Journey of Accrual Accounting over Indian Railways

Introduction

Accrual accounting in the government sector has been adopted by well over a hundred countries, leading to marked improvements in public finance management. Beginning with its first adoption by New Zealand in 1992 followed by Australia in 1999-2000, it has gained momentum globally, including in international organizations such as the Commonwealth, European Commission, OECD, and the United Nations, especially after the issue of International Public Sector Accounting Standards (IPSAS). In India, the Twelfth Finance Commission recommended the adoption of accrual accounting for the Union and State Governments, following which the Government Accounting Standards Advisory Board (GASAB) was established in the office of the Comptroller and Auditor General (CAG) of India, through a notification dated 12th August 2002, to establish and improve standards of governmental accounting and financial reporting. Although the CAG has not yet mandated the use of accrual accounting principles, observing its success globally, Indian Railways has voluntarily decided to implement accrual accounting, in addition to its existing cash-based accounting system.

Initiation of Accrual Accounting in Indian Railways

The Accounting Reforms Project for Indian Railways was sanctioned in 2003-04 to transform Indian Railways into a customer-oriented organization by improving its accounting system and generating costing data on passenger and freight services on commercial lines. In December 2014, the ICAI Accounting Research Foundation (ICAI ARF) was engaged by the Railway Board to validate the Consultant\'s Report and conduct a Pilot Study for the introduction of Accrual Accounting with the aim of preparing Accrual-Based Financial Statements (ABFS). The pilot project at North Western Railway (NWR) concluded in October 2016 with the preparation of accrual-based financial statements, notes to accounts, significant accounting policies, and an accrual accounting implementation manual.

Accrual-Based Financial Statements (ABFS) at Indian Railway and Zonal levels

Following the successful NWR pilot, ABFS was extended to all Zonal levels and Indian Railway levels using the same grafting methodology. In February 2019, IR\'s first historical Accrual-Based Balance Sheet for 2015-16 and 2016-17 was prepared. Subsequently, between January 2022 and November 2022, four years of ABFS (2017-18 to 2020-21) for each Zonal Railway and Production Unit were prepared using the Grafting Method.

Accrual Accounting Implementation by Transaction Method

While the Grafting method was a good start, migrating to accrual accounting on a sustained basis and moving to a Performance Costing System required capturing details at the transaction level. New 10-digit allocation codes were developed parallel to the existing 8-digit codes, and mapping of more than 3.40 lakh allocations was completed by April 2022. Implementation of the transaction-based accrual accounting system started on 1st August 2022 and was proliferated across all Zonal Railways and Production Units by 31st December 2022. The system is now running live across the entire IR from April 1, 2023.

Measures for Successful Project Implementation

Success in project implementation is attributable to strong political will, financial resources, well-planned strategies, and partnerships with CRIS and ICAI-ARF. Detailed pre-planning, continuous hand-holding, close monitoring by the Accounting Reforms Team, extensive field training, capacity building, user manuals, and round-the-clock interaction through dedicated communication platforms played a vital role.

Challenges in the Project

Being the pioneer ministry in government implementation, solutions had to be devised anew for teething problems, including de novo development of standards, policies, chart of accounts, and skilled staff. Data collection for the creation of the first Fixed Asset Register was a major challenge due to the non-availability of old records, identifying more than 70 lakh fixed assets, unrecorded original costs of tracks and rolling stock, missing land ownership records, and actuarial valuation of employee retirement benefits.

Conclusion

Accrual Accounting in Government brings marked qualitative improvements in account keeping, analytical and managerial insights, and worldwide uniformity and transparency. Successful rollout of the Accrual Accounting Project over Indian Railways is a critical milestone in its journey towards financial sustainability.