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propriety in nature, owned by the government directly or through its instrumentalities

either wholly or, where applicable as in case of stock corporation, to the extent of at
least fifty one % of its capital stock.


University of San Carlos
School of Business and Economics To provide quantitative information primarily financial in nature about the operations of the
Department of Accountancy government, both national and local, to be used by the administration in making decisions for a more
effective and efficient public service.
AC 518 Advanced Financial Accounting and Reporting, Part 3
1st Sem, A.Y. 2016-2017 (1st Hand-Out) OBJECTIVES

I. Government Accounting and Auditing 1.To provide quantitative information concerning past operations and present conditions.
2.To provide a basis for guidance for future operations.
The National Government of the Philippines 3.To provide for control of the account of public entities and officers in the receipt, disposition
The government is the largest financial organization in terms of assets, liabilities, capital, sources of and utilization funds and properties, and
income and items of expenditures. It is also the largest entity in terms of number and quality of
4.To report on the financial position and the result of the operations of the government agencies
personnel, facilities and instrumentalities, which are used to serve the social, political and economic
needs of the nation. The government has as many departments, commissions or offices as necessary for the information of all persons concerned.
to be able to carry out its functions, like promotion of social welfare, development of national wealth,
defense of the state from internal and external aggression, promotion of justice, promotion of trade and Users of Government Accounting Information:
industry, general government and protection of private rights of the people. 1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative Body.
Government Accounting Defined (Section 109 of PD 1445) 3. The managers/administrators who are in-charge of carrying out the policy and daily conduct of
government affairs.
Government Accounting encompasses the processes of analyzing, recording, classifying, 4. The students of public finance
summarizing and communicating all transactions involving the receipt and disposition of government 5. The resource providers of the government such as:
funds and property and interpreting the results thereof. Government accounting is a service activity. Donors or grantors
Lenders, suppliers and employees whose main concern is to know whether the
Three (3) types of governmental organizational units: government can pay its obligations to them.

National Government Agency (NGA) are agencies that includes all departments, DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERPRISES
bureaus, offices, boards, commissions, councils state colleges and universities.
1. Ownership - Private enterprises are owned by a relatively few stockholders, partners, or
Local Government Unit (LGU)- political subdivisions of the Philippines having owners. The government represents the entire people in a given community.
substantial control over local affairs, consisting of provinces, cities, municipalities and
barangays. 2. Purpose - Private enterprises are organized primarily to make profits. The government is set
up mainly to render service at lowest possible cost to its constituents.
Government Owned or Controlled Corp (GOCC)- are agencies organized by law or
pursuant to law, vested with functions relating to public needs whether government or

AC 518 1st Sem, A.Y. 2016-2017 1

3. Organization - The organization of a private enterprise is a succession of authority and GA - one set of books is kept , Regular Agency (RA) Book, and maintain
responsibility starting from its stockholders who delegate them to a duly elected board of directors which Registries for budget accounts.
in turn organize its own staff of officers in whom the responsibility of managing the affair of business is
reposed. The responsibility and authority of a government entity in our system lies in Congress. 6. As to accounts and transactions
CA - Nominal and Real Accounts are used.
4. Financing - Private enterprise is supported for its finance primarily by the voluntary GA - includes budgetary accounts such as Appropriation, Allotments and
contribution from its members or stockholders which constitute as their share of capital or investment in Obligations which are recorded in a Registry, respectively.
the business. The government is vested the exclusive right to demand involuntary contributions from its
constituent in the form of taxes. 7. Source of Accounting practice and procedures
CA - dictated by nature of business and policies of management
5. Income - In private enterprise, the capital investment of stockholders are made to generate GA - laws, rules and regulations
return in the form of profits for services rendered or good sold. The government which is organized
primarily to render service, cannot make profits on the services it renders. To support the estimated Decision-making Process in Government
annual cost of government, taxes are levied.
The decision-making process in government is an important aspect of the environment of state
DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING accounting because accounting information is intended to be useful in making economic decisions and
in making reasoned choices among alternative courses of action.
1. Objective
CA is geared towards income measurements aside from control of company The ultimate authority for decision-making in the Philippine government rests with the people. This
resources, authority is exercised through duly elected representatives, acting as agents of the people. It is the
GA - is control of government funds to see to it that they are properly utilized and sovereign right of the people to change them if the authority is misused or abused.
provide data to management for decision.
The President, as chief executive, formulates national policies, which specify the goals of government
2. Basis of Accounting - and determine the courses of action that the government should take in different aspects of public
CA either cash or accrual method is used but not a combination of both. affairs.
GA - the modified accruals basis of accounting is used.
On the basis of national policy, the President submits a budget to the legislative body for consideration
3. Preparation of periodic reports and processed until approved and passed into a law.
CA Statement of Financial Position, Statement of Comprehensive Income, Statement
of Cash Flows, Statement of Shareholders Equity and Notes to the FS At all levels of government, decision-making should comply with existing laws and regulations.
GA - Statement of Financial Position, Statement of Financial Performance, Statement of Questions and issues involving the settlement of money claims, determination of dispute or settlement
Changes in Net Assets/ Equity, Statement of Cash Flows and Notes to the FS 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. Questions involving legal
4. Control Mechanism interpretation and/or application of law are submitted for decision to the courts.
CA none
GA Fund accounting, obligation accounting and CDC accounting Salient Features of Government Accounting

5. Books of Accounts The financial resources of the Government are very limited. It relies heavily on collected taxes.
CA - only one set is kept This means that it has to operate through a system of fiscal and accounting controls. The following

AC 518 1st Sem, A.Y. 2016-2017 2

control mechanisms adopted as sub-systems of government accounting are not adopted in commercial The Head of the agency is made immediately and primarily responsible for all government
accounting: funds and property pertaining to his agency. Secondary responsibility is made to rest on the persons
entrusted with the actual possession or custody of the funds or property. They are the accountable
officers and are immediately responsible to the agency head.
Fund Accounting
Obligation Accounting The imposition of primary responsibility on the agency head for government funds and property
Cash Disbursement Ceiling (CDC) Accounting is in keeping with the concept of fiscal responsibility which now lodge with agency head.

Fund Accounting. A fund is a sum of money or other resources set aside for the purpose of The head of the agency shall exercise the diligence of a good father or a family in supervising
accountable officers to prevent the incurrence of loss of government funds and property, otherwise, he
carrying out specific activities or attaining certain objectives in accordance with specific regulations,
shall be jointly and solidarily liable with the person primarily accountable thereof.
restriction, and limitations.
Although supervisory work of government accounting is vested upon to the Commission on
The two major classification of funds as to purpose for which they may be used: Audit, accounting responsibilities in the government, by virtue of the provision of the Constitution of the
1. General Fund one which is generally available for all functions of the Philippines, laws, Presidential Decrees and other issuances, are shared primarily by the Commission on
government. Audit(COA), Department of Budget and Management, (DBM), Department of Finance (Bureau of
2. Special Fund - one which, by legislative action, segregates specified revenues Treasury) and government agencies.
for limited purposes.
The 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
Obligation Accounting. As a control mechanism of government accounting system, Philippines. The COA examine, audit and settle all accounts pertaining to revenues or receipts and
obligation accounting provides the ceiling of the maximum extent by which an agency can incur expenditures or uses of government funds and property, keeps the general accounts of the national
obligations or commit the resources of the government in the performance of its functions. government , prescribes the standard chart of accounts, promulgates accounting rules and regulations
and exercise technical supervision over the accounting functions of each agency. The office is
mandated by the Constitution to submit to the President and the legislative body within the time frame
Obligation accounting refers to the accounting practice, procedures and techniques for
fixed by law, an annual audit report of the government, its subdivision, agencies and instrumentalities
recording obligations in the government. including government owned or controlled corporations and recommend measures necessary to
improve efficiency and effectiveness.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling accounting is
another control mechanism of government accounting system. The cash operations of the government The DBM is responsible for the design, preparation, and approval of the accounting systems of
under the cash disbursement ceiling accounting are limited within the boundaries of the appropriations 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,
release to government agencies in the form of allotments, and any additional amount granted by the
schedules of submission and other component of reporting system needed to accomplish and submit
DBM to liquidate or pay existing valid obligation. the required information. It acts on agencies recommendations for the modification or changes to
prescribed systems for procedures to effect simplicity and/or meet the requirements of the peculiarities
Accounting Responsibility - Under PD 1445, accounting responsibility for all government of the agencies concerned. It approves the Agency Budget Matrix and issues the allotments to
funds and property is entrusted, immediately and primarily, to the head of the government agency or agencies in accordance with the approved budget and issues Notice of Cash Allocation.
office. It is the duty of the head of the agency to take reasonable steps to minimize, if not to avoid the
risk of losses, defalcations and other types of irregularities in the utilization of all government resources
(to safeguard the resources of the government under his custody) and periodic reporting to concern The Bureau of Treasury (BTr) performs banking function for the national government. It
authorities. His responsibility, however, is supervised by higher authorities and government bodies. 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
The officer in possession or custody of government funds or property by reason of his duties and other fiscal activities, a daily statements of cash receipts, disbursements and fund balances in the
are accountable for the safekeeping thereof. As such, he shall be properly bonded. National Treasury.

AC 518 1st Sem, A.Y. 2016-2017 3

The National Government Agencies (NGAs) consist of various organizational units such as
departments, bureaus, commissions, boards, offices, tribunals, councils, institutions, state colleges or When public officers and employees submit to the Commission their transactions, accounts,
universities and establishments. financial reports and statements and other performance and operation reports, they are asserting or
claiming that they have complied with the foregoing accountability requirements.
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. Accounts should be kept in What is Assertions?
such details as is necessary to meet the need of agency management and furnish information to fiscal
and control agencies such as COA, DBM and BTr. 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
Relationship between Accountability, Responsibility and Authority complied with the accountability requirements of the state policy.

Accountability is the obligation of a public officer/employee to answer for the responsibility Assertions on Compliance with Laws and Rules
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 When expenditures, disbursements, receipts and collections are reported to the appropriate
appropriate Authority. 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,
In government, authority is often used interchangeably with the term "power". However, their rules, applicable policies and practices.
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 Assertion on Resources Duly Safeguarded
exercise that power.
When the agencies issue their financial reports and statements they are asserting the
Accountability Requirements From Public Officer/Employees following:
1. Existence or Occurrence - This deals with whether assets or liabilities of the audited agency
Section 1 of PD 1445 provides:It is the declared policy of the State that all government actually exist at a given date, and whether recorded transactions have occurred during the
resources shall be managed, expended and utilized in accordance with law and regulations and given period.
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 2. Completeness This deals with whether all transactions and accounts that should be
that such policy is faithfully adhered to rests directly with the chief or head of the government agency presented in the financial statements are included.
3. Rights and Obligations - This deals with whether assets are actually owned by the agency and
This declaration articulates the concern of the state for the safekeeping of the publics liabilities are the obligation of the agency at a given date.
resources. It focuses on how the resources shall be handled by those given the public trust to manage,
4. Valuation or Allocation - This deals with whether or not the asset, liability, revenue and
spend or use such resources.
expenses components have been included in the financial statements at appropriate
Pursuant to this policy the State requires from public officers and employees the following:
5. Presentation and Disclosure This deal on whether particular components of the financial
1. Compliance with laws and regulations
statements are properly classified, described and disclosed.
- Laws and rules
- Agency policies
Assertions on Achievement of Goals and Objectives (Performance or Value for Money Accountability)
- Agency manuals of operations; and
- Provisions of contracts, MOA
When the agencies prepare and submit to proper authorities their reports on the performance
2. Safeguarding of government resources from loss and waste
of an activity or a project, the agency is asserting that they used and managed the resources for that
3. Achieving goals and objectives
activity or project in an economical, efficient and effective manner.
Assertions of Compliance with Accountability Requirements

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Performance of government entities is measured from the point of view of economy, efficiency and
effectiveness. 2. 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
Economy refers to the reasonableness of cost incurred. Measuring economy will determine whether contravene existing laws and regulations.
the agency has been performing at the least possible cost or under the terms most advantageous to the
government. Secondary source:

Efficiency refers to the relationship between goods or services produced and resources used to From the pronouncements and issuances by other government agencies.
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 The Government Auditing Code of the Philippines requires that each government agency shall
inefficiencies, including inadequacy in management information systems, administrative procedures or record its financial transactions and operations in conformance with the generally accepted accounting
organizational structure. principles and accordance with pertinent laws and regulations. The principles to be followed by
government entities includes the following:
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 1. The accounts of the agency shall be kept in such detail and at the same time be adequate to
set by the agency are met, and whether the agency has considered alternatives that yield desired furnish the information needed by fiscal or control agencies of the government.
results at a lower cost.
2. The highest standard of honesty, objectivity and consistency shall be observed in the keeping
Generally Accepted (State) Accounting Principles of accounts to safeguard against inaccurate or misleading information.

Accounting principles are propositions, a general law or rule adopted, which on the basis of 3. The government accounting system shall be on double-entry basis with the general ledger in
reasons, demonstrated usefulness and general acceptance as the best way of carrying out the function which all financial transactions are recorded, Subsidiary record shall be kept where necessary.
and achieving the objectives of financial accounting.
4. The Chart of Accounts has eight mandatory digits representing different account groups and
Objectives: classification.
1. Guide the accountants in identifying, measuring and communicating financial accounting
information; 5. The Chart of Accounts categorizes Personal Services, Maintenance and Other Operating
2. Assure proper reporting and reasonable degree of uniformity and comparability among the Expenses and Financial Expenses as Expenses, obligation charged to capital outlay are
financial statements of different government entities; and recorded to appropriate asset accounts when the liability and the payment are taken-up.
3. Provide auditors with the framework for making judgment about the fairness of financial
statements on the basis of some uniform standards. 6. Matching Principles, The principle that requires the matching of revenues and expenses is
Significant differences in principles between state accounting and commercial accounting: - Modified accrual method is used
1. Government activities are non-profit oriented; - Depreciation accounting for property, plant and equipment using the straight line
2. State accounting places greater emphasis on accountability, stewardship and control; and method is followed.
3. State accounting is based on laws, rules and regulations. - Allowance for doubtful accounts is taken up. Dormant accounts are transferred o a
separate registry,
A principle is generally accepted if it has substantial authoritative support. There are two sources - Asset method is followed for prepaid expenses.
of support: primary and secondary sources
7. On financial statement:
Primary sources:
1. Fairness of presentation this refer to the overall propriety of disclosing financial
1. Pronouncement of the Commission on Audit - COA is mandated by the Philippine information. Full disclosures in financial aspects requires observance of the
Constitution to promulgate accounting rules and regulations to facilitate the keeping and standards of reporting.
enhance the informational value of the accounts of the government.

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2. Compliance the report shall be in accordance with prescribed government 8. Obligation accounting is modified, allotments and obligations are no longer journalized.
requirements and international accounting standard of reporting. Separate registries are maintained to control these accounts and the appropriation.
3. Timeliness all needed reports shall produced promptly to be of maximum
usefulness. 9. All lawful expenditures and obligation incurred during the year shall be taken up as accounts of
that year.
4. Usefulness financial reports shall be carefully designed to present information that
is needed and useful to reports users.
- End -

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