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ICAI issues Accounting Standard for Local Bodies

The Committee on Accounting Standards for Local Bodies (CASLB) is formulating Accounting Standards for Local Bodies (ASLBs) since March, 2005 to improve financial reporting for local bodies. So far, the Committee has issued thirteen ASLBs including one cash based ASLB that will facilitate transitioning from cash to accrual basis of accounting. The purpose of ASLBs is to ensure that the financial reporting by local bodies reflects how efficiently and effectively Local Bodies have discharged their responsibilities in using public funds.

Moving forward in this direction, the Council of the Institute of Chartered Accountants of India (ICAI) at its last (375th) meeting held on May 24 - 26, 2018, approved and issued Accounting Standard for Local Bodies (ASLB) 2, ‘Cash Flow Statements’.

Application of ASLB 2 will be useful for the Local Bodies to identify their sources of cash inflows, cash outflows, and the cash balance as at the reporting date which will provide users of financial statements with information for both accountability and decision-making purposes. A Cash Flow Statement, when used in conjunction with the other Financial Statements, provides information that enables users to evaluate the historical changes in cash and cash equivalents, changes in net assets/equity of an entity, its financial structure (including its liquidity and solvency), and its ability to affect the amount and timing of cash flows.

ASLB 2 covers all aspects with respect to preparation and presentation of Statement of Cash Flow in more detail than the existing municipal accrual accounting framework available for use by Local Bodies. ASLB 2 also prescribes various additional disclosures with regard to the entities controlled by local bodies which would be very useful as local bodies are also entering into joint ventures/ joint arrangements for their various projects. The enhanced disclosures as prescribed in ASLB 2 would lead to improved and better transparency in the financial operations of local bodies in the larger public interest.

ASLBs are based on the internationally accepted Accounting Standards for Government, i.e., International Public Sector Accounting Standards (IPSASs) and also take into account the India’s unique governance and demographic features. The implementation of the ASLBs which are being issued in dynamic environment, will help in improving the financial reporting of local bodies which will help in augmenting more financial resources to local bodies enabling smooth implementation of smart cities mission of Government of India.

About ICAI

The Institute of Chartered Accountants of India(ICAI) is a statutory body established by an Act of Parliament viz., The Chartered Accountants Act, 1949 in the year 1949 for regulating the profession of Chartered Accountants in the country. The Institute, which functions under the administrative control of Ministry of Corporate Affairs, Government of India, has 5 Regional Councils and 164 branches covering the length and breadth of the country. In addition, it has also set up 31 chapters outside India.

The main functions of the Institute are prescribing qualifications for membership, holding examination and arranging practical training of candidates, enrolment of members, publication and maintenance of register of members qualified to practice the profession, carrying on activities for development of the profession and regulation and maintenance of status and standard of professional qualification of the members.

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