Copy of Chapter 1

Overview of Government Accounting

Learning Objectives

• Differentiate government accounting from business entity accounting.

• Identify government entities responsible for accounting.

• Describe the Government Accounting Manual (GAM) for National Government Agencies (NGAs).

• State basic principles of government accounting.

• Recognize criteria for asset recognition.

Introduction

• Definition: Government accounting involves analyzing, recording, classifying, summarizing, and communicating transactions related to government funds and property. (Reference: State Audit Code of the Philippines, P.D. No. 1445, Sec. 109)

• Objectives of Government Accounting:a) Generate information on past operations and current conditions.b) Provide guidance for future operations.c) Control public bodies' actions regarding funds and property.d) Report financial positions and operational results for public knowledge. (Reference: P.D. No. 1445, Sec. 110)

Distinctions of Government Accounting

• Similar to business accounting, but emphasizes:

  • Sources and utilization of government funds (including taxes, borrowings, grants).

  • Responsibility, accountability, and liability regarding government resources.

Responsibility, Accountability, and Liability

Responsibility

1. Government resources must be used efficiently and effectively; heads of agencies are responsible for managing these resources.

2. Fiscal responsibility is shared among all authority figures within a government agency.

Accountability

1. Government officers must safeguard government resources, evidenced through proper bonding.

2. Transfers of government funds require COA authorization, documented through invoices and receipts.

Liability

1. Unlawful use of resources leads to personal liability.

2. Accountable officers are liable for losses from misuse or negligence.

3. Accountability cannot be denied due to actions taken under a superior, unless notified prior.

4. Losses due to unforeseen events must be reported to COA within 30 days to avoid liability.

Main Concept

• Proper utilization of government resources is crucial for effective governance, with officials bearing responsibility, accountability, and liability for the management of these resources.

The Unsung Heroes

• Overseas Workers: Over 10.4 million Filipinos abroad significantly impact the economy via remittances.

• The importance of utilizing government resources effectively is emphasized for improving livelihood opportunities domestically.

• Role of Accounting: Facilitates informed decision-making for managing government funds and ensures efficient use of resources.

Accounting Responsibility

• Entities Responsible for Government Accounting:

  • Commission on Audit (COA)

    • Promulgates accounting and auditing regulations.

    • Maintains general accounts and submits reports to the President and Congress.

  • Department of Budget and Management (DBM)

    • Formulates and implements the national budget.

  • Bureau of Treasury (BTr)

    • Manages government funds and financial transactions across government agencies.

  • Various Government Agencies

    • Responsible for executing projects and functions as mandated.

Financial Reporting System of the National Government

• Entities reconcile accounting records and submit financial reports to COA for consolidation, leading to submitted reports to the President and Congress.

Government Accounting Manual (GAM) for NGAs

• Introduced as a new framework for government accounting standards on January 1, 2016, to align with international standards (IPSAS).

Coverage and Objectives of GAM for NGAs

• Coverage: Standards for general purpose financial statements and budgetary reporting.

• Objectives: To update accounting standards, policies, guidelines, and financial reporting practices.

Basic Accounting and Reporting Principles

1. Follow Philippine Public Sector Accounting Standards (PPSAS).

2. Apply accrual basis for accounting transactions.

3. Ensure adherence to budget presentation norms.

4. Maintain revised Chart of Accounts.

5. Implement double-entry bookkeeping.

6. Prepare financial statements reflecting accounting and budget records.

7. Organize books by fund clusters (e.g., Regular Agency Fund).

Qualitative Characteristics of Financial Reporting

• Understandability: Information should be comprehensible to its users.

• Relevance: Must assist users in decision-making based on timely information.

• Materiality: Information should be considered significant if its absence could sway user decisions.

• Timeliness: Reporting should avoid delays that diminish relevance.

• Reliability: Information should be free from bias and errors, accurately representing events.

• Faithful Representation: Must cover both the substance and legal form of transactions.

• Neutrality: Avoid biased presentation aimed at influencing decisions.

• Prudence: Exercise caution in uncertainty to prevent misrepresentation.

• Completeness: Ensure adequacy of information within materiality limits.

• Comparability: Enable users to identify similarities and differences in reported information.

General Purpose Financial Statements Components

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 Financial Statements

Elements of Financial Statements

• Assets: Resources controlled resulting from past events yielding future benefits.

  • Recognition requires probable future benefits and reliable measurement.

• Liabilities: Obligations arising from past events expected to result in resource outflow.

• Equity: Residual interest in assets after liabilities are deducted.

• Revenue: Gross inflow of benefits leading to increases in net assets, not from owner contributions.

• Expenses: Outflows or consumption of assets that lead to decreases in net assets other than distributions to owners.