ACCOUNTANCY PROFESSION

CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Important Points!
ACCOUNTING
1. Accounting is about quantitative
information.
There are three commonly accepted definitions of 2. The information is likely to be financial in
accounting: nature.
3. The information should be useful in
Accounting Standards Council (ASC) decision.
Accounting is a service activity. The accounting
function is to provide quantitative information, Take Note!
primarily financial in nature, about economic  American Accounting Association stood
entities, that is intended to be useful in making the test of time.
economic decision. a. Identifying as the analytical
component
American Institute of Certified Public Accountants b. Measuring as the technical
(AICPA) component
Accounting is the art of recording, classifying and c. Communicating as the formal
summarizing in a significant manner and in terms of component
money, transactions and events which are in part at
least of a financial character and interpreting the
IDENTIFYING
results thereof.

American Accounting Association (AAA) This accounting process is the recognition or non-
Accounting is the process of identifying, measuring recognition of business activities as accountable
and communicating economic information to events.
permit informed judgment and decision by users of
the information.  An event is accountable or quantifiable
when it has an effect on Assets, Liabilities
and Equity.
OVERALL OBJECTIVE
o Economic activity
o Measurement of economic
The overall objective of accounting is to provide resources
quantitative financial information that is useful to o Economic obligations
statement users in making economic decisions.
Take Note!
 Accountant’s primary task is to supply  Not all business activities are accountable.
financial information so that statement o Hiring of employees
users could make informed judgment and o Death of the entity president
better decision. o Entering into a contract
 The essence of accounting is decision-  Sociological and Psychological matters are
usefulness. beyond the scope of accounting.

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Economic Activities COMMUNICATING

 Referred to as transactions – external and
internal.
This is the process of preparing and distributing
External Transactions
accounting reports to potential users of accounting
Involving one entity and another entity.
information.
 Purchase of goods from suppliers
 Borrowing money from a bank
 This process is the reason why accounting
 Sale of goods to a customer
has been called “the universal language of
 Payment of salaries to employees
business.”
 Payment of taxes to government
Internal Transactions
Take Note!
Involving the entity only.
 Identifying and Measuring are pointless if
 Production
the information contained in the
o Process by which resources are
accounting records cannot be
transformed into products
communicated in some form to potential
 Casualty Loss
users.
o Any sudden unanticipated loss
from fire, flood, earthquake,
Aspects of Accounting
and other natural disaster
 Implicit in the communication process are
the recording, classifying, and
MEASURING summarizing.
Recording Also known as journalizing, is the
This accounting process is the assigning of peso process of systematically maintaining
a record of all economic business
amounts to the accountable economic transactions
transactions after they have been
and events. identified and measured.
Classifying It is the sorting of similar and
 It must be expressed in terms of common interrelated economic transactions
financial denominator. into their respective classes.

Take Note! Take Note!

 Financial statements without monetary - It is accomplished by posting to
value are incomprehensible. the ledger
o Impossible to understand - Ledger is a group of accounts
which are systematically
categorized into Assets,
Basis:
Liabilities, Equity, Revenue and
Historical Cost Expense accounts.
 Original acquisition cost Summarizing It is the preparation of financial
Current Value statements.
 Includes fair value, value in use, 1. Financial Position
fulfillment value, and current cost 2. Income Statement
3. Comprehensive Income
4. Changes in Equity
5. Cash Flows

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

ACCOUNTANCY PROFESSION Take Note!

 Securities and Exchange Commission shall
not register any Corporation.
Republic Act No. 9298
 The law regulating the practice of ACCREDITATION TO
Accountancy in the Philippines. PRACTICE PUBLIC ACCOUNTANCY
 Known as “Philippine Accountancy Act of
2004” Certified Public Accountants, firms and partnerships
of Certified Public Accountants, including partners
Take Note! and staff members thereof are required to register
 Accountancy has developed as a with the Board of Accountancy and Professional
profession attaining a status equivalent to Regulation Commission for the practice of Public
that of law and medicine. Accountancy.

Qualification to Practice Accountancy Profession  The Professional Regulation Commission

1. Must finish a degree in Bachelor of upon favorable recommendation of the
Science in Accountancy Board of Accountancy shall issue the
2. Pass a very difficult government Certificate of Registration to practice
examination – CPALE/LECPA Public Accountancy.
o Board of Accountancy is o Valid for 3 years and renewable
responsible for preparing and every 3 years upon payment of
grading the Philippine CPA required fees
examination
AREAS OF PROFESSION
Board of Accountancy (BOA)
 The body authorized by law to promulgate
rules and regulation affecting the practice Certified Public Accountants generally practice their
of Accountancy Profession. profession in three main areas, namely public
accounting, private accounting and government
LIMITATIONS OF THE accounting.
PRACTICE OF PUBLIC ACCOUNTANCY
Public Accounting
Single practitioners and partnerships for the  It is composed of individual practitioners,
practice of public accountancy shall be registered small accounting firms and large
Certified Public Accountants in the Philippines. multinational organizations.
o They render independent and
 Certificate of Accreditation shall be issued expert financial services to the
to Certified Public Accountants in public public
practice.  Public accountants collect professional
o The registrant must acquire a fees for their services, much the same a
minimum of three years of lawyers and doctors do.
meaningful experience in any of
the areas of public practice
including taxation.

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Take Note!  To offer this service effectively and

 Public accountants usually offer three efficiently, the public accountant must be:
kinds of services: a. Thoroughly familiar with the tax laws
1. Auditing and regulations
2. Taxation b. updated with changes in taxation law
3. Management Advisory Services and court cases concerned with
interpreting taxation law
Auditing
 Traditionally, it has been the primary Management Advisory Services
service offered by most public accounting  It has become increasingly important in
practitioners, specifically external recent years.
auditing.  It has no precise coverage but is used
 External auditing is the examination of generally to refer to services to clients on
financial statements by independent the following matters:
Certified Public Accountant. a. Accounting
o Its purpose is to express an b. Finance
opinion as to the fairness with c. Business policies organization
which the financial statements procedures
are prepared. d. Product cost
o It is the attest function of e. Distribution
independent CPAs  Specifically, it includes:
Take Note! a. Advice on installation of computer
 BIR requires audited financial statements system
to accompany the filling of annual income b. Quality control
tax return. c. Installation and modification of
 Banks and other lending institutions accounting system
d. Budgeting
frequently require an audit by an
e. Forecasting
independent CPA before granting a loan
f. Design or modification of retirement
to the borrower.
plans and even entity mergers and
 Creditors and prospective investors place takeovers
considerable reliance on audited financial
statements on making economic decision. Private Accounting
 Many Certified Public Accountants are
Taxation employed in business entities in various
 It includes the preparation of annual capacity:
income tax returns and determination of 1. Accounting staff
tax consequences of certain proposed 2. Chief accountant
business endeavors. 3. Controller
o CPA not infrequently represents o The highest accounting officer
the client in tax investigations. Take Note!
 The major objective of the private
accountant is to assist management in
planning and controlling the entity's
operations.

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

 Private Accounting includes: CONTINUING PROFESSIONAL DEVELOPMENT

a. Maintaining the records
b. Producing the financial reports
c. Preparing the budgets Republic Act No. 10912
d. Controlling and allocating the  The law mandating and strengthening the
resource of the entity Continuing Professional Development
 Private Accountants are responsible to (CPD) program for all regulated
determine the various taxes that the professions, including Accountancy
entity is obliged to pay. Profession.
 All Certified Public Accountants shall abide
Government Accounting by the requirements, rules and
 It encompasses the process of analyzing, regulations on continuing professional
classifying, summarizing and development.
communicating all transactions.
o To be promulgated by the BOA
o It involves the receipt and
o Subject to the approval of the
disposition of government fund
PRC
and property, then interpreting
the results
Take Note! Take Note!
 The focus of government accounting is:  Continuing Professional Development:
a. Custody a. Is the inculcation and acquisition of
b. Administration of public funds advanced knowledge, skill,
 Many CPA are employed in some proficiency, ethical and moral values
branches of government: b. Raises and enhances the technical
a. Bureau of Internal Revenue skills and competence
b. Commission on Audit o Done after the initial
c. Securities and Exchange Commission registration of CPA for
d. Bangko Sentral ng Pilipinas assimilation into
professions, practice and
lifelong learning
SECTORS OF THE PROFESSION
CPD Credit Units
Accountancy Act of 2004 or Republic Act No. 9298’s  It refers to the CPD credit hours required
implementing rules and regulations formally for the renewal of CPA license and
recognized the four sectors of the Accountancy accreditation to practice the accountancy
Profession: profession every three years.
1. Commerce and Industry (Private)  Under current circumstances, the
2. Public Practice (Public) required number of units for renewal of
3. Government (Government) license is 15 CPD units and 120 CPD units
4. Education/Academe (Both Public and for renewal of accreditation.
Private Institutions) Take Note!
 Excess credit units earned shall not be
carried over to the next three-year period.
o Except credit units earned for
masteral and doctoral degrees

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

o Private Accounting
Exemption from CPD o Government Accounting
 A CPA shall be permanently exempted Financial Accounting vs Managerial Accounting
from CPD requirements upon reaching the  Financial Accounting is primarily
age of 65 years old. concerned with the recording of business
Take Note! transactions and the eventual preparation
 The exemption is applied only to the of financial statements.
o Focuses on general purpose
renewal (15 CPD units) of CPA license.
reports
o Not for the purpose of
 Managerial Accounting is the
accreditation to practice the
accumulation and preparation of financial
Accountancy Profession
reports for internal users only.

IMPORTANT THINGS TO REMEMBER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Accounting vs Auditing Accounting has evolved through time changing with

 Auditing is one of the Areas of Accounting. the needs of society.
 Accounting is constructive in nature.
o It ceases when financial  Because of new types of transactions,
statements are already accountants developed rules and
prepared procedures for recording them.
o Known as Generally Accepted
 Auditing is analytical.
o The work of an auditor begins Accounting (GAAP)
o Developed based on experience,
when the work of the
accountant ends reason, custom, usage and
Take Note! political necessity
Take Note!
 Auditor examines the financial statements
to ascertain whether they are in  GAAP are like laws that must be followed
conformity with GAAP. in financial reporting.
o It is conventional, meaning it is
Accounting vs Bookkeeping accepted by agreement rather
 Bookkeeping is procedural and largely than formal derivation from a
concerned with development and set of postulates and basic
maintenance of accounting records. concepts
o The “how” of accounting  Establishing GAAP is a political process.
 Accounting is conceptual and is concerned o It incorporates political actions
with the “why”, reason or justification for of various interested users as
any action adopted. well as professional judgment,
logic and research
Accounting vs Accountancy
 Accountancy refers to the profession of Purpose of Accounting
accounting practice.  Its overall purpose is to identify proper
 Accounting is used in reference only to a accounting practices.
particular field of accountancy. o For preparation and
o Public Accounting presentation of financial
statements.

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

 It creates common understanding.

o As to the measurement of line
the line items
Board of Accountancy (1)
FINANCIAL REPORTING STANDARDS COUNCIL
Securities and Exchange Commission (1)
Bangko Sentral ng Pilipinas (1)
In the Philippines, the development of GAAP is Bureau of Internal Revenue (1)
formalized initially through the creation of Commission on Audit (1)
Accounting Standards Council (ASC). FINEX (1)
Public Practice (2)
Take Note! Commerce and Industry (2)
 The FRSC now replaces ASC. Academe or Education (2)
o FRSC is the current accounting Government (2)
standard-setting body created Total (14)
by PRC upon recommendation
of BOA Take Note!
 To assist BOA in  The chairman and the members of FRSC
carrying out its shall have a term of 3 years.
powers and functions o Renewable for another term
(under R.A. 9298

PHILIPPINE INTERPRETATIONS COMMITTEE

Purpose of FRSC
 To establish and improve accounting
standards that will be generally accepted The Philippine Interpretations Committee (PIC) was
in the Philippines. formed by the FRSC on August 2006.
Take Note!
 The accounting standards promulgated by Take Note!
FRSC constitute the highest hierarchy of  It has replaced the International
GAAP in the Philippines. Committee (IC).
 The approved statements of the FRSC are: o Formed by the ASC on May 2000
1. Philippine Accounting Standards
(PAS) Purpose of PIC
2. Philippine Financial Reporting  To prepare interpretations of PFRS for
Standards (PFRS) approval by the FRSC.
 To provide timely guidance on financial
Composition of FRSC reporting issues not specifically addressed
 Composed of 15 members with a in current PFRS.
chairman who had been or is presently a o Intended to give “authoritative
senior accounting practitioner and 14 guidance” on issues because
representatives from the ff: standards do not provide
specific rules and guidelines
Take Note!
 Counterpart of the PIC in the IASB is the
International Financial Reporting
Interpretations Committee (IFRIC).

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ACCOUNTANCY PROFESSION
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

The FRSC issues standards in a series of

pronouncements called Philippine Financial
Reporting Standards (PFRS).
INTERNATIONAL ACCOUNTING STANDARDS  It collectively includes all the ff:
COMMITTEE a. PFRS which correspond to IFRS
b. PAS which correspond to IAS
 It is an independent private sector body. c. PI which correspond to
o With the objective of achieving interpretation of the IFRIC and
uniformity in the accounting interpretations developed by PIC
principles
 It was formed on June 1973.
o Through an agreement made by ACCREDITED PROFESSIONAL ORGANIZATION
professional accountancy bodies
 IASC headquartered in London, United The Philippine Institute of Certified Public
Kingdom Accountants (PICPA) is the accredited professional
organization of CPAs by the PRC.
Objectives of IASC
 To work generally for the improvement Objectives
and harmonization of regulations,  The group set forth the following
accounting standards and procedures objectives:
relating to the presentation of financial 1. To promote and maintain high
statements. professional and ethical standards
among accountants;
INTERNATIONAL ACCOUNTING STANDARDS BOARD 2. To advance the science of
accounting;
3. To develop and improve accountancy
International Accounting Standards Board (IASB)
education;
publishes standards in a series of pronouncements
4. To encourage cordial relations
called International Financial Reporting Standards
among accountants; and
(IFRS).
5. To protect the Certificate of Certified
Public Accountant granted by the
 It has adopted the body of standards Republic of the Philippines
issued by ASC.
Sectoral Organizations
Take Note!
 The PICPA recognizes four sectors by
 IASB now replaces the International which a CPA may be in practice:
Accounting Standards Committee (IASC). 1. Public Practice
 The IASB standard-setting process o Association of CPAs in Public
includes in the correct order: Practice
1. Research 2. Commerce and Industry
2. Discussion Paper o Association of CPAs in
3. Exposure Draft and Accounting Commerce and Industry
Standard 3. Government
o Government Association of CPAs
PHILIPPINE FINANCIAL REPORTING STANDARDS 4. Education/Academe
o National Association of CPAs in
Education