The CAG guidelines for a new government accounting system aimed at improving transparency and fixing the accountability of departments for managing state-owned assets will be unveiled on Tuesday.  In line with the recommendations of the 12th and 13th Finance Commissions and the second Administrative Reforms Commission, the operational guidelines suggest shifting from the present cash-based accounting system to an accrual basis of accounting. “A move from cash to accrual accounting will be a fundamental change which will help overcome the deficiencies of the present system,” a Finance Ministry statement said.

Under the accrual system, transactions will be recorded at the time when economic value is created, exchanged, transferred or impaired, irrespective of whether cash is actually exchanged or not, it said.

“Only accrual accounting captures the full cost of services provided by the government, thereby supporting effective and efficient decision-making,” it said, adding it will also fully disclose information on the assets and liabilities of the government.

The new norms would be unveiled at a national conference of State Finance Ministers by Union Finance Minister Pranab Mukherjee.

The present system lacks an adequate framework for accounting of assets and liabilities, depicting consumption of resources and presenting the full picture of the government’s financial position at any point of time.

In this system, there is no effective way of tracking assets created out of public money which, in turn, dilutes the accountability of departments for management of government assets, it said.

The deficiencies in the present system result in a lack of transparency, poor stewardship and impaired ability to accurately predict the future cost of a current financial commitment, it added.

The job of steering the transition to accrual accounting was given to the Government Accounting Standards Advisory Board (GASAB) under the office of the Comptroller and Auditor General of India (CAG).

The GASAB is a high power advisory body which includes the heads of six major accounting departments of the government of India, namely Indian Audit and Accounts Department, Indian Civil Accounts Department, Indian Defence Accounts Department, Indian Railway Accounts Department and Indian Postal Department.

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June 2021