29/06/2017

AC 518 Advanced Financial

Accounting and Reporting,
Part 3

Government Accounting and

Auditing

The National Government of the Philippines

The government is the largest financial organization in

terms of assets, liabilities, capital, sources of income and
items of expenditures.
It is also the largest entity in terms of number and quality
of personnel, facilities and instrumentalities, which are
used to serve the social, political and economic needs of
the nation.

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Government Accounting Defined

(Section 109 of PD 1445)

Government Accounting encompasses the processes

of analyzing, recording, classifying, summarizing
and communicating all transactions involving the
receipt and disposition of government funds and
property and interpreting the results thereof

Three (3) types of governmental organizational

units

National Government Agency (NGA)

Local Government Unit (LGU)
Government Owned or Controlled Corp (GOCC)

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FUNCTIONS OF GOVERNMENT
ACCOUNTING
To provide quantitative information primarily
financial in nature about the operations of the
government, both national and local, to be used by
the administration in making decisions for a more
effective and efficient public service

OBJECTIVES
To provide quantitative information concerning past
operations and present conditions.
To provide a basis for guidance for future operations.
To provide for control of the account of public entities
and officers in the receipt, disposition and utilization
funds and properties, and
To report on the financial position and the result of the
operations of the government agencies for the
information of all persons concerned

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Users of Government Accounting Information

The General public or citizenry
The Governing and oversight bodies: The President, Cabinet,
COA, Legislative Body.
The managers/administrators who are in-charge of carrying out
the policy and daily conduct of government affairs.
The students of public finance
The resource providers of the government such as:
Donors or grantors
Lenders, suppliers and employees whose main concern is to know whether the government can
pay its obligations to them

DISTINCTIONS BETWEEN GOVERNMENT

AND COMMERCIAL ENTERPRISES
GOVERNMENT COMMERCIAL
OWNERSHIP represents the entire people in a given few stockholders, partners, or owners
community
PURPOSE render service at lowest possible cost primarily to make profits
to its constituents
ORGANIZATION responsibility and authority of a succession of authority and responsibility
government entity in our system lies starting from its stockholders who delegate
in Congress them to a duly elected board of directors
FINANCING exclusive right to demand involuntary primarily by the voluntary contribution from its
contributions from its constituent in members or stockholders
the form of taxes
INCOME cannot make profits on the services it generate return in the form of profits for
renders. To support the estimated services rendered or good sold
annual cost of government, taxes are
levied

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DISTINCTION BETWEEN GOVERNMENT AND

COMMERCIAL ACCOUNTING
GOVERNMENT COMMERCIAL
OBJECTIVE control of government funds to see to it geared towards income measurements aside
that they are properly utilized and from control of company resources
provide data to management for decision
BASIS modified accruals basis of accounting is cash or accrual method is used but not a
used combination of both
PREPARATION Statement of Financial Position, Statement of Financial Position, Statement of
Statement of Financial Performance, Comprehensive Income, Statement of Cash
Statement of Changes in Net Assets/ Flows, Statement of Shareholders Equity and
Equity, Statement of Cash Flows and Notes to the FS
Notes to the FS
CONTROL Fund accounting, obligation accounting NONE
and CDC accounting
BOOKS OF one set of books is kept , Regular Agency only one set is kept
ACCOUNTS (RA) Book, and maintain Registries for
budget accounts

..continuation
GOVERNMENT COMMERCIAL
ACCOUNTS & includes budgetary accounts such as Nominal and Real Accounts are used
TRANSACTIONS Appropriation, Allotments and
Obligations which are recorded in a
Registry, respectively
PRACTICE & laws, rules and regulations dictated by nature of business and policies of
PROCEDURES management

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Decision-making Process in Government

The ultimate authority for decision-making in the Philippine government rests
with the people
The President, as chief executive, formulates national policies, which specify the
goals of government and determine the courses of action that the government
should take in different aspects of public affairs.
On the basis of national policy, the President submits a budget to the legislative
body for consideration and processed until approved and passed into a law
Questions and issues involving the settlement of money claims, determination
of dispute or settlement of a controversy on the issue as to legality and/or
propriety of such claims are submitted for resolution to the COA in connection
with the discharge of its audit function

Salient Features of Government Accounting

The financial resources of the Government are very limited. It relies

heavily on collected taxes. This means that it has to operate through a
system of fiscal and accounting controls. The following control
mechanisms adopted as sub-systems of government accounting are
not adopted in commercial accounting:
Fund Accounting
Obligation Accounting
Cash Disbursement Ceiling (CDC) Accounting

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Fund Accounting
A fund is a sum of money or other resources set aside for the
purpose of carrying out specific activities or attaining certain
objectives in accordance with specific regulations, restriction,
and limitations
Two major classification of funds as to purpose for which they
may be used:
General Fund
Special Fund

Obligation Accounting

As a control mechanism of government accounting

system, obligation accounting provides the ceiling
of the maximum extent by which an agency can
incur obligations or commit the resources of the
government in the performance of its functions

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Cash Disbursement Ceiling Accounting

The cash operations of the government under the

cash disbursement ceiling accounting are limited
within the boundaries of the appropriations release
to government agencies in the form of allotments,
and any additional amount granted by the DBM to
liquidate or pay existing valid obligation.

Accounting Responsibility

Under PD 1445, accounting responsibility for all government

funds and property is entrusted, immediately and primarily,
to the head of the government agency or office
The officer in possession or custody of government funds
or property by reason of his duties are accountable for the
safekeeping thereof. As such, he shall be properly bonded

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Although supervisory work of government

accounting is vested upon to the Commission on
Audit, accounting responsibilities in the
government, by virtue of the provision of the
Constitution of the Philippines, laws, Presidential
Decrees and other issuances, are shared primarily
by the Commission on Audit(COA), Department of
Budget and Management, (DBM), Department of
Finance (Bureau of Treasury) and government
agencies

Commission on Audit
Serves as the external auditor of the government agencies. It is a
constitutional office and its mandates are provided in Section 2,
Art. IX-D of the 1987 Constitution of the Philippines
The office is mandated by the Constitution to submit to the
President and the legislative body within the time frame fixed by
law, an annual audit report of the government, its subdivision,
agencies and instrumentalities including government owned or
controlled corporations and recommend measures necessary to
improve efficiency and effectiveness.

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Department of Budget and Management

Responsible for the design, preparation, and approval of the accounting
systems of government agencies, determines the accounting and other
item of information needed to monitor budget performance and assess
effectiveness of the agency operation
It prescribes the forms, schedules of submission and other component of
reporting system needed to accomplish and submit the required
information
It approves the Agency Budget Matrix and issues the allotments to agencies
in accordance with the approved budget and issues Notice of Cash
Allocation

Bureau of Treasury

Performs banking function for the national government

It receives and keeps government funds, controls the
disbursements thereof and maintain accounts of the financial
transactions of national government agencies
It is required to prepare and submit to the COA and other fiscal
activities, a daily statements of cash receipts, disbursements and
fund balances in the National Treasury

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National Government Agencies

Consist of various organizational units such as departments,

bureaus, commissions, boards, offices, tribunals, councils,
institutions, state colleges or universities and establishments
These agencies are required to establish and maintain a system
of accounting for their financial resources and operation in
accordance with pertinent rules and regulations

Relationship between Accountability,

Responsibility and Authority
Accountability is the obligation of a public officer/employee to answer for
the responsibility conferred on him/her
It is her Responsibility to respond to the concerns of individuals or groups,
the public he/she is to serve, within the overall context of his/her obligations
for which he/she has the appropriate Authority
In government, authority is often used interchangeably with the term
"power". However, their meanings differ: while "power" is defined as 'the
ability to influence somebody to do something that (s)he could not have
done', "authority" refers to a claim of legitimacy, the justification and right
to exercise that power

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Accountability Requirements From Public

Officer/Employees
Section 1 of PD 1445 provides: It is the declared policy of the
State that all government resources shall be managed, expended
and utilized in accordance with law and regulations and
safeguard against loss or wastage through illegal or improper
disposition, with a view to ensuring efficiency, economy and
effectiveness in the operations of government. The responsibility
to see to it that such policy is faithfully adhered to rests directly
with the chief or head of the government agency concerned.

Assertions of Compliance with Accountability

Requirements

When public officers and employees submit to the

Commission their transactions, accounts, financial
reports and statements and other performance and
operation reports, they are asserting or claiming
that they have complied with the foregoing
accountability requirements.

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What is Assertions?

Assertion is the expressed or implied representation by

management that is reflected in their transactions, accounts,
financial statements, records, reports and that they are claiming
that they have complied with the accountability requirements of
the state policy

Assertions on Compliance with Laws and Rules

When expenditures, disbursements, receipts and collections are

reported to the appropriate authorities, management is making
claim that so much amount has been disbursed or so much
amount have been collected in payment of goods and services
received or rendered in accordance with laws, rules, applicable
policies and practices

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Assertion on Resources Duly Safeguarded

When the agencies issue their financial reports and statements

they are asserting the following:
Existence or Occurrence
Completeness
Rights and Obligations
Valuation or Allocation
Presentation and Disclosure

Assertions on Achievement of Goals and Objectives

(Performance or Value for Money Accountability)

When the agencies prepare and submit to proper authorities

their reports on the performance of an activity or a project, the
agency is asserting that they used and managed the resources
for that activity or project in an economical, efficient and
effective manner.
Performance of government entities is measured from the point
of view of economy, efficiency and effectiveness

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Economy refers to the reasonableness of cost incurred. Measuring economy

will determine whether the agency has been performing at the least
possible cost or under the terms most advantageous to the government.
Efficiency refers to the relationship between goods or services produced
and resources used to produce them. The measurement of efficiency
involves the determination of whether an agency is managing or utilizing its
resources in an efficient manner as well as establishing the causes of any
inefficiencies, including inadequacy in management information systems,
administrative procedures or organizational structure.
Effectiveness is concerned with the relationship between the outputs and
the goals of the agency. Measuring effectiveness will determine whether
the desired results are achieved, whether the objectives set by the agency
are met, and whether the agency has considered alternatives that yield
desired results at a lower cost.

Generally Accepted (State) Accounting Principles

Accounting principles are propositions, a general law or rule
adopted, which on the basis of reasons, demonstrated usefulness
and general acceptance as the best way of carrying out the
function and achieving the objectives of financial accounting.
Significant differences in principles between state accounting
and commercial accounting:
Government activities are non-profit oriented;
State accounting places greater emphasis on accountability, stewardship and control;
State accounting is based on laws, rules and regulations.

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Primary sources
Pronouncement of the Commission on Audit - COA is mandated
by the Philippine Constitution to promulgate accounting rules
and regulations to facilitate the keeping and enhance the
informational value of the accounts of the government.
Provision of law - Sec. 112 of the PD 1445 provides that
generally accepted accounting principles should be observed in
government accounting entities as provided they do not
contravene existing laws and regulations.

Secondary source

From the pronouncements and issuances by other government agencies.

The Government Auditing Code of the Philippines requires that each
government agency shall record its financial transactions and operations in
conformance with the generally accepted accounting principles and
accordance with pertinent laws and regulations

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The principles to be followed by government

entities includes the following:
The accounts of the agency shall be kept in such detail and at the same time
be adequate to furnish the information needed by fiscal or control agencies
of the government
The highest standard of honesty, objectivity and consistency shall be
observed in the keeping of accounts to safeguard against inaccurate or
misleading information
The government accounting system shall be on double-entry basis with the
general ledger in which all financial transactions are recorded, Subsidiary
record shall be kept where necessary

The Chart of Accounts has eight mandatory digits representing different

account groups and classification
The Chart of Accounts categorizes Personal Services, Maintenance and
Other Operating Expenses and Financial Expenses as Expenses, obligation
charged to capital outlay are recorded to appropriate asset accounts when
the liability and the payment are taken-up
Matching Principles, The principle that requires the matching of revenues
and expenses is adopted.
Modified accrual method is used
Depreciation accounting for property, plant and equipment using the straight line
method is followed.
Allowance for doubtful accounts is taken up. Dormant accounts are transferred o a
separate registry,
Asset method is followed for prepaid expenses.

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On financial statement:
Fairness of presentation
Compliance
Timeliness
Usefulness
Obligation accounting is modified, allotments and obligations are no longer
journalized. Separate registries are maintained to control these accounts
and the appropriation.
All lawful expenditures and obligation incurred during the year shall be
taken up as accounts of that year

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