COLLEGE OF COMMERCE

Bachelor of Science in Accountancy

MODULE 1 PACKET
PrE 8-Accounting for Government and Non-Profit Organization

MODULE 1 INTRODUCTION TO GOVERNMENT ACCOUNTING

Welcome to Module 1

In this module, we will discuss the laws, regulations, principles and concepts that
govern the practice of government accounting. Also, we will understand the role of
various government agencies and regulatory bodies that has authority in the
standards and regulations to be used in government accounting. You will be able to
differentiate the changes adopted by Government Accounting Manual. At the end of
this module, you will be answering essay and multiple choice questions.

Get excited to learn the unique concepts that are only adopted in the accounting for
government.

CONSULTATION HOURS

Virtual Time: During your class schedule

Phone or Messenger: Every Wednesday from 8 am to 11 am and 1 pm to 4 pm

MODULE 1 LEARNING OBJECTIVES

By the end of this module, the student will be able to:
1. Identify the laws, policies, rules and regulations that govern the accounting for
government;
2. Explain the functions of Public Sector Accounting Standards Board and its
Secretariat;
3. Understand the role of Commission on Audit (COA) in the practice of accountancy
in government;
4. Determine the changes adopted in Government Accounting Manual; and
5. Appreciate the importance of responsibility accounting

COURSE CONTENT FOR MODULE 1

ACTIVITY DESCRIPTION TIME TO COMPLETE

Assigned Reading Legal Basis of GAM 30 minutes
Lecture Discussion Fundamental Principles 45 minutes
Activity 1 Fundamental Principles 45 minutes
Lecture Discussion Commission on Audit 30 minutes
Activity 2 Understanding COA 1 Hour
Circulars

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Lecture Discussion GAM 1 Hour

Quiz Summative Quiz for 90 minutes
module 1

LECTURE DISCUSSIONS

1.1 LEGAL BASIS FOR THE ISSUANCE OF GOVERNMENT ACCOUNTING

MANUAL

The issuance of the GAM is in line with the provision under Article 1X-D Section 2(2)
of the 1987 Philippine Constitution mandating the Commission to promulgate
accounting rules and regulations. The GAM considered the provisions of the
particular PPSASs as they apply to the respective chapters of the manual.

1987PHILIPPINECONSTITUTIONARTICLE IX-D
THE COMMISSION ON AUDIT

SECTION 1 (1). There shall be a Commission on Audit composed of a Chairman and

two Commissioners, who shall be natural-born citizens of the Philippines and, at the
time of their appointment, at least thirty-five years of age, certified public accountants
with not less than ten years of auditing experience, or members of the Philippine Bar
who have been engaged in the practice of law for at least ten years, and must not
have been candidates for any elective position in the elections immediately preceding
their appointment. At no time shall all Members of the Commission belong to the
same profession.

SECTION 1 (2). The Chairman and the Commissioners shall be appointed by the
President with the consent of the Commission on Appointments for a term of seven
years without reappointment. Of those first appointed, the Chairman shall hold office
for seven years, one Commissioner for five years, and the other Commissioner for
three years, without reappointment. Appointment to any vacancy shall be only for the
unexpired portion of the term of the predecessor. In no case shall any Member be
appointed or designated in a temporary or acting capacity.

SECTION 2 (1). The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and receipts of,
and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled corporations with original
charters, and on a post-audit basis: (a) constitutional bodies, commissions and
offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or
controlled corporations and their subsidiaries; and (d) such non-governmental entities

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receiving subsidy or equity, directly or indirectly, from or through the Government,

which are required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of the
audited agencies is inadequate, the Commission may adopt such measures,
including temporary or special pre-audit, as are necessary and appropriate to correct
the deficiencies. It shall keep the general accounts of the Government and, for such
period as may be provided by law, preserve the vouchers and other supporting
papers pertaining thereto.

SECTION 2 (2). The Commission shall have exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and examination, establish
the techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties.

SECTION 3. No law shall be passed exempting any entity of the Government or its
subsidiary in any guise whatever, or any investment of public funds, from the
jurisdiction of the Commission on Audit.

SECTION 4. The Commission shall submit to the President and Congress, within the
time fixed by law, an annual report covering the financial condition and operation of
the Government, its subdivisions, agencies, and instrumentalities, including
government-owned or controlled corporations, and non-governmental entities subject
to its audit, and recommend measures necessary to improve their effectiveness and
efficiency. It shall submit such other reports as may be required by law.

PRESIDENTIAL DECREE 1445 (PD 1445)

STATE AUDIT CODE OF THE PHILIPPINES

Also known as “Government Auditing Code of the Philippines.”

Section 2 provides that “It is the declared policy of the State that all resources of the
government shall be managed, expended or utilized in accordance with law and
regulations, and safeguarded 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 take care that such policy is faithfully
adhered to rests directly with the chief or head of the government agency
concerned.”

PD1445 sets principles to be followed that governs the disbursements of fund in the
government. It also defines the powers and responsibilities of Commission on Audit
(COA) in promulgating auditing rules and regulations.

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Fundamental principles (Section 4 of PD 1445). Financial transactions and

operations of any government agency shall be governed by the fundamental
principles set forth hereunder, to wit:
1. No money shall be paid out of any public treasury or depository except in
pursuanceof an appropriation law or other specific statutory authority.
2. Government funds or property shall be spent or used solely for public
purposes.
3. Trust Funds shall be available and may be spent only for the specific purpose
forwhich the trust was created or the funds received.
4. Fiscal responsibility shall, to the greatest extent, be shared by all those
exercisingauthority over the financial affairs, transactions, and operations of
the governmentagency.
5. Disbursements or disposition of government funds or property shall invariably
bearthe approval of the proper officials.
6. Claims against government funds shall be supported with complete
documentation.
7. All laws and regulations applicable to financial transactions shall be
faithfullyadhered to.
8. Generally accepted principles and practices of accounting as well as of
soundmanagement and fiscal administration shall be observed, provided that
they do notcontravene existing laws and regulations.

PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS

The GAM was prepared by a committee created under COA office orders issued by
the Commission. The Committee was supervised by the Public Sector Accounting
Standards Board (PSAcSB) created under COA Resolution No. 2008-012 dated
October 10, 2008. The PSAcSB has the following functions:

 Shall assist the COA Commission Proper in formulating and implementing

accounting standards for the public sector, and
 To establish and maintain linkages with international bodies such as the
INTOSAI, ASOSAI, ASEANSAI, IFAC; professional organizations, such as the
PICPA, GACPA; and academe on accounting related fields on financial
management.

ACTIVITY 1Instruction: Download a copy of Presidential Decree 1445 and read some
of its important provisions. In Section 4 of the mentioned law, are the fundamental
principles of financial transactions and operations of any government agency to
which they shall be governed, pick at least 3 of the 8 fundamental principles and
explain its importance in the disbursements of public funds. Submit your discussion
in module 1 Assignment.

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1.2 COMMISSION ON AUDIT

The COA is an independent constitutional commission established by the

Constitution of the Philippines. It has the primary function to examine, audit and settle
all accounts and expenditures of the funds and properties of the Philippine
government.

Composition of the Commission on Audit; qualifications, term, and salary of

members. (Section 3 of PD 1445)

1. The Commission on Audit, hereinafter referred to as the Commission, shall

becomposed of a Chairman and two Commissioners, who shall be natural-
borncitizens of the Philippines and, at the time of their appointment, at least
forty yearsof age and certified public accountants or members of the Philippine
Bar for at leastten years.
2. The Chairman and the Commissioners shall be appointed by the Prime
Minister for aterm of seven years without reappointment. Of the
Commissioners first appointed,one shall hold office for seven years, another
for five years, and the third for threeyears. Appointment to any vacancy shall
only be for the unexpired portion of theterm of the predecessor.
3. The Chairman and each Commissioner shall receive an annual salary of
sixtythousand pesos and fifty thousand pesos, respectively, which shall not be
decreasedduring their continuance in office.

The Commission have the following central offices:

a. Administrative Office
b. Planning, Financial, and Management Office
c. Legal Office
d. Accountancy Office
e. National Government Audit Office
f. Local Government Audit Office
g. Corporate Audit Office
h. Performance Audit Office
i. Manpower Development Office
j. Technical Service Office

These offices shall perform primarily staff functions, exercise technical supervision
over the regional offices in matters pertaining to their respective functional areas, and
perform such other functions as may be assigned by the Chairman.

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The Commission shall keep and maintain such regional offices as may be required
by the exigencies of the service in accordance with the Integrated Reorganization
Plan for the national government, or as may be provided by law, which shall serve as
the immediate representatives of the Commission in the regions under the direct
control and supervision of the Chairman.

The central and regional offices shall each be headed by a Manager and a Regional
Director, respectively. The Manager of the Legal Office shall also be known and shall
act as the General Counsel of the Commission.

COA has the following objectives:

1. To determine whether or not the fiscal responsibility that rests directly with
thehead of the government agency has been properly and effectively
discharged;
2. To develop and implement a comprehensive audit program that shall
encompass anexamination of financial transactions, accounts, and reports,
including evaluation ofcompliance with applicable laws and regulations;
3. To institute control measures through the promulgation of rules and
regulationsgoverning the receipts, disbursement, and uses of funds and
property, consistentwith the total economic development effort of the
government;
4. To promulgate auditing and accounting rules and regulations so as to facilitate
thekeeping, and enhance the information value, of the accounts of the
government;To adopt measures calculated to hasten the full
professionalization of its services;To institute measures designed to preserve
and ensure the independence of itsrepresentatives; and
5. To endeavor to bring its operations closer to the people by the delegation
ofauthority through decentralization, consistent with the provisions of the
newConstitution and the laws.

Activity 2Get a copy of a COA Circular 2015-003 and explain briefly the content of
the mentioned COA Circular.

1.3 GOVERNMENT ACCOUNTING MANUAL (GAM)

Contents of GAM

Volume 1 Volume 2 Volume 3

22 Chapters, 19 Annexes, 92 Appendices 3 Chapters

Acronyms

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Volume 1 Volume 2 Volume 3

 Accounting Policies  Books,  List of Accounts

Registries,
Records, Forms  Description of Accounts
and
Reports
 Accounting
 Budget
 Treasury
 Property/Supply Unit
 Guidelines  Instructions: How to
and
Procedures Accomplish
 Accounting  When/Where to Submit
 Budget
 Treasury

 Illustrative Accounting
Entries
 Sample Format of the FS

 Volume 1 covered 22 chapters, and includes 19 annexes and the acronyms. It

contains the accounting policies required under the PPSAS and the guidelines
and procedures to be adopted by the accountants, budget officers, cashiers
and property officers involving government transactions. It also guides them
on the preparation of the different financial statements and other reports. To
facilitate the recording of the transactions, illustrative accounting entries in
accordance with PPSAS implementation were provided.

 Volume 2 gives us the books of accounts, registries, records, forms and

reports to be prepared at the accounting, budget, treasury and property unit.
To facilitate their preparation, instructions were given on how to accomplish,
and when and where to submit the specific forms.

 Volume 3 contains the lists of accounts per RCA, additional accounts

prescribed under COA Circular No. 2014-003, and other accounts created for
the implementation of the PPSAS. The codes per RCA, UACS sub-codes and
the combined codes or the UACS object codes were presented. The
descriptions of all the accounts in the list are also presented in this volume.

The GAM aims to prescribe updates on the following:

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1. Policies, guidelines, standards and procedures in accounting for government

funds and property

Examples:
Disbursement- procedures in the usual modes of disbursements used now
such as: Tax Remittance Advice (TRA) and Advice to Debit Account (ADA)
and Cashless Purchase Card system which was pilot-tested in some NGAs
like the DND and the DBM.

Revenue - guidelines in accounting for revenue like donations because

under the NGAS, this is always regarded as income, with the adoption of
PPSAS sometimes donation is accounted as liability.

2. Coding structure and accounts- we no longer use the 3-digit but 8-digit coding
system. The Object Codes provided are used in the Unified Accounts Code
Structure (UACS) pursuant to COA-DBM-DOF Joint Circular No. 2013-1 dated
August 6, 2013 prescribing the UACS.

3. Accounting books, registries, records, forms, reports and financial statements-

with the new development in accounting requiring the implementation of the
PPSAS and various reforms introduced in Public Financial Management
(PFM), many forms, records and reports need to be updated.

4. Accounting entries- illustrative accounting entries for typical transactions to be

recorded in the books of accounts and records of NGAs, BTr and COA were
updated due to changes of accounts and new procedures in accounting. The
illustrative accounting entries for non-typical transactions showing the effects
of the different accounting policies were also updated and presented.

Changes adopted in GAM

Particulars NGAS GAM

1. FS Title 1. Balance Sheet 1. Statement of

2. Statement of Income and Financial Position
Expenses 2. Statement of
3. Statement of Government Financial
Equity Performance
4. Cash Flow Statement 3. Statement of
Changes in Net
Assets/Equity
4. Statement of Cash

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Particulars NGAS GAM

Flow

2. Components of FS Four Six

In addition to the
above:
5. Statement of
Comparison of
Budget and Actual
Amounts
6. Notes to Financial
Statements
3. Chart of Accounts COA Circular 2004-008 COA Circular 2013-002,
January 30, 2013
COA Circular 2014-003,
April 15, 2014
4.Unified Accounts Code None Compliant
Structure (UACS)

5. Books Maintained Regular Agency Book and Fund Cluster

National Government Book

6.Estimated Useful Life Prescribed by COA Management

prerogative
7. PPE Threshold None P15,000 and above
8. Inventory Costing Moving Weighted Average Moving Weighted
Average
Specific Identification

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Particulars NGAS GAM

9. Fund Maintenance One Fund Concept Fund Clustering

01 - Regular Agency
Fund
02 - Foreign-Assisted
Projects Fund
03 - Special Accounts-
Locally
Funded/Domestic
Grants Fund
04 - Special Account-
Foreign
Assisted/Foreign
Grants Fund
05 - Internally
Generated
Funds/Retained Income
Fund
06 - Business Related
Funds/Revolving Fund
07 - Trust Receipts
10. Cash Flow Direct Method Direct Method
11.Completed Public Derecognized Recognized
Infrastructure
12. Statement of Financial
Position

Assets Without distinction With Distinction

Current and Non-
Liabilities Without distinction current
With Distinction
Current and Non-
current
13. Statement of Financial Form part of Income Not part of Revenue
Performance from Current Operation
Subsidies, Transfers

14. Impairment loss None Recognized

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Particulars NGAS GAM

15. Adjustment affecting Uses Prior Year’s Adjustment Direct adjustment to

Government Equity account Equity

16. Income Collection Without authority to use- Recorded by NGAs

BTrWith authority to use-
NGAs
17. Accounting for
Donation

with conditionality Income Liability

without conditionality Income Revenue
with restriction - Revenue
18. Monitoring of None Section C of ORS
Obligation/Payment
19. Residual value 10% At least 5%

New standards resulting from PPSAS adoption there are many transactions that we
have to account because of the implementation of 25 PPSAS. Existing transactions
to be accounted in accordance with PPSAS - NGAs have been incurring these
transactions under the NGAS and even under the OGAS and we do not know if we
are compliant with these listed PPSAS. The following new standards adopted:

 PPSAS 28, 29 and 30-Financial Instruments

 PPSAS 31-Intangible Assets
 PPSAS 8-Interest in Joint Ventures
 PPSAS 14- Events After the Reporting Date
 PPSAS 3-Accounting Policies, Changes in Accounting Estimates and Errors
 PPSAS 19-Provisions, Contingent Liabilities, Contingent Assets
 PPSAS 16-Investment Property

1.4 RESPONSIBILITY ACCOUNTING

Responsibility Accounting is a system of control where responsibility is assigned for
the control of costs. The persons are made responsible for the control of costs.
Proper authority is given to the persons so that they are able to keep up their
performance.

Responsibility accounting aims to:

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a) Ensure that all costs and revenues are properly charged/credited to the
correct responsibility center so that deviations from the budget can be readily
attributed to managers accountable therefor;
b) Provide a basis for making decisions for future operations; and
c) Facilitate review activities, monitoring the performance of each responsibility
center and evaluation of the effectiveness of agency’s operations.

Responsibility Accounting, which was prescribed under the NGAS, is retained in the
GAM.Responsibility Accounting is a system that measures the plans (by budgets)
and actions (by actual results) of each responsibility center. It provides access to cost
and revenue information under the supervision of a manager having a direct
responsibility for its performance.

Responsibility Center – is a part, segment, unit or function of a government agency,

headed by a manager, who is accountable for a specified set of activities. Except for
some, which derive most of their income from collection of taxes and fees, NGAs are
basically cost centers which primary purpose is to render service to the public at the
lowest possible cost. Cost centers are established to provide each government
agency’s accessibility to cost information and to facilitate cost monitoring at any given
period.

The following are the concepts of responsibility accounting:

a. Responsibility accounting involves accumulating and reporting data on

revenues and costs on the basis of the manager’s action who has authority to
make the day-to-day decisions about the items;
b. Evaluation of a manager’s performance is based on the matters directly under
his control;
c. Responsibility accounting can be used at every level of management in which
the following conditions exist:
1. Cost and revenues can be directly associated with the specific level of
management responsibility;
2. Costs and revenues are controllable at the level of responsibility with
which they are associated; and
3. Budget data can be developed for evaluating the manager’s effectiveness
in controlling the costs and revenues.

d. The reporting of costs and revenues under responsibility accounting differs

from budgeting in two respects:

1. A distinction is made between controllable and non-controllable costs.

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i. A cost is considered controllable at a given level of managerial

responsibility if the manager has the power to incur it within a given
period of time. It follows that (1) all costs are controllable by top
management because of the broad range of its activity; and (2) fewer
costs are controllable as one move down to lower level of managerial
responsibility because of the manager’s decreasing authority.
ii. Non-controllable costs are costs incurred indirectly and allocated to a
responsibility level.

2. Performance reports either emphasize or include only items controllable

by individual manager.

e. A responsibility reporting system involves the preparation of a report for each

level of responsibility. Responsibility reports usually compare actual costs
with flexible budget data. The reports show only controllable costs and no
distinction is made between variable and fixed costs.
f. Evaluation of a manager’s performance for cost centers is based on his ability
to meet budgeted goals for controllable costs.

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Organization) |College of Commerce| University of San Agustin

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