Nearly five years after the 12th Finance Commission recommended an accrual-based accounting in government, the Centre has finally decided to shift to the modern accounting system by asking the Comptroller and Auditor General (CAG) to draw a roadmap for migration to the new arrangement in the next five years.

The current system, both in states and at the Centre, is on cash-based accounting which was introduced during the British period. According to CAG, the prevailing system is deficient on transparency and user-friendliness. Cash-based accounting cannot effectively fix accountability for performance.

"Transactions where no cash has been paid or received are not recorded even if value has been received or a liability contracted under the current system," said a senior CAG official. Under the present system, while it is difficult to keep track of assets, it is easy to understate liabilities.

The decision to migrate to the accrual based accounting system was taken at a high-level meeting of the Government Accounting Standards Advisory Board (GASAB), which has senior officials from the Centre and states as its members. The meeting was attended by principal secretaries from state governments, officials from Department of Posts, Accountants General of various states and World Bank officials.

The accrual-based financial statements are expected to provide more appropriate presentation of financial performance and position of the government. The Central government accounts and those of the states would have a common format of financial statements that would include a balancesheet, a statement on financial performance and cash flow.

Pilot studies on accrual basis accounting have already been introduced in Department of Posts and selected departments of Andhra Pradesh, Madhya Pradesh, Haryana and West Bengal. These pilot studies would be a precursor to a national rollout which is aimed for a five-year time frame.

The pilot studies would be conducted by teams from the State Accountant General offices with international and national consultants with the support of state governments. The World Bank is funding these pilot projects.