ROADMAP FOR

DOUBLE
ENTRY
ACCOUNTING
IN THE ULBs
OF ASSAM
Table of Contents

Table of Contents________________________________________________________________________2
OVERVIEW__________________________________________________________________________________
___________________________________________________________________________________________
OVERVIEW CONTINUATION_____________________________________________________________________
CURRENT STATUS OF ACCOUNTING STANDARDS IN INDIA_____________________________________________
The Shape of Municipal Finances_____________________________________________________________6
COMMITTEE ON ACCOUNTING STANDARDS FOR LOCAL BODIES________________________________________

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 Overview

Accounting standards are a set of

guidelines and principles that
govern the recognition,
measurement, presentation, and
disclosure of financial transactions
and events in financial statements.
They provide a standardized
framework for preparing and
presenting financial information,
ensuring consistency,
comparability, and transparency1.

1
https://resource.cdn.icai.org/8574announ862.pdf
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 Overview Continuation
This report provides an overview of the accounting standards in India and focuses
on the accounting practices within municipalities in the state of Assam. It examines
the current status of accounting standards, the rules and regulations governing
municipal accounting, and the efforts made to transition municipalities from cash-
based accounting to accrual accounting.

In India, accounting standards play a crucial role in ensuring consistency,

transparency, and comparability in financial reporting. The Institute of Chartered
Accountants of India (ICAI) formulates accounting standards to guide financial
practices in the country.
One important guideline for urban local bodies (ULBs) in India is the National
Municipal Accounting Manual (NMAM). Issued by the Ministry of Housing and
Urban Affairs, the NMAM provides comprehensive guidance on accounting,
financial reporting, and budgeting for ULBs.

There is a growing trend among Indian municipalities to transition from cash-based

accounting to accrual accounting. This shift is driven by the need for improved
financial reporting and increased access to capital markets. Accrual accounting
offers a more comprehensive and accurate representation of a municipality's
financial position, performance, and cash flows.

Assam's municipalities play a vital role in local governance and service delivery.
These municipalities are subject to the accounting standards formulated by the
ICAI, ensuring consistency and comparability in financial reporting across the
state.
The accounting standards applicable to Assam's municipalities align with the
guidelines outlined in the National Municipal Accounting Manual. Municipalities
in Assam are expected to adhere to these standards and follow the recommended
practices for financial management, reporting, and budgeting.
Additionally, specific rules and regulations govern municipal accounting in Assam.
These regulations ensure compliance with accounting standards, promote
transparency, and enable effective financial management within the municipalities.

To improve financial reporting and transparency, municipalities in Assam are

actively transitioning from cash-based accounting to accrual accounting. This

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transition involves adopting modern, accrual-based double-entry accounting
systems, similar to the practices followed by corporate entities.
Efforts are being made to provide training and capacity building to municipal
officials and staff members to facilitate a smooth transition to accrual accounting.
The aim is to enhance financial management practices, enable better decision-
making, and ensure accountability in the utilization of municipal resources.

Accounting standards in India, including the National Municipal Accounting

Manual, set the framework for financial reporting and management in
municipalities. Assam's municipalities are aligning with these standards and
actively working towards transitioning from cash-based accounting to accrual
accounting. These efforts aim to improve financial transparency, enable better
decision-making, and ensure efficient utilization of municipal resources in the state
of Assam.

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 Current Status of Accounting Standards in India

In the context of urban local bodies in India, the accounting standards aim to
establish a single set of high-quality financial reporting standards. The adoption of
accrual-based accounting is encouraged to improve financial reporting and
facilitate effective resource allocation decisions. The CASLB, composed of various
stakeholders, formulates these accounting standards, considering applicable laws,
customs, usages, and the economic environment in India.

The standards issued by CASLB cover areas such as recognition and measurement
principles, presentation and disclosure requirements, and transitional provisions for
transitioning from cash basis to accrual basis accounting. The objective is to
enhance the quality of general-purpose financial reporting by urban local bodies,
leading to greater transparency and accountability.

Compliance with the Accounting Standards for Local Bodies is the responsibility
of the appropriate authority that approves the financial statements of the local
bodies. The standards are designed to apply to general-purpose financial
statements, including balance sheets, income and expenditure accounts, cash flow
statements, and other relevant statements and explanatory notes.

The Shape of Municipal Finances

The state of India's municipal finance system presents significant challenges. In

order to provide a good quality of life to urban residents, substantial investments in
infrastructure and services are required. However, municipalities face severe
constraints in their spending capacity. Data from 2017-18 reveals that municipal
expenditure accounts for just 0.37% of GDP, a decrease from 0.44% in 2012-13.
This declining trend is worrisome considering the rapid urbanization taking place.
Most municipalities across the country struggle to meet their investment needs,
primarily due to the disparity between the expenditure commitments of state and
local governments and their access to financial resources. The own revenues of
local governments, primarily derived from property taxes and user fees, make up
less than 1% of GDP. In comparison, property tax collections, the largest source of
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own revenues for municipalities, were only 0.2% of GDP in 2016, while the figure
for the OECD group was 1.1% of GDP.
Municipalities in India heavily rely on transfers from state and central
governments, even for regular administrative, operational, and maintenance
expenditures. Although the combined revenues of the Centre and States as a
percentage of GDP have increased from 16% in 2010-11 to 18% in 2017-18,
municipal tax revenue as a percentage of GDP has declined from 0.3% to 0.25%
over the same period. The overall fiscal position of municipal finances needs
improvement nationwide, with large variations in municipal revenue observed
from state to state.
The poor fiscal position of municipalities has limited their ability to access the
municipal bond market for raising debt. Only a few municipalities have obtained
credit ratings, which are necessary for approaching the bond market. As of
September 2022, out of 223 credit ratings issued, only 95 municipalities have
achieved Investment Grade ratings. Additionally, there have been only 41
municipal bond issuances totaling INR 5,459 crore.
Overall, India's municipal finance system faces the challenge of inadequate
spending, limited own revenue generation, heavy reliance on transfers, and a low
presence in the municipal bond market. Efforts are required to strengthen
municipal finances and improve revenue generation to support the growing
infrastructure and service needs of urban areas.2

2
Transition-to-accrual-accounting_ models and learnings for ULBs_NITI_ICAI_2023.pdf
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 Committee on Accounting Standards for Local
Bodies
The Committee on Accounting Standards for Local Bodies (CASLB) is an
important entity within the Institute of Chartered Accountants of India (ICAI) that
is responsible for formulating and establishing accounting standards specifically
tailored for local bodies in India. The primary objective of CASLB is to ensure
effective financial reporting and management within the local government sector.3

The committee serves various functions to fulfill its objectives. Firstly, CASLB
identifies areas where accounting standards need to be developed for local bodies,
considering their unique requirements and challenges. Based on this assessment,
the committee formulates accounting standards that provide comprehensive
guidelines and principles for the recognition, measurement, presentation, and
disclosure of financial transactions and events in the general purpose financial
statements of local bodies.

CASLB also focuses on the integration of International Public Sector Accounting

Standards (IPSASs) into the national accounting requirements for local bodies. The
committee examines IPSASs prepared by the International Public Sector
Accounting Standards Board (IPSASB) and explores the extent to which they can
be integrated with the national standards, aiming to promote global harmonization
in accounting practices.

Regular review of accounting standards is another crucial function of CASLB. The

committee periodically evaluates the existing standards in terms of their
acceptance, changing conditions, and emerging issues. If necessary, revisions are
made to ensure the standards remain relevant and effective in the evolving
landscape of local government finance.

In addition to formulating and reviewing accounting standards, CASLB provides

interpretations and guidance to facilitate proper implementation of the standards.
This guidance assists practitioners in understanding and applying the accounting
3
https://resource.cdn.icai.org/8574announ862.pdf
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standards effectively, ensuring consistency and accuracy in financial reporting
within local bodies.

CASLB is also actively involved in addressing implementation issues that arise

during the adoption of accrual accounting and the application of accounting
standards by local bodies. The committee takes steps to propagate and disseminate
the requirements of the accounting standards, including addressing training needs
and creating awareness among stakeholders, including end-users and citizens,
about the benefits of accounting reforms in government and local bodies.

Furthermore, CASLB strives to improve the accounting methodology and systems

used by local bodies. The committee stays updated on the development of
accounting systems in local bodies and acts as a forum to receive feedback,
specifically focusing on challenges faced during the adoption of accrual accounting
and the application of accounting standards.

The committee also extends its support to governments and regulators by providing
assistance in various aspects of financial reporting, such as the preparation of asset
registers, performance measurement, budgeting, costing, internal control, and
audit. CASLB collaborates with government bodies, such as the Technical
Committee on Budget and Accounting Standards for ULBs, operating under the
Ministry of Urban Development, to enhance financial reporting practices in local
bodies.

In conclusion, the Committee on Accounting Standards for Local Bodies plays a

crucial role in formulating, reviewing, and disseminating accounting standards
specifically designed for local bodies in India. Through its various functions,
CASLB aims to ensure effective financial reporting, promote harmonization with
international standards, address implementation challenges, and support the
improvement of accounting practices within local bodies.

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