Indian government accounting standard on prior period adjustments
Indian Government Accounting Standard on Prior Period Adjustments.
S.O. 1033(E).—Whereas, accounting on cash basis recognises prior period items for rectification of errors or adjustment of financial statements for one or more prior periods for which the accounts have been closed;
And whereas, Prior Period Adjustments are being presented as a part of Statement No. 5 (in Union Finance Accounts) and Statement No. 13 (in some State Finance Accounts) as ‘Summary of Balances’;
And whereas, the Prior Period Adjustments in Union Finance Account is governed by the Paragraph 5.15.3 of the Civil Accounts Manual but in States there are no such rules in “Accounts code for Accountant General”;
And whereas, in a study of various Finance Accounts of States, it was observed that majority of the States are not taking cognizance of Prior Period Adjustments in their accounts or following a wrong practice of passing transfer entries to correct Prior Period Adjustments;
And whereas, the present Standard not only aims to disclose such information which pertains to prior period errors but also covers entries requiring Prior Period Adjustments arising out of changes in Government decisions which may impact current balances and progressive amounts during the earlier years for which accounts have been closed.
Now, therefore, in exercise of the powers conferred by article 150 of the Constitution, the President, on the advice of the Comptroller and Auditor General of India, hereby makes the following accounting standards, namely:-
A. Short title. – These accounting standards may be called the Indian Government Accounting Standards (IGAS) 4 – Prior Period Adjustments.
B. Objective.-
The objective of this Standard is to prescribe the manner in which Prior Period Adjustments including errors once identified shall be presented and disclosed in the current period (the financial year) under the cash basis of accounting.
C. Scope.-
(1) This Standard will apply to Union Government, State Government and Union territory with Legislature which prepares and presents financial statements under the cash basis of accounting; which are laid before the Parliament, State Legislature and Union territory with Legislature, respectively.
(2) This Standard while taking cognizance of Prior Period Adjustments does not include transactions such as payment of arrears arising due to increase in salaries or revision of pension or increase in dearness allowance, etc. in the current period though they belong to prior periods as these transactions cannot be attributed to any type of errors or any adjustment in Government Policies.
(3) This Standard shall not include in its ambit, defaults of loans and grants-in-aid dealt in IGAS-2 and IGAS-3 exclusively as it is only a process for rectification or adjustment of financial statements of prior periods.
D. Definitions
(a) “Accounting Authority” means the authority which prepares the financial statements of the Governments;
(b) “Capital Expenditure” means an expenditure incurred to create future benefits like acquisition of tangible assets of material and permanent nature such as land, building, machines, upgradation of the existing facilities or assets to add values to the same and includes investment in shares and loans and advances given by the Government;
(c) “General Purpose Financial Statements of Governments” means (i) Finance Accounts of the Government; (ii) Appropriation Accounts; and (iii) Statement on actual and budgeted receipts;
(d) “Government” means all departments and ministries of a Government taken together, whether of the Union Government or State Government or of Union territory Government with Legislature;
(e) “Heads closed to Balances” are the heads in which there are opening and closing balances since the balances are carried forward to the next financial year;
(f) “Heads closed to Government Accounts” are the heads in which there are no opening balances carried forward from the closing balance of previous financial year;
(g) “prior period” means one or more prior financial years for which accounts are already closed;
(h) “Prior Period Adjustment” means rectification of errors or adjustments due to change in the Government decisions which may affect balances and progressive bookings of earlier years for which accounts have been closed;
(i) “Prior period errors” are omissions from, and mis-statements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information-
(i) which was available when financial statements for those periods were authorised for issue; and
(ii) which could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements and such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts;
(j) “Reporting Date” is the last day of the financial year to which the financial statements relate that is to say, the 31st March;
(k) “Revenue Expenditure” means all charges for maintenance, repair, upkeep and working expenses, which are required to maintain the assets in a running order as also all other expenses incurred for the day to day running of the entity, including establishment and administrative expenses;
E. Presentation and Disclosure Requirements.-
(1) Prior Period Adjustments shall be presented and disclosed in accordance with Annexures 1 to 3 containing the following information, namely:-
(a) the nature of the Prior Period Adjustment or error;
(b) for each prior period presented, to the extent practicable, the amount of the adjustment or correction of error for each financial statement line item affected;
(c) to the extent practicable, the amount of the error correction or adjustment at the beginning of the earliest prior period presented; and
(d) an explanation if it is not practicable to determine with reasonable efforts the amounts to be disclosed in clause (b) or clause (c) above.
(2) With regard to the Union Finance Accounts and State Finance Accounts, these disclosures as shown in Annexures 1 to 3 of the Standard will be attached.
(3) The “Summary of Balances” at Annexure 1 is from Statement-5 of the Union Finance Accounts which reflects total Prior Period Adjustments in Government Accounts and is derived from Annexure 2 of this
Standard.
(4) The consolidated debit or credit impact on the Heads closed to Balances has to be taken as credit or debit in Government Accounts of the Summary of Balances prepared as at the end of each financial year in the Finance Accounts of the Union or the State Government.
(5) Annexure 2 discloses information related to Government decisions which may require adjustments and errors in prior period involving all Heads of Accounts including their Major or Minor head wise details of both the affected heads of account involved except heads Closed to Government Accounts which may include cases such as:
(i) conversion of Loans to equity and vice versa, conversion of loans to grants-in-aid and vice versa etc., arising due to Government decisions which may impact Head closed to Balances entries thereon;
(ii) even after sanction for conversion of loans to equity and vice versa, conversion of loans to grants-in aid and vice versa etc., issued (as referred in clause (i) above) and any entity continues to book expenditure under previous heads then such cases will be considered as ‘Error’;
(iii) cases involving Prior Period Adjustment to transfer balance of discharged loans from Market Loans bearing Interest to Market Loans not bearing Interest due to Government decision or sanction;
(iv) cases involving misclassification among two loan heads in the prior period which after correction may impact their opening balances in the current period.
(6) Annexure 3 relates to Impact of Prior Period Adjustments involving Capital Expenditure Heads, if any, on Capital Expenditure.
(7) If the Heads closed to Government involves Capital Expenditure Heads, then these cases affect the Capital Expenditure Heads which needs to be indicated in Annexure 3 and its impact be taken in appropriate statements of General Purpose Financial Statements of Government.
F. Materiality
Prior Period Adjustments shall be considered material if its value can be expressed in clear terms equal to or greater than rupees one thousand.
G. Effective date
This Indian Government Accounting Standard (IGAS) 4 – Prior Period Adjustments shall be effective for the financial statement for the periods commencing from the 1st day of April, 2023.
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