Sessions Learning Objectives

SESSION-II

Sessions’ Learning Objectives:

At the end of the session, the participants should understand the composition of GASAB, its scope, objectives, responsibilities, applicability and standard setting procedures for IGASs etc..

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 formulates and proposesstandards that improve 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

The origin of Government Accounting could be traced back to the origin of Government themselves. The accounting system followed by modern day Governments has evolved over a long time spanning at least a few centuries.

Authority:

Under the Government of India Act, 1858, India came under the direct control of British Parliament from 1stNovember, 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 redesignated 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.

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 inIndia 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 inIndia” was changed into Auditor General in India and he was responsible for audit of all accounts inIndia. Government of India Act, 1935 changed this designation to Auditor General ofIndia and general superintendence of Audit of Indian Home Accounts was now vested in him. This designation was again changed to the Comptroller & Auditor General ofIndia under the Indian Constitution.

The duties and powers of the Comptroller and Auditor General of Indiaare 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:

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. This is prepared and presented to the Parliament or to the Legislature for approval before the beginning of each financial year. Through this vital document, 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. 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. For example, budget distinguishes revenue expenditure from other expenditure. So, the accounts must show actuals of revenue expenditure separately to correspond to the estimate of revenue expenditure in the budget. So is the case with figures of capital expenditure. Similarly the budget shows the estimates of revenue receipts separately from other receipts and the accounts must follow the budget. In fact, after the accounts are prepared, budget figures are relevant, in the main, for finding out how far the estimates prepared for obtaining parliamentary approval were correct, the extent of deviation in raising resources and in their application. Therefore, 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 differ from commercial or mercantile accounts in the way that commercial accounts are based on double entry systems while as Government Accounts are based, mainly, on ‘Single Entry System’. The major difference between commercial accounts and Government Accounts may be summed up as follows:

a)Commercial 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). In Government Accounts, 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.

b)Commercial accounts show the financial position of the entity, in the balance sheet, on the closing date of balance sheet. The balance sheet lists all the assets and all the liabilities of the entity. In Government Accounts cost of physical assets is not carried forward from year-to-year.

c)Commercial accounts 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. In government there is no concept of profit or loss, and so the Government Accounts do not have any profit and loss account or operating results.

The three parts of accounts

Constitution of India requires that all moneys received by Government should be segregated in two parts according to the source of receipt.

Part-I Consolidated Fund of India/States :Article 266(i) of the Constitution provides that all revenues received by the Government of India, all loans raised by that Government by issue of treasury bills, loans or ways and means advances and all moneys received by that government in repayment of loans shall be credited to one fund entitled the ‘Consolidated Fund of India’ (similarly, a Consolidated Fund for each State Government and for each Union Territory having a Legislative Assembly is created for the purpose).

Part-II Contingency Fund of India/States:Article 267(i) of the Constitution has made a provision for creation of ‘Contingency Fund of India’ which is in the nature of an imprest placed at the disposal of the President of India to enable him to make advances to meet urgent unforeseen expenditure pending authorization by Parliament. Identical provisions exist in the Constitution for creation of Contingency Fund for each State.

Part-III Public Account of India/States: Article 266(ii) of the Constitution provides that all other moneys received by or on behalf of the Government of India are to be credited to the ‘Public Account of India’. Identical provisions exist in the Constitution for creation of ‘Public Account’ for all State Governments and for UnionTerritories with a Legislative assembly.

No money can be withdrawn from the Consolidated Fund of India without the authorization by Parliament. Similarly, no money can be withdrawn from the Consolidated Fund of a State without the authorization by the concerned State Legislature under law.

Revenue Expenditure and Capital Expenditure:

Article 112 of the Constitution (in respect of Union) stipulates that while presenting the ‘Annual Financial Statement’ to the Parliament for approval, the estimates of expenditure shall distinguish expenditure on revenue account from other expenditure. Government expenditure has, therefore, to be classified into two broad areas, viz. Revenue Expenditure and Capital Expenditure. Similar provisions exist in the Constitution in respect of States Governments.

Voted Expenditure and Charged Expenditure:

Article 112 of the Constitution stipulates that while presenting the ‘Annual Financial Statement’ to the Parliament for approval, the estimates of expenditure shall show separately the sums required to meet expenditure described by the Constitution (under Article 112(3) in respect of Union) as expenditure charged upon the Consolidated Fund of India and the sums required to meet other expenditure proposed to be made from the Consolidated Fund of India. Under Article 113 of the Constitution the expenditure charged on the Consolidated Fund of India shall not be submitted to the vote of Parliament.

As Accounts, particularly the Appropriation Accounts, have to exhibit the voted expenditure separately; accounts are prepared to record charged expenditure separately.

Similar provisions exist in the Constitution for States.

Plan Expenditure and Non-Plan Expenditure:

The system of planned development of the country has made it necessary to distinguish between expenditure incurred under five-year plans, called the Plan Expenditure and the other expenditure, which is called the Non-Plan Expenditure. The Plan Expenditure may not necessarily be capital expenditure in the sense of creating durable assets. Some socio-economic programmes and expenditure on them, like Malaria Eradication Programme, Adult Education Programme, etc lead to creation or improvement in national wealth. Such expenditure, though of consumption expenditure in nature, leads to better and healthy population and better productivity of national economy.

Segregation of expenditure into Plan Expenditure and Non-Plan Expenditure is not a constitutional requirement but is a result of administrative decision. The Finance Accounts, therefore, classifies expenditure under the Consolidated Fund into Plan Expenditure and Non-Plan Expenditure. No such classification of expenditure is followed while preparing the Appropriation Accounts

Purpose and importance of Accounting in Government:

The main purpose of Government Accounts is:

• to collect, account for, collate, compile and consolidate numerous financial transactions of the government for a particular period and present them in the form that is easily understood and that can be made use of by the persons interested in them;
• 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 (Parliament in the case of Union Government and concerned Legislature in the case of State Governments and Union Territories with a Legislature) 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;
• Government is the largest spender in any nation and its spending has an important impact on the national economy. Being vested with powers to impose taxes and extend financial benefits (like subsidies, etc.) with the approval of the concerned legislature, any decision on these areas by Government has a tremendous impact on national economy, national productivity and national employment of resources including human resources. It is imperative that the interested citizens of the country, interested agencies, both national agencies and international agencies, will be interested to know the nature and extent of government spending. Accounting in government fulfills the information need of these interested parties.
• 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:

(i)To meet the requirements of Parliamentary control over finances.

(ii)to meet the requirements of executive control over public finances

(iii)to ensure maintenance of subsidiary accounts

(iv)to ensure maintenance of initial accounts

(v)to ensure inclusiveness and totality of financial transactions

(vi)Government Accounting, therefore, has to be on cash basis,

(vii)Government Accounting has to have a detailed system of classification of receipts and payments

(viii)to ensure preparation of monthly and annual accounts

(ix)To ensure generation of database of financial data for inter-period comparison and for generation of time-series 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’.

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 UnionTerritory having a Legislative Assembly. The Civil Accounts of the Government comprise the ‘Finance Accounts’ and the ‘Appropriation Accounts’.

Departmentalization of Union Government (Civil) Accounts:

Departmentalization of Accounts was effected during the financial year 1976-77. Under the scheme of Departmentalization of Accounts, 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).

Under the new scheme, 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.

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 christened 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?

Although the present system of government accounting is commendable for its simplicity and uniformity under various rules and regulations, but it had displayed certain weaknesses in adjusting itself to the needs and pressures of enormous changes in the nature and objectives of government activities in global context. The following is the important essentialities for formulating Government Accounting Standards for our country:

1. It is essential for improved public accountability for the efficient and effective functioning of our democratic system.

2. It will 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.

3. It is worthwhile to note that accounting rules are designed to provide standardized frameworks within which the financial position of a Government can be assessed.