AC 518 HAND-OUTS

GOVERNMENT ACCOUNTING
AND AUDITING
TNCR
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. The government has as many
departments, commissions or offices as necessary 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
industry, general government and protection of private rights of the people.
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.
Government accounting is a service activity.
Three (3) types of governmental organizational units:

National Government Unit(LGU) are agencies that includes all

departments, bureaus, offices, boards, commissions, councils state
colleges and universities.

Local Government Unit(NGAs)- political subdivisions of the Philippines

having substantial control over local affairs, consisting of provinces, cities,
municipalities and barangays.

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 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.

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
1.To produce information concerning past operations and present conditions.
2.To provide a basis for guidance for future operations.
3.To provide for control of the acts of public bodies and officers in the receipt, disposition
and utilization funds and properties, and
4.To report on the financial position and the result of operation of the government
agencies for the information of all persons concerned.
Users of Government Accounting Information:
1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative
Body.
3. The managers/administrators who are in-charge of carrying out the policy and
daily conduct of government affairs.
4. The students of public finance
5. 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
1. Ownership - Private enterprises are owned by a relatively few stockholders,
partners, or owners. The government represent the entire people in a given community.
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.
3. Organization - The organization of a private enterprise is a succession of
authority and responsibility starting from its stockholders who delegate them to a duly
elected board of directors which 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.
4. Financing - Private enterprise is supported for its finance primarily by the
voluntary contribution from its members or stockholders which constitute as their share
of capital or investment in the business. The government is vested the exclusive right to
demand involuntary contributions from its constituent in the form of taxes.
5. Income - In private enterprise, the capital investment of stockholders are made
to generate 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 annual cost of government, taxes are
levied.

DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING

1.

Objective
CA is geared towards income measurements aside from control of
company resources,
GA - is control of government funds to see to it that they are properly
utilized and provide data to management for decision.

2. Basis of Accounting CA either cash or accrual method is used but not a combination of both.
GA - the modified accruals basis of accounting is used.
3.

Preparation of periodic reports

CA Statement of Financial position, Statement of Cash Flows
GA -Balance sheet, statement of income and expenses, statement of
government equity and statement of cash flows.

4.

Control Mechanism
CA none
GA Fund accounting, obligation accounting and CDC accounting

5. Books of Accounts
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government(NG) Books.

6. As to accounts and transactions

CA - Nominal and Real Accounts are used.
GA - includes budgetary accounts such as Appropriation, Allotments and
Obligations are maintained.

7. Source of Accounting practice and procedures

CA - dictated by nature of business and policies of management
GA - laws, rules and regulations
Decision-making Process in Government
The decision-making process in government is an important aspect of the environment
of state accounting because accounting information is intended to be useful in making
economic decisions and in making reasonable choices among alternative courses of
action.
The ultimate authority for decision-making in the Philippine government rests with the
people. This authority is exercised through duly elected representatives, acting as
agents of the people. It is the sovereign right of the people to change them if the
authority is misused or abused.

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.
At all levels of government, decision-making should comply with existing laws and
regulations. 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. Questions involving legal interpretation and/or application
of law are submitted for decision to the courts.
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

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.
The two major classification of funds as to purpose for which they may be used:
1. General Fund one which is generally available for all functions of the government .
2. Special Fund - one which, by legislative action, segregates specified revenues for specific
purposes. for which recipient agencies/departments have not yet identified
during budget preparation. Ex. Calamity fund, contingent fund, pension
and gratuity 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. With obligation accounting, an agency can operates only
within the amount actually released to it by the DBM, which is within or covered by the
amount approved appropriation.
Obligation accounting refers to the accounting practice, procedures and
techniques for recording obligations in the government.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling
accounting is another control mechanism of government accounting system. 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.