NOTE ON SHIFT FROM CASH ACCOUNTING TO ACCRUAL ACCOUNTING SYSTEM IN EDUCATIONAL INSTITUTIONS &PROVISION FOR RETIREMENT BENEFITS SUCH AS GRATUITY, LEAVE ENCASHMENT, PENSION ETC. ------------------------------------------------------------------- Higher educational institutes in the country are likely to report their financial information in a standard and uniform format set by the Institute of Chartered Accountants of India (ICAI). Consequently the institutes will have to disclose their balance sheet and the income and expenditure account. This will mean a shift from the present cash basis of accounting to accrual-based system of accounting. The above shifting from cash basis to accrual basis of accounting has become desirable in view of “Report on Implementation of Accounting Standards in Educational Institutions of Department of Higher Education, Ministry of Human Resources Development”. The report recognizes superiority of accrual basis of accounting over cash basis of accounting. Thus reads last part of para 7 on pages 11-12 of the report which is under the caption “BASIS OF ACCOUNTING” :- “Accrual is the scientific basis of accounting and has conceptual superiority over the cash basis of accounting. It is, therefore, recommended that educational institutions should maintain their books of account on accrual basis.” For full details about the subject the reader may refer to the above report which is readily available on the website of University Grants Commission- ugc.ac.in/pdfnews/3639825_Report-on-Implementation-of-Accounting-Standards-in-Educational-Institutions.pdf . The matter may also be got examined from Finance Experts, Chartered Accountants and Auditors of the Institution of the reader of this note if so desired. If the educational institution of the reader of this write-up is required to change its accounting system from Cash Accounting to Accrual Accounting, then the institution is also required to comply with the requirements of Accounting Standard 15 (Revised 2005) of the Institute of Chartered Accountants of India and make provisions for retirement benefits accordingly. Most relevant retirement benefits are:- Benefits under Gratuity Plan Benefits under Leave Encashment Plan Benefits under Pension Plans (Defined Benefits) Interest Rate Guarantee on Exempted Provident Funds Compliance of Accounting for above type of retirement benefits will need actuarial inputs from an Actuary. Author of this write-up is a Fellow of The Institute of Actuaries of India with his established consultancy in the area of employee benefits with expertise and experience in providing actuarial services for this purpose. His experience extends over 15 years with clientele amongst Educational Institutes such as Universities, IIT’s, Communication Institute, Schools and also amongst Hospitals, Multinationals, Electricity Companies, etc. etc. We provide quality services for compliance of the regulators. In case our services are required for actuarial inputs meant for shifting to accrual system of Accounting, we may be contacted at the following:- 1. Our Website : mlsodhiactuary 2. Emails Id : [email protected], mlsodhi@sify 3. Mr. Tikaram Chaudhary – 9211637063 ugc.ac.in/pdfnews/3639825_Report-on-Implementation-of-Accounting-Standards-in-Educational UGC.AC.IN
Posted on: Sat, 30 Aug 2014 07:08:02 +0000
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