In a move that will change the way government accounts are presented, the Comptroller and Auditor General of India (CAG) today said it would move from cash to accrual basis within the next five years.
The accrual-based financial statements are expected to provide more appropriate presentation of financial performance and position of the government, said the government statement.
Currently, the government follows cash basis accounting, where only upon receiving the cash, is it recorded in the books. It doesn’t take into account the receivables. Under India’s constitutional provisions, the account of the Union and the states shall be kept in the way prescribed by CAG.
The Union and States would have a common format of financial statements that would include a balance sheet, a statement of financial performance and a cash flow statement.
According to Vinod Jain, chairman of the management accounting committee of the Institute of Chartered Accountants of India (ICAI), accrual basis is the right way of accounting, which is being followed the world over and the institute has been pressing on this issue with the government for the past five years.
Several electricity boards have already shifted to this method of accounting , which is scientific as it gives the true picture of financial performance, Jain said. It would also involve moving from a single entry accounting to double entry accounting and bring in financial discipline, added Jain.
The accrual accounting system would be based on Indian Government Financial Reporting Standards (IGFRS) issued by the Government Accounting Standards Advisory Board (GASAB) of the CAG of India.
IGFRS are in tune with International Public Sector Accounting Standards (IPSAS), the international standards for governments.
The government has already initiated a pilot for shifting to accrual basis accounting in the Department of Posts and selected departments of Andhra Pradesh, Madhya Pradesh, Haryana and West Bengal.
The pilot studies have been funded by the World Bank and would be conducted by teams from the State Accountant General offices, with international and national consultants with the support of state governments.
On May 5, the CAG had held a conference on accrual basis accounting to deliberate on the issue of migration from cash to accrual basis accounting and it laid down the roadmap for migration process. Principal Secretaries from state governments, officials from Department of Posts, Accountants General of various states, and World Bank officials participated in the National Round Table Conference.
