Indian Railways Right on Track for Accrual Accounting

CA Naveen N D Gupta, Atul Kumar Gupta | April 20, 2018 |

Governments across the globe are placing greater emphasis on the efficiency and transparency in public spending for the ultimate good of the end-user. The accountancy profession has been and will continue to be pivotal in this respect of financial probity. Professional accountancy organizations (PAOs), that can effectively support government agencies in realizing these objectives, continue to be essential in the pursuit of fiscal prudence.

Accrual-basis International Public Sector Accounting Standards (IPSAS), as issued by the International Public Sector Accounting Standards Board (IPSASB), are the global benchmark for public sector accounting. The IPSASB notes that often-times governments that report only on cash basis do not account for significant liabilities, such as employee pensions and loans and assets such as property, plant and equipment and investments. Accrual-basis accounting takes these factors into consideration and results in a more comprehensive and accurate view of a government’s financial position. Adoption and implementation of the accrual-basis standards are often a significant challenge as these initiatives require stakeholder buy-in, trained public sector accountants, and IT and infrastructure set-up. However, these same areas are often where PAOs are well-positioned to provide assistance and strengthen public financial management systems.

The Indian government is aware of the importance of public financial management reform and necessary guidelines in this regard were been issued by the Ministry of Finance, Government of India. Subsequently, many departments and ministries took steps to initiate accounting reforms in their respective organizations; however, some were able to advance rapdily in this area such as the Ministry of Railways (MoR). For example, Indian Railways (IR)—the lifeline of India—initiated one of the most sought after projects of converting cash basis accounting into accrual based accounting in public sector with an approach to achieve “outcome budgeting”.

The MoR engaged with the Accounting Research Foundation (ARF) of the Institute of Chartered Accountants of India (ICAI)—the national PAO and accountancy regulator—to prepare a management information system (MIS) to support the implementation of accrual-basis accounting. The ICAI—ARF is a core research body in the areas of accounting, auditing, capital markets, fiscal policies, monetary policies and other related disciplines and was well-suited to successfully carry out pilot phases to introduce accrual-basis accounting in the North Western (Zonal) Railway system and at the Rail Coach Factory, Kapurthala. During this pilot phase, the ICAI—ARF collaborated with experts from the profession and senior IR officials to ensure that financial statements were prepared in accordance with the IPSAS as well as legally mandated accounting principles and standards issued by ICAI. The collaboration ensured continued stakeholder buy-in and support and the successful pilot project has resulted in accrual-basis accounting systems being rolled out at the national level.

Simultaneously, ICAI—ARF also rolled out the Accrual Accounting Implementation Manual for Indian Railways as per the pilot study carried out at North Western (Zonal) Railway in order to ensure future capacity building, sustainability of the reforms, and further knowledge-sharing. As part of this initiative, ICAI—ARF has trained more than 5,000 Railway Officers. This implementation manual may be used as a template for all public sector accountants and could have a wider impact and application—both within India as well as globally for other PAOs that are seeking to support the adoption and implementation of IPSAS as part of fulfilling IFAC’s Statement of Membership Obligation 5.

Given that the IR tracks cover massive amounts of India’s territory, the roll-out of accrual-basis accounting across IR means carrying out conversion processes at 16 Zonal Railways comprising of 67 divisions. To tackle this, ICAI—AFR is engaging with other institutes such as training institutions, research organizations, Railway Recruitment Boards, and specialized offices for purchase and projects in order to offer on-site trainings, webinars, and workshops.

Overall, it is expected that once the project is completed in 2018, IR will be able to analyze their finances, utilize resources efficiently, initiate more informed decision-making, and prioritize its investments. Ultimately, it is envisioned that IR will be able to include an outcome budget based on analyzing costs and the performance of services delivered. Accrual-basis accounting is but the first step to working in the public interest.

If you are interested to learn more about the project or seek more practical guidance, please contact the author or visit the ICAI’s website or ICAI ARF’s website.

Has your PAO led an initiative to strengthen public sector financial reporting? Let IFAC know—we would love to showcase your work in action!

CA Naveen N D Gupta

President ICAI and Chairman of ICAI-ARF

CA Naveen N D Gupta was elected President of ICAI in February 2018 after having served as Vice President.  CA Gupta is committed to the inclusive growth of the Indian accountancy profession with over 20 years of experience. Presently, he also serves as the Chairman of the ICAI-ARF and XBRL India and is a Technical Advisor on the SMP Committee of IFAC.

Atul Kumar Gupta

Central Council Member, ICAI and Director of ICAI—ARF

Atul Kumar Gupta is the Central Council Member of ICAI and Director of ICAI—ARF. He was the Project Mentor for the successful pilot phase of this project at North Western (Zonal) Railway system.

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