rules 2014, FAQs & Guidance notes issued by ICAI.

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Corporate social responsibility PPT | 2015

  1. 1. Corporate Social Responsibility - Aadhit B Balaji National Convention | ICAI | BOS | WIRC Aurangabad | 4th & 5th July
  2. 2. In Nutshell The Global Aspect - CSR CSR Hierarchy Model & Triple bottom line Clause 135 of Companies act, 2013 & Companies (CSR policies) rules, 2014 Guidance note on CSR – Issued by ICAI CSR Reporting | CSR & SMEs | Clause 55 of listing agreement CSR from business perspectives & positives of CSR business benefits Famous CSR projects/programs in India – Top successful Cos practicing CSR
  3. 3. The Global Aspect – CSR • CSR related concepts – Triple bottom line – Corporate citizenship – Philanthropy – Business responsibility – Corporate sustainability World Business Council for Sustainable development - “the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large.”
  4. 4. Providing Support to organisations for Social Cause Water & Energy Consumption, Protection of trees and Pollution and Waste management CSR – Triple Bottom Line (People – Planet – Profit) Profit (CSR activities) Planet People Natural Disaster Illiteracy Support to Schools Employability Skill development Respect and Humanity Supporting the educational efforts of the schools Employee volunteerism Road Accidents Communica ble Diseases
  5. 5. CSR – Hierarchy Model Ethical Model (1930-1950s) Statist Model (1950s-1970s) Liberal Model (1970s-1990s) Stakeholder Model (1990s – To Present) Stakeholders Model: The evolution of CSR in India has followed a chronological order of four thinking approaches, though the stakeholder model came into existence during 1990s as a consequence of realisation that with growing economic profits, businesses also have certain societal roles to fulfil. The model expects companies to perform according to “triple bottom line” approach. The businesses are also focusing on accountability and transparency through several mechanisms.
  6. 6. Benefits of a CSR programme in a Global Aspect (Companies Perspective): A Good CSR practices can only bring in greater benefits by fostering the below aspects, (two main) 1. Attracting and retaining employees – Increasing the employee morale and sense of belonging to the company 2. Enriching the corporate reputation – positive image and branding benefits are created to place the company as a responsible corporate citizen in the world market. 3. Cost savings 4. Revenue increase from higher sales and market share 5. Brand Value 6. Can avoid negative press and customer boycotts (risk reduction/management)
  7. 7. Corporate Social Responsibility – In India Timeline - Companies Act, 2013 | Companies (CSR policies) Rules, 2014 27th Feb 2014 - Notification pronouncing CSR Policy Rules – effective 01.04.2014 27th Feb 2014 - Notification amending Schedule VII – effective 01.04.2014 28th Feb 2014 - Notification implementing Sec 135 & Sch VII w.e.f. 01.04.2014 31st Mar 2014 - Corrigenda explaining an entry Sch VII 18th Jun 2014 - Cir No 21/2014 on Sch VII & certain activities 6th Aug 2014 - Insertion of new activity for CSR 15th May 2015 - Guidance note Issued by ICAI For accounting for expenditure on CSR. High level committee to monitor CSR
  8. 8. Applicability of CSR provisions in India Companies Act, 2013 - CSR Provisions Annual Turnover of 1000 Crore or more Sec 2(91) NetWorth of 500 Crore or more Sec 2(57) Net Profit of 5 Crore or more Sec 2(1) (f) During any of the three preceeding FY. Cir Dt (18.06.2014) If Applicable, Minimum 2% of “Average Net Profit” to be spent on CSR activities
  9. 9. Definitions as per Companies Act, 2013 Meaning of ‘Average Net Profit’? It is the average of the net profits of the Company made during the three immediately preceding FYs. Net Profit does not include; (i) profit of overseas branches/companies and (ii) dividend from CSR compliant companies. Is Net Profit – PBT or PAT?? Explanation to S-135 read with S-198 & S-198(5) states that Income Tax shall not be deducted in computation of profits
  10. 10. CSR Committee Formation | Policy framework | Policy Implementation | Control on Expenditures Networth >= 500 Crore (or) Turnover > =1000 Crore (or) Netprofit > =5 Crore Role Of Directors - Form a CSR Committee - Approving a CSR policy also Additions & Deletions. - Implementation - 2% Expenditure - Disclosure Aspects - Business Responsibility Report. CSR Committee - Three or more directors with atleast one Independent director - Formulate and recommend a CSR policy to the board - Recommend activities and the amount to be incurred - Monitor the CSR from time to time NEXT STEP AFTER APPLICABILITY
  11. 11. FAQs on CSR applicability & committee Composition provisions As per the notification dated 27.02.2014 by MCA to clear ambiguition 1. Provision requires the company to form a CSR committee with Three or more directors with one independent director. a. What if an unlisted public company or private company is not required to have an Independent Director as per the act? Such class of companies can constitute CSR Committee without such independent director. b. What if a private company has only two directors? A private company with just two directors in its board shall continue to constitute a CSR Committee with such two directors. 2. Provisions related to the applicability of CSR provisions to its holding, subsidiary and a Foreign company? Every company including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India, which fulfils the eligibility criteria. 3. What if the applicability criteria for the CSR do not hit subsequent years? a. CSR requirements still apply till three consecutive years. b. It will cease to apply, in case your financial figures skip Applicability Criteria for three consecutive FYs c. No CSR compliance till you hit the Applicability Criteria again.
  12. 12. CSR Implementation through Special purpose vehicle • By establishing a SPV in the form of registered Trust/Society/Section 8 Company • Through such entities established by the Holding/Subsidiary/Associate Company* • Through third party trust/society/Section 8 company; • Subject to the fact that the aforesaid Cos should have track record of three years with such similar activities as enumerated in Notification vide dated 27.02.2014 on CSR expenditures. • Collaborating or pooling their resources with other companies. *Sec-2(6): Associate Co. means a company over which another has significant influence (20% including JV); other than subsidiaries
  13. 13. CSR Expenditures as notified in Sch VII on 27th Feb 2014. Qualified CSR expenditure. 1. Eradicating hunger and poverty and malnutrition, promoting preventive healthcare and sanitation (Including contribution to Swach Bharat Kosh setup by Central Govt) – Notification Dt 24.10.2014 and making available safe drinking water. 2. Promoting education; including special education and employment enhancing vocation skills especially among children, woman, elderly and the differently- abled and livelihood enhancement projects 3. Promoting gender equality, empowering women; setting up homes and hostels for women and orphans, setting up old age homes, day care centres, and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups. 4. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining of quality of soil, air and water (Including Contribution to Clean Ganga Fund setup by Central Govt.) – Notification Dt 24.10.2014.
  14. 14. CSR Expenditures as notified in Sch VII on 27th Feb 2014. Qualified CSR expenditure. 5. Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women. 6. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up of public libraries; promotion and development of traditional arts and handicrafts. 7. Measures for the benefit of armed forces veterans, war widows and their dependents. 8. Training to promote rural sports, nationally recognised sports, and Paralympics sports and Olympic sports 9. Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government 10. Rural development projects 11. Slum developments projects (As inserted by Notification Dt 06.08.2014)
  15. 15. CSR Expenditures – Those do not qualify for.  CSR activities should be undertaken by the companies in project or programme mode. One-off events such as marathons, awards, charitable contribution, advertisement, sponsorships of TV programmes etc. would not be qualified as part of CSR expenditure. Expenses incurred by companies for the fulfilment of any Act or Statute of regulations (such as Labour Laws, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act.  The CSR efforts that benefit only the employees and their families  Contribution to any political party.
  16. 16. FAQs on - CSR Expenditures – Accounting & Reporting 1. Whether provision for Unspent amount required to be created? a. Section mandates to spend atleast of 2% of ANP b. If Company fails so – specify the reason in the board report. c. Provision not to be made in respect of Exp not spent in such year. d. Further, In case any liability undertaken in respect of any contractual obligation , then in accordance with GAAP, such amount to be provisioned and needs to be recognized in the financial statements. e. As per Schedule III of companies act 2013, further movements in the provision should be shown separately. 2. Can a company carry forward its expenditure which has expended more than the requirement (2%)? The excess amount is not eligible for any carry forward to the next subsequent yrs.
  17. 17. FAQs on - CSR Expenditures – Accounting & Reporting 3. Recognition and disclosure in case of companies carrying on CSR activities on their Own; a. Expenditure (revenue in nature) as per Sch VII – to be charged to Statement of P&L as per Sch III. b. In case of capital nature expenditures – gives rise to an asset – “CSR asset” for control purpose. Further, in case of any surplus from CSR asset, the same should not be included in the business profits as per Rule 6(2) of the Companies (Corporate Social Responsibility policy) Rules, 2014. 4. How Income earned from CSR projects/programs are recognized? Shall be recognized in the statement of profits & loss – to be recognized as liability immediately since it’s not a business profit and subsequently charged to P&L. Accordingly, these surplus would not form part of 2% bracket. 5. Presentation and Disclosure in respect of CSR in Financial statements; For a better financial reporting and in line with the requirements of Schedule III, it is recommended that all CSR expenditures are recognised as expense as a separate line item in the statement of profit and loss as “CSR Expenditures”. Further, relevant note must disclose the various heads of expenses classified under the CSR activities.
  18. 18. Business Reporting Responsibility (BRR) • New Clause 55 inserted in Listing Agreement; effective from FY ending on or after 31.12.2012. • Listed entities to include Business Responsibility Report as part of their Annual Reports describing their initiatives from an environmental, social and governance perspective (ESG Initiatives) • Initially applicable to top 100 companies based on Market Capitalisation • BRR template has been provided by SEBI and to form part of annual report. • BRR in line with National voluntary guidelines (NVG) which has nine principles. • SEBI has also encouraged other listed companies to volunteer to disclose EVG in BRR format. SEBI Circular – 13th Aug 2012
  19. 19. CSR and SMEs Small and Medium enterprises, as the name purports the contribution of their role in the economy is predominant. Their share towards employability of the workforce as well as the output is more than 40% of the total. Therefore it must be supplemental for the government to expect the SMEs to also contribute towards the CSR activities by injecting a clause, Net profit more than 5 Crores INR, which might involve most of the SMEs in the ambit of the CSR clause 135, of Companies act, 2013. With the introduction of the new Companies Act, 2013, the SME’s approach to CSR has to be modified while keeping operational costs low. One viable alternative is to pool resources with other SMEs in the cluster and create joint CSR programmes managed by a single entity. This collaboration can be formed within the units in a cluster as they interact with the same communities and have already established associations that cater to the business needs of the units.
  20. 20. CSR – Penal Provisons • Failure to disclose in the Board’s Report attracts minimum fine of Rs. 50,000 upto Rs. 25 lakhs to the Company. Additionally, every officer in default’ is also punishable with imprisonment for 3 years apart from the fine too [sec 134(8)]. • Defaults where for no penalty is indicated - Company and every office in default (i) onetime fine of upto Rs. 10,000/- and (ii) Rs. 1,000/- per day in case of continuing default [Sec 450: residuary penal section.]
  21. 21. CSR – Taxation aspects 1. Whether the expenditures incurred related to CSR shall be qualified as expenditure deducted with the purview of Income tax Act, 1961 ? The answer is NO. Section 13 of the Finance Bill, 2014 amends Sec-37 of the IT Act relating to general expenditure by inserting an Explanation II to sub-section (1) of Section 37 which states that: ‘….. it is hereby declared that for the purposes of sub-section (1), any expenditure incurred…..on the activities relating to CSR referred to in sec- 135 of Companies Act, 2013 shall not be deemed to be an expenditure incurred…. for the purposes of the business or profession.’ “If expenses qualify as tax deduction it would amount to subsidising around one- third of such expenditure. “
  22. 22. Corporate Social Responsibility Top Companies with Best CSR policies and implementation in the world. Microsoft Daimler Apple BMW The Walt Disney Google Colgate Sony VW
  23. 23. Top 10 companies with the best CSR regulations in India Tata Steel It comes out with the Human Development Index (HDI), a composite index of health, education and income levels, to assess the impact of its work in rural areas. Health care is one of its main concerns. The Tata Steel Rural Development Society aims to improve agricultural productivity and raise farmers’ standard of living. Mahindra & Mahindra - Supports education of over 75,000 underprivileged girls. - Scholarships to 83,245 students so far. - Also works for causes related to environment, health care, sports and culture. Ashok Leyland | Tata Motors | Maruti Suzuki | ITC | L&T | SAIL | Infosys | Coca-cola | ONGC | IBP | IOC
  24. 24. Thank You THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA | WIRC NATIONAL CONVENTION AURANGABAD JULY 4TH & 5TH

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