Theme accounting challenges title_accounting challenges due to the implementation of Corporate Social Responsibility together with the impact of IPSAS

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“Accounting Challenges due to implementation of Corporate Social Responsibility under Section 135 of Companies Act together with the impact of International Public

Sector Accounting Standards (IPSAS)”

Dr. T. Joseph M.Com., M.Phil. MBA.,Ph.D.,

Associate Profession – Dept. of Commerce, Loyola College (Autonomous), Chennai – 34. Email: [email protected]

&

Sundar A. Rodriguez M.Com., FCA. DISA., CFSA(USA).,

Research Scholar, Dept. of Commerce, Loyola College (Autonomous), Chennai – 34. Email: [email protected]

The Introduction:

The Indian Companies are mandated to take up activities which are not their core business activities, and not only that it has rather been forced to take up the “social activities” to fulfil the legal requirement as imposed at them by Section 135 of the new Companies Act, 2013. The core business activities accounting aspects are government in India by the Indian Accounting Standard including Generally Accepted Accounting Principles (GAAP), and for the “social activities” in India there are no proper guidelines in place, especially under the Companies Act, under whose rules and regulations the accounts of the Indian Companies are to be prepared and finalized. This problem is again compounded by the fact that the Companies Act, 2013 mandates the company to take up the social activities either by itself or by its Foundations or by non-governmental organization.

Taking this up globally, for the business activities the accounting is governed by International Financial Reporting Standards (IFRS), and the social or not for profit activities are governed by the International Public Sector Accounting Standards (IPSAS).

The accounting issue of such activities comes to effect both when it is taken in house or out sourced. If it is taken in house, the problem of how to account for social activities which has its own unique nature which has not been adequately addressed by the present Indian Accounting Standards under which the accounts are to be drawn up. If it is out sourced, the company cannot just write off the entire amount handed over to the out sourced agency, as it has been mandated not only to monitor it but also stated to have fiduciary relationship to the program carried out. This again brings out the challenge of how to go about accounting. This marriage of “Core Business Activities” and “Social Activities” (under the guise of Corporate Social Responsibilities) brings about lot of problems associated with the accounting.

Accounting for “Not for Profit” activities:

Due to the unique nature of the activities whose fulcrum is “not for profit” requires separate accounting principles and standards, which cannot be easily be followed by following the principles and standards of the “for profit” organizations.

The not for profit organizations standards and accounting principles are also generally followed by Governments, including all till the local governance, in normal scenario. Since

“Accounting Challenges due to implementation of Section 135 of Companies Act together with the impact of IPSAS”.

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there are no specific accounting standards to be followed by Non-Governmental Organizations involved in the developmental sector, globally they have adopted the IPSAS. Hence IPSAS has become the standard to be followed for accounting and reporting of the not for profit transactions globally, hence this could be applied to the accounting and reporting for the CSR activities of the Indian Companies, insofar as it is applicable in India, or such other guidelines that are in force for the government activities.

Both the international and Indian scenario of standards for the not for profit activities are detailed below.

Accounting Standards – Public Sector (not for profit) – International:

The International Public Sector Accounting Standards Board (IPSASB) – formerly the Public Sector Committee of the International Federation of Accountants focuses on the accounting, auditing and financial reporting needs of the national regional and local governments, related governmental agencies, and the constituencies they serve. It addresses these needs by issuing and promoting benchmark guidance, conducting educational and research programs and facilitating the exchange of information among accountants and those that work in the public sector or rely on its work.

The IPSASB consists of 18 members, of which 15 are drawn from International Federation of Accountants (IFAC) member bodies and the remaining three are public members with expertise in public sector financial reporting.

The IPSASB develops accrual-based International Public Sector Accounting Standards to address public sector financial reporting issues in two different ways:

By addressing public sector financial reporting issues (a) that have not been comprehensively or appropriately dealt with in existing International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board or (b) for which there is no related IFRS; and (c) by developing IPSAS that are converged with IFRS by adapting them to public sector context.

As of now there are about 32 standards issued by IPSASB.

As most countries in the world still follow cash-basis accounting or reporting the core governmental activities, IPSASB issued standards on both cash and accrual basis distinctly. It has issued one comprehensive cash-basis IPSAS to cover all the requirements of countries following the cash basis accounting. Alongside, it has also issued accrual-basis IPSAS for countries that have moved or are in the transition path to accrual-basis accounting.

Need for assessing the difference between IFRS and IPSAS:

The companies are equipped well with their understanding of IFRS, which they can easily comprehend and apply as it address all the facets of their core activity i.e., for profit transactions. However, with the onset of mandatory requirement of CSR, they are bound to have an understanding of IPSAS which is necessary to understand its applicability for the


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“not-for profit” transactions, under which the CSR falls. Thus the companies are required to have an understanding of IPSAS, though it differs with IFRS.

Accounting Standards – Public Sector (not for profit) – Indian scenario:

For the accounting of the “for the profit” organizations, the Ministry of Corporate Affairs had come up with Indian Standards which is converged with the International Financial Reporting Standard.

However, since the MCA has not come clearly about the standards that exclusively apply for the CSR activities, we have to fall back on the Government Financial Reporting Standards of India.

Government accounting in India follows cash basis of accounting. Government Accounting Standards Advisory Board (GASAB) constituted by the Comptroller and Auditor General of India with support of Government of India has been working on migration to accrual basis of accounting in Union and States. Any decision to change the basis of accounting from cash to accrual would essentially be based on a decision of the President of India on the advice of Comptroller and Auditor General of India under Constitutional provisions. However, there is a much felt need for accounting framework and accounting standards on accrual basis to facilitate pilot studies and research efforts on migration to accrual accounting at Union and State level. To facilitate pilot studies and for scale up of activities, GASAB has taken a decision to develop accrual basis accounting standards alongside cash basis standards. The accrual basis standards are issued under the title “Indian Government Financial Reporting Standards (IGFRS)”

The accrual basis standards are issued initially as recommendatory for pilot studies on accrual accounting and will be mandatory with effect from the date of notification by Government of India.

So far five IGFRS had been issued.

IFAC in the meantime continuing its efforts for harmonization of international standards with that of those being followed in India.

Mr. Goran Tidstrom, President, IFAC along with Mr. Russell Guthrie, Executive Director, IFAC visited India on October 29-30, 2012 to have interaction with accounting fraternity in India. The delegation met with Shri Sachin Pilot, Hon’ble Minister of Corporate Affairs and Shri Naved Masood, Secretary, Ministry of Corporate Affairs to discuss issues on convergence of national and international auditing and assurance standards; adoption of high standards of ethics for members and promotion of good ethical practices globally; ways of developing access of Accountants to various markets. The meeting also dwelled upon how Indian resources can be utilized in IFAC activities and how can Accounting Profession in India contribute more efficiently to the financial reporting system.


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The delegation also met with Shri A K Patnaik, Dy. Comptroller and Auditor General of India and Shri Jawahar Thakur, Controller General of Accounts to discuss the promotion of IPSAS in India; accrual form of Government accounting; how India is preparing for adoption of high standards of ethics for members and promotion of good ethical practices globally. Discussions were also held on convergence to IFRS and International Auditing Standards and how the presence of Indian regulators be enhanced on global accounting profession platform.

Accounting for CSR – Indian perspective:

The MCA has not so far come up with the standards exclusively for the accounting and reporting of the CSR activities.

The Companies registered under Indian Companies Act, when they reach the threshold limit specified in Section 135, are mandated to undertake the CSR. The problem would be two fold based on the company.

If it is a full-fledged Indian company, then the applicability of the standards mandated by MCA is to be followed, and the confusion as to how the CSR is to be accounted and reported will continue to be there till a clear statement is made.

In case of companies, which is a subsidiary of an International Company, has to face additional dilemma other than the above; that is, they have to redraft their “for profit” activities in line with IFRS and to redraft their “not-for-profit” activities in line with IPSAS to facilitate easy consolidation and for effective segmental reporting as required under IFRS.

Present Status:

The convergence of two activities, namely the core activity (the carrying on the business activity) and the supplementary or imposed activity (the social responsibility program activity); each of which are separately governed by distinct standards and guidelines, as for as the accounting goes, due to the necessities of the time, and imposed upon by a new law in India, which does not really goes into details of such “marriage of convenience” with special reference to the accounting practices give rises to a problem that is to be addressed.

Further due to globalization the companies in India, either has foreign presence or it is a subsidiary of a foreign company. This necessitates that accounts are presented in accordance with IFRS (for core activities) and IPSAS (for the social responsibility activity); as most of the advanced countries had accepted for example IFRS (for business companies) and International Public Sector Accounting Standards (IPSAS) for non-trading sector.

The pictorial representation of the reporting process of a company involved in CSR is given below:


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Gap between the International and National Standards:

As for as the accounting standards for the business activities are concerned, there are two sets of accounting standards in India and one in International level – IFRS. The major differences between these are given below:

Effectively in India, the following group of standards are available and applicable.

Standards Notified under the Companies Accounting Standards Rules 2006, as amended, which is called as GAAP

The Indian Accounting Standards, which are converged with IFRS issued by the Ministry of Corporate Affairs.

The Major differences between these and IFRS are listed below:

Topic Indian GAAP IFRS Indian Account Standards

Presentation of Financial Statements – primary literature

AS 1 – Disclosure of Accounting Policies/Schedule VI to the Companies Act, 1956.AS 5 – Net Profit or Loss for the period, prior period items and changes in Accounting Policies.

IAS 1 – Presentation of Financial Statements

Ind AS – 1 – Presentation of Financial Statements

Presentation of Financial Statements –

The components of financial statements are (a) balance sheet; (b)

A complete set of financial statements under IFRS comprises:

The components of financial statements are (a) balance sheet;


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Components of Financial Statements

statement of profit and loss; (c) cash flow statement; (d) explanatory notes including summary of accounting policies.Comparative figures are presented for one year as per the requirements of Schedule VISingle entity financial statements are required to be presented by all entities. Public listed companies are required to present consolidated financial statements in addition to separate financial statements of the parent in terms of the listing agreement with the Stock Exchanges and the SEBI Guidelines

(a) Statement of financial position

(b) Statement of comprehensive income / a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income

(c) A statement of changes in equity and

(d) Notes including summary of accounting policies and explanatory notes.

Comparative figures are presented for one year. When a change in accounting policy has been applied retrospectively or items of financial statements have been restated/reclassified, a statement of financial position is required as at the beginning of the earliest period presented.

(b) statement of profit and loss; (c) cash flow statement; (d) explanatory notes including summary of accounting policies.

Comparative figures are presented for one year. When a change in accounting policy has been applied retrospectively or items of financial statements have been restated/reclassified, a statement of financial position is required as at the beginning of the earliest period presented.

Unlike IFRD, the Ind Ass do not mandate which entities are required to prepare consolidated financial statements as the requirements to present consolidated or separate financial statements is regulated by governing statutes in India.

Presentation of Financial Statements – estimation of uncertainty

AS 1 does not specifically require an entity to disclose information about the assumptions that it makes about the future and other major sources of estimation of uncertainty at the end of the reporting period though other standards may require certain disclosures of the same.

Requires disclosure of key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

The nature of the uncertainty and the carrying amounts of such assets and liabilities at the end of the reporting period are required to be disclosed.

Similar to IFRS


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Inventories – Classification

As per the requirements of Schedule VI, inventories need to be classified as:

Raw Materials Work in progress Finished Goods Stock in trade Stores and spares Loose tools Others

No specific classification requirements – classification should be appropriate to the entity

Similar to IFRS

Statement of Cash Flows – Cash flows from extraordinary items

Cash flows from items disclosed as extraordinary are classified as arising from operating, investing or financing activities and separately disclosed

As presentation of items of items as extraordinary is not permitted, the cash flow statement does not reflect any items of cash flow as extraordinary

Similar to IFRS

Property, Plant and Equipment – depreciation

Fixed assets are not required to be componentized and depreciated separately, although AS 10 states that such an approach may improve the account for an item of fixed asset. Schedule XIV specifies the minimum depreciation rates to be used for different categories of assets.

PPE are componentized and are depreciated separately. There is no concept of minimum statutory depreciation under IFRS

Similar to IFRS

Revenue – Definition

Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends. Revenue is measured by the charges made to customers for goods supplied and services rendered to them and by the charges and rewards arising from the use of resources by them.

As per Schedule VI, in case of a company other than a finance company,

Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increase relating to contributions from equity participants.

Amounts collected on behalf of third parties, such as sales and service taxes and value added taxes are excluded from revenues

Similar to IFRS


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revenue from operations should disclose separately in the notes to the accounts the following:Sale of productsSale of servicesOther Operating revenuesLess:Excise duty

However as per AS 9 (the provision of which will prevail over those of schedule VI), revenue needs to be presented on the face of the statement of profit and loss as under:Turnover (Gross)Less: Excise DutyTurnover (Net)

Related Party – Definition of close member of the family

No definition of close member of the family. Instead the term “relative” has been defined.

Close members of the family of a person are those family members who may be expected to influence or be influenced by, that person in their dealings with the entity and include:A0 that person’s children and spouse or domestic partner; b) children of that person’s spouse or domestic partner; and c) dependants of that person or that person’s spouse or domestic partner.

Close members of the family of a person are the persons specified within meaning of “relative” under the companies Act 1956 and that person’s domestic partner, children of that person’s domestic partner and dependents of that person’s domestic partner.

Consolidated and separate financial statements – Scope

Indian GAAP does not specify entities that are required to present consolidated financial statements. The accounting standard is required to be followed if consolidated financial statements are presented.

The SEBI requires entities listed and to be listed to present consolidated financial statements

A parent is required to prepare consolidated financial statements in which they consolidate their investments in subsidiaries in accordance with IAS 27.

A subsidiary is an entity that is controlled by another entity (known as the parent).

A parent need not prepare consolidated financial statements only. If all the

Ind AS does not mandate presentation of consolidated financial statements as requirements to present consolidated or separate financial statements is regulated by governing statutes in India.


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following conditions are met:

the entity is itself a wholly owned subsidiary or a partially owned subsidiary and its other owners have not objected to the entity not presenting consolidated financial statements;

the entity’s debt or equity instruments are not traded in a public market

the entity is not in a process of filing its financial statements for the purposes of issuing any class of instruments in a public market and

the ultimate or any intermediate parent of the entity produces consolidated financial statements available for public use that comply with IFRS.

In case of not for profit organization, there are no specific standards, and the ones followed by the Government which has the IGFRS issued by the GASAB, which is formed by the Comptroller and Auditor General of India.

IPSAS vs. IFRS: How they differ:

The differences between IPSAS and IFRS has to be understood by the Companies, especially those who are subsidiary of a foreign company, as the “for profit” transactions has to be reported as per IFRS and their “not-for-profit” activities are to be reported as per IPSAS. Thus they have to have two segment within their accounting framework, under which the CSR activities fall under the “not-for-profit” activities and they are to be dealt with accordingly by following the IPSAS principles.

Some of the major differences are listed below:

IPSAS-24 requires a public sector entity to present the comparison between budgeted amounts and the actual amounts that arise from executing the said budget, in the disclosures are also required to explain the reasons behind the significant differences


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between these two amounts. In showing such a comparison and making the required disclosures, the public entity can demonstrate how well it manages public funds and provides services for which it is publicly accountable. There is no equivalent standard under IFRS.Non-exchange transactions are those transactions where an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange. Within the public sector non-exchange transactions are prevalent. IPSAS provides principles to guide the measurement and recognition of non-exchange transactions, whereas IFRS is generally silent on the matter.Public sector entities are assumed to be generally exempt from income taxes; thus, International Accounting Standard (IAS) 12 on Income Taxes, has no equivalent in IPSAS. However, the latter provides that if the public sector entity is liable for tax (which is considered an unlikely event), the entity can refer to the guidance in IAS 12 in accounting for the tax.IPSAS focuses on whether there is entitlement to the revenue from government grants event though there may be restrictions on how the funds are spent, or an obligation to meet certain conditions, which is recorded as liability. The distinction between restrictions and conditions is crucial in determining whether or not to recognize revenue from a non-exchange transaction. As a result, government grants are generally fully released to income earlier under IPSAS than under IFRS.IFRS 10 – Consolidated Financial Statements, IFRS 11 – Joint arrangements; and IFRS 12 – Disclosures of Interests in other entities, took effect in 2013. However, IPSAS is still based on the previous standards of IAS 27 – Consolidated and Separate Financial Statements; IAS 28 – Investments in Associates; and IAS 31 – Interest in Joint Ventures. The definition of control under IFRS 10 is very different from the one in IAS 27; thus the manner of determining control may be different for a profit-oriented entity applying IFRS from that of a public sector entity applying IPSAS. It is worth noting that such a difference has been recognized and, as a result, the IPSAS board issued four Exposure Drafts in October 2013 with the aim of eliminating this significant difference.The IPSAS is in the process of developing its own conceptual framework, proposing concepts that may be more suitable in the public sector context. We may see further differences in the outlook and focus of the IPSASB and IASB in the future.The concept of “service potential” as a recognition criterion is another point of difference between IFRS and IPSAS. This concept is not referred to in IFRS, which considers “economic benefit” as a major recognition criterion. The service potential concept is incorporated in the definition of the public sector entity’s assets, liabilities, income and expenses and is an indicator of an asset’s capacity to provide goods and services to the public in accordance with the entity’s mandate. With this concept a public sector entity may recognize assets, liabilities, income and expenses differently from that of a private entity.IPSAS had eliminated the concepts that are considered peculiar in the private sector, such as accounting for share-based payments and the requirements to disclose


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earnings per share. In cases that such concepts are applicable to the public sector entities, these entities should refer to the relevant IFRS.

Review of Literature:

The following literatures were reviewed:

A Study on Gap Analysis of Indian Government Accounting with International Standards (2008) – A research study by GASAB Secretariat, Office of the Comptroller and Auditor General of India.

Gaps in “GAAP”: Issues in Non Profit Accounting and reporting in India – Shailesh Gandhi (2005)

Accounting Guide for Non Profits (2006) – Asia Pacific Philanthropy Consortium, Philippines

IPSAS: Harmonising Government accounting with commercial Accounting – CA G. Srinivas, published in the journal of The Chartered Accountants of India, May 2010.

Accounting and auditing in not for profit organization – some critical issues – AS Alva CA – BCA Journal July 2004.

The literatures which are available deals exclusively either about the Gaps within Indian Accounting Standards with International ones, or about the issues in non-governmental organizations.

There are no reference to the impact of the CSR activities (which is basically non-profit one) on the overall accounting and reporting of the company implementing such activities due to the merger of the two types of transactions – “for profit” transactions and “not-for-profit” transactions. This necessitated the need for this study.

Objectives of the paper:

The major objectives of the study are: (1) To study the factors affecting the implementing the Corporate Social Responsibility (CSR) from accounting perspective, (2) To ascertain ways and means to properly account for it as it does not fall under the regular business activity, (3) To find ways to integrate the gaps between the GAAP, Indian Accounting Standards with IFRS & IPSAS, and (4) To give suggestions to the policy makers like Government and other stakeholders like implementing agencies, oversight agencies like auditors including the C & A. G.

Methodology:

This is based on the Conceptual Research concept, mainly because the impact of the CSR on accounting would only be known at the end of this financial year and there is no primary data as of now, and this is done relying on the secondary data and review of the literature including the appropriate standards and policies on accounting issued both at national and international level.

Factors affecting the implementing the CSR from Accounting Perspective:


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As already stated the factors that affect the implementing the CSR from the accounting perspective are as follows:

The basic framework for the accounting for the “for-profit” transactions and that of “not-for-profit” transactions are different.There are different standards internationally to govern both. For example for the core activities of the company, there is IFRS, whereas for the not for profit transactions there is IPSAS. The differences between the IFRS and IPSAS has already been detailed above.In India, the company for its core activities, the standards which are mandated under the Companies Act are to be followed, and if required the standards that are converged with IFRS as promulgated by MCA is to be followed. Whereas the act is silent about the applicability of separate standards for “not for profit” transactions which fall within the ambit of CSR. From the international perspective, if the Indian Company is a subsidiary of a foreign company, then its core activities are to be redrafted to be in line with the IFRS completely, and the non-core activities namely CSR has to be redrafted to be in line with IPSAS, as then only it would be possible to amalgamate the accounts and also to do segmental reporting as required under the IFRS. However, in this case suitable disclosures has to be made to differentiate the accounting principles that are differently followed for the not-for-profit transactions and also the appropriate disclosures for the “for-profit” transactions.

Ascertain the ways and means to properly account for CSR as it does not fall under the regular business activity:

There are certain unique accounting issues concerning CSR, some are dealt with hereunder.

The first one being the construction of buildings which is intended to be handed over to the community-based-organization (CBOs), like the local panchayats or Self-Help Groups etc. The issue here would be how to account for the cost incurred while constructing and also till the control is handed over to the CBO. Though till that time the control is with the company, it holds it in fiduciary relationship. The fiduciary relationship exists, where one person places complete confidence in another in regard to a particular transaction or one’s general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling. The second issue would be the accounting of the people’s contribution in kind. The contribution if material, has to be properly valued and accounted for both as receipt as well as expenditure and appropriate supportive documents are to be obtained for audit purposes.The third issue is that the CSR is initiated with a clearly laid down budget with clearly defined success criteria within each of its core operations. This budget together with the actual amount spent on each of the budget line had to be given, together with the


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reasons for the variance if any, and its impact in achieving the originally envisaged objective. It would be prudent to annex a detailed activity report for CSR and that shall be linked with each of the budget line and the actual expenditure against it.

Ways to integrate gaps between GAAP, Indian Accounting Standards with IFRS and IPSAS for CSR:

The Ministry of Corporate Affairs (MCA) had clearly stated that the standards that are declared to be mandatory are to be followed by the Companies. It also gives an option to follow the accounting standards that are converged with the IFRS. Thus in India, there are two sets of accounting standards that are focusing on the “for profit” transactions.In case of the not for profit transactions it is silent. However, the GASAB constituted by the Comptroller and Auditor General of India, with the support of Government of India, has come up with five IGFRS. This could be applied for the CSR transactions. However, MCA has to come up with a notification to this effect. However, if the company wish to follow it then they have to make additional disclosures to that effect.The appropriate governmental authorities have to come up with a clearly laid down process of complete convergence of the Indian Accounting Standards with IFRS and the complete convergence of the IGFRS with IPSAS, to be in line with the International requirement. This would eliminate the multiple reporting process of the company.

Suggestions to the policy makers like Government and other stakeholders like implementing agencies, oversight agencies like auditors including the Comptroller and Auditor General:

The MCA has to come up with clear guidelines for the accounting policies to be pursued for the accounting of the CSR activities and also specify the appropriate standards for to be followed for it. It would be better if the same is in line with the International standards like IPSAS. However, if it is not practicable, it could fall back on the IGFRS which is drafted by Indian Government Accounting Stands Advisory Board.The implementing agency if it is a NGO, it has to follow the rules and laws governing it. However for the reporting purposes, it could as it does for the foreign funding agencies, prepare a comparative statement of budget and actual expenditure together with the analysis of variance. The activity report concerning the implementation of the CSR of a particular company together with appropriate disclosures are to be given.The Institute of Chartered Accountants of India (ICAI) could come up with suggested practices for the accounting and reporting of the CSR activities and also ask the members to follow the same and to note the discrepancies in the report if the same is not covered under the appropriate disclosures. The auditors can use the techniques of the Operational Audit and Social Audit to better audit the CSR activities, as the regular statutory audits does not divulge deep into the activities of the CSR.


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The Comptroller and Auditor General of India, has already understood the importance of convergence of the standards in India – IGFRS with that of IPSAS. It would be better if the harmonisation of the government accounts with accrual basis. However, for this government approval is required. Once that is in place then the government accounts which has become of late a subject matter of many a judicial pronouncements and judgement would be more transparent. Then the Non-Governmental organizations which are the implementing agencies of the CSR and the Companies which are directly involved in the implementation of CSR can look upon the C&AG for guidance provided that powers are given by the MCA either through amendments in the Companies Act, or through issuance of guidelines for CSR accounting and reporting.

Major Findings:

Since CSR is to be implemented this year, there is lack of clarity amongst the corporates who are hit by this provisions. The corporates have initiated the process of the formation of the committee, as required by law, however, the terms of reference of the same is more of oversight and not on the accounting side and adherence to the appropriate standards like IPSAS and IFRS.

The Ministry of Corporate Affairs is yet to come up with notification which specifies the appropriate standards whether those which is part of GAAP or the standards that are converged with IFRS, or a new set of standards promulgated by it or the standards that are converged with IPSAS.

Recommendation:

The Ministry of Corporate Affairs have to come up with another set of standards which are converged with IPSAS (as they now have as a converged one with IFRS) exclusively for applicability of the same for the CSR activities.

The segmental accounting for the consolidation of the Indian operation with that of the other countries operations, should take appropriate measures to incorporate the CSR activities carried out in India by following the concepts of IPSAS, insofar as it relates to it.

The oversight mechanism should be given appropriate guidelines, based on the approved and/or suggested standards and guidelines for the accounting and reporting of the CSR activities, to enable them to discharge their function more efficiently and effectively. If that is not done the very spirit of the law which spurred the formulation of CSR would be defeated.

Conclusion:

Any new requirement throws up challenges, it has to be addressed appropriately by the concerned corporate houses.

Already there are confusion due to two sets of the accounting standards for business in India, and then there is the international IFRS. The earlier the convergence of all these takes place


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there would be confusion, hence the appropriate authorities like the MCA, should take initiative to streamline this. Unless this is done confusion would continue. This confusion would get more due to the merger of two non-compatible transactions – “for profit” and “not for profit”.

The oversight mechanism should also be guided by relevant guidelines and standards that would ensure the proper implementation of the spirit of law.


Government & Nonprofit

Theme accounting challenges title_accounting challenges due to the implementation of Corporate Social Responsibility together with the impact of IPSAS