Corporate Financial Reporting · Government Accounting in India

Government Accounting Standards (IGAS 1, 2 and 3) for CMA Final

Updated 11 October 2026 · Fact-checked

IGAS are standards for government accounts recommended by the Government Accounting Standards Advisory Board. IGAS 1 covers disclosure of guarantees given by governments, IGAS 2 covers accounting and classification of grants-in-aid, and IGAS 3 covers loans and advances made by governments. To answer a question, name the standard, state its treatment, then apply it to the case.

Understand Government Accounting Standards (IGAS)

Government accounts in India are kept very differently from company accounts. The Union and State governments mainly record actual cash receipts and payments, grouped under heads in the Consolidated Fund, Contingency Fund and Public Account. They do not follow Ind AS. So a separate set of standards was needed to make government reporting consistent and transparent.

The Government Accounting Standards Advisory Board (GASAB) was set up by the Comptroller and Auditor General (CAG) to formulate such standards. GASAB recommends a standard. It becomes an Indian Government Accounting Standard (IGAS) once the government concerned notifies it. Until then it is only a recommendation. Learn this distinction, because it is a common theory question.

IGAS 1 – Guarantees given by Governments: Disclosure Requirements. A guarantee is a promise to meet another party's obligation if that party defaults. It is a contingent liability, not expenditure, until it is invoked. The standard requires the government to disclose its guarantee position in its financial statements. This covers the amount given during the year, the amount outstanding, and the movement in the year, such as additions, discharges and invocations.

IGAS 2 – Accounting and Classification of Grants-in-Aid. Grants-in-aid are given by one government to another body for a purpose, without expecting repayment. In the books of the giver, the standard classifies them as revenue expenditure, even when the receiver uses them to create capital assets. The capital-asset part is then shown separately by way of disclosure. Grants given in kind should also be disclosed.

IGAS 3 – Loans and Advances made by Governments. A loan is repayable, usually with interest. The standard deals with how loans and advances are recorded and what must be disclosed about them. This includes the terms of the loan, the amount recovered, and arrears of principal and interest. The aim is to show clearly what the government is owed and how well it is being recovered.

In the exam, treat the three standards as three questions. For guarantees, ask what is disclosed. For grants, ask how they are classified. For loans, ask what terms and arrears are disclosed.

Key rules to remember

Status of an IGAS: GASAB recommends → Government notifies → IGAS applies; A GASAB recommendation has no binding force until the Union or State government notifies it.
IGAS 1 guarantee movement: Closing outstanding = Opening + Additions − Discharged/Deleted − Invoked; Use this to reconcile guarantee figures. Guarantees stay as contingent liabilities until invoked.
IGAS 2 classification rule: Grants-in-aid given = Revenue expenditure in the grantor's books; This holds even if the grant is for creating capital assets. The capital-asset portion is disclosed separately.
IGAS 2 grants in kind: Grants in kind → disclose in the statements; They are not a cash payment, so they are shown by disclosure.
IGAS 3 loan nature: Loan = repayable advance on stated terms → shown as a loan asset, not expenditure; Disclose terms, recoveries and arrears. Do not treat a loan as a grant.
Guarantee analysis ratio: Guarantee ratio = Outstanding guarantees ÷ Revenue receipts × 100; This is an analytical measure, not a figure the standard prescribes. Use it only if the question asks.

How to solve Government Accounting Standards (IGAS) questions

Use this method for any question on IGAS, whether it is theory, a classification case or a small reconciliation.

1Identify which standard applies. A promise to pay if another defaults is IGAS 1. A payment with no repayment obligation is IGAS 2. A repayable advance is IGAS 3.
2Check whether the transaction is a grant or a loan. Look for words such as repayable, interest and moratorium. These point to IGAS 3. Words such as assistance and no repayment point to IGAS 2.
3State the rule in one line, for example that the grant is revenue expenditure in the grantor's books.
4Apply the rule to the case. Say where the item is shown, such as expenditure, contingent liability or loan asset.
5List the disclosures the standard requires, such as amount, movement, terms and arrears.
6For numbers, set out a roll-forward of opening balance, additions, reductions and closing balance.
7Give a one-line conclusion. For the grantee's side or a comparison with companies, mention it only if asked.

Quickest way: Three-question shortcut for IGAS 1 to 3

When to use it: Use it in MCQs and short-note questions where you have only a few minutes.

Ask: does the government have to pay only if someone defaults? If yes, it is IGAS 1: disclosure of a contingent liability.
Ask: is the money given without a repayment obligation? If yes, it is IGAS 2: grantor shows revenue expenditure, with capital-asset grants disclosed separately.
Ask: is the money repayable with terms? If yes, it is IGAS 3: a loan, with disclosure of terms, recoveries and arrears.
Eliminate options that call a grant for assets 'capital expenditure' of the grantor, or that treat an uninvoked guarantee as expenditure.

Common mistakes in Government Accounting Standards (IGAS)

Treating a grant for building an asset as capital expenditure of the government giving it.
Students carry over company accounting, where an asset created means capital expenditure.
Fix: Under IGAS 2 the grantor shows grants-in-aid as revenue expenditure. The capital-asset element is only disclosed separately.
Recording a guarantee as expenditure when it is issued.
Students confuse a guarantee with a payment.
Fix: A guarantee is a contingent liability. Under IGAS 1 it is disclosed, and it becomes a payment only if it is invoked.
Saying GASAB issues binding standards by itself.
The word 'standard' suggests automatic legal force.
Fix: GASAB recommends. The standard applies as an IGAS only after the government notifies it.
Mixing up grants and loans.
Both are transfers to another body for a purpose.
Fix: Check repayment. A repayable advance is a loan under IGAS 3. A grant is not repayable and falls under IGAS 2.
Writing only a definition and skipping disclosures.
Students memorise what each standard is but not what it requires.
Fix: For each standard, list its disclosures. For guarantees, list the amount and movement. For loans, list the terms and arrears.
Applying Ind AS terms such as accrual, fair value or ECL to IGAS answers.
The paper is mostly about Ind AS, so students default to it.
Fix: Government accounts are largely cash-based and follow IGAS. Answer in terms of the Consolidated Fund and the disclosures the standard asks for.

Worked examples

Example 1

A State government sanctions ₹50,00,00,000 to a municipal corporation for constructing school buildings. The money is not repayable. How should the State account for it under IGAS 2, and what should it disclose?

Show the solution

The payment is not repayable, so it is a grant-in-aid, not a loan.
IGAS 2 requires the grantor to classify grants-in-aid as revenue expenditure, whatever the purpose.
So the State shows ₹50,00,00,000 as revenue expenditure.
The money is meant to create capital assets, so the State discloses it separately as grants-in-aid for creation of capital assets.
The State does not record the school buildings as its own assets, since the corporation owns them.

Answer: The State records ₹50,00,00,000 as revenue expenditure under grants-in-aid. It discloses the amount separately as a grant for creation of capital assets.

Example 2

A State government has guarantees outstanding of ₹1,200 crore at the start of the year. During the year it gives new guarantees of ₹300 crore, guarantees of ₹150 crore are discharged, and guarantees of ₹50 crore are invoked. Revenue receipts are ₹26,000 crore. Find the closing guarantees and the guarantee ratio, and state how IGAS 1 treats them.

Show the solution

Opening outstanding = ₹1,200 crore.
Add new guarantees: 1,200 + 300 = ₹1,500 crore.
Deduct those discharged: 1,500 − 150 = ₹1,350 crore.
Deduct those invoked: 1,350 − 50 = ₹1,300 crore closing outstanding.
Guarantee ratio = 1,300 ÷ 26,000 × 100 = 5%.
Under IGAS 1 these are contingent liabilities. The State discloses the amounts given, the movement and the closing outstanding. The ₹50 crore invoked is now a liability the State has to meet.

Answer: Closing guarantees are ₹1,300 crore, which is 5% of revenue receipts. The State discloses the outstanding balance and the movement under IGAS 1.

Exam tips

Write the full names: Government Accounting Standards Advisory Board and Indian Government Accounting Standard. Short forms alone can lose marks.
Remember the grant classification rule for IGAS 2: revenue expenditure in the grantor's books, with the capital-asset element disclosed separately. It is a favourite MCQ.
For IGAS 1, say 'contingent liability, not expenditure until invoked'. Examiners look for that point.
Do not quote section numbers, dates or the contents of other IGAS from memory. Stick to what you are sure of and answer in the context of the case given.

Practice questions from Government Accounting in India

Government Accounting Standards (IGAS): frequently asked questions

What is the difference between GASAB and IGAS?

GASAB is the board set up by the CAG to formulate government accounting standards. IGAS are the standards themselves. A GASAB recommendation applies as an IGAS only once the Union or State government notifies it.

How does IGAS 2 classify grants-in-aid?

The government giving the grant shows it as revenue expenditure, even if the receiver uses it to build capital assets. The part meant for capital assets is then disclosed separately. Grants given in kind are also disclosed.

Is a government guarantee an expense under IGAS 1?

No. A guarantee is a contingent liability and is disclosed, with its movement during the year. It results in a payment only if the guarantee is invoked.

What does IGAS 3 deal with?

IGAS 3 deals with loans and advances made by governments. It focuses on how they are recorded and what is disclosed, such as terms, recoveries and arrears of principal and interest.