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A. What is Public Accountability

1. Those who hold office in government act responsibly, render account

of and are answerable for their acts of commission and omission. It
involves the existence of mechanisms to ensure that public officials
and political leaders are answerable for their actions and use of
public resources, and requires transparent government and a free
2. A strong internal chain of accountability implies that officials at each
level of the chain regard themselves as answerable to their
administrative superiors and are “ directly to the public” This stems
from the core assumption of a democracy, i.e., it is the public who,
through taxes, is paying for the public service.
3. “Public accountability is the foundation of integrity. It cuts to the soul
of government. It unmasks the government of the day of whatever
façade it wears.” Francisco S. Tantuico Jr., former chairman of the
Commission on Audit of the Philippines:
4. The Constitution of the Philippines describes public accountability
thus: Public Office is a public trust. Public Officers and employees
must at all times be accountable to the people, serve them with
utmost responsibility, integrity, loyalty and efficiency, act with
patriotism and justice and lead modest lives.
5. Ledivina V. Cariño, dean of the National College of Public
Administration and Governance of the University of the Philippines,
defines accountability as:…the evolution of the actions of appointed
career officials in terms of whether their actions are within or outside
the bounds of their authority. It may be promoted through the
imposition of external controls and through the inculcation of self-
regulating values. Dean Cariño identifies the different levels of
administrative accountability as:
 traditional accountability, which focuses on the regularity of fiscal
transaction and faithful compliance as well as the adherence to
legal requirements and administrative policies;
 managerial accountability, which is concerned with efficiency and
economy in the use of funds, property, manpower, and other
 program accountability, which pays attention to the results of
government operations; and
 process accountability, which emphasizes procedures and
methods of operations

Accountability is one of the four interconnected pillars of good

governance, along with transparency, predictability and
B. Tools for Effective Governance

1. Budgeting - In general, a government budget is the financial plan of

a government for a given period, usually for a fiscal year, which
shows what its resources are, and how they will be generated and
used over the fiscal period. The budget is the government's key
instrument for promoting its socio-economic objectives. The
government budget also refers to the income, expenditures and
sources of borrowings of the National Government (NG) that are
used to achieve national objectives, strategies and programs.

Section 22, Article VII of the Constitution states that:

"The President shall submit to the Congress within 30 days from the
opening of every regular session, as the basis of the general
appropriation bill (GAB), a budget of expenditures and sources of
financing including receipts from existing and proposed revenue

Budget Process in the National Government

Since most budget activities tend to recur annually, they become part of

the budget process which is a cycle of sequential and interrelated budget

activities regularly recurring within the specific time frame called fiscal year. In

the Philippines, the fiscal year coincides with the calendar year.

The attainment of national objectives and the implementation of

government plans depend to a great extent on the efficiency of the following

components of the budget process:

1. Budget Preparation – preparation of budget estimates

2. Budget Authorization – legislative authorization of the budget

3. Budget Execution – allotment of appropriations and incurrence of

4. Budget Accountability – reporting on actual performance against


2. Taxation – tax (from the Latin taxo; "I estimate", which in turn is
from tangō; "I touch") is to impose a financial charge or other levy
upon a taxpayer (an individual or legal entity) by a state or the
functional equivalent of a state such that failure to pay is punishable
by law. Taxes may be defined as:

• a pecuniary burden laid upon individuals or property owners to

support the government a payment exacted by legislative
• an enforced contribution (not a voluntary payment or donation),
exacted pursuant to legislative authority
• any contribution imposed by government whether under the name
of toll, tribute, impost, duty, custom, excise, subsidy, aid, supply,
or other name.

Governments use taxes to intervene in the economy to raise revenue,

for redistribution of income and to encourage/discourage certain
behavior (i.e. sumptuary taxes- a government levy on goods
considered socially undesirable, most commonly alcohol and

Taxes can be classified as being direct or indirect.

A direct tax is paid directly by the taxpayer to the Revenue Service

( eg. Income tax.)
Indirect tax is paid on goods and services, and is paid to the
Revenue Service by a third party. (eg. VAT and customs taxes)

3. Accounting – is a service activity. Its function is to provide

quantitative information primarily financial in nature, about economic
entities intended to be useful in making economic decisions, in
making reasoned choices among alternative courses of action.

 an information process that identifies, classifies and

summarises the financial events that take place within an
organisation and
 a reporting system that communicates relevant financial
information to interested persons which allows them to
assess performance, make decisions and/or control the
economic resources in the organisation.

Accounting is an effective tool in financial management. In

evaluating the Agency performance vis-à-vis financial targets, a
public manager largely depends on financial information generated
by the accounting system.

Government Accounting – encompasses the process of analyzing,

recording, classifying, summarizing and communicating all
transactions involving the receipt and disposition of government fund
and property and interpreting the results thereof.

4. Auditing - The general definition of an audit is an evaluation of a

person, organization, system, process, enterprise, project or product.
The term most commonly refers to audits in accounting, but similar
concepts also exist in project management, quality management,
and for energy conservation.

Auditing is the independent examination of financial information of

any entity, whether profit oriented or not, and irrespective of its size
or legal form, when such an examination is conducted with a view to
expressing an opinion thereon.

II. Evolution and Development of Public Accounting and Auditing

From Ancient Traditions to Contemporary Thinking: Rationale and

Ancient Accounting

As early as 8500 B.C., accounting has already existed. Archaeologists have

found clay tokens as old as 8500 B.C. found in Mesopotamia which were
usually cones, disks, spheres and pellets. These tokens correspond to such
commodities like sheep, clothing or bread. They were used in the Middle
West in keeping records. After some time, the tokens were replaced by wet
clay tablets. During such time, experts concluded this to be the start of the art
of writing. Examples of ancient civilizations keeping account records are
China, Babylonia, Greece and Egypt. Like in Babylonia during 3600 B.C.,
payments of salaries were recorded in clay tablets. In addition, the rulers of
these civilizations keep track of labor and material costs used in building
structures using accounting. A good example is the case of the Egyptian
pharaohs in building their magnificent pyramids.\
Middle Ages

During the thirteenth to the fifteenth centuries, trade flourished places such
as Florence, Venice and Genoa, thus, there was advancement in account
keeping methods, thanks to the merchants and the bankers of such time.
during the 1211 A.D., one of the systems in accounting was kept by a
Florentine banker. However, the system was primitive as the concept of
equality for entries was absent. Double entry records first came out during
1340 A.D. in Genoa. In 1494, the first systematic record keeping was
formulated by Fra Luca Pacioli, a Franciscan monk and one of the most
celebrated mathematicians to this day. Pacioli is considered as the father of

Industrial Revolution

The industrial revolution which was characterized by great changes in

working and business transactions paved way to the specialized field of
accounting called cost accounting in order to meet the need for the analysis
of various costs. In addition, since there was a development of the corporate
form of organization, there was a need for a separate and independent report
to assure the management's financial representations are reliable.
Information Age
At present, there have been tremendous advancements in accounting to
meet the needs brought about by information technology. Those duties that
required manual, tedious and time-consuming methods can now be done
using the computers which make work faster, more reliable, accurate and
precise. True enough, business transactions have changed and evolved.
Businesses can now be transacted virtually making it faster and hassle free.
Businessmen transact their businesses without even facing one another has
become possible all because of information technology. With the
advancement of businesses, accounting has also advanced to meet the
needs of businesses at this day. There has been a great quantity of
applications and elements of accounting that meet up the various needs of
businesses. As they often point out, as a smart businessman, one must
breathe in information technology to keep up with the trend and stay

Evolution of Accounting – Philippine Setting

Philippine accounting practices date back to the pre-Spanish period, when

Filipinos conducted business with Chinese, Indians and Malays from
neighboring countries. These trading activities forced Filipinos to prepare
crude accounting records that were based mainly on cash receipts and
payments. The Philippines has, for a significant part of its recent history,
been exposed to many foreign cultures and influences. The Spanish brought
substantial changes to language and religion. The first accounting firms were
established by the British in the 1700s. However, the comparatively short
American colonial period was the most significant in influencing the
Philippines’ major institutions—including the educational system and the
formalization of the professions. A number of American businesses
established themselves in the Philippines during the 1920s and 1930s. Their
activities and requirements influenced the establishment and initial growth
period of the public accounting profession. During this time, the passage of
the Accountancy Act 1923 created the Board of Accountancy (BOA) and
gave it the authority to issue Certified Public Accountant (CPA) certificates.
Six years later, the Philippine Institute of Certified Public Accountants
(PICPA) was established within the private sector to represent professional
interests. Many of the larger Philippine companies were subsidiaries or
branches of American companies—their accounting reflected US practices.
Even after independence, the US maintained close links with the Philippines
through trade and investment. These links strongly influenced public and
private sector accounting regulation and practices. Until the mid-1990s,
private sector accounting standards replicated those of the US (Although
PICPA issued pronouncements to cover issues not covered by the US
standards—for instance, “Revaluation of Fixed Assets”). Likewise, the
Philippine accounting and auditing regulatory framework is similar to the US
framework. It includes both governmental
and a supervised form of self-regulation.

The Philippine accounting system is strongly influenced by US and, more

recently, international practices. The governing legislative and institutional
framework is comprehensive—the components of a developed and robust
framework are readily identifiable. In common with the US model, these
arrangements reflect a mixture of government intervention and self-

Government Accounting has a long history and was practiced even when
there were no organized budgets. Until the nineteenth century, the efforts in
this regard were primarily oriented to double entry bookkeeping but lacked a
coherent theory. Later there was a move from bookkeeping to accounting
that involved the measurement and communication of financial information,
in addition to recording transactions. During the twentieth century further
refinements were made in cost and management accounting and the
accounting system as a whole developed to meet purposes that were diverse
but all related to the decision making requirements of a commercial entity.
These requirements include pricing, valuations pertaining to the operational
activities of the firm and its inventories, and provision of information for
prospective investors and the public. These approaches have also had their
impact on government accounting. By and large, however, accounting in
government is often considered to be more routine than dramatic, in view of
its basic nature being a process of recording data on stocks, flows, claims,
and other government operations. Its role was viewed as essentially limited
to taxation and revenue control and to the recording of commitments and
disbursements. However, in relation to the formulation of fiscal policies and
their periodic evaluation, the infinite details of accounting, the rules and
routines, the plan, form and structure of accounts and the associated
documents all acquire great meaning and interest and admittedly have a
crucial role to perform. Notwithstanding the growth in the size and
operations of the public sector, accounting systems in government


Auditing existed primarily as a method to maintain governmental

accountancy, and record-keeping was its mainstay. It wasn't until the advent
of the Industrial Revolution, from 1750 to 1850, that auditing began its
evolution into a field of fraud detection and financial accountability.
Businesses expanded during this period, resulting in increased job positions
between owners to customers. Management was hired to operate
businesses in the owners' absences, and owners found an increasing need
to monitor their financial activities, both for accuracy and for fraud prevention.
In the early 20th century, the reporting practice of auditors, which involved
submitting reports of their duties and findings, was standardized as the
"Independent Auditor's Report." The increase in demand for auditors lead to
the development of the testing process. Auditors developed a way to
strategically select key cases as representative of the company's overall
performance. This was an affordable alternative to examining every case in
detail, and it required less time than the standard audit.

State Audit in the Philippines

State audit in the Philippines has evolved from the ways of its ancient
communities. The incipient village societies, known as barangays, were
headed by chieftains called datus who exercise full power on the lives of
people and the administration of their simple government. This included the
communal allocation and distribution of resources to his subjects.

Under the Spanish colonial rule in the Philippines, the Royal Audiencia, a
high court of justice rendered audit report to the authorities on the financial
condition of the islands. Later, the Tribunal de Cuentas (Court of Accounts)
became the supreme audit institution with exclusive jurisdiction over all
financial matters.

The revolution against Spain led to the establishment of the Philippine

Malolos Congress. Aside from legislative functions, it also examined and
approved the expenses and revenue accounts of the revolutionary

Came the American rule and the Office of the Auditor for the insular
Philippine was created. The audit system featured review of every
transaction, treating of entries through the books of account, and checking of
mathematical accuracy of accounts. It was first and foremost a practice of

In 1935, the General Auditing Office (GAO), headed by an Auditor General

functioned with authority emanating from the Constitution. It was responsible
in the examination, audit and settlement of all accounts, as well as the audit
of all fund expenditures and properties of the government.

During World War II the audit functions minimally continued. The General
Auditing Office was reestablished after the war and became the present
Commission on Audit (COA) under the 1973 Constitution. This time the
Auditor General was replaced by a collegial leadership of the Chairman and
two Commissioners.

The EDSA Revolution ushered in a new Constitution that expanded the

mandate of the Commission to audit towards a heightened accountability in
the performance of government functions.

Today COA stands firm and visible as a genuine partner in the governance of
nation-building and the development of quality life for the Filipinos.

3. Legal and Constitutional Bases of Government Accounting and


Constitutional Provision (Article IX-D)

Presidential Decree 1445
Budgetary Rules and Regulations
COA Issuances

Legislative and Institutional Framework

Figure 2 depicts the legislative and institutional framework that governs

Philippine accounting and auditing arrangements. The four key legislative
planks are the Revised Accountancy Law 1975, the Corporation Code, the
Revised Securities Act 2000, and the National Internal Revenue Code 1999.
The Revised Accountancy Law 1975 (Presidential Decree No. 692) replaced
the Accountancy Act 1967. As with the earlier law, it governs the
standardization of accounting education, stipulates the examination process
for CPA registration and regulates the practice of accountancy. It remains in
place today. The Revised Accountancy Law 1975 prescribes the control and
regulation over the registration of CPAs as well as accountancy practices
more generally. The Professional Regulation Commission (PRC), through the
Board of Accountancy (BOA), administers the provisions of this law. The
Profession, through the Philippine Institute of Certified Public Accountants
(PICPA), exercises regulatory duties relating to technical matters and work
quality. However, the BOA must approve standards issued by the Profession
before they are implemented.

Philippine Legislative and Institutional Framework

The Corporation Code, which is enforced by the Securities and Exchange

Commission (SEC), governs the creation and operations of limited liability
corporations. Unless companies are classified as closed corporations—
those with 20 or fewer shareholders—they are obliged to abide by all the
reporting and other requirements of a limited liability
corporation. Among other things, they must submit audited financial
statements to the SEC and the Bureau of Internal Revenue (BIR). However,
companies in special industries, such as banks, insurance companies, and
public utilities, fall under the control of the Bangko Sentral ng Pilipinas (BSP),
the Insurance Commission, the Board of Transportation, or other
governmental organizations. Companies listed on the Philippine Stock
Exchange must submit financial statements to the SEC in accordance with
the Revised Securities Act 2000. The Act also makes the SEC responsible
for overseeing financial reporting requirements. In this respect, SEC rules
and guidelines specify the form and contents of financial statements. The
National Internal Revenue Code 1999 requires all corporations, partnerships
and persons that file income tax returns to prepare and submit financial
statements. It also requires that tax agents, including CPAs, be accredited by
the BIR.

Legal Framework for Government Accounting

The Constitution of the Philippines 1987 mandates the keeping of

government accounts, the promulgation of accounting rules, the audit of
financial reports, and the submission of reports covering the Government’s
financial operations and position.181 In particular, Article IX defines three
constitutional commissions as being separate and independent bodies.
These are the Civil Service Commission (CSC), the Commission on
Elections, and the Commission on Audit (COA).182 The Constitutional
provisions relating to COA are prescriptive—any reform effort must take them
into consideration:
D. Commission on Audit

Section 2. (1) The Commission on Audit shall have the power, authority and
duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions,
agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a)
constitutional bodies, commissions and offices that have been granted fiscal
autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations and their
subsidiaries; and (d) such non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the government, which are
required by law or the granting institution to submit to such audit as a
condition of subsidy or equity. However, where the internal control system of
the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary and
appropriate to correct the deficiencies. It shall keep the general accounts of
the Government and, for such period as may be provided by law, preserve
the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations
in this Article, to define the scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of government funds and properties.
instrumentalities, including government-owned or controlled corporations,
and non-governmental entities subject to its audit, and recommend measures
necessary to improve their effectiveness and efficiency. It shall submit such
other reports as may be required by law.

PD 1445 – Objectives of Government Accounting

1. To produce information concerning past operations and present

2. To provide a basis for guidance for future operations
3. To provide for control of the acts of public bodies and offices in the
receipt disposition and utilization of funds and property
4. To report on the financial position and the results of operations of
government agencies for the information and guidance of all persons