Chapter 9: System of Government Accounting in Nepal
9.1 Concept and Meaning of Government Accounting
Government Accounting is the scientific and systematic process of recording, classifying, summarizing, reporting, and auditing the financial transactions of government offices (Federal, Provincial, and Local levels) relating to the collection of public revenue, release of budget, expenditure of public funds, store management, and retention/trust accounts in accordance with the Constitution, Financial Procedures and Fiscal Accountability Act, and formats approved by the Office of the Auditor General (OAG).
Historical Evolution of Government Accounting in Nepal
- Lichhavi & Malla Period: Rudimentary records of state taxes (Bhaga, Bhoga, Kara), customs, and guthi trusts.
- Shah & Rana Period (1825 B.S. – 2007 B.S.):
- Laldhadda and Mothdhadda introduced in 1871 B.S. for administrative and land revenue records.
- Kitabkhana established in 1904 B.S. to record civil and military employee salaries.
- Kharidar Gunawanta introduced Syaha Sresta Pranali in 1936 B.S. (using Syaha, Awarje, and Dhapot).
- Faram Sresta Pranali (51 forms) introduced in 1968 B.S. for Terai revenue offices, and Hattabahi Sresta Pranali for hilly treasury offices.
- Post-Democracy Era & The New Accounting System (2018 B.S.):
- First National Budget presented in 2008 Magh 21 B.S.; Office of the Accountant General established in 2008 B.S.; Office of the Auditor General established in 2016 B.S.
- An Accounting Reform Committee formed on 2017 Magh 20 B.S. drafted the double-entry New Accounting System, which was officially approved by King Mahendra on 2018 Chaitra 2 B.S. (1962 March 15 A.D.) and implemented from Fiscal Year 2019/20 B.S.
- Federal Public Financial Management & Updated AGF System (2076 B.S. Onwards):
- Following the Constitution of Nepal (2072), the Office of the Auditor General revised all government accounting forms (AGF) into a modern 8-series (100 to 800 series) unified chart of accounts implemented across Federal, Provincial, and Local governments from Fiscal Year 2076/77 B.S.
9.2 Features and Objectives of Nepal’s Government Accounting System
- Based on Double-Entry Principle: Every financial transaction has an equal debit and credit effect.
- Budgetary Control: No expenditure can exceed the approved budget limit under each specific 5-digit budget sub-head.
- Banking Transactions & Treasury Single Account: All receipts and payments are routed through commercial banks and the Treasury Single Account (TSA) rather than physical cash.
- Uniform Prescribed Forms: Every government office must use the exact AGF (Auditor General Form) prescribed by OAG and implemented by FCGO.
- Classification into Central Level and Operating Level Accounting:
- Central Level Offices: Ministries, Departments, and Constitutional Bodies (receive budget authorization and oversee subordinate offices).
- Operating Level Offices: District and field offices (execute programs, spend budget, and submit monthly statements within 7 days).
- Mandatory Internal and Final Audit: Internal audit is conducted by the District/Province Treasury Comptroller Office (DTCO/PTCO) and Final Audit by the Office of the Auditor General (OAG).
9.3 Differences Between Government Accounting and Business Accounting
| Basis of Difference | Government Accounting | Business Accounting |
|---|---|---|
| 1. Main Objective | To record public revenue and expenditure transparently and ensure budgetary control for public welfare (Service Motive). | To ascertain operating Profit or Loss and depict the financial position of the enterprise (Profit Motive). |
| 2. Governing Rules & Format | Strictly governed by the Financial Procedures & Fiscal Accountability Act and AGF forms approved by the Auditor General. | Governed by GAAP, Companies Act, NAS, and NFRS. |
| 3. Basis of Accounting | Primarily maintained on Cash Basis (transitioning toward Nepal Public Sector Accounting Standards - NPSAS). | Primarily maintained on Accrual Basis. |
| 4. Classification of Accounts | Divided into Central Level Accounting and Operating Level Accounting (Revenue, Appropriation, Deposit, Store). | Divided into Financial Accounting, Cost Accounting, and Management Accounting. |
| 5. Auditing Authority | Internal audit by DTCO/PTCO; Final constitutional audit exclusively by the Office of the Auditor General (OAG). | Audited by independent Chartered Accountants or Registered Auditors licensed by ICAN. |
9.4 Bases of Accounting: Cash Basis vs. Accrual Basis
- Cash Basis of Accounting: Revenue is recorded only when cash/bank deposit is actually received, and expenditure is recorded only when payment is actually made, regardless of which period the transaction relates to. Nepal’s government accounting traditionally operates on a modified cash basis.
- Accrual Basis of Accounting: Revenue is recognized as soon as it is earned (even if receivable), and expenses are recognized as soon as they are incurred (even if unpaid).
9.5 New AGF Series Classification (2076 B.S.)
The Office of the Auditor General organizes all government accounting forms into 8 functional series:
| AGF Series | Functional Area | Key Examples Studied in Grade 10 |
|---|---|---|
| 100 Series (101–116) | Revenue Accounting | Cash Receipt (AGF 101), Daily Revenue Book (AGF 102), Revenue Journal Voucher (AGF 103), Revenue Bank Cash Book (AGF 108), Monthly Revenue Report (AGF 109) |
| 200 Series (201–223) | Expenditure / Appropriation Accounting | Journal Voucher (AGF 203), Payment Order (AGF 204), Budget Sheet (AGF 208), Bank Cash Book (AGF 209), Statement of Expenditure (AGF 210), Monthly Reconciliation (AGF 212) |
| 300 Series (301–309) | Advance & Loan Accounting | Subsidiary Advance Ledger (AGF 301), Advance Statement |
| 400 Series (401–418) | Store / Property Accounting | Store Requisition Form (AGF 401), Purchase Order (AGF 402), Dakhila/Entry Report (AGF 403), Consumable Store Ledger (AGF 407), Durable/Capital Store Ledger (AGF 408), Store Inspection Report (AGF 411) |
| 500 Series (501–511) | Public Construction Works | Measurement Book (AGF 502), Running Bill (AGF 504), Work Completion Report (AGF 509) |
| 600 Series (601–610) | Retention / Deposit Accounting | Retention Journal Voucher (AGF 601), Individual Retention Ledger (AGF 602), Retention Bank Cash Book (AGF 603), Monthly Retention Statement (AGF 604) |
| 700 & 800 Series | Financial Statements & Audit Reports | Consolidated Financial Statements (700 Series) and Audit/Beruju Records (800 Series) |
9.6 CDC Textbook Exercises & SEE Practice Questions
Group A: Very Short Answer Questions (1 Mark Each)
- When was the New Accounting System formally approved in Nepal?
- Give any two examples of government offices that use Central Level Accounting.
- Who approves the accounting forms (AGF) used in government offices of Nepal?
- On which basis of accounting is the Government Accounting System of Nepal primarily based?
Group B: Short Answer Questions (5 Marks Each)
- What is Government Accounting? Explain any four main features of the Government Accounting System of Nepal.
- Differentiate between Government Accounting and Business Accounting in five points.
- Distinguish between Central Level Accounting and Operating Level Accounting with suitable examples.
Worked answers to these exercises are in Chapter 9 Solutions.