IRAS 1 – PRESENTATION OF FINANCIAL STATEMENTS :

Acknowledgement

This Indian Railway Accounting Standard (IRAS)1 is drawn primarily from the International Public Sector Accounting Standard (IPSAS)1. Extracts from IPSAS 1 are introduced in this publication wherever applicable, the necessary permission for which is being sought.

The approved text of the International Accounting Standards is that published by International Accounting Standards Board in the English language. IPSAS 1 – presentation of Financial Statements is available on following website :

http://www.accsubs.unsystem.org

International Accounting Standards, exposure drafts and other publications of IASB are copy right of the IASCF. This exposure draft is being circulated for eliciting comments from Railway officials/accounting organizations/audit authorities.

IRAS I – presentation of Financial Statements

Accounting Standards

Part-I of the standard sets out the requirements for presenting financial statements under accrual basis of accounting, while maintaining the essential feature of cash basis Government accounting.

The standards, which have been set in ‘bold’ ‘italic’ type should be read in the context of the commentary paragraphs in the standards, which is in plain type and in the context of the ‘preface to International Public Sector Accounting Standards’.

Objective : The purpose of the standard is to prescribe the manner in which general purpose financial statement should be presented under the accrual basis of accounting, while distinctly maintaining the feature of cash basis Government Accounting. Since accounts of Indian Railways are maintained as part of accounts of Government of India, the essential feature of periodical accounting statements for presentation to concerned bodies is cash basis. However, as a result of having incorporated the requirements of accrual basis accounting system, the Railway prepares its annual accounts essentially on accrual basis accounting. Compliance with the requirements of this standard will enhance comprehensive and transparent financial reporting of the cash receipts/cash payments and cash balances of the entity. Similarly it will enhance comparability of the Rly.’s financial statements to those of other entities under rail sector who are maintaining their accounts on accrual basis. Scope of the requirements : 1. Railway shall prepare and present financial statements under the accrual basis of accounting, as defined in the standard, and apply the requirement of Part-I of the standard in the presentation of its annual financial statements. 2. The annual financial statement of Railways is presented as part of annual reports and accounts of each year comprising the following : (i) Consolidated profit and loss account; (ii) Balance sheet; (iii) Value of Railway assets; (iv) Sources and application of funds; (v) Statement of capital at charge; (vi) Cash flow statement; and (vii) Accounting policies and notes to the financial statements. A. Apart from annual financial statements, many a statements are prepared by Railways in keeping with instructions contained in Accounts Code of Indian Railways. These are not general purpose financial statements. B.. Appropriation accounts Part-I includes following : (i) Financial results on cash basis accounting (ii) Profit and loss account, block account and balance sheet based on accrual basis of accounting C. Following are presented as part of Budget documents : a. Financial results for the year as part of explanatory memorandum. b. Traffic Rules, working expenses, miscellaneous transactions and under financial results as part of explanatory memorandum. c. Balance sheet, statement of revenue receipts and expenditure, various fund balances as part of explanatory memorandum. 3. General purpose financial statements are intended to meet the needs of users who are not in a position to demand reports tailored to meet their specific needs. Users of general purpose financial statements include tax payers & rate payers, members of the legislative, creditors, suppliers, the media and employees. General purpose financial statements include those that are presented separately or within another public document such as an annual report. The standard does not apply to condensed interim financial information. 4. This standard applies equally to the financial statements of an individual entity under Indian Railways and to consolidated financial statements for Indian Railways as a whole. 5. This standard does not apply to Public Sector Undertakings under Ministry of Railways. Definitions : 6. The following terms are used in this standard with the meanings specified : Accounting Policies are the specific principles, basis, conventions, rules and practices adopted by an entity in preparing and presenting financial statements. Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid) Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. The elements recognized under accrued accounting are assets, liabilities, net assets, revenue and expenses. Assets are resources controlled by Railway as a result of past events and from which future economic benefits or service potential are expected to flow to the entity. Cash comprises cash on hand, demand deposits, Stores Officer’s bank account and cash equivalents. Cash flows are inflows and outflows of cash. Consolidated financial statements are the Annual appropriation accounts of Indian Railways as a single entity. Capital at charge is the investment made by Government of India in Indian Railways over the years, with or without dividend payment liability. Control is the power to govern the financial and operating policies of another entity so as to benefit from its activities. Controlling entity is an entity that has one or more controlled entities (these include Zonal Railways, and Production Units and specific purpose organizations like CORE etc.) Controlled entity is an entity that is under the control of another entity. Cash basis means a basis of accounting that recognize transactions and other events only when cash is received or paid. Expenses are decreases in economic benefits or service potential during the reporting period in the term of outflows or consumption of assets or incurrences of liabilities that result in decreases in net asses/capital, other than dividend. Extraordinary items are revenue or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the entity, are not expected to recur frequently or regularly and are outside the control or influence of the entity. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. A financial asset is any asset that is : (a) Cash; (a) A contractual right to receive cash or another financial asset from other entity; (b) A contractual right to exchange financial investments with another entity under conditions that are potentially favourable; or (c) An equity instrument of another entity. Fundamental errors are errors discovered in the current period that are of such significance that the financial statements of one or more prescribed periods can no longer be considered to have been reliable at the date of their issue. Liabilities are present obligations of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefit or service potential. Materiality information is material if its omission or misstatement could influence the decisions or assessments of assets made on the basis of the financial statements. Materiality depends on the nature or size of the item or error judged in the particular circumstances of omission or misstatement. Miscellaneous activities include such related activities in which the entity engages in furtherance of incidental to, or arising from ordinary activities. Net asset is the residual interest in the assets of the entity after deducting all the liabilities. Net surplus/deficit comprises the following components : (a) surplus or deficit from ordinary activities; (b) surplus or deficit from miscellaneous activities; and (c) extraordinary items. Ordinary activities or any activities which are undertaken by Railway is part of its service delivery. These include operational and maintenance activities. Railway Public Sector Undertaking means an entity that has all the following characteristics : (a) is an entity with the power to contract in its name; (a) has been assigned the financial and operational authority to carry on a business; (b) sells goods and services, in the normal course of its business, to other entities at a profit or full cost recovery; (c) is not reliant on continuing Railway funding to be a going (other than purchases of outputs at arm’s length); and (d) is controlled by Indian Railways. Reporting date means the date of the last day of the reporting period to which the financial statements relate. Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in an increase in net assets, other than increases relating to capital. Reserve is the amount set aside from Railway revenue after the payment of dividend to general revenues. Suspense under capital is an account head which record transactions, temporarily, relating to stores, workshop manufacturers, recoverable advances and items which, for any reason, can not at once be changed to a final head of account. The suspense account is cleared when on the issue of stores o the completion of manufacture or final settlement of transactions, in any way it becomes possible to allocate and transfer the charges to a final head of account. Suspense under revenue is an account head which record the difference between the liabilities of Railways in respect of its staff during a reporting period and the amount actually paid in liquidation of these liabilities. This suspense also records items of expenditure chargeable to revenue but kept in suspense pending adjustment against final heads and also advance awaiting recovery. Stock adjustment account records, temporarily, the fluctuations in the book value of stores due to revision of prices or to the adjustment of difference discovered in the course of verification of stores by actual count and balance shown in the stores ledger. Throw forward means expenditure expected to be incurred in a particular year but actually incurred in the subsequent year. 7. Financial statements are a structured representative of the financial position of and the transactions undertaken. The objectives of general purpose financial statements of Railway are to provide information about the financial position, financial performance and cash flow that is useful to a wide range of users in making and evaluating decision about the allocation of resources and to demonstrate the accountability for the resources entrusted to it by : a. providing information about the sources, allocation and use of financial resources; b. providing information about how the Rlys. financed its activities and met its cash requirements; c. providing information that is useful in evaluating its ability to finance its activities and to meet its liabilities and commitments; d. Providing information about the financial condition of the Rly. and changes in it; and e. Providing aggregate information useful in evaluating the Rly.’s performance in terms of service costs, efficiency and accomplishments. 8. General purpose financial statements of Railways also have a predictive or prospective role, providing information useful in predicting the level of resources required for continued operations, the resources that may be generated by continued operations and then associated risks and uncertainties. Financial reporting may also include information : a. indicating whether resources were obtained and used in accordance with the legally adopted budget; and b. indicating whether resources were obtained and used in accordance with legal and contractual requirements, including financial limits established by appropriate legislative authorities. 9. To meet these objectives, Railway financial statements furnish information about: a. Assets; b. Liabilities; c. Net assets; d. Revenue; e. Expenses; and f. Cash flows. 10. Since primary objective of Railway is not to make profit, it is also accountable for the achievement of service delivery in many areas. Supplementary information, including non-financial statements, may be reported alongside the financial statements in order to provide a more comprehensive picture of its activities during the period. These include passenger service obligations, essential commodities carriage obligations, transport obligations from deficit areas and the like. Responsibility of financial statements : 11. The responsibility for the preparation of financial statements is with the financial Advisor and Chief Accounts Officer of the Railway while that of approving or presenting financial statements is with the General Manager or Chief Administrative Officer, as the case may be. 12. The responsibility for the preparation of consolidated financial statements of the Railway rests with the financial commissioner, while that of presenting/approving with the Chairman, Railway Board. 13. A complete set of financial statements include the following components : a. Profit & loss account & its supplementary statement b. Balance sheet c. Value of Rly assets d. Sources and application of funds e. Capital at charge and subsidies from Government f. Accounting policies g. Cash flow statement 14. The notes to the financial statements may include items referred to as supporting statements. 15. The financial statements provide users with information about Rly.’s revenues and obligations at the reporting rate and the flow of resources between reporting rates. This information is useful for users in making assessments of Rly.’s ability to continue to provide goods and services at a given level, and the level of resources that may need to be provided in the future so that it can continue to meet its service delivery obligations. 16. Railways are subject to budgetary limits in the form of appropriations or budget authorizations, which are given effect through authorizing legislation. General purpose financial reporting by Railways provide information on whether resources were obtained and used in accordance with the legally adopted budget. Since the financial statements and the budget are on the same basis of accounting, a comparison with the budgeted amounts for the reporting period in the financial statements is included & reporting against budgets is to be presented as : a. The use of a columnar format for the financial statements, with separate columns for budgeted amounts and actual amounts. A column showing any variances from the budget or appropriation is also presented, for completeness; and b. If any budgeted amounts or appropriations have been exceeded, or expenses incurred without appropriation or other form of authority then details are disclosed by way of footnote to the relevant item in the financial statements. 17. Additional information to assist users in assessing the performance of Railway, and its stewardship of assets, as well as making and evaluating decisions about the allocation of resources, are presented for details about the Rly.’s outputs and outcomes in the form of performances indicators, statements of service performance, progress reviews and other reports about the achievements over the reporting period. These are following : i. Traffic plan – goods and passengers ii. Expenditure on staff welfare iii. Reserve fund accounts of Indian Railways iv. Deferred dividend liability account v. Financial effect of social service obligation on Indian Government Railways. vi. Passengers and goods revenue statistics (Statement No.36) vii. Efficiency statistics of Indian Railways (Statement No.28) viii. Staff statement (No.40 iii) ix. Statistics of unusual occurrences (No.41 a) 18. Information about compliance with legislative, regulatory or other externally imposed regulations is also disclosed in form of inclusion of Audit observations in annual appropriation accounts by empowered audit organization, i.e. Comptroller and Auditor General of India. Knowledge of non-compliance is likely to be relevant for accountability purposes and does effect a user’s assessment of performance and direction of future operations. It may also influence decisions about resources to be allocated to Railway in the future. Overall Considerations : 19. Financial statements should present fairly the financial position, financial performance and cash flows of Railway. The appropriate application of Indian Railway Accounting Standards, with additional disclosures when necessary, results, in virtually all circumstances, in financial statements that achieve a fair presentation. 20. Financial statements should not be described as complying with Indian Railway Accounting Standards unless these comply with all the requirements of each applicable Indian Railway Accounting Standard. 21. Inappropriate accounting treatments are not rectified either by disclosure of accounting policies used or by notes or explanatory material. 22. In the extremely rare circumstances when management concludes that compliance with a requirement in a standard would be misleading and therefore that departure from a requirement is necessary to achieve a fair presentation, following should be disclosed : a. that management has concluded that the financial statements fairly presents its financial position, financial performance and cash flows; b. that it has complied in all material respects with applicable standards except that it has departed from a standard in order to achieve a fair presentation; c. the standard from which a departure has been made, the nature of departure, including the treatment that the standard would require, the reason why that treatment would be misleading in circumstances, and the treatment adopted; and d. the financial impact of the departure on the net surplus on deficit, assets, liabilities, net assets/equity and cash flows for each period presented. 23. Financial statements may be described as being “based on” or “complying with the significant requirement of” or “in compliance with the accounting requirements of” Indian Railway accounting standards. There may be no further information, although it is clear that significant disclosure requirements, if not accounting requirements, are not met. Such statements are misleading because they default from the reliability and understandability of the financial statements. 24. In order to ensure that financial statements that claim compliance with this standard will meet the standards required by users, the standard includes an overall requirement that financial statements should give a fair presentation, guidance on how the fair presentation is met, and further guidance for determining the extremely rare circumstances surrounding a departure. 25. In virtually all circumstances, a fair presentation is achieved by compliance in all material respects with applicable standard. A fair presentation requires : a. Selecting and applying accounting policies in accordance with paragraph 29; b. Presenting information, including accounting policies, in a manner which provides relevant, reliable, comparable and understandable information; c. Providing additional disclosures when the requirements in the standard are insufficient to enable user to understand the impact of particular transactions or events on the financial position and financial performance. 26. In extremely rare circumstances, application of a specific requirement in a Standard might result in misleading financial statements. This will be the case only when the treatment required by the standard is clearly inappropriate and thus a fair presentation cannot be achieved either by applying the standard or through additional disclosure alone. Departure is not appropriate simply because another treatment would also give a fair presentation. 27. When assessing whether a departure from a specific requirement in a standard is necessary, consideration is given to : a. the objective of the requirement and why that objective is not achieved or is not relevant in the particular circumstances ; and b. the way in which the circumstances differ from those circumstances which follow the requirement. 28. Because the circumstances requiring a departure are expected to be extremely rare and the need for a departure will be a matter for considerable debate and subjective judgement, it is important that users are aware that the entity has not complied in all material respects with the applicable standards. It is also important that they are given sufficient information to enable them to make an informed judgement on whether the departure is necessary and to calculate the adjustments that would be required to comply with the standard. Accounting Policies : 29. Such accounting policies should be selected and applied that these comply with all the requirements of applicable Indian Railway accounting standards. Where there is no specific requirement, management should develop policies to ensure that the financial statements provide information that is ; a. Relevant to the decision making needs of users; and b. Reliable in that they : 1. Represent faithfully the financial performance and financial position of Railway : 2. Reflect the economic substance of events and transactions and not merely the legal form; 3. Are neutral, that is, free from bias; 4. Are prudent; and 5. Are complete in all material respects. 30. A single accounting policy should be selected and applied consistently to each category (transactions, events, balances, amounts, etc.). 31. Accounting policies are the specific principles, basis, conventions, rules and practices adopted by Rly. in preparing and presenting financial statements. 32. The quality of in formation provided in financial statements determines the usefulness of the financial statements to the users. Para 29 requires the development of accounting policies to ensure that the financial statements provide information that meets a number of qualitative characteristics. 33. In the absence of a specific standard, judgement is to be exercised in developing an accounting policy that provides the most useful information to users of the financial statements. In reckoning this judgement, following needs be considered : a. The requirements and guidance in Indian Railway Accounting Standard dealing with similar and related issues ; b. The definitions, recognitions and measurement criteria for assets, liabilities, revenue and expenses described in Indian Railway Accounting Standards and Indian Railway Finance codes; and c. Pronouncements of other standard setting bodies and accepted public or private sector practices to the extent, but only to the extent that these are consistent with (a) and (b) of this paragraph. For example, pronouncements of the International Accounting Standards Committee, including the ‘Framework for the preparation and presentation of financial statements’, International Accounting Standards and interpretations issued by the IASC’s Standing Interpretations Committee. Going concern : 34. When preparing financial statements an assessment of the ability to continue as a going concern should be made. This assessment should be made by those responsible for the preparation of the financial statements. Financial statements should be prepared on a going concern basis unless there is no realistic alternative but to do so. When those responsible for the preparation of financial statements are aware, in making their assessment, of material uncertainties related to events or conditions which may cast significant doubt upon its ability to continue as going concern, these uncertainties should be disclosed. When the financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reason why it is not considered to be a going concern. 35. In assessing whether the going concern assumption is appropriate, those responsible for the preparation of the financial statements take into account all available information for the foreseeable future, which should be at least, but is not limited to, twelve months from the approval of financial statements. 36. It is possible that the statement of financial position at the reporting date may suggest that the going concern assumption is not appropriate. However, there may be multi-year funding, or other arrangements, in place that will ensure the continued operation. 37. Those responsible for the preparation of the financial statements need to consider a wide range of factors surrounding current and expected performance, potential and announced restructuring of organizational units, estimate of revenue or the likelihood of continued Government funding, and potential source of replacement financing before it is appropriate to conclude that the going concern assumption is appropriate. Consistency of presentation : 38. The presentation and classification of items in the financial statements should be retained from one period to the next unless : a. A significant change in the nature of the operations or a review of the financial statement presentation demonstrates that the change will result in a more appropriate presentation of accounts or transactions; or b. A change in presentation is required by Indian Railway Accounting Standard/Public Accounts Committee/ Comptroller and Auditor General of Accounts/any other empowered Parliamentary Committee. 39. A significant acquisition or disposal, or a review of the financial statement presentation, might suggest that the financial statements should be presented differently. 40. Items that are material by virtue of their nature should be presented separately in the financial statements Items that are material by virtue of their size but which have the same nature may be aggregated. Immaterial amounts should be aggregated with amounts of a similar nature or function and need not be presented separately. 41. In this context, information is material if its non-disclosure could influence the decision-making and evaluation of issues about the allocation and stewardship of resources, and the performance of Railway, made on the basis of financial statements. Depending on the circumstances, either the size or the nature of the item could be the determining factor. Offsetting : 42. Assets and liabilities should not be offset except when offsetting is required or permitted by another Indian Railway Accounting Standard/PAC directive/C&AG directive. 43. Items of revenue and expense should not be offset except when, and only when : a. Indian Railway Accounting Standard requires or permits it; or b. PAC’/C&AG’/Controller General of Accounts’ directive requires or permits it; or c. Gains, losses and related expenses arising from the same or similar transactions and other events are not material. Such amount should be aggregated in accordance with Para 40. 44. Offsetting in form of credits for released material from revenue works is to be ensured as per prevalent classification of revenue and capital expenditure. The same is applicable for share of credit for freight charges on Railway materials. Comparative information : 45. Unless an Indian Railway Accounting Standard/any of empowered committees/authorities/Indian Railways Accounting Standard/ (Controller General of Accounts and Comptroller and Auditor General of India) directorate permits or requires otherwise, comparative information should be disclosed in respect of the previous period for all numerical information in the financial statements. Following are empowered Committees for the purpose of structure of accounts, apart from Controller of Government Accounts and C&AG: a. Public Accounts Committee b. Estimates Committee c. Railway Convention Committee d. Any other Committee so authorized by the Parliament. 46. In some cases narrative information provided in the financial statements for the previous period(s) continues to be relevant in the current period. For example, details of a legal dispute, the outcome of which was uncertain at the last reporting late and is yet to be resolved, are disclosed in the current period. Users benefit from knowing that the uncertainty existed at the last reporting late, and the steps that have been taken during the period to resolve the uncertainty. 47. When the presentation or classification of items in the financial statements is included, comparative amounts should be classified unless it is impracticable to do so, to ensure comparability with the current period and the nature, amount of, and reason for any reclassification should be disclosed. When it is impracticable to reclassify comparative amounts, the reason should be disclosed for not reclassifying and the nature of changes that would have been made if amounts were reclassified. 48. Indian Railway Accounting Standard contains guidance in the adjustments required for comparative information following a change in accounting policy that is applied retrospectively. Structure and Content : 49. This standard requires certain disclosures on the face of the financial statements, requires other line items to be disclosed either on the face of the financial statements or in the notes, and sets out recommended formats as an appendix to the standard. 50. This standard uses the term disclosure in a broad sense, encompassing items presented on the face of each financial statement as well as in the notes to the financial statements. Identification of financial statements : 51. Financial statements should be clearly identified and distinguished from other information in the same published document. 52. The standard applies only to financial statements, and not to other information presented in an annual report or document. Therefore, it is important that users are able to distinguish information that is prepared using this standard from other information which may be useful to users but is not the subject of standard. 53. Each component of the financial statements should be clearly identified. In addition, the following information should be prominently displayed, and repeated when it is necessary for a proper understanding of the information presented. a. The name of the reporting organization or other means of identifications; b. Whether the financial statements cover the individual Rly. or the entire Rly.; c. The reporting date or the period covered by the financial statements, whichever is appropriate to the related component of financial statement; d. The reporting currency; and e. The level of precision used in the presentation of figures in the financial statements - (millions of rupees etc.) Reporting period : 54. Financial statements should be presented at least annually. When, in exceptional circumstances, the reporting date changes and annual financial statements are presented for a period longer or shorter than one year, the following should be disclosed, in addition to the period covered by the financial statements : a. The reason for a period other than one year being used; and b. The fact that comparative amounts for certain statements such as statement of financial performance, change in net assets/equity cash flows and related notes are not comparable. Timeliness : 55. Financial statements should be issued within six months of the reporting date. Statement of financial position : The current/non-current distinction : 56. On the face of the statement of financial position, separate classification should be presented for current and non-current assets and current and non-current liabilities should be presented broadly in order of their liquidity. 57. The statement should disclose for each asset and liability item that combines amount expected to be recovered or settled both before and after twelve months from the reporting date the amount expected to be recovered or settled after more than twelve months. Current Assets : 58. An asset should be classified as a current asset when it : a. Is expected to be realized in, or is held for sale or consumption in the normal course of the operation cycle ; or b. Is held primarily for the short-term and expected to be realized within twelve months of the reporting date; or c. Is cash or a cash equivalent asset. All other assets are to be classified as non-current assets. 59. Current assets include demands recoverable, traffic receivables, inventories, accounts with other Government departments and, accounts with other Governments consisting of receivables and payables that are either realized, consumed or issued/sold as part of the normal operating cycle even when they are not expected to be realized within twelve months of the reporting date. Current Liabilities : 60. A liability should be classified as a current liability when it: a. is expected to be settled in the normal course of the operating cycle; or b. is due to be settled within twelve months of the reporting date. All other liabilities should be classified as non-current liabilities. 61. Deposits of Government companies, miscellaneous deposits, Departmental advances and Demand payable and accounts with other Governments are in the nature of current liabilities even if these are to be settled after more than 12 months from the reporting date. 62. Information to be presented on the face of the statement of financial position : As a minimum, the face of the statement of financial position should include line items which present the following : (a) Property, Plant and equipment; (b) Financial assets; (c) Investments; (d) Inventories; (e) Recoverables; (f) Receivables; (g) Cash; (h) Transfers payable; (i) Other payables; (j) Provisions; (k) Non-current liabilities; (l) Net assets; and (m) Minority interest. 63. Additional line items, headings and totals should be presented on the face of the statement of financial position when an Indian Railway Accounting Standard/empowered committee/authority’s directive requires it, or when such presentation is necessary to present fairly the financial position. Information to be presented either on the face of the statement of financial position or in the notes : 64. Further sub-classification of the line items presented, classified in a manner, appropriate to the operations, should disclose, either on the face of the statement of financial position or in the notes to the statement of financial position. Each item should be sub-classified, when appropriate, by its nature, and amounts payable to and recoverable from the controlling Rly., fellow controlled Rly. Units and associates and other related parties should be disclosed separately. The disclosures will vary for each item : Tangible assets should be classified by class in accordance with asset classification on Railways : (1) Fixed infrastructure assets : (a) Track & related accessories; (b) Overhead electrical installations and related accessories; (c) Signalling assets; a. Telecom assets; b. Land & buildings c. Non-residential d. Residential (d) Plant & equipment – Traffic department; (e) Plant & equipment – Other departments; and (f) Computer systems – a. Direct fixed infrastructure segment, b. General fixed infrastructure segment. (2) Moving infrastructure assets and their operations : a. Locomotives - 1. Diesel, 2. Electric and 3. Steam; b. Carriages - 1. MEMU, 2. EMU, 3. DMU and 4. Other carriages; c. Wagons; d. Plant & equipment – Production Units; e. Plant & equipment – Workshops & sheds – Passenger Stock; f. Plant & equipment – Workshops & sheds – freight stock; g. Computer systems – Passenger segment; h. Computer systems – freight segment; and i. Computer systems – other departments. (3) (a) Non-core activities’ assets a. Plant & equipment – Medical, b. Plant & equipment – General departments, and c. Plant & equipment – Residual. (b) Receivables are classified as under : (1) Traffic suspense receivables; (2) Demands recoverable; (3) Receivables from other Government departments; and (4) Receivables from other Governments (foreign). (c) Inventories are sub-classified in accordance with appropriate guidelines that address accounting for inventories, into classifications such as : i) ordinary stores ii) Stores for special works iii) Surplus stores : a. moveable b. dead iv) Storescrap : a. ordinary b. surplus Besides, following is also inventories at various stages of manufacture/usage : (1) Balance in workshop manufacturing suspense (2) Material at site account for projects (3) Track material including Ballast lying at site (4) Balance in stores suspense (d) Contributions to various funds is shown separately as under : (1) Contribution to DRF; (2) Contribution to DF; (3) Contribution to Pension Fund; (4) Contribution to RSF; (5) Contribution to SRSF. (e) Component of net assts are analyzed showing separately capital at charge, capital fund assets and assets funded by various other funds. 65. On the face of the statement of financial position or in the notes, the following should be separately disclosed : (a) Total capital, showing separately : (1) Capital-at-charge, being the cumulative total, at the reporting date, of contribution from the Central Government; (2) Capital fund contributions, being the cumulative total; (3) Reserves, including a description of the nature; (4) Minority interests. (b) The amount of dividend distribution (other than return of capital) proposed or declared after the reporting date but before the financial statements were authorized for issue. Statement of financial performance: Information to be presented on the face of the statement of financial performance : 66. As a minimum, the face of the statement of financial performance should include line items which present the following amounts : a. Revenue from operating activities; b. Surplus or deficit from operating activities; c. Finance costs; d. Share of net surplus/deficit of associates and joint ventures accounted for using the equity method; e Surplus or deficit from Miscellaneous activities; f. Extraordinary items; g. Net surplus or deficit for the period; and h. Dividend payable and paid. 67. Revenues and expenses arising from operating activities are distinguished from those arising from transfer from Central Government and receipts of Railway Recruitment Boards, surcharge of passenger fares from specific purposes, etc. 68. On the face of the statement of financial performance, the following sub-classification of total revenue from operations should be presented : a. Passenger revenue; b. Freight Revenue; c. Other coaching earnings; d. Sundry earnings. Alternatively following : a. Infrastructure revenue; b. Passenger operations revenue; c. Freight operations revenue; d. Suburban operations revenue; e. Non-core activities revenue; and f. Miscellaneous items. 69. In the notes to the statement of financial performance, following sub-classification of Miscellaneous receipts should be presented : a. Receipt from surcharge on passenger fares :- 1. Safety Surcharge 2. Suburban Surcharge 3. Any other Surcharge b. Receipt of dividend subsidy c. RRB receipts d. RDSO receipts e. Other miscellaneous receipts, not connected with Railway operations. 70. On the face of the statement of financial performance, following sub-classification of expenses should be presented : a. Ordinary working expenses – Demand No.3 to 13; b. Appropriation to DRF; c. Appropriation to Pension Fund; d. Expenses spent through open line works - revenue; e. Miscellaneous expenses. Alternatively following breakup : a. Fixed infrastructure working expenses; b. Passenger operations working expenses; c. Freight operations working expenses; d. Suburban operations working expenses; e. Non-Core activity-wise working expenses; and f. Items of miscellaneous expenses, not directly connected with Railway maintenance and operations. 71. In the notes to the statement of financial performance, the following sub-classification of expenses should be presented : (1) Miscellaneous payment : a. Payment to associated lines b. Subsidy c. Surveys d. Miscellaneous Railway expenses e. Repayment of loans taken f. Appropriation to SRSF etc. (2) Others : 72. Additional information, apart from classifying expenses by function, should be disclosed on the nature of expenses, including amortization expenses, salaries and employees’ benefits and finance costs. 73. On the face of statement of financial performance should be disclosed dividend payable to Central Government as well as dividend proposed to be paid for the period covered by the financial statements. 74. As a separate component of its financial statements, following should be presented in statement showing : a. The net surplus or deficit for the period, and b. The cumulative effect of changes in accounting policy and the corrections of fundamental errors. 75. In addition, following should be presented in the notes : a. Contributions by Central Governments and write off of assets originally charged to capital; b. The balance of accumulated surpluses or deficits at the beginning of the period and at the reporting date and the movements for the period, and c. To the extent that components of net capital invested are separately disclosed, a reconciliation between the carrying amount of each component of net capital invested at the beginning and the end of period, separately disclosing each movement. Notes to financial statements : Structure : 76. The notes to the financial statements should : a. Present information about the basis of preparation of the financial statements whether cash or accrual – and the specific accounting policies selected and applied for significant transactions and other events. (a) The primary consideration in the selection of accounting policies is that the financial statements prepared and presented on the basis of such accounting policies should represent a fair and true view of the state of the affairs as at the Balance Sheet date and of the profit or loss for the period ended on that date. The guiding principles for disclosures, then are prudence, substance over form and materiality; (b) Disclose the information required by Indian Railway Accounting Standards that is not presented elsewhere in the financial statements; and (c) Provide additional information which is not presented on the face of the financial statements but that is necessary for a fair presentation. 77. The following are the areas wherein differing accounting policies could be adopted from amongst various competing methods available based on decisions by the empowered authority. a. Methods of depreciation, depletion and amortization; b. Treatment of expenditure during construction; c. Valuation of inventories; d. Valuation of Investments; e. Treatment of retirement benefits; f. Valuation of fixed assets; and g. Treatment of contingent liabilities. 78. Notes to the financial statements should be presented in a systematic manner. Each item on the face of the statement of financial performance, statement of financial position and cash flow statement should be cross-referenced to any related information in the notes. Notes are normally presented in the following order: a. Statement of compliance with Public Accounts Committee instructions; b. Statement of compliance with Indian Railway Accounting Standards; c. Statement of accounting policies applied; d. Supporting information for items presented on the face of each financial statement in the order in which each line item in respective financial statement is presented; and e. Other disclosures including 1. Contingencies, commitments and other financial disclosures; and 2. Non financial disclosures Presentation of Accounting policies : 79. The accounting policies section of the notes to the financial statements should describe the following : a. The measurement basics (or bases) used in preparing the financial statements; Whether historical cost, current cost, realizable value, fair value or present value forms the basis of the financial statement either as a whole or for different categories of assets and liabilities should be clarified; b. Each specific accounting policy that is necessary for a proposed understanding of the financial statements. The policies that might be considered for presenting includes, in addition to items listed in paragraph 77 : i. Revenue recognition ii. Construction contracts iii. Leases iv. R&D costs v. Provisions vi. Definition of segments and the basis for alteration of costs between segments; vii. Inflation accounting viii. Government Grants. Other disclosures : 80. The following should also be disclosed : a. The domicile and legal form, and the jurisdiction with which it operates; b. A description of the nature of operations and principal activities; c. A reference to the relevant legislation governing the operations; and d. The name of the controlling entity and the ultimate controlling entity of the Rly. Unit. Effective date : 81. This India Railway Accounting Standard becomes effective for annual financial statement covering periods beginning on 1^st April 2006.

2. Item No.(vi) & (vii) are additional. It is for consideration whether statements listed in A, B & C above need be covered by the standard as the same are not meant for users outside the unit. 16. It is for consideration whether the comparison with the budgetary figures should be adopted as part of the standard since budgetary figures are essentially for legislative control and not meant for general purposes. 17. It is for consideration whether above statements should be included for the purpose of presentation along with financial statements. Though these do indicate the level and trend in efficient use of resources as well as allow a forecast about the relevant data. 44. It is for consideration whether the gross figures should also be disclosed along with figures of credit realized on different accounts. 64. It is for consideration whether the given classification should be used for presentation of information. Though this would be useful in analyzing the level of efficiency in use of assets and the trend in this respect, however, this would need substantial changes in the existing formats for compilation of the required data. It is for consideration whether suggested classification of inventories should be adopted as such or a different classification involving type of inventory classified on the basis of the use by departments is adopted in order to ensure better monitoring. 68. It is for consideration if the new system of aligning Railway revenues along the nature of functions should be used. It would appear from the trend in other railway systems that adoption of the new system would allow easy comparability as well as enforcing necessary organizational re-design that in long term will help Railways to ascertain more accurately the results of various groups of activities. 70. It is for consideration that he new system of aligning Railway working expenses along the nature of functions should be used. It would appear from the trend in other railway systems that adoption of the new system would allow easy comparability as well as enforcing necessary organizational re-design that in long term will help Railways to ascertain more accurately the results of various groups of activities. 77. It is for deliberation as to which of the methods is to be adopted for each item enumerated above for the purpose of adoption of a sound policy by Railways that would facilitate presentation of an accurate picture of Railway finances. 78. It is for deliberation whether the above statements, and in addition many more statements if suggested, should be presented with financial statements. IPSAS do recognize item b. to e. above for presentation of information along with financial statement.

APPENDIX-I

RAILWAY - STATEMENT OF FINANCIAL POSITION AS OF 31.3.2006

As on Previous Year	Assets:	As on Current Year
	(I) CURRENT ASSETS: (a) held by Indian Railways : - Cash in hand - Misc. Advance - Demands Recoverable - Traffic Suspense (b) held by Central Govt. : - Rly and other Provident & SBS - Deposits of Govt. Companies - Misc. deposit - Other Deptt. Advances - Accounts with States & Central Govt. deptts. - Accounts with : (i) PAKISTN RLYS. (ii) BD RLYS. - adjustment Defence - Adjustment P & T
	(II)) NON-CURRENT ASSETS : (4) Fixed infrastructure assets : a. Track & related accessories; b. Overhead electrical installations and related accessories; a. Signalling assets; b. Telecom assets; c. Land & buildings (i) Non-residential (ii) Residential d. Plant & equipment – Traffic department; e. Plant & equipment – Other departments; and f. Computer systems – (i) Direct fixed infrastructure segment, (ii) General fixed infrastructure segment. (5) Moving infrastructure assets and their operations : a. Locomotives - 1. Diesel, 2. Electric and 3. Steam; b. Carriages - 1. MEMU, 2. EMU, 3. DMU and 4. Other carriages; c. Wagons; d. Plant & equipment – Production Units; e. Plant & equipment – Workshops & sheds – Passenger Stock; f. Plant & equipment – Workshops & sheds – freight stock; g. Computer systems – Passenger segment; h. Computer systems – freight segment; and i. Computer systems – other departments. (6) Non-core activities’ assets a. Plant & equipment – Medical, b. Plant & equipment – General departments, and a. Plant & equipment – Residual. (3) Financial Assets : - (i) Reserve funds and investments - (ii) Investment in Rly. PSUs - (iii) Investment in joint ventures
	LIABILITIES : (1) Current Liabilities : (A) held by Indian Railways : Deposit of Govt. companies Misc. Deposits Other Deptt. Advances Advance to Port Authorities Demands payable (B) held by Govt. : Accounts with Central Govt. (2) Non-current liabilities : - Investment from : (i) Capital-at-charge (ii) Capital Fund (iii) DRF (iv) DF (v) OLWR (vi) SRSF (vii) Miscellaneous - Rlys & other Provident Funds and SBF - Advance from Central Govt. for Rly employees & Rly Co- operative Societies - Fund balances : DF Pension Fund Capital Fund RSF SRSF Total Liabilities Net Assets/Capital

STATEMENT OF FINANCIAL PERFORMANCE :

(In millions of Rs.)

(1) Operating Revenue Items :

- Passenger earnings less refunds

- other coaching earnings less refunds

- Freight earnings less refunds

- Sundry other earnings less refunds

____________

(A) Total operating revenue/Gross ____________

- Traffic Earning Suspense :

____________

(A1) Gross receipt + Traffic earnings suspense ____________

(2) Operating Expenses : Demand

3

4

5

6

7

8

9

10

11

12

13 ____________

Total operating expenses : ____________

- Appropriation to DRF

- “ to Pension Fund

(B) Gross working expenses

- Revenue Suspense :

( B1 = GWE+Suspense )

(C) Net Earnings (A-B)

(II) NON-OPERATING

(D) Miscellaneous receipts

Gross receipts

(A1 + D)

(E) Misc. expenditure

(B1 + E)

(III) (F) NET RECEIPTS (D – E)

(IV) (G) PAYMENT TO GENERAL REVENUES

(V) (H) Surplus / Shortfall (F – G)

APPENDIX-IC

STATEMENT OF CHANGES IN NET ASSETS / EQUITY

As on 31.3.06

	Capital at Charge	Capital Fund	DRF	DF	RSF	SRSF	OLWR	Revaluation Reserve	Total
i)Balance as on 31.3.06	1	2	3	4	5	6	7	8	9
ii) Change in Accounting Policy
Restated balance
iii) Surplus as revaluation of property
iv) Deficit on revaluation of investments
v) Net gains/losses not recognized in the financial performance
vi) Net surplus/deficit for the period
vii) Balance as on 31.3.01

COMPARISON WITH IPSAS 1 :

Indian Railway Accounting Standard (IRAS)1 ‘Presentation of Financial Statements’, is drawn primarily from International Public Sector Accounting Standard (IPSAS)1 ‘Presentation of Financial Statements’. The main differences between IRAS 1 and IPSAS 1 are as follows :

· Commentary additional to that in IPSAS 1 has been included in IRAS 1 to clarify the applicability of the standards to Indian Railways e.g., discussion on the application of the standard on various statements prepared by Railways has been expanded.

· IPSAS 1 requires the presentation of a statement showing all changes in net assets/equity while IRAS 1 allows the presentation showing change in capital-at-charge and capital fund.

· IRAS 1 uses different terminology, in certain instances, from IPSAS 1. The most significant examples are the use of terms ‘Stock Adjustment Account’, ‘Suspense Under Capital’, ‘Suspense Under Revenue’ and ‘Stock Adjustment Account’.

· IRAS 1 includes provisions specifically applicable to Indian Railways like Para 10. In fact, the whole approach behind this standard is to reorient the applicability of IPSAS 1 to Indian Railways.

· IRAS 1 specifies the statements in Para 17 which could be presented for the purpose of additional information in support of financial statements.

· IRAS 1 specifies empowered authorities/committees in Para 45 whose instructions are to be complied with in connection with presentation of financial statements in addition to the applicable standards. Such instructions are required to be incorporated in due course in the relevant standard.

· IRAS 1 follows a different classification of assets in Para 64 which is in accordance with the nature of assets on Indian Railways.

A summary of qualitative characteristics of financial reporting is given IPSAS 1 as Appendix-II. These qualitative characteristics are also applicable to IRAS 1.