Introduction to AE 111

❖ This course introduces the nature, functions, scope, and

limitations of the broad field of accounting theory.
❖ It starts with the discussion of the nature of the Accountancy
Profession in the Philippines.
❖ The discussion of the conceptual framework for the preparation and
presentation of financial statements is included in the course to
better appreciate the generally accepted accounting principles for the
different accounting elements.
❖ It is then followed by the specific accounting for the financial assets
particularly cash and receivables.
 Introduction to AE 111

A journey of a thousand miles

begins with a single step.
 Accounting and the
Accountancy Profession
Definition of Accounting
•American Accounting Association (AAA):
•The process of identifying, measuring and
communicating economic information to permit
informed judgment and decision by users of the
information.
Definition of Accounting
•American Institute of Certified Public
Accountants (AICPA)
•is the art of recording, classifying and 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.
Definition of Accounting
•The Accounting Standards Council (ASC)
•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 decision.
Definition of Accounting
•Many users including internal users, banks,
investors, government agencies, financial and
economic analyst rely on the financial
information provided by accounting in making
sound decisions.

•Financial information is presented to common

users through the financial statements.
Nature of Accounting
•Accounting is a discipline and a service.
•Discipline pertains to a controlled orderly state.
•Governed by standards
•Accounting practice is guided by rules, principles,
procedures, conventions and standards.
•Accounting serves to provide financial reports
and statements that will be useful to decision
makers
Nature of Accounting
•Accounting is a social science with a body of
knowledge which has been systematically
gathered, classified, and organized. It is
influenced by, and interacts with economic,
social and political environments.
Nature of Accounting
•Accounting is an art.
•Accounting is a practical art which requires the use
of creative skill and judgment.
Functions of Accounting
1. Identification
2. Measurement
3. Communication
Functions of Accounting
1. Identification
•the process of recognizing business activities whether
accountable or not.
•Only events that are accountable should be recognized.
Functions of Accounting
1. Identification
•Accountable events require all of the following
criteria:
a. It affects a financial element of accounting. It either
increases or decreases the asset, liability, equity,
income and/or expense. (probability criterion).
b. It is a result of a past activity (historical nature).
c. It can be measured reliably (measurability criterion).
Functions of Accounting
1. Identification
•Accountable events are either external events or
internal events.
•External events are events wherein another party
participates.
•Internal events are events wherein only the entity
participates.
Functions of Accounting
1. Identification
•Accountable events are either external events or
internal events.
•External events are events wherein another party
participates.
• It may be through transfers or non- transfers.
• Transfers may be reciprocal (also know as exchanges) or
non-reciprocal transfers.
• Non-transfers events include increase or decrease of
interest rates, changes in price levels and vandalism.
Functions of Accounting
1. Identification
•Accountable events are either external events or
internal events.
•External events are events wherein another party
participates.
•Internal events are events wherein only the entity
participates.
• Examples are production and casualties.
Functions of Accounting
1. Identification
2. Measurement
•The process where accountable events are assigned
peso amounts that are assumed to have stable
purchasing power.
•The unit of measure of accounting is money, expressed in
prices.
Functions of Accounting
1. Identification
2. Measurement
3. Communication
•process of preparing and distributing reports to
potential users of accounting information and
interpreting the significance of this processed
information.
Functions of Accounting
1. Identification
2. Measurement
3. Communication
•There are three aspects of communication
process of accounting. These are recording,
classifying and summarizing.
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
1. Public Accounting
2. Private Accounting
3. Government Accounting
4. Accounting Education and Research
5. Other Fields
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
1. Public Accounting
•Accountants who are in public accounting offer
professional services for a fee like other professionals do.
They do not keep an employer – employee relationship.
•They are professionals providing to their clients services
which may be
•external auditing,
•tax services, or
•management advisory services.
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
• Large corporations may divide
1. Public Accounting accounting work into several
departments with similar tasks
2. Private Accounting which may be
• They are accountants who are • Financial accounting,
employed in private businesses. • Management accounting,
• The work of private accountants is • Cost accounting,
• Tax accounting, and
provided to other managers and • Internal auditing.
executives within the firm as tools
to allow them to make business
decisions based on sound financial
data.
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
1. Public Accounting
2. Private Accounting
3. Government Accounting
•The focus of government accounting is the custody and
administration of public funds.
• Many CPAs are employed in many branches of the government,
more particularly the Bureau of Internal Revenue, Commission on
Audit, Department of Budget and Management, Securities and
Exchange Commission and even in a police agency like the
National Bureau of Internal Revenue.
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
1. Public Accounting
2. Private Accounting
3. Government Accounting
4. Accounting Education and Research
•Accounting educators contribute to the accounting
profession in many ways. One, of course, lies in effective
teaching; second, in publishing significant research findings;
and a third, in influencing top students to pursue careers in
accounting.
SPECIALIZED FIELDS AND BRANCHES OF
ACCOUNTING
1. Public Accounting
2. Private Accounting
3. Government Accounting
4. Accounting Education and Research
5. Other Fields International Accounting
Socio-Economic Accounting
Not-for-Profit Accounting
PHILIPPINE REGULATORY AGENCY
•The accountancy profession in the Philippines is regulated by
Republic Act 9298 known as the Philippine Accountancy Act
of 2004.
•RA 9298 provide and govern:
a. The standardization and regulation of the accountancy
profession;
b. The examination and registration of certified public
accountants; and
c. The supervision, control, and regulation of the practice
of accountancy in the Philippines.
PHILIPPINE REGULATORY AGENCY
•The Professional Regulatory Board of
Accountancy (PRBOA)
•is the body authorized by the act to promulgate
rules and regulations affecting the practice of
accountancy in the Philippines.
PHILIPPINE REGULATORY AGENCY
•The Philippine Accountancy Act specified that
•only Filipino citizen
•who finished the degree of Bachelor of
Science in Accountancy,
•and has passed the CPA board
examination
•can practice the accountancy
profession.
PHILIPPINE REGULATORY AGENCY
•Special Notes on Public Practice
• A certificate of accreditation shall be issued to CPAs in public
practice only upon showing in accordance with rules and
regulations promulgated by the PRBOA and approved by the
Professional Regulation Commission (PRC) that such registrant
has acquired a minimum three-year meaningful experience in
any areas of public practice.
PHILIPPINE REGULATORY AGENCY
•Special Notes on Public Practice
• Single practitioners and partnerships for the practice of public
accountancy shall be registered CPAs in the Philippines. The
Securities and Exchange Commission (SEC) shall not register
any corporation organized for the practice of public
accountancy.
CONTINUING PROFESSIONAL DEVELOPMENT (CPD)
•Republic Act No. 10912 is the law mandating and
strengthening the CPD program for all regulated professions,
including the accountancy profession.
• Continuing professional development is defined as the inculcation
and acquisition of advanced knowledge, skill, proficiency, and
ethical and moral values after the initial registration of the CPA. It
raises and enhances the technical skill and competence of the CPA.
CONTINUING PROFESSIONAL DEVELOPMENT (CPD)
•Republic Act No. 10912 is the law mandating and
strengthening the CPD program for all regulated professions,
including the accountancy profession.
• CPD credit units refer to the required units for the renewal of CPA
license and accreditation of a CPA to practice the accountancy
profession every three years.
• Under the new PRBOA Resolution, all CPAs regardless of sector
of practice shall be required to comply with 120 CPD credit
units. However, only 15 CPD credit units are required for
renewal of CPA license. CPAs who are 65 years old and above
and are not anymore practicing the profession are not required
to comply with the CPD requirements.
CONTINUING PROFESSIONAL DEVELOPMENT (CPD)
•Republic Act No. 10912 is the law mandating and
strengthening the CPD program for all regulated professions,
including the accountancy profession.
• All CPAs shall abide by the requirements, rules and regulations on
CPD to be promulgated by PRBOA, subject to the approval of PRC,
coordination with the accredited national professional
organization of CPAs (which right now is the Philippine Institute of
Certified Public Accountants, commonly referred to as PICPA) or
any duly accredited educational institution.
ACCOUNTING STANDARD-SETTING BODY
- Global
•The International Accounting Standards Board (IASB)
replaced the International Accounting Standards
Committee. The IASB publishes the International
Financial Reporting Standards.
•However, the IASB still adopted the standards of IASC
which are the International Accounting Standards.
ACCOUNTING STANDARD-SETTING BODY
- Global
•The goal of IASB is to create one uniform and globally
accepted financial reporting standards.
•The standard-setting process IASB normally goes
through include
•the conduct of a research,
•preparation of a discussion paper,
•floating of the exposure draft, and
•the distribution of the final accounting standard.
ACCOUNTING STANDARD-SETTING BODY
- Local
•The Financial Reporting Standards Council (FRSC) is
the accounting standard setting body in the
Philippines that establishes and improves accounting
standards that will be generally accepted accounting
principles in the country.
•The FRSC superseded the Accounting Standards
Council when the R.A 9298 was adopted. The
Philippine Regulation Commission created FRSC upon
recommendation of the Board of Accountancy.
ACCOUNTING STANDARD-SETTING BODY
- Local
• The FRSC is composed of 15 members
• with a Chairman who had been or is presently a senior accounting
practitioner,
• and 14 representatives from
• Board of Accountancy,
• Securities and Exchange Commission,
• Bangko Sentral ng Pilipinas,
• Bureau of Internal Revenue;
• Commission on Audit,
• Major organizations of preparers and users of financial statements,
• and two representatives per accredited national professional organization
of CPAs from the public practice; commerce and industry; academe and
government.
INTERPRETATIONS COMMITTEE
•Interpretations are intended to give authoritative guidance
on issues that are likely to receive divergent or unacceptable
treatment because the standards do not provide specific and
clear-cut rules and guidelines.
• Issued by the International Financial Reporting Interpretations
Committee (IFRIC) which is United Kingdom-based.
• Locally, the Philippine Interpretation Committee (PIC) was formed
by the FRSC in August 2016. Its role 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.
 The Standards Setting Bodies and
the Interpretation Committees
International Local
Accounting Standards Setting Body International Accounting Standards Accounting Standards Council (ASC)
(OLD) Committee (IASC)
Standards Name (OLD) International Accounting Standards Philippine Accounting Standards
- Still in use unless superseded (IAS) (PAS)

Accounting Standards Setting Body International Accounting Standards Financial Reporting Standards
(NEW) Board (IASB) Council (FRSC)
Standards Name (NEW) International Financial Reporting Philippine Financial Reporting
Standards (IFRS) Standards (PFRS)

Interpretations Committee International Financial Reporting Philippine Interpretation Committee

Interpretations Committee (IFRIC) (PIC)
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
•The combination of authoritative standards
(set by policy boards) and simply the
commonly accepted ways of recording and
reporting accounting information.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
•This provides for consistency in the reporting
of companies and businesses so that financial
analysts, banks, shareholders and the SEC
(Securities & Exchange Commission) can have
all reporting companies preparing their
financial statements using the same rules and
reporting procedures.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
•The Philippine GAAP includes the following
accounting standards promulgated by FRSC:
•Philippine Accounting Standards
•Philippine Financial Reporting Standards
•Interpretations of the standards
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
•The standards promulgated by FRSC are
currently adopted entirely from all
International Accounting Standards (IAS)
and International Financial Reporting
Standards (IFRSs).
 Accounting and the
Accountancy Profession

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