TOWARDS BETTER PRESENTATION OF RAILWAY
ACCOUNTS
--V.A.PADMANABHAM, IRAS, Sr.AFA/GENERAL/SCR
In the present day context of need to
introduce accounting reforms on Indian Railways, it is relevant 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
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:
LIABILITIES
SIDE
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.
ASSETS SIDE
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.
CONCLUSION:
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.
*******