Introduction
resources are directly responsible to the head of
"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." (State Audit Code of the
Philippines, P.D. No. 1445, Sec. 109)
The objectives of government accounting are
a) To produce information concerning past
operations and present conditions;
b) To provide a basis for guidance for future
operations;
c) To provide for control of the acts of public
bodies and officers in the receipt, disposition
and utilization of funds and property; and
d) To report on the financial position and the
results of operations of government agencies for
the information of all persons concerned. (PD.
No. 1445, Sec. 110)
Like the accounting for business entities,
government accounting is also a process of
producing information that is useful in making
economic decisions. Government accounting,
however, places greater emphasis on the
following:
a. Sources and utilization of government funds;
and
b. Responsibility, accountability and liability of
entities entrusted with government funds and
properties.
>The sources of government funds include
receipts from taxes and other fees, borrowings,
and grants from other governments and
international bodies.
>The utilization of government funds includes
expenditures on programs, projects,
unanticipated losses from calamities and the
like.
Responsibility, Accountability and Liability
over Government Funds and Property
Responsibility over Government Funds and
Property
1. Government resources shall be utilized
efficiently and effectively in accordance with the
law. The head of a government agency is
directly responsible in implementing this policy
and is primarily responsible for government
resources entrusted to his agency. Those who
are entrusted with the possession of government
the agency.
2. All those who are exercising authority over a
government agency shall share fiscal
responsibility. (State Audit Code of the Philippines,
P.D. No. 1445)
Accountability over Government Funds and
Property
1. A government officer entrusted with the
possession of government resources is
responsible for the safekeeping therefore in
accordance with the law. Every accountable
officer shall be properly bonded. (P.D. No. 1445
and E.O.No. 292)
2. The transfer of government funds from one
officer to another shall, except as allowed by
law, be made only after the authorization of the
COA. The transfer shall be properly documented
in an invoice and receipt. (P.D. No. 1445)
Liability over Government Funds and
Property
1. The unlawful use of government resources
shall be the personal liability of the employee
found to be directly responsible therefore.
2. Every accountable officer shall be liable for all
losses resulting from the unlawful use or
negligence in the safekeeping of government
resources.
3. No accountable officer shall be relieved from
liability merely because he has acted under the
direction of a superior officer in unlawfully
utilizing the government resources entrusted to
him, unless before that act, he has notified the
superior officer, in writing, that the utilization is
illegal. The superior officer shall be primarily
liable while the accountable officer who fails to
serve the required notice shall be secondarily
liable.
4. An accountable officer shall immediately
notify the COA for any loss of government funds
from unforeseen events (force majeure) within
30 days. Failure to do so will not relieve the
officer of liability. (P.D. No. 1445)
Main concept:
Government resources must be utilized
efficiently and effectively in accordance with the
law. Government officials are responsible in
implementing this policy, are accountable for the
government resources in their custody, and are
liable for any loss.
Accounting responsibility
The following offices are charged with
government accounting responsibility:
a. Commission on Audit (COA)
b. Department of Budget and Management
(DBM)
c. Bureau of Treasury (BTT)
d. Government agencies
Commission on Audit (COA)
The Commission on Audit (COA):
a. Has the exclusive authority to promulgate
accounting and auditing rules and regulations.
b. Keeps the general accounts of the
government, supporting vouchers, and other
documents.
c. Submits financial reports to the President and
Congress.
Department of Budget and Management
(DBM)
The Department of Budget and Management
(DBM) is responsible for the formulation and
implementation of the national budget with the
goal of attaining the nation's socio-economic
objectives.
Bureau of Treasury (BTr)
The Bureau of Treasury (BTr) functions under
the Department of Finance and is the cash
custodian of the government. The BTr is
authorized to:
a. Receive and keep national funds and manage
and control the disbursements thereof; and
b. Maintain accounts of financial transactions of
all national government offices, agencies and
instrumentalities.
Government Agencies
Government agency refers to any department,
bureau or office of the national government, or
any of its branches and instrumentalities, or any
political subdivision, as well as any government
owned or controlled corporation (GOCC),
including its subsidiaries, or other self-governing
board or commission of the government. (P.D.
No. 1445)
The government agencies are
responsible in directly implementing the projects
of, and performing the functions delegated by,
the government.
Each agency (entity) shall maintain
accounting books and budget registries which
are reconciled with the cash records of the BTr
and the budget records of the COA and DBM.
Government agencies are required by
law to have accounting
units/divisions/departments.
Even a barangay (the smallest administrative division
in the Philippines) is required to have an accounting
unit, eg, the barangay's "bookkeeper."
Entity - refers to a government agency,
department or operating/field unit.
Financial Reporting - is the process of
preparation, presentation and submission of
general purpose financial statements and other
reports. The objective of financial reporting is to
provide information about the entity that is useful
to users for accountability purposes and
decision-making.
The GAM for NGAs
An "old" government accounting system had
been used for about five decades before it was
replaced by the New Government Accounting
System (NGAS) in 2002. However, on January
1, 2016, the NGAS was replaced by the
Government Accounting Manual for National
Government Agencies (GAM for NGAs).
The GAM for NGAs was promulgated
primarily to harmonize the government
accounting standards with international
accounting standards, particularly the
International Public Sector Accounting
Standards (IPSAS). The IPSASS are based on
the International Financial Reporting Standards
(IFRS).
The Philippine Government has adopted the
IPSAS through the Philippine Public Sector
Accounting Standards (PPSAS). The provisions
of the PPSAS are incorporated in the GAM for
NGAS.
Since the PPSAS are based on the IPSAS,
which are in turn based on the IFRSS/PFRSs,
most of the concepts that we will be learning in
this book would be very familiar to you.
Legal basis
The GAM for NGAs is promulgated by the
Commission on Audit (COA) based on the
authority conferred to it by the Philippine
Constitution:
Relevant provision of law:
"The Commission (on Audit) 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." (Art. IX-D. Sec. 212). Philippine
Constitution)
Coverage
The GAM for NGAs provides the basic concepts
to be used in:
a. Preparing general purpose financial
statements in accordance with the Philippine
Public Sector Accounting Standards (PPSAS)
and other financial reports as may be required
by laws, rules and regulations; and
b. Reporting of budget, revenue and expenditure
in accordance with laws, rules and regulations.
Objective
The GAM for NGAs aims to update the
following:
a. Standards, policies, guidelines and
procedures in accounting for government funds
and property;
b. Coding structure and accounts; and
c. Accounting books, registries, records, forms,
reports and financial statements.
(GAM for NGAS: Chapter 1, Sec. 3)
Basic Accounting and Budget reporting
Principles
The financial records and reports of government
entities shall comply with the following:
1. Philippine Public Sector Accounting
Standards (PPSAS) and relevant laws, rules and
regulations;
2. Accrual basis of accounting:
Under the accrual basis of accounting,
transactions are recognized when they occur
(and not only when cash is received or paid).
Therefore, transactions are recognized in the
periods to which they relate.
3. Budget basis for presentation of budget
information in the financial statements;
4. Revised Chart of Accounts prescribed by
COA;
5. Double entry bookkeeping:
6. Financial statements based on accounting
and budgetary records; and
7. Fund cluster accounting.
The books of accounts are maintained
by fund cluster (ie., according to the types of
funds being accounted for) as follows:
Code/Fund clusters
01/Regular Agency Fund
02/Foreign Assisted Projects Fund
03/Special Account-Locally Funded/Domestic
Grants Fund
04/Special Account-Foreign Assisted/Foreign
Grants Fund
05/Internally Generated Funds
06/Business Related Funds
07/Trust Receipts
For example, separate accounting books
(Journals and Ledgers) and budget registries
shall be maintained for Regular Agency Fund.
Another separate accounting books and budget
registries shall be maintained for Foreign
Assisted Projects Funds, and so on.
Qualitative Characteristics of Financial
Reporting
Information reported shall meet the qualitative
characteristics. Qualitative characteristics are
the attributes that make information useful to
users.
a. Understandability - information is
understandable when users can reasonably be
expected to comprehend its meaning.
Accordingly, users are assumed to have
i. reasonable knowledge of the entity's activities;
and
ii. willingness to study the information.
Information about complex matters is
not excluded simply because it may be too
difficult for certain users to understand.
b. Relevance - Information is relevant if it can
assist users in - evaluating past, present or
future events or in confirming or correcting past
evaluations. In order to be relevant, information
must also be timely.
c. Materiality - Materiality affects the relevance
of information. Information is material if its
omission or misstatement could influence the
decisions of users. Materiality depends on the
nature or size of the item or error, judged in the
particular circumstances of its omission or
misstatement.
d. Timeliness - Information loses its relevance if
there is undue delay in its reporting. The
complexity of an entity's operations is not a
sufficient reason for failing to report on a timely
basis.
e. Reliability - reliable information is free from
material error and bias, and can be depended
on by users to represent faithfully that which it
purports to represent or could reasonably be
expected to represent.
Trade-offs between Relevance and Reliability
To provide timely information, it may be
necessary to report before all aspects of a
transaction are known, thus impairing reliability.
Conversely, if reporting is delayed until all
aspects are known, the information may be
highly reliable but of little use to users who need
to make decisions in the interim. To achieve a
balance between relevance and reliability, the
overriding consideration is how users' needs are
best satisfied.
f. Faithful representation - For information to
represent faithfully transactions and other
events, it should be presented in accordance
with the substance of the transactions and other
events, and not merely their legal form.
g. Substance over form - The substance of
transactions or other events is not always
consistent with their legal form. If information is
to represent faithfully the transactions and other
events that it purports to represent, it is
necessary that they be accounted for and
presented in accordance with their substance
and economic reality, and not merely their legal
form.
h. Neutrality - Information is neutral if it is free
from bias. Information shall not be selected or
presented in a manner that is designed to
influence the user's decision in order to achieve
a predetermined outcome.
i Prudence- is the exercise of a degree of
caution when making estimates under conditions
of uncertainty, such that assets or revenue are
not overstated and liabilities or expenses are not
understated. However, prudence does not allow
the creation of hidden reserves or excessive
provisions, the deliberate understatement of
assets or revenue, or the deliberate
overstatement of liabilities or expenses, because
the financial statements would not be neutral
and, therefore, not reliable.
J. Completeness - Information should be
complete within the bounds of materiality and
cost.
k. Comparability - Information is comparable
when users are able to identify similarities and
differences between that information and
information in other reports. Comparability
applies to the comparison of financial
statements of different entities and comparison
of the financial statements of the same entity
over different periods. Comparability requires
that users must be informed of the entity's
policies, changes to those policies, and the
effects of those changes and that financial
statements show corresponding information for
preceding periods.
(PPSAS 1/GAM for NGAK, Chapter 19, Sec. 6)
Components of General Purpose Financial
Statements
General Purpose Financial Statements are
those intended to meet the needs of users who
are not in a position to demand reports tailored
to meet their particular information needs.
(PPSAS 13) The complete set of general
purpose financial statements consists of:
a. Statement of Financial Position;
b. Statement of Financial Performance;
c. Statement of Changes in Net Assets/Equity;
d. Statement of Cash Flows;
e. Statement of Comparison of Budget and
Actual Amounts; and
f. Notes to the Financial Statements, comprising
a summary of significant accounting policies and
other explanatory notes.
Notice that the financial statements
listed above are similar to those of a business
entity. However, the financial statement unique
to a government entity is the "Statement of
Comparison of Budget and Actual Amounts"
(letter 'e'). We will elaborate on this later.
Elements of the financial statements
ASSETS
Assets - are resources controlled by an entity as
a result of past events, and from which future
economic benefits or service potential are
expected to flow to the entity.
The key features of an asset are:
a. The benefits must be controlled by the entity;
b. The benefits must have arisen from a past
event; and
c. Future economic benefits or service potential
must be expected to flow to the entity.
> Control means the ability to benefit from an
asset or prevent others from benefiting from that
asset.
Possession or ownership normally evidences
control. However, this is not always true. For
example, under a finance lease, the lessor
retains legal ownership over the leased asset
but control is transferred to the lessee.
> Benefit means the ability to use, exchange,
lease, sell, or use the asset to settle liabilities, or
distribute it to owners.
Indicators of future economic benefits:
a. distinguishable from the source of the benefit
i.e. the particular physical resource or legal right;
b. does not imply that assets necessarily
generate cash flows, the benefits can also be in
the form of 'service potential';
c. in determining whether a resource or right
needs to be accounted for as an asset, the
potential to contribute to the objectives of the
entity should be the prime consideration;
d. capacity to contribute to
activities/objectives/programs; and e. the fact
that an asset cannot be sold does not preclude it
from providing future economic benefits.
> Past event - A transaction or event giving rise
to control of future economic benefits must have
occurred. A mere intention to acquire assets in
the future does not result to the recognition of
assets in the present.
Recognition of an Asset
An asset is recognized when:
a. it is probable that the future economic benefits
will flow to the entity, and
b. the asset has a cost or value (e.g., fair value)
that can be measured reliably.
Probable inflow of future economic benefits:
a. The chance of benefits arising is more likely
rather than less likely (e.g. greater than 50%).
b. Benefits can be expected on the basis of
available evidence or logic.
Reliable measurement:
a. Valuation method is free from material error or
bias.
b. Faithful representation of the asset's benefits.
c. Reliable information will, without bias or
undue error, faithfully represent those
transactions and events.
LIABILITIES
Liabilities - are present obligations of the entity
arising from par events, the settlement of which
is expected to result in an outflow from the entity
of resources embodying economic benefits or
service potential.
EQUITY
Net assets/equity - is the residual interest in the
assets of the entity after deducting all its
liabilities.
REVENUE
Revenue - is the gross inflow of economic
benefits or service potential during the reporting
period when those inflows result in an increase
in net assets/equity, other than increases
relating to contributions from owners.
> Contributions from owners - are future
economic benefits that have been contributed to
the entity by external parties which do not result
to liabilities of the entity and for which the
contributor obtains interest in the net assets of
the entity (ie., right to dividends and right to net
assets in cases of liquidation).
Revenue funds - comprise all funds derived from
the income of any agency of the government
and available for appropriation or expenditure in
accordance with law. (Section 3, P.D. No. 1445)
EXPENSES
Expenses - are decreases in economic benefits
or service potential during the reporting period in
the form of outflows or consumption of assets or
incurrence of liabilities that result in decreases in
net assets/equity, other than those relating to
distributions to owners.
> Distributions to owners - are future economic
benefits distributed by the entity to its owners,
either as a return on investment or as a return of
investment.
Chapter 1 Summary: 8. A unique financial reporting requirement of
government entities is the use of fund cluster
- Aside from providing information that is useful accounting. Under fund cluster accounting, separate
in making economic decisions, government books and reports are prepared for each type of fund
held by a government entity. TRUE
accounting also aims to demonstrate the 9. The GAM for NGAs is promulgated primarily to
accountability of the entity for the resources harmonize government accounting standards with the
entrusted to it. U.S. GAAP. FALSE (international accounting
- The following are charged with government standards, particularly the International Public
accounting responsibility: COA, DBM, BTr and Sector Accounting Standards (IPSAS)
other government agencies. 10. An item is recognized as an asset if it meets both
- The GAM for NGAs provides the principles and the "probable future economic benefits" and "reliable
procedures to be applied in the financial measurement criteria, regardless of whether the item
reporting of government entities. It was is a resource controlled arising from past events.
FALSE
promulgated by the COA primarily to harmonize
the government accounting standards with
international standards.
- Basic principles: Compliance with PPSAS and
other relevant laws, Accrual basis, Budget basis,
Revised chart of accounts, Double entry,
Financial statements based on accounting and
budgetary records, and Fund cluster accounting.
- Qualitative characteristics: Understandability,
Relevance, Materiality, Timeliness, Reliability,
Faithful representation, Substance over form,
Neutrality, Prudence, Completeness, and
Comparability.
- An item is recognized as asset if all of the
following criteria are met:
1. the item meets the definition of an asset;
2. probable inflow of future economic benefits;
and
3. reliable measurement of cost or other value
(e.g., fair value).

PROBLEM 1-1: TRUE OR FALSE

1. Compared to the accounting for business entities,
government accounting places greater emphasis on
the sources and utilization of government funds and
the management's stewardship over government
resources. TRUE
2. Taxes are the main source of funds of the
government. TRUE
3. Other sources of funds of the government include
fees, borrowings, and grants from other governments
and international bodies. TRUE
4. Currently, the financial reporting of government
entities is based on NGAS. FALSE (GAM for NGAs)
5. The principles used in the financial reporting of
government entities are very unique that only a very
few of these principles are similar to those that are
applied to business entities. FALSE
6. The principles in the GAM for NGAs are similar to
the principles in the PFRSs. TRUE
7. The GAM for NGAs is promulgated by the
Philippine Congress under the authority conferred to it
under the Philippine Constitution. FALSE