India to change format of government accounting

May 6th, 2009 - 4:07 pm ICT by IANS  

New Delhi, May 6 (IANS) India’s official auditor Wednesday said the format for recording government finances would be changed over the next five years from “cash” to “accrual” basis, where transactions are recorded as they occur, irrespective of when the cash is received or remitted.
“The accrual based financial statements are expected to provide more appropriate presentation of financial performance and position of the government,” said a statement by the office of the Comptroller and Auditor General of India (CAG).

“The centre and states will have a common format of financial statements that would include a balance sheet, a statement of financial performance and a cash flow statement,” the CAG said, spelling out the rationale behind the move.

The World Bank is already funding some pilot projects in this regard, being conducted by the central government’s postal department, apart from selected offices in Andhra Pradesh, Madhya Pradesh, Haryana and West Bengal.

“These pilot studies would be precursor to a national rollout aimed within a five-year time frame.”

The Institute of Chartered Accountants of India (ICAI) also feels that the use of accrual basis for government accounting was more appropriate and welcomed the move to shift away from cash basis.

“This is a very welcome step. It will certainly help in real assessment of the records. It will also lead to more accountability and transparency in financial reporting,” Uttam Prakash Agarwal, president of the institute, told IANS.

Among the various benefits of accrual accounting is all incomes earned during a particular period are also matched with the expenses incurred for earning those incomes, Agarwal said.

The accrual method also provides a better measurement of net income because it matches the expenses incurred with income earned for a given period, apart from reflecting the income in the period to which they belong, he added.

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