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ASLB 1 Presentation of FS

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Accounting Standard for Local Bodies (ASLB) 1

Presentation of
Financial Statements

Contents
Paragraphs
OBJECTIVE 1
SCOPE 2-6
DEFINITIONS 7-14
Economic Entity 8-10
Future Economic Benefits or Service Potential 11
Materiality 13
Equity 14
PURPOSE OF FINANCIAL STATEMENTS 15-18
RESPONSIBILITY FOR FINANCIAL STATEMENTS 19-20
COMPONENTS OF FINANCIAL STATEMENTS 21-26
OVERALL CONSIDERATIONS 27-58
Presentation of true and fair view and
Compliance with ASLBs 27-37
Going Concern 38-41
Consistency of Presentation 42-44
Materiality and Aggregation 45-47
Offsetting 48-52
Comparative Information 53-58
STRUCTURE AND CONTENT 59-150
Introduction 59-60
Identification of the Financial Statements 61-65
Reporting Period 66-69
Compendium of ASLBs

Balance Sheet 70-98
Current/Non-current Distinction 70-75
Current Assets 76-79
Current Liabilities 80-87
Information to be Presented on the Face of the 88-92
Balance Sheet
Information to be Presented either on the Face of 93-98
the Balance Sheet or in the Notes
Income and Expenditure Statement 99-117
Surplus or Deficit for the Period 99-101
Information to be Presented on the Face of
the Income and Expenditure Statement 102-105
Information to be presented either on the
Face of the Income and Expenditure Statement
or in the Notes 106-117
Statement of Changes in Equity 118-125
Cash Flow Statement 126
Notes 127-150
Structure 127-131
Disclosure of Accounting Policies 132-139
Key Sources of Estimation Uncertainty 140-148
Capital 148A-148C
Other Disclosures 149-150
TRANSITIONAL PROVISIONS 151-152
APPENDICES :
APPENDIX A: IMPLEMENTATION GUIDANCE –
ILLUSTRATIVE FINANCIAL STATEMENT
STRUCTURE
APPENDIX 1: COMPARISON WITH IPSAS 1
APPENDIX 2: COMPARISON WITH EXISTING AS 1

2
Presentation of Financial Statements

Accounting Standard for Local Bodies (ASLB) 1

Presentation of Financial Statements
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context of
its objective and the Preface to the Accounting Standards for Local Bodies1).

The Accounting Standard for Local Bodies (ASLB) 1, ‘Presentation of Financial
Statements’, issued by the Council of the Institute of Chartered Accountants of
India, will be recommendatory in nature in the initial years for use by the Local
Bodies. This Standard will be mandatory for Local Bodies in a State from the
date specified in this regard by the State Government concerned2.

The following is the text of the Accounting Standard for Local Bodies.

Objective
1. The objective of this Standard is to prescribe the manner in which general
purpose financial statements should be presented to ensure comparability both
with the entity’s financial statements of previous periods and with the financial
statements of other entities. To achieve this objective, this Standard sets out
overall considerations for the presentation of financial statements, guidance
for their structure, and minimum requirements for the content of financial
statements prepared under the accrual basis of accounting. The recognition,
measurement, and disclosure of specific transactions and other events are
dealt with in other Accounting Standards for Local Bodies (ASLBs).

1
Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting Standards for Local
Bodies’, according to which Accounting Standards are intended to apply only to items which are
material.
2
Reference may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’ providing the discussion on the compliance with the Accounting Standards for Local Bodies.

3
Compendium of ASLBs

Scope
2. This Standard should be applied to all general purpose financial
statements prepared and presented under the accrual basis of
accounting in accordance with Accounting Standard for Local Bodies
(ASLBs).

3. General purpose financial statements are those intended to meet the
needs of users who are not in a position to demand reports tailored to meet
their particular information needs. Users of general purpose financial statements
include various stakeholders, Governments and their agencies and the public.
General purpose financial statements include those that are presented
separately or within another public document such as an annual report. This
Standard does not apply to condensed financial information.

4. This Standard applies equally to all entities and whether or not they
need to prepare consolidated financial statements or separate financial
statements, as defined in ASLB on ‘Consolidated and Separate Financial
Statements’3.

5. This Standard applies to the entities described as Local Bodies
in the Preface to the Accounting Standards for Local Bodies4.

6. [Refer to Appendix 1]

Definitions
7. The following terms are used in this Standard with the meanings
specified:

Economic entity means a group of entities comprising a controlling entity
and one or more controlled entities.

Impracticable applying a requirement is impracticable when the entity
cannot apply it after making every reasonable effort to do so.
3
The proposed Accounting Standard for Local Bodies on ‘Consolidated and Separate Financial
Statements’ is under preparation.
4
Refer paragraph 1.3 of the ‘Preface to the Accounting Standards for Local Bodies’.

4
Presentation of Financial Statements

Accounting Standards for Local Bodies (ASLBs) are Standards and
interpretations thereon issued by the Institute of Chartered Accountants
of India (ICAI) for Local Bodies.

Material Omissions or misstatements of items are material if they could,
individually or collectively, influence the decisions or assessments of
users made on the basis of the financial statements. Materiality depends
on the nature and size of the omission or misstatement judged in the
surrounding circumstances. The nature or size of the item, or a
combination of both, could be the determining factor.

Notes contain information in addition to that presented in the balance
sheet (including statement of changes in equity annexed thereto), income
and expenditure statement, and cash flow statement. Notes provide
narrative descriptions or disaggregations of items disclosed in those
statements and information about items that do not qualify for
recognition in those statements.

Terms defined in other Accounting Standards for Local Bodies are used
in this Standard with the same meaning as in those other Standards.

Economic Entity

8. The term economic entity is used in this Standard to define, for financial
reporting purposes, a group of entities comprising the controlling entity and
any controlled entities.

9. Other terms sometimes used to refer to an economic entity include
administrative entity, financial entity, consolidated entity and group.

10. An economic entity may include entities with both social policy and
commercial objectives. For example, a local body XYZ (controlling entity) may
control by way of majority voting power in an entity ABC (controlled entity) that
provides services of health care for a nominal charge, as well as another entity
PQR (controlled entity) that provides transport services on a commercial basis.
The group of entities comprising local body XYZ and the controlled entities,
viz., ABC and PQR, is the economic entity.

5
Compendium of ASLBs

Future Economic Benefits or Service Potential

11. Assets provide a means for entities to achieve their objectives. Assets
that are used to deliver goods and services in accordance with an entity’s
objectives, but which do not directly generate net cash inflows are often
described as embodying service potential. Assets that are used to generate net
cash inflows are often described as embodying future economic benefits. To
encompass all the purposes to which assets may be put, this Standard uses
the term “future economic benefits or service potential” to describe the essential
characteristic of assets.

12. [Refer to Appendix 1]

Materiality

13. Assessing whether an omission or misstatement could influence
decisions of users, and so be material, requires consideration of the
characteristics of those users. Users are assumed to have a reasonable
knowledge of the local bodies and economic activities and accounting and a
willingness to study the information with reasonable diligence. Therefore, the
assessment needs to take into account how users with such attributes could
reasonably be expected to be influenced in making and evaluating decisions.

Equity

14. Equity is the term used in this Standard to refer to the residual measure
in the balance sheet (assets less liabilities). Equity may be positive or negative.

Purpose of Financial Statements
15. Financial statements are a structured representation of the financial
position and financial performance of an entity. The objectives of general
purpose financial statements are to provide information about the financial
position, financial performance and cash flows of an entity that is useful to a
wide range of users in making and evaluating decisions about the allocation of
resources.

6
Presentation of Financial Statements

16. [Refer to Appendix 1]

17. To meet its objectives, the financial statements provide information about
an entity’s:

(a) Assets;
(b) Liabilities;
(c) Equity;
(d) Revenue;
(e) Expenses;
(f) Other changes in equity; and
(g) Cash flows.

18. Although the information contained in financial statements can be relevant
for the purpose of meeting the objectives mentioned in paragraph 15, it is
unlikely to enable all the objectives to be met. This is likely to be particularly so
in respect of entities whose primary objective may not be to make a profit, as
managers are likely to be accountable for the achievement of service delivery
as well as financial objectives. Supplementary information, including non-
financial statements, may be reported alongside the financial statements in
order to provide a more comprehensive picture of the entity’s activities during
the period.

Responsibility for Financial Statements
19. The responsibility for the preparation, presentation and authorisation of
financial statements for issue varies within and across local bodies as may be
prescribed by the state laws.

20. [Refer to Appendix 1]

Components of Financial Statements
21. A complete set of financial statements comprises:

(a) A balance sheet (including statement of changes in equity
annexed thereto);
7
Compendium of ASLBs

(b) An Income and expenditure statement;

(d) Notes, comprising a summary of significant accounting
policies and other explanatory notes.

22. When the entity makes publicly available its approved budget, a
comparison of budget and actual amounts may be given as a separate
additional financial statement.

23. The financial statements provide users with information about an entity’s
resources and obligations at the reporting date and the flow of resources
between reporting dates. This information is useful for users making
assessments of an entity’s ability to continue to provide goods and services at
a given level, and the level of resources that may need to be provided to the
entity in the future so that it can continue to meet its service delivery obligations.

24. Local bodies are subject to budgetary limits in the form of appropriations
or budget authorisations (or equivalent), which may be given effect through
authorising legislation. General purpose financial reporting by local bodies
may provide information on whether resources were obtained and used in
accordance with the legally adopted budget. Reporting against budget(s) for
these entities may be presented in various different ways, including:

(a) The use of a columnar format with separate columns for budgeted
amounts and actual amounts. A column showing any variances
from the budget or appropriation may also be presented, for
completeness; and

(b) Disclosure that the budgeted amounts have not been exceeded. If
any budgeted amounts or appropriations have been exceeded, or
expenses incurred without appropriation or other form of authority,
then details may be disclosed by way of footnote to the relevant
item.

25. Entities are encouraged to present additional information to assist users
in assessing the performance of the entity, and its stewardship of assets, as

8
Presentation of Financial Statements

well as making and evaluating decisions about the allocation of resources.
This additional information may include details about the entity’s outputs and
outcomes in the form of performance indicators, statements of service
performance, program reviews and other reports by management about the
entity’s achievements over the reporting period.

26. Entities are also encouraged to disclose information about compliance
with legislative, regulatory or other externally-imposed regulations. When
information about compliance is not included in the financial statements, it
may be useful for a note to refer to any documents that include that information.
Knowledge of non-compliance is likely to be relevant for accountability purposes
and may affect a user’s assessment of the entity’s performance and direction
of future operations. It may also influence decisions about resources to be
allocated to the entity in the future.

Overall Considerations
Presentation of true and fair view and compliance with
ASLBs

27. Financial statements should present true and fair view of the
financial position, financial performance and cash flows of an entity.
True and fair presentation requires the faithful representation of the
effects of transactions, other events and conditions in accordance with
the definitions and recognition criteria for assets, liabilities, revenue and
expenses set out in ASLBs or the Conceptual Framework for General
Purpose Financial Reporting by Local Bodies5. The application of ASLBs,
with additional disclosures when necessary, is presumed to result in
financial statements that achieve presentation of true and fair view.

28. An entity whose financial statements comply with ASLBs should
make an explicit and unreserved statement of such compliance in the
notes. Financial statements should not be described as complying with
ASLBs unless they comply with all the requirements of ASLBs.

5
‘The Conceptual Framework for General Purpose Financial Reporting by Local Bodies’ is under
formulation.
9
Compendium of ASLBs

29. In virtually all circumstances, a true and fair presentation is achieved by
compliance with applicable ASLBs. Presentation of true and fair view also
requires an entity:

(a) To select and apply accounting policies in accordance with the
ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates
and Errors’ which sets out a hierarchy of authoritative guidance
that management considers in the absence of a Standard that
specifically applies to an item.

(b) To present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information.

(c) To provide additional disclosures when compliance with the
specific requirements in ASLB is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity’s financial position and financial
performance.

30. Inappropriate accounting policies are not rectified either by
disclosure of the accounting policies used, or by notes or explanatory
material.

31. In the extremely rare circumstances in which management
concludes that compliance with a requirement in a Standard would be
so misleading that it would conflict with the objective of financial
statements set out in this ASLB, the entity should depart from that
requirement in the manner set out in paragraph 32 if the relevant
regulatory framework requires, or otherwise does not prohibit, such a
departure.

32. When an entity departs from a requirement of a Standard in
accordance with paragraph 31, it should disclose:

(a) That management has concluded that the financial
statements present true and fair view of the entity’s financial
position, financial performance and cash flows;

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Presentation of Financial Statements

(b) That it has complied with applicable ASLBs, except that it
has departed from a particular requirement to achieve
presentation of true and fair view;

(c) The title of the Standard from which the entity has departed,
the nature of the departure, including the treatment that the
Standard would require, the reason why that treatment
would be so misleading in the circumstances that it would
conflict with the objective of financial statements set out in
this Standard, and the treatment adopted; and

(d) For each period presented, the financial impact of the
departure on each item in the financial statements that would
have been reported in complying with the requirement.

33. When an entity has departed from a requirement of a Standard in
a prior period, and that departure affects the amounts recognised in the
financial statements for the current period, it should make the
disclosures set out in paragraph 32 (c) and (d).

34. Paragraph 33 applies, for example, when an entity departed in a prior
period from a requirement in a Standard for the measurement of assets or
liabilities and that departure affects the measurement of changes in assets
and liabilities recognised in the current period’s financial statements.

35. In the extremely rare circumstances in which management
concludes that compliance with a requirement in a Standard would be
so misleading that it would conflict with the objective of financial
statements set out in this Standard, but the relevant regulatory
framework prohibits departure from the requirement, the entity should,
to the maximum extent possible, reduce the perceived misleading
aspects of compliance by disclosing:

(a) The title of the Standard in question, the nature of the
requirement, and the reason why management has
concluded that complying with that requirement is so
misleading in the circumstances that it conflicts with the
objective of financial statements set out in this Standard;
and
11
Compendium of ASLBs

(b) For each period presented, the adjustments to each item in
the financial statements that management has concluded
would be necessary to achieve presentation of true and fair
view.

36. For the purpose of paragraphs 31-35, an item of information would
conflict with the objective of financial statements when it does not represent
faithfully the transactions, other events and conditions that it either purports to
represent or could reasonably be expected to represent and, consequently, it
would be likely to influence decisions made by users of financial statements.
When assessing whether complying with a specific requirement in a Standard
would be so misleading that it would conflict with the objective of financial
statements set out in this Standard, management considers:

(a) Why the objective of financial statements is not achieved in the
particular circumstances; and

(b) How the entity’s circumstances differ from those of other entities
that comply with the requirement. If other entities in similar
circumstances comply with the requirement, there is a rebuttable
presumption that the entity’s compliance with the requirement
would not be so misleading that it would conflict with the objective
of the financial statements set out in this Standard.

37. Departures from the requirements of an ASLB in order to comply with
statutory/legislative financial reporting requirements in a particular state law do
not constitute departures that conflict with the objective of financial statements
set out in this ASLB as outlined in paragraph 31. If such departures are material
an entity cannot claim to be complying with ASLBs.

Going Concern

38. When preparing financial statements, an assessment of an entity’s
ability to continue as a going concern should be made. This assessment
should be made by those responsible for the preparation of financial
statements. Financial statements should be prepared on a going concern
basis unless there is an intention to liquidate the entity or to cease
operating, or if there is no realistic alternative but to do so. When those
responsible for the preparation of the financial statements are aware, in
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Presentation of Financial Statements

making their assessment, of material uncertainties related to events or
conditions that may cast significant doubt upon the entity’s ability to
continue as a going concern, those uncertainties should be disclosed.
When financial statements are not prepared on a going concern basis,
that fact should be disclosed, together with the basis on which the
financial statements are prepared and the reason why the entity is not
regarded as a going concern.

39. Financial statements are normally prepared on the assumption that the
entity is a going concern and will continue in operation and meet its statutory
obligations for the foreseeable future. In assessing whether the going concern
assumption is appropriate, those responsible for the preparation of financial
statements take into account all available information about the future, which
is at least, but is not limited to, twelve months from the approval of the financial
statements.

40. The degree of consideration depends on the facts in each case, and
assessments of the going concern assumption are not predicated on the
solvency test usually applied to business enterprises. There may be
circumstances where the usual going concern tests of liquidity and solvency
appear unfavorable, but other factors suggest that the entity is nonetheless a
going concern. For example:

(a) In assessing whether a local body is a going concern, the power
to levy rates or taxes may enable some entities to be considered
as a going concern even though they may operate for extended
periods with negative equity; and

(b) For an individual entity, an assessment of its balance sheet at the
reporting date may suggest that the going concern assumption is
not appropriate. However, there may be multi-year funding
agreements, or other arrangements, in place that will ensure the
continued operation of the entity.

41. The determination of whether the going concern assumption is
appropriate is primarily relevant for individual local bodies. For individual entities,
in assessing whether the going concern basis is appropriate, those responsible
for the preparation of financial statements may need to consider a wide range
of factors relating to (a) current and expected performance, (b) potential and
13
Compendium of ASLBs

announced restructurings of organisational units, (c) estimates of revenue or
the likelihood of continued government funding, and (d) potential sources of
replacement financing before it is appropriate to conclude that the going
concern assumption is appropriate.

Consistency of Presentation

42. The presentation and classification of items in the financial
statements should be retained from one period to the next unless:

(a) It is apparent, following a significant change in the nature of
the entity’s operations or a review of its financial statements,
that another presentation or classification would be more
appropriate having regard to the criteria for the selection
and application of accounting policies in ASLB 3,
‘Accounting Policies, Changes in Accounting Estimates and
Errors’; or

(b) An ASLB requires a change in presentation.

43. A significant acquisition or disposal, or a review of the presentation of
the financial statements, might suggest that the financial statements need to
be presented differently.

44. An entity changes the presentation of its financial statements only if the
changed presentation provides information that is reliable and is more relevant
to users of the financial statements, and the revised structure is likely to continue,
so that comparability is not impaired. When making such changes in
presentation, an entity reclassifies its comparative information in accordance
with paragraph 55 and 56.

Materiality and Aggregation

45. Each material class of similar items should be presented
separately in the financial statements. Items of a dissimilar nature or
function should be presented separately, unless they are immaterial.

46. Financial statements result from processing large numbers of
transactions or other events that are aggregated into classes according to their
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Presentation of Financial Statements

nature or function. The final stage in the process of aggregation and
classification is the presentation of condensed and classified data, which form
line items on the face of the Balance Sheet (including statement of changes in
equity annexed thereto), Income and Expenditure statement and cash flow
statement, or in the notes. If a line item is not individually material, it is aggregated
with other items either on the face of those statements or in the notes. An item
that is not sufficiently material to warrant separate presentation on the face of
those statements may nevertheless be sufficiently material for it to be presented
separately in the notes.

47. Applying the concept of materiality means that a specific disclosure
requirement in an ASLB need not be satisfied if the information is not material.

Offsetting

48. Assets and liabilities, and revenue and expenses, should not be
offset unless required or permitted by an ASLB.

49. It is important that assets and liabilities, and revenue and expenses, are
reported separately. Offsetting in either income and expenditure statement or
the balance sheet, except when offsetting reflects the substance of the
transaction or other event, detracts from the ability of users both (a) to understand
the transactions, other events and conditions that have occurred, and (b) to
assess the entity’s future cash flows. Measuring assets net of valuation
allowances for example, obsolescence allowances on inventories and doubtful
debts allowances on receivables is not offsetting.

50. ASLB 9, ‘Revenue from Exchange Transactions’ defines revenue and
requires it to be measured at the fair value of consideration received or
receivable, taking into account the amount of any trade discounts and volume
rebates allowed by the entity. An entity undertakes, in the course of its ordinary
activities, other transactions that do not generate revenue but are incidental to
the main revenue-generating activities. The results of such transactions are
presented, when this presentation reflects the substance of the transaction or
other event, by netting any revenue with related expenses arising on the same
transaction. For example:

(a) Gains and losses on the disposal of non-current assets, including
investments and operating assets, are reported by deducting from
15
Compendium of ASLBs

the proceeds on disposal the carrying amount of the asset and
related selling expenses; and

(b) Expenses related to a provision that is recognised in accordance
with ASLB 19, ‘Provisions, Contingent Liabilities and Contingent
Assets’ and reimbursed under a contractual arrangement with a
third party may be netted against the related reimbursement.

51. In addition, gains and losses arising from a group of similar transactions
are reported on a net basis. Such gains and losses are, however, reported
separately if they are material.

52. The offsetting of cash flows is dealt with in ASLB on ‘Cash Flow
Statements’6.

Comparative Information

53. Except when an ASLB permits or requires otherwise, comparative
information should be disclosed in respect of the previous period for
all amounts reported in the financial statements. Comparative
information should be included for narrative and descriptive information
when it is relevant to an understanding of the current period’s financial
statements.

54. In some cases, narrative information provided in the financial statements
for the previous period(s) continues to be relevant in the current period. For
example, details of a legal dispute, the outcome of which was uncertain at the
last reporting date and is yet to be resolved, are disclosed in the current period.
Users benefit from information that the uncertainty existed at the last reporting
date, and about the steps that have been taken during the period to resolve the
uncertainty.

55. When the presentation or classification of items in the financial
statements is amended, comparative amounts should be reclassified
unless the reclassification is impracticable. When comparative amounts
are reclassified, an entity should disclose:

6
The proposed Accounting Standard for Local Bodies on ‘Cash Flow Statements’ is under preparation.

16
Presentation of Financial Statements

(a) The nature of the reclassification;

(b) The amount of each item or class of items that is
reclassified; and

56. When it is impracticable to reclassify comparative amounts, an
entity should disclose:

(a) The reason for not reclassifying the amounts; and

(b) The nature of the adjustments that would have been made
if the amounts had been reclassified.

57. Enhancing the inter-period comparability of information assists users in
making and evaluating decisions, especially by allowing the assessment of
trends in financial information for predictive purposes. In some circumstances,
it is impracticable to reclassify comparative information for a particular prior
period to achieve comparability with the current period. For example, data may
not have been collected in the prior period(s) in a way that allows
reclassification, and it may not be practicable to recreate the information.

58. [Refer to Appendix 1]

Structure and Content
Introduction
59. This Standard requires particular disclosures on the face of the balance
sheet (including statement of changes in equity annexed thereto), income and
expenditure statement and requires disclosure of other line items either on the
face of those statements or in the notes. ASLB on ‘Cash Flow Statements’ sets
out requirements for the presentation of a cash flow statement.

60. This Standard sometimes uses the term disclosure in a broad sense,
encompassing items presented on the face of the (a) balance sheet (including
statement of changes in equity annexed thereto), (b) income and expenditure
statement, and (c) cash flow statement, as well as in the notes. Disclosures
17
Compendium of ASLBs

are also required by other ASLBs. Unless specified to the contrary elsewhere in
this Standard, or in another ASLB, such disclosures are made either on the
face of the balance sheet, income and expenditure statement, cash flow
statement (whichever is relevant), or in the notes.

Identification of the Financial Statements
61. The financial statements should be identified clearly, and
distinguished from other information in the same published document.

62. ASLBs apply only to financial statements, and not to other information
presented in an annual report or other document. Therefore, it is important that
users can distinguish information that is prepared using ASLBs from other
information that may be useful to users but is not the subject of those
requirements.

63. Each component of the financial statements should be identified
clearly. In addition, the following information should be displayed
prominently, and repeated when it is necessary for a proper
understanding of the information presented:

(a) The name of the reporting entity or other means of
identification, and any change in that information from the
preceding reporting date;

(b) Whether the financial statements cover the individual entity
or the economic entity;

(c) The reporting date or the period covered by the financial
statements, whichever is appropriate to that component of
the financial statements;

(d) The presentation currency, as defined in ASLB on, ‘The
Effects of Changes in Foreign Exchange Rates’7; and

(e) The level of rounding used in presenting amounts in the
financial statements.
7
The proposed Accounting Standard for Local Bodies on, ‘The Effects of Changes in Foreign Exchange
Rates’ is under preparation.
18
Presentation of Financial Statements

64. The requirements in paragraph 63 are normally met by presenting page
headings and abbreviated column headings on each page of the financial
statements. Judgment is required in determining the best way of presenting
such information. For example, when the financial statements are presented
electronically, separate pages are not always used; the above items are then
presented frequently enough to ensure a proper understanding of the information
included in the financial statements.

65. Financial statements are often made more understandable by presenting
information in thousands or higher denomination of the presentation currency.
This is acceptable as long as the level of rounding in presentation is disclosed
and material information is not omitted.

Reporting Period

66. Financial statements should be presented at least annually. When
an entity’s reporting date changes and the annual financial statements
are presented for a period longer or shorter than one year, an entity
should disclose, in addition to the period covered by the financial
statements:

(a) The reason for using a longer or shorter period; and

(b) The fact that comparative amounts for certain statements
such as the income and expenditure statement, statement
of changes in equity annexed to the balance sheet, cash
flow statement and related notes are not entirely
comparable.

67. In exceptional circumstances an entity may be required to, or decide to,
change its reporting date, for example in order to align the reporting cycle
more closely with the budgeting cycle. When this is the case, it is important
that users are aware that the amounts shown for the current period and
comparative amounts are not comparable and that the reason for the change
in reporting date is disclosed. A further example is where, in making the
transition from cash to accrual accounting, an entity changes the reporting
date for entities within the economic entity to enable the preparation of
consolidated financial statements.

19
Compendium of ASLBs

68. [Refer to Appendix 1]

69. [Refer to Appendix 1]

Balance Sheet

Current/Non-current Distinction

70. An entity should present current and non-current assets, and
current and non-current liabilities, as separate classifications on the
face of its balance sheet in accordance with paragraphs 76-87, except
when a presentation based on liquidity provides information that is
reliable and is more relevant. When that exception applies, all assets
and liabilities should be presented broadly in order of liquidity.

71. Whichever method of presentation is adopted, for each asset and
liability line item that combines amounts expected to be recovered or
settled (a) no more than twelve months after the reporting date, and (b)
more than twelve months after the reporting date, an entity should
disclose the amount expected to be recovered or settled after more
than twelve months.

72. When an entity supplies goods or services within a clearly identifiable
operating cycle, separate classification of current and non-current assets and
liabilities on the face of the balance sheet provides useful information by
distinguishing the net assets that are continuously circulating as working capital
from those used in the entity’s long-term operations. It also highlights assets
that are expected to be realised within the current operating cycle, and liabilities
that are due for settlement within the same period.

73. [Refer to Appendix 1]

74. In applying paragraph 70, an entity is permitted to present some of its
assets and liabilities using a current/non-current classification, and others in
order of liquidity, when this provides information that is reliable and is more
relevant. The need for a mixed basis of presentation might arise when an entity
has diverse operations.

20
Presentation of Financial Statements

75. Information about expected dates of realisation of assets and liabilities
is useful in assessing the liquidity and solvency of an entity. Information on the
expected date of recovery and settlement of non-monetary assets and liabilities
such as inventories and provisions is also useful, whether or not assets and
liabilities are classified as current or non-current.

Current Assets

76. An asset should be classified as current when it satisfies any of
the following criteria:

(a) It is expected to be realised in, or is held for sale or
consumption in, the entity’s normal operating cycle;

(b) It is held primarily for the purpose of being traded;

(d) It is cash or a cash equivalent (as defined in proposed ASLB
on ‘Cash Flow Statements’ unless it is restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting date).

All other assets should be classified as non-current.

77. This Standard uses the term non-current assets to include tangible,
intangible and long-term Investments. It does not prohibit the use of alternative
descriptions as long as the meaning is clear.

78. The operating cycle of an entity is the time taken to convert inputs or
resources into outputs or their realisation in cash or cash equivalents. For
instance, entities provide resources to departments so that they can convert
those resources into goods and services, or outputs, to meet the entity’s desired
social, political and economic outcomes. When the entity’s normal operating
cycle is not clearly identifiable, its duration is assumed to be twelve months.

79. Current assets include assets (such as taxes receivable, user charges
receivable, fines and regulatory fees receivable, inventories and accrued
21
Compendium of ASLBs

investment revenue) that are either realised, consumed or sold, as part of the
normal operating cycle even when they are not expected to be realised within
twelve months after the reporting date. Current assets also include assets held
primarily for the purpose of trading and the current portion of long-term
investments.

Current Liabilities

80. A liability should be classified as current when it satisfies any of
the following criteria:

(a) It is expected to be settled in the entity’s normal operating
cycle;

(b) It is held primarily for the purpose of being traded;

(d) The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
reporting date.

All other liabilities should be classified as non-current.

81. Some current liabilities, such as government transfers payable and some
accruals for employee and other operating costs, are part of the working capital
used in the entity’s normal operating cycle. Such operating items are classified
as current liabilities even if they are due to be settled more than twelve months
after the reporting date. The same normal operating cycle applies to the
classification of an entity’s assets and liabilities. When the entity’s normal
operating cycle is not clearly identifiable, its duration is assumed to be twelve
months.

82. Other current liabilities are not settled as part of the normal operating
cycle, but are due for settlement within twelve months after the reporting date
or held primarily for the purpose of being traded. Examples are bank overdrafts,
and the current portion of non-current liabilities, dividends payable, and other
non-trade payables. Liabilities that provide financing on a long-term basis (i.e.,
22
Presentation of Financial Statements

are not part of the working capital used in the entity’s normal operating cycle)
and are not due for settlement within twelve months after the reporting date are
non-current liabilities, subject to paragraphs 85 and 86.

83. An entity classifies its liabilities as current when they are due to be settled
within twelve months after the reporting date, even if:

(a) The original term was for a period longer than twelve months; and

(b) An agreement to refinance, or to reschedule payments, on a long-
term basis is completed after the reporting date and before the
financial statements are authorised for issue.

84. If an entity expects, and has the discretion, to refinance or roll over an
obligation for at least twelve months after the reporting date under an existing
loan facility, it classifies the obligation as non-current, even if it would otherwise
be due within a shorter period. However, when refinancing or rolling over the
obligation is not at the discretion of the entity (for example, there is no agreement
to refinance), the potential to refinance is not considered and the obligation is
classified as current.

85. When an entity breaches an undertaking under a long-term loan
agreement on or before the reporting date, with the effect that the liability
becomes payable on demand, the liability is classified as current, even if the
lender has agreed, after the reporting date and before the authorisation of the
financial statements for issue, not to demand payment as a consequence of
the breach. The liability is classified as current because, at the reporting date,
the entity does not have an unconditional right to defer its settlement for at least
twelve months after that date.

86. However, the liability is classified as non-current if the lender agreed by
the reporting date to provide a period of grace ending at least twelve months
after the reporting date, within which the entity can rectify the breach and
during which the lender cannot demand immediate repayment.

87. In respect of loans classified as current liabilities, if the following events
occur between the reporting date and the date the financial statements are
authorised for issue, those events qualify for disclosure as non-adjusting events
in accordance with ASLB 14, ‘Events after the Reporting Date’:
23
Compendium of ASLBs

(a) Refinancing on a long-term basis;

(b) Rectification of a breach of a long-term loan agreement; and

(c) The receipt from the lender of a period of grace to rectify a breach
of a long-term loan agreement ending at least twelve months after
the reporting date.

Information to be Presented on the Face of the Balance Sheet

88. As a minimum8, the face of the balance sheet should include line
items that present the following amounts:

(a) Property, plant and equipment;
(b) Investment property;
(c) Intangible assets;
(d) Biological assets (i.e. living, plants and animals)
(e) Investments accounted for using the equity method;
(f) Other investments (excluding amounts shown under (e), (h),
(i) and (j));
(g) Inventories;
(h) Recoverables from non-exchange transactions (taxes and
transfers);
(i) Receivables from exchange transactions;
(j) Cash and cash equivalents;
(k) Taxes and transfers payable;
(l) Payables under exchange transactions;
(m) Provisions;
(n) liabilities (excluding amounts shown under (k), (l) and (m));

8
Those items to be presented which are relevant to the reporting entity.

24
Presentation of Financial Statements

(o) Minority interest, presented within equity; and
(p) Equity/reserves and surplus attributable to owners of the
controlling entity.

89. Additional line items, headings and sub-totals should be presented
on the face of the balance sheet when such presentation is relevant to
an understanding of the entity’s financial position.

90. This Standard does not prescribe the order or format in which items are
to be presented. Paragraph 88 simply provides a list of items that are sufficiently
different in nature or function to warrant separate presentation on the face of
the balance sheet. In addition:

(a) Line items are included when the size, nature, or function of an
item or aggregation of similar items is such that separate
presentation is relevant to an understanding of the entity’s financial
position; and

(b) The descriptions used and the ordering of items or aggregation of
similar items may be amended according to the nature of the
entity and its transactions, to provide information that is relevant to
an understanding of the entity’s financial position.

91. The judgment on whether additional items are presented separately is
based on an assessment of:

(a) The nature and liquidity of assets;

(b) The function of assets within the entity; and

92. The use of different measurement bases for different classes of assets
suggests that their nature or function differs and, therefore, that they should be
presented as separate line items. For example, different classes of property,
plant and equipment can be carried at cost or revalued amounts in accordance
with ASLB 17, ‘Property, Plant and Equipment’.

25
Compendium of ASLBs

Information to be Presented either on the Face of the Balance
Sheet or in the Notes

93. An entity should disclose, either on the face of the balance sheet
(including statement of changes in equity annexed thereto), or in the
notes, further sub classifications of the line items presented, classified
in a manner appropriate to the entity’s operations.

94. The detail provided in subclassifications depends on the requirements
of ASLBs and on the size, nature and function of the amounts involved. The
factors set out in paragraph 91 also are used to decide the basis of
subclassification. The disclosures vary for each item, for example:

(a) Items of property, plant and equipment are disaggregated into
classes in accordance with ASLB 17, ‘Property, Plant and
Equipment’;

(b) Receivables are disaggregated into amounts receivable from user
charges, taxes and other non-exchange revenues, prepayments
and other amounts;

(c) Inventories are sub classified in accordance with ASLB 12,
‘Inventories’ into classifications such as merchandise, production
supplies, materials, work in progress and finished goods;

(d) Taxes and transfers payable are disaggregated into tax refunds
payable, transfers payable, and amounts payable to other members
of the economic entity;

(e) Provisions are disaggregated into provisions for employee benefits
and other items; and

(f) Components of equity are disaggregated into contributed capital,
accumulated surpluses and deficits and any reserves.

95. When an entity has no share capital, it should disclose equity,
either on the face of the balance sheet or in the notes, showing
separately:

26
Presentation of Financial Statements

(a) Contributed capital, being the cumulative total at the reporting
date of contributions from owners, less distributions to
owners;

(b) Accumulated surpluses or deficits;

(d) Minority interests.

96. Many entities will not have share capital but the entity will be controlled
exclusively by another entity. The nature of the local body’s interest in the
equity of the entity is likely to be a combination of contributed capital and the
aggregate of the entity’s accumulated surpluses or deficits and reserves that
reflect the equity attributable to the entity’s operations.

97. In some cases, there may be a minority interest in the equity of the entity.
For example, the local body may have a controlling interest in a Special Purpose
Vehicle with a private party under the Public Private Partnership arrangement.

98. When an entity has share capital, in addition to the disclosures in
paragraph 95, it should disclose the following, either on the face of the
balance sheet or in statement of changes in equity annexed there to or
in the notes:

(a) For each class of share capital:

(i) The number of shares authorised;

(ii) The number of shares issued and fully paid, and issued
but not fully paid;

(iii) Par value per share, or that the shares have no par value;

(iv) A reconciliation of the number of shares outstanding at
the beginning and at the end of the year;

27
Compendium of ASLBs

(v) The rights, preferences and restrictions attaching to that
class, including restrictions on the distribution of
dividends and the repayment of capital;

(vi) Shares in the entity held by the entity or by its controlled
entities or associates; and

(vii) Shares reserved for issue under options and contracts
for the sale of shares, including the terms and amounts;
and

(b) A description of the nature and purpose of each reserve
within equity.

Income and Expenditure Statement

Surplus or Deficit for the Period

99. All items of revenue and expense recognised in a period should
be included in the determination of surplus or deficit, unless an ASLB
requires otherwise.

100. Normally, all items of revenue and expense recognised in a period are
included in the determination of surplus or deficit. This includes the effects of
changes in accounting estimates. However, circumstances may exist when
particular items may be excluded from surplus or deficit for the current period.

101. Other Standards deal with items that may meet definitions of revenue or
expense set out in this ASLB but are usually excluded from the determination
of surplus or deficit. Examples include revaluation surpluses (see ASLB 17,
‘Property, Plant and Equipment’).

Information to be Presented on the Face of the Income and
Expenditure Statement

102. As a minimum, the face of the Income and expenditure statement
should include line items that present the following amounts for the
period:
28
Presentation of Financial Statements

(a) Revenue;
(b) Employee costs;
(c) Finance costs;
(d) Depreciation and amortisation;
(e) Other operating expenditure;
(f) Share of the surplus or deficit of associates and joint
ventures accounted for using the equity method;
(g) Minority interest share of surplus or deficit; and
(h) Surplus or deficit.

103. The following items should be disclosed on the face of the income
and expenditure statement as allocations of surplus or deficit for the
period:

(a) Surplus or deficit attributable to minority interest; and

(b) Surplus or deficit attributable to owners of the controlling
entity.

104. Additional line items, headings and subtotals should be presented
on the face of the income and expenditure statement when such
presentation is relevant to an understanding of the entity’s financial
performance.

105. Because the effects of an entity’s various activities, transactions and
other events differ in terms of their impact on its ability to meet its service
delivery obligations, and disclosing the components of financial performance
assists in an understanding of the financial performance achieved and in making
projections of future results. Additional line items are included on the face of
the income and expenditure statement, and the descriptions used and the
ordering of items are amended when this is necessary to explain the elements
of performance. Factors to be considered include materiality and the nature
and function of the components of revenue and expenses. Revenue and
expense items are not offset unless the criteria in paragraph 48 are met.

29
Compendium of ASLBs

Information to be Presented either on the Face of the Income
and Expenditure Statement or in the Notes

106. When items of revenue and expense are material, their nature and
amount should be disclosed separately.

107. Circumstances that would give rise to the separate disclosure of items
of revenue and expense include:

(a) Write-downs of inventories to net realisable value or of property,
plant and equipment to recoverable amount or recoverable service
amount as appropriate, as well as reversals of such write-downs;

(b) Restructurings of the activities of an entity and reversals of any
provisions for the costs of restructuring;

(d) Litigation settlements; and

(e) Other reversals of provisions.

108. An entity should present, either on the face of the income and
expenditure statement or in the notes, a subclassification of total
revenue, classified in a manner appropriate to the entity’s operations.

109. An entity should present, either on the face of the income and
expenditure statement or in the notes, an analysis of expenses using a
classification based on the nature of expenses.

110. Entities are encouraged to present the analysis in paragraph 109 on the
face of the income and expenditure statement.

111. Expenses are sub classified to highlight the costs and cost recoveries of
particular programs, activities or other relevant segments of the reporting entity.

112. To present analysis in paragraph 109, expenses are aggregated in the
income and expenditure statement according to their nature (for example,
depreciation, purchases of materials, transport costs, employee benefits), and
30
Presentation of Financial Statements

are not reallocated among various functions within the entity. This method is
simple to apply because no allocations of expenses to functional classifications
are necessary. An example of a classification using the nature of expense
method is as follows:

Revenue X
Employee benefits costs X
Depreciation and amortisation expense X
Other expenses X
_____
Total expenses (X)
_____
Surplus X
_____

113. [Refer to Appendix 1]

114. [Refer to Appendix 1]

115. Entities are encouraged to provide a summary statement of nature of
expense, in a matrix form to enable the users of financial statements to
understand the total cost of providing various services. This information may
be presented in such a manner that assets, liabilities, revenue and expense
and surplus / deficit relating to each major function are readily apparent or
determinable.

116. [Refer to Appendix 1]

117. When an entity provides a dividend or similar distribution to its
owners and has share capital, it should disclose, either on the face of
the income and expenditure statement or the statement of changes in
equity annexed to the balance sheet, or in the notes, the amount of
dividends or similar distributions recognised as distributions to owners
during the period, and the related amount per share.

Statement of Changes in Equity

118. An entity should present a statement of changes in equity as
required by paragraph 21. Following information should be shown on
the face of the statement:

31
Compendium of ASLBs

(a) Surplus or deficit for the period; and

(b) Each item of revenue and expense for the period that, as
required by other Standards, is recognised directly in equity,
and the total of these items.

118A. The entity may also present the total revenue and expense for the
period (calculated as the sum of 118 (a) and (b)), showing separately the
total amounts attributable to owners of the controlling entity and to
minority interest.

119. An entity should also present, either on the face of the statement
of changes in equity or in the notes:

(a) The amounts of transactions with owners acting in their
capacity as owners, showing separately distributions to
owners;

(b) The balance of accumulated surpluses or deficits at the
beginning of the period and at the reporting date, and the
changes during the period; and

(c) To the extent that components of equity are separately
disclosed, a reconciliation between the carrying amount of
each component of equity at the beginning and the end of
the period, separately disclosing each change.

120. Changes in an entity’s equity between two reporting dates reflect the
increase or decrease in its net assets during the period.

121. The overall change in equity during a period represents the total amount
of surplus or deficit for the period, other revenues and expenses recognised
directly as changes in equity, together with any contributions by, and distributions
to, owners in their capacity as owners.

122. Contributions by, and distributions to, owners include transfers between
two entities within an economic entity (for example, a transfer from a local
body, acting in its capacity as owner, to a special purpose vehicle). Contributions
by owners, in their capacity as owners, to controlled entities are recognised as
32
Presentation of Financial Statements

a direct adjustment to equity only where they explicitly give rise to residual
interests in the entity in the form of rights to equity.

123. This Standard requires all items of revenue and expense recognised in
a period to be included in surplus or deficit, unless another ASLB requires
otherwise. Other Standards require some items (such as revaluation increases)
to be recognised directly as changes in equity. Because it is important to
consider all items of revenue and expense in assessing changes in an entity’s
financial position between two reporting dates, this Standard requires the
presentation of a statement of changes in equity that highlights an entity’s total
revenue and expenses, including those that are recognised directly in equity.

124. [Refer to Appendix 1]

125. The requirements in paragraphs 118, 118A and 119 may be met by
using a columnar format that reconciles the opening and closing balances of
each element within equity. An alternative is to present only the items set out in
paragraph 118 and 118A in the statement of changes in equity. Under this
approach, the items described in paragraph 119 are shown in the notes.

Cash Flow Statement

126. Cash flow information provides users of financial statements with a basis
to assess the ability of the entity to generate cash and cash equivalents and the
needs of the entity to utilise those cash flows. ASLB on ‘Cash Flow Statements’
sets out requirements for the presentation of the cash flow statement and related
disclosures.

Notes

Structure

127. The notes should:

(a) Present information about the basis of preparation of the
financial statements and the specific accounting policies used
in accordance with paragraphs 132-139;

33
Compendium of ASLBs

(b) Disclose the information required by ASLB that is not
presented on the face of the balance sheet or statement of
changes in equity annexed to the balance sheet, income and
expenditure statement, or cash flow statement; and

(c) Provide additional information that is not presented on the
face of the balance sheet, in the statement of changes in
equity annexed to the balance sheet, income and
expenditure statement, or cash flow statement, but that is
relevant to an understanding of any of them.

128. Notes should, as far as practicable, be presented in a systematic
manner. Each item on the face of the balance sheet in the statement of
changes in equity annexed to the balance sheet, income and expenditure
statement, and cash flow statement should be cross-referenced to any
related information in the notes.

129. Notes are normally presented in the following order, which assists users
in understanding the financial statements and comparing them with financial
statements of other entities:

(a) A statement of compliance with ASLBs (see paragraph 28);

(b) A summary of significant accounting policies applied (see
paragraph 132);

(c) Supporting information for items presented on the face of the
balance sheet in the statement of changes in equity annexed to
the balance sheet, income and expenditure statement, or cash
flow statement, in the order in which each statement and each
line item is presented; and

(d) Other disclosures, including Contingent liabilities (see ASLB 19,
‘Provisions, Contingent Liabilities and Contingent Assets’), and
unrecognised contractual commitments.

130. In some circumstances, it may be necessary or desirable to vary the
ordering of specific items within the notes.

34
Presentation of Financial Statements

131. Notes providing information about the basis of preparation of the financial
statements and specific accounting policies may be presented as a separate
component of the financial statements.

Disclosure of Accounting Policies

132. An entity should disclose in the summary of significant accounting
policies:

(a) The measurement basis (or bases) used in preparing the
financial statements;

(b) The extent to which the entity has applied any transitional
provisions in any ASLBs; and

133. It is important for users to be informed of the measurement basis or
bases used in the financial statements (for example, historical cost, current
cost, net realisable value, fair value, recoverable amount or recoverable service
amount) because the basis on which the financial statements are prepared
significantly affects their analysis. When more than one measurement basis is
used in the financial statements, for example when particular classes of assets
are revalued, it is sufficient to provide an indication of the categories of assets
and liabilities to which each measurement basis is applied.

134. In deciding whether a particular accounting policy should be disclosed,
management considers whether disclosure would assist users in understanding
how transactions, other events and conditions are reflected in the reported
financial performance and financial position. Disclosure of particular accounting
policies is especially useful to users when those policies are selected from
alternatives allowed in ASLBs.

135. Each entity considers the nature of its operations and the policies that
the users of its financial statements would expect to be disclosed for that type
of entity. For example, local bodies would be expected to disclose an
accounting policy for recognition of taxes, donations and other forms of non-

35
Compendium of ASLBs

exchange revenue. When an entity has significant transactions in foreign
currencies, disclosure of accounting policies for the recognition of
foreign exchange gains and losses would be expected. When entity
combinations have occurred, the policies used for measuring minority interest
are disclosed.

136. An accounting policy may be significant because of the nature of the
entity’s operation, even if amounts for current and prior periods are not material.
It is also appropriate to disclose each significant accounting policy that is not
specifically required by ASLB, but is selected and applied in accordance with
ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates and Errors’.

137. An entity should disclose, in the summary of significant
accounting policies or other notes, the judgments, apart from those
involving estimations (see paragraph 140), management has made in
the process of applying the entity’s accounting policies that have the
most significant effect on the amounts recognised in the financial
statements.

137A. Some of the examples of accounting policies followed in preparation of
financial statements are:

a. The measurement base applied is historical cost adjusted for
revaluations of assets.

b. The financial statements have been prepared on a going concern
basis and the accounting policies have been applied consistently
throughout the period.

138. In the process of applying the entity’s accounting policies, management
makes various judgments, apart from those involving estimations, that can
significantly affect the amounts recognised in the financial statements.

139. [Refer to Appendix 1]

Key Sources of Estimation Uncertainty

140. An entity should disclose in the notes information about the key
assumptions concerning the future, and other key sources of estimation
36
Presentation of Financial Statements

uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities
within the next financial year. In respect of those assets and liabilities,
the notes should include details of:

(a) Their nature; and

(b) Their carrying amount as at the reporting date.

141. Determining the carrying amounts of some assets and liabilities requires
estimation of the effects of uncertain future events on those assets and liabilities
at the reporting date. For example, in the absence of recently observed market
prices used to measure the following assets and liabilities, future-oriented
estimates are necessary to measure (a) the recoverable amount of certain
classes of property, plant and equipment, (b) the effect of technological
obsolescence on inventories, (c) provisions subject to the future outcome of
litigation in progress.

142. The key assumptions and other key sources of estimation uncertainty
disclosed in accordance with paragraph 140 relate to the estimates that require
management’s most difficult, subjective or complex judgments. As the number
of variables and assumptions affecting the possible future resolution of the
uncertainties increases, those judgments become more subjective and
complex, and the potential for a consequential material adjustment to the
carrying amounts of assets and liabilities normally increases accordingly.

143. The disclosures in paragraph 140 are not required for assets and
liabilities with a significant risk that their carrying amounts might change
materially within the next financial year if, at the reporting date, they are measured
at fair value based on recently observed market prices (their fair values might
change materially within the next financial year but these changes would not
arise from assumptions or other sources of estimation uncertainty at the reporting
date).

144. The disclosures in paragraph 140 are presented in a manner that helps
users of financial statements to understand the judgments management makes
about the future and about other key sources of estimation uncertainty. The
nature and extent of the information provided vary according to the nature of

37
Compendium of ASLBs

the assumption and other circumstances. Examples of the types of disclosures
made are:

(a) The nature of the assumption or other estimation uncertainty;

(b) The expected resolution of an uncertainty and the range of
reasonably possible outcomes within the next financial year in
respect of the carrying amounts of the assets and liabilities
affected; and

(c) An explanation of changes made to past assumptions concerning
those assets and liabilities, if the uncertainty remains unresolved.

145. Local bodies should not disclose budget information or forecasts in
making the disclosures in paragraph 140.

146. When it is impracticable to disclose the extent of the possible effects of
a key assumption or another key source of estimation uncertainty at the reporting
date, the entity discloses that it is reasonably possible, based on existing
knowledge, that outcomes within the next financial year that are different from
assumptions could require a material adjustment to the carrying amount of the
asset or liability affected. In all cases, the entity discloses the nature and carrying
amount of the specific asset or liability (or class of assets or liabilities) affected
by the assumption.

147. The disclosures in paragraph 137 of particular judgments management
made in the process of applying the entity’s accounting policies do not relate to
the disclosures of key sources of estimation uncertainty in paragraph 140.

148. The disclosure of some of the key assumptions that would otherwise be
required in accordance with paragraph 140 is required by other Standards. For
example, ASLB 19, ‘Provisions, Contingent Liabilities and Contingent Assets’
requires disclosure, in specified circumstances, of major assumptions
concerning future events affecting classes of provisions. ASLB 17, ‘Property,
Plant & Equipment’ requires disclosure of significant assumptions applied in
estimating fair values of revalued items of property, plant and equipment.

38
Presentation of Financial Statements

Capital

148A. An entity should disclose information that enables users of its
financial statements to evaluate the entity’s objectives, policies, and
processes for managing capital.

148B. To comply with paragraph 148A the entity discloses the following:

(a) Qualitative information about its objectives, policies, and
processes for managing capital, including (but not limited to):

(i) A description of what it manages as capital;

(ii) When an entity is subject to externally imposed capital
requirements, the nature of those requirements and how those
requirements are incorporated into the management of
capital; and

(iii) How it is meeting its objectives for managing capital.

(b) Summary quantitative data about what it manages as capital.

(d) Whether during the period it complied with any externally imposed
capital requirements to which it is subject.

(e) When the entity has not complied with such externally imposed
capital requirements, the consequences of such non-compliance.
These disclosures should be based on the information provided
internally to the entity’s key management personnel.

148C. An entity may manage capital in a number of ways and be subject to a
number of different capital requirements. For example, a conglomerate may
include entities that undertake different activities, and those entities may also
operate in several states. When an aggregate disclosure of capital requirements
and how capital is managed would provide useful information or distorts a
financial statement user’s understanding of an entity’s capital resources, the

39
Compendium of ASLBs

entity should disclose separate information for each capital requirement to
which the entity is subject.

Other Disclosures

149. [Refer to Appendix 1]

150. An entity should disclose the following, if not disclosed elsewhere
in information published with the financial statements:

(a) The domicile and legal form of the entity, and the jurisdiction
within which it operates;

(b) A description of the nature of the entity’s operations and
principal activities;

(d) The name of the controlling entity and the ultimate
controlling entity of the economic entity (where applicable).

Transitional Provisions
151. All provisions of this Standard should be applied from the date of
first adoption of this Standard, except in relation to items that have not
been recognised as a result of transitional provisions under another
ASLB. The disclosure provisions of this Standard would not be required
to apply to such items until the transitional provision in the other ASLB
expires. Comparative information is not required in respect of the
financial statements to which accrual accounting is first adopted in
accordance with ASLBs.

152. Notwithstanding the existence of transitional provisions under another
ASLB, entities that are in the process of adopting the accrual basis of accounting
for financial reporting purposes are encouraged to comply in full with the
provisions of that other Standard as soon as possible.

40
Presentation of Financial Statements

153. [Refer to Appendix 1]

154. [Refer to Appendix 1]

155. [Refer to Appendix 1]

41
Compendium of ASLBs

Appendix A

Implementation Guidance – Illustrative Financial Statement
Structure

This guidance accompanies, but is not part of, ASLB 1.

IG1. This Standard sets out the components of financial statements and
minimum requirements for disclosure on the face of the balance sheet (including
statement of changes in equity annexed thereto), and the income and
expenditure statement. It also describes further items that may be presented
either on the face of the relevant financial statement or in the notes. This
guidance provides simple examples of the ways in which the requirements of
the Standard for the presentation of the balance sheet, income and expenditure
statement and changes in equity might be met. The order of presentation and
the descriptions used for line items should be changed when necessary in
order to achieve a true and fair presentation in each entity’s particular
circumstances.

IG2. The illustrative statement of balance sheet shows one way in which a
balance sheet distinguishing between current and non current items may be
presented. Other formats may be equally appropriate, provided the distinction
is clear.

IG3. The financial statements have been prepared for a local body and the
income and expenditure statement classifies expenses by nature.

IG4. The format9 of financial statements do not comprise a complete set of
financial statements, which would also include a cash flow statement, a
summary of significant accounting policies and other explanatory notes.

Refer ASLB – Cash Flow Statement for format of Cash Flow Statement.

9
The format may be suitably supplemented and substituted due to change arising from other Standards

42
Presentation of Financial Statements

LOCAL BODY – BALANCE SHEET AS OF 31ST MARCH ____________

(Rs. in Thousands)
Description of Items Schedule Current Year Previous Year
No. Amount (Rs.) Amount (Rs.)
EQUITY AND LIABILITIES

Equity

(a) Corpus Fund
(b) Retained Earnings
(c) General Fund
(d) Earmarked Funds
(d) Reserves
(e) Others

Non-current liabilities

(a) Long-term borrowings
(b) Long-term provisions
(c) Other non-current liabilities

Current liabilities

(a) Short Term Borrowings
(b) Short-term provisions
(c) Taxes and transfers payable
(d) Payable under exchange
transactions
(d) Other current liabilities

TOTAL

ASSETS

Non-current assets

(a) Property, Plant and
Equipment
(b) Capital work-in-progress
(c) Investment Property

43
Compendium of ASLBs

(d) Intangible Assets
(i) Goodwill
(ii) Other Intangible assets
(iii) Intangible assets under
development
(e) Biological Assets
(f) Long –term investments
(g) Long-term loans and
advances
(h) Other non-current assets

Current assets

(a) Inventories
(b) Current investments
(c) Recoverable from non-
exchange transactions
(taxes and transfers)
(d) Receivables from exchange
transactions
(e) Cash and cash equivalents
(f) Short-term loans and
advances
(g) Other current assets
TOTAL

44
Presentation of Financial Statements

LOCAL BODY – INCOME AND EXPENDITURE STATEMENT FOR THE
YEAR ENDED 31ST MARCH ____________

(Rs. in Thousands)

(Classification of Expenses by Nature)

Items/Head of Account Schedule Current Year Previous Year
No. Amount (Rs.) Amount (Rs.)
Revenue
Tax Revenue
Assigned Revenue and
Compensation
Rental Income from Municipal
Properties
Fees and User Charges
Sale and Hire Charges
Revenue Grants, Contribution
and Subsidies
Income from Investments
Interest Earned
Other Income
Total Revenue
Expenditure
Employee Costs
Finance Costs
Depreciation and Amortisation
expenses
Other Expenses
Total Expenditure
Share of Surplus of associates
and joint ventures

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Compendium of ASLBs

Gross Surplus ((deficit) of Income
over expenditure before
exceptional items
Exceptional items
Gross Surplus ((deficit) of Income
over expenditure after exceptional
items
Attributable to
Owners
Minority Interest

46
Presentation of Financial Statements

LOCAL BODY – STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31ST MARCH ____________

(Rs. in Thousands)
Attributable to owners of the Controlling
Entity

Minority Interest

Total Equity
Reserves & Surplus
contributed capital

Earmarked Fund

Other Reserves
Share capital /

General Fund

Total
Balances as
at 31st March
___________ x X X (X) X X X X

Changes in
equity for ______
Revaluation
Surplus X X X X

Net revenue
recognised
directly in equity X X X X

Surplus (Deficit)
for the period X X X X

Total recognised
revenues and
expenses for the
period X X X X X X

Any other change
(to be specified) X X X X X X X X

Balance at the
end of the
period X X X (X) X X X X

47
Compendium of ASLBs

Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local Bodies.
The purpose of this Appendix is only to bring out the major differences, if any,
between Accounting Standard for Local Bodies (ASLB) 1 and the corresponding
International Accounting Standard (IPSAS) 1, 'Presentation of Financial
Statements'.

Comparison with IPSAS 1, 'Presentation of Financial
Statements'
1 IPSAS 1 requires preparation of Statement of Changes in Equity as a
separate statement. ASLB 1 requires the statement of changes in equity to be
shown as an annexure to the balance sheet.

2 Different terminology is used in ASLB 1 e.g., the term ‘balance
sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of
income and expenditure, is used instead of ‘Statement of financial performane’.

3 IPSAS 1 gives the option to individual entities to follow different
terminology for the titles of financial statements. ASLB 1 has been changed to
remove this option by giving one terminology to be used by all the entities.

4 IPSAS 1 permits the periodicity, for example, of 52 weeks for preparation
of financial statements. ASLB 1 does not permit so.

5 IPSAS 1 requires an entity to present an analysis of expenses recognised
in Income and Expenditure Statement using a classification based on either
their nature or their function within the entity. ASLB 1 requires only nature-wise
classification of expenses.

6 Certain definitions and appendix on qualitative characteristics of financial
reporting given in IPSAS 1 have been removed as these are proposed to be
covered in the Conceptual Framework for General Purpose Financial Reporting
by Local Bodies being developed by the Committee.

7 ASLB 1 defines “Accounting Standards for Local Bodies”. IPSAS 1 does
not define “International Public Sector Accounting Standards”.

48
Presentation of Financial Statements

8 IPSAS 1 refers to the IPSASs on Financial Instruments at various places.
Those references have been deleted in the ASLB 1 keeping in view that
formulation of ASLBs corresponding to the IPSASs on Financial Instruments is
not proposed to be taken up in near future considering that Local Bodies in
India are at very early stage of adoption of accrual basis of accounting, it would
be difficult for Local Bodies to implement ASLBs on Financial Instruments.

9 Paragraph 6 of IPSAS 1 which provides on definition of Government
Business Enterprises and use of IFRSs by these Enterprises has been deleted
as it is not relevant for ASLB 1, which is applicable to Local Bodies. However,
paragraph 6 is retained in ASLB 1, in order to maintain consistency with IPSAS
1.

10 Due to above differences and others, certain paragraphs such as
paragraph number 16, 20, 58, 68, 69, 73, 113, 114, 116, 124, 139 and 149
have been removed from ASLB 1, as these are not considered to be relevant
for Local Bodies. However, paragraph numbers have been retained in order to
maintain consistency with IPSAS 1.

11 Paragraphs relating to effective date have been removed as the ASLB 1
would become mandatory for Local Bodies in a state from the date specified
by the State Government concerned. Paragraph numbers have been retained
in order to maintain consistency with IPSAS 1.

49
Compendium of ASLBs

Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local Bodies.
The purpose of this Appendix is only to bring out the major differences, if any,
between Accounting Standard for Local Bodies the corresponding
existing Accounting Standard (AS) 1, Disclosure of Accounting Policies (issued
1979).

Major differences between ASLB 1, ‘Presentation of
Financial Statements’ and existing AS 1 (issued 1979)
ASLB 1 generally deals with presentation of financial statements, whereas
existing AS 1 (issued1979) deals only with the disclosure of accounting policies.
The scope covered by the standard is thus much wider and line by line
comparison of the standard with the existing AS 1 is not possible. However, the
major requirements as laid down in the standard are as follows:

! An entity should make an explicit statement in the financial statements
of compliance with Accounting Standards for Local Bodies. Further, the
standard allow deviation from a requirement of a standard in case the
management concludes that compliance with ASLBs will be misleading
and if the regulatory framework requires or does not prohibit such a
departure.

! ASLB 1 requires presentation of Current / Non-Current assets and liabilities
as separate classifications in the balance sheet.

! ASLB 1 requires disclosure of judgments made by management while
framing of accounting polices. Also, it requires disclosure of key
assumptions about the future and other key sources of estimation
uncertainty that have significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within next financial year.

! ASLB 1 requires classification of expenses to be presented based on
nature of expenses.

50
Presentation of Financial Statements

! In respect of reclassification of items, ASLB 1 requires disclosure of
nature, amount and reason for reclassification in the notes to financial
statements.

! ASLB 1 requires preparation of statement of changes in equity as
annexure to the balance sheet which, inter alia, includes reconciliation
between opening and closing balance for each component of equity.