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Session 2

Session 2. Session Title

henrietta-jordan
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Session 2

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  1. 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

  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. 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

  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. Development in the evolution of accounts structure and classification of Government Account: 1. Basis of Government Accounts: • 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.

  8. 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’.

  9. 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

  10. Purpose and importance of Accounting in Government • 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;

  11. To 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.

  12. Principles of Government Accounting • 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 time-series data

  13. 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’. • 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: • 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’.

  14. Departmentalization of Union Government (Civil) Accounts • 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.

  15. 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.

  16. 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.

  17. 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.

  18. 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.

  19. 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.

  20. 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.

  21. 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.

  22. 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.

  23. 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.

  24. 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.

  25. Due Process: • Identification of an issue • Issue Paper • Consultation Paper (CP) • Exposure Draft (ED) • Pronouncements

  26. 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.

  27. 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.

  28. 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.

  29. 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)

  30. Constitution of Apex Committee for implementation and transition to Accrual Based Accounting System in Government: 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.

  31. On 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.

  32. Constitution of Apex Committee: • 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)

  33. Mandate of the Apex Committee: • 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.

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