Philippine Government Accounting

National Government of the Philippines

• The government possesses the largest financial organization regarding assets, liabilities, capital, income sources, and expenditures.
• It serves the nation's social, political, and economic needs through numerous departments, commissions, and offices.
• These entities carry out functions such as social welfare promotion, national wealth development, state defense, and justice promotion.

Definition of Government Accounting

• Government Accounting encompasses analyzing, recording, classifying, summarizing, and communicating transactions involving government funds and property, as defined in Section 109 of PD 1445.

Purposes of Government Accounting

• Establishes accountability over receipts, property, and expenditures.
• Generates information for continuous review of government programs.
• Consolidates data gathering activities for fiscal management decisions.
• Involves bookkeeping, posting, classifying similar items, and analyzing financial reports to determine accuracy, adequacy, efficiency, and effectiveness.

Users of Government Accounting Information

• The general public or citizenry.
• Governing and oversight bodies like the President, Cabinet, COA, and Legislative Body.
• Managers/administrators carry out government policies and daily affairs.
• Students of public finance.
• Resource providers like donors, grantors, lenders, suppliers, and employees.

Types of Governmental Organizational Units

• National Government Units (NGAs) include departments, bureaus, offices, boards, commissions, state colleges, and universities.
• Local Government Units (LGUs) are political subdivisions with control over local affairs, like provinces, cities, municipalities, and barangays.
• Government-Owned or Controlled Corporations (GOCCs) are agencies organized by law for public needs, owned by the government directly or through its instrumentalities.

Functions of Government Accounting

• Provides quantitative, primarily financial, information about government operations at the national and local levels.
• Used by the administration for making decisions for effective public service.

Objectives of Government Accounting (PD 1445)

• Produce information about past operations and present conditions.
• Provide a basis for guidance in future operations.
• Control the acts of public bodies and officers in their handling of funds and properties.
• Report on the financial position and operational results of government agencies for public information.

Distinctions Between Government and Commercial Enterprises:

• Ownership: Private enterprises are owned by stockholders, partners, or owners, while the government represents the entire community.
• Purpose: Private enterprises aim to make profits, while the government aims to render service at the lowest cost to its citizens.
• Organization: Private enterprises have a hierarchy from stockholders to a board of directors and staff, while government authority lies in Congress.
• Financing: Private enterprises rely on voluntary contributions from members or stockholders, while the government has the right to demand taxes.
• Income: Private enterprises generate returns in the form of profits, while the government levies taxes to support the annual cost of government.

Distinction Between Government and Commercial Accounting

• Objective: Commercial Accounting (CA) aims at income measurements, while Government Accounting (GA) focuses on controlling government funds and providing data for decision-making.
• Basis of Accounting: CA uses either cash or accrual methods, while GA uses the modified accrual basis.
• Preparation of Periodic Reports: CA prepares financial statements such as the statement of financial position, statement of cash flows, and notes to financial statements, while GA uses financial statements following PPSAS like the statement of changes in net assets/equity.

Budget and Financial Accountability Reports (BFRS)

• BFRS prescribed under COA-DBM Joint Circular # 2014-1, are submitted to the Government Accounting Sector (GAS), COA, and the Agency's COA Auditor.

Financial Accountability Reports (FARs)

• Includes Statement of Appropriations, Allotments, Obligations, Disbursements, and Balances (SAAODB).
• Includes Statement of Approved Budget, Utilizations, Disbursements, and Balances (SABUDB).
• Includes Aging of Due and Demandable Obligations (ADDO).
• Includes Monthly Report of Disbursements.
• Includes Quarterly Report of Revenue and other Receipts.

Purposes of Financial Accountability Reports (FARs)

• Enables the GAS to conduct analysis/review of submitted FARs.
• Facilitates COA's monitoring of agencies' compliance with FARs.
• Provides central database for monitoring agencies’ appropriations, allotments, obligations, and disbursements.
• Facilitates consolidation of financial/budget information for preparing the Annual Report on Appropriations, Allotment, Obligations and Disbursements (ARAAOD).
• Offers e-learning modules/online video tutorials for system use.

Control Mechanism

• Commercial Accounting has none
• Government Accounting uses fund accounting, obligation accounting, and CDC accounting.

Books of Accounts

• Commercial Accounting keeps only one set.
• Government Accounting keeps one set of Regular Agency (RA) Books and maintains registries for budgetary accounts.

Accounts and Transactions

• Commercial Accounting uses nominal and real accounts.
• Government Accounting includes budgetary accounts like Appropriation and Allotments.

Accounting Practices and Procedures

• Commercial Accounting is dictated by the nature of business and management policies.
• Government Accounting follows laws, rules, and regulations.

Salient Features of Government Accounting

• Government relies heavily on collected taxes, operating through fiscal and accounting controls.
• Unique control mechanisms include fund accounting, obligation accounting, and cash disbursement ceiling (CDC) accounting.

Fund Accounting

• A fund is money or resources set aside for specific activities or objectives with specific regulations, restrictions, and limitations.
• Two main classifications: the General Fund, generally available for government functions, and the Special Fund, segregating specified revenues for specific purposes.

Obligation Accounting

• This control mechanism sets the maximum extent to which an agency can incur obligations, operating within the amount released by the DBM, which is covered by the approved appropriation.

Cash Disbursement Ceiling Accounting

• This control mechanism limits cash operations within the appropriations released to government agencies as allotments and any additional amount granted by the DBM to settle valid obligations.

Decision-Making Process in Government

• The ultimate authority rests with the people, exercised through elected representatives.
• The President formulates national policies specifying government goals and actions.
• The President submits a budget to the legislative body for consideration and approval.
• Decision-making should comply with existing laws and regulations at all government levels.

Accounting Responsibility

• The Head of the government agency or office is entrusted with accounting responsibility for all government funds and property.

Relationship between Accountability, Responsibility, and Authority

• Accountability is the obligation to answer for conferred responsibility.
• Responsibility is responding to concerns within the context of obligations.
• Authority is the right to exercise power, justified by legitimacy.

Responsibility over Government Funds and Property

• All government resources shall be managed, expended, or utilized according to laws and regulations, and safeguarded against loss or wastage.

Accountability over Government Funds and Property

• Every officer with the duties, permitting possession or custody of government funds or property is accountable.

Basic Government Accounting and Budget Reporting Principles

• Each entity recognizes and presents financial transactions and operations according to generally accepted government accounting principles, accrual basis, and budget basis

Government Accounting Manual (GAM)

• Recent developments prompt the harmonization of existing accounting standards with International Public Sector Accounting Standards (IPSAS).
• The Philippine Government adopts IPSAS through the Philippine Public Sector Accounting Standards (PPSAS).

Legal Basis

• The Government Accounting Manual (GAM) is prescribed by COA pursuant to Article IX-D, Section 2 par. (2) of the 1987 Constitution of the Republic of the Philippines.

Coverage

• The Manual presents basic accounting policies and principles in accordance with PPSAS
• It includes the Revised Chart of Accounts (RCA), accounting procedures, books, registries, records, forms, reports, financial statements, and illustrative accounting entries.
• It is used by all National Government Agencies (NGAs) in the preparation of financial statements and reporting of budget, revenue, and expenditure.

Objective

• The Manual aims to update standards, policies, guidelines and procedures in accounting for government funds and property,
• To update coding structure and accounts; and accounting books, registries, records, forms, reports and financial statements

Basic Features and Policies

• Accrual Accounting: A modified accrual basis is used where expenses are recognized when incurred, and income is on an accrual basis unless accrual is impractical or other methods are legally required.
• One Fund Concept: The system adopts one fund concept, with separate fund accounting only when required by law, a donor agency, or necessitated by circumstances.
• Chart of Accounts and Accounts Codes: A new chart of accounts and coding structure with mandatory digits is adopted.
• Books of Accounts and Registries: NG entities use journals, ledgers, and registries.
• Financial Statements: Statements are prepared under AFRS and BFRS.
• Two-Money Column Trial Balance: The trial balance showing account balances is used.
• Allotment and Obligation: A simplified obligation accounting is used, with separate registries for allotments and obligations.
• Notice of Cash Allocation (NCA): Receipts of NCA are recorded as debit to "Cash-Modified Disbursement System (MDS) Regular" and credit to "Subsidy from National Government."
• Financial Expenses: Financial expenses are classified separately from Maintenance and Other Operating Expenses (MOOE).
• Perpetual Inventory of Supplies and Materials: The perpetual inventory system is used for supplies and materials.
• Valuation of Inventory: The cost of ending inventory is computed using the moving average method.
• Maintenance of Supplies and Property, Plant and Equipment Ledger Cards: Accounting Units and Property Offices maintain ledger cards/stock cards.
• Construction of Assets: The Construction Period Theory is applied for costing assets under construction.
• Public Infrastructures/Registry of Reforestation Projects: Agencies constructing infrastructures recognize costs and depreciation based on existing Registry of Public Infrastructures (RPIs).
• Depreciation: The straight-line method is used, starting the second month after purchase, with a residual value set at 5% of purchase cost.
• Reclassification of Assets: Serviceable assets no longer in use are reclassified to "Other Assets."
• Allowance for Doubtful Accounts: An Allowance for Doubtful Accounts is set up for estimated uncollectible receivables.
• Elimination of Contingent Accounts: Contingent accounts are no longer used; financial transactions are recorded using appropriate accounts.
• Recognition of Liability: Liability is recognized when goods/services are accepted/rendered.
• Interest Accrual: Interest income and/or expense is accrued and recognized when practical.
• Accounting for Borrowings and Loans: All loans are recorded to the proper liability accounts.
• Elimination of corollary and negative journal entries: stops the use of corollary and negative journal entries.
• Petty Cash Fund: is maintained under an impress system, not used to purchase regular inventory items.
• Foreign Currency Adjustment: Foreign currency deposits/loans are computed with exchange rates.