Accrual Based Financial Reporting in Government” is today’s requirement – FM

CLR Note: Finance Minister Pranab Mukherjee today inaugurated the National Conference of the State Finance Ministers on Accrual Based Financial Reporting in Government”. This has been recommended  to improve the transparency and fixing the accountability of departments for managing state-owned assets. He said, that “Based on the knowledge gained through pilot studies and the experience of some other countries, it is clear that introduction of accrual accounting is not going to be an easy task”.The 12th Finance Commission had recommended the accural based financial reporting  for both central and state governments. The recommendations were accepted by the central government in principle.

Finance Minister Shri Pranab Mukherjee has said that a robust comprehensive and transparent accounting system is a must for any government. He was inaugurating a day- long national conference of the State Finance Ministers on Accrual Based Financial Reporting in Government, here today. Shri Mukherjee stated that accrual based financial reporting in the Government is an important initiative in the reform of the system of accounts and financial reporting in the public domain. He said that the Government has already accepted the recommendation of the Twelfth Finance Commission for introduction of the accrual accounting in principle. Accordingly, the Government Accounting Standards Advisory Board (GASAB) in the Office of the Comptroller & Auditor General of India has prepared an operational framework and a detailed road map for its implementation.

The Finance Minister stated that we should focus on areas which foster transparency, Parliamentary accountability and are of use to decision makers in government. He said that the Government today needs more comprehensive financial information, while taking decisions about the feasibility of financing the services it wishes to provide and for planning the future funding requirements of asset maintenance and replacement.

The Finance Minister said that the relevance of accrual accounting has to be looked at from the overall perspective of public financial management. He said that 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.

Shri Mukherjee said that based on the knowledge gained through some pilot studies and the experience of some other countries, it was clear that introduction of accrual accounting is not going to be an easy task. He said that we need to clearly identify the critical and the preparatory steps which need to be taken. While doing so, the requirements and the capacity of the third tier of governance, at the level of local bodies, should be borne in mind. Adequate support and guidance would have to be provided by both Central and State Governments, he said.

The Finance Minister said that in order to facilitate a gradual and seamless transition to accrual accounting, GASAB could prepare guideline notes in various areas of accrual accounting for the assistance of the officials in all tiers of governance. As much of the data needed for accrual based accounts resides with the administrative managers, we would need to build up the capacity of administrative units along with the staff of accounting organizations, he said.

In his concluding remarks, the Finance Minister Shri Pranab Mukherjee stated that the implementation of accrual accounting system would need strong Information Systems with an IT backbone. The computerization efforts being made in various departments of Central and State governments need to be synchronized so that there is compatibility. He solicited the full cooperation from all State Finance Ministers and Finance Secretaries of States in ushering in this important reform, which will go a long way in improving the financial reporting and fiscal discipline of the governments.

The Finance Minister also released a brochure on Operational Guidelines for Accrual Based Financial Reporting at the Conference.

Speaking on the occasion, the Comptroller and Auditor General of India (CAG), Shri Vinod Rai said that the conference was a step forward in building consensus on providing guidelines which will help all stakeholders in moving towards better financial reporting through accrual accounting. In fact, he said that the conference was in response to the need expressed by some of the states for training and guidance in this migration process. As a step towards accrual accounting, several statements in the Finance Accounts of the states have been introduced from last year. Shri Vinod Rai said that various Central Government organizations like Railways, Department of Posts etc., are conducting pilot studies to move towards accrual accounting. Several municipal corporations have moved over to maintenance of accounts in accrual format. In addition, so far, 21 State governments have conveyed their acceptance, in principle, to move towards accrual accounting, he said. He stated that a few states have constituted Task Force on transition to accrual accounting and some states have asked for assistance from GASAB for training and providing guidelines.

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