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N
ecessity is the mother cussed in the IASC Frame- tion of assets and liabilities.
of all inventions, so work are: understandability; In the words of Prem-
goes the old saying. relevance; materiality; reli- chand (1995) Government
Accounting as a branch of ability; faithful representation; Accounting may be defined as
knowledge emerged as it was substance over form; neutral- a system that is charged with
felt that a short pencil is bet- ity; prudence; completeness; identification, selection and
ter than long memory. All the and comparability (IFAC, analysis, measurement, esti-
transactions that were under- 2000). In addition, the IASC mation, processing, and com-
taken by any entity in the old notes that timeliness as impor- munication of information on
receipts, expenditure, assets,
liabilities, costs, and benefits
Gone are the days when the function of accounting was
and all other aspects that le-
limited to record keeping. In today’s environment, the ac-
gitimately form part of fiscal
counting, apart from being a statutory requirement is also
management and is now the
expected to provide the government and other users of gov-
recognised handmaiden of fis-
ernment’s financial statements with relevant, reliable and
cal policy.
timely information that will assist them in decision-making
process. This article provides an overview of the government
K.P. Kaushik Objectives of
accounting systems, examines the extent to which the pres-
(The author is Associate Governmental Financial
Professor (Spl. Grd) at ent accounting system followed by our country fulfills the
Reporting
National Institute of Fi-
requirement of an ideal accounting system and highlights
nancial Management, IFAC PSC Study 1 (1991)
Faridabad. He can be the experience of other countries that have reformed their
reached at kpkaushik@ Financial Reporting by Na-
accounting system in recent past.
nifm.ac.in)
tional Governments identi-
fied the following objectives of
days grew to such an extent tant as other characteristics. governmental financial report-
that it became impossible for However, at times a balanc- ing.
anyone to manage all of them ing or trade off between char- Financial reporting should
by memory alone. Gradually acteristics may be necessary. demonstrate the accountabil-
as trade and commerce de- Different accounting systems ity of the government or unit
veloped, accounting became may also score highly on one for the financial affairs and
a requirement and then a ne- characteristic than another. resources entrusted to it, and
cessity. Not only does the law Deciding the relative impor- provide information useful for
requires every organization to tance of the characteristics in decision making by:
prepare the accounts but also different cases is a matter of l indicating whether re-
decides on the format and judgement. sources were obtained
other issues. Today, accounting and used in accordance
has a far greater significance Government Accounting with the legally adopted
because of the role it plays in Government accounting budget;
decision-making process. is the process of recording, l indicating whether re-
analysing, classifying, sum- sources were obtained
Qualitative Characteristics marising communicating and utilised in accordance
of Financial Reporting and interpreting the financial with legal and contractual
The quality of the infor- transaction and events about requirements, including
mation provided in financial government in aggregate and financial limits estab-
reports determines the useful- in detail reflecting transactions lished by appropriate leg-
ness of those reports to users. and other economic events in- islative authorities;
The qualitative characteristics volving the receipt, spending, l providing information
of financial information dis- transfer, usability and disposi- about the sources, alloca-
Cash Accrual
Objective Cash Basis Modifications to the Modifications to the Accrual Basis
Cash Basis Accrual Basis
Compliance with legal- Yes Yes Yes Yes
ly adopted budgets.
Compliance with le- Relating to cash Cash and near cash Cash and financial Cash and economic
gal and contractual re- r e q u i r e m e n t s requirements and resources require- resources require-
quirements, including and limits. limits. ments and limits ments and limits.
spending limits.
Sources, allocation and Cash resources Cash and near cash Cash and financial Cash and financial re-
uses of financial re- resources. resources. sources.
sources.
Financing and cash re- Cash resources Cash and near cash Cash and other fi- Cash and other finan-
quirements. resources. nancial requirements. cial requirements.
Ability to finance activ- From cash From cash and near From financial re- From economic re-
ities and to meet liabili- cash sources sources.
ties and commitments.
Financial condition and Cash position Cash and near cash Financial resources. Financial and eco-
changes therein. position. nomic resources.
Financial performance Information not Information not re- Limited information Provides information
in terms of service reported. ported. reported. necessary to assess
costs. performance.
Source: Government Financial Reporting, study 11, IFAC Public Sector Committee.
period (e.g. they include de- Accounting System in any meaningful change is the
preciation and losses, which Union Government of India change in the country’s ac-
can occur in the absence of The Government accounts counting system from cash to
transactions). Financial state- and financial reporting cur- accrual basis. This is because
ments produced under a full rently followed in our coun- an accounting system is not an
accrual accounting system try derive their ‘substance and end in itself but rather a means
cover revenues; expenses (in- form’ largely from the account- to an end. A sound account-
cluding depreciation); assets ing procedures introduced ing system should assist the
(financial and physical); li- during the British rule. The Government in fulfilling its
abilities; and assets (Schiavo- system worked reasonably well objectives in a changing sce-
Campo and Tommasi, 1999). in the early phase of post in- nario by providing the desired
Under full accrual sys- dependence era. But over the inputs for decision-making. It
tem of accounting the three last two to three decades, there needs to disseminate informa-
statements that are normally has been a significant change tion of high quality in terms of
prepared include, Operating in the role and responsibili- understandability, relevance,
Statement, Balance Sheet, and ties of the government. Today, materiality, reliability, faithful
the Statement of Cash Flows. our government is expected to representation, substance over
The number of the statements continuously review itself in form, neutrality, prudence and
and the names by which these light of the changes that are comparability (across peri-
are called may differ from taking place and should not ods). The present system of
country to country. In terms hesitate in implementing any accounting does not fulfill the
Lamiya Lokhandwala
Resource Accounting and Bud- heralded a new era in public that it would be wise if both
geting (RAB) is not just about sector financial management accounting and budgeting are
a switch to accruals account- reform, for the UK Govern- based on accrual system oth-
ing but also about enhanced ment with the full implemen- erwise most of other countries
public accountability improved tation of Resource Accounting that have implemented accrual
and financial management. and Budgeting (RAB). RAB accounting do not follow ac-
After a long process of transi- is an accrual based approach crual for budgeting purpose. In
tion, first notice of which was to Government accounting terms of the scope, RAB cov-
given in November, 1993, De- and budgeting, which also re- ers all UK central government
partmental Resource Accounts flects Parliamentary control departments, over 40 in all
became the sole mechanism and a move to focus on out- (with restructurings and merg-
of Parliamentary accountabil- puts, rather than inputs. The ers, the numbers keep chang-
ity for Supply expenditure in term ‘resource accounting’ was ing, but for 1999-2000, there
2001-02, and 2003-04 public devised to highlight that the were 42 departmental resource
expenditure plans were fully change proposed by the UK accounts and for 2000-01,
on a Resource Budgeting (RB) Government goes wider than there were 45 accounts). Ex-
basis. The Resource Account- simply the adoption of accrual ecutive agencies are included
ing (RA) component provides accounting techniques. within each department’s re-
the infrastructure upon which Resource accounting as a source accounts, and the seven
improved decision-making and technique involves the use of of the main government pen-
enhanced accountability can be resource accounting informa- sion schemes for public sec-
constructed. tion as the base for planning tor employees. In addition, a
The start of 2001-02 fi- and controlling public expendi- number of ‘Developed Bodies’
nancial year, in April 2001, ture. It is only UK that believes in Scotland, Northern Ireland