Indian Railways gets ready for Accrual Accounting, its biggest such reform since Independence
The 165-year-old Indian Railways will usher in its most profound accounting reform since Independence as it prepares its financial statements for the current fiscal under the accrual-based accounting system, the process widely followed by the corporate sector.
Railways has been preparing its financial statements through the dated cash-based accounting system. It will continue to prepare cash-based accounts as that is a constitutional requirement. But the shift to the accrual system gives a more accurate financial picture of an organisation. Accrual-based accounting is being rolled in the railways in association with the Institute of Chartered Accountants of India (ICAI).
“As a part of accounting reforms, accrual-based financial statements will be rolled out by March, 2019. Around 130 chartered accounts placed in the field by ICAI are assisting the roll-out,” a senior railway ministry official said.
“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,” said Utkarsh Gulati, a chartered accountant with Lodha & Co.
The new accounting process will allow the railways to report segmentwise revenue, helping more accurately monitor the profitability of different lines of business and services.
“Through accrual-based accounting system, we will be able to analyse step-wise costing of every asset created and services delivered. We will also be able to arrive at micro details such as train, section and rail route costing and profitability numbers,” the railway ministry official said.