ACCOUNTING FOR CHAPTER 1

GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

GENERAL PROVISIONS, BASIC STANDARDS AND POLICIES

In order to harmonize the existing accounting standards with the internal standards,
the Commission on Audit (COA), as a member of the International Organization of
Supreme Audit Institutions (INTOSAI), through its authority under Article IX-D,
Section 2, paragraph 2 of the 1987 Philippine Constitution (i. e. to promulgate
accounting and auditing rules and regulations) prescribed the Government Accounting
Manual for National Government Agencies (GAM for NGAs).

The Government Accounting Manual (GAM) presents the basic accounting policies and
principles in accordance with Philippine Public Sector Accounting Standards (PPSAS)
adopted through COA Resolution No. 2014-003 dated January 24, 2014 and other
pertinent laws, rules and regulations; however, COA Circular No. 2021-004 dated July
21, 2021 renamed PPSAS to International Public Sector Accounting Standards (IPSAS).
It is a revision of the New Government Accounting System (NGAS) prescribed under
COA Circular No. 2002-002 dated January 18, 2002; and it includes the Revised Chart of
Accounts (RCA) prescribed under COA Circular No. 2013-002 dated January 20, 2013,
as amended [superseded by COA Circular No. 2020-001 dated January 8, 2020]; the
accounting procedures, books, registries, records, forms, reports and financial
statements. This manual aims to update the following:
1. Standards, policies, guidelines and procedures in accounting for government funds
and property;
2. Coding structure and accounts; and
3. Accounting books, registries, records, forms, reports and financial statements.

It shall be used by all National Government Agencies (NGAs) in the 1. Preparation of

the general purpose financial statements in accordance with the IPSAS and other
financial reports as may be required by laws, rules and regulations; and 2) reporting of
budget, revenue and expenditure in accordance with laws, rules and regulations.

GOVERNMENT ACCOUNTING
Even under the new accounting system, pursuant to Section 109 of Presidential Decree
(PD) No. 1445 (State Audit Code of the Philippines), Government Accounting is defined
as one which “encompasses the process of analyzing, recording, classifying,
summarising and communicating all transactions involving the receipt and disposition
of government fund and property and interpreting the result thereof.”

Section 110 of the same law sets down the following objectives of Government
Accounting:
1. To produce information concerning past operations and present condition.
2. To provide a basis for guidance for future operations
3. To provide for control of the acts of public bodies and offices in the receipt,
disposition and utilization of funds and property; and
4. To report on the financial position and the results of operations of government
agencies for the information and guidance of all persons concerned.

Information of past operations and present conditions will facilitate the evaluation of
the performance of an agency from one period to another. The results of the evaluation
may guide the agency on what course of action to take as regards future operation, as
well as come up with a proper analysis of the funds needed for a project.

Public officers are accountable for the resources entrusted to them. The accounting data
will show whether or not the agency is achieving its mandates as well as its operational
DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS
OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

objectives. Moreover, the financial reports will also show the extent of the agency’s
financial and non-financial resources, which have useful lives. Evaluation of said
information will enable the users to determine the “service potential” of the Agency’s
resources, as well as give an indication when additional resources need to be injected
into operations.

The accounting data will also show the obligations of the agency and how such
obligations have been incurred. The information should tell its users the sources of
resources, which will meet these obligations. The information should show an analysis
of the inflow and outflow of resources, especially of financial resources. To achieve its
objectives, e. g., the adoption of a system that is in conformity with international
accounting standards, the COA as a member of the INTOSAI is encouraged to adopt
relevant international accounting standards.

PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS

In order to formulate and implement public sector accounting standards and establish
linkages with international bodies, professional organizations and academe on
accounting related fields on financial management, the Public Sector Accounting
Standards Board (PSASB) was created in 2008 under COA Resolution No. 2008-12 dated
October 10, 2008. In developing standards of the PPSAS, the PSASB considers and
make use of, among others, the existing laws, financial reporting, accounting rules and
regulations, and pronouncements issued by the International Public Sector Accounting
Standards Board (IPSASB). However, COA Circular No. 2021-004 dated July 21, 2021
renamed PPSAS to International Public Sector Accounting Standards (IPSAS).

The PSASB shall assist the commission in formulating and implementing PPSAS [now
IPSAS]. The PPSAS [now IPSAS] shall apply to all National Government Agencies
(NGAs), Local Government Units (LGUs), Government-Owned and/or Controlled
Corporations (GOCCs), not considered as Government Business Enterprises (GBEs), in
which case, the Philippine Financial Reporting Standards (PFRS) and relevant standards
issued by the Financial Reporting Standards Council, Board of Accountancy, and
Professional Regulations Commission shall apply.

COA Resolution No. 2014-003 dated Jan 24, 2014 prescribed 25 PPSAS [now IPSAS]
effective Jan 1, 2014, as presented on the table below:

IPSAS 1 Presentation of Financial Statements

IPSAS 2 Cash Flow Statements
IPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors
IPSAS 4 The Effects of Changes in Foreign Exchange Rates
IPSAS 5 Borrowing Costs
IPSAS 6 Consolidated and Separate Financial Statements
IPSAS 8 Interest in Joint Ventures
IPSAS 9 Revenue from Exchange Transactions
IPSAS 12 Inventories
IPSAS 13 Leases
IPSAS 14 Events After the Reporting Date
IPSAS 16 Investment Property
IPSAS 17 Property, Plant and Equipment
IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets
IPSAS 20 Related Party Disclosures

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

IPSAS 21 Impairment of Non-Cash Generating Assets

IPSAS 23 Revenue from Non-Exchange Transactions (Taxes and Transfers)
IPSAS 24 Presentation of Budget Information in Financial Statements
IPSAS 26 Impairment of Cash Generating Assets
IPSAS 27 Agriculture
IPSAS 28 Financial Instruments: Presentation
IPSAS 29 Financial Instruments: Recognition and Measurements
IPSAS 30 Financial Instruments: Disclosures
IPSAS 31 Intangible Assets
IPSAS 32 Service Concession Arrangements: Grantor

Moreover, COA Resolution No 2017-006 dated April 26, 2017 adopted additional 6
PPSAS [now IPSAS], as follows:
IPSAS 33 First-time Adoption of Accrual Basis International Public Sector
Accounting Standards (IPSASs)
IPSAS 34 Separate Financial Statements
IPSAS 35 Consolidated Financial Statements
IPSAS 36 Investments in Associates and Joint Ventures
IPSAS 37 Joint Arrangements
IPSAS 38 Disclosure of Interests in Other Entities

Furthermore, the following are additional IPSAS, as follows:

IPSAS 39 Employee Benefits
IPSAS 40 Public Sector Combinations
IPSAS 41 Financial Instruments
IPSAS 42 Social Benefits

The following are the processes and other considerations in developing the PPSAS:
1. Applicability of IPSAS
Existing IPSAS were assessed to determine the applicability of the provisions in the
Philippine setting as bases in the development of PPSAS.
2. Exposure draft of PPSAS
The PSASB issues exposure drafts of all proposed PPSAS for comment by interested
parties including COA officials and auditors, agency finance personnel, oversight
agencies, professional organizations, academe and other stakeholders. The PSASB
sets a reasonable time to allow interested parties to consider and comment on its
proposals. The PSASB evaluates all comments received on exposure drafts and
makes such modifications, where appropriate.
3. Fundamental issues
Where an accounting principles or a significant element of a disclosure requirement
contained in IPSAS is considered to be in conflict with the Philippine laws, rules and
regulations, this would be regarded as a fundamental issue and the accounting
principle or disclosure requirement may be changed.
4. Statutory authority
Where the international standard deviates from the Philippine regulatory or
legislative environment, Philippine application guidance shall be issued
accordingly.
5. Disclosure requirements
Disclosure requirements may be amended when the amendments are regarded as
being significant for improving fair presentation of the matter.
6. PPSAS numbering

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

THE PPSAS is assigned the same number as the IPSAS to maintain the link. Where
a PPSAS is developed and there is no IPSAS equivalent, the standard will be
assigned a number in a series of PPSAS starting with 101. When IPSASB
subsequently issues the equivalent standard as an IPSAS, the 100 series PPSAS will
be withdrawn and reissued as a PPSAS with the IPSAS number. Standards of
PPSAS have equal authority regardless of the numbering used.
7. Financial reporting issues not dealt with by IPSAS
Where issues related to financial reporting emerged, researches were done and a
discussion document prepared based on other relevant accounting standards not in
conflict with Philippine laws.
8. Submission of draft to PSASB for consideration of the COA
Where there are significant changes or unresolved issues associated with an
exposure draft, the PSASB may decide to re-expose a proposed PPSAS.
9. If considered appropriate, focus group discussions will be held to obtain further
opinions on issues identified by the exposure process.

On the other hand, Government Business Enterprise (GBE) is an entity that has the
following characteristics:
1. An entity with the power to contract in its own name;
2. Has been assigned the financial and operational authority to carry on a business;
3. Sells goods and services, in the normal course of its business, to other entities at a
profit or full cost recovery;
4. Not reliant on continuing government funding to be a going concern (other than
purchase of outputs at arm’s length); and
5. Controlled by a public sector entity.

Sample of GOCCs classified as GBEs:

 Bangko Sentral ng Pilipinas
 Philippine International Convention Center, Inc.
 Palacio del Gobernador Condominium Corporation
 Home Guaranty Corporation
 Philippine National Construction Corporation
 Cebu Port Authority
 Zamboanga City Special Economic Zone Authority
 Philippine Crop Insurance Corporation

Sample of GOCCs classified as Non-GBEs:

 Lung Center of the Philippines
 Cultural Center of the Philippines
 Center for International Trade Expositions and Missions
 Development Academy of the Philippines
 Aurora Pacific Economic Zone and Freeport Authority
 Light Rail Transit Authority
 National Power Corporation

GBEs shall also include banks and non-bank financial institutions under the supervision
of the Bangko Sentral ng Pilipinas (BSP) and entities registered with the Securities and
Exchange Commission (SEC) required to adopt PFRS.

ACCOUNTING RESPONSIBILITIES
Accounting responsibility emanates from the Constitution, laws, policies, rules and
regulations. The Constitution of the Philippines, the fundamental law of the land,

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

mandates the keeping of the general accounts of the government, promulgation of

accounting rules and the submission of reports covering the financial condition and
operation of the government.

The offices charged with the accounting responsibility are the Commission on Audit
(COA), the Department of Budget and Management (DBM) and the Bureau of the
Treasury (BTr), and the government agencies discharging the functions of government
to enable it to attain its commitments to the Filipino people.

Commission on Audit
The Commission on Audit (COA) keeps the general accounts of the government,
promulgates accounting rules and regulations, and submits to the President and
Congress, within the time fixed by law (not later than the last day of September each year),
annual report of the government, its subdivisions, agencies and instrumentalities,
including government-owned or controlled corporations.

In the performance of its functions, mandated by Article IX-D, Section 2 paragraph 2 of

the 1987 Constitution of the Philippines, to wit: “The Commission on Audit shall have
exclusive authority, subject to the limitation in this Article, to define the scope of its
audit and examination, establish the techniques and methods required therefore, and
promulgate 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
Commission on Audit revised the previous government accounting system.

Pursuant to the COA, DBM, and DOF Joint Circular No. 2013-1 dated August 6, 2013,
Unified Accounts Code Structures (UACS), the consistency of account classification and
coding structures with the Revised Chart of Accounts shall be the responsibility of the
COA.

As mentioned in the preceding section, the COA vests the exclusive authority to
promulgate accounting rules and regulations, created the PSASB under COA
Resolution 2008-12 dated October 10, 2008.

Department of Budget and Management

Pursuant to Section 2, Chapter 1, Title XVII, Book IV of the Administrative Code of the
Philippines (Executive Order 292), “The Department of Budget and Management shall
be responsible for the formulation and implementation of the National Budget with the
goal of attaining our national socio-economic plans and objectives. The DBM shall be
responsible for the efficient and sound utilization of government funds and revenues to
effectively achieve the country’s development objectives.

Furthermore, as provided by the Joint Circular No. 2014-1 dated August 6, 2013,
Unified Accounts Code Structures (UACS) the validation and assignment of new codes
for funding source organization, sub-object codes for expenditure items shall be the
responsibility of the DBM. In addition, the validation and assignment of new program,
activity, and project codes shall be decided jointly by the proponent agency and the
DBM.

Bureau of the Treasury

The Bureau of the Treasury (BTr) plays pivotal role in the cash operations of the
national government. Accounting rules and regulations pertaining to cash operations,

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

collections, remittances and disbursements, including public borrowings, are issued by

the COA, jointly or with the concurrence of the DOF and the DBM.

Under the Revised Administrative Code, the BTr, as one of the operating bureaus of the
DOF, is authorized to:
1. Receive and keep national funds, manage and control the disbursements thereof;
and
2. Maintain accounts of financial transactions of all national government offices,
agencies and instrumentalities.
Thus, the BTr shall control and monitor the Notice of Cash Allocation (NCA) released
by the DBM, as well as the bank transfers it makes in replenishing its Modified
Disbursement System (MDS) accounts.

According to the Joint Circular No. 2013-1 dated August 6, 2013, Unified Accounts Code
Structures (UACS), the consistency of accounts classification and coding standards with
the Government Finance Statistics (GFS) shall be the responsibility of Department of
Finance – Bureau of the Treasury. However, it should be noted that GFS coding will
generally not be shown to be part of the UACS; instead, GFS data will be obtained from
reference table inside the system that will map GS function coding from MFO/PAP
codes, as well as GFS economic classification coding from object codes for non-financial
assets, financial assets, liabilities, revenues and expenses.

National Government Agencies

Departments, bureaus, offices and other instrumentalities of the National Government,
including the Congress, the Judiciary, the Constitutional bodies, state universities and
colleges, and other self-contained institutions and hospitals are required by law to have
accounting units/divisions/departments, which are to be of the same level with other
units/divisions/departments in the agency and under the direct supervision of the
Head of the Agency. Accounting personnel shall 1) maintain and keep current the
account of the agency; 2) provide advice on the financial condition and status of the
appropriations and allotments of the agency as its Head may require; and 3) to develop
and conduct procedures designed to meet the needs of management. They shall
perform the aforesaid duties in accordance with existing laws, rules and regulations,
procedures and comply with the reporting requirements of the COA, the DOF and the
SBM. Failure to comply with these requirements is sufficient ground for dismissal from
the government service.

BASIC GOVERNMENT ACCOUNTING AND BUDGET REPORTING PRINCIPLES

The Government Accounting Manual provides general provisions from existing laws,
rules and regulations; and basic standards/fundamental accounting principles for
financial reporting by national government agencies. It requires each government
entity to recognize and present its financial transactions and operations in conformity
with the following:

1. Generally accepted government accounting principles in accordance with the

PPSAS and pertinent laws, rules and regulations;
COA Resolution No. 2014-003 dated Jan 24, 2014 prescribed 25 PPSAS effective Jan
1, 2014. These PPSASs were based on International Public Sector Accounting
Standards (IPSASs) which were published in the 2012 Handbook of International
Public Sector Accounting Pronouncements of the IPSASB. Subsequently, COA
Resolution No 2017-006 dated April 26, 2017 adopted additional 6 PPSAS.

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

In adopting IPASB, PSASB attempts, wherever possible, to maintain the accounting

treatment and original contents of the IPSASs and its approved amendments, unless
there is a significant accounting issues that warrants a departure. In so doing, the
PPSAS is assigned the same number as the IPSAS to maintain the link.

In case where a specific accounting issue is either not comprehensively dealt with in
an existing IPSAS or an IPSAS has not been developed by the IPSASB, a new
standard of PPSAS shall be developed. Accordingly, researches shall be conducted
and a discussion document shall be prepared based on other relevant accounting
standards not in conflict with Philippine laws. As discussed in the preceding
section, where a new PPSAS is developed and there is no equivalent IPSAS, the
standard will be assigned a number in a series of PPSAS starting with 101. When
IPSASB subsequently issues the equivalent standard as an IPSAS, the 100 series
PPSAS will be withdrawn and reissued as a PPSAS with the IPSAS number.

However, COA Circular No. 2021-004 dated July 21, 2021 renamed PPSAS to
International Public Sector Accounting Standards (IPSAS).

2. Accrual basis of accounting in accordance with the IPSAS

Accrual basis means a basis of accounting under which transactions and other
events are recognized when they occur, and not when cash or its equivalent is
received or paid. Thus, the transaction and events are recognized in the accounting
records and recognized in the financial statements of the periods to which they
relate. The elements recognized under accrual accounting assets, liabilities, net
assets/equity, revenue, and expenses.

3. Budget basis for presentation of budget information in the financial statements

(FSs) in accordance with IPSAS 24
IPSAS 24, Presentation of Budget Information in Financial Statements, requires a
comparison of budget amounts and the actual amounts arising from execution of the
budget to be included in the financial statements of entities that are required to, or
elect to, make publicly available their approved budget/s, and for which they are,
therefore, held publicly accountable. It also requires disclosure of an explanation of
the reasons for material difference between the budget and actual amounts.
Compliance with the requirements of this standard will ensure that public sector
entities discharge their accountability obligations and enhance the transparency of
their financial statements by demonstrating:
a. Compliance with the approved budget/s for which they are held publicly
accountable; and
b. Where the budget/s and the financial statements are prepared on the same basis,
their financial performance in achieving the budgeted results.

4. RCA prescribed by COA

The COA as member of INTOSAI is encouraged to adopt relevant International
Accounting Standards. The IPSASB of the International Federation of Accountants
which promulgates the IPSASs, acknowledges the right of governments and
national standards-setters to establish their respective accounting standards and
guidelines for financial reporting in their jurisdictions.

To provide new accounts for the adoption of the PPSAS which were harmonized
with the IPSAS to enhance the accountability and transparency of the financial
reports, and ensure the compatibility of financial information, the COA recognizes

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

the need to revise the New Government Accounting System (NGAS) Chart of
Accounts prescribed in COA Circular No. 2004-008 dated September 20, 2004. The
Commission also recognizes the need for uniform accounts to be used in the
national government accounting and budget systems to facilitate the preparation of
harmonized financial and budget accountability reports.

Accordingly, the COA revokes COA Circular No. 2004-008 dated September 20,
2004 and the COA Circular No. 2013-002 dated January 30, 2013, Adoption of the
Revised Chart of Accounts for National Government Agencies, is adopted.
Moreover, COA Circular No. 2014-003 dated April 15, 2014, Implementing Rules
and Guidelines on the Conversion from the Philippine Government Chart of
Accounts under the NGAS to the Revised Chart of Accounts for National
Government Agencies. Recently, it was superseded by COA Circular No. 2020-001
dated January 8, 2020, Volume III-The Revised Chart of Accounts (Updated 2019) of
the GAM for NGAs, which provides additional accounts and modified account
codes and descriptions to facilitate proper recognition of financial transactions in the
books of accounts and preclude misuse misuse of accounts.

Lastly, COA Circular No. 2015-007 dated October 22, 2015 prescribes the
Government Accounting Manual for Use of All National Government Agencies.

5. Double entry bookkeeping

It is a system of bookkeeping where every journal entry to account requires a
corresponding and opposite entry to a different account. In the double-entry
accounting system, two accounting entries are required to record each accounting
transactions. Recording of a debit amount to one or more accounts and an equal
credit amount to one or more accounts results in total debits being equal to total
credits for all accounts in the general ledger.

6. Financial statements based on accounting and budgetary records

The objectives of general purpose financial statements (GPFSs) are to provide
information about the financial position, financial performance, and cash flows of an
entity that is useful to a wide range of users in making and evaluating decisions
about the allocation of resources. Specifically, the objectives of general purpose
financial reporting in the public sector are to provide information useful for
decision-making, and to demonstrate the accountability of the entity for the
resources entrusted to it by:
a. Providing information about the sources, allocation, and uses of financial
resources;
b. Providing information about how the entity financed its activities and met its
cash requirements;
c. Providing information that is useful in evaluating the entity’s ability to finance
its activities and to meet its liabilities and commitment;
d. Providing information about the financial condition of the entity and changes in
it;
e. Providing aggregate information useful in evaluating the entity’s performance in
terms of service costs, efficiency and accomplishments.

Financial reporting may also provide users with information:

a. Indicating whether resources were obtained and used in accordance with the
legally adopted budget; and

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

b. Indicating whether resources were obtained and used in accordance with legal
and contractual requirements, including financial limits established by
appropriate legislative authorities.

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.

COA Circular No. 2015-002 dated March 9, 2015, Supplementary guidelines on the
preparation of financial statements and other financial reports, the transitional
provisions on the implementation of the Philippine Public Sector Accounting
Standards, and the coding structure, provides that for the purpose of preparing the
Annual Financial Report and the Annual Audit Reports, all NGAs shall submit to
the COA Auditors and Government Accountancy Sector (GAS), COA, the detailed
financial statements and trial balances consolidated by the fund cluster as follows:

Code
Fund Cluster Description
Number
01 Regular Agency Fund
02 Foreign Assisted Projects Fund
03 Special Account-Locally Funded/Domestic Grants Fund
04 Special Account-Foreign Assisted/Foreign Grants Fund
05 Internally Generated Funds
06 Business Related Funds
07 Trust Receipts

RESPONSIBILITY ACCOUNTING
Responsibility Accounting provides access to cost and revenue information under the
supervision of a manager having a direct responsibility for its performance. It is a
system that measures the plans (by budgets) and actions (by actual results) of each
responsibility center.

Responsibility Center is a part, segment, unit or function of a government agency,

headed by a manager, who is accountable for a specified set of activities. Except for
some, which derive most of their income from collection of taxes and fees, NGAs are
basically cost centers which primary purpose is to render service to the public at the
lowest possible cost. Cost centers are established to provide each government agency’s
accessibility to cost information and to facilitate cost monitoring at any given period.

Responsibility accounting aims to: a) ensure that all costs and revenues are properly
charged/credited to the correct responsibility center so that deviations from the budget
can be readily attributed to managers accountable therefor; b) provide a basis for
making decisions for future operations; and c) facilitate review activities, monitoring
the performance of each responsibility center and evaluation of the effectiveness of
agency’s operations.

The following are the concepts of responsibility accounting:

a) Responsibility accounting involves accumulating and reporting data on revenues
and costs on the basis of the manager’s action who has authority to make the day-to-
day decisions about the items;

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

Evaluation of a manager’s performance is based on the matters directly under his

control;
b) Responsibility accounting can be used at every level of management in which the
following conditions exist:
1. Cost and revenues can be directly associated with the specific level of
management responsibility;
2. Costs and revenues are controllable at the level of responsibility with which they
are associated; and
3. Budget data can be developed for evaluating the manager’s effectiveness in
controlling the costs and revenues.
c) The reporting of costs and revenues under responsibility accounting differs from
budgeting in two respects: 1.
1. A distinction is made between controllable and non-controllable costs.
 A cost is considered controllable at a given level of managerial responsibility
if the manager has the power to incur it within a given period of time. It
follows that (1) all costs are controllable by top management because of the
broad range of its activity; and (2) fewer costs are controllable as one move
down to lower level of managerial responsibility because of the manager’s
decreasing authority.
 Non-controllable costs are costs incurred indirectly and allocated to a
responsibility level.
2. Performance reports either emphasize or include only items controllable by
individual manager.
A responsibility reporting system involves the preparation of a report for each level of
responsibility. Responsibility reports usually compare actual costs with flexible budget
data. The reports show only controllable costs and no distinction is made between
variable and fixed costs.
Evaluation of a manager’s performance for cost centers is based on his ability to meet
budgeted goals for controllable costs.

In order to be effective in identifying the performance of a segment or unit of the

agency under the control and responsibility of the segment’s manager, the coding
structure has been formulated. However, in order to provide a harmonized budgetary
and accounting code classification that will facilitate the efficient and accurate financial
reporting, this coding structure was modified and repealed lately by the COA, DBM
and DOF through Joint Circular No. 2013-1 dated August 6, 2013, Unified Accounts
Code Structures (UACS). This was enhanced through Joint Circular No. 2014-1 dated
November 7, 2014 amending the Funding Source code and MFO/PAP Code (This is
separately discussed under the Unified Accounts Code Structures).

Each NGA shall be assigned a responsibility center code defined as organization code in
the UACS Manual. For monitoring revenue and expenses, additional three digit codes
for the agency’s major offices/departments shall be appended to the organization code
(This is separately discussed under the Unified Accounts Code Structures).

GENERAL PURPOSE FINANCIAL STATEMENTS

Objectives of General Purpose Financial Statements
The objectives of general purpose financial statements (GPFSs) are to provide
information about the financial position, financial performance, and cash flows of an
entity that is useful to a wide range of users in making and evaluating decisions about
the allocation of resources. Specifically, the objectives of general purpose financial
reporting in the public sector are to provide information useful for decision-making,

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

and to demonstrate the accountability of the entity for the resources entrusted to it.

Components of General Purpose Financial Statements

The complete set of GPFSs consists of:
 Statement of Financial Position;
 Statement of Financial Performance;
 Statement of Changes in Net Assets/Equity;
 Statement of Cash Flows ;
 Statement of Comparison of Budget and Actual Amounts; and
 Notes to the Financial Statements, comprising a summary of significant accounting
policies and other explanatory notes.

QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING

Qualitative Characteristics of Financial Reporting
An entity shall present information including accounting policies in a manner that
meets a number of qualitative characteristics such as understandability, relevance,
materiality, reliability and comparability. These qualitative characteristics are the
attributes that make the information provided in the FSs useful to users.

The four principal qualitative characteristics are understandability, relevance, reliability

and comparability.

1. Understandability
Information is understandable when users might reasonably be expected to
comprehend its meaning. For this purpose, users are assumed to have a reasonable
knowledge of the entity’s activities and the environment in which it operates, and to be
willing to study the information. Information about complex matters should not be
excluded from the financial statements merely on the grounds that it may be too
difficult for certain users to understand.

2. Relevance
Information is relevant to users if it can be used to assist in evaluating past, present or
future events or in confirming, or correcting, past evaluations. In order to be relevant,
information must also be timely.
 Materiality - the relevance of information is affected by its nature and materiality.
Information is material if its omission or misstatement could influence the
decisions of users or assessments made on the basis of the financial statements.
Materiality depends on the nature or size of the item or error judged in the
particular circumstances of its omission or misstatement. Thus, materiality
provides a threshold or cut-off point rather than being a primary qualitative
characteristic which information must have if it is to be useful.

3. Reliability
Reliable information is free from material error and bias, and can be depended on by
users to represent faithfully that which it purports to represent or could reasonably
be expected to represent.
 Faithful Representation - For information to represent faithfully transactions and
other events, it should be presented in accordance with the substance of the
transactions and other events, and not merely their legal form.
 Substance Over Form - If information is to represent faithfully the transactions and

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

other events that it purports to represent, it is necessary that they are accounted
for and presented in accordance with their substance and economic reality and
not merely their legal form. The substance of transactions or other events is not
always consistent with their legal form.
 Neutrality - Information is neutral if it is free from bias. Financial statements are
not neutral if the information they contain has been selected or presented in a
manner designed to influence the making of a decision or judgment in order to
achieve a predetermined result or outcome.
 Prudence - Prudence is the inclusion of a degree of caution in the exercise of the
judgments needed in making the estimates required under conditions of
uncertainty, such that assets or revenue are not overstated and liabilities or
expenses are not understated. However, the exercise of prudence does not allow,
for example, the creation of hidden reserves or excessive provisions, the
deliberate understatement of assets or revenue, or the deliberate overstatement
of liabilities or expenses, because the financial statements would not be neutral
and, therefore, not have the quality of reliability.
 Completeness - The information in financial statements should be complete within
the bounds of materiality and cost.

4. Comparability
Information in financial statements is comparable when users are able to identify
similarities and differences between that information and information in other
reports.

Comparability applies to the:

 Comparison of financial statements of different entities; and
 Comparison of the financial statements of the same entity over periods of time.

An important implication of the characteristic of comparability is that users need to

be informed of the policies employed in the preparation of financial statements, changes
to those policies and the effects of those changes. Because users wish to compare the
performance of an entity over time, it is important that financial statements show
corresponding information for preceding periods.

REFERENCES
1. Government Accounting Manual for National Government Agencies
 Chapter 2 - General Provisions, Basic Standards and Policies
 Chapter 4 - Responsibility Accounting
2. Philippine Public Sector Accounting Standard (IPSAS) 1: Presentation of Financial
Statements
3. COA Circulars
 COA Circular No. 2002-002 dated January 18, 2002
 COA Circular No. 2004-008 dated September 20, 2004
 COA Circular No. 2013-002 dated January 20, 2013
 COA Circular No. 2015-007 dated October 22, 2015
 COA Circular No. 2020-001 dated January 8, 2020
 COA Circular No. 2021-004 dated July 21, 2021
4. COA Resolutions
 COA Resolution 2008-12 dated October 10, 2008
 COA Resolution No. 2014-003 dated Jan 24, 2014

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION
 ACCOUNTING FOR CHAPTER 1
GOVERNMENT &
NON-PROFIT
OVERVIEW OF GOVERNMENT ACCOUNTING
ORGANIZATIONS MODULE CONTENTS

 COA Resolution No 2017-006 dated April 26, 2017

5. Joint Circulars
 COA, DBM, and DOF Joint Circular No. 2013-1 dated August 6, 2013
 Joint Circular No. 2014-1 dated November 7, 2014

DO NOT COPY, REPRODUCE, DISTRIBUTE AND PUBLISH CONTENTS

OVER WEBSITES OR ANY PLATFORM WITHOUT PRIOR PERMISSION