Annex “A”
PHILIPPINE GOVERNMENT ACCOUNTING STANDARDS
(PGAS)
PGAS 1 - FINANCIAL STATEMENTS
1.1
1.2
1.3
Financial statements of a government agency shall consist of:
(a)
Balance Sheet – presents the financial position of a government agency as
of a given date. It includes information on the three elements directly
related to the measurement of the agency’s financial position – assets,
liabilities and equity;
(b)
Statement of Changes in Equity – shows the changes in equity between
two accounting periods reflecting the increase or decrease in the agency’s
net assets during the year;
(c)
Statement of Income and Expenses – shows the results of operations of a
government agency for a given period; and
(d)
Statement of Cash Flows – summarizes the cash flows from operating,
investing and financing activities of a government agency during a given
period.
Notes to the financial statements shall likewise be prepared when necessary to:
(a)
provide information about the basis of preparation of the financial
statements and the significant accounting policies;
(b)
disclose the information required by applicable PGAS that is not presented
elsewhere in the financial statements; and
(c)
provide additional information which is not presented on the face of the
financial statements but necessary for a fair presentation.
The books of accounts shall consist of:
(a)
National Government (NG) books for recording funds held for remittance
to the National Treasury, such as those resulting from collections of taxes,
fees, etc.;
(b)
Regular Agency (RA) books for recording funds pertaining to agency’s
regular operations; and
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(c)
Subsidiary ledgers, which reconcile with general ledger control accounts
such as cash, receivables, inventories, property plant and equipment and
payables.
PGAS 2 - CONCEPTS AND CHARACTERISTICS
2.1
The following accounting principles, concepts and qualitative characteristics of
financial reporting shall be used as guides in the recording of transactions and
preparation of financial statements:
Principles and Concepts
(a)
Consistency – Transactions and other events should be recognized,
measured and presented in a consistent manner from one accounting
period to another.
(b)
Going Concern – A government agency is normally viewed as a going
concern, that is, as continuing in its operation and meeting its statutory
obligations for a foreseeable future.
(c)
Matching of Costs and Revenues – The cost incurred for the generation of
revenue or benefits should be recognized as expense over the same period
when such revenue or benefits are realized by the agency.
(d)
Modified Accrual Basis – Financial transactions and events shall be
recorded using a modified accrual basis of accounting. Under this
method, all expenses shall be recognized when incurred and reported in
the financial statements in the period to which they relate. Income shall be
on accrual basis except where it is impractical or when other methods are
required by law.
(e)
Responsibility Accounting – It is a system that relates the financial results
to a responsibility center, which provides access to cost and income
information under the supervision of a manager having direct
responsibility for the center’s performance.
Qualitative Characteristics
(a)
Comparability – Financial information is comparable when users are able
to identify and evaluate similarities in, and differences between, the nature
and effects of transactions or other events, at one time or over time, either
when assessing aspects of a single reporting government agency or of a
number of reporting government agencies. To enable users to compare the
performance of a government agency over time, financial statements
should show comparable information for preceding period.
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(b)
(c)
Relevance – Financial information is relevant when users can use such
information in making and evaluating decisions about the allocation of
scarce resources, in making predictions about future situations and in
forming expectations, or in confirming or correcting past evaluations.
(i)
Materiality – The relevance of information is affected by its nature
and materiality. Information is material if its omission or
misstatement could influence the decisions or assessments of users
made on the basis of the financial statements. Materiality depends
on the nature or size of the item or error in the particular
circumstances of omission or misstatement.
(ii)
Timeliness – In order to be relevant, financial information must be
timely. The usefulness of financial statements is impaired if they
are not made available to users within a reasonable period after the
reporting date. A government agency should be in a position to
issue its financial statements on or before the set deadline.
Reliability – Financial information is reliable when the quality of
information assures users that such is free from bias and error and
faithfully represents what it purports to represent.
(i)
Completeness – Information in financial statements should be
complete within the bounds of materiality and cost.
(ii)
Faithful Representation – The actual effects of the transactions
should be properly accounted and reported in the financial
statements.
(iii)
Substance Over Form – Transactions and other events should be
accounted for and presented in accordance with their substance and
economic reality and not merely with their legal form.
(iv)
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.
(v)
Prudence – It is the inclusion of a degree of caution in the exercise
of judgment necessary in making the estimates required under
conditions of uncertainty, such that assets or revenues are not
overstated or liabilities or expenses are not understated. Prudence
does not, however, justify the creation of secret or hidden reserves
or excessive provisions, the deliberate understatement of assets or
revenues, or the deliberate overstatement of liabilities or expenses.
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(d)
Understandability – Financial information is understandable when users
comprehend its meaning. It is assumed that users have a reasonable
knowledge of the government agency’s activities and the environment in
which it operates and possess the proficiency necessary to comprehend the
significance of contemporary financial reporting practices.
PGAS 3 - CASH
3.1
Cash means money, which is the standard medium of exchange in business
transactions. Cash includes “money and other negotiable instrument that is
payable in money and acceptable by the bank for deposit and immediate credit”.
It includes checks, bank drafts and money orders.
3.2
Cash shall be recognized at face value upon its actual receipt or through credit
memo from the bank.
3.3
Cash in foreign currency shall be converted to the Philippine peso using the
exchange rate prescribed by Bangko Sentral ng Pilipinas at reporting date.
3.4
Deposits in banks which are subject to restriction, if material, shall be classified
separately among non-current assets and the restrictions clearly disclosed in the
financial statements.
PGAS 4 - RECEIVABLES
4.1
Receivables represent amounts collectible from customers and other debtors
arising from sale of merchandise or the performance of services on account and
claims for money lent, including real property taxes due the Local Government
Units (LGUs).
4.2
Trade and non-trade receivables expected to be realized within the normal
operating cycle or one fiscal year shall be recognized at face value and classified
as current assets in the balance sheet. Those collectible beyond one year shall be
classified as non-current assets.
4.3
Allowance for doubtful accounts shall be set up for estimated total uncollectible
trade receivables to allow fair presentation in the financial statements.
4.4
To allow presentation of realizable value of receivables, accounts determined to
be uncollectible shall be written-off subject to legal and regulatory requirements.
Receivables written off shall be transferred to the appropriate registry.
4.5
Real Property Tax receivable due the city or municipality and the amount due the
Special Education Fund (SEF) shall be recorded at the start of the year, with
corresponding deferred credits account to avoid appropriating uncollected
revenues.
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4.6
Negative receivable balances shall be classified as current liabilities and shall not
be offset against the outstanding balance of individual customers.
PGAS 5 - INVENTORIES
5.1
Inventories are assets a) held for sale, b) held for production of goods for sale,
c) for transfer, or d) for consumption in the normal course of operations, including
those items repossessed, abandoned, confiscated and seized.
5.2
Inventories shall be measured at cost which shall include:
(a)
purchase price, import duties and taxes, freight, handling and other costs
directly attributable to the acquisition of finished goods, materials and
services;
(b)
cost directly related to the units of production and the systematic
allocation of fixed and variable production overhead incurred in
converting materials into finished goods; and
(c)
other costs incurred in bringing the inventories to their present location
and condition.
5.3
Repossessed, abandoned, confiscated and seized items shall be measured at fair
value on the date of repossession, acquisition and establishment of ownership,
respectively.
5.4
Agricultural produce harvested from agency’s biological assets shall be measured
at its fair value less the estimated point-of sale cost at the point of harvest.
5.5
The perpetual inventory system shall be used in accounting for inventories.
5.6
When inventories are sold, the carrying amount shall be recognized as cost of
goods sold in the period when the related revenue is realized.
5.7
Inventories issued and on hand shall be valued using the moving average method.
PGAS 6 - INVESTMENTS
6.1
Investments are assets held by an agency for the accretion of wealth through
distribution, such as interest, royalties, dividends and rentals, for capital
appreciation or for other benefits to the investing agency such as those obtained
through trading relationships. These are assets not directly identified with the
operating activities of a government agency.
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6.2
Investments shall be recognized at date of acquisition measured by the purchase
price of the security and other costs incidental to the purchase.
6.3
Investments in the form of stocks and other securities, which are readily realizable
and are intended to be held for not more than one year, shall be classified as
current assets.
6.4
Investments in foreign currency shall be revalued to the Philippine peso using the
exchange rate prescribed by Bangko Sentral ng Pilipinas at reporting date.
PGAS 7 - PROPERTY, PLANT AND EQUIPMENT
7.1
Property, plant and equipment (PPE) are non-current assets held by a government
agency for use in operation or for lease and are expected to be used for more than
one year.
7.2
PPE shall initially be recognized at cost which includes purchase price and
incidental costs such as import duties, freight, installation and any other directly
attributable costs. The cost of donated and leased property shall be based on its
fair value or appraised value. The cost of construction shall include direct
materials, direct labor, indirect cost and incremental overhead identifiable to the
construction.
7.3
Subsequent costs on PPE which result in increased future economic benefits or
service potential shall be added to its carrying amount.
7.4
Subsequent to initial recognition as an asset, PPE shall be carried at its cost less
any accumulated depreciation.
7.5
PPE that are still serviceable but no longer in use shall be properly classified.
7.6
The straight-line method of depreciation for PPE and leased property shall be
used. Depreciation shall be recorded starting the month following date of
purchase. A residual value equivalent to ten percent of the purchase cost shall be
set up.
PGAS 8 - PUBLIC INFRASTRUCTURES
8.1
Infrastructures are classified into two categories, namely:
(a)
Those for the specific use of a government agency or office, such as office
buildings as well as those used for commercial and/or income generating
purposes, such as public markets, toll roads, slaughterhouses, etc.
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(b)
8.2
.
Those for the use of the general public at large, such as roads, bridges,
public parks as well as those for environmental purposes such as
reforestations, canals, river, embankments, etc.
Accounting Treatment – During Construction
Infrastructure projects during construction shall be recorded under the respective
Construction in Progress accounts.
8.3
Accounting Treatment – After Completion
(a)
Infrastructures pertaining to category (a) above, shall be recorded as part of
the assets of the government agency that owns and uses them.
(b)
Infrastructures pertaining to category (b) above, shall be transferred from the
General Ledger to a separate record (e.g. Registry of Public Infrastructures).
They shall be reflected in the notes to financial statements.
They shall not be subject to depreciation.
PGAS 9 - OTHER ASSETS
9.1
Other assets shall include a) arts, archeological specimens, exhibits, restricted
funds/cash, b) breeding stocks/work animals, and c) serviceable assets not used in
operations and shall be recognized at acquisition cost, at fair value and at carrying
amount respectively..
9.2
Other assets shall also include intangible assets which are identifiable nonmonetary assets without physical substance held for use in the production/supply
of goods or services, for rental to others, or for administrative purposes. These
shall be recognized at cost, if it is probable that future economic benefits
attributable to the assets shall flow to the agency. These shall be subject to
amortization based on the straight line method less ten percent residual value.
PGAS 10 - LIABILITIES
10.1
Liabilities are present obligations of an agency arising from past transactions or
events, the settlement of which is expected to result in an outflow of resources
embodying economic benefits from the agency.
10.2
Current liabilities shall include accounts payable, short-term borrowings and
accrued expenses which the agency is committed to pay for goods or services
received. It shall also include amounts entrusted/withheld from outside
sources/offices and personnel for which the agency is acting as a trustee or
administrator.
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10.3
Current liabilities shall be recognized and measured at the time goods/services are
accepted/rendered and bills are received.
10.4
Loans in cash or in kind contracted and guaranteed by the government shall be
recognized upon receipt of the proceeds or goods and services from creditors.
10.5
Loans in foreign currency shall be converted to the Philippine peso using the
exchange rate prescribed by the BSP at transaction date.
10.6
At each reporting date, loans in foreign currency shall be revalued using the
closing rate prescribed by the BSP.
10.7
Contingent liabilities, such as those arising from guarantees against debt default,
shall be presented and explained in the notes to the financial statements,
indicating, among other things, the name of the debtor, the creditor, the amount of
debt guaranteed, the maturity date of the debt and other relevant information.
PGAS 11 - EQUITY
11.1
Equity represents the difference between the assets and liabilities.
11.2
Equity for GOCCs shall include among others the authorized subscribed capital
stock, additional paid in capital, treasury stock and retained earnings.
PGAS 12 - INCOME
12.1
Income are increases in economic benefits during the accounting period in the
form of inflows or enhancement of assets or decreases of liabilities that result in
increases in equity, other than those relating to contributions from equity
participants.
12.2
Income includes both revenues and gains. Revenue arises in the course of the
ordinary activities of an agency. Gains include those arising on the disposal of
non-current assets and those resulting from revaluation of marketable securities as
well as increases in the carrying amount of non-current assets.
12.3
Income shall be recognized when earned or collected. It shall be measured at fair
value of the consideration received or still collectible in the future.
12.4
Donations in cash or in kind shall be recognized as income.
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PGAS 13 - EXPENSES
13.1
Expenses are the decreases in economic benefits during an accounting period in
the form of outflows or depletions of assets or incurrence of liabilities that result
in decreases in equity.
13.2
Expenses shall include financial costs in fulfilling the mandate of an agency such
as personal services, maintenance and other operating expenses and financial
expenses.
13.3
These shall also include losses resulting from disasters such as fire and flood as
well as those arising on the disposal of non-current assets and those arising from
the effects of increases in the rate of exchange for a foreign currency in respect of
the borrowings of an agency.
13.4
Expenses shall be recognized when incurred.
13.5
Bank charges, commitment fees, documentary stamp expenses, interest expenses
and other financial charges shall be classified separately.
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