Companies may soon be required to present elaborate and separate audit reports for their corporate social responsibility and environment-linked activities to ensure greater transparency and disclosure.
Non-governmental organisations (NGOs) are also likely to be asked to follow accounting norms, to indicate the source of their funding, and the utilisation of the same. The move comes in the wake of malpractices, misuse and diversion of funds.
The Institute of Chartered Accountants of India (ICAI) is chalking out a framework for reporting norms for CSR.
"The idea is to ensure that funds are being directed towards specified activities involving philanthropy and not being misused," G Ramaswamy, president, ICAI told Hindustan Times .
Several companies have philanthropic activities, but it is important to rule out malpractices or misappropriation of funds, he said.
At present, companies are only required to make a mention of their CSR activities and the quantum of money that is being directed towards it. There is no separate audit.
However, the government and ICAI want to rule out any possibility of misuse of funds.
The government was toying with the idea of making it mandatory that companies spend 2% of their net profit on CSR, but now it may be made voluntary.
A government source said it is important that companies are involved in philanthropic activities, but making it mandatory could lead to malpractices: "It is important to ensure that companies do not resort to malpractice in the garb of CSR. It is better to make such spends voluntary than compulsory."
For several companies, CSR programmes are part of their business model.
Ethical list: HDFC sole Indian firm
Mortgage lender Housing Development Finance Corporation Ltd is the only Indian company on a list of 110 world's most ethical companies according to an annual survey by US think-tank Ethisphere Institute.
The list, in vogue since 2007, does not give ranks. Of the 110, 42 were from outside US - six from Japan. No Chinese firm made the cut.