SURESH PRABHU RELEASES ICAI STUDY ON ACCOUNTING FOR POWER
The Minister for Power released
here today the Study on Accounting in the Power Sector by the
Institute of Chartered Accountants of India (ICAI). Releasing
the study the Minister said with increased allocation of public
money to the power sector in recent years, there is now even greater
responsiblilty on accountability now. The state power sector public
utilities do not even give a 3 percent return at present on their
capital, as mandated by law. Shri Prabhu said there was absence
of proper data in the sector. The need of the hour is to have
a date base which is acceptable to the international investing
community, he said. At present it is estimated that U.S. $ 200
billion need to be invested in the sector and domestic savings
are not enough for this, the Minister added. Shri Prabhu suggested
that the new accounting norms could become applicable from the
financial year starting April 1, 2002.
Against the above background,
the Research Committee of the ICAI has brought out this ‘Study
on Accounting in Power Sector’. The Study reviews and evaluates
the existing framework of accounting and financial reporting under
which various principal power sector entities, particularly SEBs,
are preparing their financial statements.
The Study focuses on preparation
and presentation of general purpose financial statements with
a view to reflect a true and fair view of the operating results
and state of affairs of the principal power sector entities, particularly
SEBs, in accordance with the GAAPs in India. Since the Accounting
Standards constitute the principal source of GAAPs in India, this
Study primarily has examined the applicability of the Accounting
Standards to the principal power sector entities.
Accordingly, the main chapter
of the Study, namely, ‘Issues in Application of Accounting Standards’
critically evaluates principles and practices currently prevailing
in power sector, particularly as prescribed in ESAAR, in respect
of each of the 27 Accounting Standards issued by the ICAI. In
the Appendix to the Study, every accounting principle and policy
prescribed in ESAAR has been critically evaluated to ascertain
its conformity/non-conformity with GAAPs in India. This analysis
reveals that there is considerable divergence between the accounting
principles and policies being currently followed in the Power
Sector, particularly ESAAR and the GAAPs in India.
The Study concludes that modification
in ESAAR in the present day context is neither feasible, nor would
serve any worthwhile purpose. The Study, therefore, recommends
that power sector entities should follow Indian GAAPs in totality.
The Study also recommends that
it is imperative that the regulators also use the financial information
based on the GAAPs since such information reflects the economic
reality of the transactions and, therefore, decisions of the regulators,
e.g., tariff fixation, would be economically sound. The Study
also recommends that the financial information to be disclosed
in the general purpose financial statements for power sector should
be on the lines of the information required to be furnished as
per Schedule VI to the Companies Act, 1956, since it would broadly
meet the requirements of various interest groups in the power
sector.
The Study recognises that implementation
of the recommendations made in this Study would involve substantial
changes in the manner of recording transactions and preparing
financial statements for SEBs. The Study, accordingly, discusses
various implementation issues and recommends the following:
An Accounting manual should
be developed for uniform adherence by the entire power sector
in order to bring about uniformity in the accounting process and
minimise the need for application of subjective judgements.
Before implementing the recommendations
contained in the Study, the accounting personnel are required
to be given proper training so that they can fully understand
the new accounting and reporting framework. For this purpose,
it may be useful to develop a common training programme (including
training material) for use by power sector entities. In training,
co-operation among different States would be extremely useful
and would avoid the duplication of efforts.
For successful implementation
of various recommendations made in the study, the relative advantages
of the new system should be brought home to the employees and
they should be made to feel as catalysts for the change.
Financial audit of financial
statements presented by SEBs should be done by professional auditors
(practising chartered accountants) considering their specialisation
in this form of audit.
