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COMMISSION ON AUDIT CIRCULAR NO.

94-003 January 27, 1994


TO

SUBJECT:
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All Heads of Departments, Bureaus and Offices, Self-Governing Boards and


Commissions, State Universities and Colleges; Provincial Governors;
City/Municipal Mayors; Chief Accountants/Heads of Accounting Units; COA
Directors, Heads of Auditing Units; and Others Concerned.
Accounting guidelines and procedures for foreign currency transactions of
National Government Agencies and Local Government Units

RATIONALE
Fluctuations in foreign currency which affect the day to day operations of National
Government Agencies and Local Government Units are not reflected in the books of
accounts except for agencies adopting the commercial accounting system in the
treatment of foreign currency transactions. Due to the absence of prescribed accounting
guidelines on foreign currency adjustments, foreign currency transactions are still
recorded at historical cost, hence, abnormal balances exist in the accounts. The
promulgation of guidelines and procedures in the accounting for foreign currency
adjustments will provide a common basis in the recording and reporting of foreign
currency transactions to enable agencies to present relatively fair and accurate financial
statements.

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PURPOSE
This Circular is issued to provide accounting guidelines and procedures for foreign
currency transactions of National Government Agencies and Local Government Units.

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COVERAGE
This Circular shall cover the following foreign currency transactions of National
Government Agencies (NGAs) and Local Government Units (LGUs):
a)
b)
c)
d)
e)

4.0

availment and repayment of foreign borrowings;


collection and remittance of income and trust receipts in foreign currencies,
including grants;
foreign currency deposits with authorized government depository banks;
fiscal agency service (FAS); and
importation of goods and/or services.

DEFINITION OF TERMS
The terms used in this Circular shall be construed to mean as follows:
4.1

Exchange rate is the ratio at which the currencies of two countries are exchanged
at a particular time.

4.2

Fiscal Agency Service (FAS) is a system prescribed by the Bangko Sentral ng


Pilipinas (BSP) for use by all government agencies/instrumentalities in the purchase
and remittance of dollars to specific payees/posts abroad.

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4.3

Foreign Borrowings/Loans (FB/L) are indebtedness whether in the form of cash


on in kind covered by loan agreements entered into by and between the Republic of
the Philippines and foreign /international financial institutions, governments or
entities availed of by national government agencies, local government units,
government-owned and/or controlled corporations to finance specific projects,
and/or to procure goods and services under deferred payment arrangements or
contracts.

4.4

Foreign currency is a currency other than the reporting currency of an agency; or


any currency other than Philippine currency.

4.5

Foreign currency deposits is a deposit, with designated banks in the Philippines,


in acceptable or freely convertible foreign currencies.

4.6

Grants are means of assistance in cash or in kind covered by agreements with


foreign governments, institutions or individuals for purposes of financing specific
projects and/or procurement of goods and services, without any obligation on the
part of the donees to repay.

4.7

Relent loans are loans directly contracted by the Republic of the Philippines and
subsequently loaned out to government corporations.

4.8

Reporting currency is the currency used in the recording of transactions in the


books of accounts and in presenting financial statements, in this case, Philippine
currency.

4.9

Trust receipts are collections from non-income sources authorized by law for
specific purposes which are collected/received by a government office or agency
acting as trustor, agent or administrator, or amounts received as guaranty for the
fulfillment of an obligation.

GENERAL GUIDELINES
5.1

A transaction in a foreign currency shall be recorded and based on the Bankers


Association of the Philippines (BAP) reference rate existing at the date of the
transactions mentioned under paragraph 3.0

5.2

When there is a change in the exchange rate between two related transactions, the
resulting exchange differential shall be recorded as follows:

5.3

5.2.1

if settled within the same accounting period, the difference shall be treated
as gain or loss;

5.2.2

if settled after the accounting period, a gain or loss shall be treated as


Cummulative Results of Operations - Adjustment.

Foreign currency deposits shall be revalued monthly at the exchange rate prevailing
at the end of the accounting/reporting period. Exchange differences resulting from
the revaluation of foreign currency deposits shall be credited or charged to
income/loss or trust liability.

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5.4

Foreign borrowings shall be revalued at the exchange rate prevailing at the end of
the accounting/reporting period. Exchange differences resulting from revaluation of
foreign borrowings shall be recorded as adjustment to loans payable and invested
capital accounts.

5.5

FAS shall be recorded at the exchange rate existing at the date of the transaction.
The liquidation thereof shall also be recorded at the exchange rate used at the date
the FAS was granted.

5.6

Obligations arising from importations of goods or services shall be recorded at the


exchange rate existing at the time the Purchase Order or Contract was approved.
The receipt of the goods or services and payment thereof shall be recorded at the
exchange rate prevailing at the time of delivery. Exchange differences shall be
treated as additions to or reductions in the costs of goods or services.

5.7

A change in exchange rate occurring after the balance sheet date or before
February 24, if significant shall be disclosed. The net effect of changes in foreign
exchange rates in the accounts shall be disclosed in the financial statements.

SPECIFIC GUIDELINES
6.1

Foreign Borrowings/Loans (Cash or in Kind)


6.1.1
6.1.2

The proceeds of foreign loans shall be recorded at the exchange rate


prevailing at the date of the transaction.
Outstanding loans payable shall be revalued at the exchange rate prevailing
at the end of the accounting/reporting period. Adjustments on the invested
capital and loans payable accounts shall be made for the exchange
differences.

6.1.3

Outstanding relent loans to government corporations shall be


correspondingly revalued at the exchange rate prevailing at the end of the
accounting/reporting period.
Adjustments on invested capital and
investment accounts for exchange differences shall likewise be affected.

6.1.4

The amounts to be obligated for loan repayments shall be based on the


prevailing exchange rate. Exchange differences arising from repayment of
loans at rates higher than those at which the loans were recorded shall be
treated as loss and charged against appropriate allotment sourced from
appropriations specifically approved for the purpose. In case of NGAs,
allotment shall be requested from the Department of Budget and
Management. Otherwise, adjustments on the invested capital and loans
payable accounts shall only be made.

6.1.5

Advances made by the National Government in favor of a government


corporation shall be charged to said corporation and recorded as contingent
accounts.

6.1.6

Separate record of foreign deposits shall be maintained to facilitate


monitoring and revaluation.

6.2

Income and Trust Receipts


6.2.1

Collections from all sources in foreign currencies shall be recorded at the


exchange rate prevailing at the date of transaction.

6.2.2

Remittances made by NGAs direct to the Bureau of the Treasury (BTR) or


through authorized government depository banks (AGDBs) shall likewise be
recorded at the exchange rate prevailing at the date of remittance.

6.2.3

Deposits made by LGUs with AGDBs shall also be recorded at the exchange
rate prevailing at the date of deposit.

6.2.4

Exchange differences shall be credited to or charged against income/loss or


trust liability accounts for the following transactions:
6.2.4.1 Remittances by NGAs to the BTR
6.2.4.2 Deposits made by the BTR to the BSP representing remittances of
the different NGAs.
6.2.4.3 Deposits made by LGUs to AGDBs

6.2.5

6.3

6.4

Based on BTR-NCAD Journal Voucher, NGAs concerned shall record the


exchange differences in 6.2.4 as credits or charges to income or trust liability
accounts.

Foreign Currency Deposits with AGDBs


6.3.1

Foreign currency deposits maintained by national government agencies and


local government units with AGDBs shall be recorded at the exchange rate
prevailing at the time of actual deposit.

6.3.2

Foreign currency deposits shall be revalued and reported at the exchange


rate prevailing at the end of the accounting period/reporting period.

6.3.3

Exchange differences arising from revaluation of BTR's outstanding foreign


currency deposits with BSP for foreign debt servicing and other purposes
shall be credited to or charged against income.

6.3.4

Exchange differences arising from revaluation of NGAs outstanding foreign


currency deposits with other authorized government depository banks
representing trust receipts shall be credited to or charged against the trust
liability account.

6.3.5

Exchange differences arising from revaluation of LGUs outstanding foreign


currency deposits with AGDB representing income collections shall be
credited to or charged against income.

Fiscal Agency Service


6.4.1

The amount in foreign currency purchased and advanced to a government


employee who is on official travel abroad shall be recorded at the exchange

rate prevailing at the time of the transaction.

6.5

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6.4.2

The liquidation of expenses shall also be recorded at the exchange rate


used at the time the advance was granted.

6.4.3

No gain or loss on exchange shall be recognized in the books of accounts of


the NGA and/or LGU.

Importation of Goods or Services


6.5.1

The amount to be obligated for the procurement of goods or services from


foreign countries shall be recorded at the exchange rate existing at the time
the Purchase Order or Contract was approved.

6.5.2

Deposits per letters of Credit (LCs) based on the amount of the Purchase
Order or Contract shall be recorded as marginal deposits by the agencies
concerned.

6.5.3

In cases where the bank/local treasury pays more or less than the amount of
the LC due to currency fluctuations, proper adjustments shall be effected in
the agency's books of accounts.

ILLUSTRATIVE ACCOUNTING ENTRIES


The accounting entries to be followed by all agencies concerned are provided under
the following annexes:
Annex I - Accounting for Foreign Borrowings/Loans in Cash
A - Loan Proceeds for Use by National Government
B - Loan Proceeds for Relending to GOCCs
C - Loans directly contracted by LGUs
Annex II - Accounting for Income and Trust Receipts
A - Collection and Remittance of Income by NGAs
B - Collection and Remittance of Trust Receipts to BTR
C - Collection and Remittance of Income by LGUs
Annex III - Foreign Currency Deposits With AGDBs
A - Foreign Currency Deposits of NGAs with AGDBs
B - Foreign Currency Deposits of BTR with CB
C - Foreign Currency Deposits of LGUs with AGDBs
Annex IV - Fiscal Agency Service
Annex V - Accounting for Importation of Goods or Services

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SAVING CLAUSE
Cases not covered by this Circular shall be referred to this Commission.

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REPEALING CLAUSE
All circulars, memoranda or other issuances which are inconsistent with this Circular
are hereby rescinded and repealed accordingly.

10. EFFECTIVITY
This Circular shall take effect immediately.
(SGD.) PASCASIO S. BANARIA, Chairman
(SGD.) ROGELIO B. ESPIRITU, Commissioner
(SGD.) SOFRONIO B. URSAL, Commissioner