Objectives, Importance and Limitations of New Accounting System
Subject: Accountancy
Syllabus
Overview
Accounting is an effective tool for financial administration. It helps to achieve goal of financial administration.
This note has information about the objectives, importance and limitations of new accounting system.
Objectives, Importance and Limitations of New Accounting System
Objectives of New Accounting System
The Account Committee 2017, which recommended the new accounting system has the following objectives:
To keep systematic recordSystematic record keeping Under new accounting system, all the financial transaction are recorded systematically & scientifically. All the transaction may be related to cash and store items. It helps to control the misuse of government fund. It also provides the financial information whenever required.
To supply financial data & information The historical financial data and information are helpful for estimating budget. The new accounting system provides various financial data & information for various purposes. It requires such data & information for preparation of financial statements.
To provide information about funds For proper utilization of, funds it is essential that authorities know about the status of various funds and their utilization . It provides necessary information about the position of funds, actual data of budget release under different budget headings.
To safeguard the physical properties The government offices use various physical properties to perform the regular and incidental jobs. New accounting system aims to maintain the systematic recording to such public properties. It uses various forms for their proper recording.
To maintain effective control over budgetBudget control The government prepares a budget for making expenditures into different heads & subheads. According to the objective of the new accounting system, every government office should make expenditure within the budgetary limit. To fulfill this objective, every operating level government office should prepare budget sheet under AGF No. 8.
To make audit easier Audit Many accounting forms are used by new accounting system to record the revenue and expenditures. Such forms are designed and prescribed by the office of auditor general. Under this system, auditing is compulsory in all government offices. Data & information provided by new accounting system helps to make an audit easier and simpler.
To provide financial information for periodical reporting At the end of every month as well as at the end of every fiscal year, the government offices need to prepare various types of financial statements and reports. So, the new accounting system provides necessary financial data and information for the preparation of different types of financial statements and reports.
To provide reliable financial information for planning and decision-makingDecision making The government has to prepare different plans and policies. It has to make important financial decisions. The new accounting system provides reliable financial data and information for making plans, policies, and decisions.
Importance of New Accounting System for Auditing
Importance of New Accounting System
Accounting is an effective tool for financial administration. The new accounting system is important due to following reasons:
It keeps a proper record of financial transaction of government offices to prepared the records of government fund, investment, revenue, and expenses.
It provides all financial data, statistics and other information required for financial administration and control.
It provides proper guidance to the government for the preparation and implementations of an economic plan and policy of the nation.
It provides necessary information and financial data to the government for preparation of annual budget.
It controls the financial activities of the government because all the revenues and expenditures of government are recorded according to the financial rules and procedures.
It prevents the measure of government revenues and its properties because there is a provision of the audit of the books of account.
It provides certain guidelines for preparation of financial statements.
To ensure and effective uses of the aid and loan amount provided by foreign donors and agencies.
Limitations
Limitations of New Accounting System
The following are the main limitations of the new accounting system:
There is no proper mechanism to check frauds and errors committed in the books of account.
It has given less emphasis on goods, properties and assets because it has given emphasis only on expenditures.
It is based on the cash basis of accounting but not made on an accruals basis.
There are higher chances of misappropriation of stock due to lack of systematic and proper store keeping system.
It cannot provide necessary information or data for making the decision on the cost of production and labor efficiency.
It does not follow the principle of double entry system in practice.
The forms are designed by the department of general do not fulfill the requirement of managerial need.
Things to remember
Accounting is an effective tool for financial administration.
Under new accounting system, all the financial transaction are recorded systematically & scientifically.
The new accounting system provides various financial data & information for various purposes.
The new accounting system facilitates the government for formulating plans and policies as well as for making financial decisions by supplying reliable financial information.
It includes every relationship which established among the people.
There can be more than one community in a society. Community smaller than society.
It is a network of social relationships which cannot see or touched.
common interests and common objectives are not necessary for society.
Accounting is an effective tool for financial administration. It helps to achieve the goal of the financial administration. The Account Committee 2017, which recommended the new accounting system has the following objectives:
To keep systematic record Under new accounting system, all the financial transaction are recorded systematically & scientifically. All the transaction may be related to cash and store items. It helps to control the misuse of government fund. It also provides the financial information whenever required.
To supply financial data & information The historical financial data and information are helpful for estimating budget. The new accounting system provides various financial data & information for various purposes. It requires such data & information for preparation of financial statements.
To provide information about funds The government needs to be informed about the position of different public funds. It requires detailed information regarding sources and utilization of various government funds on administrative and developmental works and their position on a given point of time. Hence, the new accounting system supplies up-to-date information about such public funds.
To safeguard the physical properties The government offices use various physical properties to perform the regular and incidental jobs. New accounting system aims to maintain the systematic recording to such public properties. It uses various forms for their proper recording.
To maintain effective control over budget The government prepares a budget for making expenditures into different heads & subheads. According to the objective of the new accounting system, every government office should make expenditure within the budgetary limit. To fulfill this objective, every operating level government office should prepare budget sheet under AGF No. 8.
To make audit easier Many accounting forms are used by new accounting system to record the revenue and expenditures. Such forms are designed and prescribed by the office of auditor general. Under this system, auditing is compulsory in all government offices. Data & information provided by new accounting system helps to make an audit easier and simpler.
To provide financial information for periodical reporting Government offices need to prepare various types of financial statements and reports at the end of every month as well as at the end of the fiscal year. The new accounting system provides necessary financial data and information for the preparation of different types of financial statements and reports.
To provide reliable financial information for planning and decision-making The government has to prepare different plans and policies. It has to make important financial decisions. The new accounting system provides reliable financial data and information for making plans, policies, and decisions.
Accounting is an important and effective tool for financial administration. The new accounting system facilitates the government for formulating plans and policies as well as for making financial decisions by supplying reliable financial information. The new accounting system is important due to following reasons:
It keeps a proper record of the financial transactions and provides financial data and information to the government at the time of necessity.
It makes expenditures within the limitation of budget, which helps to control unnecessary expenses.
It helps in checking irregularities in collecting revenue and making budget expenditures.
It provides reliable and up to date financial data and information for preparing and submitting various financial statements and reports.
It facilitates for effective auditing of government funds.
It provides necessary financial data and information to the government for the purpose of preparing an annual budget.
It facilitates for effective use of aid and loan amount provided by foreign donors and agencies.
It helps to make the financial administration of government effective by providing reliable and relevant financial data and information.
The new accounting system is an effective tool for making record and analysis of government funds. However, it is not free from limitations. The following are the main limitations of the new accounting system:
It is mostly based on the cash system. No record is made relating to accrual transactions and hence, it cannot show the real financial situation of the government.
It cannot provide necessary financial information for making proper decisions relating to the cost production, labour, and efficiency.
It lacks providing a proper mechanism to check the frauds and errors committed in the books of accounts.
The amount of advances is treated as actual expenditures and charged to the concerned budget heads at the time of giving the advance. Such a practice violates the basic accounts and principles.
The entry for advance transactions requires triple posting in the bank cash book which is against the principle of the double-entry book-keeping system.
There is no provision of the systematic store control system due to which there are great chances of misappropriation of goods.
The forms used for reporting the government transactions under the new accounting system are not sufficient and cannot fulfill all the requirements of the financial administration.
