Government Accounting

&
Accounting for non-profit organizations
 Chapter 11
Financial Statements

Learning Objectives
1. State the general principles in the presentation of
financial statements.
2. Prepare a complete set of general purpose financial
statements of a government entity, including a
partial notes to the financial statements.
3. Describe the accounting and disclosure
requirements for events after the reporting date,
changes in accounting policies, changes in
accounting estimates, and correction of errors.
4. State the “other reports” prepared by government
entities.
General Purpose Financial Statements
 General Purpose Financial Statements are
those intended to meet the needs of users who
are not in a position to demand reports tailored
to meet their particular information needs.
(PPSAS 1.3)
Objectives of General Purpose Financial Statements

a. To provide information about the entity’s

financial position, financial performance, and
cash flows that is useful to a wide range of
users in making economic decisions; and
b. To demonstrate the accountability of the entity
for the resources entrusted to it.
Responsibility for Financial Statements
 The responsibility over financial statements rests
with the entity’s management, particularly the
Head of the Entity jointly with the Head of
Finance/Accounting.
Components of General Purpose Financial Statements

1. Statement of Financial Position;

2. Statement of Financial Performance;
3. Statement of Changes in Net Assets/Equity;
4. Statement of Cash Flows;
5. Statement of Comparison of Budget and Actual
Amounts; and
6. Notes to the Financial Statements, comprising
a summary of significant accounting policies
and other explanatory notes.
 General Principles
 Fair Presentation
 Compliance with PPSASs
 Departure from PPSAS
 Going Concern
 Consistency of Presentation
 Materiality and Aggregation
 Offsetting
 Comparative Information
Identification of the Financial Statements
 The following information shall be displayed
prominently and repeatedly:
a. Name of the reporting entity;
b. Whether the financial statements cover the
individual entity or a group of entity;
c. The reporting date or the period covered by
the financial statements, whichever is
appropriate to that component of the financial
statements;
d. Name of fund cluster;
e. The reporting currency; and
f. The level of rounding-off of amounts.
(PPSAS 1.61)
 Reporting Period
 Financial statements shall be presented at least
annually.
Statement of Financial Position
 The statement of financial position is presented
in comparative, condensed and detailed formats.
1. Condensed Statement of Financial Position –
presents only line items.
2. Detailed Statement of Financial Position –
presents all the asset, liability and equity
accounts in the Revised Chart of Accounts.
 Current vs. Noncurrent
 The statement of financial position shall show distinctions
between current and noncurrent assets and liabilities.
Current Assets Current Liabilities
a. Expected to be realized in, or a. Expected to be settled in the
is held for sale or entity’s normal operating cycle
consumption in, the entity’s
normal operating cycle.
b. Held primarily for trading. b. Held primarily for trading.
c. Expected to be realized c. Due to be settled within 12
within 12 months after the months after the reporting
reporting date. date.
d. It is cash or a cash d. The entity does not have an
equivalent, unless it is unconditional right to defer
restricted from being settlement of the liability for at
exchanged or used to settle a least 12 months after the
liability for at least 12 months reporting date.
after the reporting date.
GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Millan
Statement of Financial Performance
 Generally, revenue and expenses are
recognized in surplus or deficit, except for the
following which are recognized directly in equity:
a. Correction of prior period errors;
b. Effect of changes in accounting policies; and
c. Gains or losses on remeasuring available-
for-sale financial assets.
Presentation of Expenses
 Expenses may be presented according to their
function or nature, whichever is more relevant.
 If expenses are classified by function, additional
disclosures shall be made on the nature of
expenses, including depreciation, amortization
and employee benefits expenses.
GOVT ACCTG & ACCTG FOR NPOs by: Z.B.Millan
Statement of Changes in Net Assets/Equity
 The statement of changes in net assets/equity
shows the increase or decrease in the entity’s
net assets during the period resulting from the
following:
a. Surplus or deficit for the period;
b. Items of revenue and expense that are
recognized directly in equity;
c. Effects of changes in accounting policies and
corrections of errors; and
d. The balance of accumulated surpluses or
deficits at the beginning of the period and at
the reporting date, and the changes during
the period.
Statement of Cash Flows
 The statement of cash flows shows the sources
and utilizations of cash and cash equivalents
during the period according to the following
activities:
1. Operating activities – presented using the
Direct Method only.
2. Investing activities
3. Financing activities
Examples of Operating Activities
 Receipt of NCA and reversion of unused NCA
 Receipt or provision of assistance and subsidy
to other entities
 Collection of income and receivables
 Payments of expenses, cash advances and
payables
 Inter or intra-entity transfers of funds
Examples of Investing Activities
 Acquisition and disposal of PPE, investment
property, intangible assets and other noncurrent
assets
 Acquisition and disposal of investment securities
and derivatives
 Collection and provision of long-term loans
Examples of Financing Activities
 Issuing of notes, loans, and bonds payable, and
their repayments
 Finance lease payments pertaining to the
reduction of the outstanding finance lease
liability
Effects of Foreign Exchange Rates
 Cash flows denominated in a foreign currency
are translated using the spot exchange rate at
the date of the cash flow.
 Exchange differences are not cash flows but a
reconciliation of the cash and cash equivalents
at the beginning and end of the period.
Exchange differences are reported in the
statement of cash flows separately from the
operating, investing and financing activities.
 Statement of Comparison of Budget and Actual
Amounts
 The statement of comparison of budget and
actual amounts shows the differences
(variances) between budgeted amounts and
actual results for a given reporting period.
 Definitions
 Original Budget – is the initially approved budget
for the period, usually the GAA.
 Final Budget – is the original budget adjusted for
all reserves, carry-over amounts, realignments,
transfers, allocations and other authorized
legislative or similar authority changes
applicable to the period.
 Actual amounts on a comparable basis –
represent the actual disbursements made during
the period. Since the ‘actual amounts on a
comparable basis’ to the budgeted amounts are
on a ‘cash basis’, they may not always be equal
to the amounts presented in the other financial
statements, which are on ‘accrual basis’.
 Definitions
 The differences between the ‘actual amounts on
comparable basis’ and amounts presented in the
other components of financial statements are
classified as follows:
1. Basis Differences – occur when the approved
budget is prepared on a basis other than the
accounting basis;
2. Timing Differences – occur when the budget
period differs from the reporting period reflected
in the financial statements; and
3. Entity Differences – occur when the budget omits
program or entities that are part of the entity for
which the financial statements are prepared.
(GAM for NGAs, Chapter 3, Sec. 28)
Notes to Financial Statements
 The notes shall be structured in a systematic
and logical manner to show the following:
1. General information on the reporting entity.
2. Statement of compliance with the PPSAS
and Basis of preparation of financial
statements.
3. Summary of significant accounting policies.
4. Disaggregation (breakdowns) and other
supporting information for the line items in
the other financial statements.
Notes to Financial Statements
5. Other disclosures required by PPSAS, such as:
Explanations for the differences between
budgeted and actual amounts;
Events after the reporting date, if material;
Changes in accounting policies and
accounting estimates and prior period errors;
Contingent liabilities, contingent assets, and
unrecognized contractual commitments;
Related party disclosure; and
Non-financial disclosures, e.g., the entity’s
financial risk management objectives and
policies.
Notes to Financial Statements
6. Other disclosures not required by PPSAS but
the management deems relevant to the
understanding of the financial statements.
Events After the Reporting Date
1. Adjusting events – those that provide evidence
of conditions that existed at the reporting date;
and
2. Non-adjusting events – those that are indicative
of conditions that arose after the reporting date.
Examples of Adjusting Events
a. Settlement of a court case that evidences a
present obligation at the reporting date.
b. Bankruptcy of a debtor that evidences an
impairment of a receivable at the reporting date.
c. Sale of inventories that evidences the correct
NRV of inventories at the reporting date.
d. Determination of the amount of revenue
pursuant to a revenue sharing agreement with
another entity.
Changes in Accounting Policies
 A change in accounting policy is accounted for
as follows:
1. Using the transitional provision, if any;
2. In the absence of a transitional provision, by
retrospective application; or
3. If retrospective application is impracticable,
by prospective application.
Changes in Accounting Estimates
 A change in accounting estimate is accounted
for by prospective application.
 Errors
 Material prior period errors are corrected by
retrospective restatement.
Interim Financial Statements
 Government entities prepare interim financial
statements on a quarterly basis using the same
accounting policies used in annual reports.
 Other Reports
 In addition to the financial statements,
government entities are also required to prepare
and submit the following reports:
1. Trial balances (Pre-closing and Post-closing)
2. Other schedules:
a. Regional Breakdown of Income
b. Regional Breakdown of Expenses
 APPLICATION OF CONCEPTS
 

ASSIGNMENT
END