PRESENTATION OF CASH FLOWS

Operating Activities
 Cash flows from (used in) operating activities
are presented using the direct method. Under
this method, major classes of gross cash
receipts and gross cash payments are
presented. The indirect method, which is
available to business entities, is not allowed
for government entities.
Information about major classes of gross cash
receipts and gross cash payments may be
obtained either:
 From the accounting records of the entity; or
 By adjusting relevant account for changes
during the period, non-cash items, and other
items whose effects are investing or financing
cash flows. This can be done through T-
account analyses.
Investing and Financing Activities
 Cash flows from (used in) investing and
financing activities are also presented
according to major classes of gross cash
receipts and gross cash payments.
 Cash flows may be reported on a net basis for:
 Receipts and payments made on behalf of
customers, taxpayers or beneficiaries that
reflect the activities of the other party other
than those of the entity; and
 Receipts and payments for items with quick
turnover, large amount, and short
maturities.
 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.
 Any significant amount of cash and cash
equivalents held that is not available for the
entity’s use shall be disclosed in the notes
STATEMENT OF COMPARISON OF BUDGET AND
ACTUAL AMOUNTS
 This shows the differences (variances)
between budgeted amounts and actual results
for a given reporting period. This enhances
the transparency of financial reporting of the
government.
The Statement of Comparison of Budget and
Actual Amounts shows the following:
 Budget information
 Original budget
 Final budget
 Actual amounts on a comparable basis
 Basis differences
 Timing differences
 Entity differences
Budget information
 Consists of, among others, data on
appropriations, allotments, obligations,
revenues and other receipts, and
disbursements.
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
 These represent the actual disbursements made
during the period.
 Basis differences – occur when the approved
budget is prepared on a basis other than the
accounting basis.
 Timing differences – occur when the budget
period differs from the reporting period
reflected in the financial statements
  Entity differences – occur when the budget
omits program or entities that are part of
the entity for which the financial
statements are prepared.

 Differences between (a) and (b) above –

explanations of material differences shall be
made in the notes.
NOTES TO FINANCIAL STATEMENTS
 Provides information in addition to those
presented in the other financial statements. It
is an integral part of a complete set of
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 statement.
3. Summary of significant accounting policies.
4. Disaggregation (breakdowns) and other
supporting information for the line items for
the other financial statements.
5. Other disclosures required by PPSAS, such as:
• Explanations for the differences between the
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 disclosures; and
• Non-financial disclosures, e.g., the entity’s
financial risk management objectives and
policies.
6. Other disclosures not required by PPSAS but
the management deems relevant to the
understanding of the financial statements.
EVENTS AFTER THE REPORTING DATE
 Are those events, both favorable and
unfavorable, that occur between the reporting
date and when the date of financial
statements are authorized for issue.
a. Adjusting events
b. Non-adjusting events
• Reporting date
• Date of authorization of financial
statements for issue
Adjusting events after the reporting date
Examples:
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 amount of revenue
pursuant to a revenue sharing agreement
with another entity.
e. Determination of employee bonuses, if the
entity has a present obligation to make
payments as of the reporting date.
f. Discovery of fraud errors that show that the
financial statements were incorrect.
Non-adjusting events after the reporting date
Non-adjusting events are disclosed only, if they
are material.
Examples:
a. Acquisition or disposal of a major controlled
entity.
b. Announcement of a plan to continue an
operation or a major program.
c. Major purchases or disposal of asset.
d. Destruction of a building by a fire after the
reporting date.
CHANGES IN ACCOUNTING POLICIES
Accounting policies
 Are the specific principles, bases, conventions,
rules and practices applied by an entity in
preparing and presentation of financial
statements.
An entity may change accounting policy if the
change:
a. Is required by PPSAS; or
b. Results to a reliable and more relevant
information.
The following are considered changes in
accounting policies:
a. Change from one basis of accounting to
another basis of accounting ; and
b. Change in the accounting treatment,
recognition or measurement of transaction,
event or condition within a basis of
accounting.
A change in accounting policy is accounted for
as follows:
a. Using the transitional provision, if any;
b. In the absence of transitional provision, by
retrospective application; or
c. If retrospective application is impractical, by
prospective application.
Retrospective Application
 Involves adjusting the opening balance of
each affected account for the earliest period
presented as if the accounting policy had
always been applied. The net effect of the
adjustments is adjusted to the opening
balance of equity for the earliest period
presented.
Changes in Accounting Estimates
 Result from new information or new
developments and, accordingly, are not
correction of errors.

Examples include changes in estimates of: bad

debts, provisions, useful life of an asset, residual
value, and the like.
Prospective Application
 Involves recognizing the effect of the change
in surplus or deficit either in the
a. Period of change or
b. Period of change and future periods, if the
change affects both.
Errors
 Include mathematical mistakes, incorrect
application of accounting policies, oversights
or misinterpretations of facts, and fraud.
 Can arise in respect of recognition,
measurement, presentation or disclosure of
items in the financial statements.
Classification of Errors:
a. Current period errors
b. Prior period errors

Material prior period errors are corrected by

retrospective restatement.
Retrospective Restatement
 Involves correcting the prior period errors as if
they have never occurred.
 Shall be applied as far back as practicable. If
this is not practicable, prior period errors are
corrected prospectively.
Consolidated and Separate Financial Statements
 A controlling entity is required to present
consolidated financial statements, except in
cases where the controlling entity is a
controlled entity itself and its securities are
not being traded.
Consolidated financial statements – financial
statements of an economic entity presented as
those of a single entity
Controlling entity – entity that has one or more
controlled entities
Controlled entity – entity, including an
incorporated entity such as a partnership, which is
under the control of another entity
 Power condition
a. Ownership of majority a. Ability to dissolve the other
voting interest (whether
directly or indirectly).
b. Power to appoint majority
of the members of board of
directors.
c. Power to cast majority votes
during board of directors or
general meetings.
Benefit condition
entity and obtain significant
residual economic benefits or
bear significant obligations.
b. Ability to extract distributions
of assets from the other
entity and exposure to
certain obligations of the
other entity.
Consolidation procedures
1. Similar items of assets, liabilities, revenue
and expenses are added line by line.
2. The carrying amount of the controlling
entity’s investment in the controlling entity is
eliminated. The resulting goodwill is
recognized.
3. The minority interests in the surplus or deficit
and net assets of the controlled entity are
recognized and presented separately.
The minority interests in the net assets is
presented within equity but separately from the
equity of the controlling entity. This consists of:
a. The minority interests in the net assets as the
combination date; and
b. The minority’s share in the subsequent
changes in the controlled entity’s equity
since the combination date.

4. The effects of inter-entity transactions are

eliminated in full.
Separate Financial Statements
 Are those presented by a controlling entity, an
investor in an associate, or a venture in a
jointly controlled entity, in which the
investments are accounted for on the basis of
the direct net assets/equity interest rather
than on the basis of the reported results and
net assets of the investees.
In the separate financial statements,
investments in controlled entities, jointly
controlled entities, and associates are accounted
for:
a. Using the equity method; or
b. As a financial instrument
Interim Financial Statements
 Government entities prepare interim financial
statements on a quarterly basis using the
same accounting policies used in annual
reports.
Other Reports
1. Trial balances (Pre-closing and Post-closing)
2. Other schedules:
a. Regional Breakdown of Income
b. Regional Breakdown of Expenses
Deadlines on Submission of Reports
a. Provincial offices and Operating units:

Report Deadline Submit to:

Monthly TBs & SSs 10 days after end

of month Auditor, Regional
Accountant
Quarterly FSs, TBs & SSs 10 days after end
of quarter

Yearend FSs, TBs & SSs On or before Jan.

20 of the
following year
b. Regional/Branch Offices:

Report Deadline Submit to:

Monthly TBs & SSs 10 days after end

of month Regional Auditor,
Central Office
Quarterly FSs, TBs & SSs 10 days after end Chief Accountant
of quarter

Yearend FSs, TBs & SSs On or before Jan.

31 of the
following year
c. Central/Head/Main Office:

Report Deadline Submit to:

Monthly TBs & SSs 10 days after end

of month Regional Auditor,
Central Office
Quarterly FSs, TBs & SSs 10 days after end Chief Accountant
of quarter

Yearend FSs, TBs & SSs Feb. 14 of the COA Auditor,

(combined CO, following year DBM, COAGAS
ROs & OUs) (Gov’t Accountancy
Sector)