Uniform Accounting & Auditing Framework for Political Parties

The Institute of Chartered Accountant of India (ICAI), as an apex accounting body in the Country, formulates and maintains high quality Accounting, Auditing and Ethical Standards. Accounting Standards developed by the ICAI, have gained legal recognition in the Companies Act, 1956, by introduction of section 211(3C) through the Companies (Amendment) Act, 1999, whereby the companies are required to follow the Accounting Standards as notified by the Central Government. ICAI has also issued various pronouncements, which provide guidance on accounting for schools and not-for-profit organisations apart from for-profit organisations. Keeping in view the above role of the ICAI, the Election Commission of India (ECI), had approached ICAI, for recommending a financial reporting framework for political parties in India.

For the financial reporting by political parties, the objectives of accountability and transparency are considered to be of utmost importance. Keeping this in view, the ICAI has recommended that accrual basis of accounting may be mandated for the political parties as it is a scientific method of accounting to ensure true and fair presentation about the financial affairs of a party.

Comparability, being another hallmark of presentation of financial information, enables comparison of the financial accountability of similar entities. Keeping this in view, a uniform format of financial statements viz. Balance sheet, Income and Expenditure Account and Notes forming the part of financial statements, has been recommended, to be followed by the political parties. Sound financial reporting standards underpin the trust that stakeholders place in putting scarce resources to their best use. Accordingly, it has been recommended that the Accounting Standards issued by the ICAI to the extent relevant and applicable may be followed by the political parties, for the purpose of preparing their financial statements.

With a view to ensure proper preparation of the aforesaid financial statements by political parties, it is imperative that effective audit thereof should be conducted. Accordingly, ICAI has recommended for audit of the accounts of political parties, by a firm of Chartered Accountants, appointed on rotation every 3 years, by the ECI. Auditors would be required to follow the Auditing and Assurance Standards issued by the ICAI, while auditing the accounts of the political parties.

Filing of the audited financial statements with the ECI and the publishing of the same by the political parties are some other recommendations.

CA.G.Ramaswamy, President, ICAI, at a meeting held on May 27, 2011, with the Election Commission of India, submitted the final report covering the aforesaid recommendations. President, ICAI stated, “The recommendations given by the ICAI would be useful in bringing uniformity in the prevailing accounting and financial reporting practices of the political parties, which would ensure greater transparency in their operations.” 

The ICAI, on the acceptance of the recommendations by the ECI, would also issue the necessary guidelines to its members, in this regard.