Accounting Standards formulated by the ICAI do not override the statute/ law that govern the preparation and presentation of general purpose financial statements of a particular Local Body. Accounting Standards (ASs) already issued by ICAI apply to those enterprises as stated in paragraph 3.3 of the ‘Preface to the Statements of Accounting Standards’. These Accounting Standards are not designed to apply to Local Bodies. However, since these Accounting Standards lay down wholesome principles of accounting, Local Bodies may follow these Standards during the transitional period, until the Accounting Standards for Local Bodies (ASLBs) are separately issued by the ICAI. Thus, once an ASLB is issued, the Local Bodies should follow the ASLB and not the corresponding Accounting Standard issued by the ICAI.
Ensuring compliance with the Accounting Standards for Local Bodies is the responsibility of the appropriate authority which approves the financial statements of the Local Body for the purpose of issuance thereof. Having issued the Accounting Standard for Local Bodies, various State Governments may require Local Bodies to follow the Accounting Standards for Local Bodies issued by the Institute of Chartered Accountants of India. Thus, an Accounting Standard for Local Bodies becomes mandatory for Local Bodies in a State from the date specified in this regard by the State Government concerned.
Local Bodies (Municipality, Municipal Corporations, Urban Infrastructure Trusts, etc.) are responsible for planning, development and administration of the locality in urban and rural areas for providing better delivery of services and development of required infrastructure in the country. Also they are responsible for managing large amount of funds generated from the public/ citizens in an effective and efficient manner, i.e. provision of adequate finance and optimum utilisation thereof. Therefore, Local Bodies are supposed to put in place a transparent & accountable financial management and reporting system.
For improving the financial reporting and harmonising the diverse accounting practices that are being followed by Local Bodies currently, the ICAI has issued Accounting Standards for Local Bodies (ASLBs), based on the International Public Sector Accounting Standards (IPSASs), after modifying as per Indian conditions and the operations being carried out by Local Bodies.
It may not be out of place to mention that the 15th Finance Commission (2021-26) has also recommended for Urban/ Rural Local Bodies to make available the Annual Accounts for the previous year and Audited Annual Accounts for the year preceding the previous year in the public domain online, as an entry level condition for qualifying for any grant amongst other set of conditions.
Currently, accrual based accounting guidance is drawn by Urban Local Bodies either from National Municipal Accounts Manual (NMAM, i.e., issued in 2004) or the Municipal Accounting Manual of their respective State that have been formulated based on NMAM.
However, these bodies were following diverse accounting practices in preparation of their financial statements. In order to harmonise the diverse practices being followed by them, Accounting Standards for Local Bodies (ASLBs) are being issued by the ICAI since March 2005 which are high quality financial reporting standards for Local Bodies based on IPSASs. While formulating ASLBs, the India’s unique governance and demographic features are also taken into account.
ASLBs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events in general purpose financial statements of Local Bodies under accrual basis of accounting. Ensuring compliance with ASLBs is the responsibility of the appropriate authority which approves the financial statements of the Local Body for the purpose of issuance thereof. ASLBs issued by the ICAI are recommendatory and will become mandatory as and when the concemed State Governments adopts them for implementation.
The term ‘Local Body’ may be defined as a local self-governing body, e.g. a municipal corporation, a municipality or a panchayat. In many cases, the Local Bodies delegate their functions such as building of schools, city roads, parks, running transport services, providing water supply etc., to some other bodies that may or may not be controlled by the Local Bodies, e.g., development authorities, boards, etc. Such bodies may be constituted, in partnership with private sector or otherwise, directly or indirectly by or on behalf of a Local Body to promote or carry out some specific objective(s) or function(s) of the Local Bodies. Such bodies may be constituted under a statute. The term ‘Local Body’ would also cover such bodies and ASLBs would be applicable in their case.
|List of Accounting Standard for Local Bodies (ASLBs) issued by the ICAI|
|ASLB 1: Presentation of Financial Statements|
|ASLB 2: Cash Flow Statements|
|ASLB 3: Accounting Policies, changes in Accounting Estimates and Errors|
|ASLB 4: The Effects of Changes in Exchange Rates|
|ASLB 5: Borrowing Costs|
|ASLB 9: Revenue from Exchange Transactions|
|ASLB 11: Construction Contracts|
|ASLB 12: Inventories|
|ASLB 13: Leases|
|ASLB 14: Events After the Reporting Date|
|ASLB 16: Investment Property|
|ASLB 17: Property, Plant and Equipment|
|ASLB 18: Segment Reporting|
|ASLB 19: Provision, Contingent Liabilities and Contingent Assets|
|ASLB 20: Related Party Disclosures|
|ASLB 21: Impairment of Non-Cash-Generating Assets|
|ASLB 23: Revenue from Non-exchange Transactions (Taxes and Transfers)|
|ASLB 24: Presentation of Budget Information in Financial Statements|
|ASLB 26: Impairment of Cash-Generating Assets|
|ASLB 31: Intangible Assets|
|ASLB 32: Service Concession Arrangements: Granter|
|ASLB 33: First-Time Adoption of Accrual Basis Accounting Standards for Local Bodies (ASLBs)|
|ASLB 34: Separate Financial Statements|
|ASLB 36: Investment in Associates and Joint Ventures|
|ASLB 39: Employee Benefits|
|ASLB 42: Social Benefits|
Summary of Accounting Standards for Local Bodies (ASLBs) (Updated 18/10/2021)
Summary of ASLBs has been prepared by the ICAI as per the existing ASLBs, i.e. ASLBs issued upto 18/10/2021. Till date, 27 ASLBs have been issued by ICAI (comprising of 26 accrual based ASLBs and 1 cash based ASLB) to facilitate transitioning from cash to accrual system of accounting.