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| Govt mulls 5 changes to ensure uniform accounting practice |
| John Samuel Raja D / New Delhi May 25, 2009, 00:32 IST |
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The new standards demand greater disclosure norms which were hidden under cash-based system of accounting
In a move that will bring greater clarity in the way public finances are presented, the government is planning to issue five accounting standards for its different departments to follow.
The standards, which will be called Indian Government Accounting Standards (IGAS), was likely to be notified soon by the government and will be adopted by both the Centre and the states from the next financial year (2010-11), said a senior government official.
IGAS is similar to accounting standards issued by the Institute of Chartered Accountants of India (ICAI) for the companies to follow.
If adopted, the first five standards that cover guarantees given by the government, grants-in-aid, loans and advances made by government and cash flow statement (refer table), will bring uniformity in the way state accounts are presented.
For example, under IGAS 4 that deals with General Purpose Financial Statement of Government, all government departments are required to prepare their annual financial statements within six months from the end of the reporting year. That is, if the reporting year ends in March 2009, the financial statements should be ready by September 2009.
At present, well-run departments are able to present their annual accounts within 180 days from the end of the financial year, but many other wings of the government are not doing so, said a government official.
These standards, which were developed by the Government Accounting Standards Advisory Board (GASAB) — working within the Comptroller & Auditor General of India (CAG), have adopted some of the concepts which are common to corporate account keeping.
Another improvement would give greater details on items that are “material” in nature. If, for example, a particular government department spends 40 per cent of its expenditure on a particular item, the new standards require to present this item separately.
“We have completed all discussion on these five accounting standards. Once notified, this will improve the way government accounts are presented,” said G Srinivas, director of GASAB.
The new standards demand greater disclosure norms, which were hidden under the cash-based system of accounting. For example, under guarantees given by the government, the new standards ask for the amount of guarantee invoked (that is the government paying in case of default by a state-run firm) or discharged. And also, details of guarantee commission or fee received need to be mentioned. At present, these details are not presented.
Another important change in the new accounting standards is that setting off is not allowed. That is, cash received under a particular head cannot be set off against cash spent. Both — receipts and expenditure — have to be maintained separately.
ACCRUAL-BASED ACCOUNTING:
Adoption of IGAS in developing government financial statements will also help to move towards an accrual-based accounting system in five years, said Srinivas.
That’s because these standards, although aimed at cash-based accounting, was compatible with an accrual-based system, which is considered a better way of accounting to capture the true operations.
An accrual-based system recognises income when goods are sold, even though cash is not received. But under the cash-based system, sales is recognised only when cash is received. Similarly, the expense is recognised when an entity is obligated to pay under the accrual method. But in cash-based one, expenditure is not recognised unless it is actually paid.
Meanwhile, GASAB has developed three more exposure drafts for IGAS — foreign currency transactions, government investments in equity and public debt and other liabilities of the government. These are also likely to be notified in the current financial year itself.
GASAB has representatives from the ministries of finance, railways and defence, apart from the deputy governor of the Reserve Bank of India, president of ICAI and director general of National Council of Applied Economic Research (NCAER).
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