We often come across sketchy references of the work of “Kautilya’s Arthashastra”. But most people know little about what “Kautilya”(also known as Chanakya) actually said in “Arthashastra”. Only scholars of ancient Indian history are aware of the range and depth of it. It is a pioneering work on statecraft (the art of government and form policy) written at least two thousand and five hundred years ago when our counterparts in the west were living in a Dark Age.

The pioneering research on the work of Kautilya’s Arthashastra was done by Dr. R. Shamasastry of Mysore in 1904 while Dr. R. P. Kangale made critical editing of the Text, Translation in English and exhaustive study of this master piece in the year 1960. However, an easy to understand translation, rearrangement of related topics, comparison with modern economics, etc. was done by the great scholar Shri L. N. Rangarajan, a Bureaucrat and Indian Ambassador to Norway in the year 1990 from whom this article draws a lot of inspiration.

The Kautilya’s Arthshastra is not only a book on Economics but a complete code on the state and its constituent elements, the duties and power of King(state), the essentials of a well organized state, treasury, sources of revenue, accounts and audit, civil services regulations, the departments of Government, law and justice, covert operations, foreign policy and defense and war. In this article, we shall study the views of Kautilya on Accounts and Auditing.

Kautilya had a very clear ideas about the Revenue and Capital nature of expenses, Current and Deferred Income and Expenditure, Accounting classification based on different Head of accounts and its further classification on the location of the income and expenditure and on the basis of sphere (nature) of activities. It was the duty of the Chancellor of the State to draw up Budget for State. The Income and Expenditure was required to be calculated as under:
(a) The current income consisting of receipts due and paid in the same year
(b) The Transferred income consisting of outstanding of earlier years as well as income earned by one department by transfer from other department.
(c) Miscellaneous Income consisting of (i) Recovery of debts and dues which were written off, fines paid by government servants, additional income from surcharge and unanticipated revenue, compensation collected for loss or damages, gifts, confiscated property, intestate property and treasure trove. (ii) The following deductions from the anticipated expenditure are to be treated as income viz. savings due to demobilization of Army, works abandoned before completion and economics made to actual investment as against original planned budget. (iii) Income due to profits on sale viz. increase in prices of commodity at the time of sale, profit from use of different weights and measures and increased income due to compensation from the buyer.
The actual expenditure used to be shown under the following headings:
(i) Budgeted day to day expenditure
(ii) Unbudgeted day to day expenditure
(iii) Foreseen periodic (fortnightly, monthly or annual) expenditure.

Maintenance of Books of Accounts
Maintenance of proper books of accounts was one of the foremost important duties of an accountant. All accounts were required to be maintained in proper form and legibly written without correction. Failure to do so was a punishable offense. His major thrust was maintenance of day to day accounts and its’ timely submission before the end of the following month was considered critical. In this opinion, the major cause of a failure of an entity (state, business institution, etc. ) was bad accounting. It is indeed remarkable to have such wisdom 2,500 years ago. Taxes and other remittances were required to be made in time in state treasury and grace of five days was given only in case of small remittances. In any case, the remittances were required to be made in time even if accounts were not ready and only delay would further invite thorough audit, physical verification, report by secret agents and then justification for delay was analyzed and punish accordingly.
Responsibility of an Accounts Officer
The accounts officer was required to present himself for audit at the appointed time bringing with him account books and income to be remitted to treasury. To be ready for audit when called by the Auditor, not to lie about the accounts when questioned during the audit, not try to interpolate or omit an entry and then pretend as if it was forgotten inadvertently. In case if discrepancy was detected during the Audit, the officer concerned was required to pay the penalty if the discrepancy resulted into showing higher actual income or lower actual expenditure. The officer was allowed to keep the difference for himself in the converse case. The Auditor also required to make himself available for Audit when accounts were presented to him otherwise, it was a punishable offense.
Punishment
The punishments prescribed by the Kautilya are thought provoking and innovative.
(i) Writing in disorderly manner or not following the prescribed format or rewiring over a previously written entry would invite penalty of 12 Panas (currency of his time). However, correcting an entry in revenue column would invite double penalty.
(ii) Accidental loss of Books of Accounts–restoration of loss to the state plus 1/5th penalty
(iii) Loosing Books of Accounts deliberately– fine of 96 Panas
(iv) Failure to submit day to day accounts–200 Panas for each month of delay.
(v) Not coming on time for audit or coming without Books of Accounts or without net balance– Penalty 1/10th of the amount due.
(vi) Not maintaining Books of Accounts or not maintaining accounts in accordance with written order or disobeying accounting instruction-lowest standard punishment as prescribed under criminal code.
(vii) Lying about the accounts- Penalty as for theft.
(viii) Lie detected after the audit is completed–twice the penalty for theft.
(ix) Interpolating entries–Thrice the penalty for theft.
(x) Not being ready for audit–Thrice the lowest standard punishment.
(xi) Discrepancy involving loss to the state–Eight times the amount of penalty.
(xii) High officials were punished at the highest standard punishment for telling lies or making contradictory statements at the time of audit.

(Contributed by Vikas Manohar, C.A., Vadodara)

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