Railways’ Switch to Accrual Accounting to Attract Green Financing: ICAI  

Indian Railways Switches Successfully to Accrual-Based Accounting System

Indian Railways has implemented an accrual-based accounting system successfully, one of the most significant changes in Indian Railways’ financial practices and a significant step forward for enhanced financial transparency. It will work for the financial year 2023-24 over all 26 zones of Indian Railways from next year onwards. This should, therefore, improve the management of finances, make resource mobilization less cumbersome, and give added muscle to the organization in its efforts to raise funds from multilateral agencies such as the World Bank.

Indian Railways’ transition to accrual accounting is landmark since its accounting standards align with what is being seen across governmental bodies in the advanced economies. Accrual accounting will be very different from the previously followed cash basis because now, it gives relevance to the dates when transactions occur rather than the dates when cash movements coincide. Hence, this closer represents the financial position of any organization as it displays not just current liabilities but also assets. It has been getting ready its very first batch of Accrual-Based Financial Statements since 2014. The attempt was initiated much more grandly and forms an integral part of long-term reforms aimed to improve transparency and accountability in the finance handling by the railways. Reinforcing financial efficiency in the railway system along with building an efficient budgeting as well as financial planning ambiance stands high in the lists of salient elements forming part of reforms of the types those involving the accrual accounting switch.

The Institute of Chartered Accountants of India, and Accounting Research Foundation immensely contributes to the change of transition. The ICAI ARF had prepared the Transaction-Based Accrual Accounting System. Therefore, accountants will now be able to draw out financial statements starting fiscal year 2023-24. The new system will let Indian Railways achieve its ESG goals and contribute towards the proper recording of finances with exact figures. Maybe one significant distinction of this emerging accounting system is that Indian Railway’s environment sustainability efforts feature in their financial reports, and such financial statement, as provided by Indian Railways and based on accrual accounting for FY 2022-23, is only the beginning to display it commitment by having it integrated within its own finance structures.

Therefore, the move is going to have several big implications for Indian Railways as regards changes. Some of the very prominent ones are that this process will smoothen those processes through which it will collect funding from the multilateral bodies. Since the accrual accounting fulfills the demand required by the standard in the accounting system required by World Bank, and so many international funding bodies, thus, it also helps the prospects of Indian Railways in getting this desired standard for them. New system is likely to attract green financing since sustainability-focused investors and lenders will get more clear and precise financial data. The ICAI thanked the Indian Railways for making an example of a smooth transition to accrual accounting and suggested that the lead be emulated elsewhere in governmental organizations. Stronger financial management, improved transparency, and access to funds-all which accrual accounting provides an entity with-may influence like-minded moves elsewhere within a ministry or other government units.

Accrual accounting is a great form of acceptance for the major reform that will ensure the making of the budget management of Indian Railways more rational. This will help appropriately account for revenues as well as expenses when they have actually occurred, thus helping throw up a clearer picture of the same for effective financial performance. This would subsequently make it easy and effective in terms of managing finances with the potential for efficient investment planning in the future and also enhance improvement on its current resource distribution to and within the organization. These moves in the direction of modernization in the financial practices of Indian Railways are part of the overall initiative by the government to bring financial reforms across the board. The move also falls in line with the effort to bring stronger financial discipline to the government machinery, making public sector institutions more answerable to both taxpayers and investors.

Nirupama Kumar is Chief Administrative Officer, Accounting Reforms, in Indian Railways. She is very elated at this move of accrual-based accounting. According to her, it is a landmark for the government financial reforms. This is the first ministry, Indian Railways, in the Indian government that went for accrual-based accounting at the organizational level.This further strengthens the financial management capability of Indian Railways so that it can grow from this point forward as far as better accrual-based accounting techniques are concerned. Increasing acknowledgment also includes ESG factors now getting integrated into financial statements of the public sector units, indicating growing relevance in terms of environmental sustainability vis-a-vis public sector financing practices.

Conclusion:The president of ICAI has also suggested that Indian Railways should consider the physical verification of its assets as a next step in complementing the new accounting system. In this manner, the financial statements would be as accurate as possible and all assets would be accounted for properly.Accrual accounting by Indian Railways brings financial reform in the public sector, which is long overdue. In its roll out, not only will there be greater transparency about finances, but since the system is more accessible to fund new sources, it should support sustainability of the organization for a longer time period.