Wednesday, September 14 2005 15:02 Hrs (IST) - World Time -

New Delhi: Taking cue from India Inc, the Centre has decided to switch over to new and efficient accounting system and asked states to follow suit, as part of fiscal reforms and improving quality of public expenditure.

"Corporate sector has for many years practiced the accrual-based accounting system... Government is determined to switch over to the new system and I hope states will follow suit," Finance Minister P Chidambaram said inaugurating a workshop on accounting systems organised by Controller General of Accounts and World Bank.

This follows the recommendations of 12th Finance Commission, which suggested switching over from the present 'cash-based' accounting system to accrual-based system to capture the asset creation and large hidden liabilities like pay and pension.

Government has accepted in-principle, this recommendation of Finance panel even though it is yet to set a deadline as the government was venturing into 'unchartered waters', he said, emphasizing on the need for further refinement in the accrual based system.

"Because we don't have a accrual-based system, there are huge liabilities hidden in the system," Chidambaram said pointing to the pension bill, revenue receivables, arrears, depreciation and replacement costs.

While cash-based accounting system records only cash receipts and expenditure, the new accrual-based captures all assets and liabilities realized and promised.

Chidambaram said the switchover entailed computerisation of the entire accounting system as presently only 60-70 per cent of the field offices are computerised and many states are yet to automate their systems.

In fact, he said, "many states have not separated the account and audit systems and accounting function was very weak."

At local bodies level, only Bangalore has adopted the accrual-based system. Delhi made a start but did not progress further, he said.