Session 6 & 7
Session Title:
Introduction to Accounting Standards, its
objective, basis of accounting, Accounting
Standards issued by ICAI and IPSAS Standards
(Accrual basis and Cash Basis) with their objective,
Revisiting Accounting Framework, International
efforts and reforms made in India. TFC and
formation of GASAB, Operational Framework
issued by GASAB, Progress of GASAB so far, list of
IGASs and IGFRSs with their objectives.
SESSION OVERVIEW:
In order to make accounting methods and principles uniform and
comparable and financial reporting show true and fair view of all the
activities of the government, to the extent possible, standards are
necessary to be evolved. The basic objective of Accounting Standards is
to remove variations in the treatment of several accounting aspects and
to bring about standardization in accounting and its presentation. In
this context, it is appropriate to discuss Accounting Standards issued by
IPSAS (both accrual and cash basis). The twelfth Finance Commission
(TFC) recommended Accrual Accounting for the Union and the State
Governments. The GASAB in the office of the C&AG (2002) was set up
to recommend an operational framework and detailed roadmap for its
implementation. GASAB has so far developed five IGASs namely (i)
IGAS 1-Guarantees given by governments: Disclosure requirements (ii)
IGAS 2 - Accounting and classification of grants-in-aid (iii) IGAS 3Loans and advances made by governments (iv) IGAS 7- Foreign
currency transactions and loss or gain by exchange rate variations (v)
IGAS 10- Public debt and other liabilities of governments : Disclosure
requirements and four IGFRSs namely (i) IGFRS 2 (i) Property, plant
and equipment (ii) IGFRS 3- Revenue from government exchange
transactions (iii) IGFRS 4- Inventories (iv) IGFRS 5- Contingent
liabilities (other than guarantees) and contingent assets: Disclosure
requirements
Session Structure:
► 1. Introduction to Accounting Standards.
► 2.
► 3.
Objective of Accounting Standards.
TFC, 13th Finance Commission, 14th report of
2nd
Administrative
Reforms
Commission
recommendations and formation of GASAB
► 4. Road map and Operational Framework of
GASAB.
► 5.
Accounting treatment and measurement
procedures proposed by GASAB.
► 6. ICAI Accounting Standards and IPSAS
► 7. IGASs and IGFRS (Notified/Under Notification/
prepared/ Proposed by GASAB)
► 8.Excercise and Group Discussion
Introduction:
 Financial Statements specially Appropriation and Finance
Accounts of governments are prepared to summarize the
end-result of all the activities by the government during an
accounting period in monetary terms.
 Combined Finance Accounts compares the financial results
of different state governments and union government.

The government accounting in India are on cash basis
and accounting follows the rule based.
 Though there is standardized classification structure (List of
Major and Minor heads) of government activities are
available, but reporting governments may adopt divergent
policies in methods and principles in their financial
reporting.
 In order to make accounting methods and principles
uniform and comparable and financial reporting show true
and fair view of all the activities of the government, to the
extent possible, Standards are necessary to be evolved.
What is Accounting Standards?
i.
Accounting Standards are the statements of code of practices of
regulatory accounting bodies (C&AG, CGA for government accounting)
that are to be observed in preparation and presentation of financial
statements.
ii. that Accounting Standards are rules according to which accounts have
to be drawn up.
iii. In layman terms, accounting standards are written documents issued
by experts, institutes or other regulatory bodies covering various
aspects of measurement, treatment, presentation and disclosure of
accounting transactions, whether it is based on single entry cash basis
or double entry accrual basis.
What are the objectives of Accounting Standards?
(i) The basic objective of Accounting Standards is to remove variations in
the treatment of several accounting aspects and to bring about
standardization in accounting and its presentation.
(ii) They intent to harmonize the diverse accounting policies followed in
the preparation and presentation of financial statements by different
reporting entities.
Accounting Standards issued by various authorities:
(A) Accounting Standards (Accrual basis) issued by the Institute
of Chartered Accountant of India (ICAI) are as follows:
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS 1
Disclosure of
Accounting Policies
in preparation and presentation of the
financial statements
AS2
Valuation of
Inventories
to formulate the method of computation of
cost of inventories / stock, determine the
value of closing stock / inventory at which
the inventory is to be shown in balance
sheet till it is not sold and recognized as
revenue
AS3
Cash Flow
Statements
This statement exhibits the flow of incoming
and outgoing cash.
AS4
Contingencies and
Events occurring
after the Balance
Sheet Date
The Accounting Standard deals with
Contingencies and Events occuring after the
balance sheet date
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS5
Net Profit or Loss
for the period,
Prior Period items
and changes in
Accounting
Policies.
to prescribe the criteria for certain items in the
profit and loss account so that comparability of
the financial statement can be enhanced. Profit
and loss account being a period statement
covers the items of the income and expenditure
of the particular period. This also deals with
change in accounting policy, accounting
estimates and extraordinary items.
AS6
Depreciation
Accounting
It is a measure of wearing out, consumption or
other loss of value of a depreciable asset
arising from use, passage of time. Depreciation
is nothing but distribution of total cost of asset
over its useful life
AS7
Construction
Contracts
As the period of construction contract is long,
work of construction starts in one year and is
completed in another year or after 4-5 years or
so. There may be following two ways to
determine profit or loss: On year-to-year basis
based on percentage of completion or On
completion of the contract.
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS8
Accounting for
Research and
Development
This deals with accounting for research and development
AS9
Revenue
Recognition
The standard explains as to when the revenue should be
recognized in profit and loss account and also states the
circumstances in which revenue recognition can be
postponed.
AS10
Accounting for
Fixed Assets
It is an asset, which is:- Held with intention of being used for
the purpose of producing or providing goods and services.
AS11
The effects of
Changes in
Foreign
Exchange
Rates (Revised
2003)
This accounting Standard applicable to accounting for
transaction in Foreign currencies in translating in the
Financial Statement Of foreign operation Integral as well as
non- integral and also accounting for For forward exchange.
Effect of Changes in Foreign Exchange Rate, an enterprises
should disclose following aspects:
•Amount Exchange Difference included in Net profit or Loss;
•Amount accumulated in foreign exchange translation
reserve;
•Reconciliation of opening and closing balance of Foreign
Exchange translation reserve;
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS12
Accounting
for
Government
grants
Government Grants are assistance by the Govt. in the
form of cash or kind to an enterprise in return for past
or future compliance with certain conditions.
AS13
Accounting
for
investments
It is the assets held for earning income by way of
dividend, interest and rentals, for capital appreciation
or for other benefits.
AS14
Accounting for
Amalgamation
It deals with accounting to be made in books of
Transferee company in case of amalgamation
AS15
Employees
Benefit
(Revised
2005)
The scope of the accounting standard has
been enlarged, to include accounting for short-term
employee benefits and termination benefits
AS16
Borrowing
costs
It prescribe the treatment of borrowing cost
(interest + other cost) in accounting, whether the cost
of borrowing should be included in the cost of assets
or not
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS17
Segment
Reporting
Disclosure
of
information
regarding
multiple
products/services and their operations is called
segment reporting
AS!8
Related Party
Disclosures
disclosure of related party transaction is essential for
proper understanding of financial performance and
financial position of enterprise
AS19
Leases
Lease is an arrangement by which the lesser gives the
right to use an asset for given period of time to the
lessee on rent. It involves two parties,
AS20
Earning Per
share
The statement is applicable to the enterprise whose
equity shares or potential equity shares are listed in
stock exchange.
AS21
Consolidated
Financial
Statements
the consolidated balance sheet if prepared should be
prepared in the manner prescribed by this statement.
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS22
Accounting
for taxes on
Income
This accounting standard prescribes the accounting
treatment for taxes on income.
AS23
Accounting
for
Investments
in Associates
in
Consolidated
financial
statements
It set out the principles and procedures for
recognizing the investment in associates in the
consolidated financial statements of the investor,
AS24
Discontinuing
operations
The objective of this standard is to establish principles
for reporting information about discontinuing
operations.
AS25
Interim
Financial
Reporting
As per clause 41 of listing agreement the companies
are required to publish the financial results on a
quarterly basis
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS26
Intangible
Assets
An Intangible Asset is an Identifiable non-monetary
Asset without physical substance held for use in the
production or supplying of goods or services for
rentals to others or for administrative purpose
AS27
Financial
Reporting of
Interests in
Joint
Ventures
'Joint control' is the contractually agreed sharing of
control over economic activity.
AS28
Impairment
of Assets
As per AS-28 asset is said to be impaired when
carrying amount of asset is more than its recoverable
amount.
AS29
Provisions,
Objective of this standard is to prescribe the
Contingent
accounting for Provisions, Contingent Liabilities,
Liabilities and Contingent Assets, Provision for restructuring cost
Contingent
Assets
Accounting
Standards
(ASs) No.
Accounting
Standards on
Objectives of the Standards
AS30
Financial Instruments :
Recognition and
Measurement and
Limited Revisions to AS
2, AS 11 (revised
2003), AS 21, As 23,
AS 26, AS 27, AS 28,
and AS 29
this Standard is to establish principles for recognizing
and measuring Financial assets, financial liabilities
and some contracts to buy or sell non-financial items
AS31
Financial Instruments:
Presentation
This Standard is to establish principles for presenting
financial instruments as liabilities or equity and for
offsetting financial assets and financial liabilities.
AS32
Financial Instruments:
Disclosures, and
Limited Revision to
Accounting
Standards(AS) 19 ,
leases
The objective of this Standard is to require entities to
provide disclosures in their financial statements that
enable users to evaluate:
•the significance of financial instruments for the
entity’s financial position and performance; and
•the nature and extent of risks arising from financial
instruments to which the entity is exposed during the
period and at the reporting date, and how the entity
manages those risks
(B) International Public Sector Accounting Standards (IPSAS)
issued by International Federation of Accountings
(IFAC)[Effective from 01.01.2004]
• The
International Federation of Accountants —
International Public Sector Accounting Standards Board
(the IPSASB) develops accounting standards for public
sector entities referred to as International Public Sector
Accounting Standards (IPSASs).
• The IPSASB recognizes the significant benefits of
achieving consistent and comparable financial information
across jurisdictions and it believes that the IPSASs will play
a key role in enabling these benefits to be realized.
• The adoption of IPSASs by governments will improve both
the quality and comparability of financial information
reported by public sector entities around the world.
• IPSASs are being prepared for application by entities
adopting the accrual basis of accounting and for
application by entities adopting the cash basis of
accounting.
(a) Accrual Basis
Accounting
Standards
IPSAS No.
Accounting
Objectives of the Standards
Standards on
IPSAS 1
Presentation of The objective of this Standard is to prescribe the
Financial
manner in which general purpose financial
Statements
statements should be presented in order to
ensure comparability both with the entity’s own
financial statements of previous periods and with
the financial Statements of other entities.
IPSAS2
Cash
Flow It sets out requirements for the presentation of
Statements
the cash flow statement and related disclosures.
IPSAS3
Net Surplus or
Deficit for the
period,
Fundamental
Errors
and
changes
in
Accounting
Policies
The objective of this Standard is to prescribe the
classification, disclosure and accounting treatment
of certain items in the financial statements so that
all entities prepare and present these items on a
consistent basis.
Accounting
Standards
IPSAS No.
Accounting
Objectives of the Standards
Standards on
IPSAS4
The effect of
changes in
Foreign
Exchange
Rates
The principal issues in accounting for foreign
currency transactions and foreign operations are
to decide which exchange rate to use and how to
recognize in the financial statements the financial
effect of changes in exchange rates.
IPSAS 5
Borrowing
Costs
This Standard generally requires the immediate
expensing of borrowing costs.
IPSAS 6
Consolidated
Financial
Statements
and
Accounting for
Controlled
entities
This Standard establishes requirements for the
preparation and presentation of consolidated
financial statements, and for accounting for
controlled entities in the separate financial
statements of the controlling entity.
Accounting
Standards
IPSAS No.
Accounting
Objectives of the Standards
Standards on
IPSAS 7
Accounting for
Investments in
Associates
IPSAS 8
Financial
This Standard provides the basis for accounting
Reporting
of for interests in joint ventures
Interests
in
Joint Ventures
IPSAS 9
Revenue from The objective of this Standard is to prescribe the
Exchange
accounting treatment of revenue arising from
Transactions
exchange transactions and events.
IPSAS 10
Financial
In a hyperinflationary economy, reporting of
Reporting
in operating results and financial position in the local
Hyperinflationa currency without restatement is not useful.
ry Economics
This Standard provides the basis for accounting
for ownership interests in associates.
Accounting
Standards
IPSAS No.
Accounting
Objectives of the Standards
Standards on
IPSAS 11
Construction
Contracts
The objective of this Standard is to prescribe the
accounting treatment of costs and revenue
associated with construction contracts.
IPSAS 12
Inventories
The objective of this Standard is to prescribe the
accounting treatment for inventories under the
historical cost system.
IPSAS 13
Leases
The objective of this Standard is to prescribe, for
lessees and lessors, the appropriate accounting
policies and disclosures to apply in relation to
finance and operating leases.
IPSAS 14
Events
after The objective of this Standard is to prescribe:
the Reporting (a) When an entity should adjust its financial
Date
statements for events after the reporting date;
and
(b) The disclosures that an entity should give
about the date when the financial statements
were authorized for issue and about events after
the reporting date.
Accounting
Standards
IPSAS No.
Accounting
Objectives of the Standards
Standards on
IPSAS 15
Financial
Instruments:
Disclosure and
Presentation
he objective of this Standard is to enhance
financial statement users’ understanding of the
significance of on-balance-sheet and off-balancesheet financial instruments to a government’s or
other public sector entity’s financial position,
performance and cash flows. In this Standard,
references to “balance sheet” in the context of
“on-balance- sheet” and “off-balance-sheet” have
the same meaning as “statement of financial
position.”
IPSAS 16
Investment
Property
The objective of this Standard is to prescribe the
accounting treatment for investment property and
related disclosure requirements
IPSAS 17
Property, Plant The principal issues in accounting for property,
and
plant and equipment are the timing of recognition
Investment
of the assets, the determination of their carrying
amounts and the depreciation charges to be
recognized in relation to them.
Accountin
g
Standards
IPSAS No.
Accountin
g
Standard
s on
Objectives of the Standards
IPSAS 18
Segment
Reporting
The objective of this Standard is to establish principles
for reporting financial information by segments. The disclosure
of this information will:
(a) Help users of the financial statements to better understand
the entity’s past performance and to identify the resources
allocated to support the major activities of the entity; and
(b) Enhance the transparency of financial reporting and enable
the entity to better discharge its accountability obligations.
IPSAS 19
Provisions,
Contingent
Liabilities
and
Contingent
Assets
The objective of this Standard is to define provisions, contingent
liabilities and contingent assets, identify the circumstances in
which provisions should be recognized, how they should be
measured and the disclosures that should be made about them.
IPSAS 20
Related
Party
Disclosures
The objective of this Standard is to require the disclosure of the
existence of related party relationships where control exists and
the disclosure of information about transactions between the
entity and its related parties in certain circumstances.
(b) Cash Basis IPSAS
Section
Accounting
Standards on
Objectives of the Standards
PART 1
REQUIREMENT The purpose of this Standard is to prescribe the
manner in which general purpose financial
statements should be presented under the cash
basis of accounting..
1.1
Scope of the
requirement
An entity which prepares and presents financial
statements under the cash basis of accounting, as
defined in this Standard, should apply the
requirements of Part 1 of this Standard in the
presentation of its general purpose annual financial
statements
1.2
Cash Basis
The cash basis of accounting recognizes
transactions and events only when cash (including
cash equivalents) is received or paid by the entity.
Section
Accounting
Standards on
Objectives of the Standards
1.3
Presentation
and Disclosure
Requirement
The specific disclosure requirements of International
Public Sector Accounting Standards need not be met
if the resulting information is not material.
1.4
General
Consideration
It consists standards on
•Reporting Period
•Timeliness
•Authorization Date
•Information about the entity
•Restrictions on cash balances and access to
borrowings
1.5
Correction of
errors
When an error arises in relation to a cash balance
reported in the financial statements, the amount of
the error that relates to prior periods should be
reported by adjusting the cash at the beginning of
the period.
Section
Accounting
Standards on
Objectives of the Standards
1.6
Consolidated
Financial
Statements
consolidated financial statements which present financial
information about the economic entity as a single entity
without regard for the legal boundaries of the separate legal
entities.
1.7
Foreign
Currency
Governments and government entities may have transactions
in foreign currencies such as borrowing an amount of foreign
currency or purchasing goods and services where the
purchase price is designated as a foreign currency amount.
They may also have foreign operations and transfer cash to
and receive cash from those foreign operations. In order to
include foreign currency transactions and foreign operations
in financial statements the entity must express cash receipts,
payments and balances in reporting currency terms
1.8
Effective date
of Sections 1.1
to 1.7 of Part 1
and
Transitional
Sections 1 to 7 of Part 1 of this International Public Sector
Accounting Standard become effective for annual financial
statements covering periods beginning on or after 1 January
2004.
Provisions
Section
Accounting
Objectives of the Standards
Standards on
1.9
Presentation
of
Budget
Information
in Financial
Statements
An approved budget as defined by this Standard
reflects the anticipated revenues or receipts expected
to arise in the annual or multi-year budget period
based on current plans and the anticipated economic
conditions during that budget period, and expenses or
expenditures approved by a legislative body, being the
legislature or other relevant authority.
1.10
Recipients of
External
Assistance
The entity should disclose separately on the face of
the Statement of Cash Receipts and Payments, total
external assistance received in cash during the period.
PART 2
ENCOURAGE
D
ADDITIONAL
DISCLOSURE
S
It sets out encouraged additional disclosures for
reporting under the cash basis. It should be read
together with Part 1 of this Standard, which sets out
the requirements for reporting under the cash basis of
accounting.
Section
Accounting
Objectives of the Standards
Standards on
2.1.2
Future
Assets that are used to generate net cash inflows are
Economic
often described as embodying “future economic
Benefits and benefits”.
Service
Potential
2.1.3 to Going
2.1.5
Concern
When preparing the financial statements of an
entity, those responsible for the preparation of
the financial statements are encouraged to
make an assessment of the entity’s ability to
continue as a going concern
2.1.6 to Extraordinar
2.1.7
y items
An entity is encouraged to separately disclose the
nature and amount of each extraordinary item. The
disclosure may be made on the face of the statement
of cash receipts and payments, or in other financial
statements or in the notes to the financial statements
Section
Accounting
Objectives of the Standards
Standards on
2.1.8
Distinct from Whether an event or transaction is clearly distinct
ordinary
from the ordinary activities of the entity is determined
activities
by the nature of the event or transaction in relation to
the activities ordinarily carried on by the entity rather
than by the frequency with which such events are
expected to occur.
2.1.9
Not Expected
to Recur in
the
Foreseeable
Future
The event or transaction will be of a type that
would not reasonably be expected to recur in
the foreseeable future, taking into account the
environment in which the entity operates
2.1.10
Outside the
Control or
Influence of
the Entity
A transaction or event is presumed to be outside the
control or influence of an entity if the decisions or
determinations of the entity do not normally influence
the occurrence of that transaction or event.
Section
Accounting
Objectives of the Standards
Standards on
2.1.11
to
2.1.14
Identifying
Extraordinar
y Items
2.1.15
to
2.1.17
Administered An entity is encouraged to disclose in the notes to the
Transactions financial statements, the amount and nature of cash
flows and cash balances resulting from transactions
administered by the entity as an agent on behalf of
others where those amounts are outside the control of
the entity.
2.1.18
to
2.1.20
Revenue
Collection
Public sector entities may control cash or administer
cash receipts or payments on behalf of the
government or other governments or government
entities.
2.1.21
“Passthrough”
Cash Flows
Cash flows arising as a consequence of transactions as
administrative arrangements where government entity
undertakes as an agent of another party are
sometimes termed “pass-through” cash flows.
Whether or not an item is extraordinary will be
considered in the context of the entity’s operating
environment and the level of government within which
it operates.
Section
Accounting
Standards
on
Objectives of the Standards
2.1.22
Transfer
Payments
amounts appropriated to a government entity (a department,
agency or similar) may include amounts to be transferred to third
parties in respect of, for example, unemployment benefits, age
or invalid pensions, family allowances and other social security
and community benefit payments. Where this occurs, the entity
will recognize the cash appropriated for transfer during the
reporting period as a cash receipt, the amounts transferred
during that reporting period as a cash payment and any amounts
held at the end of the reporting period for transfer in the future
as part of closing balance of cash.
2.1.23 to
2.1.30
Disclosure of An entity is encouraged to disclose, either on the face of the
Major Classes statement of cash receipts and payments or other financial
of Cash Flows statements or in the notes to those statements: (a) an analysis
of total cash payments and payments by third parties using a
classification based on either the nature of the payments or their
function within the entity, as appropriate; and (b) proceeds from
borrowings. In addition, the amount of borrowings may be
further classified into type and source
2.1.31 to
2.1.32
Related Party
Disclosures
An entity is encouraged to disclose in the notes to the financial
statements information required by IPSAS 20 Related Party
Disclosures
Section
Accounting
Standards
on
Objectives of the Standards
2.1.33 to Disclosure
An entity is encouraged to disclose in the notes to the financial
2.1.35
of
Assets, statements: (a) information about the assets and liabilities of the
Liabilities
entity; and (b) if the entity does not make publicly available its
approved budget, a comparison with budgets
2.1.36
2.1.40
Comparison
with
Budgets
Public sector entities are typically subject to budgetary limits in the
form of appropriations or other budgetary authority which may be
given effect through authorizing legislation
2.1.41 to
2.1.43
Consolidate
d Financial
Statements
An entity is encouraged to disclose in the notes to the financial
statements:
(a) the proportion of ownership interest in controlled entities and,
where that interest is in the form of shares, the proportion of voting
power held (only where this is different from the proportionate
ownership interest); (b) where applicable:
(i) the name of any controlled entity in which the controlling entity
holds an ownership interest and/or voting rights of 50% or less,
together with an explanation of how control exists; and
(ii) the name of any entity in which an ownership interest of more than
50% is held but which is not a controlled entity, together with an
explanation of why control does not exist; and
(c) in the controlling entity’s separate financial statements, a
description of the method used to account for controlled entities.
Section
Accountin
g
Standards
on
Objectives of the Standards
2.1.44
to
2.1.48
Acquisitions
and
Disposals of
Controlled
Entities and
Other
Operating
Units
An entity is encouraged to disclose and present separately
the aggregate cash flows arising from acquisitions and
from disposals of controlled entities or other operating
units.
2.1.49
to
2.1.50
Joint
Ventures
An entity is encouraged to make disclosures about joint
ventures which are necessary for a fair presentation of the
cash receipts and payments of the entity during the period
and the balances of cash as at reporting date
2.1.51t Financial
o 2.1.52 Reporting
in
Hyperinfla
tionary
Economies
In a hyperinflationary economy, the presentation of the
financial statements in the local currency without
restatement is not useful.
Section
Accounting
Standards on
Objectives of the Standards
2.1.53 to The
2.1.58
Restatement
of Financial
Statements
An entity that reports in the currency of a hyperinflationary economy is
encouraged to:
(a) restate its statement of cash receipts and payments and other
financial statements in terms of the measuring unit current at the
reporting date;
(b) restate the comparative information for the previous period, and
any information in respect of earlier periods in terms of the measuring
unit current at the reporting date; and
(c) use a general price index that reflects changes in general
purchasing power. It is preferable that all entities that report in the
currency of the same economy use the same index
2.1.59
Comparative
Information
If comparisons with previous periods are to be meaningful,
comparative information for the previous reporting period will be
restated by applying a general price index so that the comparative
financial statements are presented in terms of the measurement unit
current at the end of the reporting period.
2.1.60 to
2.1.61
Consolidated
Financial
Statements
If the statement of cash receipts and payments and other financial
statements are to be prepared on a consistent basis, the financial
statements of any such controlled entity will be restated by applying a
general price index of the country in whose currency it reports before
they are included in the consolidated financial statements issued by its
controlling entity.
Section
Accounting
Standards on
2.1.62 to Selection
2.1.63
and Use of
the General
Price Index
Objectives of the Standards
The restatement of financial statements in accordance with the
approach encouraged by this Standard requires the use of a
general price index that reflects changes in general purchasing
power. It is preferable that all entities that report in the currency
of the same economy use the same index.
2.1.64 to
2.1.65
Assistance
Received
From NonGovernment
al
Organization
s (NGOs)
Where practicable, an entity is encouraged to apply to assistance
received from non-governmental organizations (NGOs), the
required disclosures identified in paragraphs 1.10.1 to 1.10.27 of
Part 1 of this Standard and the encouraged disclosures identified
in paragraphs 2.1.66 to 2.1.93.
2.1.66 to
2.1.93
Recipients
of External
Assistance
An entity is encouraged to disclose by significant class in notes to
the financial statements:
(a) the purposes for which external assistance was received during
the reporting period, showing separately amounts provided by way
of loans and grants; and
(b) the purposes for which external assistance payments were
made during the reporting period
Section
Accounting
Standards on
2.2
Objectives of the Standards
Governments and Other Public Sector Entities Intending to
Migrate to the Accrual Basis of Accounting
2.2.1 to
2.2.2
Presentatio
n of the
Statement
of Cash
Receipts
and
Payments
An entity which intends to migrate to the accrual basis of
accounting is encouraged to present a statement of cash receipts
and payments in the same format as that required by International
Public Sector Accounting Standard IPSAS 2 Cash Flow Statements.
2.2.3 to
2.2.6
Scope
of
Consolidate
d
Statements
– Exclusions
from
the
Economic
Entity
When an entity adopts the accrual basis of accounting in
accordance with the accrual IPSASs, it will not consolidate entities
in which control is intended to be temporary because the
controlled entity is acquired and held exclusively with a view to its
subsequent disposal in the near future.
Temporary control may occur where, for example, a national
government intends to transfer its interest in a controlled entity to
a local government.
REVISITING ACCOUNTING FRAMEWORK:
International efforts on Standard setting:
(1) In 1980’s INTOSAI emphasized standard setting for governments and
in early 1990’s INTOSAI’s Accounting Standards Committee issued
“Accounting Standards Framework”.
(2) Similarly several national governments set up accounting standard
boards/ committees
(3) IFAC- Public Sector Committee takes lead in issuing IPSAS (Cash
based and Accrual basis)
(4) IMF issued Government Financial Standards (GFS) laying down
statistical reporting standards for governments
(5) In USA, FASAB (Federal Accounting Standard Advisory Board) framed
SFFAS (Statement of Federal Financial Accounting Standards),
GASAB(Governmental Accounting Standard Board) (State & Local as
well as agencies)
(6) In Canada, CICA’s (Canadian Institute of Chartered Accountant) &
FSAB sets standards for government.
(7) In Australia and New Zealand, AASB( Australian Accounting Standard
Boards) framed FRS.( Financial Reporting Standards)
(8) In India:
(i) Report of Admn. Reform commission on Accounts and Audit (1968).
(ii)Multi-tier Classification System introduced (A.K.Mukherjee Committee)
(iii) Management Accounting at the Union Government ( 1976 Budget
speech of the Finance Minister)
(iv) Departmentalization scheme of Union Government introduced in
1976.
(v) Financial Advisory Unit (FA System) introduced in 1980.
(vi) Classification system rationalized (R.C.Ghai Committee) in 1987
(vii) EAS Sarma Committee report on FRBM in 2000
(viii) Ahuwalia Committee, 2004 (RBI) on
Medium term fiscal policy ( 3 year rolling target – receipts, payments,
borrowing etc)
Fiscal Policy Strategy Statement (Taxation, Borrowings, Pricing,
Guarantees, Subsidy etc.)
Macro economic framework statement (GDF, Fiscal balance, BOP etc)
(ix) Lahiri Committee (2004) introduced Multidimensional classification) on
functional and economic classification
(x) Twelfth Finance Commission (TFC) recommends Accrual Accounting.
(xi) New GFR (General Financial Rules) was introduced in 2005.
The Twelfth Finance Commission TFC (2004) – Transition to
Accrual Based Accounting and formation of GASAB:
1. The Twelfth Finance Commission (TFC) recommended Accrual
Accounting for the Union and the State Governments. The Central
Government has accepted the recommendation in Principle. At the
same time, TFC recognized that transition to accrual based accounting
is a time consuming process and suggested changeover only in
medium term.
2. In the Interim period, TFC suggested to add some additional
information to the present system of accounting to enable more
informed decision making. TFC has suggested standardization of
accounting classification upto object head level for all States to
improve fiscal management. Additional eight statements relating to
subsidies, expenditure on salaries, expenditure on pensions, committed
liabilities, maintenance expenditure, segregation of salary and nonsalary portions and liabilities and repayment schedule on outstanding
debts. The TFC has also suggested that definition of revenue and fiscal
deficits be standardized.
3. Accepting the recommendations in Principle, the GASAB in the office of
the C&AG (2002) was set up to recommend an operational framework
and detailed roadmap for its implementation. Apart from the Central
Government, so far 23 State Governments have accepted the idea of
accrual accounting in principle.
The Twelfth Finance Commission TFC (2004) – Transition to
Accrual Based Accounting and formation of GASAB: (cont…)
4. There are two fold mandate of GASAB:
(i) To establish and improve standards of governmental
accounting and financial reporting and formulate and
propose standards that improve the usefulness of financial
reports based on the needs of the users.
(ii) Since the principles of accrual accounting being followed
in commercial entities cannot be transposed in their
entirely in Government accounting, GASAB was entrusted
with preparation of a Roadmap for transition to Accrual
Accounting System and Operational Framework of such a
system that will prevail in Government.
The Twelfth Finance Commission TFC (2004) – Transition to
Accrual Based Accounting and formation of GASAB: (cont…)
5. The Operational Framework developed / to be improved by
GASAB would detailed out the broad accounting heads and
treatment of transactions relating to:
Revenues and Expenditure Accounting
Fixed Assets Accounting
Long term Liability Accounting.
Accounting for current Assets and Liabilities
Accounting for period costs – Interest and Depreciation.
Non-financial and Contingent Liabilities.
6. The design of framework suggested by GASAB indicates broad
deviations from the conventional basis of accrual accounting due
specific requirements emerging from the nature of transitions of
the Government. The framework for transition spread over
across five stages depending upon the recognition on accrual
basis given to – expenses, revenue, assets and liabilities at
different point of time.
A broad framework for transition to the accrual accounting is
as under:
Stages
Expenses
Revenues
Assets
Liabilities
Contingent
Liabilities
Current Stage ExpCurrent and
Capital
Receipts
Financial
Assets
Stock of Public Debt
and Borrowings on
Public Account
Guarantees
Stage I
Receipts
Financial
Assets
Stock of Public debt
and Borrowing on
Public Account +
Payables
Guarantees
Current
Expense on
accrual
basis and
Capital
Expenditure
on cash
basis
Stages
Expenses
Revenues
Assets
Liabilities
Continge
nt
Liabilitie
s
Stage II
Current
Expenses on
Accrual
basis and
Capital
Expenditur
e on Cash
Basis (
Excluding
Expenditur
e on
Military
Assets)
Non Tax
Revenues
on
Accrual
Basis
+
Receivables
+
Tax
Revenue
on Cash
Basis
Financial
Assets
+
Receivable
s
+
Military
Assets
Stock of Public Debt
and Borrowing on
Public Account
+
Payables
+
All other Liabilities
(Except Superannuation
benefits. Compensated
leaves, provisions and
social security)
Guarantee
s
Stage III
All expenses
on accrual
basis
+
Depreciatio
n
---do---
All Assets
All liabilities (except
super- annuation
benefits,
compensated leaves,
provisions and social
security)
All
explicit
continge
nt
liabilities
(Excluding
infrastructure,
land, heritage,
intangible assets)
Stages
Expenses
Revenues
Assets
Liabilities
Continge
nt
Liabilitie
s
Stage IV
All expenses
on accrual
basis
+
Depreciation
+
Provisions
Non Tax
Revenues on
Accrual
Basis
+
Receivables
+
Tax Revenue
on Cash Basis
All Assets
including
infrastructur
e and land
(excluding
heritage and
intangible)
All Assets
including
infrastructure
and land
(excluding
heritage and
intangible)
All
explicit
continge
nt
liabilities
Stage V
All
Expenses
All Revenues All Assets
on accrual
basis
All Liabilities
All
explicit
continge
nt
liabilities
7. Transition through these stages is likely to happen at
varying pace in different departments of government
entities. GASAB suggests that Stage I depicted in Table
above should be the starting point for introduction of
accrual basis of accounting in Governments. Accounting
reforms should incrementally graduate to Stage V, which
represents full accrual accounting. It is, however, noted
that there could be certain entities within the Government,
e.g. the Railways, which may like to straightaway adopt full
accrual due to their preparedness and nature of activities
(i) Stage-I introduces accrual based recognition
principle for current expenses. Capital expenditures, as
well as all revenues, will continue to be accounted for on
cash basis as at present. Recognition of current expenses
on accrual basis would lead to recognition of payables,
which will be shown as a liability.
(ii) Stage-II introduces accrual recognition of non-tax
revenues. Tax revenues will continue to be recognized on cash
basis. Recognition of non-tax revenues on accrual basis would
lead to recognition of receivables, which will be included in
assets. Military assets will also be recognized on accrual basis at
this stage and included in assets shown in the Statement of
Financial Position. The remaining capital expenditure will
continue to be shown on cash basis. Another change would be
inclusion of all other liabilities except those on account of
superannuation benefits, compensated leaves, provisions and
social security
(iii) Stage-III requires recognition of all expenses on
accrual basis including recognition of depreciation. No
provisions will be recognized at this stage. Assets recognized
at this stage on accrual basis would include all financial
and
physical
assets
[with
the
exception
of
infrastructure, land, heritage, and intangibles] and
inventories. Tax Revenue continues to be recognized on cash
basis. There is no change in terms of liability over Stage-II.
Disclosure of all explicit contingent liability is made.
(iv) Stage IV requires inclusion of provisions as expense
and extension of physical assets to cover infrastructure
and land on accrual basis. Other elements are same as
that in the previous stage.
(v) Stage V is introduction of full accrual accounting for all
the four elements – expense, revenues, assets and
liabilities. All expenses, all revenues, all assets and all liabilities
are recognized on accrual principles and presented.
(8) In the Road Map, the proposed transition was envisaged in
three stages namely
(i) Value addition within the existing system by additional
statements – short term activity;
(ii) Value addition in the existing system with minor modifications
to enable greater disclosures such as arrears in revenue,
committed liabilities, etc. This is a medium term activity; and
(iii) Achieving the desired accounting system in the long-term
based on accrual system.
Note: Other modalities of Road Map have already been discussed in
Session III.
(9) As the Operational Framework provides the overall architecture of the
accounting model, these guidelines also aim at laying down the principles
for recognition and measurement for General Purpose Financial Reporting
(GPFR).
(i) Objectives of General Purpose Financial Reporting:
Provide financial information about the reporting entity which would be
useful in making decisions about providing resources to the entity and in
assessing whether the government has made efficient and effective use
of the resources.
Make financial reporting more transparent.
Improve understandability of financial statement by users.
Make financial statements more relevant.
Improve performance reporting in keeping with Results Framework
Document (RFD)
(ii) Components of GPFR:
GPFS + MDA = GPFR
GPFS : General Purpose Financial Statements
(a) The Conceptual Framework of International Accounting Standards
(IPSAS)
• On General Purpose Financial Statements (GPFS) provides guidance for
the structure and minimum requirement for the contents of financial
statements prepared under accrual basis of accounting.
(i)
The complete set of financial statements, keeping in view the
requirement as prescribed by the Government of India, may include the
following statements:
GPFS
Statement
of
Financial
Position
MDA
Statement
of
Financial
Performan
ce
Statement
of
changes in
Net Assets
Cash
Flow
Stateme
nts
Appropriation
Account
s
: Management and Discussion Analysis
Accoun
ting
Policies
and
Notes
to the
Financi
al
Statem
ents
A management report commenting on financial statements highlighting
key performance indicators
• To be signed by the Chief Accounting Authority as prescribed in GFR 64
(ii) For a complete set of General Purpose Financial Reporting (GPFR),
Management Discussion and Analysis report is essential.
(iii) Statement of Financial Position: The Statement of Financial
Position exhibits the balance of assets and liabilities as on a particular
date. The assets and liabilities may be further classified into current
and non current categories. Statement of Financial Position must
include the following:
• Assets – This should include all physical and financial assets, cash and
cash equivalents, investment, inventories, receivables from exchange
and non exchange transactions, capital work in progress.
• Liabilities – This should include all debts and borrowings of the
government, payables, and benefits payables to employees.
• The progressive total of capital expenditure available in Finance
Accounts should reconcile with lump sum figure in the Statement of
Financial Position after making adjustment for valuation of historical
assets.
•
(iv) Statement of Financial Performance: The Statement
of Financial Performance exhibits the revenue and
expenses for an accounting period and the excess/deficit of
revenue over expenses. The Statement of Financial
Performance must include the following:
• Revenue from exchange transactions
• Revenue from non exchange transactions
• Expenditure by function and nature.
• Surplus/Deficit
• Appropriation to earmarked funds
• Cost of borrowings
(v) Statement of Changes in Net Assets: The Statement
of Changes in Net Assets represents the changes between
two reporting dates reflecting the increase or decrease in
its assets during the period.
(vi) Cash Flow Statements
The Cash Flow Statement should provide cash flows during the
period classifying them into operating, investing and financing
activities.
1. Cash flows from operating activities are primarily derived from
the principal cash-generating activities. This includes cash
receipts from taxes, from non-tax revenues, cash payments to
suppliers/contractors, grants in aid received or given.
2. Cash flows from investing activities are derived from acquisition
and disposal of long term assets and other investments not
included in cash equivalents. This includes cash payments to
acquire or construct property, cash advances and loans made,
etc.
3. Cash flow from financing activities represents the changes in the
size and composition of the contributed capital and borrowings.
(vii) Appropriation Accounts
As part of GPFS, Appropriation Accounts would continue to reflect
1. Comparison of budget with actual
2. Original with final budget
3. Detailed reason for variations of actual with final budget
(viii) Accounting Policies and notes to the Financial
Statements:
1. Accounting policies, rules and practices applied by an
entity in preparing and presenting financial statements be
stated
2. Use of reasonable estimates and valuation methods for
assets and liabilities be stated
3. Stages and period of transition be stated
(b) Various stages of Operational Framework highlight
maintenance and recognition of Assets and Liabilities,
recognition principles for Current Expenses and Receipts
new head 'Payables', Revenue receipts and new head
'Receivables'.
(ii) Provision for depreciation:
1. Provision of depreciation should be made by allocating the value of
assets category wise.
2. Capital assets may be depreciated over their estimated useful lives
unless they are either inexhaustible or infrastructure assets.
3. The provision should be estimated on a realistic basis and only revised
where justified in the light of further experience.
4. The provision of depreciation should be made each year and put away
in a sinking fund.
5. As is the accepted principle, land is not depreciated.
(iii) Liabilities:
1.The first step towards accrual based accounting system is identification
and categorization of liabilities into distinct groups eg. short term, long
term and contingent liabilities.
2. Guarantees should be disclosed in accordance with Indian Government
Accounting Standard (IGAS 1) on 'Guarantees given by Governments:
a disclosure requirement' notified by Government of India in December
2010.
3. Accounting and classification of Grants-in-Aid should be disclosed in
accordance with Indian Government Accounting Standard (IGAS 2)
notified by Government in May 2011
4. Liabilities of the Government including Stock of
Public Debt and Borrowings on Public Account and
Liabilities on account of superannuation benefits,
compensated leave, provisions and social security
are to be provided for on accrual basis.
5.
Recognition
of
expenses
relating
to
superannuation benefits, compensated leaves,
provisions and social security may be taken after
actuarial valuation.
6. Contingent liabilities other than guarantees,
Claims made by third parties against the
Government should also be disclosed.
(iv) Recognition of all expenses and payables:
Recognition of all expenses on accrual basis would
lead to recognition of payables, which will be
shown as a liability.
(c) The following table shows the accounting treatment and
measurement to be followed in case of common expenses.
Item of
Expenditure
Realization Measure
Criteria
ment
Recommended basis of
Accounting (Accrual)
Salaries,
Wages,
Dearness Allowance,
Traveling Allowance,
office expenses, etc
Obligation
Agreed
established in amount
the period of
utilization of
service
Full cost should be charged to the
accounts of the relevant period e.g.'
within the period in which the
employees work. Material amounts
earned but unpaid at the end of the
period should be accrued and placed
under the head payables
Interest
Obligation
established at
the time of
entering into
the loan
agreement.
Liability to be recognized periodically on
the due date for payment. Expense
recognition to be in the period for
which it is charged under the head
payable, regardless of when the
payment is made.
Multiple of
loan value,
period, and
rate of
interest
Item of
Expenditure
Realization Measure
Criteria
ment
Recommended basis of
Accounting (Accrual)
Contribution to PF
and
defined
contribution
to
Superanuation
Funds
Obligation
Agreed
established
amount
when
an
employee
enters service
To be accounted on accrual basis.
Gratuity and
Superanuation
liabilities
Obligation
established
when an
employee
enters service
To be
determined
on the
basis of
actuarial
valuation
To be accounted to the extent of
contribution made to recognized funds
– accrual basis
Leave encashment
benefit
Obligation
established
when an
employee
enters service
To be
determined
based on
service
rules
To be accounted when it is due- accrual
basis (except when leave encashment
is permitted within the reporting
period)
The following table shows the accounting treatment and measurement to
be followed in case of common expenses.
Item of
Expendit
ure
Realization
Criteria
Measureme Recommended basis of Accounting
nt
(Accrual)
Rents
Right to charge rent
established at the
time of entering into
agreement,
realizable on due
date for payment of
rent.
Agreed
amount
To be accounted for in the accounting
period to which it is realizable – Accrual
basis. If rent becomes overdue, income
should be recognized and a provision
should be made.
Hire
charges
of
machiner
y
Right established at
the time of entering
the contract
Agreed
amount
To be accrued and accounted for in the
accounting period to which it relates –
accrual basis
Interest
Realizable on the
due dates for the
interest payment
Function of
loan value,
period and
rate of
interest
Interest income to be accounted on
accrual basis on the due dates. If interest
becomes overdue, income should be
recognized & provided for.
Note: revenue from taxes, Stamps and registration, at this satge , is
recommended on cash basis for conservative approach so as not to inflate
revenue.
(e) The Way Forward:
(i) 1st Phase: (2011-12 to 2012-13)
• Formation of an apex body at Ministry of Finance level with representation
from key stakeholders at Union and State level for coordination, monitoring,
decision making and overseeing implementation issues
• Formation of task based groups in each entity to initiate the transition process
in a time bound manner
• Revision of Chart of Accounts to integrate accrual accounting needs
• Development of an IT enabled Integrated Financial Management System
• Centrally Sponsored Scheme for Treasury Modernization issued by MoF
mention developing of an Accounts Module and budget module. The benefits
of these modules can be greatly enhanced to include revision in account code
classification/ chart of accounts, building into it features of asset management,
liabilities and other key features of accrual accounting.
• Capacity building in terms of human resources
• Identification and consolidation of assets category wise at DDO level
• Valuation of all assets except historical assets
• Valuation of asset with historical cost after determination of a cut off date to
ensure no backlog accumulates
• Identification of liability and their valuation
(ii) 2nd Phase (2013-14 to 2014-15)
Valuation of historical assets
Provision of depreciation
Recognition of all expenses and payables
Recognition of revenues and receivables
(iii) 3rd Phase- Preparation of Statements of General
Purpose Financial Reporting (GPFS) including the
following (2015 onwards)
Statement of Financial Position
Statement of Financial Performance
Statement of Changes in assets/liabilities
Cash flow Statements
Appropriation Accounts
Accounting policies and Notes to the Financial Statements
Management and Discussion Analysis
(iv) Indian Government Accounting Standards (IGASs) and Indian
Government Financial Reporting Standard (IGFRS) so far notified/under
consideration of GOI/approved/proposed by GASAB :
Standar
ds
Standard on:
Notified/pre
pared/draft
stage
Objective of the standards
IGAS 1
“Guarantees given by
Governments:
Disclosure
Requirements” relating
to the form of accounts
of the Union, States
and Union Territory
Governments
(with
legislatures)
Notified on
20th
December
2010
The objective of this standard is to set
out disclosure norms in respect of
Guarantees given by the Union, the
State Governments and Union Territory
Governments (with legislature) in their
respective Financial Statements to
ensure
uniform
and
complete
disclosure of such Guarantees.
IGAS 2
Accounting
and Prepared &
classification of Grants- notified by
in -Aid
GOI
To prescribe the principles for
accounting and classification
of
Grants-in-aid
in
the
Financial
Statements of the Government both as
a grantor as well as grantee. And their
appropriate disclosure.
Standar
ds
Standard on:
Notified/prepar
ed/draft stage
Objective of the standards
IGAS 3
Cash
Flow Under
Statements
consideration of
Government of
India for
notification
To provide information about the historical
changes in cash and cash equivalents of
the Government by means of a cash flow
statement, which classifies cash flows
during the period into operating, investing
and financing activities.
IGAS 4
General
Under
Purpose
consideration of
Financial
Government of
Statements of India for
Governments
notification
•To
lay down the principles to be followed
in presentation of general purpose
financial reports of Governments and to
prescribe the minimum requirements
relating to structure and contents of
financial statements of government
prepared under cash basis of accounting.
•General Purpose Financial Statements
(GPFS) essentially consists of Finance
Accounts and Appropriation Accounts. The
Financial Statements referred to in this
standard are the General Purpose
Financial Reports (GPFR).
Standar
ds
Standard on:
Notified/prepar
ed/draft stage
IGAS 5
Loans
and
Advances Made
by
Governments
Under
consideration
Government
India
notification
IGAS 6
Under preparation by GASAB
IGAS 7
Foreign
Currency
transactions
and Loss or
Gain
by
Exchange Rate
Variation
Under
consideration
Government
India
notification
Objective of the standards
To lay down the norms for Recognition,
of Measurement, Valuation and Reporting in
of respect of Loans and Advances made by
for the Union and the State Governments in
their respective Financial Statements to
ensure complete, accurate, realistic and
uniform accounting practices, and to
ensure adequate disclosure on Loans and
Advances made by the Governments
consistent
with
best
international
practices.
The objective of this standard is to
of provide
accounting
and
disclosure
of requirements
of
foreign
currency
for transactions and financial effects of
exchange rate variations in terms of loss
or gain in the financial statements. It also
deals with the requirements of disclosure
of foreign currency external debts and the
rate applied for disclosure
Standar
ds
Standard on:
Notified/prepar
ed/draft stage
Objective of the standards
IGAS 8
Contingent
Proposed
Liabilities (other
than
Guarantees) and
Contingent
Assets:
Disclosure
Requirements
The objective of the proposed IGAS on the
subject is to lay down the principles for
disclosure requirements of Contingent
Liabilities (other than guarantees) and
Continent Assets of both the Union and the
State
Governments
including
Union
Territories with Legislatures, in their
respective Financial Statements in order to
ensure uniform and appropriate disclosure of
such liabilities and assets.
IGAS 9
‘Government
Investment in
Equity’
Proposed
The objective of the Standard is to lay down
the norms for Recognition, Measurement and
Reporting in respect of Investments made by
the
Union
Government,
the
State
Governments and Governments of Union
Territories with Legislatures in their
respective
IGAS 10
Public Debt and
other Liabilities
of Governments:
Disclosure
Requirements
Under consideration
of Government of
India for
notification
To lay down the principles for identification,
measurement and disclosure of public debt
and other obligation of Union and the State
Governments including Union Territories with
legislatures in their respective financial
statements.
Indian Government Financial Reporting Standards (IGFRS)
Standar
ds
Standard
on:
Notified/p
repared/d
raft stage
Objective of the standards
IGFRS
Inventories
Proposed
To prescribe the accounting treatment for inventories.
This standard aims at using accrual principles of
accounting for Inventories – both at the stage of
charging as expenditure and depicting the closing
stocks in the financial statements at the end of
reporting period.
IGFRS 2
Property,
Plant and
Equipment
Prepared
To prescribe the accounting treatment for property,
plant and equipment (PPE) so that users of financial
statements can obtain information regarding an
entity’s investment in its property, plant and
equipment and any changes in such investment.
IGFRS
Revenue
Proposed
from
Exchange
Transaction
s
This standard lays down the principles to be followed
for recognition of revenue by Governments under
accrual basis accounting. This standard excludes from
its scope revenue recognition principles relating to
specific items (eg: Income from sale of Plant,
Property and equipment) which are covered in other
standards.