Guidance on ‘Accounting of Political Parties’ proposed to be revised

The Institute of Chartered Accountants of India (ICAI) has proposed amendments to the Guidance Note on Accounting and Auditing of Political Parties. The new guidance note will be known as the Guidance Note on "Accounting of Political Parties" (hereinafter refereed to as 'the Guidance Note'). For this purpose, ICAI has issued exposure draft of the Guidance Note. If required, guidance note on

auditing of political parties will be issued separately.

According to the guidelines on transparency and accountability in party funds and election expenditure matter as issued by the Election Commission of India (ECI), political parties are required to maintain their books of account as per the Guidance Note on Accounting and Auditing of Political Parties which was issued by ICAI in 2012. After considering the changes that have taken place in political environment since 2012, ICAI has issued exposure draft of the Guidance Note on "Accounting of Political Parties". After notification, this guidance note will replace the existing Guidance Note on "Accounting and Auditing of Political Parties".

The Guidance Note provides an accounting & financial reporting framework for political parties, which Accounting Standards issued by ICAI shall be applied to political parties and formats of their financial statements. It provides following significant guidance:

  1. Every political party should maintain its books of account like any other commercial organisation. Books of account may include cash/bank book, journal, general ledgers, and other subsidiary ledgers.

  2. The accrual system of accounting should be followed by political parties. Further, it recommends application of Accounting Standards as issued by ICAI for non-corporate entities for maintenance of books of account of political parties.

  3. Same principles for recognition and measurement of income, expenses, assets and liabilities as are applied by business entities, shall be applied by the political parties. Consequently, donations should be recognised as incomes only when their amounts can be measured reliably and inflow of the income is probable.

  4. Voluntary contributions received by political parties through electoral bonds shall be accounted for in accordance with principles of Accounting Standard (AS) 12, Accounting for Government Grants. A grant received for acquisition of any non-depreciable asset having no condition attached to it shall be credited to capital reserve.

  5. Expenses related to employee benefits, like salaries, allowances and retirement benefits, shall be recorded on the basis of principles enunciated under AS 15, Employee Benefits.

  6. For accounting of tangible assets and intangible assets, AS 10, Property, Plant and Equipment and AS 26, Intangible Assets should be followed by the political parties. Depreciation and amortisation should be charged accordingly.

  7. A complete set of financial statements of a political party must include balance sheet, income and expenditure accounts, cash flow statements and notes forming part of financial statements.

Apart from the above provisions, the Guidance Note provides an illustrative list of notes forming part of financial statements.

The exposure draft can be accessed here.