You are on page 1of 68

GOVAC

ACCTG 013

Module 2
Responsibility, Accountability
and Liability over
Gov’t Funds and Property
Responsibility over Government Funds and Property

◼ All resources of the government shall be managed,


expended or utilized efficiently, economically and
effectively in the operations of government in
accordance with the law.

◼ The head of any agency of the government is


immediately and primarily responsible for all
government funds and property pertaining to his
agency.

➢ Persons under the agency head shall be responsible to


him.They shall share fiscal responsibility.
Accountability over Government Funds and Property
◼ Every officer of any government agency whose duties
permit or require the possession or custody of
government funds or property shall be accountable for
the safekeeping in conformity with law.

◼ Every Accountable Officer shall be properly bonded


in accordance with law.

◼ Transfer of government funds from one officer to


another shall, (except as allowed by law or
regulation), be made only upon prior direction or
authorization of the COA.

◼ it shall be done upon properly itemized invoice and


receipt which shall support the clearance to be issued
to the relieved or outgoing officer.
Liability over Government Funds and Property

◼ Expenditures of government funds or uses of


government property in violation of law or regulations
shall be a personal liability of the official or employee
found to be directly responsible .

◼ Every AO for government funds shall be liable for all


losses resulting from the unlawful deposit, use, or
application and for all losses due to negligence in the
keeping of the funds.
◼ No AO shall be relieved from liability by for having
acted under the direction of a superior officer in
paying out, applying, or disposing of the funds or
property with which he is chargeable,

➢ unless prior to that act, he notified the superior officer


in writing of the illegality of the payment, application,
or disposition.

➢ The officer directing any illegal payment or


disposition of the funds or property shall be primarily
liable for the loss,

While the AO who fails to serve the required notice


shall be secondarily liable.
Losses in Transit , Casualty or Force Majeure

◼ the AO having custody shall immediately notify the


COA concerned

➢ within 30 days or such longer period as the COA may


allow, shall present his :
1. application for relief,
2. with the available supporting evidence.

Whenever warranted by the evidence, credit for the


loss shall be allowed.
An officer who fails to comply with this requirement
shall not be relieved of liability or allowed credit for any
loss in the settlement of his accounts.
GOVAC
ACCTG 013

Module 2
Accounting Responsibility
Accounting Responsibility
◼ emanates from the Constitution, laws, policies,
rules and regulations.

The Constitution
❖ mandates the keeping of General accounts of
the government;
❖ Promulgation of accounting rules;
❖ Submission of reports covering the financial
condition and operation of the government.
Entities with Accounting Responsibility
1. Commission on Audit (COA)
➢ Keeps the general accounts of the gov’t.;
➢ Promulgates accounting rules and regulations;
➢ Submits to the President and Congress within
the time fixed by law* an annual report of all
gov’t. agencies (audit);
➢ Shall be responsible for the
-Unified Account Code Structure (UACS)
-Revised Chart of Accounts (RCA) as to
consistency of Account classification and
coding structure.
2. Dept. of Budget and Management (DBM)
shall be responsible for the:

❖ formulation and implementation of the National


Budget;
❖ Efficient and sound utilization of government
funds;
❖ Validation and assignment of new codes for
-funding source organization
-sub-object codes for expenditures.
3. National Government Agencies
Required by law to have acctg. units/divisions
and departments ( under the direct supervision of
the Head of the Agency) which shall:
❖ Maintain and keep current the accounts of the
agency;
❖ Provide advice on the financial condition and
status of the appropriation and allotments of
the agency;
❖ Develop and conduct procedures designed to
meet the need of the management;
❖ Comply with the reporting requirements of the
COA, DBM and DOF.**
GOVAC
ACCTG 013

Module 2
Government Accounting Manual
for NGAs
The 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

which provides that: “The COA shall have exclusive


authority, subject to the limitations in the Article, which
includes the:

◼ Promulgation of 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".
THE GOVERNMENT ACCOUNTING MANUAL (GAM)

◼ presents the basic accounting policies and


principles in accordance with the Philippine
Public Sector Accounting Standards (PPSAS)

◼ is a revision of the New Government


Accounting System (NGAS) which includes
the Revised Chart of Accounts and the
accounting procedures, books, registries ,
records, forms, reports and financial
statement.
◼ The GAM aims to update

❖ Standards, policies, guidelines and procedures


in accounting for government funds and
property

❖ Coding structure and accounts

❖ Accounting books, registries, records,


forms,reports and financial statements

❖ Accounting journal entries


The GAM shall be used by all
National Government Agencies
In the:
❖ preparation of the general purpose Financial
Statements in accordance with the Philippine
Public Sector Accounting Standards Board
(PPSAS) and other Financial reports.

❖ reporting of Budget, revenue and expenditure


in accordance with laws, rules and regulations.
Public Sector Accounting Standards Board
(PSASB)
was created to :

◼ formulate and implement public sector accounting


standards and
◼ establish linkages with international bodies,
professional organization and academe on accounting
related fields on financial management;
❑ assist COA in formulating and implementing the PPSAS
which shall apply to all
❖ NGA’s
❖ LGU’s and
❖ GOCC’s not considered as a Government Business
Enterprise (GBE).
Government Business Enterprise (GBE)
An entity:
❑ With the power to contract in its own name;
❑ Assigned the financial and operational authority
to carry on a business;
❑ Sells goods and services in the normal course
of the business, to the other entities at a profit
or full cost recovery;
❑ Not reliant on continuing government funding to
be a going concern;
❑ Controlled by a public sector entity;
❑ Wherein the PFRS shall apply.
GOVAC
ACCTG 013

Module 2
Contents of the GAM
◼ Volume I
➢ Guidelines and Procedure
➢ Illustrative Accounting entries
➢ Sample format of the Financial Statements
◼ Volume II
➢ Books, Registries and Records
➢ Forms and Reports
➢ Instructions on how to accomplish and where
to submit the Reports
◼ Volume III
➢ List of Accounts
➢ Codes and Description of Accounts
GOVERNMENT ACCOUNTING
(Sec. 109, PD 1445)
Encompasses the process of
❑ analyzing,
❑ recording ,
❑ classifying,
❑ summarizing and
❑ communicating

all transactions involving the


➢ Receipt and
➢ Disposition
of government fund and property and

❑ Interpreting the result thereof.


Objectives of
Government Accounting

◼ Produce information concerning past and


present conditions;
◼ Provide a basis for guidance for future
operations;
◼ Control acts of public bodies and offices in the
receipts , disposition and utilization of fund
and properties;
◼ Report on the financial position and the result
of operations of government agencies and
guidance of all person concerned;
GOVAC
ACCTG 013

Module 2
Basic Accounting and
Budget Reporting Principles
(to be used by all NGAs)

1.) Generally Accepted Government Accounting


Principles in accordance with PPSAS (25);

2) Accrual basis of accounting in accordance with


PPSAS (transactions recognized when they occur);

3.)Budget basis for presentation of budget information in


the F/S in accordance with PPSAS
- comparison of budget against actual results
- any deviation will require a disclosure or an
explanation
4) Revised Chart of Accounts* prescribed by COA;

5) Double entry bookkeeping;

6) Financial Statements based on Accounting and


budgetary records.
- provide information for decision making
- demonstrate accountability of the entity for the
resources entrusted to it.

7) Fund Cluster Accounting


fund cluster -refers to an accounting entity for
recording expenditures and revenues associated
with a specific activity for which accounting
records are maintained and periodic financial
reports are prepared.
THE DETAILED F/S AND TRIAL BALANCE
CONSOLIDATED BY THE FUND CLUSTER

◼ Regular Agency Fund


◼ Foreign Assisted Projects Fund
◼ Special Accounts-Locally funded/Domestic
Grants Fund
◼ Special Accounts-Foreign Assisted/Foreign
Grants fund
◼ Internally Generated Funds
◼ Business Related Funds
◼ Trust Receipt/ Inter-Agency Transferred Funds
(IATF)
GOVAC
ACCTG 016

Module 2
QUALITATIVE
CHARACTERISTICS
Qualitative Characteristics
(Definition)

◼ are the qualities or attributes that make


financial accounting information useful to
users in making economic decisions
2 CLASSIFICATIONS OF
QUALITATIVE CHARACTERISTICS
◼ Fundamental
a) Relevance
b) Faithful Representation

❑ Enhancing
a) Comparability
b) Understandability
c) Verifiability
d) Timeliness
1.(FQC) RELEVANCE
A. Capacity of the information to influence
a user to make a meaningful decision.
It must reflect:
a)Confirmatory value (feedback value)-
confirms or corrects previous
predictions (shows the effects of past
performance of the business)
b)Predictive value – forecast outcome of
events (what might happen in
the future)
B.MATERIALITY

◼ Also known as the “Doctrine of Convenience.”


◼ information is material if its omission or
misstatement could influence the economic
decision of the user.
◼ Materiality is a matter of professional
judgement based on the following factors:
a)size or amount of the item (threshold)
b)nature of the item
c)structure of the business
2. (FQC) Faithful Representation
◼ Financial reports must depict what really
happened during the year.

◼ Characteristics:
a) Completeness- all information must have
been taken into account so as not to
be misleading .
May warrant an adequate disclosure or
full disclosure in the notes to financial
statements. (nature of the item, numerical
and descriptive depiction and explanations)
(FQC) FAITHFUL REPRESENTATION
b)Neutrality – “Principle of fairness”
Information should be useful to all users.
It is free from bias.
(Information was not manipulated to
increase the probability that users will
receive it favorably or unfavorably)

c)Free from error- no errors or omissions in


the description, or in producing the
information (accurate in all respects,
even estimates are described clearly)
SUBSTANCE OVER FORM
◼ Substance or economic reality should
always prevail over legal form.

PRUDENCE (conservatism)
◼ Accountant should exercise caution
when using estimates or information
marked with uncertainty
➢ No overstatement of assets /revenues
➢ No understatement of liabilities/expenses
ENHANCING
QUALITATIVE CHARACTERISTICS
◼ Relates to the presentation or form of the
financial information
◼ Intended to increase the usefulness of the
financial information that is relevant and
faithfully represented.
a)Comparability
b)Consistency
c) Understandability
d) Verifiability
1.(EQC) Comparability
◼ Enables users to understand similarities
between one information to another
information.

◼ Principle of Consistency
-Implicit qualitative characteristic of
comparability
-applying the same accounting treatment
from one period to another
➢ Intra-comparability (horizontal
comparability)
-comparability of financial information
within the entity

But if there should be a change it should


result to a more meaningful information
(justifiable) and there shall be full
disclosure of the change.
➢ Inter-comparability (dimensional)

❖ comparability of financial information


between 2 or more entities (engaged in
same industry)

-Determines the competitiveness of the


entity.
2. (EQC) UNDERSTANDABILITY
◼ Financial information must be comprehensible
to be useful

➢ Terminologies must be clear


➢ Presentation of the reports must be orderly
➢ Users must have reasonable knowledge of
business and economic activities to come up
with a good judgement.
3. (EQC)Verifiability
◼The financial information is supported by
evidence such as invoices or receipts to
show that the transaction really
transpired.
◼ implies consensus

Types of verification:
➢ Direct – direct observation (validation or
replication of the technique
➢ Indirect – check inputs /recalculate
formulas
4. EQC - Timeliness
◼ Information is available within the period
of time that it is needed to form judgement
or decisions so as not to lose its
usefulness.

Cost Constraint
❑ The benefit derived from the information should
exceed the cost incurred in obtaining the
information.
GOVAC
ACCTG 013

Module 2

Components of
General Purpose Financial Statements
FINANCIAL STATEMENTS
➢ means by which the information
accumulated and processed in financial
accounting is periodically communicated to
the users.
➢ End product of Financial Accounting

◼ General Purpose Financial Statement


➢ Intended to meet the needs of the common
users
Components of the General Purpose
Financial Statements
1. Statement of Financial Position
2. Statement of Financial Performance
3. Statement of Changes in Net Assets/Equity
4. Statement of Cash Flows
5. Statement of Comparison of Budget and
Actual amounts
6. Notes to the Financial Statements
comprised of:
➢ Summary of significant accounting policies
➢ Other explanatory notes
GOVAC
ACCTG 013

Module 2
ELEMENTS OF THE
FINANCIALSTATEMENTS
FINANCIAL STATEMENTS
◼ portray the financial effects of transactions
and other events by grouping them into
broad classes according to their economic
characteristics referred to as the Elements
of FS.

◼ Elements of the FS
-refer to the quantitative information reported in
Statement of Financial Position and Statement
Financial Performance.
-building blocks from which FS are constructed
CLASSIFICATIONS OF THE ELEMENTS
(As to Measurement)
◼ Financial Position
a) Asset
b) Liability
c) Equity
◼ Financial Performance
a) Revenue
b) Expense

◼ EQUITY – residual interest of Assets after


deducting the Liabilities
GOVAC
ACCTG 013

Module 2
Recognition of the Elements
of the Financial Statements
RECOGNITION OF THE ELEMENTS
◼ Means the reporting of an asset, liability,
income and expenses on the face of the
Financial Statements of an entity

◼ 4 CF Main Recognition Principles :


a. Asset recognition principles
b. Liability recognition principle
c. Income recognition principle
d. Expense recognition principle

◼ \
1.Asset Recognition Principle
ASSET – defined as a
◼ Resource controlled by the entity
◼ Result of a past event
◼ From which future economic benefits are
expected to flow.
CONTROL
◼ the ability to benefit form an asset or prevent others
from benefitting from that asset

Past Event
◼ A transaction that already occurred that gave rise to
control of future economic benefits

FUTURE ECONOMIC BENEFIT


◼ the potential to contribute directly or indirectly to the
flow of cash and cash equivalents
thru:
➢ Production of goods or services to be sold by the entity
➢ Exchange of other asset
➢ Used to settle a liability
➢ Distribute to the owners of the entity
Conditions for the
Recognition of an Asset

a)Probable flow of future economic bene-


fits (more likely to happen than not)

b) Cost or value can be measured reliably.


➢ free from material error or bias
➢ faithful representation of assets benefits from
transactions or events
COST PRINCIPLE
(inherent to asset recognition)
◼ Assets should be recorded initially at original
cost.
◼ Initial cost may be
1) Carried w/o change
2) Changed by depreciation, amortization or
write-off
3) Shifted to other categories (Raw Materials to
Finished Goods)
2. LIABILITY RECOGNITION PRINCIPLE
LIABILITY- defined as a
◼ Present obligation arising from a past event
◼ The settlement of which is expected to result in
an outflow of resources embodying economic
benefits from the entity

-2 Conditions for the Recognition of the Liability


➢ Probability of an outflow for the settlement
➢ Amount of obligation can be measured reliably
LIABILITIES
(Essential Characteristics)

◼ Entity has a present obligation which may


be:
a)Legal obligation – legally enforceable as
a consequence of a binding contract.
b)Constructive obligation – arise from normal
business practice, custom or desire to maintain
good business relations or act in an equitable
manner.(restoration of mining sites, warranties,
clean-up of waste materials)
SETTLEMENT OF LIABILITY
◼ Ways to settle liability:
1. Payment of cash
2. Transfer of Non-Cash Assets
3. Provision of services
4. Replacement of the obligation with
another obligation
5. Conversion of an obligation into equity
3. INCOME RECOGNITION PRINCIPLE
INCOME - defined as
◼ an increase in economic benefit during
the accounting period
◼ In the form of
1) an inflow or increase in asset or
2) decrease in liability
◼ Results in an increase in equity , other
than contributions from equity participants
Definition of Income
(Encompasses both Revenues and Gains)
◼ Revenues
-arises in the course of ordinary regular
business activities/ operations (sales,
professional fees, interest, dividends)
◼ Gains
-other items that meet the definition of
income but do not arise in the regular
ordinary course of business ( fr. Disposal
of assets, trading of securities,
expropriation)
Definition of Expense
(encompasses losses and expenses
for ordinary regular activities)
◼ Expenses
-arises in the course of ordinary regular
business activities (business operations)
◼ Losses
-arise from disasters (fire, flood, storm
surge, tsunami and hurricane )
-disposal of non-current assets
Expense Recognition Principle
◼ Expense shall be recognized when
incurred (“strict matching principle”)
◼ 2 Conditions for the recognition of
expense:
a) probable that a decrease of future
economic benefits has occurred as a
result of:
- decrease in an asset or
- increase in liability
b) decrease in economic benefits can be
Matching Principle
◼ Expense Recognition Principle is the
application of the “matching principle”
(matching of cost with revenue)
◼ Requires that cost and expenses incurred
in earning a revenue shall be posted in
the same period.
◼ Generation of revenue is not without cost.
(no gain , no pain.)
3 Applications of the Matching Principle
1) Cause and Effect association
- expense is recognized when the revenue is
already recognized . This is the “strict matching
concept”
-Process called” matching the cost with revenue”
or the simultaneous or combined recognition of
revenue and expenses
- Examples:
1)Merchandise sold (Cost of Goods Sold)
2)Doubtful accounts, warranty expense, sales
commissions
2) Systematic and Rational Allocation
- Some costs are expensed by allocation over the
periods benefited.
◼ Reason: Cost incurred will benefit future
periods or several accounting periods
◼ Examples:
1) Depreciation of PPE
2) Amortization of Intangibles
3) Allocation of prepaid rent, insurance and
other payments
3) Immediate Recognition
Cost incurred is expensed outright because of:
a) uncertainty of future economic benefits or
b) difficulty of associating cost with future revenue
(no asset recognition)
◼ Examples:
1) Salaries, administrative , advertising , selling,
expenses,
2) settlement of lawsuits or
3) worthless intangibles
2) losses from disposal of PPE or Investment
3) Casualty losses (fire, flood etc.)
GOVAC
ACCTG 013

Module 2
Measurement of the Elements
of the Financial Statements
MEASUREMENT OF THE ELEMENTS
◼ Process of determining the monetary
amounts at which elements are to be
recognized and carried in the statement of
Financial Position and Income Statement
◼ 4 Measurement Bases:
a) Historical Cost
b) Current Cost
c) Realizable value
d) Present value
Measurement Bases
1.Historical cost
❖ Amount of cash or cash equivalent paid
❖ Fair value of the consideration given at the time of
acquisition
❖ Known as “ past purchase exchange price”
❖ Most commonly adopted in the FS

2. Current Cost (replacement/repurchase cost)


❖ Amount of cash or cash equivalent to be
paid if the same or equivalent asset was
acquired currently.
❖ Known as “ current purchase exchange price”
3. Realizable value (settlement value)
❖ Amount of cash or cash equivalent that could be
currently obtained by selling the asset in an orderly
disposal. (net selling price)
❖ Undiscounted amount of cash expected to be paid to
satisfy the liabilities
❖ Known as “ current sale exchange price”

2. Present value (amortized cost)


❖ Discounted value of the future net cash inflow expected
to be derived form the asset
❖ Discounted value of the future net cash outflow
expected to be paid to settle a liability
❖ Known as “ future exchange price”

You might also like