Govt.

Accounting & Budget

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Government Accounting-Overview
  Government accounting is the process of
recording, analyzing, classifying, summarizing
communicating and interpreting financial
information about government in aggregate and
in detail reflecting transactions and other
economic events involving the receipt, spending,
transfer, usability and disposition of assets and
liabilities.

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 The purposes of Government Accounting are: 
 To carry out the financial business of government in a timely, efficient and
reliable manner (e.g. to make payments, settle liabilities, collect sums due,
buy and sell assets etc.) subject to necessary financial controls. 
 To keep systematic, easily accessible accounting and documentary records
as evidence of past transactions and current financial status, so that detailed
transactions can be identified and traced and all aggregates can be
conveniently broken down into their constituent parts.
  To provide periodic financial statements, containing appropriately classified
financial information, as a basis for stewardship & accountability and decision-
making. 
 To maintain financial records suitable for budgetary control, internal control
and the needs of auditors.
  To provide means for effective management of government assets, liabilities,
expenditures and revenues.

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 Constitutional Provisions

 Article 149: C&AG’s duties and powers to be provided by or

under any law made by Parliament.

 Article 150: The accounts of the Union and of the States shall be
kept in such form as the President may, on the advice of the
Comptroller and Auditor-General of India, prescribe.

 Article 151: The reports of the Comptroller and Auditor-General

of India relating to the accounts of the Union/State shall be
submitted to the President/Governor, who shall cause them to be
laid before each House of Parliament/Legislature
Form of accounts under Art 150 of the
Constitution broadly understood as

 Division & structure of accounts

 Classification of transactions

 Basis of accounting

 Format of financial reporting

 Principles of recognition, measurement,

classification and disclosure

 Controller General of Accounts is the Principal Accounts Adviser
to the Government of India and is responsible for establishing and
maintaining a technically sound management accounting system.
  
 He prepares a critical analysis of expenditures, revenues,
borrowings and the deficit for the Finance Minister every month. He
also prepares annual Appropriation Accounts (Civil) and Union
Finance Accounts for presentation to the Parliament.

 CAG shall be responsible for compiling the accounts of each

State/Province

 CAG to prepare the annual accounts (States/Provinces) and to cause

them to be tabled in the Legislatures
Government accounts Accounting Policy
 Cash based accounting
 Transactions accounted for only when cash is received or paid within the
reporting period
 Accounting period: 1 year- April to March
 Accounts kept in three parts
 Consolidated Fund

 Contingency Fund

 Public Account

 Distinctions (provided constitutionally) between

 Revenue and Capital account

 Voted and Charged :

 ( Plan- Non Plan dispensed with )

Legislation Under Article 112 of the Constitution of
India, a statement of estimated receipts and
Annual Financial Statement
expenditure of the Government in respect of
every financial year

An opportunity to members to discuss the

General Discussion on Budget financial and other policies of the
Government. The budget as a whole or a
question of principle can be discussed.

Members can raise only those issues with

Discussion and voting on the which the administrative ministry, whose
Demands for Grants Demands for Grants are under consideration,
is concerned.

Passing of the Appropriation A Bill introduced to provide for the Approp. of

Bill moneys required to meet the Grants.

Parliament approves the Finance Bill which

Passing of the Finance Bill contains the proposals for raising the
required revenue

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Two Types of Accounts
Appropriation Accounts
 Comparison of actual expenditure with appropriation sanctioned by
Parliament or legislature.
 Depicts saving or excess /amount surrendered during the year.
 Gross figures (expenditure/disbursements and receipts) are
depicted

Finance Accounts
 Account of receipts and disbursements during the year

 Account of public debt/ liabilities and assets

 Figures (expenditure/disbursements and receipts) are depicted

net of recoveries
 Structure of Government Accounts
Government Accounts

Consolidated Fund Contingency Fund Public Account

Revenue Capital

Receipts Receipts Expenditure

Small Savings
Tax Deposits and Advances
Non Tax Reserve Funds
Grants in Aid General Services Suspense and Remittances
Social services Cash balance
Economic Services
Public Debt
Expenditure Loans and Advances

General Services
Social services
Economic Services
Grants in Aid
 Classification
Number of digits used
Head of Account What it depicts in accounts
Economic and Functional Classification
system
 Functional Classification system- as explained
earlier
 Functions (Major heads), schemes,

sectors, sub-sectors

 Economic Classification
 Presently a mix of both
 Object/Activity
Scheme

Programme

Sectors

Economic
Classification
Indian economic reforms
Began in 1991 facing an exceptionally severe balance of payments
crisis
Embarked on a programme of short term stabilisation combined with
a longer term programme of comprehensive structural reforms.
Rethinking on economic policy had begun earlier in the mid-eighties
by when the limitations of a development strategy based on import
substitution, public sector dominance and pervasive government
control over the private sector had become evident, but the policy
response at the time was limited to liberalising particular aspects of
the control system without changing the system itself in any
fundamental way.
The reforms initiated in 1991 were different precisely because they
recognised the need for a system change, involving liberalisation of
government controls, a larger role for the private sector and greater
integration with the world economy.

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Sundramurthi Committee
Constituted to review the present accounting classification system
and to develop a system better suited to display the nature and
objective of Government expenditure. The primary purpose of the
Committee was to develop a revised Accounting Classification
Structure which could address various issues raised by many
stake holders for better planning of resources, budgeting,
accounting and availability of more useful Government financial
information.
The proposed revised classification structure has since been
presented (Jan-2012) in a document named as 'Compendium of
Accounting Classification Codes for Union and States' & revised
was recommended for implementation w.e.f financial year 2013-
14 by the committee.

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Expert Group on Review of the Classification System for Government
Transactions

 Regarding improvements in the current system for harmonizing

budgetary, accounting and economic classification, the Group has
recommended adoption of a multidimensional classification structure with
linkages between the accounting classification and standard international
classification systems such as Government Finance Statistics (GFS) and
System of National Accounts (SNA).

 1. Administrative Segment 2. Function Segment 3. Programme cum

Scheme Segment 4. Recipient Segment 5. Target segment 6. Economic
Segment 7. Geographic Segment

 Sundermurti Committee report on comprehensive revision of List of

Major/minor heads of accounts under consideration
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 Global economy meltdown :-South East Asian currency crisis
1996, US Financial Crisis 2008 and European sovereign debt
crisis followed soon the Greek ‘tragedy

* Bretton woods (1944-71) ’ response to 1996 SE Asian crisis *

Recent International financial crisis unfolding lead to

 IMF code of good practices on fiscal transparency (1999) revised
in 2007
 Fiscal Transparency assessments by IMF teams for various
countries ROSCs
 2001 Revision of IMF’s 1986 Manual on Government Statistics
(GSFM 2001)

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Declaration of Basic Principles
(IMF Code of Good Practices on Fiscal Transparency)

I.  Clarity of Roles and Responsibilities

II.  Public Availability of Information

III.  Open Budget Preparation, Execution, and Reporting

IV.  Independent Assurances of Integrity

 IMF ROSC on India, 2001
 IMF had in February 2001 first released a Report on the
Observance of Standards and Codes (ROSC) for India,
benchmarking India's fiscal transparency against the IMF Code.
 It observed that India has achieved a reasonably high level of
fiscal transparency, especially as regards the amount of fiscal
information that is made available to the public.
 Two more reports of Apr 2004 and Jan 2011 regarding
observance have come out
GFSM 1986 - GFSM 2001
in 2001, the Fund adopted the Government Finance Statistics Manual of 2001
(GFSM 2001) as the new framework for collection and dissemination of
government finance statistics. GFSM 2001 is based on the accrual accounting
concept, in contrast with the previous cash accounting based framework
(GFSM 1986).
Around the world Government accounting practices are generally classified into
four categories, moving from the least to the most sophisticated side of the
spectrum
a) Cash accounting b) modified cash accounting
c) accrual accounting d) modified accrual accounting.
There is great diversity in accounting practices but the trend towards accrual
accounting is clear

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Accrual Accounting
In Cash Accounting transactions ( Income or Expenditure) are
recorded in the books only when cash is actually received or
paid irrespective of the period to which it relates.

In accrual accounting all transactions (Income and

Expenditure) are recognized as the underlying economic
events occurs, regardless of the timing of related cash
receipts and payments

increasing number of governments are now using accrual-

based accounting frameworks, while others still follow hybrid
approaches that can be classified as either modified cash
accounting or modified accrual accounting.

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In order to make accounting methods and principles uniform and
comparable and financial reporting show true and fair view of all
the activities of the government, to the extent possible, standards
are necessary to be evolved.
The basic objective of Accounting Standards is to remove
variations in the treatment of several accounting aspects and to
bring about standardization in accounting and its presentation. In
this context, it is appropriate to discuss Accounting Standards
issued by IPSAS (both accrual and cash basis).
The twelfth Finance Commission (TFC) recommended Accrual
Accounting for the Union and the State Governments.

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The GASAB in the office of the C&AG (2002) was set up to
recommend an operational framework and detailed roadmap for
its implementation. GASAB has so far developed six IGASs
namely

(i)IGAS 1-Guarantees given by governments: Disclosure

requirements
(ii) IGAS 2 - Accounting and classification of grants-in-aid
(iii) IGAS 3- Loans and advances made by governments
(iv) IGAS 7- Foreign currency transactions and loss or gain by
exchange rate variations
(v)IGAS-9- Govt Investment in equity.
(vi)IGAS 10- Public debt and other liabilities of governments

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 Indian Government Financial Reporting Standards (IGFRSs)
approved by GASAB

: Disclosurerequirements and four IGFRSs namely

IGFRS 1- Presentation of Financial Statements
IGFRS 2 Property, plant and equipment
IGFRS 3- Revenue from government exchange transactions
IGFRS 4- Inventories
IGFRS 5- Contingent liabilities (other than guarantees) and
contingent assets: Disclosure requirements

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Role of / IPSAS
The International Public Sector Accounting Standards Board
(IPSASB) - formerly the Public Sector Committee - of the 
International Federation of Accountants focuses on the accounting,
auditing, and financial reporting needs of national, regional, and
local governments, related governmental agencies, and the
constituencies they serve. It addresses these needs by issuing and
promoting benchmark guidance, conducting educational and
research programs, and facilitating the exchange of information

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Planning Commision High Level Expert Committee headed by Rangarajan
recommended in July 2011 for - Plan Non Plan distinction removal

The classification of expenditure into Plan and Non Plan, although not rooted in
the Constitution, has evolved with planning process. Over a period of time,
several issues have cropped up from the distinction between plan and non-plan,
making it dysfunctional and an obstacle in outcomebased budgeting. Therefore,
this distinction should go for both Union and State Budgets.

There should be a fundamental shift in the approach of public expenditure

management- from a segmented view of Plan and Non-Plan to holistic view of
expenditure; from a one year horizon to a multi-year horizon; and from input
based budgeting to the budgeting linked to outputs and outcomes.

The Union Minister of Finance in his budget speech for the year 2016-17
informed the House that the Plan/Non-Plan classification will be done away with
from fiscal 2017-18. J&K State has aleady dispensed the plan non plan
classification form financial year 2015-16

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Advance the Budget cycle- EARLY BUDGET 
With the objective of making timely availability of funds the
finishing of the entire financial business of government before
March 31, the Govt is in favour of advancing the budget date and
the budget session from the current year .
This would be the first big change in the budget process after the
first NDA government abolished another colonial legacy,
advancing the presentation time to 11am from 5 pm. 
In July 2016 the Govt constituted a Commiitte to examine the
desirability & feasibility of having a new financial year ,examining
merits-demerits of various dates for commencement, The period
of financial year as from April to March was introduced in India
from 1867. Prior to that, the financial year in India used to
commence on 1st May and ended on 30th April

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• L.K. Jha Committee was appointed in May, 1984 to look into the
issue of financial year. The Committee while recommending the
commencement of financial year from January mainly with
reference to the impact of South West monsoon on the economy,
had mentioned in their Report that if for any reason, a changeover
to the calendar year is not acceptable despite its many advantages
• MIS output to be put in public domain, MIS be designed to cover
reporting and monitoring of schemes using GIS
• Public Financial Management System (PFMS) roll out providing a
robust system for ensuring ‘Just in Time’ releases in respect of
Central Sector (CS) and Central Assistance to State Plan (CASP)
schemes. • Complete monitoring of utilization of funds under these
two categories upto the end beneficiaries including information on
end use of funds

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Railway budget merger with the General Budget (2017-18)

• The 92-year-old practice of presenting a Railway budget is set to

come to an end from the next fiscal, with the Finance Ministry
accepting Railway Minister proposal to merge it with the General
budget.
• Niti Aayog member Bibek Debroy had noted that a separate
railway budget was only a ritual as it had diminished in size
relative to the general budget.
• The British colonial administration of the time had started the
practice of a separate railway budget in 1924, citing its size

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 Open Budget Preparation, Execution, and Reporting
 Budget documentation should specify fiscal policy objectives,
the macroeconomic framework, the policy basis for the
budget, and identifiable major fiscal risks.

 Budget data should be classified and presented in a way that

facilitates policy analysis and promotes accountability.

 Fiscal reporting should be timely, comprehensive, and

reliable, and should identify deviations from the budget.

 The integrity of fiscal information should be subject to public

and independent scrutiny.

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 Requirements under FRBM Act

1. The Central Government shall take suitable measures to

ensure greater transparency in its fiscal operations in public
interest and minimize, as far as practicable, secrecy in the
preparation of the AFS and Demands for Grants.

2. In particular, and without prejudice to the generality of the

foregoing provision, the Central Government shall, at the time
of presentation of AFS and Demands for Grants, make such
disclosures and in such form, as may be prescribed.
Fiscal Imbalance
  Thanks

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