Program on “Accrual Accounting in IR”
9th – 13th May 2016
CTARA , Sec’bad
Need for Accounting Reforms
In Indian Railways
&
Transitioning from Cash to Accrual Accts
on IR & implications
A.Venkateshwar ,
IRAS ’79
Consultant , Railway Board
In this presentation….
• Accounting Reforms in the news.
• Government Accounting Rules
• Weaknesses and Limitations of Railway Accounts
- non disclosures
- Balance Sheet issues
- P & L Account issues
• Significant changes in areas of accounting
• Likely impact of accounting reforms
• Balance Sheet , P&L A/c ; assets and comparison
• Work done so far and current implementation plan
• Switching methodology
• Structure and set up ; revised milestones and timelines.
Accounting Reforms in Indian Rlys
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MoR – Suresh Prabhu -
April 17 , 2015 –Business Line
• “
Accounting reforms should not be confined to moving from a single entry to
double entry system, which will not encompass issues such as cash-toaccrual accounting that are absolutely necessary.
•
I feel, in addition to these two issues, expenditure should also be tracked —
when it is budgeted, incurred, output, as well as the outcome of the budget.
Accounting should also provide management information, so that if you want,
you should also be able to get Right to Information from the system.
• By including this in the accounting reforms, we can revamp the present culture
where the government thinks that incurring expenditure in itself is a success and
does not bother to find out the outcome.
• Then, there is also the issue of costing of performance. There are fixed,
variable costs, so apportioning is important. Pricing of a service pre-supposes
all this information. You cannot have a rail regulator till you have all this.”
Accounting Reforms in Indian Rlys
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MoR – Suresh Prabhu – Budget Speech 25th Feb 2016
Mission - “ Beyond book-keeping”
Being a Government undertaking , IR does not follow
practices in accounting which aid detailed assessment of unit
costs. Though we are moving from single entry to double entry
systems and from cash based to completely accrual based
accounting, I do not consider them as great reforms.
As a thriving commercial entity, we also want IR to go a step
further and establish an accounting system where outcomes can
be tracked to inputs. This is a structural change which forms the
bedrock of our transformation, as right accounting would
determine right costing and hence right pricing and right
outcomes. We intend taking up its implementation over Railways
in a mission mode and complete the entire roll out in next few
years
Accounting Reforms in Indian Rlys
4
Government Accounting Rules , 1990
•
Rule 18 - “ Financial results of Govt U/Ts should be expressed
in normal commercial form so that the cost of the service or
undertaking may be accurately known.
• Rule 36 - “Such U/Ts functioning on commercial lines should
observe the essential formalities of commercial accounts to the
extent prescribed by the Govt. In such cases , a separate
commercial account of U/T should be maintained outside of
Govt. Accts.
• IR is a departmental commercial undertaking of the GOI – but
it prepares only Capital and Revenue Accounts at Zonal Rlys
level to comply with these rules .
Accounting Reforms in Indian Rlys
5
Weaknesses and Limitations of Railway Accounts … (1)
• Nondisclosure of significant accounting policies
- these provide information about the financial position,
financial performance and cash flow of an organization that is
useful to a wide range of users in making economic decisions
- such policies lay down the basis for recognition ,measurement
and disclosure of specific transactions and other events
- they help comparability of fin statements both with the
previous periods and with the other organizations.
a cash flow statement, (inflows & outflows) which
complements the balance sheet and P&L a/c in analyzing the
financial health is also not prepared
Accounting Reforms in Indian Rlys
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Weaknesses and Limitations of Railway Accounts … (2)
• Nondisclosure of schedules & notes to the financial statements
- The schedules give the break up for the major items
appearing in the balance sheet and profit and loss accounts.
- The notes attached to the financial statements explain the
accounting treatments and estimates to give adequate
information to the readers in understanding the accounts.
- IR did not prepare any schedule and notes to the major items
of its assets, liabilities , revenue and expenditure except the
Statement of Block Assets .
Accounting Reforms in Indian Rlys
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Weaknesses and Limitations of Railway Accounts … (3)
• Limitations and errors/omissions in the Balance Sheet
- Block A/C - Assets ie Plant Property and Equipment ( original
cost , depreciation on replacement , cap Work In Progress is merged)
- Investments ( JVs / not at fair value/ not tested for impairment )
- Inventories ( floating – WMS , SA , MA & fixed assets - all in Block A/c ;
Stores Susp in C@C – dividend payable )
- Sundry Debtors ( no PBDD , ageing analysis , realisability review )
- Clear liabilities ( settlement dues pending, materials issues, WC payable
, deferred dividend ,GRPF salaries)
- Contingent liabilities ( Guarantees to SPVs , disputed claims , Court
cases , Arbitrations )
Accounting Reforms in Indian Rlys
8
Weaknesses and Limitations of Railway Accounts … (4)
•
Limitations and errors/omissions in the P & L Account
- Dividend charged to P&L
- Depreciation ( unscientific lumpsum appropriation gives leverage to
manage the net revenue surplus at the desired level. Further, due to adhoc
provisioning for depreciation, the P&L is not a fair view )
- Provision for Retirement Benefits ( annual contribution to PFund
is being made as decided by the RCC on the basis of actual outgo without
making provisions for future liabilities - discontinued from 1974) )
- Revenue Recognition (both the entire income earned and received
during the year as well as the income earned but not received during the
financial year. It also recognized revenues collected during the financial year
for which services have not been provided during the year (advance fare and
freight charges).
Accounting Reforms in Indian Rlys
9
Implications of AR : Changes in accounting …
•
•
•
•
Cash Accounting to Accrual Accounting
B/S , P&L a/c ; cash flows ; cost a/cs ; schedules & notes
Fixed assets accountal and depreciation policy – RITES study
Actuarial valuation of pensionary liabilities - RCC to give decision.
(approx 5.8 lakh cr as per 2006 study ; likely to be 15 lakh Cr today )
• Perpetual loan” and “dividend” on such budgetary support
• Recognition and treatment of clear & contingent liabilities.
• Compliance to GASAB guidelines for IGAS & IGFRS
Govt Accounting Standards Advisory Board ;
Indian Govt Accounting Standards ; Indian Govt Financial Reporting Standards
Accounting Reforms in Indian Rlys
10
Implication of AR : Designed for growth
•
•
•
•
•
•
•
•
Fullfill a regulatory requirement when the Authority is created.
FDI & domestic lending - interest & inflows will be accelerate.
Transparency will restore confidence in public and users.
Will bring clarity to profitability/feasibility of PPP projects .
Dependence on general budgetary support will reduce.
Segment reporting will help generate competition and focus.
Cost data and analysis will be better facilitated .
Accounts will become “ fairer and truer”
Accounting Reforms in Indian Rlys
11
Work done so far ….and planned
Condition Precedent to ADB Funding
• In 2005-06 , a consultancy contract was awarded @ 18 crs
funded by Asian Devpt Bank
• E&Y consortium was awarded the contract
• Final Concept Report given in July 2010 ; roll out was 24 + 24 months
• Board accepted the Report partially in Jan 2012.
…………………..
Original Plan
• Pilot project taken up in Ajmer Division in Jan 2015 - Division as Unit
• 5th Jan 2015 to 1st Jan 2017 – Implementation of IPAS in phases over
all Rlys , Workshops , PUs ;
• IPAS is an improved version of PRIME /AFRES by CRIS ;
• TAMS + WAMS by 31.3.2017 ( for Tfc Accts and Workshop Accts )
• Roll out of CBS & OBS in all Zones , PUs , RB - by 1.4.2019
Accounting Reforms in Indian Rlys
12
IR ACCOUNTING REFORMS STATUS AND ACTION PLAN ( May 2016)
• Accrual Accounting - Bl.Sheet , P&L A/c , disclosures & notes of NWR – complete by Aug 2016
- Simultaneous Roll Out on 15 Zonal Rlys & 6 PUs - complete by Sept 2017
•
Outcome Budgeting & Performance Costing
- Project Orgn headed by CPM @ New Delhi – By May 2016
- Implementation partners ( on nomination basis ) will be –
- ICAI for Outcome Budgeting ;
- ICWAI for Performance Costing
- CRIS for IT development / support - Live studies on NR - GM & team to steer outcomes / performance indices.
- Award of Implementation Contracts - Aug 2016
- Finalisation of functional program specs - Feb 2017
- Live studies/reports on NR - Dec 2017
- Roll out on all Rlys - Mar 2018
IR ACCOUNTING REFORMS DIRECTION / APPROVAL FROM MoR
1. Implementation partners on nomination basis –
- ICAI for Outcome Budgeting ( OB )
- ICWAI for Perf. Costing ( PC)
- CRIS for IT development / support
2. ICAI and ICWAI to treat AR on IR as top priority assignments.
3. Declare status of OB & PC phases as critical to IR , pan India .
4. Empower Board / Project Orgn. as appropriate .
5. Approve broad milestones and timelines .
6. Consideration of Zonal Rly as a unit for all accounting reforms.
7. Presentation of OB and PC phases on cash based accounting .
IR - ACCRUAL ACCTING - switch over modalities
Basic
Voucher
CO7
Rev JV
Cap JV
MCR
AcV
Accruals
Accrual
Allocations
Mod CV
Stdalone
IT Pkg
FMIS / AFRES
iPass
E Recon
Manual
Budget
BG inputs
Rly Bd inputs
Level - I
Outputs
Trial Balance
Cash Book , Ledger , Journal , Others
WR , RAR
Rly Bd inputs
Back End IT Concordance Tables
Level – II
Outputs
Level – III
Outputs
R & C A/c Current , D H Rept.
Appropriation Accounts
Govt of India Finance Accts
In Red - MODIFICATIONS FOR ACCRUAL ACCTING
Bal Sheet , P&L A/c .
Bal Sheet , P&L A/c .
STRUCTURE – Outcome Budgeting & Perf. Costing Project
RLY
BOARD
Acct. R Dte
Steering
Committee
Proj
Orgn
AGENCY
TECH./
ADVISO
RY
ROLE
PMA /AR
Adv + Dir
4 Dir +
PSU + CRIS
CPM @NR
+ 2 Dy CPMs
ICAI for OB
SUPERVISORY +
FIELD
ICWAI for PC
SUPERVISORY +
FIELD
CRIS for IT
SUPERVISORY +
FIELD
Prepare TOR , base SRS
Monitor , Budget ,
certify , pay , roll out
Proj . Exec & Delivery
NR HoDs
AGM + FA,CCM
PCE, CME, CSTE,
CEE + CPM
Set Outcomes ,
Peformance indices
GROUP
MEMBERS
RESPONSIBILITY
STRUCTURE – Accrual Accting . Roll out on Rlys / PUs
Acct. R Dte
APEX
LEVEL
PMA
ICAI - ARF
PMA /AA
ADV. + DIR.
PROJ LEADER
& TEAM
CPM @NR
+ 1 Dy CPM
CA Firms
Teams @ Rly Hq
CRIS for IT
Teams @ Rly Hq
IMPL. TEAMS
Nodal FA&CAO
+ teams
ROLE
GROUP
Assist PMA in Bid Mgmt
Award , Monitor , Budget
certify , pay , roll out
Proj . Exec & Delivery
AGENCY
ZONAL
LEVEL
Policies, Disclosures,
Notes , Consolidation
MEMBERS
Implementation
RESPONSIBILITY
IR - OB & PC PHASES -TIMELINES ( May 2016)
S.N
o
METHODOLOGY
FOR OB & PC
PHASES
MILESTONE
ADMN . APPROVALS
REVISED BUDGETS
1
PRE AWARD WORK
POSITIONING STAFF
TOR, DRAFT SRS
AWARD CONTRACTS
STUDY “AS IS”
2
PROPOSE AND
APPROVE OUTLINES
PROPOSE “TO BE”
DISCUSS & APPROVE
PROPOSE DESIGN
3
DESIGN AND FINALISE
MODULES
DEVELOP MODULES
FINALISE MODULES
TEST RUN MODULES
4
DEVELOP IT APPL.
AND PROVE
DEVELOP IT APPL
LIVE STUDIES ON NR
TRAINING
5
REPLICATE ON ALL
RAILWAYS
PREP WORK
ROLL OUT
2016
2017
2018
M J J A S O N D J F MAM J J A S O N D J F MA
S.
No
METHOD
OLOGY
2016
MILESTONE
ACCRUAL
1 ACCOUNTING IN
ZONAL RLYS
ACCRUAL
2 ACCOUNTING IN
PROD UNITS
TRG & ROLL OUT ON ALL RLYS
PILOT STUDY AT RCF / KXN
IT APPLICATION
TEST & VALIDATE
3
4
5
2018
M J J A S O N D J F MAM J J A S O N D J F MA
PILOT STUDY ON NWR
PREP WORK FOR ROLL OUT
IT APPLICATION
TEST & VALIDATE
UPGRADED
COSTING IN
PROD UNITS
2017
TRG & ROLL OUT AT ALL PUs
PILOT STUDY AT RCF / KXN
IT APPLICATION
TEST & VALIDATE
TRG & ROLL OUT AT ALL PUs
PRE AWARD WORK
PROPOSALS & APPROVALS
OUTCOME
BUDGETING IN DESIGN AND FINALISE MODULES
ZONAL RLYS
IT APPL. AND LIVE STUDIES
TRG & ROLL OUT ON ALL RLYS
PRE AWARD WORK
PROPOSALS & APPROVALS
PERF. COSTING
DESIGN AND FINALISE MODULES
IN ZONAL RLYS
IT APPL. AND LIVE STUDIES
Accounting Reforms in Indian Rlys
TRG & ROLL OUT ON ALL RLYS
19
Balance Sheet of IR as on 31.3.15
Rs in Crs
LIABILITIES
•
Investments from
ASSETS
368758
Loan –208799 ; CF – 44125
DRF – 56255 ; DF – 30006
RSF – 11435 ; SRSF – 15756
Rev & Misc – 2382
•
Reserves
6873
DRF – 1777; DF – 2013
PF – 1360; CF – 1389
RSF – 97 ; SRSF – 0 ;
RDSF - 236
•
Banking Account
47463
Pr F – 29855 ; Misc A – 17462
L&A – 145 ;
•
Demands Payable
•
Interdept payables
•
Block Assets (*)
•
Funds with GOI
•
Misc Advances
•
Traffic Suspense
•
Demands Recoverable
•
Interdept recievables
368758
54335
1693
1929
281
120
(*) – includes C-at-C – 197992
excludes MTPs - 10535
3731
2222
Railway Budget 2016-17_AV
20
P & L ACCOUNT OF INDIAN RAILWAYS
DESCRIPTION
ACT 13-14 ACT 14-15 RE 15-16 BE 16-17
W
CAP AT CHARGE
GROSS TFC RCPTS
X
Rs in Crs
FOUR YEAR TRENDS
Y
Z
YOY % VAR
X-W
Y-X
Z-Y
198010
139558
197992
156711
227320
167834
258620
184820
0%
12%
15%
7%
14%
10%
3656
4307
3971
4451
18%
-8%
12%
TOTAL RECEIPTS
ORD WKG EXPs
APP TO DRF
143214
97571
7900
161018
105996
7775
171805
110690
5500
189271
123560
3200
12%
9%
-2%
7%
4%
-29%
10%
12%
-42%
APP TO PEN FUND
24850
29225
34500
42500
18%
18%
23%
TOTAL WKG EXPs
MISC EXP.
TOTAL EXP.
NET REVENUE
130321
1144
131465
11749
142996
1183
144179
16839
150690
1217
151907
19898
169260
1800
171060
18211
10%
3%
10%
43%
5%
3%
5%
18%
12%
48%
13%
-8%
8009
9174
8495
9731
15%
-7%
15%
3740
7665
11403
8480
105%
3075
500
1375
6233
1324
6293
2515
5750
165
93.6%
57
91.3%
3786
90.0%
215
92.0%
3%
1%
5.6%
7.0%
7.2%
5.8%
25%
3%
SUBSIDY+MISC
DIVIDEND PAYABLE
EXCESS/SHORTFALL
APP TO DEV FUND
APP TO CAP FUND
APP TO DEBTS FUND
OPERATING RATIO
NET REV TO C-AT-CHG
49% -26%
21
-2%
-19%
VALUE OF RAILWAY ASSETS
CATEGORY
TRACK
Formation
P Way
Bridges
ROLLING STOCK
Locos
Carriages
Wagons
PLANT EQPT
BUILDINGS
Stations
Workshops
Res Qtrs
LAND
STORES SUSP
WMS
MISC ADV
INVESTMENTS
31.3.2006
55231 50%
17761 16%
31009 28%
6461
6%
18288 16%
9035
8%
4808
4%
4445
4%
17345 16%
12124
11%
5887
5%
2955
3%
3282
3%
2355
2%
1392
1%
456
0%
2107
2%
1808
2%
TOTAL 111236 100%
Rs Crs
31.3.2015
189555 50%
16083
4%
61084 16%
21030
6%
79131 21%
33211
9%
19437
5%
13458
4%
46809 12%
91358 24%
70390 19%
12305
3%
8662
2%
9008
2%
4072
1%
6665
2%
17791
5%
25407
7%
INCR
3.4
0.9
2.0
3.3
4.3
3.7
4.0
3.0
2.7
7.5
12.0
4.2
2.6
3.8
2.9
14.6
8.4
14.1
378574 100%
3.4
22
COMPARISION OF IR WITH OTHER ORGANIZATIONS ( fy 2014-15)
ORGANIZATION ASSETS
SALES PROFIT
P/S
P/A
S/A
INDIAN RLYS
RELIANCE IND
ONGC
NTPC
PFC
IOC
HINDALCO
REC
TATA STEEL
POWERGRID
L&T
TCS
BHEL
HPCL
INFOSYS
TATA MOTORS
NMDC
COAL INDIA
429047
397785
208080
197085
171328
158016
143139
133438
115677
115170
86904
73661
68467
67551
61813
49943
29948
19764
156711
340814
88238
75362
21614
488345
105386
17122
42368
15675
59301
94648
29542
207800
50637
38176
12058
68810
16838
29468
26555
10547
5462
6966
340
4741
8509
4548
6701
26298
2140
4154
16798
-3571
6413
15112
11%
9%
30%
14%
25%
1%
0%
28%
20%
29%
11%
28%
7%
2%
33%
-9%
53%
22%
4%
7%
13%
5%
3%
4%
0%
4%
7%
4%
8%
36%
3%
6%
27%
-7%
21%
76%
37%
86%
42%
38%
13%
309%
74%
13%
37%
14%
68%
128%
43%
308%
82%
76%
40%
23
348%
Come ! Be part of the accounting reform process !!
And receive a commendation from Railway Board †
List out one major accrual transaction (not being accounted for now)
you feel would be critical , based on its impact ,from any area of
railway working and accounting you know.
Mail your response to me or [email protected]
Thank You
Keep in touch - send in your suggestions or queries to
[email protected] ; 9948291319
† - after due diligence of the suggestion
Accounting Reforms in Indian Rlys
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