Accrual Based Double Entry Accounting - A Revamp in the Financial Administration of Urban Local Bodies

Abstract

The Cash Based Single Entry System of Accounting (CBSESA) was used
by Urban Local Bodies (ULBs), since their inception for the purpose of financial recording and reporting. Because of the system’s inherent limitations, ULBs have failed to fulfil financial responsibility, transparency requirements, tapping new avenues of finance and efficient financial administration. The 11th National Finance Commission has made its apprehension on the accounting system followed in Local Self Governments (LSGs) and strongly recommended for a change in the accounting system as a good governance initiative. Time has proven that accrual-based double entry system of accounting is the most scientific method for financial recording and reporting, and the same has been in practice in commercial entities since 15th century. Unfortunately, the socalled scientific system could not be brought about in Government accounting or LSG accounting till the end of 20th century. As the first leap the Government of India suggested to adopt Accrual Based Double Entry System of Accounting (ABDESA) in ULBs in 2004. The state of Kerala adopted Municipal Accounts Manual and ABDESA in selected ULBs from 1st April 2007 (G.O.MS/8/2007/LSGD). Since, accounting information is largely used by stake holders for different purposes including financial administration and decisions, quality of such decisions (based on the published financial statements) rests largely on the shoulder of quality of information. The present paper is a detailed analysis of the quality of financial statements generated under ABDESA by the ULBs of Kerala, based on the primary data collected from five Municipal Corporations and 40 Municipalities.