Indian corporate sector has seen a tremendous growth in the past few years. India’s struggle to grow as a corporate super-power has been quite evident from the fact that there have been tremendous reforms and amendments in the Companies Act and other changes in various foreign investment policies.
With such tremendous growth in the opportunities India is being exposed to, there is also a constant demand to keep checks and balances, and ensure that the companies are equally committed to contribute to the society. The new Companies Act has not only increased and enhanced the role of the independent director but also ensured that the companies, big or small, are contributing through various Corporate Social Responsibility (CSR) techniques.
There is no doubt that the corporate regime is moving from the ideas of self-growth to inclusive growth. Companies are slowly and gradually trying to evolve themselves to becoming responsible and diverse in their approach. The accounting standards are now being diverted to ensure that their CSR is dutifully inculcated in it.
However, given the fact that companies generally know how to mould products to align to their business, CSR is no different. The companies have tried to, time and again, ensure that CSR is intertwined with their goals and thereby reducing their tax liabilities.
The current legislative regime has a tight check. CSR needs to become voluntary and effective with time.
Under Section 135 and Schedule VII of the Companies Act as well as Companies (Corporate Social Responsibility) Rules, 2014 the companies are required to ensure that 2% of the profits are contributed to CSR activities which are not in the regular course of business but only mentioned in Schedule VII. This is restricted to certain types of companies which are mentioned under Section 135(1) of Companies Act i.e. Companies with a net worth of INR 500 Crore or more, or Companies with INR 1000 Crore or more worth of turnover, or Companies with a net profit of INR 5 Crores or more.
So what role does a Chartered Accountant can play when it comes to CSR?
This is perhaps the best time as the government is trying to promote social activities through such life-altering legislations. We are in the era where there has been a tremendous increase in CSR and thus there is a need to converge the Accounting Standards so that it can take place effectively.
Institutions like Security Exchange Board of India (SEBI) have come forth to ensure that the compliance of CSR and efficient governance is taken care of by revising Clause 49 of Listing Agreements, introducing new and updated policies for whistleblowers, Independent Directors, etc.
When it comes to the role of Chartered Accountant (CA) it has now reached a new apogee to ensure effective and transparent accounting of the financial statements keeping all these policies in mind. The accountants are now required to play an important part in not just the statutory compliances but also various voluntary aspects of CSR.
The key bottleneck is that CA’s who do not go by the rulebooks have little or no practical knowledge regarding CSR. Unless one takes up an online course or has a plethora of experience, it is difficult to explore the wide range of opportunities that CSR could open for CAs. Handy knowledge and practical exposure could just open the gate of unparalleled options for the CAs.
Here are some of the roles that CAs can play :
1. Being The Facilitators Of Updated Mechanisms
It is a known fact that CAs are the first ones to implement any new policy. Whenever a new financial system is implemented, they are the first ones to be approached. Let’s take GST as an example. The minute GST was tabled, CA’s were flooded with calls and mails with numerous queries.
It was quite the same when the new Companies Act was notified. Thus, CA’s are the first effective administrators and executors of the latest concepts like corporate restructuring, compliances with companies and tax laws, and transparency in financial corporate disclosures.
However, the 2013 Act expects them to take a massive leap and get into the crucial roles of developing such strategies, schemes, projects and goals which can align financial and corporate goals with social goals.
In any company, it is the finance team which ensures that certain funds need to be allocated to certain activities. However, this often leads to a situation where the company becomes clueless about what to do with such fund allocations. A CA would be a better person to come to the rescue and ensure that the treatment of a fund is considered much before such release. They will be the forerunners of ensuring that corporate goals and social responsibilities remain unconflicted.
2. Reporting and Assurance
It is undisputed that for years CAs have been involved in creating massive audit reports and statutory adherence of the company. The 2013 Act mandates that the report of the Board of Directors which is attached with the financial statements for the Annual Report needs to mandatorily include CSR initiative in the manner prescribed by the Companies (CSR) Rules, 2014. This report is generally created by the CAs to ensure that the compliances are duly followed and there is no point of difference between the financial statements and CSR reports.
3. Guidance and Support
A major role of a CA is to guide the companies away from the dangers beforehand. It is the primary responsibility of a CA to ensure that there is apt integration of sustainability and other financial goals through CSR. Thus, considering the finances of the company, which the CAs have the access to, and taking a broader picture into perspective it is also important that a CA plays an advisory role in CSR initiatives.
CAs, as the regulator of the company’s financial policies, can play a major role in identifying that the CSR activities are aligned in a way that there is a convergence of both the social goals and financial suitability of the company. The ability to regulate and monitor the finances give CAs an edge to be the most effective resource to regulate CSR.
The major challenge, however, remains that CAs are also required to understand the social obligations a company might get into and how to deal with it. An easy way to do it is through taking this course by NUJS Kolkata, which can enable CAs to ensure that they have a 360-degree view of the CSR activities in the company.
With the world becoming a global village, a CA with a knack to understand CSR and help companies to effectively run their policies can be a boon and thereby a hot property in the global market. The question remains whether the CAs can see beyond the statutory CSR compliances and understand the practical implications of it.
If they can, there can be nothing better than making companies realize their true responsibility.