Local bodies are institutions of the local self governance, which look after the administration of an area or small community such as villages, towns, or cities. The Local bodies in India are broadly classified into two categories.

The local bodies constituted for local planning, development and administration in the rural areas are referred as Rural Local Bodies (Panchayats) and in the urban areas are referred to as Urban Local Bodies (Municipalities).

The taxation powers of the corporations are confined to a few items and are of a generally compulsive nature; on the other hand the tax powers of the other types of urban local authorities cover a wider range, optional in nature and subject to a procedure for their imposition requiring the final sanction of the state governments. Municipal authorities are endowed with specific local functions covering

1. regulatory,
2. maintenance and
3. development activities.

As regards the financial administration of local bodies, we have discussed the 3 basic financial aspects of a local body, viz.

1. Budgetary Procedure
2. Expenditure Control
3. Accounting System

And here is a list of objectives of an audit of local bodies.

(a) reporting on the fairness of the content and presentation of financial statements;

(b) reporting upon the strengths and weaknesses of systems of financial control;

(c) reporting on the adherence to legal and/or administrative requirements;

(d) reporting upon whether value is being fully received on money spent; and

(e) detection and prevention of error, fraud and misuse of resources.