CSR Expenditure: Charge to the statement of profit & loss or appropriation of profits

In examining the accounting treatment of Corporate Social Responsibility (CSR) expenditure by a Central Public Sector Enterprise (CPSE), it was? noted? that the Corporation has appropriated CSR spending of Rs. 802.52 lakh out of profits through the Profit and Loss Appropriation Account for the financial year 2021-22. This approach, however, diverges from the general accounting practice as outlined in Accounting Standard (AS) 5, which requires all items of income and expense to be included in the determination of net profit or loss for the period.

The EAC observes that CSR expenditure should be recognized as an expense in the Statement of Profit and Loss as and when incurred, rather than being treated as an appropriation of profits. This aligns with guidance from the Institute of Chartered Accountants of India (ICAI) and the 'Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises' issued by the Department of Public Enterprises.

?In conclusion, from an accounting standpoint, CSR expenditure should be charged to the Profit and Loss Account, ensuring transparency and compliance with applicable accounting standards.

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