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Evolution of Government Accounting in India

Delve into the history of government accounting in India, from the Imperial era to the modern-day standards set by GASAB. Learn about the shift to accrual accounting, GASAB's objectives, and the introduction of IFMS and KRA.

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Evolution of Government Accounting in India

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  1. Session 15 Session Title History of Government Accounting, Concept of Accrual Accounting, Formation of GASAB, Composition of GASAB, Essentiality of formulating Accounting and Financial Reporting Standards, Scope and Objectives of GASAB, Responsibilities of GASAB,Authority, Scope and Applicability of IGASs and IGFRSs , Standard-setting Procedure for IGASs, Compliance with IGASs, Introduction to Integrated Financial Management System (IFMS), Introduction to Key Result Area (KRA)

  2. Session overview: • With the support of the Government of India, the Government Accounting Standards Advisory Board (GASAB) was constituted by the Comptroller & Auditor General of India on August 12, 2002 for the Union and States under Article 150 of the Constitution of India. • The main objective of setting of GASAB is to establish and improve standards of Government accounting and financial reporting in order to enhance transparency and financial accountability. It also formulate and propose standards that improves the usefulness of financial reports based on the needs of the users. It also cover significant areas of accounting and financial reporting that can be improved through the standard setting process; and to improve the common understanding of the nature and purpose of information contained in the financial reports.

  3. Session Structure 1.Existing system followed in Government Accounting 2. Concept of Accrual Accounting 3. Need for GASAB. 4.Formation of GASAB & its composition. 5. Essentiality of formulating Accounting and Financial Reporting Standards 6. Scope and Objective of GASAB 7. Financial Statements of the Government 8. Authority, Scope and Applicability of IGASs & IGFRSs 9. Introduction to IFMS and KRA 10. Exercise and Group discussion

  4. DEVELOPMENT OF GOVERNMENT ACCOUNTING SYSTEM IN INDIA • Under the Government of India Act,1858, India came under the direct control of British Parliament from 1st November , 1858. Imperial Income & Expenditure for sanction by the Supreme Government of India was introduced from 1861-62 by way of Annual Budget, which formed the base of Imperial Account and laid the foundation of Imperial Audit. • The A.G. to Government of India was designated as Auditor General of India (1860). • In 1862, Financial Secretary became head of the Financial Department which included the Department of Accounts & Audit. The Auditor General of India was re-designated as Auditor and Accountant General of India. He was charged with the duty of bringing the accounts of the Indian Empire together and responsible to the Government of India for correct performance of the mechanical duties of accounts and audit as distinguished from administrative matters coming within the Province of the Finance Secretary. • From April, 1866, a uniform financial year was adopted beginning from 1st April and ending on 31st March. Use of Arabic numerals for accounts maintenance were enforced..

  5. A system of monthly consolidation of audited accounts was brought into force in place of annual consolidation as in the past by resolution dated 20th April 1865 and dated 6th October, 1865. • The designation of the Auditor and Accountant General to the Government of India was changed to the Comptroller General of Accounts (July, 1881) and he was made responsible for consolidating the Budget and regular estimates which was reviewed by the Financial Department. • The Comptroller General of Accounts was further redesignated as Comptroller and Auditor General in India by a resolution dated 6th May, 1884. He was entrusted with the responsibility of supervising the accounting system as well as conducting an Appropriation Audit. • Under Government of India Act, 1919 the designation “C&AG in India” was changed into Auditor General in India and he was responsible for audit of all accounts in India. • Government of India Act, 1935 changed this designation to Auditor General of India and general superintendence of Audit of Indian Home Accounts was now vested in him. This designation was again changed to the Comptroller & Auditor Generalof India under the Indian Constitution.

  6. The duties and powers of the Comptroller and Auditor General of India is vested in Article 148 to 151 of the Constitution of India. The C&AG of India is appointed by the President. • The C&AG (Duties, Powers and Conditions of Service) Act, 1971 framed under article 149 prescribes in detail the duties to be performed and powers to be exercised by him in relation to the Accounts of Union and of the States (Appropriation Accounts, Finance Accounts and Audit Reports) shall be laid before each House of the Parliament/State Legislature.

  7. Accrual Accounting: • Financial statements are prepared under the Accruals Concept of accounting which requires that income and expense must be recognized in the accounting periods to which they relate rather than on cash basis. An exception to this general rule is the cash flow statement whose main purpose is to present the cash flow effects of transaction during an accounting period.

  8. Under Accruals basis of accounting, income must be recorded in the accounting period in which it is earned. Therefore, accrued income must be recognized in the accounting period in which it arises rather than in the subsequent period in which it will be received. Conversely, prepaid income must be not be shown as income in the accounting period in which it is received but instead it must be presented as such in the subsequent accounting periods in which the services or obligations in respect of the prepaid income have been performed.

  9. Expenses, on the other hand, must be recorded in the accounting period in which they are incurred. Therefore, accrued expense must be recognized in the accounting period in which it occurs rather than in the following period in which it will be paid. Conversely, prepaid expense must be not be shown as expense in the accounting period in which it is paid but instead it must be presented as such in the subsequent accounting periods in which the services in respect of the prepaid expense have been performed. • Accruals basis of accounting ensures that expenses are "matched" with the revenue earned in an accounting period. Accruals concept is therefore very similar to the matching principle.

  10. Why GASAB? The following is the important essentialities for formulating Government Accounting Standards for our country: • Improved public accountability for the efficient and effective functioning of our democratic system. • Fulfill the Government’s duty to be accountable to public and it contribute to a fuller understanding of economic, political and social consequences of allocation decisions and various uses of Government resources both at the Centre and at the State levels. • Accounting rules are designed to provide standardized frameworks within which the financial position of a Government can be assessed. • Having a good accounting standards, no one can manipulate or abuse to provide a misleading picture of what is really happening in the national economy.

  11. a primary concern of GASAB is to ensure proper identity to the existing concepts enshrined in the current rules and filling up any lacuna in our accounting system so that it improve the quality attributes of our Government accounting practices. Therefore, the primary purpose of the standards that GASAB will act as quality assurance yardsticks. • address the ‘off-budget’ transactions effectively. • disclose debt and other liabilities of entities in the public sector fully and transparently. • address the nexus of accounts with financial management • synthesize the cash based accounting system and accrual based accounting system. • Government Accounting Standards Advisory Board (GASAB) will cover both Union and States and promote best practices on the basis of generally accepted principles of Government Accounting and steering a gradual course in reforming our accounting system.

  12. Government Accounting Standards Advisory Board (GASAB) 1- Formation of GASAB: • Article 150 of the Constitution of India stipulates that “The accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the Comptroller and Auditor General of India, prescribe.” • Accordingly, with the support of the Government of India, the Government Accounting Standards Advisory Board (GASAB) was constituted on August 12, 2002 for the Union and States.

  13. 2- Composition of GASAB: • Government Accounting Standards Advisory Board (GASAB) for Union and States was constituted under notification no. 678-716-AC-I/SP-II/79-2002 dated 12.08.2002. Accordingly, the Comptroller & Auditor General of India has constituted a Government Accounting Standards Advisory Board (GASAB) consisting of following officers: (i) Deputy Comptroller and Auditor General (Accounts) as Chairperson (ii) Controller General of Accounts, Ministry of Finance, Government of India (iii) Financial Commissioner, Railways, Ministry of Railways, Government of India (iv) Controller General of Defence Accounts, Ministry of Defence, Government of India (v) Additional Secretary (Budget), Ministry of Finance, Government of India (vi) Deputy Governor, Reserve Bank of India or his/ her nominee. (vii) Director General, National Council of Applied Economic Research (NCAER), New Delhi (viii) President, Institute of Chartered Accountants of India (ICAI), or his/her nominee (ix-xii) Principal Secretary (Finance)/ Secretary (Finance) of four States by annual rotation and (xiii) Director General / Principal Director (Accounts), Office of the Comptroller and Auditor General of India, as Member Secretary.

  14. 3- GASAB will, interalia, have the following responsibilities: • To formulate and propose standards that improve the usefulness of financial reports based on the needs of the financial report users. • To keep standards current and reflect changes in the governmental environment. • To provide guidance on implementation of standards. • To consider significant areas of accounting and financial reporting that can be improved through the standard setting process. • To improve common understanding of the nature and purpose of information contained in the financial reports.

  15. 4- Scope and Objective of GASAB: • It will formulate Government Accounting Standards (IGAS) for our country. • These accounting standards will be formulated in conformity with the provisions of the Constitution and our laws and in keeping with international norms in this regard. • The basic objective of this initiative, taken at the behest and with the approval of the Ministry of Finance, Government of India, is to promote best practices on the basis of generally accepted principles of Government accounting. • GASAB has been entrusted with not only formulating and proposing standards to improve the usefulness of the Government’s financial reports based on the needs of the users but also to keep these standards current so as to reflect changes in the national and international economic environment.. • to provide guidance on the implementation of standards and to consider significant areas of accounting and financial reporting that can be improved through the standard setting processes.

  16. It will comprehensively address accounting and financial management issues as they exist today in the Indian context as well as prepare the public sector for issues that the country is likely to face in the future. • Government accounting frameworks have to be devised in a manner that provides accurate and useful signals to the market as distorted financial information exacerbates a country’s economic problems. • for performing and promoting a broad range of value-added activities concerning financial reporting and accounting in the Government. The standards will establish the basis for the measurement of performance. • GASAB is suggesting an operational framework and roadmap of transition to accrual basis of accounting in Governments.

  17. Authority, Scope and Applicability of IGASs • The IGASs are notified by the Government as per the powers vested under Article 150 of the Constitution. The IGASs, as notified by the Government, are applicable to the Union and the States. • The provisions of the IGASs do not override the provisions of any existing or future Acts or Rules made there under by the Union or State Governments. • The IGASs would be prospective in their application. The IGASs are not applicable retrospectively and the Governments are not required to reframe their Financial Statements of previous periods to comply with the IGASs. • IGASs by their very nature are meant to apply to material items. Any other limitation on their applicability or otherwise is made clear by GASAB in the respective standards. • The IGASs have standard portions set in bold italic type which should be read in the context of explanatory paragraphs in the respective Standards set in plain type. Both have equal authority; portion in bold, italic type indicating main principles whereas those in plain type explain those principles.

  18. IGFRSs Vs IGASs: • The standard based on cash based accounting system are termed as Indian Government Accounting Standards (IGASs) and become mandatory for application by the Union, States and the Union territories with legislature from the date as notified by the Government. The standards based on accrual based accounting system are termed as Indian Government Financial Reporting Standards (IGFRSs) and become recommendatory for pilot studies from the date approved by GASAB. The standards developed in consultation with stakeholders, are forwarded to Ministry of Finance for consideration and notification in accordance with provisions of the Constitution.

  19. Indian Government Accounting Standards (IGASs) and Indian Government Financial Reporting Standard (IGFRS) so far notified/under consideration of GOI/approved/proposed by GASAB :

  20. Integrated Financial Management Systems (IFMS) • Objectives and highlights of IFMS being introduced in State Governments: With a view to ensure faster remittances, effective control over budget and quick availability of data, MIS, to improve Treasury System, to manage better cash flow, to provide better interface with R.B.I., Agency banks and AG, to provide better access to citizens and to ensure better and transparent information system, Integrated Financial Management System (IFMS) has been introduced in union and all State Governments. In some states like Rajasthan, Karnataka etc the system has been running from 2012-13 and in some state like U.P. it is still under process.

  21. The highlights of IFMS are • To eliminate shortcoming of earlier system of accounting. • To provide effective budget control. • To ensure proper budget distribution. • To ensure real time revenue receipt position. • Automated treasury functions. • To facilitate e-payment direct to the bank accounts of beneficiaries. • To facilitate tax payers for depositing tax anywhere, anytime and • To maintain the information accessible.

  22. Components of IFMS • Budget Module • Annual Development Plan Module • Treasury Module • E-GRAS (Govt Receipt Accounting System) • ECS Payment Module • E-Treasury Module • Pension Module • Payroll and Human Resources Module • Interface Module • Letter of Credit Module • Fund Management Module • E-Audit Module • State Public Procurement Portal • Aadhar Based Payment Module

  23. Introduction of Key Result Area (KRA) reporting • In July 2012, quarterly Key Result Area (KRA) reporting system has been introduced in Government Accounting Wing. The KRA reporting has been designed to be an effective instrument for monitoring, control, and internal accountability, in a hierarchical manner from AAO upwards in all the A&E offices. KRA reports of all the PAsG/AG (A&E) offices are being monitored at headquarters office quarterly and evaluation notes on KRA reports are being issued to all the A&E offices. Similar system is in place for Group Officers, and so on up to cutting edge supervisory level, viz. of AAO.

  24. KRA reports are being monitored and evaluated at the level of Deputy Comptroller and Auditor General (GA & CRA) at headquarters. The KRA report includes monthly status for the three months of the quarter in respect of identified parameters for monitoring the functioning of the A&E offices. Therefore, 20 returns/reports being received from A&E offices have been discontinued.

  25. This initiative has not only streamlined the evaluation process but also reduced paper/postal expenses as all these KRA reports are being received through e-mails and being evaluated online. Evaluation notes are being sent to the respective PAsG/AsG through e-mails from DAI (GA&CRA). • Apart from KRA reporting, State profiles and office profiles are also introduced in all the A&E offices, which are also very helpful tool fro higher authorities visiting field offices to watch the progress in various segments of their activities.

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