Accounting Reforms
for
Good Governance
Preeti Jha IRAS
MS & PD/GASAB
IRAS Day Celebrations
24 November 2012
Outline of the session
n
n
n
n
n
n
n
Trigger for accounting reforms
The international experience
Standards based financial reporting
Accounting reforms by Government of India
Accounting reforms by Ministry of Railways
Challenges
The way forward
December 12, 2012
IRAS Day
Trigger for Accounting Reforms
n
Paradigm shift : evolving Public Financial Management
Reliable & real time information about government finances
Sovereign debt crisis - emphasis on sustainability of key
government programs
Limitations of cash accounts- payables, receivables, provisions
Accounting system being revisited the world over
December 12, 2012
IRAS Day
The international experience
n
Transition from cash to accrual accounting
Transition from rules to standards based financial reporting
Over 80 countries have either adopted or in transition to adopt
standards based financial reporting
Large number of international organizations have migrated to
Standards based financial reporting
n
n
n
n
n
The United Nations,
North Atlantic Treaty Organization (NATO),
Organization for Economic Co-Operation and Development (OECD),
International Criminal Police Organization (INTERPOL),
European Commission (EC) .
December 12, 2012
IRAS Day
International Practices on
Accrual Accounting
Country
New Zealand
Australia
UK
USA
Canada
France
Indonesia
Turkey
Singapore
Accrual Acct.* Accrual Bud.
Full
Full
Full
Full
Full
Full
Full
Full
Full
Yes
Yes
No
No
No
No
No
No
No
* FS prepared on accrual based national or intl accounting
December 12, 2012
IRAS Day
standards
Why
Accrual Accounting Standards ?
Principles-based accounting provides a conceptual frame work for
accountants
Lays the key objectives of financial reporting
Common examples are provided as guidance which explain the
objectives
Improves accountability and understandability
Better asset management & assessment of liability
True and fair presentation of accounts to assist decision makers
December 12, 2012
IRAS Day
International Public Sector
Accounting Standards
IFAC (1977)
Public Sector Committee (1986)
International Public Sector Accounting Standards Board(2004)
Improve Financial Reporting+ Enhance decision-making
32 accrual based + I cash based + transition guidelines (Study 14)
December 12, 2012
IRAS Day
Components of GPFS
December 12, 2012
IRAS Day
Accounting reforms initiatives
by Government of India
n
2002: Government Accounting Standards Advisory Board
2004: XII Finance Commission supports accrual accounting
2006: Technical committee on Accounting Standards - ULB
2008: Technical committee on Accounting standards PRI
2009: XIII Finance Commission supports bubble up approach
to accrual accounting
2009: 2nd Administrative Reforms Commission, 14th Report,
broadly endorses accrual accounting
December 12, 2012
IRAS Day
Accounting reforms
n
December 2010 -12 : Notification of 3 cash accounting standards
n IGAS 1 : Guarantees given by Governments: Disclosure Requirements
n IGAS 2: Accounting and Classification of Grants-in-aid
n IGAS 3: Loans and Advances made by government
2007-12: 2 accrual standards approved by GASAB
n IGFRS 2 : Property, Plant and Equipment
n IGFRS 5: Contingent Liabilities (other than guarantees) and Contingent assets:
disclosure requirements
June 2011: Finance Ministers Conference on accrual based financial reporting
September 2011: Constitution of Apex Committee for implementation and transition
to accrual based accounting systems in governments
2012: FM stressed the need to strengthen the process of accounting standards to
keep pace with other countries across the world
December 12, 2012
IRAS Day
10
Accounting reforms initiatives
Union
CGA : RML;
CPWD Div.-4
States
22 States in principle approval
DoP : New Delhi GPO; Naraina
Industial Estate Head Post
Office
Andhra Pradesh (pilot study)
DoT: CCA Circle, Maharashtra
Madhya Pradesh (pilot study)
MoD: CSD
Jammu & Kashmir (Task group)
December 12, 2012
IRAS Day
Third tier
Urban local bodies
National Municipal Accounting
Manual
Accrual based double entry
system
Panchayati Raj Institutions
Model Accounting System for
Panchayats
(MAS) and PRIASoft
(accounting software) cash
based double entry
11
Accounting Reforms in Railways
n
Accounting Reforms project:
n
n
Vision 2020:
n
n
Presentation of Financial Statements compliant to GAAP & in conformity with
GoIs current reporting requirements
To facilitate measurement of performance by lines of business for analysis of cost
of service
Attempt switchover to accrual-based accounting in convergence with standards
based accounting system
Attempt activity-wise costing for business lines to aid pricing decisions and
management information
Railways Ministers speech-2012:
n
To move over gradually to an accrual based accounting system as also envisaged
in the Vision 2020 of Indian Railways
December 12, 2012
IRAS Day
12
Challenges
n Commitment
to change
n Clear mandate
n Definite timeline
n Greater Involvement of stakeholders
n Greater awareness
Concept of accrual accounting in Government
n Benefits of accrual accounting
n
December 12, 2012
IRAS Day
13
Measures to meet challenges
n
n
n
n
n
Administrative reforms
Accounting reforms
IT reforms
Capacity building
Pilot studies
December 12, 2012
IRAS Day
14
The Way Forward
1 Phase
Formation of an
apex body at
Ministry level
Formation of
task based
groups
Revision of
Chart of
Accounts
Revision of
manuals /
Codes
Pilot studies
December 12, 2012
IRAS Day
Capacity
building
Integrated
Financial
Management
System
Identification
of assets
category
wise
Identification
of liability and
their
valuation
15
Performance
December 12, 2012
IRAS Day
16
2 Phase
Valuation of assets
Provision of depreciation
Recognition of expenses and payables
Recognition of revenue and receivables
December 12, 2012
IRAS Day
17
3 Phase
General Purpose Financial
Statement
Statement
of
Financial
Position
December 12, 2012
Statement Statement
of
of
changes
Financial
Perform- in Assets/
ance
Liabilities
Cash Flow
Statement
IRAS Day
Appropriation
Accounts
Accounting
Policies
and Notes
to Accounts
Statement
of
Financial
Responsibility
18
OECD: 2002
Accruals is not a magic bullet for
improving the performance of the public
sector.
It is simply a tool for getting better
information about the true cost of
government in order to achieve the
desired improvement in decision-making
in government.
December 12, 2012
IRAS Day
19
Thank you
jhapreeti@[Link]
December 12, 2012
IRAS Day
20
