The Institute of Chartered Accountants of India (ICAI) has issued the first two accounting standards for local bodies, accounting standard for local bodies (ASLB) 3 Revenue from Exchange Transactions, and Accounting Standard for Local Bodies (ASLB) 4Borrowing Costs.

Revenue from Exchange Transactions lays down the accounting treatment for revenue arising from exchange transactions and events, in addition to specifying revenue recognition norms.

The local bodies like municipalities, panchayats and Delhi Jal Board 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. It deals with how the revenues of a local body would be accounted when there is some value received in exchange. The new standard would help recognise the revenue, measurement criteria and how it should be presented in the financial statements.

Borrowing Costs prescribes capitalisation of borrowing costs that are incurred for acquisition, construction or production of a qualifying asset. As per this standard, any borrowing cost, such as interest or commitment charges related to raising of funds, will be added to the cost of asset.

Accounting Standards for Local bodies chairman Jayant Gokhale told FE, This is the beginning of a series of standards that would improve the transparency and accountability of local bodies to public.

The accounting standards for local bodies will help harmonise the financial reporting practices followed by various local bodies that have adopted accrual basis of accounting. These standards are important, keeping in view the recent accounting reforms to bring more transparency and accountability in managing public funds.

Currently, there are no accounting standards for local bodies in India. The ICAI had already issued the Preface to the Accounting Standards for Local Bodies in 2007. Further, accounting standard for local bodies (ASLB) 1Presentation of Financial Statements, and accounting standard for local bodies (ASLB) 2Accounting Policies, Changes in Accounting Estimates and Errorswill be issued shortly.