The Hindu Business Line : Centre firm on switching over to accrual accounting

The Finance Minister, Mr P.Chidambaram, and the Controller General of Accounts, Mr H. Prabhakara Rao, at the workshop on Accural Accounting and Classification Systems in the Capital on Wednesday. — Kamal Narang

New Delhi , Sept. 14

THE Finance Minister, Mr P. Chidambaram, said on Wednesday the Central Government was "determined" to switch over to an accrual system of accounting from the current cash system of accounting.

Terming accrual accounting as a "much superior" form of accounting than the current system, Mr Chidambaram said that the corporate sector has been following the accrual system for many years and it's time the Central Government followed their example.

Inaugurating a three-day workshop on accrual accounting and classification system, organised by the Controller General of Accounts in the Finance Ministry in association with the World Bank, Mr Chidambaram indicated that the Government had in-principle accepted the recommendation of the 12th Finance Commission that a "gradual" switchover be made to the accrual system of accounting.

"The Government believes that the recommendation of the 12th Finance Commission can be implemented over a period of time. We must examine the implication of this principle in terms of time, cost and beneficial aspects," he said.

Under cash accounting, only cash receipts and cash expenditures are recorded and these are recorded only at the time the transactions take place. There is no system of recording committed liabilities and obligations that have been incurred.

However, in accrual accounting, transactions are recorded irrespective of the actual process of cash inflow or cash outgo.

Further, the accrual accounting also records assets and liabilities.

"Because, we do not use accrual accounting, there are many large liabilities that are hidden. For example, the pay as you go pension system hides huge liabilities. There is no funding of the pension system and therefore the liabilities are not calculated correctly, not provided for and not accounted for," he said.

The Finance Minister expressed hope that the State Governments would also follow suit and take initiatives towards adopting an accrual-based accounting system.

He pointed out that none of the States had so far adopted the accrual accounting system.

Mr Chidambaram used the occasion to highlight the weakness in accounting functions of the States and that many of them have not even separated audit and accounts function.

"In fact, the accountant general's role of the State has been severely pruned in the recent years. The bottomline is audit and accounts are not separate and even the accounting functions are very weak. It is with this state of affairs that we are embarking upon a bold initiative of switching over to an accrual system," he said.

The Finance Minister said the Centre's latest initiative to look at adoption of accrual accounting is as important as the initiative taken in 1976 to departmentalise the accounts in the Central Government.

He felt that the Centre cannot move forward or fast enough on this front (accrual accounting) unless at all levels there is full computerisation.

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