ICAI issues one Accounting Standard for Local Bodies

Wednesday, June 20, 2018

The Council of the Institute of Chartered Accountants of India (ICAI) at its last (375th) adjourned meeting held on June 13-14, 2018, approved and issued one Accounting Standard for Local Bodies (ASLB) 20, ‘Related Party Disclosures’

The Committee on Accounting Standards for Local Bodies (CASLB) of the ICAI is formulating Accounting Standards for Local Bodies (ASLBs) since March, 2005 to improve financial reporting for local bodies. As on date, total fifteen ASLBs viz.: Fourteen accrual based ASLBs and one cash based ASLB to facilitate transitioning from cash to accrual basis of accounting, have been issued. 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.

ASLB 20, ‘Related Party Disclosures’ defines various classes of entities and individuals as related parties and sets out the disclosures required in respect of those parties, including transactions with those parties. This information is required for accountability purposes and to facilitate a better understanding of the financial position and performance of the reporting entity as it will help in reporting how an entity is operating with other entities to achieve its individual as well as common objectives. Related party relationship disclosures also assumes significance as these relationships might expose the entity to risk or opportunities that would not have existed in the absence of the relationship.

The Standard would also help in disclosing any transaction that have taken place between the related parties on the terms and conditions that are normally not available to unrelated parties. The disclosures prescribed by the Standard would ensure that the entity is transparent in its dealings with the related parties.

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 augment more resources to local bodies.