Arun Jaitley indicated that the Narendra Modi government would do away with populism in Railways. Indian Railways accounts should reveal more, Finance Minister says at railway conference
New Delhi: Finance Minister Arun Jaitley has said that it was important for railways to have an accounting system is more revealing instead of being concealing in order to have transparent books of accounts.
Indian Railways is moving to corporate style accrual system of accounting, followed by most medium and large companies.
The system gives a more accurate financial picture of the organisation by tracking the cost of asset and delivery of service besides ascertaining the return on investment for every rupee spent.
Railways has decided that by 2019 all its accounting will move to accrual system. However, the current cash based accounting system will continue as well as it is mandated by the constitution.
Jaitley was speaking at the national conference on accounting reforms in railways organised by Indian railways along with industry body CII.
Jaitley said that there was no reason why railway stations should not be hub of all commercial activities.
Rail Minister Suresh Prabhu said the move will help in determination of true cost of services and online availability of costing data, which will lead to enhanced transparency.
“With accrual accounting along with variable marginal costing techniques, we would be able to identify money makers and money losers lines of business,” he said.
Adding accruals: Indian Railways accounting changes track
The Indian Railways will soon switch from cash to accrual-based accounting, Railway Minister Suresh Prabhu has told.
The accrual system, followed by most medium and large companies, gives a more accurate financial picture of the organisation by tracking the cost of asset and delivery of service besides ascertaining the return on investment for every rupee spent. The railways will, however, continue to prepare cash-based accounts as mandated by the Constitution.
“With accrual accounting coupled with variable marginal costing techniques, we would be able to identify money makers and money losers,” Prabhu said. The national transporter has engaged Institute of Chartered Accountants of India (ICAI), the apex body of chartered accountants, to prepare a management information system (MIS) for the same.
The accrual-based accounting will allow the railways to report segment-wise revenue, helping it know the profitability of different lines of business and services. It will also help private investors and lenders make better assessment of the financial health of the organisation through comprehensive accrual-based financial statements along with adequate disclosures.
“We will continue to make cashbased accounts,” said a senior official at the Railway Board. “However, we will be expanding the chart of account in order to capture the accrual as well. Because only accrual-based system reflects liability. So, we will have the system of accrual-based accounting as well.”
The railways ‘mission beyond bookkeeping’ will include an outcome budget where it will analyse step-wise costing of every asset created and services delivered. It will also yield train, section and rail route costing and profitability numbers.
“The reforms will focus on right costing and right pricing and would enable provision of improved services, stronger financial health and a healthy operating ratio,” Prabhu said.
A brainstorming session to focus on the accounting reforms in the railways has been called on Tuesday where industry experts will deliberate on the reforms in the railways’ book keeping system. Finance and Corporate Affairs Minister Arun Jaitley will also be present at the conference along with Prabhu.
The railways has 16 divisions across the country that undertake all asset creation, operational and management work with no centralised cost tracking system. The railways is also proposing to set up an internal audit branch at every divisional headquarter.
In accrual-based accounting, revenue is reported in the fiscal when it is earned, irrespective of when it is actually received, and expenses are deducted when they are incurred, regardless of when they are paid. In cash-based accounting, books are prepared when cash is paid or received.
Prabhu said the move will help in determination of true cost of services and online availability of costing data, which will lead to enhanced transparency.