Accrual Based Financial Reporting in Government

The relevance of accounting has to be looked at from the overall perspective of public financial management. It covers a broad spectrum of activities including budget preparation and execution, internal controls, accounting and financial reporting, internal audit, audit by the Comptroller & Auditor General of India, monitoring and reporting arrangements. Moreover, 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.

At the heart of the any fiscal management system is the accounting system, which maintains the basic records of government transactions. A robust, comprehensive and transparent accounting system is a must for any government.

The 12th finance commission has recommended, both state and central government, to shift from cash based accounting to accrual based accounting which has been accepted by central government in principle. It is believed that accrual base accounting will improve accountability and transparency in government organization.

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.

Since in India cash based accounting is prevalent, a set of guidelines and adequate guidance would be needed. For this The GASAB (Government Accounting Standards Advisory Board) in the office of the Comptroller & Auditor-General of India (CAG) prepared an operational framework and a detailed road map for its implementation.

 Furthermore an efficient accrual based accounting will need a strong information system with continuous I.T. support system. This transformation will need a good amount of initial investment and hence some states will be reluctant to chance over. Central government needs to take in confidence all states and   close cooperation with finance ministers of all states will be needed.

Success of any accounting system depends on efficiency of people who are making accounts. International experience showed a varied result for accrual based accounting. So we need a well trained manpower to make accrual based accounting a success.

No comments:

Post a Comment