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PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS in the

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1 PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS in the
LOCAL GOVERNMENTS

2 SUMMARY Basis : International Public Sector Accounting Standards (IPSAS) Total no. of Standards No. of Standards Adopted Standards Not Adopted of for Later Adoption Standards Devolved regulatory functions:  Inspection of food products such as meat, fruits, poultry, milk, fish, vegetables and other foodstuffs  Adoption of quarantine regulations  Enforcement of the National Building Code  Regulations of tricycle operations  Regulation of the real estate trade  Licensing of cockpits

3 CONCEPT Philippine Application Guidance (PAG) – are specific provisions which supplies the Philippine application of particular IPSAS paragraphs PPSAS = IPSAS + PAG Accrual Accounting – basis of accounting under which transactions and other events are recognized when they occur. Devolved regulatory functions:  Inspection of food products such as meat, fruits, poultry, milk, fish, vegetables and other foodstuffs  Adoption of quarantine regulations  Enforcement of the National Building Code  Regulations of tricycle operations  Regulation of the real estate trade  Licensing of cockpits

4 APPLICATION General Purpose Financial Statements applies PPSAS
Special Purpose Financial Statements follows the needs of the requiring agency

5 PPSAS SUMMARY

6 Philippine Public Sector Accounting Standards

7 Philippine Public Sector Accounting Standards

8 Philippine Public Sector Accounting Standards

9 PPSAS on Financial Statements
PPSAS 1 – Financial Statements Presentation PPSAS Cash Flow Statement PPSAS Consolidated and Separate Financial Statements PPSAS 24 – Presentation of Budget Information in Financial Statements

10 PPSAS on Financial Statements
Provides the fundamental principles underlying the preparation of the financial statements, including going concern assumption, consistency of presentation, accrual accounting, aggregation and materiality.

11 PPSAS 1-Presentation of Financial Statements
A complete set of financial statements comprises: – Statement of financial position; – Statement of financial performance; – Statement of changes in net assets/equity; – Cash flow statement; – When the entity makes it approved budget publicly available, a comparison of budget and accrual amounts; – Notes, comprising a summary of significant accounting policies and other explanatory notes.

12 PPSAS 1-Presentation of Financial Statements
An entity whose financial statements comply with IPSASs shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IPSASs unless they comply with all the requirements of IPSASs.

13 PPSAS 1-Presentation of Financial Statements
Current/non-current distinction for assets and liabilities is normally required. In general, subsequent events are not considered in classifying items as current or non-current. An entity shall disclose for each assets and liability item that combines amounts expected to be recovered or settled both before and after 12 months from the reporting date, the amount to be recovered or settled after more than 12 months.

14 PPSAS 1-Presentation of Financial Statements
Specifies minimum disclosure requirements for the notes. These shall include information about: – accounting policies followed; – the judgments that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognized in the financial statements; – the key assumptions concerning the future, and other key sources of estimation uncertainty, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year; – the domicile and legal form of the entity; – a description of the nature of the entity’s operations; – a reference to the relevant legislation; and

15 PPSAS 2 –Cash Flow Statements
require the presentation of information about historical changes in a public sector entity’s cash and cash equivalents by means of a cash flow statement that classifies cash flows during the period according to operating, investing and financing activities

16 PPSAS 2 –Cash Flow Statements
A cash flow statement must analyze changes in cash and cash equivalents during a period, classified by operating, investing and financing activities Cash equivalents include investments that are short term (less than three months from date of acquisition), readily convertible to known amounts of cash, and subject to an insignificant risk of changes in value. Generally they exclude equity investments.

17 PPSAS 2 –Cash Flow Statements
Cash flows for operating activities are reported using either the direct Public sector entities reporting cash flows from operating activities using the direct method are encouraged to provide a reconciliation of the surplus/deficit from ordinary activities with the net cash flow from operating activities.

18 PPSAS 2 –Cash Flow Statements
The exchange rate used for translation of cash flows arising from transactions denominated in a foreign currency shall be the rate in effect at the date of the cash flows. Investing and financing transactions that do not require the use of cash shall be excluded from the cash flow statement, but they shall be separately disclosed.

19 PPSAS 5 – Consolidated and Separate Financial Statements
Prescribe requirements for preparing and presenting consolidated financial statements for an economic entity under the accrual basis of accounting Consolidated financial statements are financial statements of an economic entity (controlling entity and controlled entities combined) presented as those of a single entity.

20 PPSAS 5 – Consolidated and Separate Financial Statements
A controlled entity is an entity controlled by another entity, known as the controlling entity. Control is the power to govern the operating and financial policies

21 PPSAS 24–Presentation of Budget Information in Financial Statements
Objective: To ensure that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget for which they are held publicly accountable and, where the budget and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results.

22 PPSAS 24–Presentation of Budget Information in Financial Statements
Objective: To ensure that public sector entities discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget for which they are held publicly accountable and, where the budget and the financial statements are prepared on the same basis, their financial performance in achieving the budgeted results.

23 PPSAS 24–Presentation of Budget Information in Financial Statements
Original budget – initial approved budget for the period Final budget – is the original budget adjusted for the changes Actual – the amounts that result from the execution of the budget

24 PPSAS 24–Presentation of Budget Information in Financial Statements
Actual Revenue – actual collection Actual Expenditures – actual incurred obligation (adjusted to actual incurrence)

25 PPSAS 24–Presentation of Budget Information in Financial Statements
Aggregation – Revenue A. Local Sources B. External Sources Appropriation A. Current Appropriation By Function By Allotment Class Special Purpose Funds B. Continuing Appropriation

26 PPSAS 24–Presentation of Budget Information in Financial Statements
Reconciliation Statement of Comparison of Budget and Actual Amount A. Total Actual Revenue B. Total Actual Obligation Statement of Financial Performance A. Total Revenue B. Expenses - Personal Services - MOOE - Financial Expenses

27 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
Prescribe 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 corrections of errors.

28 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
In the absence of an IPSAS that specifically applies to a transaction, other event or condition, management shall use judgement in developing and applying an accounting policy that results in information that is: Relevant to the decision-making needs of users, and Reliable, in that the financial statements: Represent faithfully the financial position, financial performance and cash flows of the entity; Reflect the economic substance of transactions, other events and conditions and not merely the legal form;

29 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
Reliable, in that the financial statements: Are neutral, i.e., free from bias; Are prudent; and Are complete in all material aspects

30 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
prescribes a hierarchy for choosing accounting policies: IPSASs, taking into account any relevant implementation guidance; in the absence of a directly applicable IPSAS, look at the requirements and guidance in IPSASs dealing with similar and related issues; and the definitions, recognition and measurement criteria for assets, liabilities, revenue and expenses described in other IPSASs; and management may also consider the most recent pronouncements of other standard-setting bodies, and accepted public and private sector practices.

31 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
Apply accounting policies consistently to similar transactions. Make a change in accounting policy only if it is required by an IPSAS, or it results in reliable and more relevant information.

32 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
If a change in accounting policy is required by an IPSAS, follow that pronouncement’s transition requirements. If none are specified, or if the change is voluntary, apply the new accounting policy retrospectively by restating prior periods. If restatement is impracticable, include the cumulative effect of the change in net assets/equity. If the cumulative effect cannot be determined, apply the new policy prospectively.

33 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
Changes in accounting estimates (for example, change in useful life of an asset) are accounted for in the current period, or the current and future periods (no restatement). In the situation a distinction between a change in accounting policy and a change in accounting estimate is unclear, the change is treated as a change in an accounting estimate.

34 PPSAS 3 –Accounting Policies, Changes in Accounting Estimates and Errors
All material prior period errors shall be corrected retrospectively in the first set of financial statements authorized for issue after their discovery, by restating comparative prior period amounts or, if the error occurred before the earliest period presented, by restating the opening statement of financial position.

35 PPSAS 4 –The Effects of Changes in Foreign Exchange Rates
prescribe the accounting treatment for an entity’s foreign currency transactions and foreign operations

36 PPSAS 4 –The Effects of Changes in Foreign Exchange Rates
Determine the reporting entity’s functional currency – the currency of the primary economic environment in which the entity operates.

37 PPSAS 4 –The Effects of Changes in Foreign Exchange Rates
translate all foreign currency items into the functional currency: – at date of transaction, record using the spot exchange rate for initial recognition and measurement; – at subsequent reporting dates: use closing rate for monetary items; use transaction-date exchange rates for non-monetary items carried at historical cost; and use valuation-date exchange rates for non-monetary items that are carried at fair value;

38 PPSAS 5 - Borrowing Costs
prescribe the accounting treatment for borrowing costs Borrowing costs include interest, amortization of discounts or premiums on borrowings, and amortization of ancillary costs incurred in the arrangement of borrowings.

39 PPSAS 5 - Borrowing Costs
Two accounting treatments expense model: charge all borrowing costs to expenses in the period when they are incurred capitalization model: capitalize borrowing costs which are directly attributable to the acquisition or construction of a qualifying asset A qualifying asset is an asset which requires a substantial period of time to make it ready for its intended use or sale.

40 PPSAS 8 – Interests in Joint Ventures
prescribe the accounting treatment required for interests in joint ventures, regardless of the structures or legal forms of the joint venture activities.

41 PPSAS 8 – Interests in Joint Ventures
Jointly controlled operations Jointly controlled assets Jointly controlled entities: proportionate consolidation the equity method

42 PPSAS 9 – Revenue from Exchange Transactions
prescribe the accounting treatment for revenue arising from exchange transactions and events applies to revenue arising from the following exchange transactions and events: The rendering of services; The sale of goods, and The use of others of entity assets yielding interest, royalties and dividends.

43 PPSAS 9 – Revenue from Exchange Transactions
Revenue shall be measured at the fair value of the consideration received or receivable applies to revenue arising from the following exchange transactions and events: The rendering of services; The sale of goods, and The use of others of entity assets yielding interest, royalties and dividends.

44 PPSAS 9 – Revenue from Exchange Transactions - recognition
Sale of goods – when significant risks and rewards has been transferred Rendering of services – stage of completion Interest – on a time proportion basis Royalties – earned in accordance with the substance of the agreement Dividends or thei- entity’s right to receive payment is established On Health and Social Services: 1. include the implementation of programs and projects on primary health care, maternal and child care, and communicable and noncommunicable disease control services; 2. Health services which access to secondary and tertiary health services; 3. Purchase of medicines, medical supplies, and equipment needed to carry out the services 4. Social welfare services which include programs and projects on child and youth welfare, family and community welfare, women's welfare, welfare of the elderly and disabled persons; On Environmental Management: 1. Solid waste disposal system; 2. Services or facilities related to general hygiene and sanitation; 3. Implementation of community-based forestry projects which include integrated social forestry programs and similar projects; 4. Management and control of communal forests; On Agriculture: 1. Inter -Barangay irrigation system; 2. Water and soil resource utilization and conservation projects; 3. Enforcement of fishery laws in municipal waters including the conservation of mangroves; On Infrastructure: 1. Maintenance and Rehabilitation of the following; a. roads and bridges b. school buildings and other facilities for public elementary and secondary schools; c. clinics, health centers and other health facilities d. small water impounding projects e. fish ports; artesian wells, spring development, rainwater collectors and water supply systems; f. seawalls, dikes, drainage and sewerage, and flood control; g. traffic signals and road signs; and similar facilities; On Tourism: a. Tourism facilities and other tourist attractions, 2. Acquisition of equipment 3. Regulation and supervision of business concessions, 4. Security services for such facilities

45 PPSAS Inventories Measured at lower of cost and net realizable value If for distribution at no charge or nominal charge or use in the production process it shall be measured at the lower of cost and current replacement cost

46 PPSAS 12 - Inventories Initial recognition is at cost Costs include:
purchase cost Conversion cost Cost to bring the inventory to present location/condition

47 PPSAS Inventories Cost shall be determined through weighted average method. Upon sale or distribution the carrying amount shall be recognized as expense. Write-down to net realizable value shall be recognized as expense in the period the write-down occurs.

48 PPSAS 13 - Leases Finance lease – transfers substantially all risks and rewards incidental to ownership of an asset Operating lease – all other leases

49 PPSAS 13 - Leases Lessee – is the person/entity who leases something from a lessor Lessor – is the owner of the property or produce being leased

50 PPSAS 13 - Leases Operating lease Leasee’s books Leasor’s books
payments recognized as expense Leasor’s books assets recognized in the books according to nature of asset Receipts recognized as revenue on a straight line basis over the lease term

51 PPSAS 13 - Leases Finance Lease Lessee’s books Lessor’s books
Recognize the asset and the liability Lease payment apportioned between interest and reduction of liability Applies depreciation policy on the asset Lessor’s books Recognize equivalent to the net investment in the lease Recognize finance revenue based on the patter reflecting a constant periodic rate of return

52 PPSAS 14 – Events after the Reporting Date
Events after the reporting date are those events, both favourable and unfavourable that occur between the reporting date and the date when the FS are authorized for issue. Adjusting events – those that provide evidence that existed as of reporting date Non-adjusting events –those that are indicative of conditions that arose after the reporting date

53 PPSAS 14 – Events after the Reporting Date
Adjusting events – adjust financial those that provide evidence that existed as of reporting date Non-adjusting events –do not adjust the financial statements that are indicative of conditions that arose after the reporting date

54 PPSAS 16 – Investment Property
Land or building held (owner/under finance lease) to earn rental or for capital appreciation or other both Asset, initially recognized at cost and subsequently measured following the cost model

55 PPSAS 17–Property, Plant and Equipment
PPE recognized as assets if: Probable that the future economic benefits or service potential associated with the item will flow to the entity Cost or fair value of the item can be measured reliably

56 PPSAS 17–Property, Plant and Equipment
Examples: Land Buildings Equipment Public Infrastructure

57 PPSAS 17–Property, Plant and Equipment
Initially recognized at cost and subsequently measured following the cost model. Depreciated following the straight line method of depreciation Residual value at 5% of the cost. Subject to impairment loss Exchanges of PPE shall be measured at fair value

58 PPSAS 17–Property, Plant and Equipment
Derecognized Disposal When no economic benefit or service potential is expected from its use or disposal

59 PPSAS 19 - Provisions, Contingent Liabilities and Contingent Assets
Provision – is a liability of uncertain timing or amount Contingent liability – possible obligation that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the entity A present obligation that arises from past events but is not recognized because It is not probable that an outflow of resources will be required The amount of the obligation cannot be measured reliably

60 PPSAS 19 - Provisions, Contingent Liabilities and Contingent Assets
Contingent asset –possible asset that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the entity

61 PPSAS 20 – Related Party Disclosures
Related parties are that control or have significant influence over the reporting entity and parties that are controlled or significantly influenced by the reporting entity: Controlling entities Controlled entities Key management personnel

62 PPSAS 20 – Related Party Disclosures
Disclosures requirements: Relationships involving control even if there have no transactions in between Related party transactions Management compensation (including an analysis by type of compensation)

63 PPSAS 21–Impairment of Non-cash Generating Assets
Impairment Loss – is the amount by which the carrying amount of an asset exceeds its recoverable service amount. Recoverable service amount is the higher of a non-cash general asset’s fair value less cost to sell and its value in use. Value in use is the present value of the assets remaining service potential Present value of the service potential is determined using the depreciated replacement cost

64 PPSAS 21–Impairment of Non-cash Generating Assets
Replacement cost is the cost to replace the asset’s gross service potential. The cost is depreciated to reflect the assets in its used condition. Depreciated replacement cost is measured as the reproduction or replacement of the asset, whichever is lower, less accumulated depreciation calculated on the basis of such cost to reflect the consumed or expired service potential of the asset.

65 PPSAS 23–Revenue from Non-Exchange Transactions
Non-exchange transactions – an entity receives value from another entity without directly giving approximately equal value in exchange or gives value to another entity without directly receiving approximately equal value in exchange

66 PPSAS 23–Revenue from Non-Exchange Transactions
Non-exchange transactions revenues: Taxes Transfers Taxes are economic benefits or service potential compulsorily paid or payable to public sector entities in accordance with laws and regulations.

67 PPSAS 23–Revenue from Non-Exchange Transactions
Transfers are inflows of future economic benefits or service potential from non-exchange transactions Stipulations – are terms in laws or regulations or binding arrangement imposed upon the use of transferred asset Condition requires that the economic benefit/service potential is required to be consumed as specified other these shall be returned to the transferor Restriction requires the consumption of the economic/service potential of the asset as specified but do not require the return if not consumed as specified

68 PPSAS 23–Revenue from Non-Exchange Transactions
Recognition as Revenue Taxes are recognized as revenue when the taxable event occurs. Transfers with condition are recognized as revenue upon compliance of the condition Transfers with restrictions recognized as revenue upon receipt

69 PPSAS 26–Impairment of Cash Generating Assets
Cash generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

70 PPSAS 26–Impairment of Cash Generating Assets
Recoverable amount is the higher of an asset’s or a cash-generating unit’s fair value less costs to sell and its value in use. Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life

71 MEASURING RECOVERABLE AMOUNT
Higher of Cash Generating Asset’s Fair Value Less Cost to Sell Value in Use and Par. 13 Recoverable amount is the higher of an asset’s or a cash generating unit’s fair value less cost to sell and its value in use. Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from the continuing use of an asset and from its disposal at the end of its useful life. Market price less costs of disposal PV of estimated future cash flows

72 COMPUTATION OF IMPAIRMENT LOSS
Non-Cash Generating Asset Cash Generating Asset IL = CA-RSA RSA = higher of Fair Value less Cost To Sell and Value in Use IL = CA-RA RA = higher of Fair Value less Cost To Sell and Value in Use This Standard defines an “impairment” as a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset’s future economic benefits or service potential through depreciation. Impairment of a cash-generating asset, therefore, reflects a decline in the future economic benefits or service potential embodied in an asset to the entity that controls it. For example, an entity may have a municipal parking garage that is currently being used at 25 percent capacity. It is held for commercial purposes, and management has estimated that it generates a commercial rate of return when usage is at 75 percent of capacity and above. The decline in usage has not been accompanied by a significant increase in parking charges. The asset is regarded as impaired because its carrying amount exceeds its recoverable amount.

73 PPSAS 27 - Agriculture Prescribe the accounting treatment and disclosures for agricultural activity. Agricultural activity is the management by an entity of the transformation of living animals or plants for sale, or for distribution at no charge, or for nominal charge or for conversion into agricultural produce or into additional biological assets.

74 PPSAS 27 - Agriculture Measurement : Fair value less cost to sell. At reporting date the biological assets are measured at FV less cost to sell. Any change is reported in surplus or deficit. Biological transformation – 1. growth 2. degeneration 3. procreation

75 PPSAS 28, 29 and 30 – Financial Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Liability Instrument or debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract.

76 PPSAS 28, 29 and 30 – Financial Instruments
Categories of financial instrument FI at Fair Value thru surplus or deficit Held to maturity Loans and Receivable Available for Sale

77 PPSAS 28, 29 and 30 – Financial Instruments
Recognition: Initial recognition at its fair market value Subsequent measurement: Loans and receivable amortized cost using Held to maturity effective interest method Investments that do not have quoted market price - cost

78 PPSAS 28, 29 and 30 – Financial Instruments
Presentation: Investments: Cash Equivalents Current Assets Non- Current Assets Liabilities Current Liabilities Non-current liabilites

79 PPSAS 28, 29 and 30 – Financial Instruments
Disclosure: Statement of Financial Condition Categories of financial assets and liabilities Reclassifications Derecognition Statement of Financial Performance Revenue Expense Gains or Losses

80 PPSAS 31- Intangible Assets
Intangible assets – is an identifiable non-monetary asset without physical substance Example: computer software, patents, copyrights An intangible asset, whether purchased or self-created, is recognised if: – It is probable that the future economic benefits or service potential that are attributable to the asset will flow to the entity – The cost or fair value of the asset can be measured reliably

81 PPSAS 31- Intangible Assets
Acquisition Separate acquisition initially recognized at cost. In-house developed Recognized as expense at its research phase At development phase recognized as asset if the entity can demonstrate all of the following: Technical feasibility of completing the asset Intention to complete the asset Ability to use or sell the asset

82 PPSAS 31- Intangible Assets
At development phase recognized as asset if the entity can demonstrate all of the following: Existence of market for the output Availability of resources to complete and to use or sell Ability to measure reliably the expenditure attributable to the intangible asset

83 PPSAS 32-Service Concession Arrangements Grantor
Service concession arrangement – is a binding arrangement between a grantor and an operator in which: The operator uses the service concession asset to provide a public service on behalf of a grantor for a specified period of time; The operator is compensated for its services over the period of the service concession arrangement.

84 PPSAS 32-Service Concession Arrangements Grantor
Service concession asset – is an asset used to provide public service in a service concession arrangement that: Is provided by the operator The operator constructs, develops, or acquires from a third party; or Is an existing asst of the operator Is provided by the grantor Is an existing asset of the grantor Is an upgrade to an existing asset of the grantor

85 PPSAS 32-Service Concession Arrangements Grantor
The grantor recognize an asset used in the service concession arrangement for its entire useful life and recognize the liability. The liability shall be reduced according to the economic substance of the service concession arrangement.

86 PPSAS 32-Service Concession Arrangements Grantor
The service concession assets shall be classified and presented under the PPE.

87 THANK YOU


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