Transcript Session II - cag.gov.in

Session 2
Session Title
History of Government Accounting, Introduction,
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 ,
Standard-setting Procedure for IGASs, Compliance
with IGASs
Session overview:
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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.
Session Structure
1.Existing system followed in Government Accounting .
2. Why GASAB?
3.Formation of GASAB & its composition.
4. Essentiality of formulating Accounting and Financial Reporting
Standards
5. Scope and Objective of GASAB
6. Financial Statements of the Government
7. Authority, Scope and Applicability of IGASs
8. Compliance with IGASs
9.Constitution of Apex Committee for implementation and transition to
accrual based accounting systems in Government.
Exercise and Group discussion
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..
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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 General of India under the Indian
Constitution.
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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.
Development in the evolution of accounts structure
and classification of Government Account:
1. Basis of Government Accounts:
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Budget is the basis of Accounts, which are
maintained on cash basis. Budget, referred to as
‘Annual Financial Statement’ in Article 112 (in
respect of Union Government) of the Constitution of
India, is a statement of estimated receipts and
expenditure of the Government for a financial year.
Executive obtains legislative approval for incurring
expenditure to meet administrative needs and
securing socio-economic goals in the best possible
public interest and to gain resources to meet such
expenditure.
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When moneys are actually received and
expenditure is incurred, all transactions are
recorded in the accounts of the Government.
There has to be one-to-one correspondence
between the budget and account figures.
 the accounts show the actuals on the same
pattern as is adopted in preparing the
budget estimates. This pattern is called
‘Structure of Budget and Accounts’.
 Government Accounts are based, mainly, on
‘Single Entry System’.
Commercial Accounts
Government
Accounts
Record transactions both where cash is
received or paid and also where there is no
movement of cash but transactions are on
credit. Commercial accounts take cognizance of
accrued liabilities (those involving payments on
a future date) and accrued assets (those
involving payments due but not accrued as yet).
Barring a few exceptions,
adjustments and correction of
misclassifications, only cash
transactions are recorded. The
Government Accounts do not
take cognizance of accrued
liabilities or of accrued assets.
It show the financial position of the entity, in The cost of physical assets is
the balance sheet, on the closing date of not carried forward from yearbalance sheet. The balance sheet lists all the to-year.
assets and all the liabilities of the entity.
Generally prepare the operating results or profit
and loss account for the period of accounts.
They list all the incomes that were due during
the period of account, whether received or not,
and all the expenditure incurred to earn that
income, whether payments were made in cash
during the period of account or deferred for the
time being.
There is no concept of profit or
loss, and so the Government
Accounts do not have any
profit and loss account or
operating results.
3-The three parts of accounts:
 Part-I Consolidated Fund of India/States (Under
Article 266(i) of the constitution.
 Part-II Contingency Fund of India/States (Under
Article 267(i) of the constitution
 Part-III Public Account of India/States (Under
Article 266(ii) of the constitution.
4- Revenue Expenditure and Capital Expenditure.
5-Voted Expenditure and Charged Expenditure
6- Plan Expenditure & Non-Plan Expenditure
Purpose and importance of Accounting in
Government
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to collect, account for, collate, compile and consolidate
numerous financial transactions of the government for a
particular period and present them in the prescribed form.
to ensure that all the transactions of the Government have
been accounted for and that no transaction has been left
out of the accounts;
to present accounting and financial data in a form that is a
useful managerial tool and that which can be used by the
executive to control public spending and canalize it into
desired directions;
to provide the legislative bodies with data that will enable
them to determine how their mandate to executive in
raising new resources (through taxation) and their
mandate on incurring expenditure out of the Consolidated
Fund has been followed;
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fulfill the information needs of interested
agencies, both national agencies and international
agencies, about nature and extent of government
spending;
► To create a data bank over a period of time to
reflect on and to use the financial data available in
the accounts for socio-economic development of
the nation;
► To ensure accuracy of accounts and balances
where the Government acts only as a banker or as
a custodian of moneys that belong to some other
person or authority. This is particularly relevant to
transactions under Public Account and those
accounts, which do not close at the end of the
financial year to Government but close to balance.
Principles of Government Accounting
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To meet the requirements of Parliamentary control over
finances
to meet the requirements of executive control over
public finances.
to ensure maintenance of subsidiary accounts
to ensure maintenance of initial account
to ensure inclusiveness and totality of financial
transactions
Government Accounting, therefore, has to be on cash
basis
Government Accounting has to have a detailed system of
classification of receipts and payments
to ensure preparation of monthly and annual accounts
To ensure generation of database of financial data for
inter-period comparison and for generation of timeseries data
Classification of Government Accounts:
An elaborate system of classification of expenditure (and
receipts) is followed while preparing the Government Accounts
so that each transaction of expenditure (and also receipt) and
each set of similar transactions can be linked to or traced to a
particular ‘Division’ to a particular ‘Sub-Division’ to a particular
‘Sector’, ‘Sub-Sector’ ‘Activity’ ‘Project’ or ‘Scheme’ or
‘Programme’ of the Government and to a particular ‘Object of
Expenditure’.
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With a Five-tier classification of Government Expenditure under
sectors, major heads, minor heads, sub-heads and detailed
heads of account, Government Accounting is more elaborate
than that followed in commercial accounts
The Annual Accounts:
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The Annual Accounts of the Government are prepared for each
financial year separately for Union Government, for each State
Government and for each Union Territory having a Legislative
Assembly. The Civil Accounts of the Government comprise the
‘Finance Accounts’ and the ‘Appropriation Accounts’.
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Departmentalization of Union Government (Civil)
Accounts
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It was effected during the financial year 1976-77.
The treasuries were relieved of all the functions relating to
receipts and payments on behalf of the Central
Government and in their place, public sector banks were
nominated for each Ministry/Department to look after
these functions.
The Secretary to ministry/department was designated as
the Chief Accounting Authority and the functions related to
this designation are to be discharged by the Integrated
Financial Advisor (IFA).
there is a Financial Advisor for every ministry or
department as the case may be. He is responsible for
keeping, compiling and rendering accounts to the
Controller General of Accounts on behalf of the ministry or
department.
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Railway Accounts:
The Indian Railways Finances were separated from those of Central
Civil Departments in 1924-25.
The cash balance of Railways has separated proforma from Central
Civil Balances from 01-04-1939.
P&T Department:
Commercial system of accounts was introduced in the P&T Department
in 1925 by the introduction of a Capital Account to exhibit the value of
the assets, creation of renewal reserve fund, suspense account to
reflect purchase and issue of stores and manufacturing activity at the
workshops.
Proforma balance for the P&T was created in October, 1960.
This was bifurcated into Postal Balance and Telecom Balance from
April, 1968.
The telegraph accounts were separated from the combined Posts and
Telegraph Accounts in 1970-71 and chrishned Telecommunication
Accounts Wing.
Defence Services:
Independent proforma balances for the Defence Services was created
in April,1962.
With effect from 1st October 1951, Controller General of Defence
Accounts was created.
Why GASAB?
The following is the important essentialities for
formulating Government Accounting Standards for
our country:
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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.
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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.
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.
2- Composition of GASAB:
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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.
3- GASAB will, interalia, have the following
responsibilities:
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To formulate and propose standards that
improve the usefulness of financial reports
based on the needs of the financial report users.
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To keep standards current and reflect changes
in the governmental environment.
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To provide guidance on implementation of
standards.
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To consider significant areas of accounting and
financial reporting that can be improved through
the standard setting process.
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To improve common understanding of the
nature and purpose of information contained in
the financial reports.
4- Scope and Objective of GASAB:
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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.
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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 valueadded 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.
5- 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.
6-Standard-Setting Process:
Objective :
 To lay down plan for development of
Accounting Standards.
 To discuss Potential future projects.
 To draw a time table for tracking the
progress, at regular intervals, of
Accounting Standards.
Due Process:
 Identification
 Issue
of an issue
Paper
 Consultation
 Exposure
Paper (CP)
Draft (ED)
 Pronouncements
Time Table:
 Ist meeting to identify a technical issue
by members of the Board.
 2nd meeting to review the Issue Paper/
Consultation Paper.
 3rd meeting to consider the draft
Exposure Draft
 4th meeting to consider responses from
stakeholders and pronouncement of
Standard.
Work Plan 2011-12:
 4 meetings in a year.
 Finalization of Rules of Business.
 Cash Basis IPSAS
 Presentation of Budget Information (IGAS
6)
 Presentation of Financial Statements (IGFRS
1)
 Accounting Policies, changes in Accounting
estimates and errors (IGFRS 6)
 Identification of future projects.
Suggested Technical Issues:
 IPSAS already issued.
 Non-Financial Assets
 Accrued Liabilities
 Committed Expenditure
 Utilization Certificate
 Reporting Entity
 Asset Accounting
 Chief Accounting Authority
 Management Responsibility and assertions.
Technical Advisors:
 TAs/ Nodal Officer: Railways, Defence, Posts, Telecom,
ICAI, AP.
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TBGs:
ICAI: IPSAS 1 (Presentation of Financial
Statements) and IPSAS 2 (Cash Flow Statements)
Railways: Segment reporting IPSAS 18 (Segment
Reporting)
Defense: IPSAS 1 (Presentation of Financial
Statements), IPSAS 12 (Inventories), IPSAS 24
(Presentation of Budget Information in Financial
Statements)
RBI: Decline being non-government
Posts: IPSAS 26 (Impairment Cash-Generating
assets), IPSAS 15 (Financial Instruments:
Disclosure and Presentation) and IPSAS 19
(Provisions, Contingent Liabilities and Contingent
Assets)
Constitution of Apex Committee for implementation
and transition to Accrual Based Accounting System in
Government:
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Basis of forming Apex Committee:
The Union Government has accepted the 12th Finance Commission
recommendation regarding adoption of accrual accounting for the Union and
State Governments.
GASAB had formulated separate reports on the “Roadmap and transition path
of accrual accounting” and “Operational framework of accrual basis of
accounting in Government in India”.
Subsequently, the GASAB had also issued (June 2011) “Operational guidelines
for accrual based financial reporting in Government”.
The various reports of GASAB, had recommended constitution of a High Level
Task Force/Apex Body at Ministry of Finance for implementation of accrual
based accounting in Union and State Governments.
The second Administrative Reforms Commission, in its 14th Report relating to
“Strengthening financial management systems in Government” had also
recommended setting up of a Task Force and an Expert Committee to examine
various issues indicated in the Report, including the costs and benefits of
introducing the accrual system of accounting.
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consideration of recommendations of the
Reports,
the
.Ministry
of
Finance,
Department of Economic Affairs (Budget
Division),
New
Delhi
vide
Office
Memorandum No. F.No.1(12)-B(AC)/2009
dated 13th September,2011 has constituted
an Apex Committee as the nodal agency for
all matters relating to the formulation of
policy
issues,
overseeing
the
implementation of and coordination of
transition to accrual based accounting
system in the Union and the State
Governments.
Constitution of Apex Committee:
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Secretary, Ministry of Finance, Department of Expenditure,
Government of India (Chairman)
Dy. Comptroller & Auditor General of India & Chairman (GASAB),
Office of Comptroller & Auditor General of India.
Secretary (Finance), Ministry of Defence, Government of India
Financial Commissioner, Ministry of Railways, Government of India
Member (Finance), Telecom Commission, Government of India
Additional Secretary (Budget), Ministry of Finance, Department of
Economic Affairs, Government of India.
Financial Advisor, Ministry of Communications & Information
Technology, Department of Posts, Government of India.
Finance Secretary, Government of Andhra Pradesh.
Finance Secretary, Government of Madhya Pradesh
Finance Secretary, Government of Assam
Finance Secretary, Government of Maharashtra
Controller General of Accounts, Ministry of Finance, Department of
Expenditure, Government of India (Convenor)
Mandate of the Apex Committee:
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Facilitate an integrated approach in the implementation of accrual
accounting across Union and the State Governments in order to maintain
uniformity in the accounts.
To lay down detailed plan of action for scheduling of different activities in
relation to different Ministries/Departments.
To evolve accounting policies and standards in relation to, implementation
of accrual accounting.
To formulate the accounting heads of accounts for accrual accounting and
reporting.
To make/streamline arranements for accounting data flow and to define
role and relationship amongst various officials dealing with transitions and
accounting.
To work out and lay down modalities for identification of assets and
creating assets register for physical assets.
To work out and lay down the modalities for identification of liabilities
To build capacity in terms of human resources for managing transition,
implementation and management of accrual accounting system.
To develop IT systems for introduction and implementation of accrual
accounting.
To Commission pilot studies and oversee pilot implementation in the Union
and State Governments.
To facilitate experience sharing and resolution of issues faced by different
stakeholders.
To examine the applicability of the accrual accounts/ reports in the case of
the Appropraition Accounts and Finance Accounts.