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. (PPAS 1.3)

Objective of General-Purpose FS
1. 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 FS

The responsibility over FS rests with the entity’s management, particularly the Head of the entity jointly
with the Head of Finance/Accounting.

A Statement of Management Responsibility for Financial Statements shall be attached to the

financial statements as a cover letter. Signed by Head of Finance/Chief Accountant/Comptroller
and Head of the Agency. See book for sample

Component of General-Purpose FS

A complete set of FS consists of:

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 FS; comprising a summary of significant accounting policies and other
explanatory notes

General Principles

Fair Presentation

This means that faithful representation for the effects of the transactions and other events in
accordance with the definitions and recognition criteria for assets, liabilities, revenue, and expenses in
the PPSAS. The application of PPSAS, with appropriate disclosures, if necessary, would result in the fair
presentation of FS.
It also requires the proper selection and application of accounting policies in accordance with PPSAS.
Additional disclosures shall be made whenever relevant to the understanding of the information
contained in the FS.

Compliance with PPSASs

An entity whose FS comply with PPSASs shall make an explicit and unreserved statement of such
compliance in the notes. FS shall not be described as complying with PPSASs unless they comply with all
the requirements of PPSASs. Inappropriate accounting policies are not rectified either by disclosure of
the accounting policies used, or by notes or explanatory material.

Departure from PPSASs

In the event the management strongly believes that compliance with the requirement of PPSASs would
result in misleading presentation that it would contradict the objective of the financial statements, the
entity may depart from that requirement if the relevant regulatory framework allows, or otherwise does
not prohibit, such a departure.

Going Concern

The FS shall be prepared on a going concern basis unless there is an intention to discontinue the entity
operation or there is no realistic alternative to do so.

Consistency of Presentation

The presentation and classification of items in the FS shall be retained from one period to the next
unless laws, rules, and regulations, and PPSAS require a change in the presentation.

Materiality and Aggregation

Each materials class of similar items shall be presented separately in the FS. Items of a dissimilar nature
or functions shall be presented separately unless they are immaterial. If a line item is not material, it is
aggregated with ither items either on the face of the FS or in the Notes. A specific disclosure
requirement in a PPSAS need not be satisfied if the information is not material.

Offsetting

Assets, Liabilities, Revenues, and expenses shall not be offset unless (a) required or permitted by a
PPSASs, or (b) when offsetting reflects the substance of the transaction or other event.
Comparative Information

Comparative information shall be disclosed with respect to the previous period for all amounts reported
in the FS. Comparative information shall be included for narrative and descriptive information when it is
relevant to an understanding of the current period’s FS.

Identification of the FS

The FS shall be identified clearly, and distinguished from other information in the same published
document.

The following information shall be displayed prominently and repeatedly:

1. Name of Reporting Entity

2. Whether the FS cover the individual entity or a group of entity
3. The reporting date of the period covered by the FS, whichever is appropriate to that component
of the FS;
4. Name of fund cluster
5. The reporting currency
6. The level of rounding off of amounts

Reporting Period

FS shall be presented at least annually.

When an entity changes its reporting date such that its annual FS are presented for a period longer or
shorter that one year, the following shall be disclosed:

1. The period covered by the FS;

2. The reason for using a longer or shorter period;
3. The fact that comparable amounts are not entirely comparable

Statement of Financial Position

The SFP shows entity’s Financial Condition as at a certain date. It is presented in comparative,
condensed, and detailed formats.

1. Condensed SFP – presents only the line items shown below. The breakdowns and other relevant
information are disclosed in the Notes:
a. Cash and Cash Equivalents;
b. Receivables from exchange transactions;
c. Recoverable from non-exchange transactions (taxes and transfers);
d. Financial Assets (excluding amounts shown under (a),(b), and (C);
e. Inventories
f. Investment Property
 g. PPE
h. Intangible Assets
i. Taxes and Transfers Payables
j. Payable under exchange transactions;
k. Provisions
l. Financial Liabilities (excluding amounts shown under (h), (i) and (j); and
m. Net assets/equity

Additional line items, headings, and subtotals shall be presented whenever relevant to the
understanding of the entity’s financial position.

2. Detailed Statement of Financial Position – presents all the assets liability and equity accounts in
the Revised COA.

Both the condensed and the detailed statement of financial position shall show distinction between
current and noncurrent Assets and Liabilities.

Statement of Financial Performance

A statement of Financial Performance shows the revenue, expenses, and surplus or deficit for the
period, It is presented in comparative, condensed and detailed formats.

Generally, revenue and expensed 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

The following are the minimum line items to be presented on the face of the statement of financial
performance

1. Revenues
2. Finance Costs;
3. Share in the surplus or deficit of associates and joint ventures
4. Gain or Loss Attributable to discontinuing operations; and
5. Surplus or deficit

Additional headings, line items, and subtotals shall be presented whenever relevant to the
understanding of the entity’s financial performance.

The nature and amount of material items of revenue and expense are disclosed separately.
Examples of items to be disclosed separately include the following:

a. Write-downs of assets (e.g. inventory, PPE) and reversal thereof;

 b. Restructuring provisions and reversal thereof;
c. Disposal of items of property, plan, and equipment;
d. Privatizations or other disposal of investments;
e. Discontinuing operations;
f. Litigations settlements; and
g. Other reversals or provisions

Expenses may be presented according to their functions or nature, whichever is more relevant. If
expenses are classified by function, additional disclousres shall be made on the nature of expenses,
including depreciation, amortization and employee benefit expenses.

See sample in the book

Statement of Changes in Net Assets/Equity

The statement of changes in net assets/euity shows the increase/decrease in the entity’s net assets
during the period resulting from the following:

a. Surplus or deficit for the period;

b. Items or revenue and expense that are recognized directly in equity;
c. Effects if chages in accounting policies and correctness 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.

See sample in the book

Statement of Cash Flows

The Statement of cash flows shows the sources and utilization of cash and cash equivalents during the
period according to the following activities:

a. Operating Activities – cash flows from operating activities are primarily derived from the
principal cash generating activities of the entity. They normally include cash flows on items of
revenue and expenses. Examples include:
i. Receipt of NCA and reversion of unused NCA
ii. Receipt or provision of assistance and subsidy to other entities
iii. Collection of income and receivables
iv. Payments of expenses, cash advances and payables
v. Inter or intra-entity transfers of funds
 b. Investing Activities – involve the acquisition and disposal of non-current assets and other
investments. Examples include:

i. Acquisition and disposal of PPE, investment property, intangible assets and other non-current
assets

ii. Acquisition and disposal of investment sercurities and derivatives

iii. Collection and provision of long-term loans

c. Financing Activities – are activities that affect the entity’s equity capital and borrowings.
Examples include:
i. Issuing of notes, loans, and bonds payable, and their repayments
ii. Finance lease payments pertaining to the reduction of the outstanding finance lease liability

Cash flow information provifrs a basis for assessing an entty;s ability to generate cash and cash
equivalents and its utilization od funds.

Cash flow exclude movements between cash and cash euivalents (e.g. investment of excess cash
in cash equivalents because therese are part of the entity;s cash management rather than
operating, investing, and financing activities)

Presentation of Cash Flows

Operating Activitieies
Cash flow 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 entitites.

Information about major classes of gross receipts and gross cash payments may be obtained
either by:
a. From accounting records of the entity; or
b. By adjusting relevant accounts 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.

A reconciliation of the accrual basis surplus or defict with the net cash flow from operating
activities shall be provided in the notes to FS.

Investing and Financing Activities

Cash flos from (used in) investing and financinf activities are also presented according to major
classes or gross cash receipts and gross cash payments.

 Cash flows maybe reported on a net basis for:

 a. Receipts and payments made on behalf of customers, taxpayers or benefeciaries that
reflect the activities of the other party rather than those of the entity; and
b. Receipts and payments for items with quick turnover, large amount, and short
maturities.
 Cash flows denominated in a foregin currency are translated using the spot exchange rate at
the date of the cash flow. Exhange diffrences are not cash flows but a reconciliation of the
cash and cash euivalents at the beginning and end o f the period. Ehange differences are
reported in the statement of cash flows separate;t from the operating, investing, and
fnancinf activities.
 Any significant amout of cash and cash equivalents held that is not avaioable for the entity;s
use shall be disclosed in the notes.

See sample in the book

Statement of Comparison of Budget and Actual Amounts

The statement of comparison of budget and the actual amounts shows the differences (variances)
netween the budgeted amounts amd actual results for a given period. This enhances the transparency
of financial reporting of the government.

The statement of comparison and budget and actual amount shows the follofing:

a. Budget information – consists of, among ohers, data on appropriations, allotments, obligations,
revenues and other receipts and disbursments. This is based on the budget registries and
includes the following:
i. Original Budget – is the initially approved budget for the period, usually the General
Appropriations Act. The original budget may include residual appropriated amounts
automatically carried over from prior years by law such as prior year commitments or possible
future liabilities based n a current contractual agreement (e.g. prior year’s not yet due and
demandable obligations).
ii. Final Budget – is the original budget adjusted for all the resrved, carry-over amounts,
realignments, trasfers, allocations and other authorized legislative or similar authority changes
applicable to the period.

Explanato-iodn regardinf the changes from original to final budget (i.e. whether they are
a consequence of reallocations within the budget)n are disclosed in the notes.
Moreover, the budgetary basis (cas, accrual, or some modification thereof) used in
preparing the budget information vis-à-vis the accounting basis used in preparing the FS shall be
disclosed in the notes.
b. Actual amounts on a comparable basis – These 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 FS,
 which are on ‘accrual basis’. These, therefore, are reconciled in the notes. The
differences are classified as follows:
i. Basis Differences – occur when the approved budget is prepared on a basis other than
the accounting basis;
ii. Timing Differences – occur when the budget period differs from the previous from the
reporting period reflected in the FS, and
iii. Entity Differences – occur when the budget omits program or entities that are part of
the entity for which the financial statements are prepared;
c. Differences between (a) and (b) above – explanation of material differences shall be made in the
notes.

Example: E

ntity A’s appropriation for CO for the current year amoutns to P1M. The Original Budget is P1M.

During the yer, P50,000 is realigned to personnel services. The final budget is P950,000.

Actual disbursemtns during the period totaled P870,000. The actual amounts on a comparable
basis is P870,000. The additions to capital assets reflected in the FS is P930,000. This is calculated on the
accrual basis. The ‘baisi difference’ of P60,000 is disclosed in the notes.

Difference between the ‘final budget’ and the ‘actual aount on a comparable basis’ is P80,000
(950,000 – 870,000). This difference us reconciled with, among others, the unreleased appropriations,
unobligated alotments, and unpaid obligations, as shown in the budget registries.

The statement of comparison of budget and actual amounts will show the following
information:

Particulars Budgeteed Actual Amounts Difference Final

Amounts on Comparable Budget and
basis Actual
Original Final
Capital Outlay Notes 1,000,000 950,000 870,000 80,000

The Statememt of Comparison of Budgets and Actual Amounts is peculiar to the government entities,
Business entities are not required to prepare this statement for their external reporting, although they
may prepapre a similar statement for their internal reporting.

An illustrative statement of comparison of budget and actual amounts is shown below:

NAME OF THE ENTITY

STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS
(ALL FUNDS OR NAME OF FUND)
FOR THE YEAR ENDED DECEMBER 31, 2015
 Particulars Budgeted Amounts Actual Difference
Amounts Final
on Budget
Comparable and Actual
basis
Original Final
RECEIPTS Notes
Tax Revenue
Service and Business Incomr
Assistance and Subsidy
Shares, Grants, and Donations
Gains
Others
Total Receipts

PAYMENTS
Personnel Services
Maintenace and other operating
expenses
Capital Outlay
Financial Expenses
Others
Total Payments

NET RECEIPTS/PAYMENTS
This statement should be read in conjunction with accompanying notes

Notes to Financial Statements

The notes to financial statements provides information in addition to those presented in the other
financial statemet. It is an integral part of the complete set of financial statements. All other FS are
intended ti be read in conjunction woth the notes. Accordingly, information in the other financiak
statements shall be cross-referenced to the notes.

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 complince with the PPSAS ans Basus if preparation of Financial Stetements
3. Summary of Significant Accounting Policies
 This inluces narrative descirotions of the line items in the other FS, measurement bases,
transitional priviosns, and other relevant information.

4. Diaggregation (breakdowns) and other supporting information for the lien items in the other FS.
5. Other disclouseres required by the PPSAs such as:
a. Explanations for the differences between budgeted and actual amounts;
b. Events after the reporting date, if material;
c. Changes in accounting policies and accounting estimaes and prior period errors;
d. Contigent liabilities, contigent assets, and unrecognized contractual comittments;l
e. Related-aorty disclosure; and
f. Non-financial disclousres, eg., the entity’s financial risk management objecives and
policies.
6. Other disclosures not reuired by PPSAS but the management deems relevant to the
understanding of the FS.

Events after the REportig period….

Adjusting events after the reporting periof….

None-adjusting events after the reporting period….

Changes in the accounting policies

Changes in accounring estmates

Errors

Consolidated and Separate FS

Consolidated Procedures’

Interim FS

Givernment eneties prepapre interim FS on a quarterlt basis using the same accounting policies used in
annual reports.

Other Reports

In addition to the FS, government entities are also reuired 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

Deadlines on Submission of Reports

 a. Provincial Offices and Operating Units

Report Deadline Submit to:

Monthly TBs and SSs 10 days after end of Auditor, Regional
the month Accountant
Quarterly FSs, TBs & SSs 10 days after end of
the quarter
Yearend FSs, TBs & SSs On or before Jan. 20 of
the following year

b. Regional/Branch Offices:

Report Deadline Submit to:

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

Yearend FSs, TBs & SSs Feb. 14 of the following COA Auditor, DBM,
(Combined CO, ROs & year COA-GAS (Gov’t
OUs) Accountancy Sector)

TBs – Trial Balances

SSs – Supporting Schedules

FSs – Financial Statements