518 Hand-Out (Denila)

8/17/2019 518 Hand-Out (Denila)

1/7

University of San Carlos

School of Business and Economics

Department of Accountancy

AC 518 – Advanced Financial Accountin and !eportin" #art $

%nd Sem" A&'& %(15)%(1* +1st ,and)-ut.

/he 0ational overnment of the #hilippines

The government is the largest financial organization in terms of assets, liabilities, capital,sources of income and items of expenditures. It is also the largest entity in terms of number andquality of personnel, facilities and instrumentalities, which are used to serve the social, politicaland economic needs of the nation. The government has as many departments, commissions or

offices as necessary to be able to carry out its functions, like promotion of social welfare,development of national wealth, defense of the state from internal and external aggression,promotion of justice, promotion of trade and industry, general government and protection of private rights of the people.

Government Accounting Defined (Section 109 of PD 1445)

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. overnment accounting isa service activity.

Three !"# types of governmental organizational units$

• %ational overnment &gency !% ' are agencies that includes all departments,

bureaus, offices, boards, commissions, councils state colleges and universities.

• (ocal overnment )nit !()#* political subdivisions of the +hilippines having

substantial control over local affairs, consisting of provinces, cities, municipalitiesand barangays.

• overnment wned or -ontrolled -orp !--#* are agencies organized by law or

pursuant to law, vested with functions relating to public needs whether governmentor propriety in nature, owned by the government directly or through itsinstrumentalities either wholly or, where applicable as in case of stock corporation,to the extent of at least fifty one of its capital stock.

FUNCTIONS OF GOVERNMENT ACCOUNTING

To provide quantitative information primarily financial in nature about the operations of thegovernment, both national and local, to be used by the administration in making decisions for amore effective and efficient public service.

OBJECTIVES

/.To provide quantitative information concerning past operations and present conditions.0.To provide a basis for guidance for future operations.".To provide for control of the account of public entities and officers in the receipt, disposition and utilization funds and properties, and1.To report on the financial position and the result of the operations of the government agencies for the information of all persons concerned.

)sers of overnment &ccounting Information$/. The eneral public or citizenry0. The overning and oversight bodies$ The +resident, -abinet, -&, (egislative 2ody.

AC 518 – 2nd Sem, A.Y. 2015-2016 1


2/7

". The managers3administrators who are in*charge of carrying out the policy and dailyconduct of government affairs.

1. The students of public finance4. The resource providers of the government such as$

• 5onors or grantors

• (enders, suppliers and employees whose main concern is to know whether the

government can pay its obligations to them.

DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERRISES

/. wnership * +rivate enterprises are owned by a relatively few stockholders, partners, or owners. The government represents the entire people in a given community.

0. +urpose * +rivate enterprises are organized primarily to make profits. The governmentis set up mainly to render service at lowest possible cost to its constituents.

". rganization * The organization of a private enterprise is a succession of authority andresponsibility starting from its stockholders who delegate them to a duly elected board of directors which in turn organize its own staff of officers in whom the responsibility of managingthe affair of business is reposed. The responsibility and authority of a government entity in our system lies in -ongress.

1. 6inancing * +rivate enterprise is supported for its finance primarily by the voluntarycontribution from its members or stockholders which constitute as their share of capital or investment in the business. The government is vested the exclusive right to demand involuntarycontributions from its constituent in the form of taxes.

4. Income * In private enterprise, the capital investment of stockholders are made togenerate return in the form of profits for services rendered or good sold. The government whichis organized primarily to render service, cannot make profits on the services it renders. Tosupport the estimated annual cost of government, taxes are levied.

DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING

/. bjective '-& ' is geared towards income measurements aside from control of company

resources, & * is control of government funds to see to it that they are properly utilized and

provide data to management for decision.

0. 2asis of &ccounting *-& ' either cash or accrual method is used but not a combination of both.

& * the modified accruals basis of accounting is used.

". +reparation of periodic reports '-& ' 7tatement of 6inancial +osition, 7tatement of -omprehensive Income, 7tatement

of -ash 6lows, 7tatement of 7hareholders8 9quity and %otes to the 67& * 7tatement of 6inancial +osition, 7tatement of 6inancial +erformance, 7tatement of

-hanges in %et &ssets3 9quity, 7tatement of -ash 6lows and %otes to the 67

1. -ontrol :echanism '-& ' none& ' 6und accounting, obligation accounting and -5- accounting

4. 2ooks of &ccounts ' -& * only one set is kept

& * %ational overnment !%# 2ooks.

;. &s to accounts and transactions '-& * %ominal and


3/7

Decision)ma2in #rocess in overnment

The decision*making process in government is an important aspect of the environment of stateaccounting because accounting information is intended to be useful in making economicdecisions and in making reasoned choices among alternative courses of action.

The ultimate authority for decision*making in the +hilippine government rests with the people.This authority is exercised through duly elected representatives, acting as agents of the people.

It is the sovereign right of the people to change them if the authority is misused or abused.

The +resident, as chief executive, formulates national policies, which specify the goals of government and determine the courses of action that the government should take in differentaspects of public affairs.

n the basis of national policy, the +resident submits a budget to the legislative body for consideration and processed until approved and passed into a law.

&t all levels of government, decision*making should comply with existing laws and regulations.>uestions and issues involving the settlement of money claims, determination of dispute or settlement of a controversy on the issue as to legality and3or propriety of such claims are

submitted for resolution to the -& in connection with the discharge of its audit function.>uestions involving legal interpretation and3or application of law are submitted for decision tothe courts.

Salient Features of overnment Accountin

The financial resources of the overnment are very limited. It relies heavily on collectedtaxes. This means that it has to operate through a system of fiscal and accounting controls. Thefollowing control mechanisms adopted as sub*systems of government accounting are notadopted in commercial accounting$

• 6und &ccounting

• bligation &ccounting

• -ash 5isbursement -eiling !-5-# &ccounting

Fund Accountin. & fund is a sum of money or other resources set aside for thepurpose of carrying out specific activities or attaining certain objectives in accordance withspecific regulations, restriction, and limitations.

The two major classification of funds as to purpose for which they may be used$/. eneral 6und ' one which is generally available for all functions of the government.

0. 7pecial 6und * one which, by legislative action, segregates specified revenues

for limited purposes.

-3liation Accountin. &s a control mechanism of government accounting system,obligation accounting provides the ceiling of the maximum extent by which an agency can incur obligations or commit the resources of the government in the performance of its functions.

bligation accounting refers to the accounting practice, procedures and techniques for recording obligations in the government.

Cash Dis3ursement Ceilin Accountin& The cash disbursement ceiling accounting isanother control mechanism of government accounting system. The cash operations of thegovernment under the cash disbursement ceiling accounting are limited within the boundaries of the appropriations release to government agencies in the form of allotments, and any additionalamount granted by the 52: to liquidate or pay existing valid obligation.

Accounting Responsibilit ! )nder +5 /114, accounting responsibility for allgovernment funds and property is entrusted, immediately and primarily, to the head of thegovernment agency or office. It is the duty of the head of the agency to take reasonable stepsto minimize, if not to avoid the risk of losses, defalcations and other types of irregularities in theutilization of all government resources !to safeguard the resources of the government under hiscustody# and periodic reporting to concern authorities. ?is responsibility, however, is supervisedby higher authorities and government bodies.

AC 518 – 2nd Sem, A.Y. 2015-2016 3


4/7

The officer in possession or custody of government funds or property by reason of hisduties are accounta3le for the safekeeping thereof. &s such, he shall be properly bonded.

The ?ead of the agency is made immediately and primarily responsi3le for allgovernment funds and property pertaining to his agency. Secondary responsi3ility is made tore"t on the persons entrusted with the actual possession or custody of the funds or property.They are the accounta3le officers and are immediately responsi3le to the agency head.

The imposition of primary responsibility on the agency head for government funds and

property is in keeping with the concept of #i"c$% re"&on"i'i%it( )*ic* no) %o+ge )it* $genc( *e$+ .

The head of the agency shall exercise the diligence of a good father or a family insupervising accountable officers to prevent the incurrence of loss of government funds andproperty, otherwise, he shall be 4ointly and solidarily lia3le with the person primarilyaccountable thereof.

&lthough supervisory work of government accounting is vested upon to the -ommissionon &udit, accounting responsibilities in the government, by virtue of the provision of the-onstitution of the +hilippines, laws, +residential 5ecrees and other issuances, are sharedprimarily by the -ommission on &udit!-, 5epartment of 2udget and :anagement, !52:#,

5epartment of 6inance !2ureau of Treasury# and government agencies.

The Commission on Audit serves as the external auditor of the government agencies.It is a constitutional office and its mandates are provided in 7ection 0, &rt. I@*5 of the /AB=-onstitution of the +hilippines. The -& examine, audit and settle all accounts pertaining torevenues or receipts and expenditures or uses of government funds and property, keeps thegeneral accounts of the national government , prescribes the standard chart of accounts,promulgates accounting rules and regulations and exercise technical supervision over theaccounting functions of each agency. The office is mandated by the -onstitution to submit tothe +resident and the legislative body within the time frame fixed by law, an annual audit reportof the government, its subdivision, agencies and instrumentalities including government ownedor controlled corporations and recommend measures necessary to improve efficiency and

effectiveness.

The DB is responsible for the design, preparation, and approval of the accountingsystems of government agencies, determines the accounting and other item of informationneeded to monitor budget performance and assess effectiveness of the agency operation. Itprescribes the forms, schedules of submission and other component of reporting systemneeded to accomplish and submit the required information. It acts on agencies8recommendations for the modification or changes to prescribed systems for procedures to effectsimplicity and3or meet the requirements of the peculiarities of the agencies concerned. Itapproves the &gency 2udget :atrix and issues the allotments to agencies in accordance withthe approved budget and issues %otice of -ash &llocation.

The Bureau of /reasury +B/r. performs banking function for the national government.It receives and keeps government funds, controls the disbursements thereof and maintainaccounts of the financial transactions of national government agencies. It is required to prepareand submit to the -& and other fiscal activities, a daily statements of cash receipts,disbursements and fund balances in the %ational Treasury.

The 0ational overnment Aencies +0As. consist of various organizational unitssuch as departments, bureaus, commissions, boards, offices, tribunals, councils, institutions,state colleges or universities and establishments.

These agencies are required to establish and maintain a system of accounting for their financialresources and operation in accordance with pertinent rules and regulations. &ccounts should

be kept in such details as is necessary to meet the need of agency management and furnishinformation to fiscal and control agencies such as -&, 52: and 2Tr.

!elationship 3et6een Accounta3ility" !esponsi3ility and Authority

Accounta3ility is the obligation of a public officer3employee to answer for theresponsibility conferred on him3her. It is her !esponsi3ility to respond to the concerns of individuals or groups, the public he3she is to serve, within the overall context of his3her obligations for which he3she has the appropriate Authority.

AC 518 – 2nd Sem, A.Y. 2015-2016 4


5/7

In government, authority is often used interchangeably with the term Cpower C. ?owever,their meanings differ$ while CpowerC is defined as Dthe ability to influence somebody to dosomething that !s#he could not have doneD, CauthorityC refers to a claim of legitimacy, the

justification and right to exercise that power.

Accounta3ility !e7uirements From #u3lic -fficerEmployees

7ection / of +5 /114 provides$EIt is the declared policy of the 7tate that all governmentresources shall be managed, expended and utilized in accordance with law and regulations and

safeguard against loss or wastage through illegal or improper disposition, with a view toensuring efficiency, economy and effectiveness in the operations of government. Theresponsibility to see to it that such policy is faithfully adhered to rests directly with the chief or head of the government agency concerned.E

This declaration articulates the concern of the state for the safekeeping of the public8sresources. It focuses on how the resources shall be handled by those given the public trust tomanage, spend or use such resources.

+ursuant to this policy the 7tate requires from public officers and employees the following$/. -ompliance with laws and regulations

* (aws and rules

* &gency policies* &gency manuals of operationsF and* +rovisions of contracts, :&

0. 7afeguarding of government resources from loss and waste". &chieving goals and objectives

Assertions of Compliance 6ith Accounta3ility !e7uirements

Ghen public officers and employees submit to the -ommission their transactions,accounts, financial reports and statements and other performance and operation reports, theyare asserting or claiming that they have complied with the foregoing accountability

requirements.

W*$t i" A""ertion",

&ssertion is the expressed or implied representation by management that is reflected intheir transactions, accounts, financial statements, records, reports and that they are claimingthat they have complied with the accountability requirements of the state policy.

A""ertion" on Com&%i$nce )it* L$)" $n+ Ru%e"

Ghen expenditures, disbursements, receipts and collections are reported to theappropriate authorities, management is making claim that so much amount has been disbursed

or so much amount have been collected in payment of goods and services received or renderedin accordance with laws, rules, applicable policies and practices.

A""ertion on Re"ource" Du%( S$#egu$r+e+

Ghen the agencies issue their financial reports and statements they are asserting thefollowing$

/. E-i"tence or Occurrence * This deals with whether assets or liabilities of the auditedagency actually exist at a given date, and whether recorded transactions have occurredduring the given period.

0. Com&%etene"" ' This deals with whether all transactions and accounts that should be

presented in the financial statements are included.

". Rig*t" $n+ O'%ig$tion" * This deals with whether assets are actually owned by theagency and liabilities are the obligation of the agency at a given date.

9& V$%u$tion or A%%oc$tion * This deals with whether or not the asset, liability, revenue andexpenses components have been included in the financial statements at appropriateamounts.

4. re"ent$tion $n+ Di"c%o"ure ' This deal on whether particular components of thefinancial statements are properly classified, described and disclosed.

AC 518 – 2nd Sem, A.Y. 2015-2016 5

http://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Power_(philosophy)http://en.wikipedia.org/wiki/Legitimacy_(political)http://en.wikipedia.org/wiki/Power_(philosophy)http://en.wikipedia.org/wiki/Legitimacy_(political)http://en.wikipedia.org/wiki/Government


6/7

A""ertion" on Ac*ievement o# Go$%" $n+ O'.ective" /er#orm$nce or V$%ue #or Mone( Account$'i%it( #

Ghen the agencies prepare and submit to proper authorities their reports on theperformance of an activity or a project, the agency is asserting that they used and managed theresources for that activity or project in an economical, efficient and effective manner.

+erformance of government entities is measured from the point of view of econom! efficienc

"nd effectiveness#

$conom refers to the reasonableness of cost incurred. :easuring economy will determinewhether the agency has been performing at the least possible cost or under the terms mostadvantageous to the government.

$fficienc refers to the relationship between goods or services produced and resources usedto produce them. The measurement of efficiency involves the determination of whether anagency is managing or utilizing its resources in an efficient manner as well as establishing thecauses of any inefficiencies, including inadequacy in management information systems,administrative procedures or organizational structure.

$ffectiveness is concerned with the relationship between the outputs and the goals of theagency. :easuring effectiveness will determine whether the desired results are achieved,whether the objectives set by the agency are met, and whether the agency has consideredalternatives that yield desired results at a lower cost.

enerally Accepted +State. Accountin #rinciples

Accounting &rinci&%e" are propositions, a general law or rule adopted, which on the basisof reasons, demonstrated usefulness and general acceptance as the best way of carrying outthe function and achieving the objectives of financial accounting.

bjectives$/. uide the accountants in identifying, measuring and communicating financial accounting

informationF0. &ssure proper reporting and reasonable degree of uniformity and comparability among

the financial statements of different government entitiesF and". +rovide auditors with the framework for making judgment about the fairness of financial

statements on the basis of some uniform standards.

7ignificant differences in principles between state accounting and commercial accounting$/. overnment activities are non*profit orientedF0. 7tate accounting places greater emphasis on accountability, stewardship and controlF

and

". 7tate accounting is based on laws, rules and regulations.

& principle is generally accepted if it has substantial authoritative support. There are twosources of support$ prim"r "nd second"r sources

#rimary sources:

/. +ronouncement of the -ommission on &udit * -& is mandated by the +hilippine-onstitution to promulgate accounting rules and regulations to facilitate the keepingand enhance the informational value of the accounts of the government.

0. +rovision of law * 7ec. //0 of the +5 /114 provides that generally accepted

accounting principles should be observed in government accounting entities asprovided they do not contravene existing laws and regulations.

Secondary source:

6rom the pronouncements and issuances by other government agencies.

The overnment &uditing -ode of the +hilippines requires that each government agencyshall record its financial transactions and operations in conformance with the generally accepted

AC 518 – 2nd Sem, A.Y. 2015-2016 6


7/7

accounting principles and accordance with pertinent laws and regulations. The principles to befollowed by government entities includes the following$

/. The accounts of the agency shall be kept in such detail and at the same time beadequate to furnish the information needed by fiscal or control agencies of thegovernment.

0. The highest standard of honesty, objectivity and consistency shall be observed in thekeeping of accounts to safeguard against inaccurate or misleading information.

". The government accounting system shall be on double*entry basis with the generalledger in which all financial transactions are recorded, 7ubsidiary record shall be keptwhere necessary.

1. The -hart of &ccounts has three*digit coding system and provides for responsibilityaccounting.

4. The -hart of &ccounts categorizes +ersonal 7ervices, :aintenance and ther perating 9xpenses and 6inancial 9xpenses as 9xpenses, obligation charged to capitaloutlay are recorded to appropriate asset accounts when the liability and the payment aretaken*up.

;. :atching +rinciples, The principle that requires the matching of revenues and expensesis adopted.

* :odified accrual method is used* 5epreciation accounting for property, plant and equipment using the straight line

method is followed.* &llowance for doubtful accounts is taken up. 5ormant accounts are transferred o

a separate registry,* &sset method is followed for prepaid expenses.

=. n financial statement$

/. 6airness of presentation ' this refer to the overall propriety of disclosing financialinformation. 6ull disclosures in financial aspects requires observance of thestandards of reporting.

0. -ompliance ' the report shall be in accordance with prescribed governmentrequirements and international accounting standard of reporting.

". Timeliness ' all needed reports shall produced promptly to be of maximumusefulness.

1. )sefulness ' financial reports shall be carefully designed to present informationthat is needed and useful to reports users.

B. bligation accounting is modified, allotments and obligations are no longer journalized.7eparate registries are maintained to control these accounts and the appropriation.

A. &ll lawful expenditures and obligation incurred during the year shall be taken up asaccounts of that year.

) End -

AC 518 – 2nd Sem, A.Y. 2015-2016 7

Documents

518 Hand-Out (Denila)