Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh

322 Pages·2010·4.34 MB·English

India- Journey to Government Accrual
Accounting

Research Study on
Piloting Accrual
Accounting in the
State of Andhra Pradesh

April, 2010

Government Accounting Standards Advisory Board (GASAB) Secretariat
Comptroller and Auditor General of India

Technical Assistance for the Study:

Deloitte Touché Tohmatsu India Private Limited
Disclaimer

The objective of this research is to assist in conducting accrual accounting pilots at the State
level and in one office each of the two identified Departments with the objective of
identifying the issues and lessons learned relating to transition to accrual accounting.
This is not a full-fledged exercise of implementation of accrual accounting at the State
Government level and cannot be construed as transition of the State of Andhra Pradesh to
accrual accounting. This is a step in the direction of creating better understanding on the
scale of activities involved in moving towards accrual accounting and the advantages
thereof.
The Annual Financial Statements prepared for the State and each of the pilot offices as part
of this study are only illustrative to signify the information availability from the current cash
basis of Finance Accounts. The filled in formats of Accrual AFS are an illustrative
presentation of the figures available in the existing Finance Accounts prepared on cash
basis. As this is only a research project in the nature of pilot, the data contained in these
statements should not be used as a basis for any decision or action.

Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
Table of Contents

Executive Summary ........................................................................................................... 1
1. Background ................................................................................................................ 1
1.1 The project ................................................................................................................ 1
1.2 Objective of this Research ...................................................................................... 1
2. Model Accrual Annual Financial Statements .................................................. 2
2.1 Approach and Methodology .................................................................................... 2
2.2 Study Findings and Analysis ................................................................................... 4
2.3 Conceptualised Model Annual Financial Statements under Accrual Basis .....14
2.4 Filled-in Accrual Annual Financial Statements ...................................................18
2.5 Gap Analysis .............................................................................................................18
3. Accrual Based Annual Financial Statements for Pilot Offices .................20
3.1 Approach and Methodology ...................................................................................20
3.2 District Tribal Welfare Office, Ranga Reddy District ..........................................22
3.3 Regional Transport Authority, Hyderabad ...........................................................30
4. Key Learning from this Study .............................................................................37
4.1 Learning on the existing system...........................................................................37
4.2 Learning from the Pilot Study ...............................................................................38
4.3 Learning on some key accounting issues ............................................................38
4.4 Learning on key implementation issues ..............................................................40
References ..........................................................................................................................42
LIST OF APPENDICES & ANNEXURES .........................................................................44
Appendix I: Overview of existing system at State level .................................................44
Appendix II: Study Analysis ................................................................................................44
Appendix III: Disclosure Requirement as per IPSAS ......................................................44
Appendix IV: Conceptualised Model Accrual AFS Formats .............................................44
Appendix V: Filled in Model Accrual AFS Formats for the State ....................................44
Appendix VI: Overview of the structure of the Department of Tribal Welfare ...........45
Appendix VII: Format for Data Collection .........................................................................45
Appendix VIII: Trial Balance and Worksheet of DTWO ..................................................45
Appendix IX: Accrual AFS for DTWO ..................................................................................45
Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
Appendix X: Overview of the structure of the Regional Transport Authority (RTA),
Hyderabad ..............................................................................................................................45
Appendix XI: Appendix VIII: Trial Balance and Worksheet of RTA ..............................45
Appendix XII: Accrual AFS for RTA ....................................................................................45

Table 1 - Methodology .................................................................................... 3
Table 2 - Government / Government Owned Entities .......................................... 5
Table 3 - Structure of Finance Accounts-Analysis ............................................... 6
Table 4 - Status of Accounting in other Countries ............................................. 13
Table 5 - Approach and Methodology .............................................................. 21
Table 6 - Details of Books and Records Maintained ........................................... 24
Table 7 - Details of Books and Records Maintained ........................................... 25
Table 8 - Recognition and Measurement of Identified Transactions ..................... 27
Table 9 - Details of Books and Records Maintained ........................................... 31
Table 10 - Identification and Classification of Transactions ................................ 32
Table 11 - Recognition and Measurement of Identified Transactions ................... 34

Exhibit 1 - Approach and Methodology .............................................................. 2
Exhibit 2 - Approach and Methodology ............................................................ 20
Exhibit 3 - Accrual Transaction Identification Framework ................................... 22
Exhibit 4 - Organisation Structure of DTWO, Ranga Reddy District ..................... 23
Exhibit 5 - Organisation Structure of RTA ........................................................ 30

Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
Acknowledgements

This project was initiated by CAG of India and implemented by Government Accounting
Standards Advisory Board (GASAB) Secretariat. The project is supported by the World Bank
and the technical assistance is provided by Deloitte Touché Tohmatsu India Pvt. Ltd.
(Deloitte).
This research is a joint and collaborative effort of the GASAB Secretariat, the World Bank,
office of Principal Accountant General-AP, Department of Tribal Welfare, and Transport
Department of State Government of Andhra Pradesh. The project team comprised of
officials of the GASAB, The World Bank and Deloitte. The core team comprised of the
following:
GASAB: R.S.Rangarajan, IAAS, Member Secretary, GASAB; Preeti Jha, IRAS, Principal
Director and G. Srinivas, IAAS, Director, GASAB (Coordinators for study from CAG);

World Bank: P K Subramanian, Lead Financial Management Specialist, South Asia Region;
Mohan Gopalakrishnan, Senior Financial Management Specialist, South Asia Region, Jesse
W. Huges, World Bank Consultant.

Deloitte: Kamlesh Mittal, Senior Director; Anil K Jain, Senior Director; Rajesh Aggarwal,
Director & Task Leader of this Project; R Prahlad, Manager; Amit Tiwari, Sr. Consultant; and
J Prabhakar (Associate).
This study was coordinated at the State level by the Office of Principal Accountant General
(Accounts & Entitlements), Andhra Pradesh. The project team would like to acknowledge
V.Ravindran, IAAS, Principal Accountant General (Accounts & Entitlements), Andhra Pradesh
for providing the overall guidance and valuable inputs. Anita Shah Akella, IAAS, Sr. Dy. AG
(Accounts & VLC), Andhra Pradesh for coordinating the study at the State level. Anusri Ray,
Sr. Accounts Officer, Office of Accountant General, Andhra Pradesh, and other officials of the
PAG office for being available to the project team for discussions and provision of records
and documents.
The project team would also like to acknowledge Vasudha Mishra, IAS, Secretary (IF),
Finance Department, Government of AP for her guidance and support.
The project team would like to acknowledge the following for the support and cooperation
extended during pilot study by the officials of the Department of Tribal Welfare and
Transport Department:
Department of Tribal Welfare: V.Ch. Veerabhadrudu, Additional Director, Department of
Tribal Welfare, Andhra Pradesh; Naveen Nicolas, District Tribal Welfare Officer, RangaReddy
District; Renukuntla Sudarshan, Superintendent
Transport Department: J. Raymond Peter, IAS, Transport Commissioner, Transport
Department, Andhra Pradesh; B. Venkateswarlu, Transport Commissioner, Transport
Department, Andhra Pradesh; K.N. Malleswara Rao, Chief Accounts Officer and Financial
Advisor, Transport Department, Andhra Pradesh.

Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
Abbreviations

AFS Annual Financial Statements
AG-AP Accountant General of Andhra Pradesh
C&AG Comptroller and Auditor General
CCO Chief Controlling Officer
CGA Controller General of Accounts
DDO Drawing and Disbursing Officer
DTTIPL Deloitte Touché Tohmatsu India Private Ltd.
DTO District Treasury Office
DTWO District Tribal Welfare Officer
GASAB Government Accounting Standards Advisory Board
GIA Grant in Aid
IFAC International Federation of Accountants
IGFRS Indian Government Financial Reporting Standards
IPSAS International Public Sector Accounting Standards
PAO Pay and Accounts Office
PD Personal Deposit
RBD Reserve Bank Deposit
RBI Reserve Bank of India
RTA Regional Transport Authority
Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
Executive Summary

The Twelfth Finance Commission (TFC) has recommended adoption of accrual accounting for
the Union and the State Governments. The Central Government has accepted the
recommendation in principle. In its explanatory memorandum to the Parliament on the
Action Taken on the recommendations of the TFC, Government of India has accepted, in
principle, the recommendation to move towards accrual accounting and entrusted the job of
drawing up a roadmap and operational framework to the Government Accounting Standards
Advisory Board (GASAB) in the Office of the Comptroller and Auditor General of India.
GASAB has finalized a broad roadmap containing list of activities that are to be completed
for migration to accrual accounting. The roadmap mentions the activities and milestones to
be completed to migrate to accrual accounting. GASAB has also developed the detailed
operational framework of the accrual system that will prevail in Government. The
operational framework provides overall architecture of the accounting model that would
prevail in Government while conforming to the national and constitutional reporting needs.
The activities and milestones of the proposed roadmap are to help reach an accounting
model that the operational framework would suggest. The Thirteenth Finance Commission
observed “We are satisfied that the issue is receiving close attention from the relevant
authorities, and that extant actions by the Central, State and Local Governments are
facilitating a „bubble up‟ approach to the transition”. The Core Group on Administrative
Reforms recommended that a study under MoF with inputs from CAG to consider various
issues and ways in which accrual accounting can be adopted in Government be conducted.
CAG of India in exercise of his advisory mandate under Article 150 of the Constitution has
advised the GoI to accelerate its reforms to migrate to accrual basis accounting in a time
bound manner.
Journey brief
CAG of India conducted Seminar and Workshops for various stakeholders facilitating a
national consensus on accrual accounting. Apart from the Central Government, so far
twenty one State Governments have expressed their willingness to move in the direction of
accrual based accounting and some State Governments have volunteered to pilot the same
in their states.
GASAB and Accountants General (A&E) worked on pilot studies in some states. The Vidisha
(Madhya Pradesh) pilot study in the Executive Engineer, Public Works Department, Pilot
studies of Transport Department in Haryana, Rajkot hospital in Gujarat are some significant
exercises. A project of reverse engineering the Finance Accounts of Government of Andhra
Pradesh to include accrual based assumptions and prepare accrual Balance Sheet was
conducted. These studies and the ones in Department of Posts and Indian Railways are
viewed as precursors to a possible national rollout of accrual accounting.
To facilitate the transition to accrual accounting, GASAB embarked on issuing accrual basis
accounting standards – Indian Government Financial Reporting Standards (IGFRS) as
recommendatory standards for pilot studies on accrual accounting at Union and States.

I Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
This project
This research project consists of Conceptualizing formats for Annual Financial Statements
(AFS) at the State level based on accrual accounting, filling in the model formats based on
the existing cash based AFS, Piloting the preparation of AFS in the recommended formats at
the select accounting office in each of the two identified Departments of the Government of
Andhra Pradesh (i.e. Transport Department and Tribal Welfare Department).
As a part of this project, the model conceptualised accrual Annual Financial Statements
(AFS) formats have been designed based on Indian Government Financial Reporting
Standards (IGFRS), International Public Sector Accounting Standards (IPSAS), and select
international experiences. These model formats have been filled in based on the existing
cash based Finance Accounts for the Financial Year 2008-09 to the extent possible.
The model formats have been piloted in one accounting office each of Department of Tribal
Welfare and Transport Department of the State of Andhra Pradesh. The piloting of the
model formats at these pilot offices include identification of Income, Expenses, Asset &
Liability, recognition, measurement and valuation of accrual transactions for the financial
year 2008-09, as relevant.
The key learning from this study have been identified and documented. These relate to the
existing cash system, key accounting issues relating to switch over to accrual accounting,
and key implementation issues.
This pilot study shall act as a research document for further initiatives to be taken in the
journey for implementation of Accrual Accounting in Government.

II Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
1. Background

Apart from being a statutory requirement, accounting is also expected to provide the
Government and other users of Government‟s financial statements with relevant, reliable
and timely information that will assist them in their decision-making process. Traditionally,
Government Accounting aims at ensuring compliance with budget and proper utilization of
public monies. The main concern of the Government financial managers has been to find
sufficient cash to fund public schemes. Therefore, Government has been following the Cash
Accounting System.
Public Financial Management has evolved significantly in recent years. In the last couple of
decades, many countries have reviewed the way their governments function, manage their
resources and disclose their operations. Issues like operational efficiency, results,
effectiveness of the delivery system, cost of service delivery, ability to support welfare
programs, good governance, etc., have been actively debated and considered. The financial,
budgetary, accounting and management systems have seen many changes and
experimentation.
Many countries have migrated to accrual based accounting systems, fully or partly or with
some variation. United Kingdom, New Zealand, Australia, United States, Italy, to name a
few; have already moved to accrual accounting. It is difficult to conduct an accurate cost
benefit analysis before actual implementation of accrual accounting, especially as the
benefits are essentially qualitative. The countries that have implemented have gained from
this exercise with improved governance, better control over assets, increasing the
confidence of all stakeholders, and also from the availability of more accurate information
for decision making with all the stakeholders. While some countries have moved to both
accrual accounting and accrual budgeting, there are some other countries which follow
accrual accounting but budgeting is carried out on cash basis.
1.1 The project
This research project consists of Conceptualizing formats for Annual Financial Statements
(AFS) at State level, and Piloting the preparation of AFS in the recommended format at one
select accounting office in each of the two identified Departments of the Government of
Andhra Pradesh (i.e. Transport Department and Tribal Welfare Department).
1.2 Objective of this Research
The objective of this research is to identify the issues and lessons learned relating to
transition to accrual accounting.
This is not a full-fledged exercise for implementation of accrual accounting at the State
Government level and cannot be construed as transition of the State of Andhra Pradesh to
accrual accounting. This is a step in the direction of creating better understanding on the
scale of activities involved in moving towards accrual accounting and the advantages
thereof.
The findings of this research would facilitate in broader stakeholder consultation and would
act as a guide for future transition process towards accrual accounting for the Governments
of the State and the Union.

1 Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh
2. Model Accrual Annual Financial Statements

This section provides the proposed model Accrual Annual Financial Statements (AFS) along
with the filled in accrual AFS for the State of Andhra Pradesh based on the existing cash
basis Finance Accounts for the financial year 2008-09. This section has been structured as
follows:
 Approach and methodology
 Study finding and analysis
 Conceptualised model accrual AFS formats
 Filled in accrual AFS for the state

2.1 Approach and Methodology
The essence of approach is “To meet future needs considering the existing accounting
environment” at the state government level. This is to ensure better acceptability of the
accrual AFS amongst existing users and also to enable a smooth transition from the existing
cash to accrual based accounting.
For the above purpose, extensive discussions were held with the officials of GASAB, office of
Principal AG-AP and the World Bank to understand the existing system, analyse the
proposed requirements, identify implementation issues, etc.
The overall approach and methodology for the design of the model accrual AFS is provided
in Exhibit 1 below:
Exhibit 1 - Approach and Methodology

2 Research Study on Piloting Accrual Accounting in the State of Andhra Pradesh