ASLB 42 Social Benefits

Accounting Standard for Local Bodies (ASLB) 42,
Social Benefits
Contents
Paragraphs
OBJECTIVE 1
SCOPE 3–4
DEFINITIONS 5
RECOGNITION OF A LIABILITY FOR A SOCIAL BENEFIT
SCHEME 6–9
RECOGNITION OF AN EXPENSE FOR A SOCIAL BENEFIT
SCHEME 10–11
MEASUREMENT OF A LIABILITY FOR A SOCIAL BENEFIT
SCHEME 12–20
MEASUREMENT OF AN EXPENSE FOR A SOCIAL BENEFIT
SCHEME 21
DISCLOSURE 22–25
APPLICATION GUIDANCE
IMPLEMENTATION GUIDANCE
ILLUSTRATIVE EXAMPLES
APPENDIX 1 COMPARISON WITH IPSAS 42, ‘SOCIAL BENEFITS’
Compendium of Accounting Standards for Local Bodies (ASLBs)

Accounting Standard for Local Bodies (ASLB) 42,
Social Benefits
(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 Accounting Standards for Local Bodies’1.)
The Accounting Standards for Local Bodies (ASLB) 42, „Social Benefits‟,
issued by the Council of the Institute of the 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 concerned 2.
The following is the text of the Accounting Standard for Local Bodies:

Objective
1. The objective of this Standard is to improve the relevance, faithful
representativeness and comparability of the information that a
reporting entity provides in its financial statements about social
benefits as defined in this Standard. The information provided should
help users of the financial statements and general purpose financial
reports assess:
(a) The nature of such social benefits provided by the entity;
(b) The key features of the operation of those social benefit
schemes; and
(c) The impact of such social benefits provided on the entity‟s
financial performance, financial position and cash flows.
2. To accomplish that, this ASLB establishes principles and requirements
for:

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

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(a) Recognising expenses and liabilities for social benefits;
(b) Measuring expenses and liabilities for social benefits;
(c) Presenting information about social benefits in the financial
statements; and
(d) Determining what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects
of the social benefits provided by the reporting entity.

Scope
3. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for social benefits.
3A. This Standard applies to all entities described as Local Bodies in
the ‘Preface to the Accounting Standards for Local Bodies’ 3.
4. This Standard applies to a transaction that meets the definition of
a social benefit. This Standard does not apply to cash transfers
that are accounted for in accordance with other Standards:
(a) Financial instruments 4;
(b) Employee benefits that are within the scope of ASLB 39,
‘Employee Benefits’; and
(c) Insurance contracts 5.
Paragraphs AG1–AG3 provide additional guidance on the scope
of this Standard.

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

3 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies‟.
4
The guidance with regard to financial instruments may be obtained from other
corresponding pronouncements as per the hierarchy prescribed in paragraph 15 of
the ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates, and Errors’.
5 The guidance with regard to insurance contracts may be obtained from other
corresponding pronouncements as per the hierarchy prescribed in paragraph 15 of
the ASLB 3, ‘Accounting Policies, Changes in Accounting Estimates, and Errors’.

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Social benefits6 are cash transfers provided to:
(a) Specific individuals and/or households who meet eligibility
criteria;
(b) Mitigate the effect of social risks; and
(c) Address the needs of society as a whole.
Paragraphs AG4–AG8 provide additional guidance on this
definition.
Social risks are events or circumstances that:
(a) Relate to the characteristics of individuals and/or
households – for example, age, health, poverty and
employment status; and
(b) May adversely affect the welfare of individuals and/or
households, either by imposing additional demands on
their resources or by reducing their income.
Paragraphs AG9–AG10 provide additional guidance on what is
encompassed by social risks.

Recognition of a Liability for a Social Benefit
Scheme
6. An entity should recognise a liability for a social benefit scheme
when:
(a) The entity has a present obligation for an outflow of
resources that results from a past event; and
(b) The present obligation can be measured in a way that
achieves the qualitative characteristics and takes account
of constraints on information in general purpose financial
reports as set out in the ‘Conceptual Framework for General
Purpose Financial Reporting by Local Bodies’.

6 In India, social benefits may be provided by the Local Bodies through some of the
schemes covered under Direct Benefit Transfer (DBT) scheme.

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Outflow of Resources
7. A liability must involve an outflow of resources from the entity for it to
be settled. An obligation that can be settled without an outflow of
resources from the entity is not a liability.
8. There may be uncertainty associated with the measurement of the
liability. The use of estimates is an essential part of the accrual basis
of accounting. Uncertainty regarding the outflow of resources does not
prevent the recognition of a liability unless the level of uncertainty is so
large that the qualitative characteristics of relevance and faithful
representativeness cannot be met. Where the level of uncertainty does
not prevent the recognition of a liability, it is taken into account when
measuring the liability.
Past Event
9. The past event that gives rise to a liability for a social benefit scheme
is the satisfaction by each beneficiary of all eligibility criteria to receive
a social benefit payment. The satisfaction of eligibility criteria for each
social benefit payment is a separate past event.
Paragraphs AG11–AG14 provide additional guidance on the
recognition of a liability.

Recognition of an Expense for a Social Benefit
Scheme
10. An entity should recognise an expense for a social benefit
scheme at the same point that it recognises a liability.
11. An entity should not recognise an expense for a social benefit scheme
where a social benefit payment is made prior to all eligibility criteria for
the next payment being satisfied. Rather, an entity should recognise a
payment in advance as an asset in the balance sheet, unless the
amount becomes irrecoverable, in which case it should recognise an
expense.

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Measurement of a Liability for a Social Benefit
Scheme
Initial Measurement of the Liability
12. An entity should measure the liability for a social benefit scheme
at the best estimate of the costs (i.e., the social benefit payments)
that the entity will incur in fulfilling the present obligations
represented by the liability.
13. An entity‟s best estimate of the costs (i.e., the social benefit payments)
that the entity will make takes into account the possible effect of
subsequent events on those social benefit payments.
14. [Refer to Appendix 1]
15. Paragraphs AG15–AG18 provide additional guidance on measuring
the liability.
Subsequent Measurement
16. The liability for a social benefit scheme should be reduced as
social benefit payments are made. Any difference between the
cost of making the social benefit payments and the carrying
amount of the liability in respect of the social benefit scheme is
recognised in surplus or deficit in the period in which the liability
is settled.
17. [Refer to Appendix 1]
18. Where a liability is yet to be settled, the liability should be
reviewed at each reporting date, and adjusted to reflect the
current best estimate of the costs (i.e., the social benefit
payments) that the entity will incur in fulfilling the present
obligations represented by the liability.
19–20. [Refer to Appendix 1]

Measurement of an Expense for a Social Benefit
Scheme
21. An entity should initially measure the expense for a social benefit
scheme at an amount equivalent to the amount of the liability
measured in accordance with paragraph 12. Where the entity

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makes a social benefit payment prior to all eligibility criteria for
the next payment being satisfied, it should measure the payment
in advance or expense recognised in accordance with paragraph
11 at the amount of the cash transferred.

Disclosure
22. The objective of the disclosures as per this Standard, together
with the information provided in the balance sheet, income and
expenditure statement and statement of cash flows, is for entities
to give users of the financial statements a basis to assess the
effect that social benefits may have on the financial position,
financial performance and cash flows of the entity. Paragraphs
23–25 specify requirements on how to meet this objective.
23. An entity should disclose information that:
(a) Explains the characteristics of its social benefit schemes;
and
(b) Explains the demographic, economic and other external
factors that may affect its social benefit schemes.
24. To meet the requirements of paragraph 23, an entity should disclose:
(a) Information about the characteristics of its social benefit
schemes, including:
(i) The nature of the social benefits provided by the schemes
(for example, retirement benefits, unemployment
benefits, child benefits).
(ii) Key features of the social benefit schemes, such as a
description of the legislative framework governing the
schemes, a summary of the main eligibility criteria that
must be satisfied to receive the social benefits, and a
statement about how additional information about the
scheme can be obtained.
(iii) A description of how the schemes are funded, including
whether the funding for the schemes is provided by
means of a budget appropriation, a transfer from another
entity, or by other means. If a scheme is funded (whether

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in full or in part) by social contributions, the entity should
provide:
(a) A cross reference to the location of information
about those social contributions and any dedicated
assets (where this information is included in the
entity‟s financial statements); or
(b) A statement regarding the availability of information
on those social contributions and any dedicated
assets in another entity‟s financial statements and
how that information can be obtained.
(iv) A description of the key demographic, economic and
other external factors that influence the level of
expenditure under the social benefit schemes. This
description may be presented in aggregate where the
same demographic, economic and other external factors
impact a number of social benefit schemes in a similar
manner.
(b) The total expenditure on social benefits recognised in the
income and expenditure statement, analysed by social benefit
scheme.
(c) A description of any significant amendments to the social
benefit schemes made during the reporting period, along with a
description of the expected effect of the amendments.
Amendments to a social benefit scheme include, but are not
limited to:
(i) Changes to the level of social benefits provided; and
(ii) Changes to the eligibility criteria, including the individuals
and/or households covered by the social benefit scheme.
In making the disclosures required by this paragraph, an entity
should have regard to the requirements of paragraphs 45–47 of
ASLB 1, „Presentation of Financial Statements’, which provide
guidance on materiality and aggregation.
25-36. [Refer to Appendix 1]

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Appendix A
Application Guidance
This Appendix is an integral part of ASLB 42
Scope (see paragraphs 3–4)
AG1. This Standard is applied in accounting for transactions and obligations
that meet the definition of a social benefit in paragraph 5 of this
Standard. This Standard does not address transactions that are
addressed in other ASLB, such as employee pensions (which are
accounted for in accordance with ASLB 39, „Employee Benefits’) and
financial instruments.
AG2. Similarly, this Standard does not apply to insurance contracts even if
the risk covered by the insurance contract is a social risk as defined in
paragraph 5 of this Standard.
AG3. This Standard does not apply to collective and individual services. The
definition of social benefits only includes cash transfers, not the
provision of services. This Standard does not apply to cash transfers
to individuals and households that do not address social risks, for
example emergency relief.
Definitions (see paragraph 5)
Guidance on the Definition of Social Benefits
AG4. Social benefits are cash transfers (including transfers in the form of
cash equivalents, for example pre-paid debit cards) provided to
individuals and/or households. Services provided by an entity are not
social benefits. In some cases, an entity may provide vouchers that
allow individuals and/or households to access services, or may
reimburse individuals and/or households for costs incurred in
accessing services. The economic substance of these transactions is
that an entity is paying for the provision of the services; such
transactions do not, therefore, meet the definition of a social benefit.
Where an entity provides vouchers or reimbursements, the individual
and/or household has no discretion over the use of the benefit. By
contrast, social benefits provide cash transfers that may be used
indistinguishably from income coming from other sources.

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AG5. Some entities may provide cash transfers in the form of cash
equivalents that have limited restrictions on the use of the cash
transfer. For example, a local body may provide a pre-paid debit card
that can be used to purchase any item except alcohol and tobacco
products. Such limited restrictions do not contravene the principle that
social benefits provide cash transfers that may be used
indistinguishably from income coming from other sources. Pre-paid
debit cards with limited restrictions are cash transfers, not the
provision of services by a local body.
AG5A.The Social Benefit Scheme may also be managed by an entity in the
same way as an Insurance contract is managed. In some
circumstances, an entity may be required to make contributions to a
social benefit scheme on behalf of those individuals and/or households
who could not afford to do so. Such contributions may be made by the
entity administering the scheme or some other entity. For example, an
entity may be required to make contributions to a retirement pension
scheme for those individuals who are unemployed. Where the
contributions relate to specified individuals and/or households (which
in some cases will require the contributions to be credited against the
individuals‟ contribution accounts), the contributions made by an entity
are to be considered as social benefit payment.
AG6. Social benefits are only provided when eligibility criteria to receive a
social benefit payment when it is next paid are met. For example, a
local body may provide unemployment benefits to ensure that the
needs of those whose income during periods of unemployment would
otherwise be insufficient are met. Although the unemployment benefit
scheme potentially covers the population as a whole, unemployment
benefits are only paid to those who are unemployed, i.e., those who
meet the eligibility criteria. In some cases, eligibility criteria may relate
to citizenship or residence, for example where an entity pays a
universal basic income to all adult residents.
AG7. The assessment of whether a benefit is provided to mitigate the effect
of social risks is made by reference to society as a whole; the benefit
does not need to mitigate the effect of social risks for each recipient.
An example is where a local body pays a retirement pension to all
those over a certain age, regardless of income or wealth, to ensure
that the needs of those whose income after retirement would otherwise

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be insufficient are met. Such benefits satisfy the definition criteria that
they are provided to mitigate the effect of social risks.
AG8. Social benefits are organised to ensure that the needs of society as a
whole are addressed. This distinguishes them from benefits provided
through insurance contracts, which are organised for the benefit of
individuals, or groups of individuals. Addressing the needs of society
as a whole does not require that each social benefit covers all
members of society; in some cases, social benefits are provided
through a range of similar benefits that cover different segments of
society. A social benefit that covers a segment of society as part of a
wider system of social benefits meets the requirement that it
addresses the needs of society as a whole.
Guidance on the Definition of Social Risks
AG9. Social risks relate to the characteristics of individuals and/or
households–for example, age, health, poverty and employment status.
The nature of a social risk is that it relates directly to the
characteristics of an individual and/or household. The condition, event,
or circumstance that leads to or contributes to an unplanned or
undesired event arises from the characteristics of the individuals
and/or households. This distinguishes social risks from other risks,
where the condition, event, or circumstance that leads to or
contributes to an unplanned or undesired event arises from something
other than the characteristics of an individual or household.
AG10. For example, unemployment benefits are social benefits because the
condition, event, or circumstance covered by the unemployment
benefit arises from characteristics of the individuals and/or households
– in this case a change in an individual‟s employment status. By
contrast, aid provided immediately following an earthquake is not a
social benefit. The condition, event, or circumstance that leads to or
contributes to an unplanned or undesired event is an active fault line,
and the risk is that a possible earthquake causes damage. Because
the risk relates to geography rather than individuals and/or
households, this risk is not a social risk.
Recognition of a Liability for a Social Benefit Scheme
AG11. In accordance with paragraph 9 of this Standard, the past event that
gives rise to a liability for a social benefit scheme is the satisfaction by

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each beneficiary of all eligibility criteria to receive a social benefit
payment. Being alive at the point at which the eligibility criteria are
required to be satisfied may be an eligibility criterion, whether explicitly
stated or implicit. Other ongoing eligibility criteria may be relevant for
some social benefit schemes. For example, many unemployment
benefits are only payable while the individual remains resident in the
jurisdiction; residence is an ongoing eligibility criterion. For a liability to
be recognised, a beneficiary must satisfy the eligibility criteria (to
receive a social benefit payment) at, or prior to, the reporting date,
even if formal validation of the eligibility criteria occurs less frequently.
AG12.Where a beneficiary has not previously satisfied the eligibility criteria
for the next payment, or there has been a break in satisfying the
eligibility criteria, a liability is recognised at the point that the eligibility
criteria for the next payment are first satisfied or when all the eligibility
criteria are satisfied again. Examples may include:
(a) Reaching retirement age (in the case of a retirement pension);
(b) The death of a partner (in the case of a survivor benefit);
(c) Becoming unemployed (in the case of an unemployment benefit
without a waiting period); and
(d) Being unemployed for a specified period (in the case of an
unemployment benefit with a waiting period).
An entity will recognise a liability where beneficiaries satisfy the
eligibility criteria (to receive a social benefit payment) at, or prior to,
the reporting date. Where a beneficiary satisfies the eligibility criteria
for a social benefit payment prior to the point at which the next social
benefit payment will be made, but after the reporting date, no liability is
recognised, as there is no present obligation as at the reporting date.
AG13. Where a beneficiary has previously satisfied the eligibility criteria, and
there has been no break in satisfying those criteria, a liability for social
benefits is recognised each time the criteria are satisfied.
AG14. Whether being alive is a separate eligibility criterion will depend on the
characteristics of each individual social benefit scheme. For some
schemes, separate consideration of being alive is not required as it is
indirectly addressed by another eligibility criterion. For example:

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(a) An unemployment benefit may only be payable to those who
have become unemployed and are available for work (which
implicitly includes being alive).
(b) Being alive may not be an eligibility criterion for the recipient of
the social benefit. A child benefit may be paid to the parents or
guardian of the child; the payment of the benefit may be
dependent on the child being alive, and not on the status of the
parent or guardian.
(c) Benefits may be transferred to a survivor following the death of
the beneficiary.
An entity needs to consider how being alive affects the recognition of
each particular social benefit scheme, taking all relevant factors into
consideration.
Measurement of a Liability for a Social Benefit Scheme
AG15. In accordance with paragraph 12 of this Standard, an entity should
measure the liability for a social benefit scheme at the best estimate of
the costs (i.e., the social benefit payments) that the entity expects to
make in fulfilling the present obligation represented by the liability.
Satisfaction of the eligibility criteria for each social benefit payment is
a separate past event, and the liability for each payment is measured
separately. The maximum amount to be recognised as a liability is the
costs the entity expects to incur in making the next social benefit
payment. This is because social benefit payments beyond this point
are future events for which there is no present obligation.
AG16. In measuring the liability, an entity takes into account the possibility
that beneficiaries may cease to be eligible for the social benefit prior to
the next point at which eligibility criteria for the next payment are
required (implicitly or explicitly) to be satisfied. Examples include:
(a) The death of the beneficiary (where no survivor benefits are
payable);
(b) Commencing employment (in the case of an unemployment
benefit); and
(c) Exceeding the maximum period for which a social benefit is
provided (where an unemployment benefit is provided for a
limited period).

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The extent to which such events affect the measurement of the liability
will depend on the terms of the scheme. For example, an
unemployment benefit is payable on the 15 th of each month, and the
reporting date is March 31. If the payment to be made on April 15
relates to unemployment up to March 15, then at the time the eligibility
criteria for the next social benefit payment are met, the amount due
will be known and is recognised at the reporting date. No adjustment
for beneficiaries subsequently ceasing to be eligible is required.
However, if the payment on April 15 relates to unemployment between
March 16 and April 15, measurement of the liability to be recognised
at the reporting date is based on an estimate of the extent to which
eligibility criteria for a payment have been satisfied.
AG17. Because a liability cannot extend beyond the point at which eligibility
criteria for the next payment will be next satisfied, liabilities in respect
of social benefits will usually be short-term liabilities. Consequently,
prior to the financial statements being authorised for issue, an entity
may receive information regarding the eligibility of beneficiaries to
receive the social benefit. ASLB 14, ‘Events After the Reporting Date’,
provides guidance on using this information.
AG18-25. [Refer to Appendix 1]

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Implementation Guidance
This guidance accompanies, but is not part of, ASLB 42
IG1. The purpose of this Implementation Guidance is to illustrate certain
aspects of the requirements of ASLB 42.
IG2. [Refer to Appendix 1]
Recognition and Measurement of Liabilities and Expenses in ASLB 42
IG3. Where a retirement pension is paid monthly in arrears, will the
liability at the reporting date be the same as the amount paid in
the following month?
IG4. The liability at the reporting date is unlikely to be exactly the same as
the amount paid the following month. The extent of the difference will
depend on the circumstances of the retirement benefit. Factors that
will affect the extent of the difference include the following:
(a) Timing differences. The payment in the month following the reporting
date may include payments that do not form part of the liability at that
reporting date. For example, an entity prepares its financial statements
as at March 31. If retirement benefits are paid on the 15 th of each
month, the payment made on April 15 may include payments made to
individuals who reached retirement age between April 1 and April 15.
The payments to these individuals will not form part of the liability as at
March 31, because, at that date, those individuals had not met the
eligibility criteria for the retirement pension.
(b) Incomplete information. The information which is used to calculate
payments may be incomplete, and consequently the payment in the
following month may not exactly match the liability at the reporting
date. For example, payments are usually calculated a number of days
prior to the payment being made. Changes in circumstances notified
after that date are not reflected in the payment, but are adjusted in
subsequent periods.
IG5. In considering the liability to be recognised as at the reporting date,
entities may find it helpful to refer to the discussion of materiality in
ASLB 3, „Accounting Policies, Changes in Accounting Estimates and
Errors’.

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IG6. How do breaks in meeting the eligibility criteria for a social
benefit scheme affect the recognition and measurement of the
liability?
IG7. For a social benefit scheme that has ongoing eligibility criteria (other
than being alive, where this is an eligibility criterion) an individual may
alternate between periods when they meet the eligibility criteria for the
next social benefit payment, and periods when they do not meet those
eligibility criteria. In these circumstances, each instance of an
individual satisfying the eligibility criteria is recognised and measured
separately.
IG8. For example, an entity prepares its financial statements as at March
31. As at that date, an individual was unemployed, and eligible to
receive unemployment benefits. Consequently, the entity has a
present obligation to the individual at the reporting date. The individual
finds temporary employment on April 10 and ceases to be eligible for
the unemployment benefits. This employment ends on April 24, when
the individual once more becomes eligible for unemployment benefits.
Only the first period of unemployment might be included in the liability
at the reporting date, as the eligibility criteria for the subsequent period
were not satisfied until after that reporting date.

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Illustrative Examples
These examples accompany, but are not part of, ASLB 42
Scope and Definitions
Illustrating the Consequences of Applying Paragraphs 3–5 and AG1–AG10 of
ASLB 42
IE1. The following scenarios illustrate the process for determining whether
a transaction is within the scope of ASLB 42, „Social Benefits’. These
scenarios portray hypothetical situations. Although some aspects of
the scenarios may be present in actual fact patterns, all facts and
circumstances of a particular fact pattern would need to be evaluated
when applying ASLB 42.
Example 1–Provision of Retirement Benefits to Employees of Local Bodies
IE2. Employees of Local Body A are entitled, under the terms of their
employment contracts, to retirement benefits once they reach the age
of 65. The employees are required to contribute a percentage of their
salary while they are employed. The retirement benefits provided are
based on the final salary of the employees, and their length of service.
IE3. The retirement benefits are cash transfers provided to specific
individuals who meet eligibility criteria. The retirement benefits are
intended to mitigate social risks, in that they are intended to ensure
that the employees have sufficient income once they reach retirement
age.
IE4. However, the retirement benefits do not address the needs of society
as a whole, as they are only available to former employees of Province
A. The retirement benefits are paid as compensation for employment
services rendered. It follows that the retirement benefits do not meet
all the elements of the definition of a social benefit. Consequently, the
retirement benefits are outside the scope of ASLB 42. The retirement
benefits are employee benefits, and are accounted for in accordance
with ASLB 39, „Employee Benefits’.
Example 2–Provision of Retirement Pension
IE5. Local Body B pays a minimum state retirement pension to all citizens
and residents who have reached the retirement age of 65. The said

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retirement pension is governed by legislation. Individuals are required
to make contributions during their working life, based on their salary.
However, the retirement pension pays the same amount to each
retiree regardless of the contributions made.
IE6. The retirement benefits are provided as cash transfers to specific
individuals who meet eligibility criteria. The retirement benefits are
intended to mitigate social risks, in that they are intended to ensure
that individuals and households have sufficient income once they
reach retirement age.
IE7. The retirement benefits address the needs of society as a whole.
Paragraph AG7 of ASLB 42 notes that the “assessment of whether a
benefit is provided to mitigate the effect of social risks is made by
reference to society as a whole; the benefit does not need to mitigate
the effect of social risks for each recipient. An example is where a
local body pays a retirement pension to all those over a certain age,
regardless of income or wealth, to ensure that the needs of those
whose income after retirement would otherwise be insufficient are
met.”
IE8. Consequently, the retirement pension is within the scope of ASLB 42.
Example 3–Provision of Universal Healthcare Services
IE9. Local Body C provides basic healthcare services to all its citizens, and
to other individuals who meet residency requirements. The healthcare
services are provided free at the point of delivery.
IE10. The healthcare services are provided to specific individuals who m eet
eligibility criteria. The healthcare services are intended to mitigate
social risks, in that they are intended to ensure that the welfare of
individuals and households is not adversely affected by ill health. In
doing so, they address the needs of society as a whole.
IE11. However, Local Body C is providing services rather than cash
transfers. Consequently, the healthcare services are outside the scope
of ASLB 42.
Example 4–Provision of Disability Pensions
IE12. Local Body D pays disability pensions to individuals who have a
permanent disability that prevents them from working, regardless of

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their age. A disability pension is only payable after a medical examiner
certifies that the disability is permanent, and that the disability will
prevent the individual affected from undertaking paid employment. The
level of disability pension is dependent on the individual, and is
intended to cover basic needs and to allow the individual to pay for an
appropriate level of care.
IE13. The disability pensions are provided as cash transfers to specific
individuals who meet eligibility criteria. The disability pensions are
intended to mitigate the social risk of ill health, in that they are
intended to ensure that the welfare of individuals and households is
not adversely affected by disability. In doing so, they address the
needs of society as a whole.
IE14. Consequently, the disability pensions are within the scope of ASLB 42.
Example 5–Provision of Unemployment Benefits
IE15. Province E pays unemployment benefits to individuals who are
resident in the province and who become unemployed. The
unemployment benefits are payable for a maximum of one year, and
there is a two week „waiting period‟ before the unemployment benefits
are payable.
IE16. The unemployment benefits are provided as cash transfers to specific
individuals who meet eligibility criteria. The unemployment benefits are
intended to mitigate social risks, in that they are intended to ensure
that individuals and households have sufficient income during peri ods
of unemployment. In doing so, they address the needs of society as a
whole.
IE17. Consequently, the unemployment benefits are within the scope of
ASLB 42.
Example 6–Provision of Emergency Relief
IE18. Following an earthquake that has caused significant damage in a
region, Local Body F provides emergency relief to assist with
reconstruction and with providing services such as temporary housing
to those affected by the earthquake.
IE19. Some costs will relate to providing benefits as cash transfers to
specific individuals who meet eligibility criteria. Other costs will relate

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to the provision of assets and services, for example the reconstruction
of roads damaged by the earthquake.
IE20. The provision of assets, such as the reconstruction of roads, or
services to specific individuals is not a cash transfer and consequently
is outside the scope of ASLB 42.
IE21. The emergency relief provided as cash transfers does not mitigate the
effects of social risks, but instead mitigates the effects of a
geographical risk – the risk of earthquake. Paragraph AG10 of ASLB
42 explains that risks that do not relate to the characteristics of
individuals and/or households – for example, risks related to the
characteristics of geography or climate, such as the risk of an
earthquake or flooding occurring – are not social risks. Consequently,
the emergency relief is outside the scope of ASLB 42.
IE22. Following a natural disaster, individuals and/or households may
subsequently become eligible for other benefits, for example
unemployment benefits. These benefits may be social benefits if they
satisfy the definition of a social benefit (including the requirements that
they are cash transfers and they mitigate social risks).
Illustrating the Consequences of Applying Paragraphs 6–21 and AG11–AG18
of ASLB 42
Example 7
IE23. The following example illustrates the process for recognising and
measuring the liability and expense for a retirement pension. This
example is not based on actual transactions.
IE24. Local Body H provides a retirement pension to its citizens and
permanent residents. The pension scheme pays a fixed amount of
` 250 per month to each individual who has reached the retirement age
of 65. Amounts are paid in full to those individuals who satisfied the
eligibility criteria in full at the end of the previous month.
IE25. Local Body H prepares its financial statements as at March 31.
Retirement pensions are paid at the end of each month.
IE26. As at March 31, 20X2, Local Body H recognised a liability for
retirement pensions of ` 1,950,500. During 20X2-20X3, Local Body H
paid retirement pensions as follows:

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Month(s) Pensions Paid (`)
April 20X2 1,950,500
May 20X2–March 20X3 22,258,000
Total 24,208,500
IE27. During April 20X3, Local Body H pays retirement pensions totaling
` 2,095,750.
IE28. As at March 31, 20X3, Local Body H recognises a liability for
retirement pensions payable to those who satisfied the eligibility
criteria at that date. Consequently, Local Body H recognises a liability
of ` 2,095,750, the full amount of the retirement pensions paid in April.
IE29. During 20X2-20X3, the total amount recognised as an expense is
` 24,353,750. The breakdown of this amount is as follows:
`
Pensions paid in May 20X2 (recognised in April 20X2) 22,258,000
to March 20X3 (recognised in February 20X3)
Pensions paid in April 20X3 (recognised in March 2,095,750
20X3)
Total 24,353,750
Example 8
IE30. The following example illustrates the process for recognising and
measuring the liability and expense for a retirement pension. This
example is not based on actual transactions.
IE31. Local Body I provides a retirement pension to its citizens and
permanent residents. The pension scheme pays a fixed amount of
` 100 per month (in arrears) to each individual who has reached the
retirement age of 70. Amounts are pro-rated in the months in which an
individual reaches the retirement age, and in the months in which an
individual dies.
IE32. Local Body I prepares its financial statements as at March 31.
Retirement pensions are paid at the end of each month.
IE33. As at March 31, 20X8, Local Body I recognised a liability for retirement
pensions of `2,990,656. During 20X8-20X9, Local Body I paid

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retirement pensions as follows:
Month(s) Pensions Paid (`)
April 20X8 3,024,997
May 20X8–March 20X9 33,435,183
Total 36,460,180
IE34. In this example, it is assumed that Local Body I has complete
information at the date it pays retirement pensions. Consequently, the
difference between the amount paid in April 20X8 (`3,024,997) and the
liability recognised as at March 31, 20X8 (` 2,990,656) represents the
pro-rated retirement pensions paid to those who reached retirement
age during April 20X8 (` 34,341).
IE35. On April 30, 20X9, Local Body I pays retirement pensions totaling
` 3,053,576. There are three elements to this payment:
`
Full pensions paid to those pensioners eligible at 2,979,600
March 31, 20X9 and remaining eligible at April 30, 20X9
Pro-rated pensions paid to those pensioners eligible at 36,420
March 31, 20X9 who died during April 20X9
Pro-rated pensions paid to those who reached retirement 37,556
age during April 20X9
Total 3,053,576
IE36. As at March 31, 20X9, Local Body I recognises a liability for retirement
pensions payable to those who satisfied the eligibility criteria at that
date. Because its 20X8-20X9 financial statements are issued after the
April 20X9 retirement pensions have been paid, Local Body I uses the
information available at that time to prepare its financial statements.
IE37. Consequently, Local Body I recognises a liability of ` 3,016,020. This
includes the full pensions paid to those pensioners eligible at March
31, 20X9 and remaining eligible at April 30, 20X9 (` 2,979,600) and the
pro-rated pensions paid to those pensioners eligible at March 31 who
died during April 20X9 (` 36,420). The liability does not include the
pro-rated pensions paid to those who reached retirement age during
April 20X9 because they had not satisfied the eligibility criteria as at

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March 31, 20X9.
IE38. During 20X8-20X9, the total amount recognised as an expense is
` 36,485,544. The breakdown of this amount is as follows:

`
Pro-rated pensions paid to those who reached 34,341
retirement age during April 20X8 (recognised in April
20X8)
Pensions paid between May 20X8 and March 20X9 and 33,435,183
recognised in the financial year April 1, 20X8 to March
31, 20X9
Full pensions paid to those pensioners eligible at March 2,979,600
31, 20X9 and remaining eligible at April 30, 20X9
(recognised in March 20X9)
Pro-rated pensions paid to those pensioners eligible at 36,420
March 31, 20X9 who died during April 20X9
(recognised in March 20X9)
Total 36,485,544
Example 9
IE39. The following example illustrates the process for recognising and
measuring the liability and expense for an unemployment pension.
This example is not based on actual transactions.
IE40. Local Body J provides unemployment benefits to its citizens and
permanent residents. The unemployment benefit scheme pays monthly
amounts of 50% of an individual‟s previous salary, to a maximum of
` 500 per month (in arrears). Unemployment benefits are payable for a
maximum of eighteen months. To be eligible to receive benefits, an
individual must have been in paid employment in the Local Body‟s
jurisdiction for at least 100 days in the past twelve months. Eligibility
commences fourteen days after the individual last worked. Amounts
are pro-rated in the months in which an individual first meets the
eligibility criteria, and in the months in which an individual‟s eligibility
comes to an end (finding paid employment, becoming self-employed,
expiry of the eighteen month maximum period, moving out of the Local
Body‟s jurisdiction or dying).

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IE41. Local Body J prepares its financial statements as at March 31.
Unemployment benefits are paid on the 15 th day of each month.
IE42. As at March 31, 20X1, Local Body J recognised a liability for
unemployment benefits of `125,067. During the financial year April 1,
20X1–March 31, 20X2, Local Body J paid unemployment benefits as
follows:
Month Unemployment
Benefits Paid
(`)
April 20X1 129,745
May 20X1–March 20X2 1,582,131
Total 1,711,876
IE43. In this example, it is assumed that Local Body J has complete
information at the date it pays unemployment benefits. Consequently,
the difference between the amount paid on April 15, 20X1 (` 129,745)
and the liability recognised as at March 31, 20X1 (` 125,067)
represents the pro-rated unemployment benefit paid to those who
became eligible for unemployment benefits between April 1, 20X1 and
April 15, 20X1 (` 4,678).
IE44. On April 15, 20X2, Local Body J pays unemployment benefits totaling `
132,952. There are four elements to this payment:

`
Unemployment benefits paid to unemployed persons 113,120
eligible at March 15, 20X2 and remaining eligible at April
15, 20X2
Pro-rated unemployment benefits paid to those 9,975
unemployed persons eligible at March 15, 20X2 whose
eligibility had come to an end by April 15, 20X2
Pro-rated unemployment benefits paid to those 5,045
unemployed persons who became eligible between March
15, 20X2 and March 31, 20X2
Pro-rated unemployment benefits paid to those 4,812
unemployed persons who became eligible between April

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1, 20X2 and April 15, 20X2
Total 132,952

IE45. As at March 31, 20X2, Local Body J recognises a liability for
unemployment benefits payable to those who satisfied the eligibility
criteria at that date. Because its April 20X1–March 20X2 financial
statements are issued after the April 20X2 unemployment benefits
have been paid, Local Body J uses the information available at that
time to prepare its financial statements.
IE46. Consequently, Local Body J recognises a liability of ` 128,140. This
includes:
(a) The unemployment benefits paid to those unemployed persons eligible
at March 15, 20X2 and remaining eligible at April 15, 20X2 (` 113,120);
(b) The pro-rated unemployment benefits paid to those unemployed
persons eligible at March 15, 20X2 whose eligibility had come to an
end by April 15, 20X2 (` 9,975); and
(c) The pro-rated unemployment benefits paid to those unemployed
persons who became eligible between March 15, 20X2 and March 31,
20X2 (` 5,045).
IE47. The liability does not include the pro-rated unemployment benefits paid
to those who became eligible between April 1, 20X2 and April 15,
20X2 because they had not satisfied the eligibility criteria as at March
31, 20X2.
IE48. During the financial year April 1, 20X1–March 31, 20X2, the total
amount recognised as an expense is ` 1,714,949. The breakdown of
this amount is as follows:

`
Pro-rated unemployment benefits paid in April 20X1 to 4,678
those who became eligible between April 1, 20X1 and
April 15, 20X1 (recognised in April 20X1)
Unemployment benefits paid in between May 20X1 and 1,582,131
March 20X2 and recognised in the financial year April 1,
20X1–March 31, 20X2

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Unemployment benefits paid in April 20X2 to unemployed 128,140
persons eligible at March 15, 20X2, both those remaining
eligible and those whose eligibility had come to an end by
April 15, 20X2; and those unemployed persons who
became eligible between March 15, 20X2 and March 31,
20X2 (recognised in March 20X2)
1,714,949

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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) 42
and the corresponding International Public Sector Accounting Standard
(IPSAS) 42, „Social Benefits’.
Comparison with IPSAS 42, ‘Social Benefits’
1. Different terminologies have been used in the ASLB 42 as compared
to corresponding IPSAS 42, e.g., the terms „statement of income and
expenditure‟, „balance sheet‟ and „entities‟ have been used in place of
„statement of financial performance‟, „statement of financial position‟
and „public sector entities‟.
2. The following paragraphs of IPSAS 42 have been deleted. In order to
maintain consistency with the corresponding IPSAS 42, the paragraph
numbers have been retained:
(i) Paragraphs 14, 17, 19, 20 and AG 18 pertaining to discounting
of liabilities and discount rate have been deleted in line with
ASLB 19, „Provisions, Contingent Liabilities and Contingent
Assets‟/other earlier issued ASLBs and keeping in view that the
Local Bodies in India are at very initial stages of implementation
of accrual basis of accounting.
(ii) Paragraph 32 pertaining to reporting on long term sustainability
of an entity‟s finances has been deleted as it is not relevant in
the context of Local Bodies in India.
(iii) Paragraphs 33-34 pertaining to transitional provisions have
been deleted as a separate ASLB 33, „First-time Adoption of
ASLBs‟ have been issued that contains all transitional
provisions at one place.
(iv) Paragraphs 35-36 pertaining to effective date have been
deleted as ASLB 42 would become mandatory for Local Bodies
in a State from the date specified by the State Government
concerned.
(v) Paragraphs 25-31, AG 19-25 pertaining to insurance approach
have been deleted as only one approach of recognition and

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measurement of Social Benefits have been retained instead of
two approaches (general approach, insurance approach) as in
IPSAS 42 in order to have a simplified approach for local bodies
in India. Since only one approach has been retained the term
“general approach” is also not being used.
3. With regard to financial instruments and insurance contracts, the
reference of paragraph 15 of ASLB 3, „Accounting Policies, Changes
in Accounting Estimates and Errors‟ has been provided in the ASLB 42
in the footnote for guidance. (paragraph 4)
4. Paragraph 3A pertaining to applicability of ASLBs has been inserted in
ASLB 42 in line with other issued ASLBs.
5. IG2 of IPSAS 42 that distinguishes social benefits from other
exchange transactions and non-exchange expenses has been deleted
as the ASLB with regard to non-exchange expenses is yet to be issued
in Indian context. Therefore, the difference cannot be provided at this
stage.
6. Consequential changes resulting from the above departures have
been made in the ASLB 42.

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