The Hindu : Business : Nod for new accounting system

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Friday, Jul 04, 2008
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Nod for new accounting system

Special Correspondent

NEW DELHI: The Union Government has accepted, in-principle, to move gradually from cash to accrual basis of accounting wherein revenues and expenditure are entered in the books even before actual realisations. Disclosing this at a conference organised by the Institute of Chartered Accountants of India (ICAI) here on Thursday, Controller General of Accounts (CGA) V. N. Kaila said: “There are definite benefits of accrual accounting that cannot be ignored. The decision makers can know the full cost of services they are providing and this would result in better resource allocation, better management of assets and liabilities.”

Under the cash-based accounting system, financial transactions are recorded on the basis of cash flows and cash position in that revenue earned is shown in the books when cash is received and expenditure is recognised when cash is paid. Under accrual-based accounting, on the contrary, revenue is shown in the balance sheet when it is earned, regardless of when the actual payment is received. Mr. Kaila pointed out that there were definite benefits of accrual-based accounting that could be ignored. The decision-makers would know the full cost of services they were providing and this would result in better resource allocation, better management of assets and liabilities. Speaking about the issues involved in transitioning to the accrual system of accounting, Mr. Kaila said were various factors that had created a demand for a switchover, such as the changing information needs of decision-makers, implications of the FRBM Act, and outcome-oriented budgeting.

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