Shifting to new accounting system won't be easy: FM

With the country gearing up for adoption of new accounting system, Finance Minister Pranab Mukherjee today said the task of shifting from the current cash-based accounting system to 'accrual based financial reporting' will not be easy.

"Based on the knowledge gained through pilot studies and the experience of some other countries, it is clear that introduction of accrual accounting is not going to be an easy task," he said at a conference of state finance ministers.

The 12th Finance Commission had recommended transition to accrual accounting for both central and state governments. These recommendations were accepted by the central government in principle.

The accrual system is aimed at improving transparency and fixing the accountability of departments for managing state-owned assets.

Under the system, transactions will be recorded at the time when economic value is created, exchanged, transferred or impaired, irrespective of whether cash is actually exchanged.

"The relevance of accrual accounting has to be looked at from the overall perspective of public financial management," Mukherjee said.

He said accrual accounting has to be assessed against the prevalent accounting practices, for improving the effectiveness of planning, policy making and budgeting process of public resources.

The job of steering the transition to accrual accounting was given to the Government Accounting Standards Advisory Board (GASAB) under the office of the Comptroller and Auditor General of India (CAG).

Mukherjee said GASAB could prepare guideline notes in various areas of accrual accounting for the assistance of the officials in all tiers of governance.

He solicited the cooperation from all state governments in this regard saying the reform will "go a long way in improving the financial reporting and fiscal discipline".

CAG Vinod Rai said that the conference was a step forward in building consensus on providing guidelines which would help all stakeholders in moving towards better financial reporting through accrual accounting.

Various central government organisations like the Railways and the Department of Posts are conducting pilot studies to move towards accrual accounting.

Several municipal corporations have moved over to maintenance of accounts in accrual format. So far, 21 state governments have conveyed their acceptance, in principle, to move towards accrual accounting, Rai said.

The present system lacks an adequate framework for accounting of assets and liabilities, depicting consumption of resources and presenting the full picture of the government's financial position at any point of time.