Adoption of the Philippine Public Sector Accounting Standards

(PPSAS)

COA Resolution No. 2014-003

dated January 24, 2014

COA Resolution No. No. 2008-012 dated October 10, 2008

created the Public Sector Accounting Standard Board (PSASB) pursuant to the 1987 Philippine Constitution, Section 2 Article IX-D, which vest on the Commission on Audit the exclusive authority to promulgate accounting rules and regulations.

The PSASB shall assist the Commission in formulating and implementing public sector accounting standards and establish and maintain linkages with international bodies, professional organizations and academe on accounting related fields on financial management.

CREATION AND FUNCTIONS OF THE PSASB:

The PSASB shall determine the PPSAS for the following government agencies:

a.National Government Agencies(NGAs) which refer to departments, agencies, bureaus, state universities and colleges, government instrumentalities and commissions including the judiciary and constitutional commissions;

b. Local Government Unit(LGUs) which refer to provinces, cities, municipalities and barangays; and

c. Government-Owned and/or Controlled Corporations (GOCCs) not considered as GBEs

The PPSAS shall apply to all NGAs, LGUs, GOCCs not considered as Government Business Enterprises(GBEs).

GBE is an entity that has all the following characteristics:d. Is an entity with the power to contract in its own name;e.Has been assigned the financial and operational authority to carry on a business;f. Sells goods and services, in the normal course of its business, to other entities at a

profit or full cost recovery;g. Is not reliant on continuing government funding to be a going concern;h. Is controlled by a public sector entity.

APPLICATION OF THE PPSAS

SCOPE OF PPSASPPSAS should be read in the context of this Preface and the objective stated in each Standard. Any exception from the scope of a Standard is likewise stated in that Standard.

GUIDELINES/ISSUANCES ON PPSAS

The Standards on PPSAS shall set out the recognition, measurement, presentation and disclosure requirements for financial reporting in the Philippine Government.

Transitional provisions shall be issued to address specific concerns not yet covered by the PPSAS.

The Government Accounting Manual (GAM) shall provide guidelines to explain and expand PPSAS, and provide practical assistance to agencies

Supplemental guidelines shall be issued when the need arises.

SETTING OF STANDARDS OF PPSAS

In developing Standards of PPSAS, the PSASB considers and makes use of the existing laws, financial reporting, accounting rules and regulations, and pronouncements issued by the International Public Sector Accounting Standards Board (IPSASB).

The PSASB is also required to take into account all relevant factors, including: a.Best accounting practices, both local and international;b.The capacity of agencies to comply with Standards of PPSAS.

Standards of PPSAS are developed either:By adopting IPSASs issued by the IPSASBBy developing a Standard of PPSAS to deal with a specific accounting issue that is

either not comprehensively dealt with the existing IPSAS or for which an IPSAS has not been developed by the IPSASB.

The following are the processes and other consideration in developing a Standard of PPSAS:

a. Applicability of IPSASb. Exposure draft of PPSASc. Fundamental issuesd. Statutory authoritye. Disclosure requirementsf. PPSAS Numberingg. Financial reporting issues not dealt with by IPSASh. The draft of a PPSAS, developed from the exposure process, is submitted to the PSASB for consideration of the Commission proper, COA.

Timing of application of PPSAS

A Standard of PPSAS applies from the date determined in an issuance by the Commission on Audit

Preface to International Public Sector Accounting Standards

International Public Sector Accounting Standards (IPSAS) sets out the objectives of the IPSASB and explains the scope and authority of the IPSASs. This preface should be used as a reference for interpreting Consultation papers, other discussion documents, Exposure drafts, Recommended Practice Guidelines and Standards developed and issued by IPSASB.

The mission of the International Federation of Accountants(IFAC), as set out in its constitution, is “ to serve the public interest by contributing to the development, adoption and implementation of high-quality international standards and guidance; contributing to the development of strong professional accountancy organization and accounting firms, and to high quality practices by professional accountants, promoting the value of professional accountants worldwide ; and speaking out on public interest issues where the accountancy profession’s expertise is most relevant.”

The IPSASB serves the public interest by developing and issuing, under its own authority, accounting standards and other publications for use by public sector entities other than GBEs.

OBJECTIVE OF IPSASB-is to serve the public interest by developing high-quality accounting standards and other publications for use by public sector entities around the world in the preparation of general purpose financial reports.- intended to enhance the quality and transparency of public sector financial reporting by providing better information for public sector financial management and the decision making.

In fulfilling its objective, the IPSASB develops and issues the ff. publications:

a. IPSASs as the standards to be applied in the preparation of general purpose financial reports of public sector entities other than GBEs.b. Recommended Practice Guidelines to provide guidance on good practice that public sector entities encourage to followc. Studies to provide advice on financial reporting issues in the public sector.d. Other papers and research reports to provide information that contributes to the body of knowledge about public sector financial reporting issues and developments.

Scope and Authority of International Public Sector Accounting Standards

Scope of the Standards

The IPSASB develops IPSASs which apply to the accrual basis and cash basis of accounting.

IPSAs set out requirements dealing with transactions and other events in general purpose financial reports.

The IPSAS are designed to apply to the general purpose financial reports of all public sector entities other then GBEs. Public sector entities includes: National Government, Regional, Local Governments, unless otherwise stated.

Any limitation of the applicability of specific IPSASs is made clear in those standards.

The IPSASB has adopted the policy that all paragraphs in IPSASs shall have equal authority, and that the authority of a particular provision shall be determined by the language used.

Scope and Authority of International Public Sector Accounting Standards

IPSASs for the Accrual and Cash BasesThe IPSASB develops accrual IPSASs that:

Are converged with International Financial Reporting Standards issued by the IASB by adapting them to a public sector context where appropriate.

Deals with public sector financial reporting issues that are either not addressed by adapting IFRS or for which IFRS have not been developed by the IASB.

The IPSASB has also issued a comprehensive Cash Basis IPSAS that includes mandatory and encouraged disclosure sections.

Scope and Authority of International Public Sector Accounting Standards

Moving from the Cash Basis to the Accrual BasisThe Cash Basis IPSAS encourages an entity to voluntarily disclose accrual based information, although its core financial statements will nonetheless be prepared under the cash basis of accounting.

The IPSASB also attempts to facilitate compliance with accrual based IPSASs through the use of transitional provisions in certain standards.

IPSAS 1, Presentation of Financial Statements includes the ff. requirement:

An entity whose financial statements comply with IPSAS shall make an explicit and unreserved statement of such compliance in the Notes.

financial Statements shall not be describes as complying with IPSAS unless they complied with all the requirements of IPSASs.

Scope and Authority of International Public Sector Accounting Standards

Authority of the IPSAS

Within each jurisdiction, regulation may govern the issue of general purpose financial reports by public sector entities.

The IPSASB believes that the adoption of IPSASs, together with disclosure of compliance with them, will lead to a significant improvement in the quality of general purpose financial reporting by the public sector entities.

The IPSASB strongly encourages the adoption of IPSASs and the harmonization of national requirements with IPSASs.

LANGUAGEThe official text of the IPSASs and other publications is that approved by the IPSASB in the English language. Member bodies of IFAC are authorized to prepare, after obtaining IFAC approval, translation of such pronouncements at their own cost, to be issued in the language of their own jurisdiction as appropriate.

Objectives and Users of General Purpose Financial Reporting

Objectives of Financial Reporting

The objectives of financial reporting by public sector entities are to provide information about he entity that is useful to users of GPFRs for accountability purposes and for decision making purposes (‘’hereafter referred to as useful for accountability and decision making purposes”).

Users of General Purpose Financial Reports

Governments and other public sector entities raise resources from taxpayers, donors, lenders and other resource providers for use in the provision of services to citizens and other service recipients. These entities are accountable for their management and use of resources to those that provide them with necessary services. Those that provide the resources and receive, or expect to receive, the services also require information as input for decision making purposes.

Citizens receive services from and provide resources to, the government and other public sector entities.

Information provide by General Purpose Financial ReportsFinancial Position, Financial Performance and Cash Flows

Information about the financial position of a government or other public sector entity will enable users to identify the resources of the entity and claims to those resources at the reporting date.

Information about financial performance of a government or other public sector entity will inform assessments of matters such as whether the entity has acquired resources economically, and used them efficiently and effectively to achieve its service delivery objectives.

Information about the cash flows of a government or other public sector entity contributes to assessments of financial performance and the entity’s liquidity and solvency.

Qualitative Characteristics

GPFRs present financial and non-financial information about economic and other phenomena. The qualitative characteristics of information included in GPFRs are the attributes that make the information useful to users and support the achievement of the objectives of financial reporting. The objectives of financial reporting are to provide information useful for accountability and decision making purposes.

The qualitative characteristics of information included in GPFRs of public sector entities are relevance, faithful representation, understandability, timeliness, comparability and verifiability.

Pervasive constraints on information included in GPFRs are materiality, cost benefit and achieving an appropriate balance between the qualitative characteristics.

Relevance

The financial and non-financial in formation is relevant if it is capable of making a difference in achieving the objectives of the financial reporting. It is capable of making difference when it has confirmatory value, predictive value or both. It maybe capable of making a difference , and thus be relevant , even if some users choose not to take advantage of it or are already aware of it.

Faithful representationTo be useful in financial reporting, information must be faithful and representation of the economic and other phenomena that is purports to represent. It is attained when the depiction of the phenomenon is complete, neutral, and free fro, material error. Information that is faithfully represents an economic or other phenomenon depicts the substance of the underlying transaction, other event, activity of circumstance-which is not necessarily always the same as its legal form.

UnderstandabilityUnderstandability is the quality of information that enables users to comprehend its meaning. GPFRs of public sector entities should present information in a manner that responds to the needs and knowledge base of users, and to the nature of the information presented.

TimelinessTimeliness- means having information available for users before it loses its capacity to be useful for accountability and decision making purposes.

Comparability Comparability is the quality of information that enables users to identify similarities in, and differences between, two sets of phenomena. It is not a quality of an individual item of information, but rather a quality of the relationship between two or more items of information.

VerifiabilityVerifiability is the quality of information that helps assure users that information in GPFRs faithfully represents the economic and other phenomena that purports to represent.

Constraints on Information included in General Purpose Financial Reports

MaterialityInformation is material if it is omission or misstatement could influence the discharge of accountability by the entity, or the decisions that users make on the basis of the entity’s GPFRs prepared for that reporting period. It depends on both the nature and amount of item judged in the particular circumstances of each entity.

Cost BenefitFinancial reporting imposes costs. The benefits of financial reporting should justify those costs. Assessing, whether the benefits of providing information justify the related costs is often a matter of judgment, because it is often not possible to identify and/or quantify all the costs and all the benefits of information included in GPFRs.

Reporting Entity

A public sector reporting entity is a government or other public sector organization, program or identifiable area of activity that prepares GPFRs.A public sector reporting entity may comprise two or more separate entities that presents GPFRs as if they are single entity- such as reporting entity is referred to as a group reporting entity.

Key characteristics of a reporting entity• It is an entity that raises resources from, or on behalf of, constituents and/or uses

resources to undertake activities for the benefit of , or on behalf of, those constituents; and

• There are service recipients or resource providers dependent on GPFRs of the entity for information for accountability or decision making purposes.

Presentation of Financial Statement

Philippine Application Guidance to IPSAS 1ObjectiveParagraph 1- states that the objective of this standard and sets out overall considerations for the presentation of financial statements prepared under accrual basis of accounting.

ScopeParagraph 2- deals with the applicability of this standard to all public sector entities other than Government Business Enterprises(GBE).GBE is an entity that has all the ff. characteristics:• An entity with power to contract in its own name• Has been assigned the financial and operational authority to carry on a business• Sells goods and services, in the normal course of business to other entities• Is not reliant on continuing government funding to be a going concern• Is controlled by a public sector entity.

Responsibility of Financial StatementsThe responsibility for the fair presentation and reliability of financial statements rests with the management of the reporting agency, particularly the head of finance/accounting office and the head of the agency or his authorized representative

Consistency of PresentationParagraphs 43 and 44 pertain to changes in the presentation of entity’s financial statements if the changed presentation provides information that is reliable and is more relevant to users of the financial statements.

Cash Flow StatementBackgroundThis Philippine Public Sector Accounting Standard consists of international public sector accounting standard (IPSAS)2, Cash Flow Statements, and the Philippine Application Guidance (PAG) prepared to suit the Philippine Public sector situation.

ScopePAG 1. Paragraph 3 deals with the applicability of this standard to all public sector entity other than Government Business Enterprises.

Accounting Policies, Changes in Accounting Estimates and ErrorsBackgroundThis Philippine Public Sector Accounting Standard consists of international public sector accounting standard (IPSAS) 3, Accounting Policies, Changes in Accounting Estimates and Errors, and the Philippine Application Guidance (PAG) prepared to suit the Philippine Public sector situation

Introduction to the PPSAS 3

IPSAS 3 prescribes the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates , and the correction of errors.This standard is intended to enhance the relevance and reliability of an entity’s financial statements and the comparability of those financial statements over time and with the financial statements of other entities.

ScopePAG1-Deals with the applicability of this standard to all public sector entities other than Government Business Enterprise.

The Effects of Changes in Foreign Exchange RatesBackgroundThis Philippine Public Sector Accounting Standard consists of international public sector accounting standard (IPSAS) 4, The Effects of Changes in Foreign Exchange Rates, and the Philippine Application Guidance (PAG) prepared to suit the Philippine Public sector situation.

Introduction to the IPSAS 4IPSAS 4 prescribes the standards in including foreign currency transactions and foreign operations in the financial statements, and translating financial statements into a presentation currency.

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