ICAI Driving Governing Accounting Reforms

In our democratic society, the government plays a pivotal role in utilising public funds for various political, social, and economic duties aimed at maximising social and economic welfare. However, with this significant responsibility comes the imperative for transparency and accountability in governance. In today’s era, people are increasingly vigilant of their rights and are demanding greater transparency in governance processes. Citizens rightfully demand a fair account of how their hard-earned money is being utilised and how effectively the financial affairs of the economy are being managed. One of the crucial avenues through which this transparency can be achieved is through government accounting reforms, which have become the need of the hour.

Introduction

At the heart of fiscal transparency lies good quality financial reporting. Adoption of Accrual Accounting is path towards Government Accounting Reforms. As per International Public Sector Financial Accountability Index (2021), it is expected that by 2025, out of 165 jurisdictions:

  • 50% of the jurisdictions will be reporting on accrual basis;
  • 35% of the jurisdictions will have partially adopted accrual accounting; and
  • 15% of the jurisdictions will be on cash basis.

It is also imperative that government financial statements adhere to accepted data quality standards to provide stakeholders with a clear and accurate picture of the financial health of the government. This necessitates the use of generally accepted accounting standards in the preparation of financial statements as Accounting Standards play a vital role in ensuring transparency, reliability, comparability, uniformity, and consistency of financial statements. High-quality accounting standards are essential in enabling governments to depict true and fair view of their financial position and financial performance, thereby fostering trust and confidence among stakeholders.

International Public Sector Accounting Standards (IPSASs formulated by IPSAS Board of International Federation of Accountants (IFAC)) are globally recognised Accounting Standards designed specifically for the public sector. IPSASs are based on International Financial Reporting Standards (IFRSs) but modified by IPSASB best suited to Government Sector. Apart from accrual based IPSASs, IPSASB has also issued one Cash based IPSAS that plays an important role in enhancing the quality of financial reporting by entities reporting on the cash basis of accounting, and in supporting those entities as they transition to the accrual IPSAS.

Status of Governing Accounting Standards in India

The status of governing accounting standards in India reflects a concerted effort towards enhancing transparency and harmonising financial reporting practices across different levels of government.

For Central & State Government

Government Accounting Standards Advisory Board (i.e., GASAB constituted by O/o Comptroller and Auditor General (C&AG) of India) formulates two sets of Accounting Standards for Central & State Government(s) and Union Territories with Legislature. These standards include both cash-based Indian Government Accounting Standard (IGAS) and accrual-based Indian Government Financial Reporting Standard (IGFRS). GASAB refer IPSASs while formulating their Standards. A few cash-based standards have been mandated by the Ministry of Finance and the notification of remaining standards is pending.

For Local-Self Government

Institute of Chartered Accountants of India (ICAI) through one of its non-standing Committee namely Committee on Public and Government Financial Management (CPGFM) formulates Accounting Standards for Local Bodies (ASLBs) to harmonise the diverse accounting practices being followed by the Local Bodies in India and facilitate global harmonisation and international convergence.

  • ASLBs are based on IPSASs with modifications to suit Indian conditions, and are recommendatory in nature.
  • Till date, 31 ASLBs have been issued including one Cash based ASLB to facilitate transitioning from cash to accrual accounting system and one Guidance Note on “Accounting for Investments for Local Bodies”.
  • These ASLBs are recommendatory in nature and it is the prerogative of State Governments to implement these Standards. ASLBs are sent to the Ministry of Housing & Urban Affairs (MoHUA) for consideration by their Technical Committees on Budget & ASLBs for recommending the same to the State Governments for implementation.
  • ASLB 2 (Cash Flow Statements), ASLB 5 (Borrowing Costs) and Guidance Note on “Accounting for Investments for Local Bodies” have been mandated by the ICAI to comply with by Members of ICAI while Auditing the Financial Statements of Urban Local Bodies (ULBs) w.e.f. 1st April 2022 as these are conceptually similar to National Municipal Accounts Manual, i.e., existing prevailing accounting framework for ULBs.
  • The State of Uttarakhand has set a precedent by revising its Municipal Accounts Manual referring to ASLBs issued by ICAI.
“ASLB 2, ASLB 5 and the Guidance Note on Accounting for Investments for Local Bodies have been mandated by ICAI for compliance by members while auditing ULB accounts w.e.f. 1st April 2022.”

While significant strides have been made towards standardising government accounting practices in India, continued efforts are needed to overcome challenges and promote greater transparency and accountability across all levels of government.

The serious obstacle in implementation of Accounting Standard is the absence of a political will for transparency on the part of too many governments. Other challenges are issues pertaining to stakeholder engagement, structural and legal transformation, change management, skill capacity, costs involved in technology and infrastructure, etc.

Role of ICAI in Implementing Government Accounting Reforms

As an apex body in the field of accountancy and auditing in India, ICAI, a partner in nation building, plays a pivotal role in implementing government accounting reforms and has been actively contributing to shaping the national accounting scenario and working closely with the Government to drive reforms.

1. Organisational Support

ICAI is in constant dialogue with the Ministry of Housing & Urban Affairs (MoHUA), Ministry of Panchayati Raj (MoPR), O/o Controller General of Accounts (CGA) and O/o C&AG apart from several State Governments to give organisational support to implement Government accounting reforms in India. Moving forward:

  • ICAI has collaborated with O/o C&AG of India on accounting and auditing issues and to strengthen the accountability mechanism for good governance in local self-governments. In pursuance of a MoU signed with them, Certificate Courses for Accountants of Panchayats and Municipal Bodies have been launched to make available trained accounting personnel in local bodies.
  • ICAI is also providing support to GASAB for adaptation of cash based IPSAS in Government Accounts.
  • ICAI is providing technical support to the Ministry of Housing and Urban Affairs (MoHUA) to transform the quality of financial reporting of ULBs in India. To begin with, draft framework is being laid out for quality assessment of Audited and Unaudited Annual Accounts of ULBs being uploaded on Cityfinance.

2. Capacity Building Initiatives

ICAI is sensitising officials of all tiers of Government in India through workshops/trainings/seminars, e-training modules, short videos, webinars, etc.

  • ICAI has entered into MoU and Agreements with various Government Departments for knowledge transfer and skill development of their officials (such as MoUs with Treasuries & Accounts Department, Government of Tamil Nadu & NIRD&PR and Agreement with Uttarakhand Public Financial Management Strengthening Project).
  • Trainings are being imparted in regional languages such as Tamil, Gujarati, Marathi apart from Hindi & English.

3. Submission of Inputs / Suggestions to Government

  • President, ICAI is a Member of GASAB. ICAI actively participates in their meetings and submits technical inputs on draft Standards and various other documents of GASAB from time to time.
  • ICAI submits representations to various Government Authorities from time to time highlighting the need of:
    1. Separate accounts and finance cadre;
    2. Amending relevant Municipal Acts (for smooth implementation of accrual accounting reforms, municipal bonds issuance, etc);
    3. Constitution of Audit Committee in Municipalities, and so on.

4. Certificate Course on Public Finance and Government Accounting

ICAI through CPGFM is conducting online certificate course / online self-paced course on public finance and government accounting to equip the participants with understanding of the accounting system of all tiers of Government (Central, State and Local-Self Government).

  • This course can be attended by the officials of Government and Autonomous Bodies working under administrative control of Ministries & Government Department as well apart from Members of ICAI.
  • This course has got recognition in tenders issued by Local Bodies/Government departments/Authorities in Maharashtra, Madhya Pradesh and Jammu & Kashmir. The O/o C&AG has also included this course as one of the criteria for empanelment of CA Firms (additional 1 point is awarded).
  • Thousand members have been trained through this course.

5. Certificate Courses for Accountants of Panchayats and Municipal Bodies

ICAI jointly with O/o CAG of India launched online Certificate Courses for Accountants of Panchayats and Municipal Bodies during 2023 to make available skilled & trained accountants at grassroots level.

  • These courses are being organised through Board for Local Bodies Accountants Certification (BLoAC) established under the aegis of ICAI Accounting Research Foundation (ICAI ARF).
  • Any candidate who is 18+ years of age and 12th pass in any stream can register for this course.
  • E-Study Material of this course is being made available in 10 languages (English, Hindi, Marathi, Telugu, Tamil, Odiya, Gujarati, Kannada, Bengali & Punjabi).

6. Conversion / Financial Management Reforms Projects

ICAI through its research arm, ICAI Accounting Research Foundation (ICAI ARF), also conducts pilot studies and facilitates the Government in conversion of their accounts from cash to accrual basis of accounting. In the past, ICAI ARF had also assisted various Government departments (Department of Posts, Indian Railways, etc.) and Municipal Corporations in their conversion projects.

Technical Publications Brought Out by ICAI

Commonly Used Terms in Public Finance & Government Accounting
Changing Times in Government Accounting (A Status Paper)
Research Study on “Accounting Reforms in Urban Local Bodies in India”
Transition to Accrual Accounting: Models & Learnings for Urban Local Bodies
Research Study on “How Municipal Financial Data can be used for Decision Making”

Opportunities for Chartered Accountants (CAs) in Government Accounting Reforms

CAs serve as the backbone of the economy, playing a significant role in nation-building by providing essential guidance on various financial and economic measures of the country. Their expertise extends across a wide spectrum of areas, contributing significantly to the efficient functioning of government operations.

CAs play a crucial role in smooth implementation of accounting reforms including adoption of Accounting Standards. CAs support the Government in strategic planning, tax planning, capital budgeting, budget preparation, book-keeping and auditing. Their financial acumen assists in formulating sound economic strategies, optimising resource allocation, and ensuring compliance with financial regulations. After the implementation of Goods and Service Tax (GST), the role of the CA has changed significantly. Starting with the creation of laws and regulations, they are instrumental in interpreting GST laws, facilitating compliance, and supporting businesses in transitioning to the new tax regime.

Furthermore, CAs may engage with the government in various capacities, such as employees, consultants, advisors or auditors also as committee members for formulation of any policy or law. Their expertise and role are leveraged to the fullest extent possible from formulating laws and regulations to ensuring the efficient functioning of day-to-day government operations.

Conclusion

The pace of accounting reforms has direct impact on the accounting profession. CAs can support Government in improving their financial reporting and management, establishment of a culture of accountability and enhancing transparency in their financial operations, etc.

ICAI through its Certificate Course on Public Finance and Government Accounting is making aware the members about the challenges of this field well in advance before they enter the market and making efforts to make them competent to take full benefit of the opportunities available in this field.

Apart from this, Certificate Courses for Accountants of Panchayats and Municipal Bodies, i.e., a joint initiative of ICAI & O/o C&AG, will also help in creation of employment opportunities for the qualified candidate near to their home locations in panchayats and municipal bodies as well as in MSME sector.

Authors may be reached at eboard@icai.in