Institute of Chartered Accountants of India is framing new accounting standards for local bodies, including municipal corporations and panchayats.

The committee set up for formulating accounting standard (AS) for such local bodies has proposed two draft AS which will be recommendatory in nature in the initial years and will be later made mandatory by state governments, the ICAI said on its website. The two draft AS, on which the ICAI has sought public comments by July 31, deal with revenue from exchange transactions and borrowing costs.

The objective of the AS Revenue from Exchange Transactions is to lay down the accounting treatment of revenue arising from exchange transactions and events in addition to specifying revenue recognition norms, it said. The local bodies following accrual basis of accounting will be able to use this standard for revenue arising from the sale of goods, and income like royalty, dividends and interest. However, the AS will not deal with revenue from non-exchange transactions like revenue from taxes, duties, fines, grants and donations and revenues from lease agreements among others. The draft accounting standard on Borrowing Costs will deal with interest on borrowings, amortisation of discounts or premiums relating to borrowings and foreign exchange fluctuations among others.