Railways' switch to accrual-based accounting to boost multilateral, green financing: ICAI

 Indian Railways has successfully transitioned to an accrual-based accounting system, a move expected to enhance financial transparency and ease resource mobilization from multilateral agencies and green financing, according to a top official of the Institute of Chartered Accountants of India (ICAI).

The transition to accrual accounting is now operational across all 26 zones of Indian Railways in real-time for the financial year 2023-24.

"Beyond improved budget management, the adoption of accrual accounting will simplify raising funds from multilateral agencies like World Bank and promote green financing with better accounting practices," ICAI president Ranjeet Kumar Agarwal told PTI.

"This move places Indian Railways on an accounting standard at par with government entities of developed economies that have already embraced, shifting away from cash-based accounting. It will also inspire other government organizations to adopt similar practices, recognizing the significant benefits of accrual accounting," Agarwal said.

Indian Railways initiated the preparation of Accrual-Based Financial Statements in 2014 as part of its efforts to enhance financial transparency and accountability. The ICAI and its Accounting Research Foundation (ICAI ARF) have played a critical role in driving these reforms forward.

ICAI ARF developed a Transaction-Based Accrual Accounting System to facilitate the preparation of financial statements from FY2023-24 onwards aligning with Indian Railways' efforts towards achieving environmental, social, and governance (ESG) goals, the official said.

"For the first time, environmental sustainability initiatives have been reflected in the accrual-based financial statements for 2022-23," said Nirupama Kumar, Chief Administrative Officer (Accounting Reforms) at Indian Railways, in a statement.

Kumar also commended the ICAI ARF's contribution, calling it "a milestone in the history of the Government of India." She highlighted that Indian Railways is the first ministry to adopt accrual-based accounting at an organisational level.

The ICAI president suggested that Indian Railways should consider physical verification of assets to complement the accounting reforms.