Presentation on theme: "PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS in the"— Presentation transcript:
1 PHILIPPINE PUBLIC SECTOR ACCOUNTING STANDARDS in the LOCAL GOVERNMENTS
2 SUMMARYBasis : International Public Sector Accounting Standards (IPSAS)Total no. of StandardsNo. of Standards Adopted StandardsNot Adopted of for Later Adoption StandardsDevolved 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 CONCEPTPhilippine Application Guidance (PAG) – are specific provisions which supplies the Philippine application of particular IPSAS paragraphsPPSAS = IPSAS + PAGAccrual 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
9 PPSAS on Financial Statements PPSAS 1 – Financial Statements PresentationPPSAS Cash Flow StatementPPSAS Consolidated and Separate Financial StatementsPPSAS 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 activitiesCash 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 directPublic 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 accountingConsolidated 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 ReconciliationStatement of Comparison of Budget and Actual AmountA. Total Actual RevenueB. Total Actual ObligationStatement of Financial PerformanceA. Total RevenueB. 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, andReliable, 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; andAre 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; andmanagement 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; anduse 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 costsBorrowing 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 treatmentsexpense model: charge all borrowing costs to expenses in the period when they are incurredcapitalization model: capitalize borrowing costs which are directly attributable to the acquisition or construction of a qualifying assetA 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.
42 PPSAS 9 – Revenue from Exchange Transactions prescribe the accounting treatment for revenue arising from exchange transactions and eventsapplies to revenue arising from the following exchange transactions and events:The rendering of services;The sale of goods, andThe 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 receivableapplies to revenue arising from the following exchange transactions and events:The rendering of services;The sale of goods, andThe 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 transferredRendering of services – stage of completionInterest – on a time proportion basisRoyalties – earned in accordance with the substance of the agreementDividends or thei- entity’s right to receive payment is establishedOn Health and Social Services:1. include the implementation of programs and projects on primaryhealth care, maternal and child care, and communicable and noncommunicabledisease control services;2. Health services which access to secondary and tertiary healthservices;3. Purchase of medicines, medical supplies, and equipment neededto carry out the services4. Social welfare services which include programs and projects onchild and youth welfare, family and community welfare, women'swelfare, 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 whichinclude 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 theconservation of mangroves;On Infrastructure:1. Maintenance and Rehabilitation of the following;a. roads and bridgesb. school buildings and other facilities for public elementaryand secondary schools;c. clinics, health centers and other health facilitiesd. small water impounding projectse. fish ports; artesian wells, spring development, rainwatercollectors 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 equipment3. Regulation and supervision of business concessions,4. Security services for such facilities
45 PPSAS InventoriesMeasured at lower of cost and net realizable valueIf 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 costConversion costCost to bring the inventory to present location/condition
47 PPSAS InventoriesCost 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 - LeasesFinance lease – transfers substantially all risks and rewards incidental to ownership of an assetOperating lease – all other leases
49 PPSAS 13 - LeasesLessee – is the person/entity who leases something from a lessorLessor – 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 expenseLeasor’s booksassets recognized in the books according to nature of assetReceipts 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 liabilityLease payment apportioned between interest and reduction of liabilityApplies depreciation policy on the assetLessor’s booksRecognize equivalent to the net investment in the leaseRecognize 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 dateNon-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 dateNon-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 bothAsset, 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 entityCost or fair value of the item can be measured reliably
56 PPSAS 17–Property, Plant and Equipment Examples:LandBuildingsEquipmentPublic 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 depreciationResidual value at 5% of the cost.Subject to impairment lossExchanges of PPE shall be measured at fair value
58 PPSAS 17–Property, Plant and Equipment DerecognizedDisposalWhen 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 amountContingent 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 entityA present obligation that arises from past events but is not recognized becauseIt is not probable that an outflow of resources will be requiredThe 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 entitiesControlled entitiesKey management personnel
62 PPSAS 20 – Related Party Disclosures Disclosures requirements:Relationships involving control even if there have no transactions in betweenRelated party transactionsManagement 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 potentialPresent 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:TaxesTransfersTaxes 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 transactionsStipulations – are terms in laws or regulations or binding arrangement imposed upon the use of transferred assetCondition requires that the economic benefit/service potential is required to be consumed as specified other these shall be returned to the transferorRestriction 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 RevenueTaxes are recognized as revenue when the taxable event occurs.Transfers with condition are recognized as revenue upon compliance of the conditionTransfers 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’sFair ValueLessCost to SellValue in UseandPar. 13Recoverable 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 disposalPV of estimated future cash flows
72 COMPUTATION OF IMPAIRMENT LOSS Non-Cash Generating AssetCash Generating AssetIL = CA-RSA RSA = higher of Fair Value less Cost To Sell and Value in UseIL = CA-RA RA = higher of Fair Value less Cost To Sell and Value in UseThis Standard defines an “impairment” as a loss in the future economicbenefits or service potential of an asset, over and above the systematicrecognition of the loss of the asset’s future economic benefits or servicepotential through depreciation. Impairment of a cash-generating asset,therefore, reflects a decline in the future economic benefits or service potentialembodied in an asset to the entity that controls it.For example, an entity may have a municipal parking garage that is currentlybeing used at 25 percent capacity. It is held for commercial purposes, andmanagement has estimated that it generates a commercial rate of return whenusage is at 75 percent of capacity and above. The decline in usage has not beenaccompanied by a significant increase in parking charges. The asset is regarded asimpaired because its carrying amount exceeds its recoverable amount.
73 PPSAS 27 - AgriculturePrescribe 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 - AgricultureMeasurement : 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 instrumentFI at Fair Value thru surplus or deficitHeld to maturityLoans and ReceivableAvailable for Sale
77 PPSAS 28, 29 and 30 – Financial Instruments Recognition:Initial recognition at its fair market valueSubsequent measurement:Loans and receivable amortized cost usingHeld to maturity effective interest methodInvestments that do not have quoted market price - cost
78 PPSAS 28, 29 and 30 – Financial Instruments Presentation:Investments:Cash EquivalentsCurrent AssetsNon- Current AssetsLiabilitiesCurrent LiabilitiesNon-current liabilites
79 PPSAS 28, 29 and 30 – Financial Instruments Disclosure:Statement of Financial ConditionCategories of financial assets and liabilitiesReclassificationsDerecognitionStatement of Financial PerformanceRevenueExpenseGains or Losses
80 PPSAS 31- Intangible Assets Intangible assets – is an identifiable non-monetary asset without physical substanceExample: computer software, patents, copyrightsAn 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 AcquisitionSeparate acquisition initially recognized at cost.In-house developedRecognized as expense at its research phaseAt development phase recognized as asset if the entity can demonstrate all of the following:Technical feasibility of completing the assetIntention to complete the assetAbility 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 outputAvailability of resources to complete and to use or sellAbility 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 operatorThe operator constructs, develops, or acquires from a third party; orIs an existing asst of the operatorIs provided by the grantorIs an existing asset of the grantorIs 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.