Roll Out Accounting Railways Scope Evaluation Out of Accrual Accounting over Indian Railways

271 Pages·2017·3.78 MB·English

IInnddiiaann RRaaiillwwaayyss - CCoommpprreehheennssiivvee SSccooppee EEvvaalluuaattiioonn RReeppoorrtt
2017

Roll OOuutt of AAccccrruuaall
AAccccoouunnttiinngg over IInnddiiaann
RRaaiillwwaayyss - CCoommpprreehheennssiivvee
Scope EEvvaalluuaattiioonn RReeppoorrtt
(CSER)

1 | IICCAAII AAccccoouunnttiinngg RReesseeaarrcchh FFoouunnddaattiioonn
Indian Railways - Comprehensive Scope Evaluation Report
2017

ICAI Accounting Research Foundation (ICAI ARF)

TABLE OF CONTANTS .................................................................................................... 2
1 Introduction ....................................................................................................................... 1
1.1 Project Background .....................................................................................................................1
1.2 Understanding of Accrual Accounting System ..............................................................................1
1.3 Introduction to Comprehensive Scope Evaluation Report (CSER) .................................................3
1.4 Structure of the CSER ...................................................................................................................4
2 Approach and Methodology ............................................................................................... 6
2.1 Team for the Assignment .............................................................................................................8
2.2 Approach & Methodology............................................................................................................9
2.3 Tasks to be performed by Unit Teams of ICAI ARF: ..................................................................... 10
2.4 Tasks to be performed by Nodal Team of ICAI ARF: .................................................................... 10
2.5 Tasks to be performed by AR Team of Indian Railways: .............................................................. 11
3 Indian Railways–An Overview .......................................................................................... 12

Draft
3.1 Organization Structure............................................................................................................... 12
4 Understanding of Zonal Railway ....................................................................................... 13
4.1 Division ...................................................................................................................................... 13
4.1.1 Functions of Various Departments in a Division ....................................................................................... 15
4.1.2 Accounting System at Division Level ........................................................................................................ 19
4.1.3 Various Sections of Accounts Department in a Division: .......................................................................... 19
4.1.4 Management Information System (MIS) .................................................................................................. 21
4.1.5 General Understanding of Accounts Department .................................................................................... 22
4.1.6 General Process of Recording of Intra-Unit Transactions ........................................................................ 23
4.1.7 Use of Suspense heads ............................................................................................................................. 24
4.1.8 Auditing System ........................................................................................................................................ 27
4.1.9 Budgeting System ..................................................................................................................................... 28
4.1.10 Mapping of Current Process at Divisional Office.................................................................................. 29
4.2 Workshop .................................................................................................................................. 55
4.2.1 Introduction .............................................................................................................................................. 55
4.2.2 Organizational Structure of Workshop ..................................................................................................... 55
4.2.3 General Organizational Structure of Accounts Department in a Workshop ............................................ 55
4.2.4 Type of Works Performed in a Workshop ................................................................................................ 56
4.2.5 Departments in a Workshop .................................................................................................................... 56
4.2.6 Workshop Manufacturing Suspense (WMS) Account or Workshop Account Current ............................. 57
4.2.7 Workshop General Register (WGR) .......................................................................................................... 58
Indian Railways - Comprehensive Scope Evaluation Report
2017

4.2.8 Outturn Statement ................................................................................................................................... 58
4.2.9 Fixed Assets .............................................................................................................................................. 58
4.2.10 Store Department ................................................................................................................................ 59
4.2.11 Methods of Procurement of Material .................................................................................................. 61
4.2.12 Illustrations on Stores Accounting ....................................................................................................... 61
4.3 Traffic Accounts Office ............................................................................................................... 62
4.3.1 Station Balance Sheet ............................................................................................................................... 63
4.3.2 Mapping of Accounting Processes at Traffic Accounts Office (TAO) ........................................................ 65
4.3.3 Compilation of Traffic Book ...................................................................................................................... 74
4.4 Other Accounting at Zonal Railway Headquarter ........................................................................ 77
4.4.1 Study of Fuel at HQ Level.......................................................................................................................... 77
4.4.2 Transfer Transactions – Intra and Inter Unit Transactions ....................................................................... 85
4.4.3 Transfer without Financial Adjustments – TWFA ..................................................................................... 90
4.4.4 TWFA transactions to transfer the balances other than source of fund: ................................................. 93
4.5 Other Departments at the Zonal Railway Headquarters ............................................................. 93
4.5.1 Construction Department ......................................................................................................................... 93
4.5.2 Stores Department ................................................................................................................................... 94
4.5.3 Establishment Section .............................................................................................................................. 98
4.5.4 Cash and Pay Section HQ .......................................................................................................................... 98
4.5.5 Settlement/ Pension Section .................................................................................................................... 99
4.5.6 Statement of Service of Non-Gazetted Staff ............................................................................................ 99
4.5.7 Statement of Service of Gazetted Staff ........... ......................................................................................... 99
Draft
4.5.8 Expenditure Section................................................................................................................................ 101
4.5.9 Books and Budget Section ...................................................................................................................... 102
5 Understanding of Production Unit (PU) .......................................................................... 106
5.1 Organization structure of PU ................................................................................................... 106
5.1.1 Structure of Accounts and Finance Department .................................................................................... 107
5.1.2 The Production Process .......................................................................................................................... 107
5.1.3 Functions of various Departments of PU ................................................................................................ 110
5.1.4 Management Information System (MIS) ................................................................................................ 115
5.1.5 Understanding of Existing Software Systems ......................................................................................... 115
5.2 Review of Existing Accounting System ..................................................................................... 118
5.2.1 Sections in the Accounts Department .................................................................................................... 118
5.2.2 Mapping of Current Process at PU ......................................................................................................... 122
5.3 Understanding of Workshop Manufacturing Department ........................................................ 126
5.3.1 Materials and its Accounting Treatment ................................................................................................ 126
5.3.2 Preparation of Stores Sub ledger ............................................................................................................ 127
5.3.3 Reconciliation of Gate Attendance with Labour Booking ....................................................................... 127
5.3.4 Compilation of Overheads ...................................................................................................................... 128
5.3.5 Workshop Manufacturing Suspense Account (WMS Account) .............................................................. 128
5.3.6 Monthly and Annual Workshop General Register (WGR) ...................................................................... 130
5.3.7 Vetting of Price Formats ......................................................................................................................... 131
Indian Railways - Comprehensive Scope Evaluation Report
2017

5.3.8 Transfer of Goods from Workshop to Other Railways ........................................................................... 132
5.3.9 Raising of Debits on Railway Board for Coaches Manufactured during the Month ............................... 132
5.3.10 Production for Non-Railway Customers (NRC) ................................................................................... 132
5.4 Fixed Assets Register at PU ...................................................................................................... 132
5.5 Stores Department .................................................................................................................. 133
6 Central Organisation for Modernization of Workshop-COFMOW .................................... 135
6.1 Introduction ............................................................................................................................ 135
6.2 Organization chart of COFMOW............................................................................................... 137
6.3 Procedure for procurement of M&P items ............................................................................... 139
6.3.1 Accounting aspects of procurement of Machinery and Plant: ............................................................... 140
7 Electrification in Indian Railways .................................................................................... 144
7.1 History ..................................................................................................................................... 144
7.2 Central Organization for Railway Electrification (CORE) ............................................................ 144
7.3 Accounting at CORE Head Office .............................................................................................. 145
7.4 CORE Project Office ................................................................................................................. 147
7.5 Compilation of Fixed Assets Register (FAR) – Electrification ..................................................... 148

7.6 Observations ..............................................D.raft ............................................................................ 155
8 Understanding of Research Designs & Standards Organisation (RDSO) ........................... 157
8.1 History ..................................................................................................................................... 157
8.2 Organisation Structure............................................................................................................. 157
8.3 Accounting at RDSO ................................................................................................................. 159
9 Understanding of Sub-Urban Operations ........................................................................ 160
9.1 Introduction ............................................................................................................................ 160
9.2 Understanding of Sub Urban Train System ............................................................................... 160
9.3 Financial Overview of Sub Urban Segment of Indian Railways .................................................. 160
9.4 Important features of Mumbai Suburban System: ................................................................... 161
9.5 Accounting for Sub urban ........................................................................................................ 161
9.6 Observations ........................................................................................................................... 162
9.7 Costing of Sub Urban Operations ............................................................................................. 162
9.8 Fixed Assets Register-Sub Urban .............................................................................................. 164
10 Kolkata Metro ................................................................................................................ 165
Indian Railways - Comprehensive Scope Evaluation Report
2017

10.1 History ..................................................................................................................................... 165
10.2 Organizational structure: ......................................................................................................... 165
10.3 Accounting at Kolkata Metro ................................................................................................... 166
11 Understanding of Chennai Metropolitan Transport Project ............................................. 169
11.1 Accounting system of Chennai MTP ......................................................................................... 169
11.2 Observations ........................................................................................................................... 169
12 Understanding of Existing Software ................................................................................ 170
12.1 Introduction: Computerisation of Accounting Activity over Indian Railways ............................. 170
12.2 Functional Module of IPAS ....................................................................................................... 171
12.3 Integrated Material Management System (i-MMIS) ................................................................. 172
12.4 Indian Railway E Procurements System (IREPS)- ....................................................................... 172
12.5 Advanced Railway Pension Access Network (ARPAN) ............................................................... 173
12.6 E-Reconciliation Portal ............................................................................................................ 173
12.7 VPN – ONLINE Budgeting System ............................................................................................. 173
12.8 New Applications ..................................................................................................................... 174

13 Chapter - Way Forward for implementationDr aft of Accrual Accounting ................................. 176
13.1 Comprehensive Study of Existing Accounting Systems ............................................................. 176
13.2 Compilation of Fixed Assets Register (FAR) .............................................................................. 176
13.3 Categorization of Fixed Assets ................................................................................................. 177
13.4 Preparation of Opening Balance Sheet (OBS) ........................................................................... 178
13.5 Valuation Norms of Assets and Liabilities ................................................................................. 179
13.6 Finalizing Significant Account Policies ...................................................................................... 180
13.7 Capturing Accounting Transactions on day-to-day Basis ........................................................... 182
13.8 Compilation of Financial Statements ........................................................................................ 182
13.9 Capacity Building, Hand Holding & Training ............................................................................. 182
14 Annexures -Forms and Formats ...................................................................................... 183
14.1 Annexure 1: FAR Format .......................................................................................................... 183
14.2 Annexure 2 - Formats of Financial Statements ......................................................................... 208
14.3 Annexure 3 - Accrual Impact Sheet (Current Assets and Liabilities) .......................................... 232
14.4 Annexure 4 – Notes to Accounts .............................................................................................. 262
Indian Railways - Comprehensive Scope Evaluation Report
2017

Draft
Indian Railways - Comprehensive Scope Evaluation Report
2017

1 Introduction

1.1 Project Background
The Government accounting system in India, in all three tiers of Governance, i.e., the Union,
States and Local bodies including Autonomous or Statutory Bodies, is pre-dominantly cash
based accounting system linked with the budgeting process within the framework of
legislative financial control. The basic principles derive its form and substance from cash
based procedures that were laid during the British period. The basic principles of the
government accounts are enunciated in General Financial Rules and other related legislations,
manuals, etc. as prescribed in the ‘Operational Guidelines for Accrual Based Financial Reporting’ as
issued by GASAB secretariat. In recent times, there has been a paradigm shift in the priorities of
public finance management from identifying resources for public scheme funding to fiscal
prudence, efficiency & transparency in public spending. These shifts in priorities have been
reflected in initiatives like the Fiscal Responsibility & Budget Management Act and Outcome
Budget. It is reflected that there is a need for Financial Reporting that is to be in sync with the
shift in priorities of Public Finance. To achieve this, accounting systems the world over, are
being revisited with an emphasis on transition from rule to standards based accounting and
migration from cash to accrual based system of accounting.

On these lines the Ministry of Railways (MoR) decided to prepare an additional set of
Financial Statements on accrual based system of accounting in addition to the cash based
Financial Statements, as it would help in bringing more transparency, timely availability of
information, improved financial performance, advanced decision-making, etc.

As a part of the Accounting reforms project a pilot study on introduction of accrual
accounting was undertaken at North Western Railway, Jaipur and Rail Coach Factory,
Kapurthala. The pilot study saw the preparation of accrual based financial statements of
these units in addition to the present cash based financial statements. On successful
completion of pilot project, it was decided to roll out this exercise across the Indian Railways
on the basis of same methodology and strategy as followed in the pilot study.

1.2 Understanding of Accrual Accounting System
Accrual based accounting is a method of recording transactions by which revenues, costs,
assets and liabilities are reflected in the accounts of the period in which they accrue and arise,
irrespective of actual receipt/ payment thereof..

Objectives and Benefits of Accrual Based System
This section gives the objectives and the merits of transitioning to accrual based accounting
system. The primary objectives of accrual based accounting are:
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Indian Railways - Comprehensive Scope Evaluation Report
2017

i. Improve decision-making to enhance efficiency and effectiveness of public spending
through the creation of more accurate and accessible financial information.
ii. Improve resource allocation due to a better insight into costs of policy and transparency
of results.

Benefits
Accrual accounting provides meaningful information both for accountability and decision-
making. Financial information prepared on an accrual basis allows users to:
i. Make better/balanced comparisons between alternative disposition(s) of resources;
ii. Better assessment of performance, financial position and cash flows of the entity;
iii. Better evaluation of the entity’s ongoing ability to finance its activities and to meet its
liabilities and commitments;
iv. Gain clearer insight into how the organization finances its activities;
v. Better evaluation of the organization’s performance in terms of its service costs, efficiency
and accomplishments; and
vi. Gain more understanding into how the organization is managing its resources.

In context of Indian Railways, Accrual Based Accounting System would help in achieving the

following objectives:
Draft

i. The accounting system will be in line with commercial accounting system;
ii. Under the accrual system, revenue is recognised as and when the claim of the entity in
respect of such revenue is recognised has become reasonably enforceable. Thus, an item
of income would constitute revenue even if cash is not received against it. Currently, IR
follows a hybrid system of accrual and cash accounting system. To elaborate, the traffic
earnings are accounted for on booking basis and certain other items of earnings viz. rent
and siding charges and interest and maintenance charges from sidings are accounted for
on billing basis. The realisation thereof is monitored through Suspense heads Traffic
Accounts and Demands Recoverable, respectively. However, in other cases the revenues
are recorded only when these are collected. Further, the revenues are recorded on
booking/ billing basis without regard to the accounting period. For example, the revenue
of passengers tickets booked for period beyond accounting year (viz. passenger ticket
issued in March for journeys in the next financial year) and rent etc. received in advance
are recorded as revenue in the year of booking/ billing. The financial status of the
Division/Workshop or as a whole Indian Railways will be better reflected if the total
revenue including any amount receivable is shown appropriately. If done, it will help in
understanding the revenue generation possibility, collection efficiency, etc. It is pertinent
to note that, for this purpose, accounting policy for revenue recognition is to be laid down
first;
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Indian Railways - Comprehensive Scope Evaluation Report
2017

iii. Under the accrual system, expenditure is recognised as and when the liability for
payment arises even if the payment is not made at that time. Under present accounting
system , the value of services already consumed during the financial year is not
recognised by IR as an expense of the period in which the service is received unless and
until the payment is made for it except in case of salaries/ wages. For salaries, a suspense
account, namely, Demands Payable and Labour is maintained. The salaries of the
accounting period are debited to the Expenditure head by credit to these suspense heads
and the latter is cleared on actual payment in subsequent accounting period. Thus, in
present accounting system, expenditure incurred on a repair and maintenance contract,
which has been executed and completed during a financial year, shall not be recognised
as an expense of the said financial year unless the payment is made in that financial year
for the bills received in respect of the services received. This would have an effect of
showing a higher financial surplus or a lower financial deficit and thus a better (and
unintended incorrect) picture of the entity.
However, in accrual basis of accounting, expenditure incurred on repairs and
maintenance shall be recognised as expense of the financial year in which it is incurred
even if not paid during that year so that the Income and Expenditure Statement correctly
reflects the position in respect of the expenditure. The amount not paid shall be treated as
a liability (payable) and be disclosed as such in the Balance Sheet. This will enable the
entity to be aware of its obligations towards its creditors;
iv. The accrual basis of accounting matches the expenditures for a year with the income
Draft
earned in that year. It thus provides for a better understanding of the operating
performance of the entity;
v. Accrual based accounting system clearly distinguishes between items of revenue and
capital nature. This helps in correct presentation of financial statements, viz., the Income
and Expenditure Account and the Balance Sheet. Thus, an asset, which is likely to yield
benefit of an enduring nature, is shown as such and not expensed. This facilitates an
understanding of the asset base of the entity with reference to which services are provided
and which revenues are earned;
vi. Financial Statements prepared on accrual basis of accounting have a much greater degree
of acceptability amongst various stakeholders;
vii. One of the distinct advantages of accrual accounting system is ease in financial appraisals
by financial institutions/ other stake holders. It also facilitates credit ratings through
approved credit rating agencies, which is a pre-requisite for mobilising funds in the
financial markets.

1.3 Introduction to Comprehensive Scope Evaluation Report (CSER)
As a part of the MOU between ICAI ARF and Indian Railways (IR), an action plan for
conceptualizing and implementing the accounting reforms in the Indian Railway has been
agreed wherein an additional set of Financial Statements on accrual based system of
accounting is being prepared in addition to the cash based Financial Statements. Under this,
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Indian Railways - Comprehensive Scope Evaluation Report
2017

one of the key deliverables is Comprehensive Scope Evaluation Report (CSER). The CSER is
intended to put together all the components of the existing system, the intended accounting
system, identify the gaps and conceptualize the data requirement and other necessary details
required to fill up the gap to produce the Financial Statements based on accrual based
accounting system in a time bound manner. In particular, the CSER is envisaged to address
the task of bringing together in a detailed manner all the components of the existing system
and the extent of prudence and propriety of the existing system by presenting:
i. detailed description of the present accounting system for the purpose of recording and
processing of revenue receipts, capital receipts, revenue expenditure and capital
expenditure;
ii. detailed internal organization chart of finance and accounts division; and
iii. flow of data/information in respect of every kind of assets and liabilities and also the
validity thereof.
iv. the methodology for converting cash based financial statements into accrual based
financial statements and roadmap to achieve the same.

ICAI ARF has already prepared Comprehensive Scope Evaluation Report (CSER) based on
their pilot study on North Western Railway and Rail Coach Factory, Kapurthala. However,
for rolling out the accrual accounting across the Indian Railway, CSER for Indian Railways
as a whole is required to be prepared. Therefore, it was considered necessary to study the
working/ activities/ accounting of several segments (areas/offices) of Indian Railways which

were not covered in North Western RailwayDraft in compilation of CSER for the entire Indian
Railways. The offices covered for preparation of CSER are as under:

1. Central Organisation for Modernisation of Workshops (COFMOW), New Delhi;
2. Central Organisation for Railway Electrification (CORE), Allahabad;
3. Project Office, CORE, Lucknow
4. Sub Urban Operations, Mumbai
5. Kolkata Metro, Kolkata
6. Metropolitan Transport Project (MTP), Chennai
7. Research &Development Standards Organisation (RDSO)
8. Traction Sub Station (TSS), Sahibabad
9. Electric Loco Shed, Ghaziabad
10. AMU Car Shed, Mumbai
11. Traffic Accounts Office, Western Railway, Ajmer (for SPV)

1.4 Structure of the CSER
Based on study carried out at selected offices (selected in consultation with the concerned
officials of the office of CPM/AR of Indian Railways) across the Indian Railways, the CSER
comprise of the following chapters:
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