BACKGROUND INFORMATION AND TERMS OF REFERENCE
	1.0 BACKGROUND
	1.1 The evolution of accounting framework in various countries is based on several indigenous causative factors and has led to interesting and significant differences in accounting practices. As traditions, economic transition, new economic development models, changes in expectations of users of financial statements, need for sustaining investor confidence, inflation, legal requirements etc. undergo substantial changes and reforms from decade to decade, so do the accounting framework and standards. Continuous efforts to improve quality of accounting standards will reduce uncertainty, increase overall efficiency, sustain high levels of investor confidence and will reflect superior intrinsic financial strength of the organization. Accounting standards, structure and practices besides having accounting consequences can also significantly impact business results. Accounting system followed by IR provides for a reasonably detailed break-down of operating costs from a functional viewpoint. But the emerging business needs require certain changes in the way accounting information was captured, grouped and maintained so far.
	2.0 PURPOSE OF ASSIGNMENT
	2.1 The purpose of this assignment in various phases would be to prepare a set of detailed and authentically well documented recommendations to the Ministry of Railways (MOR) to restructure the existing accounting system in such a way as to:
	a) support the existing government reporting requirements and will meet all the accounting standards set in future by the Government's Accounting Standard Advisory Board (GASAB),
	b) provide activity based revenue and cost data which would be capable of identifying and mitigating systemic, maintenance and operating inefficiencies, facilitate generation of detailed revenue and cost inputs for assessing:-
	i) Profitability of different operations ii) Profitability of different routes/sections iii) Margins for flexibility in tariff regulation.
	c) be capable of producing financial statements of the highest quality and meeting all the commercial accounting requirements internationally adopted for rail industry and also the accounting standards laid down by GASAB (Government Accounting Standards Advisory Board),
	d) provide MOR the capability to evaluate the costs and profitability of individual traffic moves between different pairs of points and in addition to develop financial statements for various lines.
	e) facilitate breakdowns by main lines of business and by main services within these lines of business. It should ultimately help in organising each business as a separate profit centre and also each segment within a business upto the level of a train as separate profit center.
	f) facilitate a complete accounting separation of the five major segments of railway services providers - Fixed rail infrastructure, the passenger operation, the freight operation, suburban operation and suburban rail system as a separate business segment and other non core services. Each of the non core activity including manufacturing units will have accounting separation so as to facilitate development of cost and profit centers.
	g) facilitate identification of loss making services and activities and also sound analysis of the underlying reasons to help the management in decision making.
	h) evolve sound basis and models for identification of joint costs and its allocation, particularly where costs of sharing infrastructure like track, OHE system, signal/telecom, stations, yards and terminals etc. are involved. A model cost sharing protocol based on internationally accepted principles /allocations followed by major efficient rail systems in the world to be evolved. It may also consider identification of certain common assets as independent profit centers viz: big passenger and freight terminals.
	i) be able to provide specific cost information to be used for marketing purposes.
	j) facilitate a more dependable estimation of both fully allocated costs and marginal costs.
	k) to evolve a workable methodology for arriving at the operating and maintenance costs of the Mumbai suburban railways which will involve separation of Mumbai suburban railway accounts from the accounts of Western Railway and Central Railway.
	l) based on the experience and practice obtaining on different comparable railways in other countries, the issue of subsidy needs of Mumbai suburban railway system should also be studied.
	2.2 The existing accounting system structured on activity based demands, minor heads, sub-heads and detailed heads is adequate for bringing into account the expenditure of Railways as per the extensively detailed accounting classifications; it, at times, falls short of the requirements in providing necessary inputs for business segments based costing of rail services with capabilities for identifying systemic, maintenance and operational inefficiencies. The purpose of this accounting separation would be to encourage each segment to generate dynamism independently as well as to synergise the inter-segment competitive process to benefit IR as an organization.
	3.0 OPTIONS AND CRITERIA
	The consultant will define a set of criteria for designing the new accounting architecture without disturbing the present vertically integrated structure of IR. These should include:
	A) Effectiveness of the options for achieving the MOR's objectives of ensuring complete accounting separation of infrastructure, rail operations and production units manufacturing rail rolling stock as well as components and also various lines of business.
	B) Activity based accounting and costing for identification and mitigation of systemic inefficiencies and maintenance and operational inefficiencies.
	C) Overall impact on rail industry and central finances and also the accounting requirements and consequences.
	D) Consumer's benefits and end users' cost.
	E) Regulatory, legal, institutional, structural and any other financial and technical issues with a bearing on the proposed accounting changes.
	F) Prevailing local conditions, existing accounting commercial practices and country specific requirements.
	G) Assessment of viability of IR from management of infrastructural, network, rolling stock deployment, rail operations and captive production of equipments and rolling stock.
	4.0 SCOPE OF WORK AND OUTPUTS EXPECTED FROM THE CONSULTANTS
	The consultant is expected to carry out generally in the following order, sometimes in parallel, the following Main tasks:
	(a) Critically analyze existing accounting system of earnings and expenditure and starting from point of origin, suggest necessary modifications in grouping and reflection of transactions to arrive at accounts and costs that match the purpose of bringing railway accounts in synchronization with internationally accepted accounting standards in rail industry and investor requirements. Also advise the MOR on the benefits and full implications of the accounting restructuring programmes and this advice will be based inter-alia on the consultant's research into and conclusions drawn from the studies and resultant exercises of rail sector accounting, costing and financial management information reforms carried out elsewhere in the world which could be of relevance to IR's context. The studies with reference to those countries should take into consideration the strong similarities with IR. The overall IR accounting system review would include the following accounting sub systems:
	IR's financial statements - basic financial verification - accounting practices - review of Audit comments - clearing up the fog of IR's corporate complexity in accounting & budgeting performance - fundamentals of complexities -
	IR's accounting transactional processing
	IR's revenue accounting system - Traffic accounts
	Review of project/construction accounting transactional process
	Stores accounting (Material Management Modules)
	Production Units/Workshops accounting systems
	IR's accounting/financial codes - system of accounting governance through codes
	IR's accounting policies and standards
	(b) An assessment of the existing capabilities of the on-line Financial Management Information System (FMIS) in vogue on some of the zonal railways. IR has a computerized Financial Management Information System which is an on-line accounting system covering the zonal HQs and one or two divisions each on SIX out of NINE existing zonal railways. On three other Zonal Railways this is under initial stages of implementation. The consultant will need to study the existing system so as to assess the adequacy of the existing on-line accounting system and its strengths and weaknesses, capabilities/versatilities for adaptation/modifications to absorb the changes in accounting structure proposed for adaptation by the consultant.
	(c) Formulation of an acceptable accounting architecture/model together with detailed chart of accounts that will produce IR's financial statements in conformity with the commercial accounting standards internationally adopted in rail industry and also enable restatement of those financial statements into the ones that conform to government reporting requirements. The detailed tasks are as follows:
	Task 1: Redefinition of commercial system architecture to accommodate LOB/LOS and profit center concepts.
	Review of various eligible and appropriate commercial models working satisfactorily elsewhere.
	Search for an ideal profit center anchored LOB/LOS based accounting system of Indian Railways
	Statement of principles of accounting separation between LOB/LOS and also suburban and non-suburban systems.
	Conceptualization designing and unveiling of a suitably re-engineered model acceptable to IR's system with LOB/LOS and profit center based separations required by IR.
	Task 2: Accounting architecture design
	Based on above, development of a compatible accounting architecture with IR's existing accounting classifications as far as possible to be retained as undisturbed though expansion and regrouping of classifications would be permissible. The other requirements would be:
	a. Compatibility with commercial accounting practices as is relevant to government controlled rail systems
	b. Conformity with rail Budget presentation format needed - improvements without disturbing basic structure encouraged
	c. Conformity to Controller General of Accounts (CGA's) government accounting requirements - improvements encouraged
	Task 3: Separation of suburban and non-suburban commercial and accounting systems - suburban accounting model
	specific recommendations on Mumbai Rail Vikas Corporation (MRVC) and models for other metros, including SPVs
	Task 4: Designing of IR's costing modules
	Review of existing costing system
	Designing a compatible costing model
	Re-aligning the new costing model to the accounting structure
	A costing model for suburban rail system in Mumbai
	Task 5: Designing Activity-Based Pricing Models for IR's Passenger Services Products, Freight Services Products, and Infrastructure Services
	Passenger Services - Activity-Based Pricing Models
	Pricing of passenger related On-board and Off-board Services
	Activity-Based Pricing Models of Freight Services, Parcel Services, Special Stock Services, Container Services etc.
	Activity-Based Pricing Models for Production Units - manufactured items and services.
	Activity-Based Pricing Models for Fixed Infrastructure (Permanent Way, including OHE distribution system, signaling and communications)
	Activity-Based Pricing of Moving Infrastructure Services, including Rolling Stock leased to Railways.
	Preparation of Activity-Based detailed worksheets for pricing. (Since Ministry of Railways will discharge the functions of Tariff Regulatory Authority, the worksheets, pricing formulae/methodology and derivatives should be capable of standing any independent authority's/legal/judicial scrutiny).
	Pricing of Cost Center-Based Services such as Railway Medical Services, RDSO (Research Design and Standard Organization) services, etc,
	Task 6: Designing Audit trails in accounting system - embedding of audit trails in accounting software and development of Auditbots.
	(d) Preparation of a checklist and a concordance list to identify compatibilities and incompatibilities between existing system and the model system. The efficacy of the presently manual revenue accounting (income accounting) should be reviewed and recommendations on application of IT to enhance efficiency and make acceptable changes in accounting procedures be made.
	Task 1: Sizing up the extent of changes proposed w.r.t. existing accounting and costing system and accepted new accounting architecture
	Task 2: Estimation of system preparedness for implementation of accounting changes - assessment
	a. Identification of gaps
	b. Report on what IR can do and cannot do
	(e) Training and Development of 6 Key Accounts officers of Indian Railways with similar to proposed accounting and costing systems in other railways
	(f) Monitoring, Supervision and commissioning of software development and implementation of the revised accounting architecture model developed as part of activity c, above and subsequently approved by Ministry of Railways, Government of India
	(g) Implementation of Audit trails in revised Accounting system and development of Auditbots
	(h) Modification and rewriting of codes, manuals, and system designs, instruction books, software-operating procedure etc. for the revised system. StatCounter - Free Web Tracker and Counter