Fundamentals of Accounting Part 1

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Introduction to Accounting

Module 001 Introduction to Accounting

This first module in Fundamentals of Accounting Part 1 covers the following

introductory topics: History of Accounting; Definition, nature, scope,
objectives of accounting; Branches of Accounting; Stewardship; Users of
Accounting Information; accounting concepts and principles; professional
ethics and values; and the career opportunities of the accounting profession.

After studying this module, the students are expected to be able to

1. Learn to discuss the brief history of accounting.
2. Understand the accounting definition, nature, scope, and objectives.
3. Identify the different branches of accounting.
4. Understand the concept of stewardship.
5. Identify the users of accounting information.
6. Understand some of the main accounting concepts and principles.
7. Identify the different career opportunities of the accounting profession.
8. Enumerate and understand the professional ethics and values.

Introduction
Business organizations, be it a small store in your neighborhood or a big company based at
the Makati Business District, use accounting. We, too, in our personal lives employ
accounting as we account for our income, our expenses, and prepare budgets until the next
payday.
Accounting is very important to all business organizations in the same way that a building
model helps an architect in constructing a building.

History of Accounting
Writing to record accounting information was believed to be traced back in ancient times,
way back to the ancient civilizations of China, Babylonia, Greece, and Egypt (when they
keep track of the cost of constructing the Pyramids).

In 1400s, accounting was used to meet the demands for information of traders in the Italy.
In 1494, Luca Pacioli, a mathematician and a friend of Leonardo da Vinci published his
description of the double-entry bookkeeping.

A more complex and still growing accounting system was developed at the start of
industrial evolution, until the twentieth century, when the business world grows larger and
larger and more complicated. Not only the corporate world affects the accounting system
but also the government because of income taxation.
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The Florentine and the Venetian Approaches to Reporting

The Florentine approach ushers the double-entry bookkeeping system. Amanito

Manucci, a partner to a partnership, created the recording system where there’s at
least one account to be debited and one account to be credited. It also concludes that
the total debits should equal the total credits. The records kept by Mannuci, who
was recognized as the inventor of double-entry system, for Giovannie Farolfe &
Company in Florence are the oldest evidence that demonstrate the application of
double-entry bookkeeping system.

The Venetian Approach of reporting keeps records in bilateral form, where the
debits are written on the left side of the page across the credits. This is describes as
an evolved system where numerous books are carefully cross-indexed or referenced
and coordinated that the contents are presented as a whole. If we will observe, this
approach is the ledger postings that we are currently using.

The Venetian method was introduced in the books of a merchant named Andrea
Bargarigo (1418-1449). It was in 1494, when Luca Pacioli, called the father of
modern accounting, published this method in his book Summa de Arithmetica. He
explained the application of books of accounts. He also described that each
transaction was first written in the memorandum book then record the same in the
debit and credit of the journal and further posted in the ledger.

Savary and Napoleonic Commercial Code

Jacques Savary (1962-1690) is a successful merchant and was known for being an
expert on questions about commerce. He was a member of a French family devoted
to trade and works related to commerce. He authored Le parfaie negociant in 1675, a
mercantile trade manual translated to different languages. Savary was known as the
chief architect of the 1673 Commercial Code of France which is named Code of
Savary.
Code of Savary uses historical cost as the basis of valuation. (Retrieved from
https://en.wikipedia.org)

Napoleon Bonaparte's codification of France's Civil Law, namely the "Code of

Napoleon" was imposed on March 21, 1804.
In 1807 (three years after the enforcement of the code), the "Code de Commerce"
was passed to supplement the Code of Napoleon.
Code de Commerce regulated commercial transactions, laws of business,
bankruptcies, and the jurisdictions of the courts and procedures dealing with these
subjects.
Though the Code of Commerce does not provide valuation rules, it gives in notes
and example of inventory where it described that the assets must be carried at their
market value on the day inventory and not on the basis of historical cost. (Retrieved
from https://en.wikipedia.org)
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The industrial revolution and the share-issuing company

Late 18th and early 19TH century was the era of industrial revolution. Many changes
took place in the economy that affects the socio-economic and cultural conditions of
Britain and the world particularly in the agriculture, manufacturing and
transportation sectors. During this period , the following were introduced: all-metal
machines and tools are used for mass production, development of steam-powered
ships, railways, invention of internal combustion engine and electrical power
generation (late 19th century) The economy then was enhanced and the practice of
accounting is significantly affected. New accounting practices were introduced
during this period of industrial revolution. These include: Depreciation, Overhead
Allocation, Inventory Accounting; Advancement of accounting for sole
proprietorship, partnership, share companies and stock exchange listed
corporations; business regulations on financial reporting were strengthened and
further developed, and new tax accounting systems and procedures.

The Arrival of Income Taxation and the Conflict with Financial Accounting

The first income tax was instituted by Emperor Wang Fang of Xin Dynasty of China
in AD 10. During that time the income tax rate was set at a flat rate of ten percent of
profits.

The first graduated income tax system was first implemented in Britain in 1798 by
William Pit when he worked on a budget to pay for the weapons and equipment to
be used for the Napoleonic wars. The graduated rate then was from 8.335 to 10%.
In the United States, a three percent rate of all income over US$600 US was the first
income tax imposed in July 1861.
Here in the Philippines, March 31, 1913 was marked as the creation of the first
income tax law. To date, the Philippine tax laws imposed graduated rates from 5%
to 32% for individual tax payers.

Income Tax Returns (ITR) were said to be legal documents and lawyers, at first,
believed that preparing them was exclusively their job. But accountants do not
conform to such thought. They contended that it is more appropriate to consider
ITR preparation to be counted as an accounting job. They said that it’s the
accountant who prepares the required financial reports and statements that will
accompany the ITR and will also be the basis of its contents.
The public accountant saw a new profitable opportunity in tax accounting and so
they hopped in rendering tax works to different clients. The US lawyers, in 1920s,
were sluggish in integrating income tax preparation to their skills and practices and
later on they lost their case to the accountants (that is, practicing law without a
license).
As a result of this argument between the lawyers and the accountants, tax
accounting then was born to be another specialized field of accounting where
accountants are instilled with tax works. Among the services offered by the

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accountants were tax computations, tax planning, tax advisory, preparation of

financial statements.

Even before, it was observed that there are some divergences between taxation and
accounting and these were fixed by the accountants preparing financial reports for
tax purposes

Schmalenbach and the Chart of Accounts

The chart of accounts (Account titles with their corresponding account number and
description use in recording business transactions) played an important role in the
improvement of accounting in Poland.

Eugen Schmalenbach (1873-1955), a writer and professor, has this thought

regarding the chart of accounts. His conviction is that the chart of accounts contains
significant information and can be prepared regularly and fast to counter the
internal and external conditions or environments that affect the many economic
issues of a business entity. He applied the price level accounting or the uniform
chart of accounts in comparing one firm’s performance and financial condition with
similar companies in the same industry. He is also an advocate of effecting changes
in the traditional accounting policies to keep abreast with the relevant and reliable
information that develops satisfaction, ingenuity and challenge to accountants.

After World War II, the emergence of many businesses was observed. Today, it
becomes more complicated with the many business combinations taking place in
the business world. With these important events affecting our economy, is the
evolution of the accounting practices for business combinations

Today, the business trends include not only business combinations, franchising is
also very dominant, and internationalization or exporting their businesses in
different countries. All these contribute to the further developments in the world of
accounting.

Accounting: Definition, Scope, Nature, Objectives

Accounting Defined
Accounting has been defined in so many ways by different authors but its meaning
remains the same.
Accounting is the information system that measures business activities, processes
that information into reports, and communicates the results to decision makers. (
Horngren, Harrison, Bamber)
Accounting is the systematic and comprehensive recording of financial transactions
pertaining to a business, and it also refers to the process of summarizing, analyzing
and reporting these transactions to oversight agencies and tax collection entities.
(Investopedia.com)
Accounting is a service activity. Its function is to provide quantitative information
primarily financial in nature about economic entities that is intended to be useful in
making economic decisions – in making reasoned choices among alternative courses
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of action. ( ASC; Accounting Principles Board (APB) of the American Institute of

Certified Public Accountants (AICPA)
Accounting is the art of recording, classifying, summarizing, in a significant manner
and in terms of money, transactions and events, which are in part at least of a
financial character and interpreting the results thereof. (AICPA old definition)
The four phases of accounting mentioned in the definitions above- recording the
transactions, classifying and summarizing them and at the end interpreting the
results of business transactions and operations for decision making purposes,
described accounting as a process. The results, the financial information created out
of this process are passed on to the firm’s stakeholders who are all users of
accounting information.
Scope of Accounting
Accounting has been widely applied in many fields of endeavor. It is not limited to
the business world, but in all areas of society and in all professional practices.
Accounting is being practice everywhere and anytime, by professionals, social
institutions or business organizations, is it a profit earning or not, as long as there
are financial transactions taking place. An accounting system is also present in many
non-trading institutions like hospitals, charitable institutions, schools, cooperatives,
and government units. Medical practitioners, lawyers, certified public accountants,
consultants, and other professionals are also adept in accounting.
The range of accounting applications has been changing and increasing to keep
abreast with the countless socio-economic changes. Continuous researches and
studies in the field of accounting have brought about new areas of accounting
application like human resources accounting, social accounting, national accounting
and forensic accounting
Social accounting or corporate social responsibility accounting is a process of
communicating the effects of an organization’s economic activities on society and
environment to interested groups within the society’s context.
National Accounting is the implementation of a complete and consistent accounting
principles and techniques in measuring the economic activities of a country.
Human Resource Accounting is the process of identifying and measuring data about
human resources and communication its information to interested parties
(American Accounting Association’s Committee). It is the measurement and
reporting of the cost and value of people in organizational resources (Flamholtz,
1971).
Forensic accounting refers to the use of accounting, auditing and investigative
techniques in cases of litigation or disputes. Forensic accountants serve as expert
witnesses in courts of law in civil and criminal disputes that require an assessment
of the financial effects of a loss or the detection of a financial fraud. Examples of
forensic accounting applications are insurance claims, personal injury claims against
professional negligence in financial matter.

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Nature of Accounting
Accounting is a process. Accounting performs the tasks of recording, processing
business transactions and communicating financial information using a sequence of
different steps, the completion of which is what we call the accounting process.
Accounting is an art. Accounting has its own ways of doing the recording, classifying,
summarizing, and preparing final reports and financial statements. It is systematic
procedure consists of techniques, creativity, and expertise that will be called “art” as
a whole.
Accounting is a means not an end. The major function accounting is to present the
results of operations and financial position of any business and communicates the
same to the interested users. These users of financial information will make use of
this in decision making. Thus, we can say that accounting is not end but a way
wherein future decisions will be based.
Accounting does business with financial business transactions and information only.
From the start of the accounting process to the last step, it deals with financial
accounting information that is quantifiable in terms of monetary unit.
Accounting is an information system. It process financial data into financial
information through a series of stages. It is recognized as depot of financial
information where interested users can visit a firm through sheets of paper
(financial statements).

Objectives of Accounting
Below are the general objectives of accounting:
 Accounting records business transactions and end up summarizing them with
their balances. Financial statements are the capsulized results of business
operations. Accounting provides answers to the following :
How much is the invested capital of the owner in the business?
How much profit or loss did the business earn in a period?
How much obligations to third parties do the business have?
What is the value of their assets as at end of an accounting period?
 Accounting provides the financial information that serves as the basis of
business managers’ decisions and accountability. The different accounting and
financial analyses helps management in coming up with right decisions relative
to business operations. Accounting also helps in evaluating the performance of
all the employees within the business organization and determines
accountability across the different levels of the company. Examples of analysis
include ratio analysis, variance analysis, investment appraisals, make or buy
decisions.
 Accounting also aids in corporate planning. An example is budgeting, a planning
activity which is a part of higher accounting course-management accounting.
Planning for the future through budgets enable business organizations to predict
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its needs, resources, revenues, and expenses. Budgeting is also a coordinating

process among different departments of an organization.

Branches of Accounting
Internal and external users of financial accounting information have varying demands of
financial reports and statements. Maybe, this is one reason why accounting has been
divided or classified into different fields or branches. The three major branches of
accounting are as follows:
1. Financial Accounting
2. Management Accounting
3. Cost Accounting
Other fields of accounting are
1. Tax Accounting
2. Fund Accounting
3. Auditing
4. Forensic Accounting
5. Human Resource Accounting
6. National Accounting
7. Social Accounting
Financial Accounting is the branch of accounting that focuses on the needs for accounting
information of external users like creditors, potential outside investors, government
agencies and the general public, who are not actively participating in the daily operations
of the business.
The main objective of financial accounting is to make sure that the reported net profit or
net loss of the business during a specific period of time is correct and the financial position
of the business on a particular period is fairly presented.
Management Accounting is the field of accounting that concentrates on the information
needed by internal users such as the business owners, managers, employees, for their
internal decision making. Its main objective is to communicate relevant financial
accounting information to the management of the firm for them to create good and timely
decisions.
According to the Institute of Management Accountants (IMA): "Management accounting is a
profession that involves partnering in management decision making, devising planning and
performance management systems, and providing expertise in financial reporting and control
to assist management in the formulation and implementation of an organization's strategy"
Cost Accounting is a tool or a technique in determining the costs of products, processes,
projects, or any other business activity. It also helps management in decision making and in
planning and control within the organization. (Others consider cost accounting a part of
management accounting)
Cost accounting rooted from manufacturing type of business and it is now widely use in all
types of business. Activities under cost accounting also include analysis of cost behavior,

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CVP analysis, capital budgeting, standard costing, variance analyses, transfer pricing,
among others.
Tax Accounting is based on laws enacted by a legislative process and it involves the
Internal Revenue rules and regulations. Data used in tax accounting were taken from
financial accounting. Tax accountants help the company to as much as possible minimize
the amount of tax payable.
Fund Accounting is applied for non-profit organizations including government and non-
for-profit corporations. Every organization under this category uses their resources to
meet their objectives instead of profit. Under fund accounting, funds are classified into
general fund (funds used for day to day operations like paying salaries of employees and
purchasing supplies) and special purpose funds (funds for specific activities like
constructing an extension of hospital, building schools, etc.).
Auditing is the examination and verification of a firm’s accounts and internal control
system. Audits are performed by certified public accountants. Auditors are classified as
internal or external auditors. Internal auditors are employees of the company while
external auditors are independent person or firms that perform audits and give opinions
on whether the financial statements examined are in conformity to GAAP and are fairly
presented.
Forensic Accounting, Human Resource Accounting, National Accounting, and
Social Accounting was already defined under the scope of accounting.

Concept of Stewardship
Stewardship is derived from its root word steward who means a person who manages
other people’s property, finances, or other affairs. He or she can also be a person
designated to take the place of another person.
In any business organization, the stewardship rests on its executives. They are responsible
in protecting the interests of the shareholders and other stakeholders. They make decisions
in behalf of the owners and tried to make the business operations successful. This is called
stewardship governance.
In the field of accounting, stewardship means many things, although defined relatedly. It
can refer to taking custody and safekeeping of assets, separating the performance of the
management of a reporting firm from the performance of the business.
In an article by Andrew Latham, an ehow.com contributor, he stated that the basic purpose
of accounting to act as a steward to the company owners and other interested parties in a
business authorized to view the financial reports. It is the accountant’s role to know the
parties involved in the business transactions and give them the business information they
need, fairly and objectively.
Measuring the resources and evaluating the operations of a business is also one of the
functions of accounting. And again, accountants, acts as stewards for the shareholders in
accurately and timely reporting the financial health of the company.
Accountants as stewards should protect the business interests and even out the third party
claims over the resources of the firm, so with the shareholders or owners, by presenting
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trustworthy financial information about the assets and the obligations of the entity.
Accountant’s function of stewardship is very significant not only to the company owners
but also the potential investors whose primary basis of putting their money in a particular
business is the works or final outputs of an accountant.

Users of Accounting Information

Many people and entities need financial information for different purposes. All of these
users of accounting information are decision-makers. The more important the decisions
are the greater the need for valuable financial information.
The users of financial accounting information are:
Internal Users (Primary Users)
Business Owners. The investor/owner needs to know the condition of his
business. Financial statements and reports will show this to him.
Business Managers. These people use accounting information in setting the
goals of the business, in evaluating the progress towards their objectives, and
in correcting lapses or errors committed, if any.
Employees and Labor Unions. They are very much interested in knowing the
financial position and profitability of the business because this will serve as
their basis of asking for wage increase and other benefits.
External Users (Secondary Users)
Prospective Investors. They provide the needed capital of the business to
operate. Analysis of financial information helps them is deciding whether to
invest or not in a company.
Creditors. Lenders like banks and other financing institutions determine the
ability of a company to pay their obligations as they become due. The
liquidity tests were based on the financial statements, historical and
forecasted.
Government Agencies. Securities and Exchange Commission (SEC) and
Bureau of Internal Revenue (BIR) are examples of government institutions
that we can consider major users of accounting information. SEC mandates
that business entities should disclose certain financial accounting
information to the prospective investors. BIR, on the other hand, is very
much interested in the financial statements that will support the business
payment of taxes.
Consumers and the General Public. The amount of income a company earns is
a parameter of economic status. Profitable companies are pictures of
economic growth which in turn affects people’s standard of living.

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Accounting Concepts and Principles

There are guidelines being followed in the practice and application of accounting in
financial reporting. These are the rules that oversee how accountants process, measure,
and communicate financial accounting information. Generally Accepted Accounting
Principles or GAAP summarized all these guidelines. GAAP is a compilation of accounting
guidelines devised by the Financial Accounting Standards Board which is also regarded as
the law of accounting.
You will now be introduced to the basic accounting concepts and principles.
These are:
 Accrual Principle
 Conservatism Principle
 Matching Principle
 Consistency Principle
 Cost Principle
 Going Concern Principle
 Economic Entity Principle
 Full Disclosure Principle
 Materiality Principle
 Monetary Unit Principle
 Reliability Principle
 Revenue Recognition Principle
 Time Period Principle

Accrual Principle
This is the concept that requires income and expense recognition in the accounting
period when they are actually earned and incurred, rather than when cash are
received (for revenues) and disbursed (for expenses). Financial statements are
prepared using the accrual basis of accounting.
Accrual basis of accounting warrants that expenses are matched with the income
earned in the same accounting period. Hence, this principle is similar to matching
principle and revenue recognition principle.

Conservatism Principle
This concept is based on the premises that expenses and liabilities should be
recorded as soon as they are incurred and revenues and assets when they will
surely happen.

Matching Principle
This principle pertains to the charging of expenses incurred by the firm to the
income statement for a particular period in which the revenues related to them
(expenses) are earned. The application of this principle results in the deferment of
prepaid expenses to match the revenues in the future periods. The same with
accrued expenses, these are charged in the income statement in which they are
incurred to go with the current period’s income. This principle presents a more
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balanced and consistent financial performance of a company than using the cash
basis of accounting.
One major change in this principle is the application of depreciation accounting for
non-current assets. Notice that depreciation expense is not charged to profit and
loss immediately, instead, it is matched with the economic benefits that the
depreciable assets earned for the company over more than a few accounting
periods.

Consistency Principle
This concept of consistency is also called comparability principle. This principle
entails the consistent application of accounting principles or techniques to aid
comparison of the firm’s financial statements over different accounting periods.

Cost Principle
The logic of this principle is the idea that a business organization should record
assets, liabilities, and equity at their original purchase costs. This concept also
requires that accounting records should keep the historical cost of the asset during
the duration of its usefulness to the business.

Going Concern Principle

This concept refers to the assumption that financial statements are prepared on the
basis of the continuity of operations of the business in the future. This will also
mean that assets will be realized and obligations settled in the normal operations of
the business.

Economic Entity Principle

The economic entity concept asserts that the business transactions of an entity be
separated from the owner’s personal transactions and other businesses. This will
avoid the mingling of assets and liabilities among and between several entities,
which can result to difficulties when an unseasoned business’ financial statements
are audited ahead of the others.
The so –called single economic entity concept, on the other hand, recommends that
entities related with each other by a common control should operate as an economic
unit. A set of consolidated financial statements of a group of firms should reflect this
concept.

Full Disclosure Principle

This principle states that the business should include in its financial report or
financial statements all the necessary information that will help the reader or user
understand the contents of the statements. Example of this is a disclosure on the
depreciation methods used by the firm on all its non-current assets. The accounting
standards have augmented this principle in requiring a huge number of
informational disclosures alongside the financial statements.

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Materiality Principle
Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements (IASB Framework).
Materiality refers to the importance of business transactions, balances and errors
the financial statements have. It describes the cutoff point from which the
accounting information becomes relevant to the needs of the users particularly for
the purpose of decision making. For a true and fair presentation of the business
operations, the information must be complete of all significant items.

Monetary Unit Principle

This principle, also called measurability concept in accounting, indicates that only
transactions that can be expressed in monetary currency should be recorded. IASB
and FASB defined a recognition criteria that requires that the elements of financial
statements (assets, liabilities, revenue and expenses must only be recognized if its
cost or value can be measured with adequate reliability.
However, items that are not recorded due to the failure to meet the measurability
have to be disclosed in the supplementary notes of the financial statements. This is
for a better understanding of the financial performance and position of the business
by the users of financial information.

Reliability Principle
Only those business transactions or information that can be verified by the users
should be recorded. The reliability of information can be established by the users
when they are materially correct and serves the purposes it represents. Reliability
can be reduced if there are some misstatements or omissions of information that are
considered significant to the financial statements.

Revenue Recognition Principle

This concept of revenue recognition is also called realization concept. This refers to the
revenue recognition using the accrual concept, where the business records the income
when earned regardless of whether cash has been received or not. Earned in the sense that
the goods must have reached the buyer or the service has been completely rendered.

Time Period Principle

This involves the application of an accounting period to report and evaluate the
performance and position of the business. The results of operations must be
reported over a standard period of time. Accounting period can be monthly,
quarterly, semi-annually, and annually.

Substance over Form

This is an accounting concept which means that the business transactions and
events must be recorded in its economic substance instead of just its legal form to
present accurate and fair statements. Accountants should use his judgement in
preparing the financial statements to provide a more useful and relevant
information to the users.
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Dual Aspect Concept or Duality Principle

This principle is the fundamental basis for double-entry accounting system.
This ensures that all the attributes of a business transaction are properly accounted
for in the financial statements. The double-entry accounting system refers to the
application of the rules of debit and credit.

Career Opportunities in the Accounting Profession

Career opportunities in the accounting profession are usually divided into two: the private
accountants and public accountants.
Private accountants are employed in a single business. There is the presence of an
employer-employee relationship. And accountants perform an array of services to the firm.
These are:
 Cost Accounting. Accountants accumulate and analyze the costs incurred by the
business in rendering services or manufacturing their products. They help
managers in pricing their products, controlling costs and expenses to register
high profits.
 General Accounting. This service involves other responsibilities within the
finance department of an organization like billing section, treasury, cashiering,
payroll, etc.
 Internal Auditing. Accountants can be auditors too. Their function as internal
auditor is to evaluate the accounting and management systems of the company
in order to effect efficiency and make sure that employees follow company rules
and regulations, policies and standards.
 Budgeting. Accountants have the edge over other careered-employees in the
organization when it comes to budgeting or forecasting. They best present
forecasted financial statements and other detailed financial plans and
profitability objectives.
 Information systems design. Another role of accountants is to prepare or create
an accounting information system that will best suit the business operations.
Public Accountants are those accountants who rendered services to the general public in
exchange for professional fees. They are those who have passed a licensure examination
given by the Board of Accountancy, hence, they are called Certified Public Accountants
(CPAs).
Public accountants rendered indispensable services just like private accountants. Among
their services are:
 Consultancy services. CPAs provide advices and assistance to managers of the
businesses in recruiting top personnel, in reorganizing the business, or in
planning for mergers and acquisitions.
 Assurance (Auditing). CPAs are also tasked with assuring the business that the
financial statements prepared are accurate and complete.

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 Tax accounting. This service involves the business compliance with the tax
regulations and minimizing the business’ taxes to be paid.
Other careers in the accounting profession include teaching. In colleges and
universities, it is a must that accounting and auditing subjects should be taught
by CPAs.
Many public accountants grouped together and put up a firm where most of their
employees are CPAs. They cater the needs of many other businesses for financial
and accounting services. Examples, here in the Philippines, are the Sycip Gorres
Velayo (SGV) & Co. (affiliate of Ernst & Young), Manabat Delgado Amper &
Co(affiliate of Deloitte Touche Tohmatsu, Isla Lipana & Co. formerly Joaquin
Cunana & Co. (affiliate of PricewaterhouseCoopers. In the United States, they
have the Andersen Worldwide, PricewaterhouseCoopers, Ernst & Young among
others.

Basic Professional Values and Ethics

The Philippine Institute of Certified Public Accountants (PICPA) is the professional
organization for CPAs in the Philippines. PICPA is responsible for developing and
implementing professional ethical values for accountants. We will be discussing briefly
some of these values and ethics. Complete and detailed discussion of the contents of the
PICPA Code of Ethics will be discussed in a separate course.
The International Federation of Accountants (IFAC), where the Philippines, through PICPA
and Board of Accountancy (BOA) is a member, has devised a model of the international
code of ethics for professional accountants to be used by member countries as basis of
ethical requirements (code of ethics, rules, guidelines, standards of conduct, etc.) .
Below are excerpts of the values and principles from the Code of Ethics for Professional
Accountants in the Philippines ( retrieved from http://boa.com.ph)
The Code recognizes that the objectives of the accountancy profession are to work to the
highest standards of professionalism, to attain the highest levels of performance and
generally to meet the public interest requirement .These objectives require four basic
needs to be met:
 Credibility. In the whole of society there is a need for credibility in information and
information systems. ·
 Professionalism. There is a need for individuals who can be clearly identified by
clients, employers and other interested parties as professional persons in the
accountancy field.
 Quality of Services. There is a need for assurance that all services obtained from a
professional accountant are carried out to the highest standards of performance. ·
 Confidence. Users of the services of professional accountants should be able to feel
confident that there exists a framework of professional ethics which governs the
provision of those services.
 Fundamentals of Accounting Part 1
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Introduction to Accounting

The fundamental principles are:

 Integrity. A professional accountant should be straightforward and honest in
performing professional services.
 Objectivity. A professional accountant should be fair and should not allow prejudice
or bias, conflict of interest or influence of others to override objectivity.
 Professional Competence and due Care. A professional accountant should perform
professional services with due care, competence and diligence and 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. A professional accountant 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.
 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. The obligation to refrain from any conduct
which might bring discredit to the profession requires IFAC member bodies to
consider, when developing ethical requirements, the responsibilities of a
professional accountant to clients, third parties, other members of the accountancy
profession, staff, employers, and the general public.
 Technical Standards. A professional accountant should carry out professional
services in accordance with the relevant technical and professional standards.
Professional accountants have a duty to carry out with care and skill, the
instructions of the client or employer insofar as they are compatible with the
requirements of integrity, objectivity and, in the case of professional accountants in
public practice, independence. In addition, they should conform with the technical
and professional standards of the following;
o Board of Accountancy (BOA)/Professional Regulation Commission
(PRC)
o Securities and Exchange Commission (SEC)
o Auditing Standards and Practices Council (ASPC)
o Accounting Standards Council (ASC)
o Relevant legislation.

Glossary
Accounting: refers to recording and measuring quantitatively business transactions.
Accounting Concepts: ideas or theories applied in accounting.
Accounting principles: laws or standards develop for accounting purposes.
Stewardship: managing or taking care of something.

Course Module
 Fundamentals of Accounting Part 1
16
Introduction to Accounting

References and Supplementary Materials

Books and Journals
Cabrera, ME. B. (2010). Fundamentals of Accounting 1.Manila, Philippines: GIC
Enterprises and Co., Inc.

Horngren, C. T., Harrison, W. T. Jr., Bamber, L. S., (2002). Accounting (International

Edition). New Jersey, USA: Prentice Hall

Garcia, P.C., Mojar, B.Q. & Gemanil, B. A. (2006).Basic Accounting Concepts and
Procedures. Quezon City, Philippines: Rex Book Store, Inc.

Kimwell, M. B. (2009). Fundamentals of Accounting (Second Edition). Manila, Philippines.

GIC Enterprises and Co., Inc.
Online Supplementary Reading Materials
https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-
i/principles-of-accounting/introduction-to-accounting
Accessed: March 9, 2017

http://iws.collin.edu/ost/pdfs/ACNT1303/ACNT1303lecture_notes.pdf -Introduction to
Accounting
Accessed: March 9, 2017

https://www.coursehero.com/file/23878406/Introduction-to-Accounting-Notes/
Accessed: March 10, 2017
Online Instructional Videos
http://study.com/academy/lesson/what-is-accounting-purpose-importance-
relationship-to-business.html
Accessed: March 10, 2017

https://www.fox.temple.edu/vault/video/introduction-to-accounting-part-1/
Accessed: March 10, 2017