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Updated: June 20, 2011 22:39 IST

Pranab to unveil new norms for accrual accounting system

  • Special Correspondent
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A file picture of Union Finance Minister Pranab Mukherjee in New Delhi. Photo: V.V. Krishnan.
The Hindu
A file picture of Union Finance Minister Pranab Mukherjee in New Delhi. Photo: V.V. Krishnan.

Finance Minister Pranab Mukherjee is slated to inaugurate on Tuesday a day-long national conference of State finance ministers, organised by the Comptroller and Auditor General of India (CAG), to discuss operational guidelines for conceptualising ‘General purpose financial reporting' under the accrual-based accounting system.

Participating in the discussions, following release of the operational guidelines by Mr. Mukherjee for shifting to the accrual-based accounting system for greater transparency and accountability by departments, will be top officials of Central ministries, State finance secretaries, financial advisors from key ministries and State accountant generals.

Gradual shift

Following recommendation of a gradual shift to accrual-based accounting by the Twelfth and the Thirteenth Finance Commissions as also the Second Administrative Reforms Commission, the Centre has entrusted the GASAB (Government Accounting Standards Advisory Board) under the office of the CAG to steer the process of transition.

The board includes heads of six major accounting departments of the government, namely, the Indian Audit and Accounts Department, the Indian Civil Accounts Department, the Indian Defence Accounts Department, the Indian Railway Accounts Department and the Indian Postal Department.

According to a CAG statement, the present cash-based accounting 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. In this system, there is no effective way of tracking assets created out of public money which, in turn, dilutes accountability of departments for management of government assets.

The deficiencies in the present system result in lack of transparency, poor stewardship and impaired ability to accurately predict the future cost of a current financial commitment.

“A move from cash to accrual accounting will be a fundamental change which will help overcome the deficiencies of the present system,” a Finance Ministry statement said here.

Under the accrual system, transactions will be recorded at the time when economic value is created, exchanged, transferred or impaired irrespective of whether cash is actually exchanged or not. Only accrual accounting captures the full cost of services provided by the government, thereby supporting effective and efficient decision making.

The new system will also fully disclose information on the assets and liabilities of the government.

For instance, the true burden of pension liabilities on the public exchequer will be reflected with the help of actuarial valuation. It would also help in capturing both implicit and explicit subsidies provided by the government.

The operational guidelines have now been designed to provide ample flexibility for governments to incorporate their unique requirements without harming the need of legislative reporting on a common and comparable basis, the CAG said in its statement.


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