The Indian education industry is poised for growth. Indian education sector is one of the fastest developing and a primary sector of the country. India becomes the youngest country, potential growth and development is on the shoulder of youngsters and that’s why the sector carries more importance for the country. Nowadays, the sector is changing rapidly with more private players including foreign universities, entering the field. This sector is going to achieve its peak as the idea of business via education catches up. The government is also taking many measures to improve the quality of education in India, in this regard; recently Ministry of Human Resource Development [MHRD] has proposed uniform accounting standards for educational institutes from 2013 to ensure more accountability in financial resources maintained by them.
An accounting system that presents a true and correct picture of the state of affairs of an educational institution is a necessary requirement for transparency and accountability and enables less intrusive but more effective regulation of the education sector besides assisting in prevention of malpractices that presently plague the sector. Previously, the education was considered as a not for profit activity, and due to that, accounting and financial reporting practices followed by non-governmental educational institutions have been oriented towards meeting the needs of the governing bodies running the educational institutions.
However, in recent years, with increase in government aid to educational institutions particularly in the form of concessions and incentives, increased fees charged from the students and increased donations by certain donor agencies, greater need is being felt for accountability of the of the financial resources used by the educational institutions. Moreover, the present system of accounting and financial reporting followed by educational institution does not meet the accountability concerns of the donors, including government and other stakeholders such as members/ beneficiaries, governing board, management staff, volunteers and general public as educational institutions in India follow not only diverse accounting practices but also different basis of accounting. Due to these factors, the financial statements of various educational institutions are incomparable. A need is, therefore, being felt for improved accountability of the financial resources used by the educational institution. A sound accounting and financial reporting framework acts as an important ingredient for promoting accountability and for development of Education Sector.
To overcome this limitation, HRD Ministry had given the responsibility to prepare the report on common accounting standards for educational institutions to one of the prime body of accounting, Institute of Chartered Accountants of India [ICAI].
After detailed study and review, on 18th January, 2012, the report on Implementation of Accounting Standards in Educational Institutions of Department of Higher Education, Ministry of HRD was presented to Kapil Sibal, Union Minister for HRD by CA. G Ramaswamy, President, ICAI and CA. Jaydeep N Shah, Vice- President, ICAI. The report has been brought out by a working group consisting of members from ICAI and those nominated by the Ministry of HRD for the purpose and representatives from the school and university sector besides experts in accounting.
The Group has recommended that all educational institutions should be mandated to apply accrual basis of accounting; Accounting Standards issued by the ICAI should be made mandatory to educational institutions; Fund based accounting may be introduced for Earmarked / Designated Funds; All educational institutions should follow a common format for presentation of its general purpose financial statements to ensure proper accountability, financial discipline, end-use of funds and to meet the needs of stakeholders. The accounting standards should enable the society, the student and the citizen:-
I. to define transparently the revenue earned through various sources – tuition fees and other charges, income from consultancy or from intellectual property owned by the institution (for higher educational institutions) etc;
II. to recognize segment reporting of accounts (each school under the same institution being considered as a separate segment for accounting purposes);
III. to recognize costs and revenue separately for UG and PG programmes and for research and teaching activities;
IV. to define relevant financial ratios derived from accounts for inter se comparison on research to total expenditure, income from fees to total income, salary expenditure to total expenditure etc). These ratios could enable greater understanding of funding needs especially in respect of government funding.
V. to identify if surpluses are being generated and the manner in which the surpluses are utilized or invested;
VI. to disclose related party transactions;
The Ministry of HRD would be organizing consultations with higher educational institutions and schools on the recommendations of ICAI Committee. The accounting standards would be made applicable to all Central Educational Institutions, universities under the regulatory ambit of UGC or receiving grants from UGC, technical institutions under regulatory ambit of AICTE, teacher education institutions under the regulatory ambit of NCTE and schools affiliated to CBSE. The Ministry in coordination with ICAI will organise capacity building programme to train the staff of educational institutions.
Ministry of HRD has also announced to make these reports available online through which analysis will become possible for investments coming to the institutes, the donations received, expenditure incurred and under which head. The HRD Ministry has given principle approval to the report which will now be put in public domain to elicit views from private players and then placed before the Central Advisory Board of Education for final approval. If the report approves, it will lead good governance and transparency and disclosure relating to income, expenditure of the educational institutes.
