1.7. Based on the amortization schedule, ₱40,132,228.49 of the loan is due within
twelve months from year-end and should be classified as current liabilities, while
₱345,476,501.75 should be classified as non-current liabilities.
1.8. The Municipal Accountant acknowledged that the misclassification of the loans
payable in the financial statements was unintentional. She assured the audit team
that the appropriate classification between current and non-current portions will be
duly reflected and corrected in the preparation of the financial statements for
Calendar Year 2025.
1.9. Proper classification of liabilities is fundamental to the fair presentation of an
entity’s financial position. Section 80 of IPSAS 1 clearly distinguishes between
current and non-current liabilities based on whether they are due to be settled within
twelve months after the reporting period. Misclassifying long-term obligations as
current distorts key financial indicators such as working capital, liquidity ratios, and
overall financial health.
1.10. This may also affect budget planning, risk assessment, and the entity’s perceived
ability to meet short-term obligations, thereby misleading stakeholders on the
LGU’s liquidity position, and potentially influencing creditworthiness and decision-
making of management.
1.11. Finally, the current liabilities were understated by ₱40,132,228.49 and the non-
current liabilities was overstated by the same amount, thereby affecting the fair
presentation and reliability of the financial statements as of year-end.
1.12. This observation was communicated to Management through Audit Observation
Memorandum No. 2025-03(2024)-Mabinay dated May 13, 2025.
1.13. We recommended and Management agreed that the Municipal Accountant
thoroughly review and reclassify the Loans Payable account in accordance
with Section 80 of IPSAS 1 – Presentation of Financial Statements, by properly
segregating the current and non-current portions based on the loan
amortization schedules. Specifically, only the portion of the loan due within
twelve months from the reporting date should be classified under Current
Liabilities, while the remaining balance must be presented under Non-Current
Liabilities.
2. The correctness of Loans Payable balance per books in the amount of
₱385,608,730.24 as of December 31, 2023 could not be ascertained due to
unreconciled amounts between the financial statements and confirmed bank
balances which is not in accordance with Section 74 of P.D. 1445 resulting in an
understatement of the Loans Payable account of ₱1,879,315.04 affecting the fair
presentation of the account in the Financial Statement as of year-end.
32
