PHILIPPINE PUBLIC SECTOR

ACCOUNTING STANDARDS
in the

LOCAL GOVERNMENTS
 SUMMARY

Basis : 2012 International Public Sector Accounting
Standards (IPSAS)
Total no. of Standards - 32
No. of Standards Adopted - 25 Standards
Not Adopted of for Later Adoption - 7 Standards
 CONCEPT

Philippine Application Guidance (PAG) – are specific
provisions which supplies the Philippine
application of particular IPSAS paragraphs

PPSAS = IPSAS + PAG

Accrual Accounting – basis of accounting under which

transactions and other events are recognized
when they occur.
 APPLICATION

 General Purpose Financial Statements applies
PPSAS
 Special Purpose Financial Statements follows the
needs of the requiring agency
Philippine Public Sector
Accounting Standards

Philippine Public Sector
Accounting Standards

Philippine Public Sector
Accounting Standards

 PPSAS on Financial
Statements

 PPSAS 1 – Financial Statements Presentation
 PPSAS 2 - Cash Flow Statement
 PPSAS 6 - Consolidated and Separate Financial
Statements
 PPSAS 24 – Presentation of Budget Information in
Financial Statements
 PPSAS on Financial
Statements

 Provides the fundamental principles underlying the
preparation of the financial statements, including
going concern assumption, consistency of
presentation, accrual accounting, aggregation and
materiality.
 PPSAS 1-Presentation of
Financial Statements

 A complete set of financial statements comprises:
 – Statement of financial position;
 – Statement of financial performance;
 – Statement of changes in net assets/equity;
 – Cash flow statement;
 – When the entity makes it approved budget
publicly available, a comparison of budget and
accrual amounts;
 – Notes, comprising a summary of significant
accounting policies and other explanatory notes.
 PPSAS 1-Presentation of
Financial Statements

 An entity whose financial statements comply with
IPSASs shall make an explicit and unreserved
statement of such compliance in the notes. Financial
statements shall not be described as complying with
IPSASs unless they comply with all the requirements
of IPSASs.
 PPSAS 1-Presentation of
Financial Statements

 Current/non-current distinction for assets and
liabilities is normally required. In general,
subsequent events are not considered in classifying
items as current or non-current. An entity shall
disclose for each assets and liability item that
combines amounts expected to be recovered or
settled both before and after 12 months from the
reporting date, the amount to be recovered or settled
after more than 12 months.
 PPSAS 1-Presentation of
Financial Statements

Specifies minimum disclosure requirements for the notes. These shall
include information about:
 – accounting policies followed;
 – the judgments that management has made in the process of
applying the entity’s accounting policies that have the most
significant effect on the amounts recognized in the financial
statements;
 – the key assumptions concerning the future, and other key
sources of estimation uncertainty, that have a significant risk of
causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year;
 – the domicile and legal form of the entity;
 – a description of the nature of the entity’s operations;
 – a reference to the relevant legislation; and
PPSAS 2 –Cash Flow Statements

 require the presentation of information about
historical changes in a public sector entity’s cash and
cash equivalents by means of a cash flow statement
that classifies cash flows during the period according
to operating, investing and financing activities
PPSAS 2 –Cash Flow Statements

 A cash flow statement must analyze changes in cash
and cash equivalents during a period, classified by
operating, investing and financing activities

 Cash equivalents include investments that are short

term (less than three months from date of
acquisition), readily convertible to known amounts
of cash, and subject to an insignificant risk of
changes in value. Generally they exclude equity
investments.
PPSAS 2 –Cash Flow Statements

 Cash flows for operating activities are reported using
either the direct

 Public sector entities reporting cash flows from

operating activities using the direct method are
encouraged to provide a reconciliation of the
surplus/deficit from ordinary activities with the net
cash flow from operating activities.
PPSAS 2 –Cash Flow Statements

 The exchange rate used for translation of cash flows
arising from transactions denominated in a foreign
currency shall be the rate in effect at the date of the
cash flows.

 Investing and financing transactions that do not

require the use of cash shall be excluded from the
cash flow statement, but they shall be separately
disclosed.
PPSAS 5 – Consolidated and
Separate Financial Statements

Prescribe requirements for preparing and presenting
consolidated financial statements for an economic
entity under the accrual basis of accounting

 Consolidated financial statements are financial

statements of an economic entity (controlling entity
and controlled entities combined) presented as those
of a single entity.
PPSAS 5 – Consolidated and
Separate Financial Statements

 A controlled entity is an entity controlled by another
entity, known as the controlling entity. Control is the
power to govern the operating and financial policies
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Objective:
To ensure that public sector entities discharge their
accountability obligations and enhance the
transparency of their financial statements by
demonstrating compliance with the approved
budget for which they are held publicly accountable
and, where the budget and the financial statements
are prepared on the same basis, their financial
performance in achieving the budgeted results.
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Objective:
To ensure that public sector entities discharge their
accountability obligations and enhance the
transparency of their financial statements by
demonstrating compliance with the approved
budget for which they are held publicly accountable
and, where the budget and the financial statements
are prepared on the same basis, their financial
performance in achieving the budgeted results.
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Original budget – initial approved budget for the
period
Final budget – is the original budget adjusted for the
changes
Actual – the amounts that result from the execution of
the budget
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Actual Revenue – actual collection
Actual Expenditures – actual incurred obligation
(adjusted to actual incurrence)
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Aggregation –
Revenue
A. Local Sources
B. External Sources
Appropriation
A. Current Appropriation
By Function
By Allotment Class
Special Purpose Funds
B. Continuing Appropriation
By Function
 PPSAS 24–Presentation of Budget
Information in Financial Statements

Reconciliation

Statement of Comparison of Budget and Actual Amount

A. Total Actual Revenue
B. Total Actual Obligation
Statement of Financial Performance
A. Total Revenue
B. Expenses
- Personal Services
- MOOE
- Financial Expenses
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

Prescribe the criteria for selecting and changing
accounting policies, together with the accounting
treatment and disclosure of changes in accounting
policies, changes in accounting estimates, and
corrections of errors.
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

In the absence of an IPSAS that specifically applies to a
transaction, other event or condition, management
shall use judgement in developing and applying an
accounting policy that results in information that is:
 Relevant to the decision-making needs of users, and
 Reliable, in that the financial statements:
 Represent faithfully the financial position, financial
performance and cash flows of the entity;
 Reflect the economic substance of transactions, other
events and conditions and not merely the legal form;
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 Reliable, in that the financial statements:
 Are neutral, i.e., free from bias;
 Are prudent; and
 Are complete in all material aspects
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 prescribes a hierarchy for choosing accounting policies:
 IPSASs, taking into account any relevant implementation
guidance;
 in the absence of a directly applicable IPSAS, look at the
requirements and guidance in IPSASs dealing with similar
and related issues; and the definitions, recognition and
measurement criteria for assets, liabilities, revenue and
expenses described in other IPSASs; and
 management may also consider the most recent
pronouncements of other standard-setting bodies, and
accepted public and private sector practices.
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 Apply accounting policies consistently to similar
transactions.
 Make a change in accounting policy only if it is
required by an IPSAS, or it results in reliable and
more relevant information.
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 If a change in accounting policy is required by an
IPSAS, follow that pronouncement’s transition
requirements. If none are specified, or if the change
is voluntary, apply the new accounting policy
retrospectively by restating prior periods. If
restatement is impracticable, include the cumulative
effect of the change in net assets/equity. If the
cumulative effect cannot be determined, apply the
new policy prospectively.
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 Changes in accounting estimates (for example,
change in useful life of an asset) are accounted for in
the current period, or the current and future periods
(no restatement).
 In the situation a distinction between a change in
accounting policy and a change in accounting
estimate is unclear, the change is treated as a change
in an accounting estimate.
PPSAS 3 –Accounting Policies,
Changes in Accounting Estimates
and Errors

 All material prior period errors shall be corrected
retrospectively in the first set of financial statements
authorized for issue after their discovery, by
restating comparative prior period amounts or, if the
error occurred before the earliest period presented,
by restating the opening statement of financial
position.
PPSAS 4 –The Effects of Changes in
Foreign Exchange Rates

 prescribe the accounting treatment for an entity’s
foreign currency transactions and foreign operations
PPSAS 4 –The Effects of Changes in
Foreign Exchange Rates

 Determine the reporting entity’s functional currency
– the currency of the primary economic environment
in which the entity operates.
PPSAS 4 –The Effects of Changes in
Foreign Exchange Rates

 translate all foreign currency items into the
functional currency:
 – at date of transaction, record using the spot exchange
rate for initial recognition and measurement;
 – at subsequent reporting dates:
 use closing rate for monetary items;
 use transaction-date exchange rates for non-monetary
items carried at historical cost; and
 use valuation-date exchange rates for non-monetary
items that are carried at fair value;
PPSAS 5 - Borrowing Costs

 prescribe the accounting treatment for borrowing
costs

 Borrowing costs include interest, amortization of

discounts or premiums on borrowings, and
amortization of ancillary costs incurred in the
arrangement of borrowings.
PPSAS 5 - Borrowing Costs

 Two accounting treatments
 expense model: charge all borrowing costs to expenses
in the period when they are incurred
 capitalization model: capitalize borrowing costs which
are directly attributable to the acquisition or
construction of a qualifying asset
 A qualifying asset is an asset which requires a
substantial period of time to make it ready for its
intended use or sale.
PPSAS 8 – Interests in Joint Ventures

 prescribe the accounting treatment required for
interests in joint ventures, regardless of the
structures or legal forms of the joint venture
activities.
PPSAS 8 – Interests in Joint Ventures

 Jointly controlled operations
 Jointly controlled assets
 Jointly controlled entities:
 proportionate consolidation
 the equity method
PPSAS 9 – Revenue from Exchange
Transactions

 prescribe the accounting treatment for revenue
arising from exchange transactions and events

 applies to revenue arising from the following

exchange transactions and events:
 The rendering of services;
 The sale of goods, and
 The use of others of entity assets yielding interest,
royalties and dividends.
PPSAS 9 – Revenue from Exchange
Transactions

 Revenue shall be measured at the fair value of the
consideration received or receivable

 applies to revenue arising from the following

exchange transactions and events:
 The rendering of services;
 The sale of goods, and
 The use of others of entity assets yielding interest,
royalties and dividends.
 PPSAS 9 – Revenue from Exchange
Transactions - recognition

 Sale of goods – when significant risks and rewards
has been transferred
 Rendering of services – stage of completion
 Interest – on a time proportion basis
 Royalties – earned in accordance with the substance
of the agreement
 Dividends or thei- entity’s right to receive payment
is established
 PPSAS 12 - Inventories

 Measured at lower of cost and net realizable
value
 If for distribution at no charge or nominal
charge or use in the production process it shall
be measured at the lower of cost and current
replacement cost
 PPSAS 12 - Inventories

Initial recognition is at cost
Costs include:
 purchase cost
 Conversion cost
 Cost to bring the inventory to present
location/condition
 PPSAS 12 - Inventories

 Cost shall be determined through weighted average
method.
 Upon sale or distribution the carrying amount shall
be recognized as expense.
 Write-down to net realizable value shall be
recognized as expense in the period the write-down
occurs.
 PPSAS 13 - Leases

 Finance lease – transfers substantially all risks and
rewards incidental to ownership of an asset
 Operating lease – all other leases
 PPSAS 13 - Leases

 Lessee – is the person/entity who leases something
from a lessor
 Lessor – is the owner of the property or produce
being leased
 PPSAS 13 - Leases

 Operating lease
 Leasee’s books
 payments recognized as expense
 Leasor’s books
 assets recognized in the books according to nature of
asset
Receipts recognized as revenue on a straight line basis over
the lease term
 PPSAS 13 - Leases

 Finance Lease
 Lessee’s books
 Recognize the asset and the liability
 Lease payment apportioned between interest and reduction
of liability
 Applies depreciation policy on the asset
 Lessor’s books
 Recognize equivalent to the net investment in the lease
 Recognize finance revenue based on the patter reflecting a
constant periodic rate of return
 PPSAS 14 – Events after the
Reporting Date

 Events after the reporting date are those events, both
favourable and unfavourable that occur between the
reporting date and the date when the FS are
authorized for issue.

 Adjusting events – those that provide evidence that

existed as of reporting date
 Non-adjusting events –those that are indicative of
conditions that arose after the reporting date
 PPSAS 14 – Events after the
Reporting Date

 Adjusting events – adjust financial those that
provide evidence that existed as of reporting date
 Non-adjusting events –do not adjust the financial
statements that are indicative of conditions that
arose after the reporting date
 PPSAS 16 – Investment
Property

 Land or building held (owner/under finance lease)
to earn rental or for capital appreciation or other
both

 Asset, initially recognized at cost and subsequently

measured following the cost model
PPSAS 17–Property, Plant and
Equipment

 PPE recognized as assets if:
 Probable that the future economic benefits or service
potential associated with the item will flow to the
entity
 Cost or fair value of the item can be measured reliably
PPSAS 17–Property, Plant and
Equipment

 Examples:
 Land
 Buildings
 Equipment
 Public Infrastructure
PPSAS 17–Property, Plant and
Equipment

 Initially recognized at cost and subsequently
measured following the cost model.
 Depreciated following the straight line method of
depreciation
 Residual value at 5% of the cost.
 Subject to impairment loss
 Exchanges of PPE shall be measured at fair value
PPSAS 17–Property, Plant and
Equipment

 Derecognized
 Disposal
 When no economic benefit or service potential is
expected from its use or disposal
 PPSAS 19 - Provisions, Contingent
Liabilities and Contingent Assets

 Provision – is a liability of uncertain timing or amount
 Contingent liability –
 possible obligation that arises from past events, and whose
existence will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not
within the control of the entity
 A present obligation that arises from past events but is not
recognized because
 It is not probable that an outflow of resources will be
required
 The amount of the obligation cannot be measured reliably
 PPSAS 19 - Provisions, Contingent
Liabilities and Contingent Assets

 Contingent asset –possible asset that arises from past
events, and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more
uncertain future events not within the control of the
entity
 PPSAS 20 – Related Party
Disclosures

 Related parties are that control or have significant
influence over the reporting entity and parties that
are controlled or significantly influenced by the
reporting entity:
 Controlling entities
 Controlled entities
 Key management personnel
 PPSAS 20 – Related Party
Disclosures

 Disclosures requirements:
 Relationships involving control even if there have no
transactions in between
 Related party transactions
 Management compensation (including an analysis by
type of compensation)
 PPSAS 21–Impairment of Non-cash
Generating Assets

 Impairment Loss – is the amount by which the
carrying amount of an asset exceeds its recoverable
service amount.
 Recoverable service amount is the higher of a non-
cash general asset’s fair value less cost to sell and its
value in use.
 Value in use is the present value of the assets
remaining service potential
 Present value of the service potential is determined
using the depreciated replacement cost
 PPSAS 21–Impairment of Non-cash
Generating Assets

 Replacement cost is the cost to replace the asset’s
gross service potential. The cost is depreciated to
reflect the assets in its used condition.
 Depreciated replacement cost is measured as the
reproduction or replacement of the asset, whichever
is lower, less accumulated depreciation calculated
on the basis of such cost to reflect the consumed or
expired service potential of the asset.
 PPSAS 23–Revenue from Non-
Exchange Transactions

 Non-exchange transactions – an entity receives value
from another entity without directly giving
approximately equal value in exchange or gives
value to another entity without directly receiving
approximately equal value in exchange
 PPSAS 23–Revenue from Non-
Exchange Transactions

 Non-exchange transactions revenues:
 Taxes
 Transfers

 Taxes are economic benefits or service potential

compulsorily paid or payable to public sector entities
in accordance with laws and regulations.
 PPSAS 23–Revenue from Non-
Exchange Transactions

 Transfers are inflows of future economic benefits or
service potential from non-exchange transactions
 Stipulations – are terms in laws or regulations or binding
arrangement imposed upon the use of transferred asset
 Condition requires that the economic benefit/service
potential is required to be consumed as specified other
these shall be returned to the transferor
 Restriction requires the consumption of the
economic/service potential of the asset as specified but do
not require the return if not consumed as specified
 PPSAS 23–Revenue from Non-
Exchange Transactions

Recognition as Revenue
 Taxes are recognized as revenue when the taxable
event occurs.
 Transfers with condition are recognized as revenue
upon compliance of the condition
 Transfers with restrictions recognized as revenue
upon receipt
 PPSAS 26–Impairment of Cash
Generating Assets

Cash generating unit is the smallest identifiable group
of assets held with the primary objective of
generating a commercial return that generates cash
inflows from continuing use that are largely
independent of the cash inflows from other assets or
groups of assets.
 PPSAS 26–Impairment of Cash
Generating Assets

Recoverable amount is the higher of an asset’s or a
cash-generating unit’s fair value less costs to sell and
its value in use.

Value in use of a cash-generating asset is the present

value of the estimated future cash flows expected to
be derived from the continuing use of an asset and
from its disposal at the end of its useful life
 MEASURING
RECOVERABLE AMOUNT

 Higher of Cash Generating Asset’s

Fair Value
and
Less Value in Use
Cost to Sell

Market price less PV of estimated

costs of disposal future cash flows
 COMPUTATION OF
IMPAIRMENT LOSS
Non-Cash Generating Asset
 Cash Generating Asset

IL = CA-RSA IL = CA-RA
RSA = higher of Fair RA = higher of Fair
Value less Cost To Value less Cost To
Sell and Value in Sell and Value in
Use Use

72
 PPSAS 27 - Agriculture

Prescribe the accounting treatment and disclosures for
agricultural activity.

Agricultural activity is the management by an entity of

the transformation of living animals or plants for sale,
or for distribution at no charge, or for nominal charge
or for conversion into agricultural produce or into
additional biological assets.
 PPSAS 27 - Agriculture

Measurement : Fair value less cost to sell.

At reporting date the biological assets are measured at FV

less cost to sell. Any change is reported in surplus or deficit.

Biological transformation –
1. growth
2. degeneration
3. procreation
 PPSAS 28, 29 and 30 –
Financial Instruments

An equity instrument is any contract that evidences a
residual interest in the assets of an entity after
deducting all of its liabilities.

Liability Instrument or debt instrument is a paper or

electronic obligation that enables the issuing party to
raise funds by promising to repay a lender in
accordance with terms of a contract.
 PPSAS 28, 29 and 30 –
Financial Instruments

Categories of financial instrument
 FI at Fair Value thru surplus or deficit
 Held to maturity
 Loans and Receivable
 Available for Sale
 PPSAS 28, 29 and 30 –
Financial Instruments

Recognition:
Initial recognition at its fair market value
Subsequent measurement:
1. Loans and receivable amortized cost using
2. Held to maturity effective interest method
3. Investments that do not have quoted market price -
cost
 PPSAS 28, 29 and 30 –
Financial Instruments

Presentation:
Investments:
 Cash Equivalents
 Current Assets
 Non- Current Assets

Liabilities

 Current Liabilities
 Non-current liabilites
 PPSAS 28, 29 and 30 –
Financial Instruments

Disclosure:
 Statement of Financial Condition
1. Categories of financial assets and liabilities
2. Reclassifications
3. Derecognition
 Statement of Financial Performance
1. Revenue
2. Expense
3. Gains or Losses
 PPSAS 31- Intangible
Assets

Intangible assets – is an identifiable non-monetary asset
without physical substance
Example: computer software, patents, copyrights

An intangible asset, whether purchased or self-created, is

recognised if:
 – It is probable that the future economic benefits or
service potential that are attributable to the asset will flow
to the entity
 – The cost or fair value of the asset can be measured
reliably
 PPSAS 31- Intangible
Assets

Acquisition
a. Separate acquisition initially recognized at cost.
b. In-house developed
a. Recognized as expense at its research phase
b. At development phase recognized as asset if the
entity can demonstrate all of the following:
a. Technical feasibility of completing the asset
b. Intention to complete the asset
c. Ability to use or sell the asset
 PPSAS 31- Intangible
Assets

a. At development phase recognized as asset if the
entity can demonstrate all of the following:
c. Existence of market for the output
d. Availability of resources to complete and to use or sell
e. Ability to measure reliably the expenditure attributable
to the intangible asset
 PPSAS 32-Service Concession
Arrangements Grantor

Service concession arrangement – is a binding
arrangement between a grantor and an operator in
which:
a. The operator uses the service concession asset to
provide a public service on behalf of a grantor for a
specified period of time;
b. The operator is compensated for its services over the
period of the service concession arrangement.
 PPSAS 32-Service Concession
Arrangements Grantor

Service concession asset – is an asset used to provide
public service in a service concession arrangement that:
1. Is provided by the operator
1. The operator constructs, develops, or acquires from a
third party; or
2. Is an existing asst of the operator
2. Is provided by the grantor
1. Is an existing asset of the grantor
2. Is an upgrade to an existing asset of the grantor
 PPSAS 32-Service Concession
Arrangements Grantor

The grantor recognize an asset used in the service
concession arrangement for its entire useful life and
recognize the liability.
The liability shall be reduced according to the economic
substance of the service concession arrangement.
 PPSAS 32-Service Concession
Arrangements Grantor

The service concession assets shall be classified and
presented under the PPE.