AC 518 HAND-OUTS
GOVERNMENT ACCOUNTING
AND AUDITING TNCR
The National Government of the Philippines
The government is the largest financial organization in terms of assets, liabilities, capital, sources of income and
items of expenditures. It is also the largest entity in terms of number and quality of personnel, facilities and
instrumentalities, which are used to serve the social, political and economic needs of the nation. The government
has as many departments, commissions or offices as necessary to be able to carry out its functions, like promotion of
social welfare, development of national wealth, defense of the state from internal and external aggression, promotion
of justice, promotion of trade and industry, general government and protection of private rights of the people.
Government Accounting Defined(Section 109 of PD 1445)
Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing and
communicating all transactions involving the receipt and disposition of government funds and property and
interpreting the results thereof. Government accounting is a service activity.
Three (3) types of governmental organizational units:
• National Government Unit(LGU) – are agencies that includes all departments, bureaus, offices,
boards, commissions, councils state colleges and universities.
• Local Government Unit(NGAs)- political subdivisions of the Philippines having substantial control
over local affairs, consisting of provinces, cities, municipalities and barangays.
• Government Owned or Controlled Corp(GOCC)- are agencies organized by law or pursuant to law,
vested with functions relating to public needs whether government or propriety in nature, owned by
the government directly or through its instrumentalities either wholly or, where applicable as in case
of stock corporation, to the extent of at least fifty one % of its capital stock.
FUNCTIONS OF GOVERNMENT ACCOUNTING
To provide quantitative information primarily financial in nature about the operations of the government, both
national and local, to be used by the administration in making decisions for a more effective and efficient public
service.
OBJECTIVES
1.To provide quantitative information concerning past operations and present conditions.
2.To provide a basis for guidance for future operations.
3.To provide for control of the account of public entities and officers in the receipt, disposition
and utilization funds and properties, and
4.To report on the financial position and the result of the operations of the government agencies
for the information of all persons concerned.
Users of Government Accounting Information:
1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative Body.
3. The managers/administrators who are in-charge of carrying out the policy and daily conduct of government
affairs.
4. The students of public finance
5. The resource providers of the government such as:
• Donors or grantors
• Lenders, suppliers and employees whose main concern is to know whether the government can
pay its obligations to them.
DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERPRISES
, 3. Organization - The organization of a private enterprise is a succession of authority and responsibility
starting from its stockholders who delegate them to a duly elected board of directors which in turn organize its own
staff of officers in whom the responsibility of managing the affair of business is reposed. The responsibility and
authority of a government entity in our system lies in Congress.
4. Financing - Private enterprise is supported for its finance primarily by the voluntary contribution from its
members or stockholders which constitute as their share of capital or investment in the business. The government is
vested the exclusive right to demand involuntary contributions from its constituent in the form of taxes.
5. Income - In private enterprise, the capital investment of stockholders are made to generate return in the
form of profits for services rendered or good sold. The government which is organized primarily to render service,
cannot make profits on the services it renders. To support the estimated annual cost of government, taxes are levied.
DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING
1. Objective –
CA – is geared towards income measurements aside from control of company
resources,
GA - is control of government funds to see to it that they are properly utilized and
provide data to management for decision.
2. Basis of Accounting -
CA – either cash or accrual method is used but not a combination of both.
GA - the modified accruals basis of accounting is used.
3. Preparation of periodic reports –
CA – Statement of Financial position, Statement of Cash Flows
GA - Balance sheet, statement of income and expenses, statement of government
equity and statement of cash flows.
4. Control Mechanism –
CA – none
GA – Fund accounting, obligation accounting and CDC accounting
5. Books of Accounts –
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government(NG) Books.
6. As to accounts and transactions –
CA - Nominal and Real Accounts are used.
GA - includes budgetary accounts such as Appropriation, Allotments and
Obligations are maintained.
7. Source of Accounting practice and procedures –
CA - dictated by nature of business and policies of management
GA - laws, rules and regulations
Decision-making Process in Government
The decision-making process in government is an important aspect of the environment of state accounting because
accounting information is intended to be useful in making economic decisions and in making reasoned choices
among alternative courses of action.
The ultimate authority for decision-making in the Philippine government rests with the people. This authority is
exercised through duly elected representatives, acting as agents of the people. It is the sovereign right of the people
to change them if the authority is misused or abused.
, At all levels of government, decision-making should comply with existing laws and regulations. Questions and issues
involving the settlement of money claims, determination of dispute or settlement of a controversy on the issue as to
legality and/or propriety of such claims are submitted for resolution to the COA in connection with the discharge of its
audit function. Questions involving legal interpretation and/or application of law are submitted for decision to the
courts.
Salient Features of Government Accounting
The financial resources of the Government are very limited. It relies heavily on collected taxes. This means
that it has to operate through a system of fiscal and accounting controls. The following control mechanisms adopted
as sub-systems of government accounting are not adopted in commercial accounting:
• Fund Accounting
• Obligation Accounting
• Cash Disbursement Ceiling (CDC) Accounting
Fund Accounting. A fund is a sum of money or other resources set aside for the purpose of carrying out
specific activities or attaining certain objectives in accordance with specific regulations, restriction, and limitations.
The two major classification of funds as to purpose for which they may be used:
1. General Fund – one which is generally available for all functions of the
government.
2. Special Fund - one which, by legislative action, segregates specified revenues
for limited purposes.
Obligation Accounting. As a control mechanism of government accounting system, obligation accounting
provides the ceiling of the maximum extent by which an agency can incur obligations or commit the resources of the
government in the performance of its functions. With obligation accounting, an agency can operates only within the
amount actually released to it by the DBM, which is within or covered by the amount approved appropriation.
Obligation accounting refers to the accounting practice, procedures and techniques for recording obligations
in the government.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling accounting is another control
mechanism of government accounting system. The cash operations of the government under the cash disbursement
ceiling accounting are limited within the boundaries of the appropriations release to government agencies in the form
of allotments, and any additional amount granted by the DBM to liquidate or pay existing valid obligation.
Accounting Responsibility - Under PD 1445, accounting responsibility for all government funds and
property is entrusted, immediately and primarily, to the head of the government agency or office. It is the duty of the
head of the agency to take reasonable steps to minimize, if not to avoid the risk of losses, defalcations and other
types of irregularities in the utilization of all government resources (to safeguard the resources of the government
under his custody) and periodic reporting to concern authorities. His responsibility, however, is supervised by higher
authorities and government bodies.
The officer in possession or custody of government funds or property by reason of his duties are
accountable for the safekeeping thereof. As such, he shall be properly bonded.
The Head of the agency is made immediately and primarily responsible for all government funds and
property pertaining to his agency. Secondary responsibility is made to rest on the persons entrusted with the
actual possession or custody of the funds or property. They are the accountable officers and are immediately
responsible to the agency head.
The imposition of primary responsibility on the agency head for government funds and property is in keeping
with the concept of fiscal responsibility which now lodge with agency head.
The head of the agency shall exercise the diligence of a good father or a family in supervising accountable
officers to prevent the incurrence of loss of government funds and property, otherwise, he shall be jointly and
solidarily liable with the person primarily accountable thereof.
Although supervisory work of government accounting is vested upon to the Commission on Audit,
accounting responsibilities in the government, by virtue of the provision of the Constitution of the Philippines, laws,
Presidential Decrees and other issuances, are shared primarily by the Commission on Audit(COA), Department of
Budget and Management, (DBM), Department of Finance (Bureau of Treasury) and government agencies.
GOVERNMENT ACCOUNTING
AND AUDITING TNCR
The National Government of the Philippines
The government is the largest financial organization in terms of assets, liabilities, capital, sources of income and
items of expenditures. It is also the largest entity in terms of number and quality of personnel, facilities and
instrumentalities, which are used to serve the social, political and economic needs of the nation. The government
has as many departments, commissions or offices as necessary to be able to carry out its functions, like promotion of
social welfare, development of national wealth, defense of the state from internal and external aggression, promotion
of justice, promotion of trade and industry, general government and protection of private rights of the people.
Government Accounting Defined(Section 109 of PD 1445)
Government Accounting encompasses the processes of analyzing, recording, classifying, summarizing and
communicating all transactions involving the receipt and disposition of government funds and property and
interpreting the results thereof. Government accounting is a service activity.
Three (3) types of governmental organizational units:
• National Government Unit(LGU) – are agencies that includes all departments, bureaus, offices,
boards, commissions, councils state colleges and universities.
• Local Government Unit(NGAs)- political subdivisions of the Philippines having substantial control
over local affairs, consisting of provinces, cities, municipalities and barangays.
• Government Owned or Controlled Corp(GOCC)- are agencies organized by law or pursuant to law,
vested with functions relating to public needs whether government or propriety in nature, owned by
the government directly or through its instrumentalities either wholly or, where applicable as in case
of stock corporation, to the extent of at least fifty one % of its capital stock.
FUNCTIONS OF GOVERNMENT ACCOUNTING
To provide quantitative information primarily financial in nature about the operations of the government, both
national and local, to be used by the administration in making decisions for a more effective and efficient public
service.
OBJECTIVES
1.To provide quantitative information concerning past operations and present conditions.
2.To provide a basis for guidance for future operations.
3.To provide for control of the account of public entities and officers in the receipt, disposition
and utilization funds and properties, and
4.To report on the financial position and the result of the operations of the government agencies
for the information of all persons concerned.
Users of Government Accounting Information:
1. The General public or citizenry
2. The Governing and oversight bodies: The President, Cabinet, COA, Legislative Body.
3. The managers/administrators who are in-charge of carrying out the policy and daily conduct of government
affairs.
4. The students of public finance
5. The resource providers of the government such as:
• Donors or grantors
• Lenders, suppliers and employees whose main concern is to know whether the government can
pay its obligations to them.
DISTINCTIONS BETWEEN GOVERNMENT AND COMMERCIAL ENTERPRISES
, 3. Organization - The organization of a private enterprise is a succession of authority and responsibility
starting from its stockholders who delegate them to a duly elected board of directors which in turn organize its own
staff of officers in whom the responsibility of managing the affair of business is reposed. The responsibility and
authority of a government entity in our system lies in Congress.
4. Financing - Private enterprise is supported for its finance primarily by the voluntary contribution from its
members or stockholders which constitute as their share of capital or investment in the business. The government is
vested the exclusive right to demand involuntary contributions from its constituent in the form of taxes.
5. Income - In private enterprise, the capital investment of stockholders are made to generate return in the
form of profits for services rendered or good sold. The government which is organized primarily to render service,
cannot make profits on the services it renders. To support the estimated annual cost of government, taxes are levied.
DISTINCTION BETWEEN GOVERNMENT AND COMMERCIAL ACCOUNTING
1. Objective –
CA – is geared towards income measurements aside from control of company
resources,
GA - is control of government funds to see to it that they are properly utilized and
provide data to management for decision.
2. Basis of Accounting -
CA – either cash or accrual method is used but not a combination of both.
GA - the modified accruals basis of accounting is used.
3. Preparation of periodic reports –
CA – Statement of Financial position, Statement of Cash Flows
GA - Balance sheet, statement of income and expenses, statement of government
equity and statement of cash flows.
4. Control Mechanism –
CA – none
GA – Fund accounting, obligation accounting and CDC accounting
5. Books of Accounts –
CA - only one set is kept
GA - two books are kept (a) Regular Agency (RA) Book and (b) National
Government(NG) Books.
6. As to accounts and transactions –
CA - Nominal and Real Accounts are used.
GA - includes budgetary accounts such as Appropriation, Allotments and
Obligations are maintained.
7. Source of Accounting practice and procedures –
CA - dictated by nature of business and policies of management
GA - laws, rules and regulations
Decision-making Process in Government
The decision-making process in government is an important aspect of the environment of state accounting because
accounting information is intended to be useful in making economic decisions and in making reasoned choices
among alternative courses of action.
The ultimate authority for decision-making in the Philippine government rests with the people. This authority is
exercised through duly elected representatives, acting as agents of the people. It is the sovereign right of the people
to change them if the authority is misused or abused.
, At all levels of government, decision-making should comply with existing laws and regulations. Questions and issues
involving the settlement of money claims, determination of dispute or settlement of a controversy on the issue as to
legality and/or propriety of such claims are submitted for resolution to the COA in connection with the discharge of its
audit function. Questions involving legal interpretation and/or application of law are submitted for decision to the
courts.
Salient Features of Government Accounting
The financial resources of the Government are very limited. It relies heavily on collected taxes. This means
that it has to operate through a system of fiscal and accounting controls. The following control mechanisms adopted
as sub-systems of government accounting are not adopted in commercial accounting:
• Fund Accounting
• Obligation Accounting
• Cash Disbursement Ceiling (CDC) Accounting
Fund Accounting. A fund is a sum of money or other resources set aside for the purpose of carrying out
specific activities or attaining certain objectives in accordance with specific regulations, restriction, and limitations.
The two major classification of funds as to purpose for which they may be used:
1. General Fund – one which is generally available for all functions of the
government.
2. Special Fund - one which, by legislative action, segregates specified revenues
for limited purposes.
Obligation Accounting. As a control mechanism of government accounting system, obligation accounting
provides the ceiling of the maximum extent by which an agency can incur obligations or commit the resources of the
government in the performance of its functions. With obligation accounting, an agency can operates only within the
amount actually released to it by the DBM, which is within or covered by the amount approved appropriation.
Obligation accounting refers to the accounting practice, procedures and techniques for recording obligations
in the government.
Cash Disbursement Ceiling Accounting. The cash disbursement ceiling accounting is another control
mechanism of government accounting system. The cash operations of the government under the cash disbursement
ceiling accounting are limited within the boundaries of the appropriations release to government agencies in the form
of allotments, and any additional amount granted by the DBM to liquidate or pay existing valid obligation.
Accounting Responsibility - Under PD 1445, accounting responsibility for all government funds and
property is entrusted, immediately and primarily, to the head of the government agency or office. It is the duty of the
head of the agency to take reasonable steps to minimize, if not to avoid the risk of losses, defalcations and other
types of irregularities in the utilization of all government resources (to safeguard the resources of the government
under his custody) and periodic reporting to concern authorities. His responsibility, however, is supervised by higher
authorities and government bodies.
The officer in possession or custody of government funds or property by reason of his duties are
accountable for the safekeeping thereof. As such, he shall be properly bonded.
The Head of the agency is made immediately and primarily responsible for all government funds and
property pertaining to his agency. Secondary responsibility is made to rest on the persons entrusted with the
actual possession or custody of the funds or property. They are the accountable officers and are immediately
responsible to the agency head.
The imposition of primary responsibility on the agency head for government funds and property is in keeping
with the concept of fiscal responsibility which now lodge with agency head.
The head of the agency shall exercise the diligence of a good father or a family in supervising accountable
officers to prevent the incurrence of loss of government funds and property, otherwise, he shall be jointly and
solidarily liable with the person primarily accountable thereof.
Although supervisory work of government accounting is vested upon to the Commission on Audit,
accounting responsibilities in the government, by virtue of the provision of the Constitution of the Philippines, laws,
Presidential Decrees and other issuances, are shared primarily by the Commission on Audit(COA), Department of
Budget and Management, (DBM), Department of Finance (Bureau of Treasury) and government agencies.
