PRE8 - Accounting For Government & Non-Profit Organization

Chapter 1 - General Provisions, Basic Standards and Policies

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

This Government Accounting Manual 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. 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 30, 2013, as amended; the accounting procedures,
books, registries, records, forms, reports and financial statements. This manual aims to update the
following:

1. Standards, polices, guidelines and procedures in accounting tor government funds and property
2. Coding structure and account
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 PPSAS and
other financial reports as may be required by laws, rules and regulations
2. Reporting of budget, revenue and expenditure in accordance with laws, rules and regulations

Government Accounting

Government accounting is defined, pursuant to Section 109 of PD 1445, as one which

"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."

Section 110, Presidential Decree 1445 sets down the following objectives of government accounting:

1. To produce information concerning past operations and present conditions

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
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.
• Public officers are accountable for the resources entrusted to them.
• The accounting data will also show the obligations of the agency and how such obligations
have been incurred.
 PRE8 - Accounting For Government & Non-Profit Organization

Public Sector Accounting Standards Board

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 Standards Board (PSASB) was created in 2008 under COA
Resolution No. 2008-12 dated October 10, 2008. In developing standards of the Philippine Public
Sector Accounting Standards (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).

The PSASB shall assist the commission in formulating and implementing Philippine Public Sector
Accounting Standards (PPSAS). The PPSAS shall apply to all

1. National Government Agencies (NGAs)

2. Local Government Units (LGUs)
3. 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
Regulation Commission shall apply. In other words, GBE is covered by the accounting standards
issued by IFRS/PFRS but not IPSAS/PPSAS.

Government Business Enterprise (GBE) is an entity that has all 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)
5. Controlled by a public sector entity

The following are the processes and other considerations in developing the Philippine Public
Sector Accounting Standards (PPSAS):

1. Applicability of IPSAS
The PPSAS, as aligned with the prevailing international standards, provide quality
accounting standards thereby enhancing the quality and uniformity in financial reporting by
Philippine Public Sector entities, and ensuring accountability, transparency and comparability
of financial information with other public sector entities around the world.

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 evaluates all
comments received on exposure drafts and makes such modifications, where appropriate.

3. Fundamental issues
Where an accounting principle or & 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.
 PRE8 - Accounting For Government & Non-Profit Organization

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
The PPSAS is assigned the same number as the IPSAS to maintain the link. 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.

Accounting Responsibility

Accounting responsibility emanates from the Constitution, laws, policies, rules and regulations.
The Constitution of the Philippines, the fundamental law of the land, 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), the Bureau of 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, an annual report of the government, its subdivisions, agencies and instrumentalities, including
government-owned or controlled corporations.

In the performance of its functions, as mandated by Article IX-D, Section 2 par. (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
 PRE8 - Accounting For Government & Non-Profit Organization

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.

Department of Budget and Management

Pursuant to Section 2, Chapter 1, Title XVII, Book IV of the Administrative Code of the
Philippines (E0 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 Department shall be responsible for the efficient and sound
utilization of government funds and revenues to effectively achieve the country's development
objectives."

Bureau of Treasury

The Bureau of Treasury (BTr) plays a pivotal role in the cash operations of the national
government. Accounting rules and regulations pertaining to cash operations, collections, remittances
and disbursements, including public borrowings, are issued by the Commission on Audit, jointly or
with the concurrence of the Department of Finance and the Department of Budget and Management,

Under the Revised Administrative Code, the Bureau of Treasury, as one of the operating
bureaus of the Department of Finance is authorized to:

1. Receive and keep national funds, manage and control the disbursements thereof
2. Maintain accounts of financial transactions of all national government offices, agencies and
instrumentalities.

Thus, the Bureau of Treasury shall control and monitor the Notice of Cash Allocation (NCA)
released by the Department of Budget and Management; as well as the bank transfers it makes in
replenishing its Modified Disbursement System (MDS) accounts.

National Government Agencies

Departments, bureaus, offices and other instrumentalities of the National Government, including
the Congress, the Judiciary, the Constitutional bodies, state colleges and universities, 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 accounts of the agency

2. Provide advice on the financial condition and status of the appropriations and allotments or the
agency as its Head may require
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, regulations,
procedures and comply with the reporting requirements of the Commission on Audit, the Department
of Finance and the Department of Budget and Management. Failure to comply with these
requirements is sufficient ground for dismissal from the government service.
 PRE8 - Accounting For Government & Non-Profit Organization

Under the new accounting system, the government agencies shall maintain the following registries:

1. Registry of Revenue and Other Receipts-Summary (RRORS)

The RROR shall be maintained by the4 Budget Division/Unit of NGA to monitor the
revenue and other receipts estimated/budgeted, collected and remitted/deposited.

This summary shall be kept by the Budget Division/Unit for each fund cluster maintained by
the entity.

2. Registry of Revenue and Other Receipts Regular Agency and Foreign Assisted Projects Fund
(RROR-RA&FAP)

This registry shall be maintained by the Budget Division/Unit of the entity for the following
fund clusters: 1.) Regular Agency Fund; and, 2.) Foreign Assisted Project fund.

3. Registry of Revenue and Other Receipts Special Account Locally Funded/Domestic Grants
Fund and Special Account Foreign Assisted/ Foreign Grants Fund (RROR-SADFGF)

This registry shall be maintained by the Budget Division/Unit of the entity for the
following fund clusters: 1.) Special Account Funded/Domestic Grants Fund; and, 2.) Special
Account Foreign Assisted/Foreign Grants Fund.

4. Registry of Revenue and Other Receipts - Internally Generated Funds (Off Budgetary Funds
Retained Income Funds)/Business Related Funds (RROR-IGF/BRF)
This registry shall be maintained by the Budget Division/Unit of the entity for the
following fund clusters: 1.) Internally Generated Funds (Off Budgetary- Retained Income
Funds); and, 2.) Business Related Funds

5. Registry of Revenue and Other Receipts Trust Receipts/lnter-agency Transferred Funds

(RROR-TR/IATF)

This registry shall be maintained by the Budget Division/Unit of the entity for the Trust
Receipts/Inter-agency Transferred Funds.

6. Registry of Appropriation and Allotments (RAPAL)

The RAPAL shall be maintained to monitor appropriations and allotments charged

thereto. It shall show the original, supplemental and final budget for the year and all allotments
received charged against the corresponding appropriation.

This registry shall be maintained by fund cluster by the Budget Division/Unit of each
entity to ensure that allotment releases are within the authorized appropriation. Separate
registry shall be maintained for prior year's appropriations.

7. Registry of Allotments, Obligations and Disbursements- Personnel Services(RAOD-PS)

The RAOD shall be maintained to record allotments, obligations and disbursements. It

shall show the allotment received for the year, obligations incurred, and the actual
disbursements made. The incurrence of obligations shall be made through the issuance or
Obligation Request and Status (ORS). Every time an entry is made, the balance is determined
to prevent incurrence of obligations in excess of allotment and overdraft in disbursements
against obligations incurred.

This registry shall be maintained by the Budget Division/Unit by Appropriation Act, fund
cluster, by Major Final Output (MFO) or Program/Activity/Project (PAP) for personnel services.
 PRE8 - Accounting For Government & Non-Profit Organization

8. Registry of Allotments, Obligations and Disbursements- Maintenance and Other Operating

Expenses (RAOD-MOOE)
This registry shall be maintained by the Budget Division/Unit by Appropriation Act, fund
cluster, by Major Final Output (MFO) or Program/Activity/Project (PAP) Tor maintenance and
other operating expenses.

9. Registry of Allotments, Obligations and Disbursements-Financial Expenses(RAOD-FE)

This registry shall be maintained by the Budget Division/Unit by Appropriation Act, fund
cluster, by Major Final Output (MFO) or Program/Activity/Project (PAP) tor financial expenses.

10. Registry of Allotments, Obligations and Disbursements-Capital Outlays (RAOD-CO)

This registry shall be maintained by the Budget Division/Unit by Appropriation Act, fund
cluster, by Major Final Output (MFO) or Program/Activity/Project (PAP) for capital outlays.

11. Registry of Budget, Utilization and Disbursements Personnel Services (RBUD-PS)

The RBUD shall be used to record the approved special budget and the corresponding
utilizations and disbursements charged to retained income authorized under RA 8292 for State
Universities and Colleges (SUCs) and other retained income collections of a NGA with similar
authority.

This registry shall be maintained by the Budget Division/Unit by fund cluster, by Major
Final Output (MFO) or Program Activity/Project (PAP) for personnel services.

12. Registry of Budget, Utilization and Disbursements Maintenance and Other Operating
Expenses (RBUD-MOOE)

This registry shall be maintained by the Budget Division/Unit by fund cluster, by Major
Final Output (MFO) or Program Activity/Project (PAP) for maintenance and other operating
expenses.

13. Registry of Budget, Utilization and Disbursements Financial Expenses (RBUD-FE)

This registry shall be maintained by the Budget Division/Unit by fund cluster, by Major
Final Output (MFO) or Program Activity/Project (PAP) for financial expenses.

14. Registry of Budget, Utilization and Disbursements- Capital Outlays (RBUD-CO)

This registry shall be maintained by the Budget Division/Unit by fund cluster, by Major
Final Output (MFO) or Program Activity/Project (PAP) for capital outlays.

15. Registry of Allotments and Notice of Cash Allocation (RANCA)

This registry shall be maintained by the Accounting Division/Unit to determine the amount
of allotments not covered by NCA and to monitor available NCA.

16. Registry of Allotments and Notice of Transfer of Allocation (RANTA)

This registry shall be maintained by the Accounting Division/Unit to determine the amount
of allotments not covered by NCA and to monitor available NCA.
 PRE8 - Accounting For Government & Non-Profit Organization

BASIC 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 is 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. 2014-005 dated January 24, 2014 prescribed the adoption of
twenty five (25) Philippine Public Sector Accounting Standards (PPSASs) effective January 1,
2014. These PPSASs were based on International Public Sector Accounting Standards
(PSASS) which were published in the 2012 Handbook of International Public Sector
Accounting Pronouncements of the IPSASB.
In adopting International Public Sector Accounting Standards (IPSAS), the 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.

2. Accrual basis of accounting in accordance with the PPSAS.

Accrual basis means a basis of accounting under which transactions and other events
are recognized when they occur, and not when cash or Is 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.

3. Budget basis for presentation of budget information in the financial statements in accordance
with PPSAS 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 the approved budget/s, and for which they are, therefore, held publicly accountable.
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
b. Where the budget/s and the financial statements are prepared on the same basis, their
financial performance in achieving the budgeted results.

4. Revised Chart of Accounts prescribed by Commission on Audit.

The Commission on Audit as member of the International Organization of Supreme

Audit Institutions (INTOSA) 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.
And 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
 PRE8 - Accounting For Government & Non-Profit Organization

compatibility of financial information, the COA recognizes the need to revise the New
Government Accounting System (NGAS) Chart of Accounts prescribed in COA Cir. 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.

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 reporting in the public sector should be 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 commitments
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
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 reports, the transitional provisions on the
implementation of the PPSAS, and other coding structures, provides that for the purpose of
preparing the Annual Financial Report and the Annual Audit Reports, all National Government
Agencies (NGAs) shall submit to the COA Auditors and the Government Accountancy Sector
(GAS), COA, the detailed financial statements and trial balances consolidated by the fund
cluster as follows:
 PRE8 - Accounting For Government & Non-Profit Organization

a. Regular Agency Fund

b. Foreign Assisted Projects Fund
c. Special Accounts - Locally Funded/Domestic Grants Fund
d. Special Accounts- Foreign Assisted/Foreign Grants Fund
e. Internally Generated Funds
f. Business Related Funds
g. Trust Receipt/lnter-agency Transferred Funds (IATF)

Responsibility Accounting

Responsibility accounting is a system that relates the financial results to a responsibility center,
which provides access to cost and revenue information under the supervision of a manager having
direct responsibility for its performance. It is a system that measures the plans (by budget) and
actions (by actual results) of each responsibility center.

Responsibility center, on the other hand, is 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 or their income from collection of taxes and fees, national government agencies
are basically cost centers, whose 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. While the use of subsidiary ledgers is
sufficient to control cost, it requires considerable time to summarize the cost incurred by the agency
for its different programs, projects, activities and offices/divisions, hence, responsibility accounting
shall be done only under the computerized accounting system.

Responsibility accounting aims to:

1. 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
2. provide a basis for making decisions for future operations
3. 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:

1. 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
2. Evaluation of a manager's performance is based on the matters directly under his control
3. Responsibility accounting can be used at every level of management in which the following
conditions exist
a. Cost and revenues can be directly associated with the specific level of management
responsibility
b. Costs and revenues are controllable at the level of responsibility with which they are
associated
c. Budget data can be developed for evaluating the managers effectiveness in
controlling the costs and revenues.
4. The reporting of costs and revenues under responsibility accounting from budgeting in two
aspects:
a. A distinction is made between controllable and non-controllable costs
 PRE8 - Accounting For Government & Non-Profit Organization

o A cost is considered controllable at a given level of managerial responsibility if that

manager has the power to incur it within a given period of time. It follows that all costs
are controllable by top management because of the broad range of its activity, and
fewer costs are controllable as one moves down to lower level or management
responsibility because of the manager's decreasing authority.
o Non-controllable costs are costs incurred indirectly and allocated to a responsibility
level.
b. Performance reports either emphasize or include only controllable by individual manager.

5. 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.
6. 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 Commission on Audit, Department of Budget and Management, and
Department of Finance through Joint Circular No. 2013-1 dated August 6, 2013: Unified Accounts
Code Structure (UACS).