Session Title:

Session Title:Session Title:

Operational Framework and Operational Framework and Road Map prepared by GASAB Road Map prepared by GASAB which describes various stages which describes various stages for transitions from existing for transitions from existing cash based accounting to cash based accounting to accrual based accounting.accrual based accounting.

Session overview:Session overview:

► Two Pilot studies undertaken in select Two Pilot studies undertaken in select ministries and departments of Union and the ministries and departments of Union and the State Governments by Institute of Public State Governments by Institute of Public Auditors of India (IPAI), New Delhi. It Auditors of India (IPAI), New Delhi. It provides the overall architecture of the provides the overall architecture of the accounting model. The pilot studies accounting model. The pilot studies conducted on Forest and Health Department conducted on Forest and Health Department of State Government of Madhya Pradesh, of State Government of Madhya Pradesh, and by Deloitte Touché Tohmatsu India Pvt. and by Deloitte Touché Tohmatsu India Pvt. Ltd.(Deloitte) on District Tribal Welfare Ltd.(Deloitte) on District Tribal Welfare office, Ranga Reddy District & Regional office, Ranga Reddy District & Regional Transport Authority, Hyderabad of Andhra Transport Authority, Hyderabad of Andhra Pradesh Pradesh sponsored by World Bank, and sponsored by World Bank, and the report was published on May 2010the report was published on May 2010 . .

IntroductionIntroduction

Study onStudy on Forest and Health Forest and Health Department of State Government of Department of State Government of

Madhya PradeshMadhya Pradesh The study initiated by the Government The study initiated by the Government

Accounting Standards Advisory Board Accounting Standards Advisory Board (GASAB) is supported by the World (GASAB) is supported by the World Bank. The Institute of Public Auditors Bank. The Institute of Public Auditors of India (IPAI), New Delhi was engaged of India (IPAI), New Delhi was engaged as consultant to provide technical as consultant to provide technical assistance. The study is a joint assistance. The study is a joint collaborative effort with the World Bank, collaborative effort with the World Bank, GASAB, Accountant General(A&E)-I, MP GASAB, Accountant General(A&E)-I, MP and Government of Madhya Pradesh.and Government of Madhya Pradesh.

The core team comprised the following :The core team comprised the following :► World Bank : World Bank : Shri P.K. Subramaniam, Lead Shri P.K. Subramaniam, Lead

Financial Management, Specialist South Asia Financial Management, Specialist South Asia Region, Shri Mohan Gopal Krishnan, Senior Region, Shri Mohan Gopal Krishnan, Senior Financial Management, Shri Jesse W. Huges, Financial Management, Shri Jesse W. Huges, Specialist World Bank Consultant.Specialist World Bank Consultant.

► GASAB : GASAB : Shri R.S. Rangrajan, IA&AS, Member Shri R.S. Rangrajan, IA&AS, Member Secretary, GASAB upto March 2010 and Shri Shankar Secretary, GASAB upto March 2010 and Shri Shankar Narayan, IA&AS Member Secretary, GASAB from April Narayan, IA&AS Member Secretary, GASAB from April 2010, Ms. Preeti Jha, IRAS, Principal Director and 2010, Ms. Preeti Jha, IRAS, Principal Director and Shri G. Shrinivas, IA&AS, Director, GASAB.Shri G. Shrinivas, IA&AS, Director, GASAB.

► Institute of Public Auditors of India: Institute of Public Auditors of India: Shri K.N. Shri K.N. Khandelwal, Project Director, Shri P.N. Koul, Khandelwal, Project Director, Shri P.N. Koul, Technical Coordinator, Shri K.L. Kapoor, Sr. Technical Coordinator, Shri K.L. Kapoor, Sr. Consultant, Shri G.K.Shukla, Team Leader (Bhopal), Consultant, Shri G.K.Shukla, Team Leader (Bhopal), Shri R.P. Agrawal, Consultant, Shri B.P. Patel, Shri R.P. Agrawal, Consultant, Shri B.P. Patel, Consultant, Shri K.B.Mishra, Team Leader(Gwalior), Consultant, Shri K.B.Mishra, Team Leader(Gwalior), Shri P.K.Khandelwal, Sr. Consultant, Shri R.C. Sharma, Shri P.K.Khandelwal, Sr. Consultant, Shri R.C. Sharma, Consultant and Shri R.S.Upadhyay, Consultant.Consultant and Shri R.S.Upadhyay, Consultant.

► Objectives and Scope of the StudyObjectives and Scope of the Study► The objective of this study is to identify gaps The objective of this study is to identify gaps

between the existing cash based accounting between the existing cash based accounting system and the proposed accrual based system and the proposed accrual based accounting system to assist GASAB to accounting system to assist GASAB to address issues related to Property, Plant address issues related to Property, Plant and Equipment (PPE) and inventories and Equipment (PPE) and inventories during actual migration to accrual during actual migration to accrual accounting.accounting.

► In order to develop the specific guidelines, In order to develop the specific guidelines, the operability of the standards (draft and the operability of the standards (draft and those awaiting notification by GoI) need to those awaiting notification by GoI) need to test by way of extensive field testing of test by way of extensive field testing of selected IGFRS, Exposure drafts on selected IGFRS, Exposure drafts on IGFRS and IPSAS standards IGFRS and IPSAS standards in both the in both the selected offices of Forest and Health selected offices of Forest and Health departments of Government of MP .departments of Government of MP .

►Approach and MethodologyApproach and Methodology►Our approach to this study has been Our approach to this study has been

to identify the future to identify the future needs/requirements for such needs/requirements for such migration considering the existing migration considering the existing Government accounting framework, Government accounting framework, which would help in smooth transition which would help in smooth transition from cash based to accrual based from cash based to accrual based accounting. The method essentially accounting. The method essentially consisted of the activities as detailed consisted of the activities as detailed in the table 1 below:in the table 1 below:

S. No. Activity Purpose

1. Study of IPSAS, IGFRS andAccrual Exposure Drafts –IGFRS

To identify precisely the canvas on which the study is to be based

2. Study of existing system of accounts and process of financial reporting

The background mapping is essential to devise the approach and the strategy.

3. Consultations with the departmental officers and officials

To familiarize with the activities of the entity.

4. Designing formats to collect the information

To elicit all necessary data relating to assets& liabilities and information for

identification of assets and liabilities for preparation of Annual Financial Statements(AFS).

5. Visiting Pilot locations to study the initial record keeping and methodology.

• To identify sources of information and to ensure that the process adopted is compatible with the existing accounting environs.

• To be aware of the books and records currently being maintained.

6. Analyses the data in the existing system of accounts

• To understand the information available in the records being maintained

• Identify gaps between existing system of accounts and accrual based accounts and to identify sources to capture it.

• Tabulating information systematically.

7. Classification of assets, liabilities, income and expenditure

For formatting and devising annual financial statements

8. Collection of necessary data and recognition, measurements/ valuation of assets, liabilities etc.

For processing annual financial statements and compilation of all necessary data for it.

Maintenance of Accounting RecordsMaintenance of Accounting Records

► Maintenance of proper records of various classes of assets Maintenance of proper records of various classes of assets (constructed, acquired or donated), inventories, receivables (constructed, acquired or donated), inventories, receivables and carry over as prescribed in the Financial rules and and carry over as prescribed in the Financial rules and departmental regulations is a starting point for transition to departmental regulations is a starting point for transition to accrual accounting. There are, however, problems connected accrual accounting. There are, however, problems connected with the gathering of information which stem from non- with the gathering of information which stem from non- maintenance of these basic records and poor quality of data maintenance of these basic records and poor quality of data that are available. This is a major accounting concern. that are available. This is a major accounting concern. Concerted efforts are needed to assemble the necessary Concerted efforts are needed to assemble the necessary historical data for the previously acquired assets to build a historical data for the previously acquired assets to build a proper inventory which should inter-alia include location of proper inventory which should inter-alia include location of assets. This would help in identification and valuation of assets. This would help in identification and valuation of assets. The preparation of asset register and valuation of assets. The preparation of asset register and valuation of assets doubtless will be a huge task but is a pre-requisite to assets doubtless will be a huge task but is a pre-requisite to facilitate transition to accrual accounting and better facilitate transition to accrual accounting and better management of assets. Reconstruction of records may present management of assets. Reconstruction of records may present many challenges. Non-availability of old records due to their many challenges. Non-availability of old records due to their limited life of preservation or organizational restructuring limited life of preservation or organizational restructuring may dictate the use of physical verification for the purpose of may dictate the use of physical verification for the purpose of re-construction of these records.re-construction of these records.

► The details of records to be maintained The details of records to be maintained under codal provisions and under codal provisions and departmental rules but which have not departmental rules but which have not been maintained in both the selected been maintained in both the selected offices are provided in the following offices are provided in the following table along-with the purpose against table along-with the purpose against each record:each record:

► Table 2(a)Table 2(a)► Table 2(b)Table 2(b)

Table 2(a)Table 2(a)► Details of records not maintained in Territorial Forest DivisionDetails of records not maintained in Territorial Forest Division

S. No. Particulars of Record Purpose

1 Register of Land For identification of land under the control of the division.

2 Register of Buildings For identification of various buildings under the control of the division.

3 Register of other infrastructure and heritage assets viz. Tube wells, Dug wells, Stop Dam, WBM Road, Culverts, Heritage etc.

For identification of other fixed assets under the control of the division.

4 Register of Sanctioned Estimates Details of sanctioned works.

5 Register of Works Details of works in-progress

6 Register of Funds received from other Departments/ Institutions

Identifying amount and progress of expenditure on each work

7 Register of Loans and Advances to the Staff For identification of receivables

8 Departmental Provident Fund (DPF) Register To identify DPF balance in each account

9 Register of Rent of DepartmentalBuildings

Keeping track of rent due and their recoveries

10 Register of Consumables Inventory details

11 Register of Bills of Suppliers For identification of liabilities

Table 2(b)Table 2(b)► Details of records not maintained/ or incomplete in Details of records not maintained/ or incomplete in

office of the Civil Surgeon-cum- Chief office of the Civil Surgeon-cum- Chief Superintendent, District Hospital, Gwalior(CS)Superintendent, District Hospital, Gwalior(CS)

S. No. Particulars of Record Purpose

1 Register of Land & Building (not maintained)

For identification of land and buildings under the control of the CS.

2 Register of Fixed assets other thanLand & Buildings (incomplete)

For identification of other fixed assets under the control of the CS.

3 Stock Register of Medical Supplies(incomplete)

For identification of details of medicines, other medical supplies received, consumed and balance on the Balance Sheet date.

4 Register of Loans and Advances to the Staff (not maintened)

For identification of receivables

5 Departmental Provident Fund (DPF) Register (incomplete)

To identify DPF balance in each account

6 Register of Bills of Suppliers (not maintained)

For identification of liabilities

In the absence of above mentioned In the absence of above mentioned records, we had to carry out a records, we had to carry out a massive exercise of identification and massive exercise of identification and compilation of details of assets and compilation of details of assets and liabilities under the control of both the liabilities under the control of both the entities by eliciting information on pre-entities by eliciting information on pre-designed formats.designed formats.

Pilot Study Of Territorial Forest Division , Pilot Study Of Territorial Forest Division , BhopalBhopal

Organizational Set up:-Organizational Set up:-► Territorial Forest Division, Bhopal has one Sub-Territorial Forest Division, Bhopal has one Sub-

division and four Range Offices. One sub- division division and four Range Offices. One sub- division and two Ranges are territorial units. The and two Ranges are territorial units. The Division has 12 circles, 44 beats,Division has 12 circles, 44 beats,

► 3 Forest Depots, 15 Nistar Depots, 1 Nursery and 3 Forest Depots, 15 Nistar Depots, 1 Nursery and 14 Forest Villages. The forest cover in the Division 14 Forest Villages. The forest cover in the Division is 43,723 ha. Pilot study was conducted in Bhopal is 43,723 ha. Pilot study was conducted in Bhopal sub- division, one range office at Samardha under sub- division, one range office at Samardha under Bhopal sub division, 5 beats, Ahmadpur and Bhopal sub division, 5 beats, Ahmadpur and Bersia forest depots and 5 Nistar depots.Bersia forest depots and 5 Nistar depots.

► Reporting EntityReporting Entity A unique feature of the Department is the A unique feature of the Department is the

multi organizational ownership of the multi organizational ownership of the forest produce specially the minor forest forest produce specially the minor forest produce. There is a parallel organization produce. There is a parallel organization - Madhya Pradesh State Minor Forest - Madhya Pradesh State Minor Forest Produce Federation registered as Society Produce Federation registered as Society - a separate entity under the State - a separate entity under the State Government. The minor forest produce Government. The minor forest produce including tendu leaves are harvested by the including tendu leaves are harvested by the Federation and income so generated does Federation and income so generated does not form part of the receipts of the Forest not form part of the receipts of the Forest Divisions. In accordance with IPSAS 6 the Divisions. In accordance with IPSAS 6 the Federation, not under the control of the Federation, not under the control of the Division has not been taken as group of Division has not been taken as group of related entity. For the purpose of related entity. For the purpose of presentation of AFs, the Division has been presentation of AFs, the Division has been considered as a single reporting entity.considered as a single reporting entity.

► System of AccountingSystem of Accounting Territorial Forest Division, Bhopal is headed by a Territorial Forest Division, Bhopal is headed by a

Conservator of Forest who is the drawing officer for Conservator of Forest who is the drawing officer for the Unit. The funds are drawn by cheques except the Unit. The funds are drawn by cheques except those relating to establishment and office expenses those relating to establishment and office expenses which are drawn through bills presented at which are drawn through bills presented at government treasury. The disbursers are Range government treasury. The disbursers are Range Officers for Payments relating to Forest activities and Officers for Payments relating to Forest activities and Head clerk in the Divisional Office for establishment Head clerk in the Divisional Office for establishment payments. The accounts for expenditure incurred are payments. The accounts for expenditure incurred are submitted to the Division by these disbursers for submitted to the Division by these disbursers for inclusion in the monthly account of the Division.inclusion in the monthly account of the Division.

► The accounts of the Division are on cash basis and The accounts of the Division are on cash basis and are kept in the form prescribed in the Account Code are kept in the form prescribed in the Account Code Vol. III. These are compiled on monthly basis Vol. III. These are compiled on monthly basis and submitted to the Accountant General and submitted to the Accountant General (Accounts and Entitlements), Madhya Pradesh for (Accounts and Entitlements), Madhya Pradesh for consolidation and incorporation in the accounts of consolidation and incorporation in the accounts of the State Government. the State Government.

► The period of accounts is financial year from 1st April The period of accounts is financial year from 1st April through 31st March.through 31st March.

Field testing of IPSAS/IGFRS Standard Field testing of IPSAS/IGFRS Standard GASAB has issued the following Financial Reporting GASAB has issued the following Financial Reporting

Standard on Accrual basis of Accounting.Standard on Accrual basis of Accounting.► IGFRS 2 Property, Plant and EquipmentsIGFRS 2 Property, Plant and Equipments► IGFRS (Accrual Exposure Draft)- 3 Revenue for IGFRS (Accrual Exposure Draft)- 3 Revenue for

Exchange TransactionsExchange Transactions► IGFRS (Accrual Exposure Draft)-4 InventoriesIGFRS (Accrual Exposure Draft)-4 Inventories

Treatment of Various TransactionsTreatment of Various Transactions► A summary of treatment of various transactions for the A summary of treatment of various transactions for the

year 2008-09 is provided in table -4 below. The year 2008-09 is provided in table -4 below. The recognition and measurement criteria in the context of recognition and measurement criteria in the context of pilot study are broadly consistent with IPSAS wherever pilot study are broadly consistent with IPSAS wherever relevant. In other cases where explicit standard/guidance relevant. In other cases where explicit standard/guidance is not available, most rational options available in the is not available, most rational options available in the circumstances have been adopted.circumstances have been adopted.

S.No. Account Group andsub-group

RecognitionCriteria

MeasurementBasis

Remarks

A. Revenue

1 Sale of Timber, fuel wood and Bamboo

(i) Sale of Timber, fuel wood and bamboo by Nistar Depot is recognised on cash basis

Revenue realisation and other related records/ registers

Timber, fuel wood and bamboo are sold by Nistar depot on fixed price on cash payment. It is therefore valued at net realisable value.

(ii) Sale of Timber, fuel wood and bamboo by Depots by auction recognised on acceptance of bid by the competent authority

Revenue realisation and other related records/ registers

Sale from Depots on the basis of highest bid received in auction.

2 Other receipts Fines and forfeitures etc. recognised on receipt basis

Revenue realization and other related records/ registers

B Expenses

1 Salary, wages and employees benefit

Pay and allowances of staff recognised when due for payment.

Pay Bill Register and other records

Account of Pay and Allowances compiled by the Treasury and rendered to the A.G. (A&E) M.P. on monthly basis.

2 Office Expenses & maintenance of vehicles

All expenses are recognised on accrual basis.

Paid Vouchers and bills not presented

C. Assets

1 Property, plant and equipment.

Probability that future economic benefits or service potential associated with item will flow to the entity

As per IPSAS 17 andIGFRS-2

2 Land and Forest produce All forest land belongs to the State Government

Land and natural forest produce is valued @ Rs. 1000/- per ha. as discussed in item 2 in Table-3 of this report.

3 Regeneration expenses Expenditure incurred on nursery and additive plantation on accrual basis

Monthly accounts of units as compiled by Divisional Forest Office

As discussed in sub- para 2.4.2(2) of this Report.

4 Buildings Residential and non-residential buildings on cost basis

Buildings valued on historical cost less depreciation basis and where historical cost is not available these are valued at Re.1/- per square ft.

5 Other Assets Other assets includes furniture, vehicles etc. on cost basis

Other assets valued on historical cost. Where historical cost is not available these are valued at Re. 1/- per item

6 Inventories Timber, fuel wood and bamboo held for sale valued at fair value or net realisable value depending on process of sale I.e. auction 'or' at a nominal rate.

The value of the inventories to be sold by auction is measured on the basis of average bids of previous three auctions and in the rest of the cases at net realisable value.

7 Loan and Advances Legal enforceability of the claim as evidenced from the records

The value of the financial assets based on historical cost

Financial assets include loan and advances to staff.

D. Liability

1 Outstanding expenses Present obligations as a result of a past event. Provision

can be made on the basis of pending obligations i.e. bills received upto cut

off date as decided by the entity

Bills for the period upto 31.03.2009 received and paid upto

30th June 2009 i.e the cut off date have been considered

2 Employees RetirementBenefits

(i) Pension Gratuity (a) Employees recruited prior to

01.01.2005

Actuarial value for calculation of pension is not made available as such not recognised.

Actuarial valuation

(b) Employees recruited on or after

01.01.2005. Deduction @ 10% of Pay plus Dearness

Allowance from theemployees and equal

contribution by Forest Department towards contributory pension scheme.

Matching contribution from employees provided for.

(ii) DepartmentalProvident Fund

For group "D" employees Departmental Provident Fund is maintained by Forest Department.

Liabilities towards interest on balance of DPF provided at the rate applicable to Provident Fund for the year 2008-09.

Annual Financial StatementAnnual Financial Statement As per IPSAS-1 and 2, the set of annual As per IPSAS-1 and 2, the set of annual

financial statements include:financial statements include: (a) Statement of Financial Position;(a) Statement of Financial Position; (b) Statement of Financial Performance;(b) Statement of Financial Performance; (c) Statement of Change in net (c) Statement of Change in net

assets/equity ; assets/equity ; (d) Cash Flow Statement ; and(d) Cash Flow Statement ; and (e) Accounting Policies and Notes to (e) Accounting Policies and Notes to

Financial Statement.Financial Statement.► Financial statements on accrual bases Financial statements on accrual bases

for 2008-09, which are illustrative, for 2008-09, which are illustrative, conform to the requirements of IPSAS-1 conform to the requirements of IPSAS-1 and 2. These are placed as Annexure to and 2. These are placed as Annexure to this Report.this Report.

► Study Of Civil Surgeon-cum-Chief Hospital Study Of Civil Surgeon-cum-Chief Hospital Superintendent, District Hospital GwaliorSuperintendent, District Hospital Gwalior

Orgnanisational Set upOrgnanisational Set up

► The office of Civil Surgeon-cum-Chief Hospital The office of Civil Surgeon-cum-Chief Hospital Superintendent, District Hospital Gwalior (CS) came into Superintendent, District Hospital Gwalior (CS) came into existence in 1997. Primarily the objective for establishment existence in 1997. Primarily the objective for establishment of the office of CS at Gwalior is to provide medical, public of the office of CS at Gwalior is to provide medical, public health and family planning services to the town/urban area health and family planning services to the town/urban area population (8,26,919 as per 2001 census) falling under population (8,26,919 as per 2001 census) falling under Nagar Nigam area of Gwalior. Prior to the establishment of Nagar Nigam area of Gwalior. Prior to the establishment of the O/O CS these services were provided by Chief Medical the O/O CS these services were provided by Chief Medical and Health Officer Gwalior (CMHO).and Health Officer Gwalior (CMHO).

► 21 attached hospitals and dispensaries {1 District 21 attached hospitals and dispensaries {1 District Hospital (200 beds), 2 Civil Hospitals (70 beds), 1 TB Hospital (200 beds), 2 Civil Hospitals (70 beds), 1 TB Hospital (104 beds), 3 Maternity Homes (80 beds), 1 Field Hospital (104 beds), 3 Maternity Homes (80 beds), 1 Field Health Centre and 13 Civil Dispensaries (50 beds)} are Health Centre and 13 Civil Dispensaries (50 beds)} are functioning under the control of CS, Gwalior with a total functioning under the control of CS, Gwalior with a total complement of medical and paramedical staff of 352. complement of medical and paramedical staff of 352.

System of AccountingSystem of Accounting

► Civil Surgeon-cum-Chief Hospital Superintendent, Civil Surgeon-cum-Chief Hospital Superintendent, District Hospital Gwalior (CS) is the head of office. District Hospital Gwalior (CS) is the head of office. The accounting functions in the office are looked The accounting functions in the office are looked after by an Accountant who is responsible for after by an Accountant who is responsible for drawal of money from Treasury for payment of staff drawal of money from Treasury for payment of staff salary , bills etc. The budget is salary , bills etc. The budget is communicated to the Treasury which controls communicated to the Treasury which controls expenditure with reference to allotted funds.expenditure with reference to allotted funds.

► Office of the CS does not have any direct income. Office of the CS does not have any direct income. The expenditure incurred by CS is mostly on The expenditure incurred by CS is mostly on providing medical, public health and family providing medical, public health and family planning services. Capital works, if any, on land planning services. Capital works, if any, on land and buildings is carried out by Public Works and buildings is carried out by Public Works Department of Government of MP for which Department of Government of MP for which budget is allocated directly to PWD by the budget is allocated directly to PWD by the State Government.State Government.

Reporting EntityReporting Entity► Civil Surgeon-cum- Chief Civil Surgeon-cum- Chief

Superintendent (CS), District Hospital, Superintendent (CS), District Hospital, Gwalior including 21 attached Gwalior including 21 attached hospitals and dispensaries has been hospitals and dispensaries has been treated as a separate reporting entity treated as a separate reporting entity for the purpose of preparation of AFS for the purpose of preparation of AFS as provided in IPSAS 6. as provided in IPSAS 6.

► All the revenues, expenses, assets All the revenues, expenses, assets and liabilities relating to and under and liabilities relating to and under the control of CS Gwalior are included the control of CS Gwalior are included in these AFS.in these AFS.

► Field testing of IPSAS/IGFRSField testing of IPSAS/IGFRS

GASAB has issued the following GASAB has issued the following Financial Reporting Standard on Financial Reporting Standard on Accrual basis of Accounting.Accrual basis of Accounting.

► IGFRS 2 Property, Plant and IGFRS 2 Property, Plant and EquipmentsEquipments

► IGFRS (Accrual Exposure Draft)- 3 IGFRS (Accrual Exposure Draft)- 3 Revenue for Exchange TransactionsRevenue for Exchange Transactions

► IGFRS (Accrual Exposure Draft)-4 IGFRS (Accrual Exposure Draft)-4 InventoriesInventories

Recognition and measurement of Recognition and measurement of identified transactionsidentified transactions

► Recognition and measurement of Recognition and measurement of transactions in the context of pilot study transactions in the context of pilot study refers to the recording and its valuation refers to the recording and its valuation in trial balance taking cognizance of in trial balance taking cognizance of identified transactions for the purpose of identified transactions for the purpose of preparation of accrual AFS. The recognition preparation of accrual AFS. The recognition and measurement criteria are primarily and measurement criteria are primarily based on IPSAS/IGFRS, based on IPSAS/IGFRS, guidelines/instructions wherever, relevant guidelines/instructions wherever, relevant and applicable. In other cases, generally and applicable. In other cases, generally accepted accounting principles have been accepted accounting principles have been considered for recognition of the transaction.considered for recognition of the transaction.

The broad recognition and identification criteria followed are as The broad recognition and identification criteria followed are as under :-under :-

Table – 6Table – 6Account Group classification as per

Accrual AFS

Recognition Criteria Measurement basis(valuation Methodology)

1 2 3

Expenses

Wages, Salaries and employee benefits

Salaries and other employee related benefits are recorded on accrual basis on gross basis i.e without any deductions

From Pay bills and other relevant bills/ records.

Supplies and consumables used

Issue of consumables for consumption

Value of materials consumed

Other Expenditure Decrease in future economic benefits related to a decrease in an asset or an increase of a liability which has arisen that is probable and can be measured reliably.

Actual disbursement during the year.

Value of ascertainable obligations as on 31st March.

Assets & LiabilitiesAssets & LiabilitiesEquipments/instruments electrical,

Medical, Surgical, Furniture and Fixtures.

From the details as available in various stock Registers

Cost of purchase.

Inventories From the details available in various stock registers

Cost of purchase

Financial Assets Amount recoverable as per records.

Amount receivable as per records.

Liabilities on account of Employee Benefits- Retirement

At present both pension plans i..e defined benefit plan and defined contributory plan are applicable to the employees working under the control of entity.

Identification of TransactionsIdentification of Transactions► The first stage in the identification of the The first stage in the identification of the

transactions was through discussions with transactions was through discussions with the concerned officers and officials. Based the concerned officers and officials. Based on the discussions, the relevant records and on the discussions, the relevant records and other documents maintained and the other documents maintained and the information they provided, these were information they provided, these were identified. This analysis helped to identify identified. This analysis helped to identify the information gaps for preparation of the information gaps for preparation of accrual AFS. The details of records accrual AFS. The details of records maintained and their purpose vis-a-vis maintained and their purpose vis-a-vis information available are as belowinformation available are as below : : Table-7Table-7

S.No. Name of Records Purpose Information available

1 2 3 4

1. Budget ControlRegister

For control of expenditure against allocations in Budget

Budget control register not maintained.

2. Treasury BillRegister

To record the bills submitted to the treasury with details of payment/ rejection by treasury

Details of bills presented to treasury for payment

3. Stock Registers (a) To record the receipt and issue of consumables (inventories)

(b) Record transactions of receipt and issue of articles of permanent nature (fixed assets).

(c) To record transactions relating to receipt and issue of food grains, milk etc.

(d) To record transactions relating to receipt and issue of liveries linen etc.

Availability of stock materials as on any date.

4. Pay bills. Maintained for employees emoluments

Details of gross salary payable to each employee

5. Cash Book with details of various allowances payable/ paid

and details of recoveries and net amount payable/ paid.

Annual Financial StatementAnnual Financial Statement► As per IPSAS-1 and 2, the set of annual As per IPSAS-1 and 2, the set of annual

financial statements include: financial statements include: (i) (i) Statement of Financial Position;Statement of Financial Position; (ii) Statement of Financial (ii) Statement of Financial

Performance;Performance; (iii) Statement of Change in net (iii) Statement of Change in net

assets/equity ;assets/equity ; (iv) Cash Flow Statement; and(iv) Cash Flow Statement; and (v) Significant Accounting Policies and (v) Significant Accounting Policies and

Notes to Financial Statement.Notes to Financial Statement.► Financial statements on accrual bases for Financial statements on accrual bases for

2008-09, which are illustrative, conform 2008-09, which are illustrative, conform to the requirements of IPSAS-1 and 2. to the requirements of IPSAS-1 and 2. These are placed as Annexure to this These are placed as Annexure to this Report.Report.

Benefits of the StudyBenefits of the Study► The study is noteworthy that not only The study is noteworthy that not only

statement of Financial Position for the reporting statement of Financial Position for the reporting entity has been prepared but it also entity has been prepared but it also discloses physical assets and current discloses physical assets and current liabilities. Expenses rather than expenditure liabilities. Expenses rather than expenditure have been recognized resulting in exhibition have been recognized resulting in exhibition of fair view of operating results. The illustrative of fair view of operating results. The illustrative AFS compliant with IPSAS 1 and 2 provide AFS compliant with IPSAS 1 and 2 provide comprehensive financial/ accounting comprehensive financial/ accounting information on recognition of non-financial information on recognition of non-financial assets and depiction of receivables and assets and depiction of receivables and payables in the accounts. These details would payables in the accounts. These details would help the line managers in better asset control help the line managers in better asset control and management, informed decision making and management, informed decision making and efficient resource allocations.and efficient resource allocations.

Issues and SuggestionsIssues and Suggestions► The following table gives the The following table gives the

details of issues as a result of non-details of issues as a result of non-compliance of prescribed system, compliance of prescribed system, absence of standards/ guidance absence of standards/ guidance notes for transition to accrual notes for transition to accrual accounting noticed during the pilot accounting noticed during the pilot study in both the offices:study in both the offices:

Issues/Gaps Description Suggestion

1. Non-maintenance of Register of Land and Buildings or Register of properties

Register of Land and Buildings or Register of properties has not been maintained as a result the identification of assets, their value could not be

done/worked out.

• Proper inventory of fixed assets at cost for new assets has to be maintained. Effort to find out the historical cost of previously acquired assets shall have to be made. The register should be regularly updated and validated.

• Records maintained by the Public Works Department for the buildings / Revenue department for the land could be accessed.

• In case where details are not known, these records may be

compiled with reference to

2. Register of other infrastructure and heritage assets viz. Tube wells, Dug wells, Stop Dam, WBM Road, Culverts, Heritage etc.

These registers have not been maintained; as a result the identification of assets, their value could not be done/worked out.

the physical existence of assets.

3. Register of Loans andAdvances to the Staff

In the absence of non- maintenance or improper maintenance, information relating to receivables could not be worked out.

The requisite records shall be maintained in proper form with reference to payment vouchers and recovery schedule with complete details. Pay bill register and abstract of pay bill in the form of a ledger for recording the dues payable and deductions made in respect of each claim for pay and allowances of a Government servant similar to the form used by the Central Government offices as prescribed in Central Government Account-Receipt and Payment Rules may be

adopted by reporting entities.

4. Stock Register of consumables Stock Registers maintained are incomplete in as much as neither the rates of items received/procured nor total value thereof was recorded.

Register of Assets/ Inventory shall have to be maintained indicating months/year in which the item (s) was purchased/received or acquired, make, size, quantity and total value/ cost thereof with details of quantity and value thereof issued /consumed, balance lying in stock alongwith its value. This register should have cross reference to the suppliers bills and be seen for its completeness and update posting by DDO every month. This can be monitored if internal audit as well as external audit in their inspection report make their observations on the

maintenance of prescribed

accounting records as noticed after a thorough check.

5. Register of Liabilities The books/ records in the existing system of accounts do not exhibit the details of Payables to suppliers, salaries & wages payables, pension & gratuity liabilities, etc

Liability register may be maintained and posted as and when the liability is incurred. The source being the Suppliers/Contractor’s pending bills, arrears on account of salaries & allowances payable to staff and other personal

claims.

6. Absence of explicit Standards /guidance notes

(a) Valuation of naturalForest

IPSAS 27 - Agriculture drawn primarily from IAS

41- Agriculture does not cover as to how the natural

forests could be valued.

As to how the natural forests is to be valued, there is need for explicit guidance by the Accounting Standard Setting

Body.

(b) Impairment of forest vegetation IPSAS 26 on Impairment of Cash Generating Assets does not cover impairment of forest vegetation

Accounting policies for impairment methods used to collect impairment data and responsibility for conducting the impairment review should

be established.

(c) Valuation ofInfrastructure Asset

There is no clear provision in the standards regarding valuation of infrastructure assets

For non-tradable commodities/ infrastructure like roads, bridges, culverts, etc. Accounting Standard setting Body may deliberate as to how such type of assets should be valued. We feel that these should be shown at nominal value with detailed listing in the

appropriate schedule.

(d) Fixation of threshold limit for capitalization of assets

There is no clear provision in the standards regarding fixation of threshold limit for capitalization of assets.

Establishment of threshold limit below which assets individually or collectively would be expended as expenditure and not capitalized shall have to be

accordingly fixed by the entity

keeping in view the materiality factor. For the purpose of accounting, however, these will be taken in stock till its

disposal.

(e) Encroached Land There is no mention in IPSAS/IGFRS about treatment of Govt. assets/land which has been encroached.

Since title of such type of land vests with the Government, it will be valued like any other Government land with adequate disclosure about its

encroachment.

7. Liabilities on account of Retirement Benefits

At present both pension plans i..e defined benefit plan and defined contributory plan are applicable to the employees working under the control of entity. No liability on this account could be provided as actuarial valuation in respect of defined benefit

plan was not available.

Entity should get the pensionary liability worked out by engaging actuaries.

IntroductionIntroductionStudy on District Tribal Welfare Office, Study on District Tribal Welfare Office, Ranga Reddy DistrictRanga Reddy District , ,Andhra PradeshAndhra Pradesh

► The District Tribal Welfare Office (DTWO), The District Tribal Welfare Office (DTWO), Ranga Reddy District is a Drawing and Ranga Reddy District is a Drawing and Disbursing Office (DDO) and functions Disbursing Office (DDO) and functions under the Tribal Welfare Department. under the Tribal Welfare Department. The pilot study is conducted in DTWO, The pilot study is conducted in DTWO, Ranga Reddy District covering office of Ranga Reddy District covering office of ATWO, HM, HWO, DTO and STO.ATWO, HM, HWO, DTO and STO.

►There are 23 DTWOs under the There are 23 DTWOs under the Department of Tribal Welfare in the State Department of Tribal Welfare in the State of AP. of AP.

Approach and Approach and MethodologyMethodology

► The essence of the approach is to base the The essence of the approach is to base the study on the immediately available data and study on the immediately available data and build the Annual Financial Statements for the build the Annual Financial Statements for the pilot offices on the same. This ensures faster pilot offices on the same. This ensures faster collection of data, identification of the gaps collection of data, identification of the gaps and ensures users acceptance of transition to and ensures users acceptance of transition to accrual accounting. The overall approach and accrual accounting. The overall approach and methodology is provided in Exhibit 2 below:methodology is provided in Exhibit 2 below:

► The above component of the approach and The above component of the approach and methodology is detailed in Table 5 below:methodology is detailed in Table 5 below:

Aspects Purpose

Understanding Existing Systems· Understand the organisation structure of the pilot office and

its reporting relationships / linkages with other wings of the department, if any

· Understand the accounting process at the pilot office including the compilation of accounts and reconciliation with head office and treasury offices

· Identify the books and records currently maintained at the pilot office and the information captured by them

· Identification of accounting transactions in the pilot offices· Ensuring that the proposed accrual AFS take into account the

existing accounting environment

Analyse and identify Gaps for AccrualAccounting· Tabulate the information available and classify them as

Assets, Liabilities, Income and Expenditure· Identify the gaps in the information availability for

transition to accrual accounting

· Develop baseline information for the study· Understand the information available in the existing books

and records· Identify the accrual accounting related information gaps

Identification, Recognition, Measurement/valuation of accrual items

· Design template for data collection· Discuss the data compilation process with the concerned

officials and conduct meetings wherever required based on Accrual Transaction Identification Framework (discussed below)

· Identify the valuation methodology (considering IPSAS/IGFRS and Generally Accepted Accounting Principles)

· Identification of accrual accounting related heads· Preparation of Trial Balance

Preparation of Accrual AFS for 2008 -09 for each of the Two Pilot Offices

Based on the data compiled, prepare Trial Balance (which forms the basis for all other components of Accrual AFS)

Preparation of Accrual Annual FinancialStatements

Organisation StructureOrganisation Structure

►DTWO, Ranga Reddy District is headed DTWO, Ranga Reddy District is headed by the District Tribal Welfare Officer. by the District Tribal Welfare Officer. There are 16 DDOs under DTWO, There are 16 DDOs under DTWO, Ranga Reddy District. Ranga Reddy District.

Accounting FunctionAccounting Function► The Accounting function at the DTWO is headed by The Accounting function at the DTWO is headed by

an Accountant who is also responsible for an Accountant who is also responsible for compilation of the monthly statement of compilation of the monthly statement of expenditure, monitoring the budgets, reconciliation expenditure, monitoring the budgets, reconciliation with the DDOs (under the DTWO) and with the CCO.with the DDOs (under the DTWO) and with the CCO.

► The budget amount is allocated to the DTWO by the The budget amount is allocated to the DTWO by the CCO of the Department. The DTWO retains budget CCO of the Department. The DTWO retains budget for their own office and further allocates the budget for their own office and further allocates the budget to the DDOs –Assistant Tribal Welfare Officer to the DDOs –Assistant Tribal Welfare Officer (ATWOs) and Head Masters (HM), under it. ATWOs (ATWOs) and Head Masters (HM), under it. ATWOs release budget to Hostel Welfare Officers (HWO) release budget to Hostel Welfare Officers (HWO) also DDOs. The DDOs draw their funds through also DDOs. The DDOs draw their funds through their attached DTO/ STO.their attached DTO/ STO.

► DTWO does not have any income. It only incurs DTWO does not have any income. It only incurs expenditure. The capital expenditure, if any, for the expenditure. The capital expenditure, if any, for the DTWO is carried out by the Engineering Wing of the DTWO is carried out by the Engineering Wing of the Department for which a direct budget is allocated Department for which a direct budget is allocated by the CCO.by the CCO.

Accrual Accounting in DTWOAccrual Accounting in DTWO► The first stage in preparation of the accrual The first stage in preparation of the accrual

AFS for DTWO involved identification of the AFS for DTWO involved identification of the transactions, classification into the accrual transactions, classification into the accrual model Annual Financial Statement (AFS) model Annual Financial Statement (AFS) Heads, recognition and their measurement.Heads, recognition and their measurement.

► Identification of TransactionsIdentification of Transactions► Based on discussions, the relevant records Based on discussions, the relevant records

and other documents maintained and the and other documents maintained and the information that are available were information that are available were identified. This analysis enables identified. This analysis enables identification of the information gaps for identification of the information gaps for preparation of accrual AFS. The details of preparation of accrual AFS. The details of records maintained and their purpose is records maintained and their purpose is provided in the Table 6 below:provided in the Table 6 below:

S. No

Name ofDocument

Purpose Information Available

1 Budget Proceedings from CCO

For allocation of budget by CCO to theDTWO

Budget for the year

2 Statement ofReleases andExpenditure

Monthly Summary of releases and expenditure by Hostels/Schools

Head-wise details of monthly and year-to-

date disbursements

3 Budget ControlRegister

Monitoring of Budget Budget classified by various heads and its

utilisation

4 Bill for Payment To record the bill payable details for submission to treasury for payment

The bill payable and the payments made

5 Treasury BillRegister

To record the bills submitted to the treasury and the payments/rejections by the treasury

The details of bills submitted for payment

6 Stock Register To record the receipt and issue of consumables (inventories)

The stock quantity of materials available as on

any date

7 Cheque IssueRegister

To record the cheques issued by the treasury The details of actual payments made

8 PaymentProceedings

Authorisation by the DTWO for making payment for the claims made by the vendors. It forms part of the docketsent to treasury for making payment

Authorisation document for payment

9 Pay Bill Maintained for employee emoluments Details of salaries, recoveries from salaries,etc.

10 Cash Book To record receipts and disbursements All receipts and disbursements made

11 Service Book Records the movements and other details of the employee from the date of joining

Age, Date of joining, retirement

12 Budget Distribution Proceedings

Budget allocation to ATWO/ Hostels / Schools

Allocation of budget to the DDOs

13 Monthly Statement Summary

Compilation of total expenditure ofDTWO, Hostels, Schools

Head wise expenditure incurred by the DDOs

14 Reconciliation Statement with DTO

To match the payments recorded by the DTO including the account heads.

Expenditure, if any not accounted by the DTWO

► The perusal of records and discussions The perusal of records and discussions with officials led to identification of with officials led to identification of transactions. For the purpose of transactions. For the purpose of analysis, the transactions identified are analysis, the transactions identified are further grouped based on the source of further grouped based on the source of transaction. transaction.

► The Table 7 below contains the The Table 7 below contains the Identification and Classification of Identification and Classification of transactions:transactions:

S.No. Transactions Identified Nature ofTransaction(Asset / Liability/

Income / Expense)

Account GroupClassification as perAccrual AFS

A. Receipts and Disbursements of DTWO

1 Salary (including pay, allowance, DAand HRA)

Expense Wages, salaries and employee benefits

2 Medical Reimbursement Expense Wages, salaries and employee benefits

3 Encashment of Earned leave Expense Wages, salaries and employee benefits

4 Leave Travel Concession Expense Wages, salaries and employee benefits

5 Wages Expense Wages, salaries and employee benefits

6 Travel Allowance Expense Other Expenditure

7 Service postage, Telegram andTelephone Charges

Expense Other Expenditure

8 Other Office Expenses Expense Other Expenditure

9 Water and Electricity charges Expense Other Expenditure

10 Hiring of private of vehicles Expense Other Expenditure

11 Rents. Rates and Taxes Expense Other Expenditure

12 Material and Supplies Expense Supplies and consumables used

13 Cost of Ration/Diet charges Expense Supplies and consumables used

14 Maintenance Expense Other Expenditure

15 Other Payments Expense Other Expenditure

16 Other Contractual Services Expense Other Expenditure

17 Grants in aid Expense Grants and other transfer payments

18 Other Expenditure Expense Other Expenditure

19 Motor vehicles Expense Other Expenditure

20 Post Matriculation Scholarships Expense Grants and other transfer payments

21 Scholarships and Stipends Expense Grants and other transfer payments

S. l Transactions Identified Nature ofTransaction(Asset / Liability/

Income / Expense)

Account GroupClassification as perAccrual AFS

22 Promotion of Inter caste marriages Expense Other Expenditure

23 Book Bank (For students) Expense Other Expenditure

B. Liabilities / Assets Emanating from Receipts and Disbursements made by DTWO

24 Payables Liability Financial Liabilities

25 Loans and Advances to GovernmentServants

Asset Financial Assets

26 Inventories Asset Inventories

C. Resources / Facilities used by DTWO which were paid for by others

27 Building Maintenance incurred byEngineering wing on behalf of theDTWO

Expenditure Other Expenditure

28 Property Plant and Equipment Asset Property Plant andEquipment

Land

Building

Office Equipment

Furniture and Fixtures

D. Liabilities related to DTWO, Ranga Reddy relating to Transactions at State Level

29 State Contribution to Pension - for employees joined after Sep 1, 2004


30 State Contribution to Pension Fund(for employees joined after Sep 1,2004) not remitted

Liability Financial Liabilities

31 Employee Benefits Liability Employee Benefits - Retirement

Pension

Gratuity

Recognition and Measurement of Recognition and Measurement of Identified TransactionsIdentified Transactions

► Recognition and measurement of Recognition and measurement of transaction in the context of the pilot study transaction in the context of the pilot study refers to the recording and its valuation in refers to the recording and its valuation in trial balance taking cognizance of the trial balance taking cognizance of the identified transaction for the purpose of identified transaction for the purpose of preparation of accrual AFS. The recognition preparation of accrual AFS. The recognition and measurement criteria are primarily and measurement criteria are primarily based on IPSAS/IGFRS, wherever based on IPSAS/IGFRS, wherever relevant and applicable. In other cases,relevant and applicable. In other cases,

generally accepted accounting principles generally accepted accounting principles have been considered for recognition of have been considered for recognition of the transaction. The broad recognition and the transaction. The broad recognition and identification criteria are given in Table 8 identification criteria are given in Table 8 below:below:

Account GroupClassification as

per AccrualAFS

Recognition Criteria Measurement Basis(Valuation

Methodology)

Remarks

Expense

Wages, salaries and employee

benefits

· Salaries and other employee related

benefits are recorded on accrual basis

· From the pay bill and other relevant records

Grants and other transfer

payments

· On commitment of grants.

· Amount actually paid· Value of grants

committed

Grants include the scholarship

and stipend paidby the DTWO.

Supplies and consumables

used

· Issue of consumables for consumption

· Actual cost of materials consumed

OtherExpenditure

· Decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that is probable and can be measured reliably.

· Actual disbursements during the year

· Value of ascertainable obligations as on March

31, 2009

Asset

Property Plant and Equipment

· It is probable that future economic benefits or service potentialassociated with the item will flow to theentity; and· The cost or fair value of the item can be measured reliably

· As per transitional provisions of IPSAS 17 / IGFRS - 2· Fair value method adopted for first time recognition of property,plant and equipment.

Recognition and measurement of PPE based onthe subjective judgment of the respective DDO.

Inventories · Identification of the consumables held for consumption· Title to the goods have passed on to the DDO

· Cost of purchase

Financial Assets · Legal enforceability of the claim as evidenced from the records

· The value of the financial assets ( on historical cost basis)

Includes receivables,loans and

Account GroupClassification as per

AccrualAFS

Recognition Criteria Measurement Basis(Valuation

Methodology)

Remarks

advances and any other financial assets

Liabilities

FinancialLiabilities

· Obligation to pay as evidenced from the records maintained

· The value of obligations as can be ascertained from the documents / records

Includes sundry creditors and

other trade payable

Provision for expenses

· Present obligation (legal or constructive) as a result of a past event;

· It is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and

· A reliable estimate can be made of the amount of the obligation.

· Any provision required as evidenced from the records

A provision is a liability of

uncertain timingor amount.

EmployeeBenefits –Retirement

· For pension, the employees as differentiated by their level and the date of joining

· For gratuity, the number of years of service

· Leave encashment has been computed based on assumption

· Valued based on the commutation factor used for commutation of pension.

· Gratuity is valued based on the current valuation methodology adopted for retiring employees

· Leave encashment has been computed assuming 300 days of leave at the end of the service period of each employee

Preparation of Accrual AFS2Preparation of Accrual AFS2► Stage 1 - Preparation of Trial BalanceStage 1 - Preparation of Trial Balance Trial balance was prepared based on the data Trial balance was prepared based on the data

obtained from a number of sources. Prior to obtained from a number of sources. Prior to preparation of trial balance, the data obtained were preparation of trial balance, the data obtained were processed processed for accrual accounting related aspects. for accrual accounting related aspects. The Trial Balance as on March 31, 2009 is given The Trial Balance as on March 31, 2009 is given in in Annexure 1 to Appendix VIIIAnnexure 1 to Appendix VIII. The worksheets for . The worksheets for the compilation are given in the compilation are given in Annexure 2 to Annexure 2 to Appendix VIIIAppendix VIII..

► Since the Trial Balance has been prepared for the Since the Trial Balance has been prepared for the first time after including new heads of account, to first time after including new heads of account, to tally the trial balance, the difference between the tally the trial balance, the difference between the debit and credit side has been included under the debit and credit side has been included under the head “Government Account”. The Government head “Government Account”. The Government Account is assumed to represent the accumulated Account is assumed to represent the accumulated surplus/deficit related to DTWO (that is matched by surplus/deficit related to DTWO (that is matched by the assets created and the obligations).the assets created and the obligations).

Stage 2 – Analysis of applicability of Stage 2 – Analysis of applicability of the Accrual AFS to the DTWOthe Accrual AFS to the DTWO

► The conceptualized format of accrual AFS for The conceptualized format of accrual AFS for State were analysed (at the schedule level) State were analysed (at the schedule level) for its applicability to the DTWO. The for its applicability to the DTWO. The statement of applicability of the AFS is statement of applicability of the AFS is given as given as Annexure 1 to Appendix IXAnnexure 1 to Appendix IX. The . The detailed schedules are given only for the detailed schedules are given only for the applicable schedules.applicable schedules.

► Stage 3 – Preparation of Accrual AFSStage 3 – Preparation of Accrual AFS► The accrual AFS shall be filled in based on the Trial The accrual AFS shall be filled in based on the Trial

Balance. The following statements were prepared Balance. The following statements were prepared for DTWO, Ranga Reddy District.for DTWO, Ranga Reddy District.

► a. Statement Financial Performance ( a. Statement Financial Performance ( Annexure 2 Annexure 2 to Appendix IXto Appendix IX))

► b. Statement of Financial Position b. Statement of Financial Position ( Annexure 3 to ( Annexure 3 to Appendix IX)Appendix IX)

► c. Statement of changes in Net Assets / Equity, c. Statement of changes in Net Assets / Equity, (Annexure 4 to Appendix IX)(Annexure 4 to Appendix IX)

► d. Cash Flow Statement d. Cash Flow Statement (Annexure 5 to (Annexure 5 to Appendix IX)Appendix IX)

► e. Notes to Accounts (including accounting policies) e. Notes to Accounts (including accounting policies) ( Annexure 6 to AppendixIX)( Annexure 6 to AppendixIX)

► f. Schedules to the Statement of Financial Position f. Schedules to the Statement of Financial Position and Financial Performanceand Financial Performance

► (Annexure 7 to Appendix IX)(Annexure 7 to Appendix IX)► g. Statement of Comparison of Budget and Actual g. Statement of Comparison of Budget and Actual

(Annexure 8 to Appendix IX)(Annexure 8 to Appendix IX)

►As this being the first year of As this being the first year of preparation of accrual AFS, the preparation of accrual AFS, the cash flow statement and the cash flow statement and the statement of changes to new statement of changes to new assets/equity have been assets/equity have been prepared taking opening prepared taking opening balance as Zero.balance as Zero.

Study on Regional Transport Study on Regional Transport Authority, HyderabadAuthority, Hyderabad

► The Regional Transport Authority (RTA) The Regional Transport Authority (RTA) functions under the Transport Department. functions under the Transport Department. The overview of the structure of the The overview of the structure of the Transport department, the accounting setup Transport department, the accounting setup at the department level is covered in at the department level is covered in Appendix XAppendix X. The Joint Commissioner is the . The Joint Commissioner is the Head of RTA, Hyderabad. There are no DDOs Head of RTA, Hyderabad. There are no DDOs under this RTA. under this RTA.

Accounting Function at RTAAccounting Function at RTA► The RTA is primarily a revenue oriented The RTA is primarily a revenue oriented

division. The majority of the transactions at division. The majority of the transactions at the RTA consist of vehicle tax and other the RTA consist of vehicle tax and other revenue. The Accounting Function is revenue. The Accounting Function is handled by Accounts Officer who is also handled by Accounts Officer who is also the DDO. The primary functions of the the DDO. The primary functions of the Accounts officer include accounting for Accounts officer include accounting for transactions, budgetary control, transactions, budgetary control, reconciliation with the Pay and Accounts reconciliation with the Pay and Accounts Office, and with the Department. The Office, and with the Department. The methodology adopted for preparation of methodology adopted for preparation of accrual AFS of RTA, Hyderabad is discussed accrual AFS of RTA, Hyderabad is discussed below.below.

Identification of TransactionsIdentification of Transactions► The identification of the data sources for The identification of the data sources for

information relating to each of the four information relating to each of the four components of the identification framework components of the identification framework is the first step in the process of transition. is the first step in the process of transition. The first stage in the identification of the The first stage in the identification of the transactions was through discussions with transactions was through discussions with the concerned officials. Based on the the concerned officials. Based on the discussions, the relevant records and other discussions, the relevant records and other documents maintained and the information documents maintained and the information they provide were identified. This analysis they provide were identified. This analysis helped to identify the information gaps for helped to identify the information gaps for preparation of accrual AFS. The details of preparation of accrual AFS. The details of records maintained and their purpose is records maintained and their purpose is captured in the Table 9 below:captured in the Table 9 below:

S. No Name ofDocument

Purpose Information Provided

1 Budget Proceedings from CCO

For allocation of budget by CCO to theDTWO

Budget for the year

2 Budget Control

Register

Monitoring of Budget Budget classified by various heads and its

utilisation

3 Bill for Payment

To record the payable details for submission to treasury for payment

The payable and the payments made

4 Treasury Bill

Register

To record the bills submitted to the treasury and the payments/rejections

by the treasury

The details of bills submitted for payment

5 Pay Bill Maintained for employee emoluments Details of salaries, recoveries from salaries,

etc.

6 Cash Book To record receipts and disbursements All receipts and disbursements made

7 Service Book Records the movements and other details of the employee from the date

of joining

Age, Date of joining

8 ReconciliationStatement withPAO

To match the payments recorded by the PAO including the account heads.

Expenditure of RTA and expenditure, if any notaccounted by the RTA

9 Head-wise receipts duringthe year

The receipts of RTA classified by nature of receipt.

The actual receipts during the year

10 AnnualExpenditureSummary

The summary of the expenditure of RTA, Hyderabad – as obtained from the AG‟s office

The detailed head wise listing of expenditure ofRTA, Hyderabad

11 Statement ofFixed Assets as on December 31,2008

Class-wise listing of Fixed assets Details of Property, Plant of Equipment (withoutvalue)

►The perusal of records and discussions The perusal of records and discussions with officials led to identification of with officials led to identification of transactions. For the purpose of transactions. For the purpose of analysis, the transactions identified analysis, the transactions identified are further grouped based on the are further grouped based on the source of transaction. The Table 10 source of transaction. The Table 10 below contains the Identification and below contains the Identification and Classification of transactionsClassification of transactions

S. No. TransactionsIdentified

Nature of Transaction( Asset / Liability/ Income / Expense)


Accrual AFS

A. Receipts and Disbursements of RTA, Hyderabad

1 Salary (including pay, allowance, DA and HRA)


2 Medical Reimbursement Expense Wages, salaries and employee benefits

3 Encashment of EarnedLeave


4 Leave Travel Concession Expense Wages, salaries and employee benefits

5 Traveling Allowance Expense Other Expenditure

6 Service Postage, Telegram and

Telephone Charges


7 Other Office Expenses Expense Other Expenditure

8 Water and ElectricityCharges


9 Hiring of PrivateVehicles


10 Rent rates and taxes Expense Other Expenditure

11 Pleaders Fees Expense Other Expenditure

12 Other ContractualServices


13 Other Grants-in-aid Expense Grants and other transfer payments

14 Other Charges- MotorVehicles


15 User Charges - OtherExpenditure


16 Other AdministrativeExpenses


17 Quarterly Tax Income Taxes on Vehicles

18 Life Tax Income Taxes on Vehicles

19 Fees Income Fees, fines, penalties and licenses

20 User Charges Income Other Non-Tax Revenue

21 Detection Income Fees, fines, penalties and licenses

B. Liabilities / Assets emanating from receipts and disbursements made by RTA, Hyderabad

22 Payables Liability Financial Liabilities

23 Loans and Advances toGovernment Servants

Asset Financial Assets

24 Receivable from Asset Financial Assets


Nature of Transaction( Asset / Liability/ Income / Expense)


Accrual AFS

Quarterly and OtherTaxes

25 Advance tax collected Liability Financial Liabilities

C. Resources / Facilities used by RTA which were paid for by others

26 Property Plant andEquipment

Asset Property Plant andEquipment

Land

Building

Office Equipment


D. Liabilities related to RTA because of transactions at State Level

27 Contribution to Pension- for employees joined after 2004

Expenditure Wages, salaries and employee benefits

28 Governmentcontribution to employees

underdefined contribution scheme not

remitted



Pension

Gratuity


Nature of Transaction( Asset / Liability/ Income /

Expense)


Accrual AFS

Quarterly and Other

Taxes

25 Advance tax collected Liability Financial Liabilities

C. Resources / Facilities used by RTA which were paid for by others

26 Property Plant andEquipment

Asset Property Plant andEquipment

Land

Building

Office Equipment


D. Liabilities related to RTA because of transactions at State Level

27 Contribution to Pension- for employees joined after 2004

Expenditure Wages, salaries and employee benefits

28 Governmentcontribution to employees underdefined contribution scheme not remitted



Pension

Gratuity

Recognition and Measurement of Recognition and Measurement of Identified TransactionsIdentified Transactions

► Recognition in the context of the pilot study Recognition in the context of the pilot study refers to the recording in trial balance/taking refers to the recording in trial balance/taking cognizance of the identified transaction for cognizance of the identified transaction for the purpose of preparation of accrual AFS. the purpose of preparation of accrual AFS. The recognition criteria were primarily based The recognition criteria were primarily based on IPSAS/IGFRS, wherever relevant and on IPSAS/IGFRS, wherever relevant and applicable. In other cases, generally accepted applicable. In other cases, generally accepted accounting principles have been considered accounting principles have been considered for recognition of the transaction.for recognition of the transaction.

► The broad recognition and identification The broad recognition and identification criteria are given in Table 11 below:criteria are given in Table 11 below:


Accrual AFS

Recognition Criteria Measurement Basis( Valuation

Methodology)

Remarks

Revenue Income

Taxes onVehicles

· Control over the revenue collected

· Timing of recognition -based on actual collection of

the revenue· Risks associated with

collection of revenue

· Life tax actually collected during the year

· Seizure of vehicles for non payment of taxes have not been shown

separately as the details are not available.

Fees, fines, penalties and licenses

· Recognized on actual realization

· Recognized on actual collection during the year

Currently included under detection.

Expense

Wages, salaries and employee

benefits

· Salaries and other employee related benefits are recorded on accrual basis

· From the pay bill and other relevant records

OtherExpenditure

· Decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that is probable and can be measured reliably.

· Actual disbursements during the year

· Value of ascertainable obligations as on March

31, 2009

Asset

Property Plant and Equipment

· It is probable that future economic benefits or servicepotentialassociated with the item will flow to the entity; and· The cost or fair value of the item can be measured reliably

· As per transitional provisions of IPSAS 17 / IGFRS (AED 2)· Fair value method adopted for first time recognition of property, plant and equipment.

Recognition and measurement of PPE based onthe subjective judgment of the respective DDO.

Financial Assets · Legal enforceability of the claim as evidenced from the records

· The value of the financial assets ( on historical cost basis)

Includes receivables,loans and advances andany other financial assets


AccrualAFS

Recognition Criteria Measurement Basis( Valuation

Methodology)

Remarks

Liabilities

FinancialLiabilities

· Obligation to pay as evidenced from the records maintained

· The value of obligations as can be ascertained from the documents / records

Includes sundry creditors and

other tradepayable

Provision for expenses

· Present obligation (legal or constructive) as a result of a past

event;· It is probable that an outflow of

resources embodying economic

benefits or service potential will be required to settle the

obligation; and· A reliable estimate can be made of

the amount of the obligation.

· Any provision required as evidenced from the records

A provision is a liability of uncertain timing

or amount.

EmployeeBenefits –Retirement

· For pension, the employees as differentiated by their level and the date of joining

· For gratuity, the number of years of

service· Leave encashment has been

computed basedon assumption

· Valued based on the commutation factor used for commutation of pension.

· Gratuity is valued based on the current valuation methodology adopted for retiring employees

· Leave encashment has been computed assuming 300 days of leave at the end of the service period of each employee

Preparation of Accrual AFSPreparation of Accrual AFS► Stage 1 - Preparation of Trial BalanceStage 1 - Preparation of Trial Balance► Trial balance was prepared based on the data obtained from Trial balance was prepared based on the data obtained from

various sources. Prior to preparation of trial balance, the data various sources. Prior to preparation of trial balance, the data obtained were processed for accrual accounting related aspects. obtained were processed for accrual accounting related aspects. The Trial Balance as on March 31, 2009 is given The Trial Balance as on March 31, 2009 is given in Annexure 1 in Annexure 1 to Appendix XIto Appendix XI. The worksheets for the compilation are given . The worksheets for the compilation are given in in Annexure 2 to Appendix XIAnnexure 2 to Appendix XI..

► Since the Trial Balance has been prepared for the first time after Since the Trial Balance has been prepared for the first time after including new heads of account, to tally the trial balance, the including new heads of account, to tally the trial balance, the difference between the debit and credit side has been included difference between the debit and credit side has been included under the head “Government Account”. The Government under the head “Government Account”. The Government Account is assumed to represent the accumulated surplus/deficit Account is assumed to represent the accumulated surplus/deficit related to RTA (that is matched by the assets created and the related to RTA (that is matched by the assets created and the obligations).obligations).

► The previous year information has not been provided as the The previous year information has not been provided as the study was for 2008-09.study was for 2008-09.

► Stage 2 – Analysis of applicability of the Accrual AFS to the Stage 2 – Analysis of applicability of the Accrual AFS to the DTWODTWO

► The conceptualized format of accrual AFS for State were The conceptualized format of accrual AFS for State were analyzed (at the schedule level) for its applicability to the RTA. analyzed (at the schedule level) for its applicability to the RTA. The statement of applicability of the AFS is given as The statement of applicability of the AFS is given as Annexure1 Annexure1 to Appendix XIIto Appendix XII. .

► The detailed schedules are given only for the applicable The detailed schedules are given only for the applicable schedules.schedules.

Stage 3 – Preparation of Accrual AFSStage 3 – Preparation of Accrual AFS► The accrual AFS shall be filled in based on the Trial The accrual AFS shall be filled in based on the Trial

Balance. The following statements were prepared for Balance. The following statements were prepared for RTA, Hyderabad District.RTA, Hyderabad District.

► a. Statement Financial Performance (a. Statement Financial Performance (Annexure 2 to Annexure 2 to Appendix XIIAppendix XII))

► b. Statement of Financial Position b. Statement of Financial Position (Annexure 3 to (Annexure 3 to Appendix XII)Appendix XII)

► c. Statement of changes in Net Assets / Equity, c. Statement of changes in Net Assets / Equity, (Annexure 4 to Appendix XII)(Annexure 4 to Appendix XII)

► d. Cash Flow Statement d. Cash Flow Statement (Annexure 5 to Appendix (Annexure 5 to Appendix XII)XII)

► e. Notes to Accounts (including accounting policies) e. Notes to Accounts (including accounting policies) (Annexure 6 to Appendix XII)(Annexure 6 to Appendix XII)

► f. Schedules to the Statement of Financial Position and f. Schedules to the Statement of Financial Position and Financial Performance Financial Performance (Annexure 7 to Appendix XII)(Annexure 7 to Appendix XII)

► g. Statement of Comparison of Budget and Actual g. Statement of Comparison of Budget and Actual (Annexure 8 to Appendix XII)(Annexure 8 to Appendix XII)

► As this being the first year of preparation of accrual As this being the first year of preparation of accrual AFS, the cash flow statement and the statement of AFS, the cash flow statement and the statement of changes to new assets/equity have been prepared changes to new assets/equity have been prepared taking opening balance as Zero.taking opening balance as Zero.

Learning from the Pilot Learning from the Pilot StudyStudy

► The pilot study provided interesting lessons with respect The pilot study provided interesting lessons with respect to transition to accrual accounting. The lessons learned to transition to accrual accounting. The lessons learned however are primarily from the preparation of accrual however are primarily from the preparation of accrual AFS for the two pilot divisions identified for the study. AFS for the two pilot divisions identified for the study. The following are overall key learning from the pilot The following are overall key learning from the pilot study:study:

► Information availability - Information availability - The two pilots gave a The two pilots gave a contrasting picture in terms of maintenance of books contrasting picture in terms of maintenance of books and availability of information. While the basic and availability of information. While the basic information on the payments was not available at the information on the payments was not available at the RTA, the DTWO were able to provide information for the RTA, the DTWO were able to provide information for the exercise with relative ease. A diagnostic study of the exercise with relative ease. A diagnostic study of the pilot in terms of information availability is required pilot in terms of information availability is required before deciding the approach for data collection. This before deciding the approach for data collection. This will ensure that the possible gaps in availability of will ensure that the possible gaps in availability of information are identified early.information are identified early.

► Priorities - Priorities - The data collection process may turn out to The data collection process may turn out to be a time consuming process if the requirements are not be a time consuming process if the requirements are not prioritized. The scope of data collection efforts should be prioritized. The scope of data collection efforts should be ring fenced clearly prior to commencing data collection ring fenced clearly prior to commencing data collection exercise.exercise.

► Maximum information Maximum information should be obtained should be obtained from the records and registers of recent from the records and registers of recent years. It is important to ensure quick wins, years. It is important to ensure quick wins, early in the exercise, that will demonstrate early in the exercise, that will demonstrate that transition to accrual accounting is not that transition to accrual accounting is not difficult.difficult.

► Involvement of all the key stakeholders – It Involvement of all the key stakeholders – It is important to ensure is important to ensure involvement of all key involvement of all key stakeholders. This would enable faster stakeholders. This would enable faster compilation of information and would also compilation of information and would also ensure sensitization in respect of accrual ensure sensitization in respect of accrual accounting.accounting.

► Sensitization of the Stakeholders Sensitization of the Stakeholders on benefits on benefits of Accrual Accounting should be taken up as of Accrual Accounting should be taken up as a continuous exercise.a continuous exercise.

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