MARYHILL COLLEGE

Bachelor of Science in Accountancy

Financial Accounting and Reporting I

Basic Concepts (Underlying Assumptions, the Accountancy Profession,

and the Conceptual Framework)

Definition of Accounting
Accounting Standard Council (ASC): Accounting is a service activity.
Committee on Accounting Terminology of the American Institute of Certified Public Accountants: Accounting is an art or recording,
classifying, and summarizing financial transactions, and interpreting the results, thereof.
American Accounting Association (ASC): Accounting is the process of identifying, measuring, and communicating economic
information for decision by users of the information.
Identifying – determining whether a transaction is recordable/recognizable/accountable or not.
Measuring – assignment of peso amount. The four measurement bases are: historical cost, current cost, realizable value, and
present value,
Communicating – process of preparing and distribution of financial statement.

Overall Objective of Financial Accounting

To provide financial information about a business that is useful to statement users, particularly owners and creditors, in making
economic decisions.

The Accountancy Profession

Republic Act 9298 or the Philippine Accountancy Act of 2004 – law regulating the practice of accountancy in the Philippines
Board of Accountancy (BOA) – highest governing body of CPA in the Philippines

*Practice of accountancy in the Philippines must be formed as a single proprietorship of partnership only. It is prohibited to form a
corporation for the practice of accountancy. (see comment by Soriano: Civil Code of the Philippines, Arts. 1768, 1770)
*For public practice purpose, an accountant must be accredited by PRC upon recommendation by BOA. To be accredited, he must
have 3 years of meaningful experience, and 120 Continuing Professional Development (CPD) units.

How to Become a CPA in the Philippines?

1. Finish a degree in Bachelor of Science in Accountancy.
2. Pass the CPA Licensure Examination – given every May and October.
The following are the subjects in the licensure examination:
a. Financial Accounting and Reporting (FAR)
b. Advanced Financial Accounting and Reporting (AFAR)
c. Regulatory Framework for Business Transactions (RFBT)
d. Taxation
e. Auditing
f. Management Advisory Services (MAS)
*If he/she passed the exam, he will be required to obtain 120 CPD units every three years for renewal of his/her license. The license
will expire on the birthday of the CPA during the third year validity. (example: registration date: 11/02/2016, birthday: 11/18;
therefore, expiration of the license is on 11/18/2019)

Practice Areas of a CPA

Public Practice or Public Accounting – offering various accounting services to the public. They are receiving professional fees from
their clients. Among the service s they offer are the following:
a. Auditing – examination of financial statement by an independent accountant. This is the primary service offered in
public accounting.
b. Taxation services – preparation of income tax returns and other tax compliance with the BIR.
c. Management Advisory Services – offers professional consultancy on different business matters.
Private Accounting or Commerce and Industry – includes maintaining records and production reports for the company where the
CPA is employed.
Government Accounting – deals with the custody and administration of public funds
Education or Academe – teaching different accounting subject to Bachelor of Science in Accountancy students.

Continuing Professional Development (CPD)

CPD – formerly known as Continuing Professional Education (CPE)
- 120 units every three years beginning from the date of the registration as CPA with PRC
- CPAs who reach the age of 65 years old is permanently exempted from CPD
- CPAs who are working abroad, and those who has been out of the country at least two years before renewal of license are
temporarily exempted
- CPD units are used for license renewal and accreditation in public practice, academe, private practice, and government
accounting.

Handout 1801
Generally Accepted Accounting Principles (GAAP)
GAAP – accounting rules, procedures, and practices established by a social process through incorporation of political actions,
professional judgment, logic, and research.

Accounting Standards
Accounting standards are the principles followed by every accountant in the preparation of financial reports. Its purpose is to achive
comparability and uniformity for common understanding of financial statement.

Financial Reporting Standard Council (FRSC) – standard setting body in the Philippines. It is formerly called as Accounting
Standard Council (ASC). FRSC is composed of 15 individuals (14 representatives and one chairman). The following are the
representatives:
Board of Accountancy (BOA) 1
Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1
Bureau of Internal Revenue (BIR) 1
Commission on Audit (COA) 1
Major preparers and user (FINEX) 1
Accredited Professional Organization (APO):
Public Practice 2
Commerce and Industry 2
Academe or Education 2
Government 2
Philippine Financial Reporting Standard Council (PFRS) and Philippine Accounting Standards (PAS) – standards set by FRSC
which are based on International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS)
Philippine Interpretations Committee (PIC)– they resolve the case when there are conflicting and vague standards.

Handout 1801