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PHILIPPINE GOVERNMENT’s

Journey TowardsAccrual Accounting

ASIA PUBLIC SECTOR ACCOUNTING & REPORTING CONFERENCE14 September 2015 – Kuala Lumpur, Malaysia

By:LUZVI PANGAN CHATTO

Director IVCommission on Audit

Republic of the Philippines

14 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 2 2

Presentation Outline

PART I: The Accounting Reforms: The beginnings

PART II: Progress and Challenges: What we havedone so far and what are the challenges wefaced

PART III: Lessons Learned: What should have beendone or avoided

PART IV: Moving Forward: Where we need to go


PART I

The Accounting Reforms:

The beginnings


Public Expenditure and FinancialAccountability (PEFA) Diagnostics: Evaluated PFM system against benchmarks of a

good PFM of the Organisation for Economic Co-operation and Development (OECD) and WorldBank (WB)

Conducted by WB and AusAID

PEFA Assessment Report released in 2010

2007 PFM System Evaluation


6 Benchmarks of a Good PFM

Credibility of the budget

Comprehensiveness and transparency

Policy-based budgeting

Predictability and control in budgetexecution

Accounting, recording and reporting

External scrutiny and audit


PFM Cycle and Gaps

budget not results-based

lack of funding predictability

weak budget oversight by Congressand the public

weak cash management system

no common budgetary and accounting classification

weak monitoring of contingent liabilities

lack of budget credibility

PREPARATION

EXECUTION

ACCOUNTABILITYAUTHORIZATION

* Based on 2007 PEFA Assessment


Findings on PEFA Assessment

Budget classification was reasonable; BUTclassifications for budget executionreporting and accounting differed frombudget classification.

Most other aspects of comprehensivenessand transparency were good.

However, public access to key fiscalinformation was limited.

Comprehensiveness and Transparency


Weakest part of the PFM system. Accounts reconciliations often not undertaken. Comprehensive data on resources to service

delivery units not collected. Departmental in-year budget reports not

compatible; hence not comparable with theconsolidated budget.

COA’s annual consolidated financial reportinadequate, as departmental financial statementswere based on pre-closing trial balances and onlypartially audited.

Findings on PEFA Assessment

Accounting, Recording, and Reporting

PFM Reform Roadmap (2011-2016)

Master plan for modernizing the financialmanagement system of the government

Improve efficiency, accountability andtransparency of public fund use

Contribute to good governance and fiscaldiscipline as a strategy for inclusive growthand poverty reduction

Jointly formulated and approved by fiscaloversight agencies (COA, DBM, DOF-BTr) from 2009 to 2011

For 2015 to 2016, updated roadmap designis moving its focus from policy toimplementation


PFM Strategies and Outputs

OutputsTreasury

SingleAccount

GIFMISReal TimeFinancial

Information

1. Build upCredibility

of PFM

2. ReviewFund ReleaseProcedures

3. CapacityBuilding for

Congress andCSOs

4. ImproveTreasury CashManagementOperations

5. Developand

ImplementGIFMIS

ContingentLiabilities

BetterManagementof Contingent

Liabilities

ResultsBased

Budgeting

PFM REFORMS ROADMAP

MajorStrategies


PFM Reform Projects

PFM

Reforms

Roadmap

GovernmentIntegratedFinancial

ManagementInformation

System(GIFMIS) Budget

Reportingand

PerformanceStandards

(BRPS)

Accountingand

AuditingReforms

ImprovedTreasury

CashManagementOperations

LiabilityManagement

CapacityBuilding


Accounting and Auditing Reform Project

A key PFM reform project led by COA

Aims at:

harmonizing accounting and auditing ruleswith international standards

improving participatory audit of multi-sectoralprograms and projects

14 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 13

Accounting and Auditing Reform Project


PART II

Progress and Challenges…..

What we have done so far;

What are the challenges we faced


Rolling Out Key PFM Reforms


Creation and Functions of the PSAcSB

Creation: Created under the 2008 COA Organization Restructuring

pursuant to the 1987 Philippine Constitution which vests onthe COA the exclusive authority to promulgate accountingrules and regulations

Functions: Assist the Commission Proper in formulating and

implementing public sector accounting standards Establish and maintain linkages with international bodies,

professional organizations and academe on accountingrelated fields on financial management

18

ASDOS-N ASDOS-L

Government AccountancyOffice

ASDOS-C TAHDS

GAS-N I LGAS CGAS

GAS-N II PDMAS

Accounting Systems Development

Other Services Office

Accounting Systems Developmentand

Other Services Office

Office of theAssistant Commissioner

Office of theAssistant Commissioner

07/01/201514 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 18

Government Accountancy SectorORGANIZATIONAL STRUCTURE


Keeping theGeneral Accountsof the Government

Performing OtherFunctions/Services

Submitting an AnnualFinancial Report covering the

financial condition andoperation of the Government

PromulgatingAccounting Rulesand Regulations

GOVERNMENTACCOUNTANCY

SECTOR

As mandated by the 1987 Constitution, GAS assists COA in:

Major Functions of COA-GAS


Promulgation of Accounting Rules and Regulations

Key Activities: Conduct continuous study and evaluation of

accounting standards both international and local;

Formulate/Recommend policies, rules andregulations on government accounting forimplementation in the NGAs, LGUs and GOCCs; and

Act as secretariat for the COA’s Public SectorAccounting Standards Board (PSAcSB) concerningNGAs, LGUs and GOCCs.

Key Accomplishments on the following areas:

PhilippinePublic SectorAccountingStandards(PPSAS)

Revised Chartof Accounts (RCA)

Guidelines on Conversionof the Philippine

Government Chart ofAccounts (PGCA) to the

RCA



GovernmentAccounting Manual

(GAM) for NGAs

Issuance of COACirculars

Installation/Implementation ofEnhanced eNGAS

and eBudget Systemto implement PPSAS,

RCA and UACS



PhilippinePublicSector

AccountingStandards(PPSAS)

PPSAS Development and Adoption Process:

Studied andevaluated

applicabilityof 32 IPSASin Philippine

setting

Decided/Found that 28IPSAS wereapplicable inthe PhilippineGovernment

Operation

Developed 25PPSAS and

PAG andexposeddrafts to

stakeholders/interested

parties

Reviseddrafts of 25PPSAS and

PAG based oncomments/

suggestionsof FGD

participants/stakeholders

Adopted 25PPSAS andPAG under

COAResolution

2014-003 datedJanuary 24,

2014, effective1 January 2014



Considerations/Factors in Developing PPSAS

Existing laws, financial reporting, accounting rulesand regulations;

Pronouncements issued by the IPSAS Board;

Best accounting practices, both local andinternational;

Capacity of agencies to comply with PPSAS;




Fundamental issues –

? Where an accounting principle or a significantelement of a disclosure requirement containedin IPSAS is considered to be in conflict with thePhilippine laws, rules and regulations

this would be regarded as a fundamental issueand the accounting principle or disclosurerequirement may be changed.




Statutory authority –

? Where the international standard deviates fromthe Philippine regulatory or legislativeenvironment

Philippine Application Guidance (PAG) shall beissued accordingly.




Disclosure requirements –

Disclosure requirements may be amended whenthe amendments are regarded as beingsignificant for improving the presentation of thematter.




PPSAS Numbering –

The PPSAS is assigned the same number as the IPSAS tomaintain the link.

Where a PPSAS is developed and there is no equivalentIPSAS, the Standard will be assigned a number in aseries of PPSAS starting with 101.

When IPSASB subsequently issues the equivalentStandard as an IPSAS, the 100 series PPSAS will bewithdrawn and reissued as a PPSAS with the IPSASnumber.

Standards of PPSAS have equal authority regardless ofthe numbering used.





ActionNo. ofIPSAS

Adopted and implemented in

2014 (Nos. 1-6, 8, 9, 12, 13, 14, 16,

17, 19-21, 23, 24, 26, 27, 28-32)

25

Being evaluated, for possible

adoption in 2015 (Nos. 18, 22, 25)3

Not adopted (No. 7, 10, 11) 3

Superseded (No. 15) 1

Total (2012 Edition) 32





PPSASNo. ofPPSAS

Volume I (Nos. 1-6, 8, 9, 12, 13) 10

Volume II (Nos. 14, 16, 17, 19-21, 23,

24, 26, 27)10

Volume III (Nos. 28-32) 5

Total 25



Key Accomplishments:

RevisedChart ofAccounts

(RCA)

RCA for National GovernmentAgencies (NGAs)

Revised the New Government AccountingSystem (NGAS) Chart of Accounts prescribedin September 2004

Provided new accounts for the adoption of thePPSAS to enhance the accountability andtransparency of the financial reports, andensure comparability of financial information

Adopted the RCA for NGAs in January 2013,to be implemented effective 1 January 201 4




RevisedChart ofAccounts

(RCA)

RCA for Local Government Units(LGUs)

Exposed proposed RCA for LGUsfor comment users/stakeholders inJuly 2015

For Government-Owned orControlled Corporations(GOCCs)Proposed RCA for GOCCs forexposure by September 2015




Issued under COA Circular No.2014-003 dated April 15, 2014

Provided guidelines and reviseddescription/title of accounts for theproper implementation of new andrevised accounting policies

Guidelines onConversion ofthe PhilippineGovernment

Chart ofAccounts (PGCA)

to the RCA



Key Accomplishments:Exposed draft GAM in March and

April 2015

Revised draft GAM based on FGDparticipant’s comments/recommendations in May-June 2015

Submitted revised GAM toCommission Proper for approval inJuly 2015

GAM approved on September 4,2015

GovernmentAccountingManual for

NGAs




Issuance ofCOA Circular

on AccountingMatters

COA CircularNo./Date

Subject

2015-002,March 9, 2015

Supplemental Guidelines on thePreparation of Financial Statements for2014, in line with PPSAS and UACSImplementation

2015-003,April 16, 2015

Classification of all Government BusinessEnterprises (GBEs) or Non-GBEs for thepurpose of determining the applicableFinancial Reporting Framework in thepreparation of their FS and PrescribingGuidelines therefore.




Enhanced Electronic Budget System

Enhanced Electronic NewGovernment Accounting System

Installation/Implementationof EnhancedeNGAS andeBudget Systemto implementPPSAS, RCA andUACS


Submission of Constitutionally-requiredAnnual Financial Reports


Annual Report onAppropriations,

Allotments, Obligationsand Disbursements

Annual FinancialReports

Annual Financial Reportsfor: National Government

Local GovernmentUnitsGovernment-Owned or

Controlled Corporations


Submission of Constitutionally-requiredAnnual Financial Reports


ANNUAL FINANCIAL REPORTINGSYSTEM

BUDGET AND FINANCIALACCOUNTABILITY REPORTING

SYSTEM

• Development and Implementation of User-friendlyWeb-based AFRS and BFARS

Capacity-Building/

Trainings onPPSAS and the

RCA

Trained 1,327accountants ofNGAs

Trained 1,144trainers-auditors onPPSAS

Trained 1,030 Auditors fromCOA Regional Offices

Customized PPSASTraining for 10 NGAs

Started preparingeLearning Modules for

PPSAS (PPSAS 16)

Key Accomplishments


Capacity Building


Prepared Capacity-Building/Training Plan andCourseware on GAM for the following targetparticipants:

– COA and Agency Executives–2-day training

– COA Auditors and Agency Accountants–5-day training

– Agency Budget Officers and other FinancePersonnel – 2-day training

14 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 3914 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 39

Capacity Building

32

283

45

238

305

13

292

44

588

58

530

76

Total no. of trained Participants

No. of COA Participants

No. of participants from Agencies

No. of Agencies

As of 15 August 2015 2014 2015 Total

Conducted Functional and Technical Training onEnhanced eNGAS and eBudget System



Capacity Building


Capacity Building

Online tutorial for Annual Financial Reporting System andBudget and Financial Accountability Reporting System


Challenges FS/reports of LGUs and GOCCs for 2014 were not yet

PPSAS-compliant due-to phased implementation ofPPSAS and revision/updating of RCAs.

Not all agency personnel concerned and COA auditorshave attended capacity building on PPSAS, RCA, UACSdue to varied reasons (e.g., time and fundingconstraints)

GAM for NGAs has just been approved on September 4,2015; GAM for LGUs and GOCCs have yet to beprepared.

Adoption of the 3 PPSAS (No. 18, 22 and 25) in 2015, asenvisioned, may not be possible.

Conversion of accounts using manual and computerizedapplications


PART III

Lessons Learned…..

What should have beendone or avoided

Gains achievedThe process of development and adoption of

PPSAS is considered timely, acceptable andresponsive to the demands for PFM reforms.

The PPSAS, as aligned with the prevailinginternational standards, provide qualityaccounting standards, thereby:

enhancing the quality and uniformity in financialreporting by Philippine public sector entities, and

ensuring accountability, transparency and comparabilityof financial information with other public sector entitiesaround the world.


Lessons Learned

What should have been done

Revision of Charts of Accounts and updating ofGovernment Accounting Manuals for use byNGAs, LGUs and GOCCs immediately after theapproval of the PPSAS

Timely issuance of supplemental guidelines onthe preparation of FS for 2014, in line with PPSASand UACS implementation

Intensified Capacity building to ensure smoothimplementation of PPSAS, RCA and accounting-related


Lessons Learned

What should have been done

Immediate enhancement of existing applicationsystems to conform to PPSAS, RCA, UACS andimplementation of enhanced versions to facilitateconversion of databases.


Lessons Learned


PART IV

Moving forward…..

Where we need to go


The Administration has identified the need for reform irreversibility.

- Irreversibility begins with effective implementation;

Government agencies take responsibility for delivering reformoutputs, and turning outputs into improved practices that agenciesbuy into.

- Sustainability can then be enhanced

through embedding reforms in legislationand ensuring that the responsibility formaintaining and monitoring policy isembedded in oversight agencies.

Moving Forward: Planned Next Steps


Moving Forward: Planned Next Steps• Focus is now on implementation

from the design phase.

• Comprehensively adopted by thePFM Committee on May 13, 2015

• Includes adoption of the Budgetand Treasury Management System(BTMS) as a new approach for theintegration of the Government’sFMIS

• Highlights the need to reconstituteand expand the governancestructure

• With the reforms now moving intoimplementation, it is important toformally embed reform functionsinto agencies on a permanentbasis.

Budget Cycle: Preparation and Execution7. Assist agencies to use UACS correctly.8. Strengthen performance orientation of budget management.9. Strengthen cash management.

1. Draft PFM Law.2. Establish Comptroller General to develop and oversee financial management policies.

3. Conduct contingent liabilities analysis as basis for policy framework.Policy

Process

People &Organisations

Technology

BenefitsAllocation Efficiency | Operational Efficiency | Fiscal Discipline | Transparency

Oversight and spending agencies put new policies, processes,systems and skills into practice.

The Updated PFM Roadmap Summary (2015-2016)

10. Implement systems for improved budget preparation and execution.11.Implement comprehensive human resource information system.

Information Frameworks4. Refine and stabilise the unified account code structure.5. Refine reporting requirements.6. Maintain accounting and audit standards.

12.Develop and pilot curriculum with sustainable delivery model.



Intensify capacity building; continue the preparation ofeLearning modules

Fast track the preparation of the RCAs and GAM forLGUs and GOCCs to support PPSAS implementation

Enhance eNGAS and eBudget System for LGUs andGOCCs to make them PPSAS and RCA-compliant andintensify implementation thereof.



Continue the study/evaluation of other IPSASs forpossible adoption effective January 1, 2016:

No. Description

18 Segment Reporting

22 Disclosure of Financial Information about the GeneralGovernment Sector

25 Employee Benefits

34 Separate Financial Statements

35 Consolidated Financial Statements

36 Investments in Associate and Joint Ventures

37 Joint Arrangements

38 Disclosure of Interests in Other Entities



Establish and maintain linkages withinternational bodies, professional organizationsand academe on accounting related fields onfinancial management through knowledgesharing, attendance in conferences, conventionsand fora and other capacity-building events

Upgrade/Maintain application systems tofacilitate timely, quality, and reliable accountingand other financial reports, and promoteaccountability and transparency in governmentoperations

14 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 54 54 5454

Questions?

14 Sept. 2015 Philippine Government’s Journey Towards Accrual Accounting 55 55 5555

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