accordance with Item III (7) of Annex B of the COA Circular No. 2022-004.
However, to date, the Audit Team has not yet received the ITR or any equivalent
report.
5.8 As a result, the CIP-Buildings and Other Structures account was overstated by
₱11,495,167.80, while the Inventory and Expense accounts were understated by
an undetermined amount, pending the submission of the ITR and other
supporting documents.
5.9 It should be noted that for the transfer of property without cost to another local
government unit, Section 381 of Republic Act (RA) No. 7160 requires that such
transfer be subject to the approval of the sanggunian of the transferor, and the
head of the office, agency, subdivision, instrumentality or local government unit
receiving the property.
5.10 We recommended and the Provincial Accountant agreed to prepare the
necessary adjustments to properly classify the service drop wires as
Inventory Held for Distribution and require the Property Custodian to
submit the ITR and other supporting documents as the basis for the
preparation of the necessary adjustments in the books to recognize the
transfer of expendable property, in accordance with IPSAS 12, COA
Circular No. 2015-009 dated December 1, 2015, and COA Circular No.
2022-004 dated May 31, 2022.
Misclassification of Borrowing Costs Leading to Overstatement of Expenses
6. Borrowing costs amounting to ₱ 5,035,754.82 were expensed outright, which is
inconsistent with paragraph 18 of IPSAS 5 that requires the capitalization of
borrowing costs for qualifying assets, thereby overstating expenses and
understating asset accounts.
6.1 Paragraph 5 of IPSAS 5 defines borrowing costs and qualifying assets as
follows:
“ Borrowing costs are interest and other expenses incurred by an entity
in connection with the borrowing of funds.
Qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale.”
6.2 As provided under Paragraph 13 thereof, examples of qualifying assets are
office buildings, hospitals, infrastructure assets such as roads, bridges, and
power generation facilities, as well as inventories that require a substantial
period of time to be brought to a condition ready for use or sale.
6.3 The Standard states that borrowing costs are recognized as an expense in the
period in which they are incurred, except to the extent that they are capitalized
in accordance with paragraph 18. Paragraph 18 specifies that borrowing costs
directly attributable to the acquisition, construction, or production of a
qualifying asset should be capitalized as part of the cost of that asset. Such
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