AUDIT OBSERVATIONS AND RECOMMENDATIONS
A. FINANCIAL AND COMPLIANCE AUDIT
Semi-Expendable Equipment still in PPE
1. Semi-expendable properties acquired and issued prior to CY 2024, with a total
carrying amount of ₱3,199,594.81, were not reclassified in accordance with the
provisions of COA Circular No. 2024-006 dated March 14, 2024, thereby overstating
the Property, Plant, and Equipment (PPE) accounts and the Equity account by the
same amount, and compromising the accuracy and reliability of the financial
statements as of December 31, 2024.
1.1. Prior to CY 2024, this Commission issued COA Circular No. 2022-004 dated
May 31, 2022, which set the guidelines for implementing the increase in the
capitalization threshold for PPE from ₱15,000.00 to ₱50,000.00. Under Section 4 of
the Circular, tangible items that meet the definition and recognition criteria of
PPE but have a cost below ₱50,000.00 shall instead be classified and recorded as
semi-expendable property in the agencies’ books of accounts.
1.2. The adjustment of the capitalization threshold from ₱15,000.00 to ₱50,000.00 is
classified as a change in accounting policy and will be applied retrospectively.
Consequently, the revised threshold of ₱50,000.00 will apply to all tangible assets
acquired in CY 2022 and prior years (Sec. 4.2, COA Circular No. 2022-004).
Moreover, Sec. 4.6 emphasizes that the change in accounting policy requires
retrospective application and restating the amounts for the prior period/s in the
comparative financial statements to reflect the change. The entity shall adjust
the opening balance of each affected component of net assets/ equity for the
earliest period presented, and the other comparative amounts disclosed for each
prior period presented as if the new accounting policy had always been applied.
1.3. In the absence of available guidelines or issued circulars from COA concerning the
proper categorization of semi-expendable properties for inclusion in the Revised
Chart of Accounts, local government units (LGUs) have been allowed to
temporarily record properties valued below ₱50,000.00, as long as they meet the
definition of Property, Plant, and Equipment (PPE) within the inventory accounts.
1.4. Relative thereto, in CY 2024, the Commission issued COA Circular No. 2024-006,
dated March 14, 2024, which serves as a supplemental guideline for the
implementation of COA Circular No. 2022-004, which provided guidance on
accounting for tangible items, as follows:
� Tangible items below ₱50,000.00 acquired prior to CY 2024 and previously
classified as PPE, which are still in custody of the Supply and/or Property
Division/Unit, the cost shall be reclassified to the appropriate semi-expendable
property account under the major account group Inventories and the
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