Background:
In exercise of the powers conferred by article 150 of the Constitution, the President, on the advice of the
Comptroller and Auditor General of India, notifies Indian Government Accounting Standards (IGAS) 4 – Prior Period Adjustments, with an objective to prescribe the manner in which Prior Period Adjustments, including errors once identified, shall be presented and disclosed in the current period (the financial year) under the cash basis of accounting.
This step was taken as it was observed that majority of the States were not considering Prior Period
Adjustments in their accounts or were following a wrong practice of passing transfer entries to correct Prior Period Adjustments.
Scope:
This Standard will apply to Union Government, State Government and Union territory with Legislature which prepares and presents financial statements under the cash basis of accounting which are laid before the Parliament, State Legislature and Union territory with Legislature, respectively. As per the standard, Prior Period Adjustments will not include transactions such as payment of arrears arising due to increase in salaries or revision of pension or increase in dearness allowance, etc. in the current period though they belong to prior periods as these transactions cannot be attributed to any type of errors or any adjustment in Government Policies.
Also, this Standard excludes from its scope, defaults of loans and grants-in-aid dealt in IGAS-2 and IGAS-3
exclusively as it is only a process for rectification or adjustment of financial statements of prior periods.
Presentation and disclosure requirements are as follows:
(a) the nature of the Prior Period Adjustment or error;
(b) for each prior period presented, to the extent practicable, the amount of the adjustment or correction
of error for each financial statement line item affected;
(c) to the extent practicable, the amount of the error correction or adjustment at the beginning of the earliest prior period presented; and
(d) an explanation if it is not practicable to determine with reasonable efforts the amounts to be disclosed in clause (b) or clause (c) above.
The Standard regarding Union finance accounts and State finance accounts also includes 3 Annexures
containing format for disclosure of prior period adjustments. This standard also talks about materiality i.e., Prior Period Adjustments shall be considered material if its value can be expressed in clear terms equal to or greater than rupees one thousand.
SW Remark: The above standard will ensure proper accounting treatment of Prior Period Adjustments
including errors in case of government entities whose accounts are prepared under cash basis of accounting. The standard shall be effective for the financial statement for the periods commencing from April 01, 2023.
