Excess amount spent by corporates on CSR activities in a particular fiscal under the companies law cannot be carried forward to subsequent financial years.

With companies preparing to disclose details about CSR expenses in their annual filings, chartered accountants' apex body ICAI has issued detailed set of Frequently Asked Questions (FAQs) for its members with regard to reporting of such expenditure.

"Any amount excess spent (more than two per cent as specified in Section 135) cannot be carried forward to the subsequent years," the Institute of Chartered Accountants of India (ICAI) has said.

However, the company is entitled to disclose in their annual reports of subsequent years any such excess spending of previous years while giving reasons for not spending in those later years, it noted.

Section 135 in the Companies Act pertains to CSR. The compulsory Corporate Social Responsibility (CSR) norms, part of the Companies Act, came into effect from April 1, 2014.

Certain class of profitable companies are required to shell out at least two per cent of their three-year annual average net profit towards CSR activities.

It said that any shortfall in spending in CSR should be explained in the financial statements and the board of directors have to state the amount unspent and reasons for the same.

"Any such shortfall is not required to be provided for in the books of accounts.

"However, if a company has already undertaken certain CSR activity for which a contractual liability has been incurred then, a provision for the requisite amount payable to record that liability needs to be recognised as per the applicable accounting standards," ICAI said.

According to the institute, all social welfare spending expenses could be recognised separately as 'CSR expenditure' or under natural heads of expenses in the statement of profit and loss (P&L). In the latter case, there should be a break-up and the total amount spent on CSR activities during the particular year.

"Some of the items which are charged to the P&L account in normal course, meeting the criteria for CSR expenditure, would also be eligible to be considered as a CSR expenditure," it added.

CSR norms are applicable on companies having at least Rs 1,000 crore turnover or Rs 500 crore net worth or a net profit of Rs 5 crore in any financial year.

Such firms are also required to set up a CSR committee, having three or more directors and out of them, there should be at least one independent director.

Grant Thornton India LLP's Partner Yogesh Sharma said the FAQs shall prove useful in addressing most of their questions, especially for accounting and presentation of the CSR amounts in the financial statements of a company, he said.