ACCOUNTING FOR GOVERNMENT AND NOT FOR PROFIT ENTITIES-AN

INTRODUCTION

LEARNING OBJECTIVES:
After studying this module, the student should be able to:
1. Identify and explain the characteristics that distinguish governmental and not-
for-profit entities from for-profit entities.
2. Identify the authoritative bodies responsible for setting financial reporting
standards for national and local governments, and not-for-profit organizations.

3. Contrast and compare the objectives of financial reporting for national and
local governments and not-for-profit organizations.

INTRODUCTION:
Welcome to the strange new world of accounting for governmental and not-for-profit
organizations! You may find it challenging to understand the many new terms and concepts
as well as at the outset, why governmental and not-for-profit organizations find it necessary
to use accounting practices that are very different from those used by for-profit entities.

Governmental and not-for-profit organizations serve entirely different purposes in

society than do business entities. Furthermore, because such organizations are largely
financed by taxpayers, donors, and others who do not expect benefits proportional to the
resources they provide, management has a special duty to be accountable for how those
resources are used in providing services. Thus, the need to report on management’s
accountability to citizens, creditors, oversight bodies, and others has played a central role in
shaping the accounting and reporting practices of governmental and not-for-profit
organizations.

WHAT ARE GOVERNMENTAL AND NOT-FOR-PROFIT ORGANIZATIONS?

 Governmental and not-for-profit organizationsare vast in number and range of
services provided. Government exist at national and local levels and serve a
variety of functions/services.
 Police and fire protection
 Sanitation
 Construction and maintenance of streets, roads, and bridges
 Health and welfare
 Education
 Drainage and flood control
 Irrigation
 Soil and water conservation and supply

 Not-for-profit organizations will be tackled in the final term.

 THE ORGANIZATIONAL STRUCTURE OF THE PHILIPPINE GOVERNMENT

A. 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 officesas are necessary to

be able to carry out its functions like:
a. social welfare
b. development of national wealth
c. defense of the state from internal and
external aggression
d. promotion of justice
e. promotion of trade and industry
f. general government and protection of
private rights of the people.

 GOVERNMENT ACCOUNTING systematically identifies, measures and

communicates financial information about the resources and operations of the entity.
 GOVERNMENT ACCOUNTING emphasizes the concept of accountability of officials
in the service of national government agencies, local governments and government
corporations.
 It is significantly influenced by laws, rules and regulations as well as
the distinctive features of its environment.

o VARIOUS ASPECT OF ENVIRONMENT

1. Characteristics of government
2. Form and structure of government
3. Decision-making process in government
4. Nature of government entities
5. Economic activities of government entities
6. Types of users and their interests
7. Accounting information and economic decisions.

1. CHARACTERISTICS OF GOVERNMENT
 The process of government is carried out through three
branches and a fourth branch composed of
constitutional bodies.

Executive Legislative Judicial Constitutional

Commissions
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Based on the functions of the three branches, CHECKS AND BALANCES as a system of
control exists in the government.
In government, there are no defined ownership interests that can be acquired, sold, transferred
or redeemed in the commercial sense. The purpose of government is to:
a. manage public affairs
b. provide services aimed at promoting
the general well-being of its
constituents.

The government derives income from REGULATORY and SERVICE FEES. TAX
REVENUES provide the major portion of resources available to finance government
operations. The functions and operations of government are extensively regulated by LAW
and ADMINSTRATIVE REGULATIONS. There is a STRONG EMPHASIS on LEGAL
COMPLIANCE.

2. FORM AND STRUCTURE OF THE PHILIPPINE GOVERNMENT

 The government is established and its affairs are basically conducted in
accordance with the Philippine Constitution.
 Governmental powers are exercised by the following:
a. President
b. Vice -President
c. Cabinet
d. Legislative Body
e. Supreme court and Lower courts
f. Constitutional Commissions
g. Local Governments

3. DECISION-MAKING PROCESS IN THE GOVERNMENT

 The ultimate authority for decision-making in the Philippine government rest 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.

4. GOVERNMENT ENTITIES
Two types of economic entities are relevant to the government accounting process:
a. ORGANIZATIONAL UNITS
 The National Government
 Local Governments
 Government Corporations

b. FUNDS

NATIONAL GOVERNMENT refers to the government of the Republic of the Philippines as

a whole including the executive, legislative, judicial branches, and the constitutional
commissions, but excluding the local governments and government-owned and/or controlled
corporations which are considered separate entities for accounting purposes.
  Each of the departments, bureaus, offices, boards, commissions, council and other
organizational units under the national government shall be considered agencies of the
national government.

LOCAL GOVERNMENTS are political subdivisions of the Philippines having substantial

control over their affairs, consisting of provinces, cities, municipalities and barangays.

GOVERNMENT CORPORATIONS are agencies organized by law or pursuant to law,

vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the government directly or through its instrumentalities either wholly or, to the
extent of at least fifty one percent of its capital.

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 special regulations,
restrictions or limitations and constitutes an independent fiscal and accounting entity.

5. ECONOMIC ACTIVITIES OF GOVERNMENT ENTITIES

 Government entities engage in activities that are economic in nature. They purchase
goods and services, borrow and invest funds, acquire property and equipment, retire
liabilities, collect revenues and incur expenditures.
 The activities are undertaken to manage public affairs and provide services aimed at
promoting the general well-being of constituents.
 Some governmental entities may engage in commercial-type activities, but
government as a rule does not exist to derive profits from its operations.

6. TYPES OF USERS AND THEIR INTERESTS

 The needs and expectations of users of accounting information are a part of the
environment that determines the type of information required of accounting. A
knowledge of important classes of users and their common and their special needs for
information is helpful in improving accounting information.
 The following groups have a direct interest in the information generated by the
government accounting process
1. Constituents
2. Resource providers
3. Governing and oversight bodies
4. Managers and administrators

7. ACCOUNTING INFORMATION AND ECONOMIC DECISIONS.

 Accounting information is intended to be useful in making economic decisions.
Economic decisions involve allocating scarce resources to competing alternative
needs.
 They involve something used up, surrendered or sacrificed ( economic costs) in
exchange for something presumed to be better (economic benefits).
 The soundness of economic decisions relates to how effectively the goals of an
economic entity have been accomplished.
 Performance of governmental entities is measured from the point of view of economy,
efficiency and effectiveness.