The Accountancy Profession

Financial Accounting and Reporting

1. Accounting, definition
a) The accounting function is to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful
in making economic decisions.

2. Accounting, components
a) identifying (analytical component)
i. this accounting process is the recognition or nonrecognition of
business activities as “accountable” events (also known as “economic
activity” or “transaction”).
1. an event is accountable (or quantifiable) when it has an effect on
assets, liabilities and equity.
b) measuring (technical component)
i. this accounting process is the assigning of peso amounts to the
accountable economic transactions and events.
c) communicating (formal component)
i. is the process of preparing and distributing accounting reports to
potential users of accounting information.
ii. implicit in the communication process are the recording, classifying and
summarizing aspects of accounting
1. recording (or journalizing)
a) is the process of systematically maintaining a record of all
economic business transactions after they have been identified and
measured.
2. Classifying
a) is the sorting or grouping of similar and interrelated economic
transactions into their respective classes.
b) this is accomplished by posting to the ledger.
i. the ledger is a group of accounts which are systematically
categorized into asset accounts, liability accounts, equity
accounts, revenue accounts and expense accounts.
3. Summarizing
a) is the preparation of financial statements which include the
i. statement of financial position
ii. income statement
iii. statement of comprehensive income
iv. statement of changes in equity
v. statement of cash flows

3. Transactions, classifications
a) External transactions (or exchange transactions)
i. are those economic events involving one entity and another entity.
b) Internal transactions
i. are economic events involving the entity only.
4. Accounting as an information system
a) accounting is an information system that measures business activities,
processes information into reports and communicates the reports to decision
makers.
b) a key product of this information system is a set of financial statements –
the documents that report financial information about an entity to decision
makers.
c) financial reports tell us how well an entity is performing in terms of profit and
loss and where it stands in financial terms.
5. Accounting, overall objective
a) to provide quantitative financial information about a business that is useful to
statement users particularly owners and creditors, in making economic
decisions.

6. The accountancy profession

a) at present, Republic Act No. 9298 is the law regulating the practice of
accountancy in the Philippines.
b) this law is known to as the “Philippine Accountancy Act of 2004”.
c) in the Philippines, in order to qualify to practice the accountancy profession,
a person must finish a degree in Bachelor of Science in Accountancy and pass
a government examination given by the Board of Accountancy.
d) The Board of Accountancy is the body authorized by law to promulgate
rules and regulations affecting the practice of the accountancy profession in
the Philippines.
e) The Philippine CPA examination is offered twice a year, one in May and
another one in October, in authorized testing centers around the country.

7. Limitation of the practice of public accountancy

a) single practitioners and partnerships for the practice of public accountancy
shall be registered certified public accountants in the Philippines.
b) a certificate of accreditation shall be issued to certified public accountants in
public practice only upon showing in accordance with rules and regulations
promulgated by the Board of Accountancy and approved by the Professional
Regulation Commission that such registrant has acquired a minimum of
three years of meaningful experience in any of the areas of public practice
including taxation.
c) the Securities and Exchange Commission shall not register any
corporation organized for the practice of public accountancy.

8. Accreditation to practice public accountancy

a) Certified public accountants, firms and partnerships of certified public
accountants, including partners and staff members thereof, are required to
register with the Board of Accountancy and Professional Regulation
Commission for the practice of public accountancy.
b) The Professional Regulation Commission upon favorable recommendation of
the Board of Accountancy shall issue the Certificate of Registration to
practice public accountancy which shall be valid for 3 years and
renewable every 3 years upon payment of required fees.
9. Certified Public Accountants generally practice their profession in three main
areas, namely:
a) Public accounting
i. individual practitioners and accounting firms render independent and
expert financial services to the public.
ii. public accountants usually offer three kinds of services, namely
1. auditing (or external auditing)
a) is the examination of financial statements by independent
certified public accountant for the purpose of expressing an
opinion as to the fairness with which the financial statements are
prepared.
i. The Bureau of Internal Revenue requires audited financial
statements to accompany the filing of annual income tax
return.
2. Taxation
a) services include the preparation of annual income tax returns
and determination of tax consequences of certain proposed
business endeavors.
3. management advisory services
a) the term is used generally to refer to services to clients on
matters of accounting, finance, business policies, organization
procedures, product costs, distribution and many other phases
of business conduct and operations.

b) Private accounting
i. Many Certified Public Accountants are employed in business entities in
various capacity as accounting staff, chief accountant, internal auditor
and controller.
ii. The highest accounting officer in an entity is known as the controller.
iii. The major objective of the private accountant is to assist management
in planning and controlling the entity's operations.
iv. Private accounting includes maintaining the records, producing the
financial reports, preparing the budgets and controlling and allocating
the resources of the entity.
v. The private accountant has also the responsibility for the determination
of the various taxes the entity is obliged to pay.
c) Government accounting
i. encompasses the process of analyzing, classifying, summarizing and
communicating all transactions involving the receipt and disposition of
government funds and property and interpreting the results
thereof.

10. Continuing Professional Development (CPD)

a) refers to the inculcation and acquisition of advanced knowledge, skill,
proficiency, and ethical and moral values after the initial registration of the
Certified Public Accountant for assimilation into professional practice and
lifelong learning.
11. CPD credit units
a) refer to the CPD credit hours required for the renewal of CPA license and
accreditation of a CPA to practice the accountancy profession every three
years.
b) under the new BOA Resolution, all Certified Public Accountants regardless of
area or sector of practice shall be required to comply with 120 CPD credit
units in a compliance period of three years.
i. excess credit units earned shall not be carried over to the next three-
year period, except credit units earned for masteral and doctoral
degrees.
ii. a CPA shall be permanently exempted from CPD requirements upon
reaching the age of 65 years.
1. However, this exemption applied only to the renewal of CPA license
and not for the purpose of accreditation to practice the accountancy
profession.

12. Accounting versus bookkeeping

a) bookkeeping is procedural and largely concerned with development and
maintenance of accounting records.
b) accounting is conceptual and is concerned with the why, reason or
justification for any action adopted.
i. it includes the processes of identifying, measuring and summarizing.

13. Financial accounting versus managerial accounting

a) financial accounting
i. is primarily concerned with the recording of business transactions and
the eventual preparation of financial statements for creditors and
investors.
b) managerial accounting
i. is the accumulation and preparation of financial reports for internal
users only.

14. Generally Accepted Accounting Principles (GAAP)

a) represent the rules, procedures, practice and standards followed in the
preparation and presentation of financial statements.
b) are like laws that must be followed in financial reporting.

15. Purpose of accounting standard

a) to identify proper accounting practices for the praparation and presentation
of financial statements.
b) create a common understanding between preparers and users of financial
statements particularly the measurement of assets and liabilities.
c) to ensure comparability and uniformity in financial statements.

16. Financial Reporting Standards Council (FRSC)

a) the accounting standard setting body created by the Professional Regulation
Commission upon recommendation of the Board of Accountancy to assist the
 Board of Accountancy in carrying out its powers and functions provided under
R.A. Act No. 9298.
b) The accounting standards promulgated by the FRSC constitute the “highest
hierarchy” of generally accepted accounting principles in the Philippines.
c) The approved statements of the FRSC are known as Philippine Financial
Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).

17. Philippine Interpretations Committee (PIC)

a) was formed by the FRSC.
b) The role of the PIC is to prepare interpretations of PFRS for approval by the
FRSC and to provide timely guidance on financial reporting issues not
specifically addressed in current PFRS.

18. International Accounting Standards Board

a) an independent private sector body, with the objective of achieving
uniformity on the accounting principles which are used by business and other
organizations for financial reporting around the world.
b) it was formed in June 1973 through an agreement made by professional
accountancy bodies from Australia, Canada, France, Germany, Japan,
Mexico, the Netherlands, the United Kingdom and Ireland, and the United
States of America.
c) it is headquartered in London, United Kingdom.
d) publishes standards in a series of pronouncements called “International
Financial Reporting Standards” (IFRS).
e) adopted the body of standards issued by International Accounting Standards
Committee (IASC) which is now replaced by IASB. The pronouncements of
the IASC continue to be designated as “International Accounting Standards”
(IAS).

19. Move toward IFRS

a) at present, the FRSC has adopted in their entirety all IFRS and IAS.

20. Philippine Financial Reporting Standards (PFRS)

a) standards issued by the FRSC.
b) collectively include all of the following
i. PFRSs which correspond to IFRSs
ii. Philippine Accounting Standards (PAS) which correspond to IAS
iii. Philippine Interpretations which correspond to
1. Interpretations of the International Financial Reporting
Interpretations Committee (IFRIC)
2. Interpretations of the Standing Interpretations Committee (SIC,
now replaced by IFRIC)
3. Interpretations developed by the Philippine Interpretations
Committee (PIC)