Wednesday, September 16, 2009

In the present day context of need to introduce accounting reforms on Indian Railways, it is elevant to introspect as an organisation whether the present set of Final Accounts adopted over a long time are conveying to the Government and the public, a true and clear financial position on Railway Finances as a true Public Administration includes a transparent, understandable, meaningful presentation of Accounts for the information of all concerned. Drawing inspiration from the Budget speech of Hon’ble Minister of Railways for the year 2005-06, wherein it was emphasised to bring in greater transparency in the financial reporting of the organisation and the need to stress on uniform accounting standards. The Railways are poised to set in motion an Accounting Reforms process to meet the emerging business needs.
The present article is aimed to highlight the impending need to redefine, re-orient and refine accounting concepts of Indian Railways to reflect true and fair view of state of the affairs of Indian Railways in its Final Accounts.
Broadly speaking, Indian Railway Accounts are so designed to conform to principles of both Government Accounting and Commercial Accounting in as much as Indian Railways represent both as a Department of Government of India and as a Commercial Undertaking. The dual functioning and dual responsibility of Indian Railway in a way compels the organisation to embrace, adopt and also live with dual system of Accounts viz., Government Accounts and Commercial Accounts, very often not presenting a clear vision of this biggest organisation to a common man. Even to a fully conversant and well informed personality, the accounting concepts adopted by Indian Railways are not easily understood leave aside appreciating the intricacies involved.
Over the last two decades nothing much seems to have been attempted by the practitioners of Indian Railways Finance and Accounts, except adding a few Plan Heads in Capital classification and a few primary units in both Revenue and Capital classification of Accounts to cater to new requirements of the organisation. In the light of widely accepted economic reforms that took roots in Indian economy in which Indian Railways play key role in shaping the economic well being of this vast nation, the Accounting concepts of Indian Railways also cannot escape attention of General public, Economists, Professional Accountants and Financial Analysts/ Critics.
Significant differences exist in the presentation of the items in the Balance Sheet of Indian Railways vis-à-vis the Balance Sheet of a corporate enterprise. Several experts who have gone into this subject have suggested that the presentation of Final Accounts of Indian Railways should reflect the information directly understandable to general public, as is the case with reference to other corporate enterprises. Some points worth considering are explained as under:
While the corporate enterprises have share capital represented by Equity shares, Preference Shares, etc., the term used for Capital in Railways is loan capital. There is a need to change this term either as Capital-at-Charge or Investments by Government of India.
In respect of Public Limited Companies, the closing balance of P&L Appropriation Account is carried forward and reflected under the heading ‘Reserves and Surplus’. In the Balance Sheet of Indian Railways, no such reflection is made even though Professional Accounts personnel from Indian Railways may know that the surplus under P&L Account is appropriated towards Development Fund (footnotes in Annexure-II, Para 431 of Indian Railways Financial Code, and Vol. I). Indian Railways do not prepare a P&L Appropriation Account. Dividend payable to General Revenues is also reflected in P&L Account, as the same is very much in the nature of interest on borrowed capital, which is naturally a part of revenue expenses of the organisation.
The block of assets reflected in the Balance Sheet of Indian Railways indicate only the book value of assets; whereas, in terms of commercial principles of accounting the assets are required to be reflected either at book value or at market value, whichever is less. This aspect needs to be addressed in detail by the practitioners of Indian Railways Accounts and Finance as the value of assets seem to be grossly understated in the Balance Sheet particularly in the light of there being no mechanism evolved so far to periodically re-value the assets in the light of market trends. The additional values so generated can as well be applied to write-off the book value of capital perennially reflected in the books even though the assets were either replaced with the funds of DRF or the assets are no longer in existence. After all, every physical asset has a fixed life in terms of provisions envisaged in Indian Railways Financial Code. Of course, this thinking is to be crystallised by detailed discussion at appropriate level and in consultation with the Finance Ministry and C&AG before approaching Railway Convention Committee.
It is evident from Balance Sheet of Indian Railways that cash-in-hand is reflected which represent the closing balance of cash at the end of financial year available with Chief Cashiers and also with the Departmental officers in the form of imprest. While, the balance sheet in respect of companies indicate both cash-in-hand and cash-at-bank, which provide the organisation with necessary levels of liquidity to enable them to discharge the current liabilities, the Balance Sheet of Indian Railways does not seem to reflect cash-at-bank on the face of the document. At this juncture, it is necessary to bear in mind that the moneys deposited with RBI should also be exhibited in one of the block of the assets as the same represents cash-at-bank as far as Indian Railways are concerned. The block of assets represent only the assets created as per contra on liabilities side under various Plan Heads like New Lines, Gauge Conversion etc.
Under the heading Sundry Debtors Railways reflect Loans and Advances also whereas in Commercial book keeping, same is not permitted as loans and advances to staff in Railways are from Civil Grants which does not represent actually the disbursement from Railways earnings even though Railways are duty bound to ensure the amount sanctioned under Civil Grants as Loans and Advances to staff and officers are regularly recovered and remitted along with interest, wherever applicable. In fact, this item can be shown under a separate heading in the Balance Sheet of Indian Railways with provision for contra entry on the liability side.
As can be seen from the items on the assets side, there is no provision envisaged for bad debts as done in commercial book keeping. This is considered essential, as there are huge amounts of money due from Power Houses and other parties, which become sometimes old and irrecoverable. In the absence of this provision, the accounts of Indian Railways do not seem reflect the true and fair view of the state of the affairs. This issue also needs to be looked into carefully.
A time has come for Indian Railways to formulate Indian Railway Accounting Standards on the lines of Accounting Standards adopted by Professional Accounting Bodies like Institute of Chartered Accountants of India with definitions and interpretation of various terms used in Profit and Loss Account and Balance Sheet so that a true and fair view of the state of the affairs of the business is reflected in these documents. It is needless to reiterate that these documents are of interest not only to IR but also to General Public, Economists, and Financial Analysts/critics of Indian Railways Finances. The formulation and circulation of the meaning, content and significance of different terms used in the Accounts of Indian Railways to all concerned would not only dispel the wrong notions if any, in the minds of personnel who intend to use the same, but also helps in better understanding of the state of the affairs of Indian Railways finances.

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