The Institute of Chartered Accountants of India (ICAI) has issued the first two Accounting Standards for Local Bodies, viz., Accounting Standard for Local Bodies (ASLB) 3, ‘Revenue from Exchange Transactions, and Accounting Standard for Local Bodies (ASLB) 4, ‘Borrowing Costs’.

Presently in India, there are no Accounting Standards for Local Bodies in place and as a first step in this direction, the ICAI has issued the above two Accounting Standards for Local Bodies. The ICAI has already issued the ‘Preface to the Accounting Standards for Local Bodies’ in 2007. Further, Accounting Standard for Local Bodies (ASLB) 1, ‘Presentation of Financial Statements’ and Accounting Standard for Local Bodies (ASLB) 2, ‘Accounting Policies, Changes in Accounting Estimates and Errors’ will be issued shortly.

The Accounting Standards for Local Bodies will help harmonizing the financial reporting practices followed by various local bodies which have adopted or decided to adopt accrual basis of accounting. These standards are, therefore, important keeping in view the recent accounting reforms to about bring more transparency and accountability in managing public funds.

Accounting Standard for Local Bodies (ASLB) 3, ‘Revenue from Exchange Transactions’ lays down the accounting treatment of revenue arising from exchange transactions and events in addition to specifying revenue recognition norms. The local bodies will be able to use this standard for revenue arising from the rendering of services, sale of goods, and other income like royalty, dividend and interest. An exchange transaction is one in which an entity transfers goods or services, or use of assets, and receives some value (primarily in the form of cash, goods, services or has liabilities extinguished) from the other party in exchange. The non–exchange transactions are transactions that are not exchange transactions like revenue from taxes, duties, fines, grants and donations and revenue from lease agreements among others. A separate Accounting Standard for Local Bodies (ASLB), ‘Revenue from Non-Exchange Transactions’ is being formulated by ICAI.

Accounting Standard for Local Bodies (ASLB) 4, ‘Borrowing Costs’ prescribes capitalization of borrowing costs that are specifically incurred for acquisition, construction or production of a qualifying asset. The Standard is simple to apply in practice as it does not require capitalization of borrowing costs of general borrowings used for the purposes of obtaining a qualifying asset.

Accounting Standards for Local Bodies

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