Taking cue from India Inc, the Centre has decided to switch over to a new and efficient accounting system and asked states to follow suit, as part of fiscal reforms and improving quality of public expenditure.
"Corporate sector has for many years practised the accrual-based accounting system... Government is determined to switch over to the new system and I hope states will follow suit," Finance Minister P Chidambaram said while inaugurating a workshop on accounting systems organised by the Controller General of Accounts and World Bank.
This follows the recommendations of the 12th Finance Commission, which suggested switching over from the present "cash-based" accounting system to accrual-based system to capture the asset creation and large hidden liabilities like pay and pension.
Government has accepted in-principle, this recommendation of the finance panel even though it is yet to set a deadline as the government was venturing into "unchartered waters", he said, emphasising on the need for further refinement in the accrual based system.
"Because we don't have a accrual-based system, there are huge liabilities hidden in the system," Chidambaram said pointing to the pension bill, revenue receivables, arrears, depreciation and replacement costs.
While cash-based accounting system records only cash receipts and expenditure, the new accrual-based captures all assets and liabilities realised and promised.
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