INDIAN GOVERNMENT ACCOUNTING STANDARDS-4
18th March, 2023 Economy
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- To check wrong accounting methods followed by most States to record adjustments for errors made in past years’ accounts, the government has notified a new accounting standard for States and Union territories.
Indian Government Accounting Standards (IGAS and IGFRS)
- Government accounting in India follows cash basis of accounting.
- Indian Government Accounting Standards (IGAS) are formulated by the GASAB (Govt. Accounting Standards Advisory Board). These standards are for cash system of accounting and become mandatory from the effective date after their notification by Ministry of Finance, Govt. of India.
- Under the cash system of accounting followed for government accounts, there are no rules for States for dealing with prior period adjustments to rectify errors and adjust financial statements for earlier years whose accounts have been closed.
- In a study of various Finance Accounts of States, it was observed that the majority of the States are not taking cognizance of Prior Period Adjustments in their accounts or following a wrong practice of passing transfer entries to correct Prior Period Adjustments.
- The new standard not only aims to disclose such information which pertains to prior period errors but also covers entries requiring Prior Period Adjustments arising out of changes in government decisions that may impact current balances and progressive amounts during the earlier years for which accounts have been closed. This new norm is called the Indian Government Accounting Standards-4.
- Under the new norms, defaults of loans and grants-in-aid shall not be included in its ambit. It is only a process for rectification or adjustment of financial statements of prior periods.
- Government Accounting Standards Advisory Board (GASAB) constituted by the Comptroller and Auditor General of India with support of Government of India has been working on migration to accrual basis of accounting in Union and States.
- Any decision to change the basis of accounting from cash to accrual would essentially be based on a decision of the President of India on the advise of Comptroller and Auditor General of India under Constitutional provisions.
- The accrual basis standards are issued under the title ‘Indian Government Financial Reporting Standards (IGFRSs)’.
- Experts say that the government should completely switch from an accounting system that is based on cash transactions to an accounting system that is based on accruals, just like the United States, the United Kingdom, France, Canada, Australia, and New Zealand, etc., etc.
- Additionally, the government should hire more number of Chartered Accountants and Cost Accountants for positions in the Indian Civil Accounts Organsations, the Indian Audit and Accounts Services, the Defence audit and accounts services, the Postal and Railway services, and other organised audit and accounts services.
MAINS PRACTICE QUESTION
Q. The government should completely switch from an accounting system that is based on cash transactions to an accounting system that is based on accruals. Comment.