Chapter 1: Overview of Government Accounting
liability
Government Accounting
- process of analyzing, recording, classifying, summarizing,
and communicating all transactions involving the receipt
and disposition of government funds and properly and
interpreting results
Objectives
1. produce – information concerning past transactions and
present conditions
2. provide – basis for guidance for future operations
3. provide – control of the acts of public bodies & officers in the
receipt, distribution, and utilization of funds & property
4. report – financial position and results of operations of gov’t
agencies for the information of concerned persons
Accounting for Business Entities & Government Accounting
- both: process of producing information useful in making
economic decisions
- Government Accounting (emphasis):
1. Sources & Utilization of Government Funds
- Sources
o Includes receipts from taxes and other fees,
borrowings, grants form other governments and
international bodies
- Utilization
o Includes expenditures on programs, projects,
unanticipated losses from calamities and the like
2. Responsibility, Accountability, and Liability of entities
entrusted with government funds and properties
- Responsibility
o Government funds should be utilized efficiently
and effectively
o Head of Government Agency : directly
responsible for government resources entrusted to
his agency
o Those entrusted with possession of gov’t
resources: directly responsible to the Head of the
Agency
o Fiscal Responsibility: shared by those exercising
authority over government agency
- Accountability
o Government Officer possessing gov’t resources:
responsible for safekeeping
o Every accountable officer – properly bonded
o GR: transfer of gov’t funds from one officer to
another: made only AFTER the authorization of
COA
 EXP: allowed by law
 Transfer – documented in an invoice
and receipt
- Liability
o Unlawful use – personal liability of employee
directly responsible
o Unlawful use or negligence in safekeeping –
every accountable officer is liable for all loses
o Acting under direction of superior officer in
unlawful utilization
 GR: cannot be relived from liability
 EXP: has notified superior IN WRITING
that the utilization is illegal – superior is
primary liable
 failed to notify – secondarily liable
o Loss of Government Funds due to unfortunate
events (Force Majeure)
 Accountable officer – immediately notify
COA within 30 days
 Failure to do – officer is not relived from
Accounting Responsibility
1. Commission on Audit
2. Department of Budget and Management (DBM)
3. Bureau of Treasury (BTr)
4. Government Agencies
1. Commission on Audit
- Exclusive authority to promulgate accounting and auditing
rules and regulations
- Keeps general accounts of the government, supporting
vouchers, and other documents
- Submits financial reports to the President and Congress
2. Department of Budget and Management (DBM)
- Formulation and implementation of the national budget to
attain nation’s socio-economic objectives
3. Bureau of Treasury (BTr)
o Functions under Department of Finance
o Cash custodian of the government
- Receive & keep national funds and manage and control
disbursements
- Maintain Accounts of financial transactions of all national
government officers
4. Government Agencies
o Any department, bureau of office of the national
government, or any of its branches and
instrumentalities, or any political subdivisions, as
well as government owned and controlled
corporation (GOCC) including its subsidiaries, or
other self-governing board of commission of the
government
- Directly implements projects of, and performing functions by
the government
- Each entity – maintain accounting books (reconciled with
cash records of BTr) & budgets registries (reconciled with
budget records of COA and DBM)
- Required by law to have accounting units/ divisions/
departments
 Entity: government agency, department, or operating field/ unit
 Financial Reporting: process of preparation, presentation, and
submission of general-purpose financial statements and other
report
Objective: provide useful information to users for accountability
purposes or decision making
GAM for NGAs
Old government accounting system (used for 5 decades)
 New Government Accounting System (NGAS) (2002)
 Government Accounting Manual for
National Government Agencies (GAM for
NGAs) (January 1, 2016)
- To harmonize gov’t accounting standards with international
accounting standards
o International Public Sector Accounting
Standards (IPSAS) based on International
Financial Reporting Standards (IFRS)
- Phil. Gov’t adopted IPSAS through Philippine Public
Sector Accounting Standards (PPSAS)
o PPSAS provisions are incorporated in GAM for
NGAs
Legal Basis
- Promulgated by COA based on authority conferred by the
Philippine Constitution
 2. Relevance
- Assist users in evaluating past, present, or future events
- Confirming/ correcting past evaluations
Coverage
Provides basic concepts to be used in: 3. Materiality
1. Preparing General Purpose Financial Statements in - Its omission/ misstatement could influence decisions of users
accordance with PPSAS & other financial reports as - Depends on nature/ size of item/ error
required by law, rules, and regulations
2. Reporting of budget, revenue, and expenditure in
accordance with laws, rules, and regulations 4. Timeliness
- Loses relevance – if there’s undue delay
Objectives - Complexity of an entity’s operations is not enough reason for
Aims to update: failing to report on a timely basis – NOT AN EXCUSE!
1. Standards, policies, guidelines, and procedures in
accounting for government funds and property 5. Reliability
2. Coding structure and accounts - Free from material error and bias
3. Accounting books, registries, records, forms, and - Can be depended on by users
reports, and financial statements Tradeoffs: Relevance & Reliability
 Timely information – impairs reliability
Basic Accounting and Budget Reporting Principles  Delayed reporting – highly reliable, little use
1. PPSAS and relevant laws, rules, and regulations  To balance: overriding considerations is how users’
2. Accrual basis of accounting needs are best satisfied
o Recognize transactions when they occur/ in the
periods where they relate 6. Faithful Representation
3. Budget Basis for presentation of Budget Information in the - Presented in accordance with substance of transactions &
FS other events, not just form.
4. Revised Chart of Accounts prescribed by COA
5. Double Entry Bookkeeping 7. Substance over Form
6. Financial Statements based on Accounting and Budgetary - Substance is not always consistent with legal form
Records - Present in accordance with substance & economic reality,
7. Fund Cluster Accounting not merely legal form
o Books of accounts are maintain according to types
of funds being accounted for 8. Neutrality
Cod Fund Clusters - Free from bias
e - Not designed to influence user’s decision in order to achieve
01 Regulatory Agency Fund a predetermined outcome
02 Foreign Assisted-Projects Fund
03 Special Account-Locally Funded or 9. Prudence
Domestic Grants Fund - Degree of caution when making estimates under conditions
04 Special Account -Foreign Assisted or of uncertainty
Foreign Grants Fund - Doesn’t allow the ff. because FS will not be neutral,
05 Internally Generated Funds therefore not reliable
06 Business Related Funds o creation of hidden reserves/ excessive provisions
07 Trust Receipts o deliberate understatement of assets/ revenue
o deliberate overstatement of liabilities/ expenses
o Ex: Separate accounting books and budget
registries shall be maintained for Regular Agency 10. Completeness
Fund - Within the bounds of materiality and cost

Qualitative Characteristics of Financial Reporting 11. Comparability

- Attributes that make the information useful to users - Users can identify similarities and differences
- Applies to comparison of:
1. Understandability o FS of different entities
2. Relevance o FS of same entity in different periods
3. Materiality
- Requires users to be informed of:
4. Timeliness
5. Reliability o Entity’s policies
6. Faithful Representation o Changes to those policies
7. Substance over Form o Effects of those changes
8. Neutrality
9. Prudence Components of General Purpose Financial Statements
10. Completeness - Those intended to meet the needs of users who are not in a
11. Comparability position to demand reports tailored to meet their particular
information needs
1. Understandability
- Users can comprehend the meaning 1. Statement of Financial Position
- Users are assumed to have: 2. Statement of Financial Performance
o Reasonable knowledge of entity’s activities 3. Statement of Changes in Net Assets/ Equity
o Willingness to study the information 4. Statement of Cash Flows
o Information about complex matters are not 5. Statement of Comparison of Budget and Actual
excluded simply because it’s difficult for users to Amounts
understand – NOT AN EXCUSE! 6. Notes to Financial Statements  summary of significant
accounting policies & explanatory notes
 -available for appropriation/ expenditure

Elements of the Financial Statements V. Expenses

I. Assets - Decreases in economic benefits/ service potential
- Resources controlled by entity - Outflows/ Consumption of assets/ Incurrence of liabilities
- Results of past events - Decrease in net assets/ equity
- Future economic benefits/ service potential are expected to - Other than distributions to owners
flow Distribution to Owners
Features: -future economic benefits distributed by entity to owners
1. Benefits are controlled by entity -either return on investment/ return of investment
2. Benefits arises from past event
3. Future economic benefits expected to flow
Chapter 2: The Budget Process
1. Control
National Budget
- Ability to benefit from an asset/ prevent others from
Government Accounting
benefiting from that asset
- Primarily budgetary accounting
- NOT ALWAYS TRUE: Possession/ Ownership = Control
- Provides information on past transactions & events
- Also budget information (PPSAS 24)
2. Past Events
- Provide information useful in assessing the conformance of
- Transaction/ event giving rise to control of future economic
utilizations of governance funds with the approved budget
benefits must have occurred
Philippine Constitution & Other Laws
- Mere intention to acquire ≠ doesn’t result to recognition of -require government funds to be utilized in accordance
assets in the present with the national budget approved by legislation

3. Benefit National Budget (Government Budget)

- Ability to use, exchange, lease, sell, or use asset to settle - Government’s estimate of the sources and uses of
liabilities/ distribute to owners government funds within a fiscal year
- Indicators of future economic benefits: - Forms the basis of expenditures
1. Distinguishable from source of benefit - Key instrument for promoting it’s socio-economic objectives
2. Not necessarily generate cash flows, can be service
potential Budget Cycle
3. Prime consideration whether resource/right needs to be - Where the formulation and eventual utilization of the national
accounted as an asset: potential to contribute to budget are summarized
objectives of the entity 4 Phases – PLEA
4. Capacity to contribute 1. Budget Preparation
5. FALSE: asset cannot be sold = cannot provide future 2. Budget Legislation
economic benefits 3. Budget Execution
4. Budget Accountability
Recognition of Asset:
1. Probable that economic benefits will flow I. Budget Preparation
2. Has cost/ value that can be measured reliably - “Bottom-up” Approach
o Used in the Philippines
1. Probable inflow o Several parties participate in the budget
- Change of benefits arising is more likely (greater than 50%) preparation (from lowest to highest levels of the
- Benefits expected based on available evidence/ logic government)
o Government agencies – tasked to increase
2. Reliable Measurement participation of citizen-stakeholders in budget
- Valuation Method – free from material error/ bias preparations
- Faithful representation – asset’s benefits - Top-down Budgeting
- Reliable information – faithfully represent transactions o Budget preparation starts from agency heads

II. Liabilities
Incremental Budgeting Zero-based Budgeting
- Present obligati
-budget of current year is -Philippines shifted form Incremental
- Arising from past events
based on previous year to Zero-based in 2011
- Results in outflow of resources (adjusted for variances -budget of current year is created
experienced in the past) without regard to previous year
III. Equity (Net Assets) -previous year proposed -Government agencies -required to
- Residual interest in the assets after deducting liabilities programs & expenditures justify proposed programs &
– presumably approved expenditures (new/ old)
IV. Revenue -uses “roll-over” approach -uses “back-to-zero”/ “clean slate”
- Grows inflow of economic benefits/ service potential -prone to abuse approach
- Increase in net assets/ equity -promotes efficient & effective
- Other than increases from contribution from owners utilization of funds
Contribution from owners
-future economic benefits contributed by external parties 1. Budget Call
-do not result in liabilities - Budget prep starts when DBM issues budget call to all
-contributors obtain interest in the net assets government agencies
- Contains:
Revenue Funds o Next fiscal year’s targets
-all funds from income of agency of the government o Agency’s budget ceiling
 o Other guidelines in the completion & submission of
agency budget proposals

 Balanced Budget
- Estimated revenue > estimated expenditures
- Surplus: actual revenues > actual expenditures
- Deficit: revenues < expenditures

 Annual Budget
- Period of 1 year
- Basis for annual appropriation

 Special Budget
- Items not adequately covered/ not included in
the General Appropriations Act

 Line Item Budget

- Specific expenditures

 Performance Budget