UNIT 16: GOVERNMENT ACCOUNTING IN NEPAL
Learning Objectives
After completing this unit, students will be able to:
- Define Government Accounting and explain its objectives and importance.
- Differentiate between Government Accounting and Commercial (Business) Accounting.
- Trace the complete Historical Development of Government Accounting in Nepal from the Lichchhavi and Malla periods through the Shah and Rana eras to modern times.
- Explain the Four Historical Accounting Systems practiced in Nepal prior to the New Accounting System:
- Statement of Remainder Accounting System
- Traditional Bookkeeping System (introduced in 1879 A.D. by Chief Clerk Gunwant) including the Primary Daily Record, Daily Sub-Total, Cumulative Grand Total, Classified Ledger, and Final Summary Statement
- Form-Based Accounting System (introduced in 1911 A.D.)
- Payment-Based Accounting System (introduced in 1960 A.D.)
- Describe the origin, features, and levels (Central Level vs. Operating Level) of the New Accounting System of Nepal (2018/2019 B.S.).
- Explain the constitutional and institutional roles of the Office of the Auditor General (OAG), Financial Comptroller General Office (FCGO), and District Treasury Comptroller Office (DTCO).
16.1 Meaning, Definition, and Objectives of Government Accounting
Every sovereign government collects public revenue (taxes, customs duties, royalties, fees, foreign grants, and loans) and spends those public funds on administrative governance, social services (education, health, drinking water), and national infrastructure (roads, hydropower, irrigation).
Government Accounting is the scientific process of recording, classifying, summarizing, reporting, and auditing all financial transactions relating to the receipt, transfer, and expenditure of public funds and government properties in accordance with parliamentary budget appropriations and financial rules.
“Government Accounting is the process of recording, analyzing, classifying, summarizing, communicating, and interpreting financial information about government in aggregate and in detail, reflecting all transactions involving the receipts, transfer, and disposition of government funds and property.” — Oshisami and Dean
Main Objectives of Government Accounting
- Recording Public Revenue and Expenditure: Maintains systematic records of all tax/non-tax revenues collected and budget expenditures incurred by government offices.
- Ensuring Expenditures Stay Within Budget Limits: Prevents any government office from spending more than the amount approved by the Parliament under each specific Budget Head.
- Providing Financial Data for the National Budget: Supplies historical expenditure and revenue figures needed by the Ministry of Finance and National Planning Commission to formulate the upcoming fiscal year’s budget.
- Facilitating Statutory Audit and Preventing Misuse: Provides verifiable vouchers and AGF forms so the Office of the Auditor General can audit public accounts and curb corruption or irregularity (unsettled audit irregularities).
- Safeguarding Public Property (Public Stores & Property): Tracks government land, buildings, vehicles, machinery, and store supplies.
16.2 Differences Between Government Accounting and Commercial Accounting
| Basis of Comparison | Government Accounting | Commercial / Business Accounting |
|---|---|---|
| 1. Users & Organization | Maintained by federal, provincial, and local government ministries, departments, and offices | Maintained by private and public commercial business enterprises |
| 2. Primary Objective | To control public expenditure within parliamentary budget limits and render public service | To ascertain Net Profit or Loss and show the true financial position (Balance Sheet) of the business |
| 3. Basis of Accounting | Prepared primarily on the Cash Basis (and budgetary commitment basis) | Prepared on the Accrual (Mercantile) Basis recording both cash and credit transactions |
| 4. Level Classification | Divided into two distinct levels: Central Level Accounting and Operating Level Accounting | Has no classification into central level and operating level accounting |
| 5. Rules & Forms | Strictly governed by the Financial Procedure and Fiscal Accountability Act and uses standardized Auditor General Forms (AGF) | Governed by GAAP / Nepal Financial Reporting Standards (NFRS) and organizational policies |
| 6. Auditing Authority | Final statutory audit is conducted constitutionally by the Office of the Auditor General, and internal audit by DTCO | Audited by independent Professional Registered / Chartered Accountants (ICAN members) |
16.3 Historical Evolution of Government Accounting in Nepal
The evolution of government accounting in Nepal spans over 1,500 years:
- Lichchhavi and Malla Periods:
- During the Lichchhavi era, state revenue was collected from land and agricultural tax, animal husbandry tax, commercial tax, charitable trusts, and voluntary community labor, and spent on royal administration, war, and temples.
- During the Malla era, expanding trade between India and Tibet made customs duties and minting of coins major sources of state revenue, recorded on palm-leaf and traditional handmade paper scrolls.
- Shah Unification and Early Modern Period (1825 B.S. Onwards):
- After the unification of Nepal in 1825 B.S. (1768 A.D.), King Prithvi Narayan Shah established the State Audit Office in 1769 A.D. to inspect and audit state accounts.
- In 1871 B.S. (1814 A.D.), a Red Seal Revenue Register was introduced to record state revenues and administrative expenditures, followed by a Master Land Assessment Register to record land holdings and land revenue.
- In 1925 B.S. (1868 A.D.), the Civil Personnel Record Office was established to maintain personnel records and salary rolls of civil servants and army personnel (an institution that still operates today as the National Personnel Record Department).
The Four Historical Accounting Systems Used Before the New Accounting System
| Historical System | Year & Propounder | Core Mechanism & Books Used | Why It Was Replaced |
|---|---|---|---|
| 1. Statement of Remainder System | Early Rana Period (Pre-1936 B.S.) | Based on the Single Entry System for small, short-term projects. Revenues collected were written on one side and expenditures on the other side, closed only at the end of the year or project completion. | Unscientific, incomplete, and unable to classify revenues and expenditures under distinct budget heads as state activities grew. |
| 2. Traditional Bookkeeping System | 1936 B.S. (1879 A.D.) propounded by Chief Clerk Gunwant (remained in practice up to F.Y. 2022/23 B.S.) | Used three famous books: • 1. Primary Daily Record: Recorded on handmade paper folded into 16, 24, or 36 creases (left side = receipts, right side = payments). The daily sub-total closed with a single line was called the Daily Sub-Total, and the cumulative grand total closed with double lines was called the Cumulative Grand Total. Divided into Cash Record, Store/Property Record, and Security Deposit Record. • 2. Classified Ledger: Similar to a modern Ledger, classifying receipts (Revenue Ledger) and expenditures (Expenditure Ledger) by head. • 3. Final Summary Statement: Similar to a Balance Sheet (Job-ending, Month-ending, and Year-ending Summary Statement). | Could not cope with modern developmental budgets and double-entry banking controls after 2007 B.S. |
| 3. Form-Based Accounting System | 1968 B.S. (1911 A.D.) | Introduced specifically to record land revenue in the Terai and urban districts using 51 standardized forms (such as Cashier’s Day Book, 10-Days Report, 15-Days Report, Monthly Pay Sheet). | Confined mainly to land revenue offices and lacked a unified double-entry national framework. |
| 4. Payment-Based Accounting System | 2017 B.S. (1960 A.D.) following the Budget System (2008 B.S.), First Five-Year Plan (2013 B.S.), and Government Fund Expenditure Act 2016 B.S. | First system based on the Double Entry Principle that separated government offices into Central Level Offices (Ministries/Departments) and Operating Level Offices (District/Project Offices) and introduced year-end budget freezing into the Consolidated Fund. | Replaced within two years by the more comprehensive and standardized New Accounting System (2018/2019 B.S.). |
16.4 The New Accounting System of Nepal (2018 / 2019 B.S.)
To design a modern, scientific, and uniform accounting system for the entire country, the Government of Nepal formed a four-member Accounts Committee on 2nd February 1961 A.D. consisting of:
- Accountant General of Nepal — Coordinator / Chairperson
- Under Secretary, Foreign Aid Division, Ministry of Finance — Member
- Public Administration Advisor of USAID — Member
- Accounting Specialist of the United Nations (UNO) — Member
After 288 days of intensive study, the Committee submitted its draft report. The system was approved by the Auditor General on 2nd February 1962 A.D., received royal assent from King Mahendra on 15th March 1962 A.D., and was implemented from Fiscal Year 2019/2020 B.S. (initially in Kathmandu Valley, then Bagmati and Narayani Zones in 2020/21 B.S., and across all districts of Nepal by July 1968 A.D.).
Key Features of the New Accounting System
- Based on Double Entry System: Every transaction is recorded in both Debit and Credit aspects (using Journal Vouchers — AGF No. 10 / 203).
- Based on Cash and Banking Transactions: All revenues and budget releases are routed through bank accounts (Nepal Rastra Bank / commercial banks), and all payments (except petty cash) are made via cheque or electronic fund transfer (EFT / TSA).
- Budgetary Control via Budget Heads: Expenditures are strictly tracked against approved Budget Heads in the Budget Sheet (AGF No. 8 / 208).
- Two-Level Classification:
- Central Level Accounting: Maintained by Constitutional Bodies, Ministries, and Central Departments.
- Operating Level Accounting: Maintained by regional, district, and project offices that receive budget releases and execute ground-level expenditures.
- Uniformity and Simplicity via AGF Forms: Every government office across Nepal uses the exact same numbered Auditor General Forms (updated in 2076 B.S. into the 200-series forms under CGAS—such as Journal Voucher AGF 203, Bank Cash Book AGF 209, Budget Sheet AGF 208, and Monthly Statement of Expenditure AGF 210).
- Use of Brackets
( ): Brackets( )are used in the Budget Sheet and Bank Cash Book to indicate negative figures, credit balances, or deductions (such as advance clearance). - Compulsory Internal and Final Auditing: Internal audit is performed by the DTCO, and final statutory audit is performed by the Office of the Auditor General (OAG).
16.5 Constitutional and Financial Organs of Government Accounting in Nepal
| Institution | Establishment & Constitutional Status | Primary Functions & Responsibilities |
|---|---|---|
| 1. Office of the Auditor General (OAG) | Established on 29 June 1959 A.D. (succeeding the State Audit Office of 1769 A.D.). Governed by Part 22 (Articles 240–241) of the Constitution of Nepal, 2072 B.S. Appointed by the President on the recommendation of the Constitutional Council for a 6-year term. | • Conducts the final statutory audit of all federal, provincial, and local government offices, courts, parliament, army, police, and wholly-owned corporate bodies with due regard to regularity, economy, efficiency, effectiveness, and propriety. • Prescribes and approves all government accounting forms (AGF Forms). • Submits its Annual Audit Report to the President for tabling before the Federal Parliament. |
| 2. Financial Comptroller General Office (FCGO) | Originally established as the Accountant General Office in 2008 B.S. and reorganized as the FCGO in 2032 B.S. under the Ministry of Finance. | • Oversees the Consolidated Fund and national treasury operations (Treasury Single Account — TSA). • Supervises all 77 District Treasury Comptroller Offices (DTCOs) and directs internal auditing. • Prepares the Central Consolidated Financial Statements of the Government of Nepal and submits them to the OAG for final audit. |
| 3. District Treasury Comptroller Office (DTCO) | Established across all districts starting from Fiscal Year 2038/39 B.S. as the district-level operating wing of the FCGO under the Ministry of Finance. | • Releases approved budget funds and authorizes payments through the Treasury Single Account (TSA) for all government offices in the district. • Conducts mandatory internal audit of all operating-level government offices in the district. • Compiles district-wide monthly and annual revenue/expenditure statements for the FCGO. |
Things to Remember (Unit 16 Summary)
- Chief Clerk Gunwant introduced the Traditional Bookkeeping System in 1936 B.S. (using Primary Daily Record, Classified Ledger, and Final Summary Statement; Daily Sub-Total and Cumulative Grand Total).
- The New Accounting System of Nepal was drafted by the Accounts Committee formed on 2 February 1961 A.D., approved by the Auditor General on 2 February 1962 A.D., given royal assent on 15 March 1962 A.D., and implemented from Fiscal Year 2019/20 B.S.
- DTCO conducts the Internal Audit, whereas the Office of the Auditor General (OAG — Part 22 of the Constitution of Nepal) conducts the Final Statutory Audit.
Exercises (Unit 16)
A. Very Short Answer Questions (1 Mark Each)
- Define Government Accounting.
- When was the State Audit Office and the Civil Personnel Record Office established in Nepal?
- Who propounded the Traditional Bookkeeping System, and in which year?
- Define Daily Sub-Total, Cumulative Grand Total, Classified Ledger, and Final Summary Statement.
- When was the Accounts Committee formed to draft the New Accounting System, and on what date was the New Accounting System approved?
- Which Part of the Constitution of Nepal (2072 B.S.) provides for the Auditor General?
B. Short Answer Questions (4 Marks Each)
- Differentiate between Government Accounting and Commercial Accounting on any five bases.
- Explain the three books used under the Traditional Bookkeeping System (Primary Daily Record, Classified Ledger, and Final Summary Statement).
- Write short notes on: (a) Office of the Auditor General (OAG), (b) Financial Comptroller General Office (FCGO), and (c) District Treasury Comptroller Office (DTCO).
C. Long Analytical Questions (8 Marks Each)
- Trace the historical evolution of Government Accounting in Nepal and explain the four accounting systems practiced in Nepal prior to the introduction of the New Accounting System.
- What is the New Accounting System of the Government of Nepal? Explain its major features and importance.
Worked answers to these exercises are in Unit 16 Solutions.