Chapter I: Introduction to Accounting Accountancy in the Philippines
The seeds of Philippines accountancy as a
What is Accounting? recognized profession were planted on March 17, Accounting is the process of identifying, 1928, when Act No. 3105 was approved by the 6th measuring, and communicating economic Legislature entitled: information to permit informed judgments “An Act Regulating the Practice of Public and decisions by users of information (AAA). Accounting; Creating the Board of Accountancy; It is a system that measures business Providing for Examination, for the Granting of activities, processes given information into Certificates, and the Registration of Certified Public reports, and communicates findings to Accountants, for the Suspension or Revocation of decision makers (PICPA) Certificates; and for Other Purposes.” Since then, both the profession and the body that Nature of Accounting regulates it (BOA) have grown rapidly. From 43 Accounting is the language of business. It is registered accountants in 1923, the number of CPAs the tool used to communicate financial information to has grown to over 190,000 as at today. users of economic/business entity. Don Vicente Fabella- First Filipino CPA in the Accountants Accounting Users United States (Passed the Milwaukee, Wisconsin CPA Board Exams in 1915), and Economic/Business Entity- Any organization that founder of Jose Rizal University in 1919. uses resources to achieve its goals and objectives. Belen Enrile-Gutierrez- First Filipina CPA Two types: and one of the seven original trustees of FEU For-profit- entities who generate in 1933. income from their operation. Nonprofit- entities who carry out On May 13, 2004, Republic Act No. 9298, known charitable operation. as the “Philippine Accountancy Act of 2004” was Users of Information- Group of persons who are signed into law by President Gloria Macapagal- interested in the financial information of the Arroyo repealing the Presidential Decree No. 692, business. There are two kinds of users—External the Revised Accountancy Law. It is the governing and Internal. law that regulates the practice of accountancy in the Philippines since. History & Origin of Accounting Function of Accounting in Business Scholars believe that accounting originates The primary function of accounting is to provide from the early ancient civilizations. quantitative financial information that is useful in Scribes in ancient Egypt were known to keep making economic decision. These financial thorough records of the inventory of goods information are expressed and stated in a set of for the pharaoh. reports called Financial Statements. In Mesopotamia, records of commerce had Five major kinds of Financial Statements: been inscribed on clay tables. Statement of Comprehensive Income- Also known as Profit/Loss Statement and Income However, it was not until the 14th century that Statement. It shows the result of the a system of bookkeeping was introduced. company’s performance as a result of Luca Pacioli- Fanciscan friar and a mathematician operations at a particular period of time. who published the “Summa de Arithmetica, Statement of Changes in Equity- Provides Geometria, Proportioni et Proportionalita information about the entity’s financial and (Everything about Arithmetic, Geometry, and investing activities. This includes Proportion)” in 1949 which introduced the double- investments and withdrawals of owners. entry bookkeeping. He is then called the Father of Statement of Financial Position- Presents the Double-Entry Bookkeeping”. entity’s assets, liabilities, and capital at a given point in time. Statement of Cash Flows-Provides information about the entity’s cash inflows and outflows resulting from its operations, technological advancements to better investments, and financing. perform their work. Notes to Financial Statements- Provides additional information to help explain specific Core Values of Accountants (AICPA) items in the record. Competence- It is one’s ability to perform Core Competencies of Accountants high quality work in a capably, efficient, and Core competencies are a unique appropriate manner (AICPA). A professional combination of human skills, knowledge, and accountant should perform professional technology that provides value and result to the services with due care, competence, and users (AICPA). diligence and has a continuing duty to maintain professional knowledge and skill at Communication Skills- Accountants make a level required to ensure that a client or financial reports and translate these to help employer receives the advantage of the users of accounting information easily competent professional service based on up- digest them. They need to have good to-date developments in practice, legislation, communication skills to effectively and techniques. understand the explicit and implied needs of Continuing Education and Lifelong Learning- their clientele. Without this skill, an Learning does not stop at school or when accountant will not be able to properly accountants have already received their convey the meaning of accounting certification. The business world is changing information to other people in the business. every moment and the only way to adapt to Leadership Skills- A leader is someone who the changing business environment is to can influence, inspire, and motivate others to learn new things every time. achieve results. Accountants need to have Objectivity- Accountants are entrusted with this set of skills because the information that information and their responsibility is to deal they provide to people in the business is with information without personal bias and used to make wise decision. ensure that this will be free from distortions. Strategic and Critical Thinking Skills-Critical Integrity- It is conducting oneself with thinkers are problem solvers, and being able honesty and professional ethics. to think critically is important in accounting. In Accountants, especially the certified ones, the field, accountants are faced with many owe it to the public that the accounting challenges, one of which is linking the data information they provide is true and accurate. gathered to arrive at an insightful advice Attuned to Broad Business Issues- toward strategic decision making. Accountants must be in tune with the overall Ability to Focus- Accountant’s primary realities of the business (AICPA). They must objective is to provide financial information to have a deep understanding of the business its users. If they were unable to focus, they environment in the local and global settings. will be sidetracked to other unimportant This understanding will lead them to a sound concerns that will hinder them from achieving interpretation of financial information. their goal. Ability to Interpret Converging Information- Fundamental Principles that Must Be Observed Accountants must continuously deal with By Accountants (PICPA) wide range and varying information to provide insightful interpretations that are Integrity- A professional accountant should timely and of value. be straightforward and honest in performing Adeptness with Technology- The current professional services. technological trends and inventions are Objectivity- A professional accountant reshaping business functions and activities should be fair and should not allow prejudice nowadays. It is important then that or bias, conflict of interest, or influence of accountants continuously develop a working others to override objectivity. and strategic knowledge of these Professional Competence and Due Care- A professional accountant should perform professional services with due care, competence, and diligence. He/She has a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on up-to-date developments in practice, legislation, and techniques. Confidentiality- Accountants should respect the confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose it. Professional Behavior- A professional accountant should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession. Technical Standards- A professional accountant should carry out professional services in accordance with the relevant technical and professional standards. He/She should conform to the technical and professional standards of the Board of Accountancy (BOA) or Professional Regulation Commission (PRC), Securities and Exchange Commission (SEC), Auditing and Assurance Standard Council (AASC), Accounting Standards Council (ASC), and other relevant legislation.