1. August 19, 2013 GASAB Secretariat Overview of constitution and functioning of GASAB:IGAS & IGFRS P. C. Das Principal Director Government Accounting Standards Advisory Board dasp@cag.gov.in August 19, 2013

2. Government Accounting Standards Advisory Board (GASAB) August 19, 2013 2 Enhance decision-making quality + public accountability Improve Governmental Accounting + Financial Reporting To Formulate standards and guidelines To Set up by CAG on 12 Aug 02: Supported by GoI To recommend GASAB Secretarit

3. GASAB Structure: 16 Members August 19, 2013 3 Teleco m GASAB Secretarit

4. Roadmap prepared by GASAB for transition to accrual accounting Roadmap prepared by GASAB envisages a 10-12 year transition period. Main activities proposed are: Setting up a Task Force / designating a nodal agency preferably at Ministry for Finance for coordination and overseeing the implementation. Identification and collection of data required for preparation of accrual-based Financial Statements. Pilot Studies covering a few Ministries/Departments/State Governments for gap analysis. This would also be crucial for process mapping. Detailed process study are required for accounting principles, recognition and measurement of elements, classification and disclosure of information. August 19, 2013 GASAB Secretariat4

5. Contd… Preparation of a detailed operational accounting framework prescribed by GASAB. Laying down accounting policies Preparation of a Chart of Accounts Devising subsidiary ledgers/records to be maintained in accounting offices Streamlining accounting dataflow and defining role and responsibilities amongst officials dealing with accounting data Putting in place a new IT system Pilot implementation of the new system in few Ministries/Departments Full implementation August 19, 2013 GASAB Secretariat5

6. Mission of GASAB twin fold Suggest improvements in the existing cash basis accounting system for Develop accounting standards under cash Indian Government Accounting Standards (IGAS) To facilitate pilot studies & migration to accrual basis accounting Develop standards and guidance notes for accrual basis of accounting Indian Government Financial Reporting Standards (IGFRS) 6 August 19, 2013 GASAB Secretarit

7. GASAB : so far 2007-2011: Roadmap, Operational framework, Operational guidelines April 2010 – December 12 : Notification of 3 IGAS by Min of Finance IGAS 1 : Guarantees given by Governments: Disclosure Requirements IGAS 2: Accounting and Classification of Grants-in-aid IGAS 3: Loans and Advances made by government April 2007- December 12: Board approves 4 IGFRS IGFRS 2 : Property, Plant and Equipment IGFRS 3: Revenue from govt. exchange transactions IGFRS 4: Inventories IGFRS 5: Contingent Liabilities (other than guarantees) and Contingent assets June 2011: Finance Ministers conf. on accrual based financial reporting 22 State Governments - In principle approval to accrual accounting - August 19, 2013 7GASAB Secretarit

8. Accounting reforms initiatives Union CGA : RML; CPWD Div.-4 DoP : New Delhi GPO; Naraina Industial Estate Head Post Office DoT: CCA Circle, Maharashtra MoD: CSD MoR : Accounting reforms cell States 22 States in principle approval Andhra Pradesh (pilot study) Madhya Pradesh (pilot study) Rajasthan (pilot study)Kerala (feasibility study) Jammu & Kashmir (Task group) Third tier Urban local bodies National Municipal Accounting Manual Accrual based system Panchayati Raj Institutions Model Accounting System for Panchayats (MAS) Cash based double entry August 19, 2013 GASAB Secretarit8

9. Why we need a reform in Govt. accounting?  Ambitious socio-economic goals, require public sector institutional capacity for setting and implementing public policy, which in turn necessitates government accounting reform.  Better Financial Management  Increasing demand for government financial accountability and transparency in representative democracies.  Linking of United Nations Millennium Development Goals with accounting reforms in developing countries. August 19, 2013GASAB Secretariat9

10. Present system of accounting  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 (Art.150 of the Constitution of India)  GAR, 1990 Rule 21: actual cash receipts and disbursements  GFR, 2005 Rule 68 : Government Accounts prepared on cash basis  Exceptions:  Inter- ministerial adjustments  Commercial undertakings of government departments August 19, 2013 GASAB Secretarit10

11.  Event centric:  Recognizes transactions when economic value is created, exchanged, transformed or extinguished  Records revenue and expenses when they are incurred, regardless of when cash is exchanged  At the Macro level:  Assets and Liability reflected adequately  Greater accountability  Sustainability of fiscal policies  At the Micro level:  Provides information for better management of resources  Provides a basis for pricing products & services Why accrual accounting? August 19, 2013 GASAB Secretarit11

12. Benefits of Accrual System of accounting Better assessment of financial performance. Better information about adequacy of income to meet short and long term liabilities. Comprehensive information on expenses helps in knowing the cost consequences of policies and enables comparison with alternative policies. Liquidity position can be better assessed Comprehensive information on the Financial Position i.e. assets and liabilities of government. Disclosures on account of contingent assets and contingent liabilities leads to better assessment of risk associated with them. Bridges the gap leftover by cash accounting by inclusion of accrued expenses and revenues (receivables and payables), physical assets, capital work-in-progress and depreciation, pension liabilities and provisions etc. in the accounting system. discloses the Accounting Policies used in the preparation of Financial Statements. August 19, 2013 GASAB Secretariat12

13. Cash V/s Accrual Cash based system of accounting Revenues/ Expenses are recorded when they are received/ paid, which may be before or after they are earned. Receivables are not recorded. Payables are not recorded. Financial statements reflect revenues/ expenses based on when transactions were entered rather than when revenues earned / expenses incurred. Accrual based system of accounting Revenues/ Expenses are recorded when they are earned/ incurred, which may be before or after they are received. Receivables are recorded when payment is not received at the point of sale. Payables are recorded when payment is not made at the time of purchase. Financial statements match revenues to the expenses incurred in earning them, and more accurately reflect the results of operations. August 19, 2013 GASAB Secretariat13

14. The international experience Transition from cash to accrual accounting Transition from rules to standards based financial reporting Over 80 countries have either adopted or in transition to adopt standards based financial reporting Large number of international organizations have migrated to Standards based financial reporting The United Nations, North Atlantic Treaty Organization (NATO), Organization for Economic Co-Operation and Development (OECD), International Criminal Police Organization (INTERPOL), European Commission (EC). August 19, 2013 14GASAB Secretarit

15. How can we proceed?  Steps taken by Govt. of India so far  Recommendations of 12 th Finance Commission  Recommendations of 13 th Finance Commission  14 th Report of the 2 nd Administrative Reforms Commission  FRBM Act, 2003 and FRBM Rules, 2004  GASAB’s Roadmap  IGAS already notified by Min. of Finance/ Govt. of India  IGFRS approved by GASAB August 19, 2013 GASAB Secretariat15

16. Recommendations of 12 th Finance Commission Central government should gradually move towards accrual basis of accounting. (Para 14.16) As interim measures, subsidies, salaries, pensions, committed liabilities, salary and non-salary portions, liabilities on outstanding debts should be appended to the present system of cash accounting. (Para 14.16) Revenue and fiscal deficits be standardized and instructions for a uniform classification code down to the object head may be issued to all the states. (Para 14.17) National Institute of Public Financial Accountants be set up, its charter of demand be decided in consultation with the Comptroller and Auditor General. (Para 14.18) August 19, 2013 GASAB Secretariat16

17. Recommendations of 13 th Finance Commission 13 th Finance Commission again re-emphasized and recommended a ‘bubble up’ approach to facilitate the switch over to accrual accounting system in government. Stressed the need for improving transparency in government accounts. August 19, 2013 GASAB Secretariat17

18. 14 th Report of the 2 nd administrative Reforms Commission, 2009 A task force be set up to examine the costs and benefits of accrual system of accounting and its applicability for the Appropriation and Finance Accounts. Initially, a few departments/ Organizations (commercial undertakings)be identified where tangible benefits could be shown within 2-3 years by implementing the accrual system of accounting. The result may be studied by a committee of experts which would recommend on its further implementation in all departments/organizations at the Union/State level along with exclusions, if any, in a phased manner. Training and capacity building needs of the accounting personnel and all stake holders in the decision making process be done. Alignment of the Plan budget and accounts needs and a viable financial information system needs to be put in place. August 19, 2013 GASAB Secretariat18

19. FRBM Act, 2003 & FRBM Rules, 2004 Fiscal Responsibility and Budget Management (FRBM) Act, 2003 is to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government. FRBM Rules, 2004 provide for disclosure of receivables, guarantees and assets. It prescribes formats as follows:- Form D 1 – Tax revenues raised but not realized Form D 2 – Arrears of Non – tax revenue Form D 3 – Guarantees given by the government Form D 4 – Asset Registers August 19, 2013 GASAB Secretariat19

20. Structure of Government Accounting practices Worldwide In the next five slides different stages of modified Cash vs. Accrual accounting has been shown. August 19, 2013 GASAB Secretarit20

21. StagesRevenuesExpensesAssetsLiabilities Contingent Liabilities Current Stage Receipts Exp - Current & Capital Financial assets Stock of Public debt and Borrowings on Public Account Guarantees Stage IReceipts Current Expense on accrual basis and Capital Expenditure on cash basis Financial assets + Physical assets Stock of Public debt and Borrowing on Public Account + Payables Guarantees Stage II Non Tax Revenues on accrual basis + Tax Revenues on cash basis Current Expense on accrual basis and Capital Expenditure on cash basis [Expenditure on Military Assets on accrual basis] Financial assets + Physical assets + Receivables + Military assets Stock of Public debt and Borrowing on Public Account + Payables + All other Liabilities [except superannuation benefits, compensated leaves, provisions and social security] Guarantees Stage III Non Tax Revenues on accrual basis + Tax Revenues on cash basis All expenses on accrual basis + Depreciation All Assets (excluding infrastructure, land, heritage, intangible assets) All liabilities (except superannuation benefits, compensated leaves, provisions and social security) All explicit contingent liabilities Stage IV Non Tax Revenues on accrual basis + Tax Revenues All expenses on accrual basis + Depreciation All assets including infrastructure and land [excluding heritage and intangible] superannuation benefits, compensated leaves, provisions and social security All explicit contingent liabilities Stage V All Revenues on accrual basis All ExpensesAll AssetsAll Liabilities All explicit contingent liabilities 21

22. Operational Framework - Stage 1  Identification of asset category wise  Accrual basis reporting for current expenses  Recognition payables in accrual base  Capital Expenditure remains on cash basis August 19, 2013 GASAB Secretariat22

23. Operational Framework - Stage 2  Accrual basis for non tax revenue  Recognition of receivables  Tax revenue on cash basis  Military assets on accrual while other assets on cash August 19, 2013 GASAB Secretariat23

24. Operational Framework - Stage 3  All assets on accrual basis (physical + financial)  Infrastructure, land, heritage assets, intangibles continue on cash basis  All liabilities (except superannuation benefits and provisions and depreciation )on accrual basis  Disclosure of contingent liabilities August 19, 2013 GASAB Secretariat24

25. Operational Framework - Stage 4  Tax revenue on accrual basis  All assets excluding heritage and intangible assets on accrual basis All liabilities on accrual basis including provisions for depreciation & superannuation benefits All explicit contingent liability August 19, 2013 GASAB Secretariat25

26. Operational Framework - Stage 5  All assets on accrual  All liabilities on accrual  All Income on accrual  All expenses on accrual August 19, 2013 GASAB Secretariat26

27. IGAS approved by GASAB and under consideration of Min. of Finance, Govt. of India Foreign Currency transactions and loss or gain by Exchange Rate variations (IGAS 7) Public Debt and Other Liabilities of Governments: Disclosure Requirements (IGAS 10) August 19, 2013 GASAB Secretariat27

28. Pilot Studies in States - Status Pilot Studies completed Andhra Pradesh ( Transport Deptt. & Tribal Welfare Deptt.) Haryana (Roadways Deptt.) Madhya Pradesh (Forest Deptt. & Health Deptt.) Raja Ramdev Poddar Govt. Senior Secondary School, Jaipur, Rajasthan August 19, 2013 GASAB Secretariat28

29. Contd.. Pilot Studies initiated Jammu & Kashmir ( PHED & Roads & Buildings Deptt.) Jharkhand (MOU signed with M/s Price water house coopers) Punjab & Haryana Govt. have identified the departments August 19, 2013 GASAB Secretarit29

30. Outcome of pilot studies

31. Lessons learnt from Pilot Studies Have to follow: Fiscal Responsibility & Budget Management Act 2003 (FRBM) General Financial Rules (GFR), 2005 Government Accounting Rules (GAR),1990 Accounts code Also have to create: Assets Registers category wise (GFR 190 and Form D 4 as per FRBM Rules, 2004) Provision for depreciation(GFR 202) Liability registers (GFR 53) August 19, 2013 GASAB Secretariat31

32. Contd.. May have to map-up : Tax Revenue Non Tax Revenue Loans and Advances Debts Contingent Liabilities: Guarantees, Subsidies, Grants-in-aid Identification of Chief Accounting Authority(GFR 64) Ownership of government accounts Dealing with PAC (Centre and State) and submission of accounts in the legislature in time, Appropriation of funds for the purposes prescribed Collection of all dues due to government, Avoidance of wasteful and unauthorized expenditure Inclusion of management and discussion analysis report August 19, 2013 GASAB Secretarit32

33. Contd… The reformed accounting would need strong information systems with an IT backbone. An Enterprise Resource Planning (ERP) system like SAP may be required to capture each transaction instantly at the Drawing and Disbursing Officer (DDO) level. Mandatory inclusion of accrual heads in any major up gradation in the accounting system in near future by the Government The mission mode project of Treasury Computerization involving 626 districts must address the accounting needs for the transition. Finally, identification of reporting entities, various Parastatals, and special purpose vehicles being received government funds are to be brought under reporting purposes regularly. August 19, 2013 GASAB Secretariat33

34. To sum-up: In the First Phase: Administrative decisions and record maintenance are to be taken such as Task Based Groups, Chart of Accounts, IT enabled platform, Training Human Resources of capacity building etc; Records such as Assets, Liabilities, disclosures be maintained; In the Second Phase: Classification and valuation of assets; provisions for depreciation; Amortization; Recognition of expenses and payables; and Revenue and Receivables. August 19, 2013 GASAB Secretariat34

35. Contd.. And in the third and final phase General Purpose Financial Reporting should include: Statement of financial position; Financial achievement/performance; Cash Flow Statements; Changes in net assets/ liabilities; Preparation of appropriation accounts; Notes on accounting policy. August 19, 2013 GASAB Secretariat35

36. Statement of Financial Position  Assets  Classified - current and non current  Categorisation of assets  Current  Cash and cash equivalents  Receivables  Inventories  Investments  Non current  Property, plant and equipment (other capital expenditure)  Investments  Capital works in progress  Net worth of an entity Liabilities Classified - current and non current Current Payables Short term borrowings Short term provisions Superannuation Non current Long term borrowings Long term provisions Employee benefits Other financial liabilities August 19, 2013 GASAB Secretarit36

37. Statement of Financial Performance  Classification of expenses by nature  Revenue  Non exch.-Taxes, fees, fines  Exchange- Rent, sale, interest  Transfers/Grants in aid & others  Expenses  General services  Social services  Economic services  Transfers/grants in aid/others  Net surplus/deficit  Classification of expenses by function  Revenue  Non exch.-Taxes, fees, fines  Exchange- Rent, sale, interest  Transfers/Grants in aid & others  Expenses  Salary & wages  Grants & other payments  Office expenses  Operating expenses  Gain/loss on investments  Depreciation & provisions August 19, 2013 37GASAB Secretarit

38.  The balance at  beginning of the period  changes during the period – surplus/deficit  end of the reporting date  Transitional adjustments  Item of revenue and expenses (Gain/loss on property)  Effect of changes in accounting policy  Effect of corrections due to errors  Changes in Fund balances Statement of changes in net assets/equity 38 August 19, 2013 GASAB Secretarit38

39. Cash Flow Statements Operating Activities Receipts Taxes Non tax Grants in aid Others Expenses General services Economic services Social services Grants in aid others Net flow of cash Investing Activities Receipts Sale of property, plant & equip. Disinvest ments Loans & Adv. Dividends/ profit Expenses Disburse ments Investme nts in other entities Capital exp Loans & Adv Financing Activities Receipts Internal debt External debt Small savings, PF Reserve Funds Deposits Expenses Internal debt External debt Small savings, PF Reserve Funds Deposits August 19, 2013 GASAB Secretarit39

40. Appropriation Accounts Comparison of budgeted amount with expenditure and revenue receipts Reason for variation in budgeted amount and expenditure/revenue receipts Details grant wise Original grants Supplementary grants Re- appropriations Voted & charged expenditure Revenue & Capital expenditure August 19, 2013 40GASAB Secretarit

41. Accounting policies & Notes to accounts Reporting entity Accounting Unit Basis of preparation of the financial statements Reference to Standards/ Rules/ manuals Chart of Accounts Issue of materiality Performance indicators Explanatory notes 41 August 19, 2013 GASAB Secretarit

42. August 19, 2013 GASAB Secretarit Challenges Commitment to change Clear mandate Definite timeline Greater Involvement of stakeholders Greater awareness Concept of accrual accounting in Government Benefits of accrual accounting 42

43. August 19, 2013 43 Thank you www.gasab.gov.in GASAB Secretariat