After helping the Indian Railways shift to accrual basis of accounting from the then existing cash basis of accounting, the Institute of Chartered Accountant of India (ICAI), the self-regulatory organisation for chartered accountant, is now in talks with India Post for 'reforming' the latter's accounting processes, says Prafulla P Chhajed, the president of ICAI.
The ICAI has already submitted the financial statements of Indian Railways for 2015-16 and 2016-17 based on accrual basis of accounting.
In the accrual basis of accounting, an entity reports the transaction as and when it incurs it unlike in the cash basis of accounting when the transaction is reported only if the money is exchanged. Thus, whether or not you receive money physically, you have to record it if you follow the accrual basis of accounting.
Another feature of accrual basis accounting is double entry accounting, under which businesses have to record two entries for every transaction made. Accrual basis of accounting helps in better record-keeping of assets and liabilities, and gives a clearer picture of the financial health of the company.
What started out as a pilot project in Ajmer division of the Indian Railways in December 2014, the ICAI took some times before it could complete the transition from the cash to accrual-based accounting.
Other than Indian Railways, ICAI has also worked with Delhi and Kolkata local bodies to change their financial accounting method. The accounting reforms of urban local bodies have been in the focus for a very long time. In fact, Atal Mission for Rejuvenation and Urban Transformation and before it the Jawaharlal Nehru Urban Renewal Mission (JNNURM) required the municipal corporation of the selected cities under the two schemes to shift their transactions to the accrual basis of accounting.