Lacuesta, Ina Isha M.

Financial Accounting and Reporting BLOCK 1G-A

Introduction to Accounting
Definition of Accounting
Authorities on the field have variously defined accounting. Three of the most commonly accepted ones are as follows:

1. Accounting Standard 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.”
- As a service, accounting intends to supply financial reports to be used by economic decision makers.
- Economic decision making is the main reason why accounting records and reports are prepared. In recording
transactions and events, accounting gives due importance to the measurement of business activities that have
monetary value.
2. American Institute of Certified Public Accountants (AICPA): “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 financial
character and interpreting the results thereof.”
- As an art, accounting demands critical thinking and creative skills. Accountants gather relevant data and
convert them into organized financial reports then draw certain economic meanings from them.
3. American Accounting Association (AAA): “The process of identifying, measuring, and communicating economic
information to permit informed judgments and decisions by users of the information.”
- As a process, accounting goes through an accounting cycle to summarize the voluminous and repetitive
business transactions into organized and understandable financial reports.
- Basically, accounting is an information system that ascertains the value of business transactions and events,
converts them into financial reports and imparts the meanings of these reports to the decision makers.

Nature of Accounting
Implicit in the definitions cited earlier are the following characteristics of accounting:

1. Service Activity. Accounting provides vital assistance through the making of financial reports regarding the
financial activities of economic entities.
- It helps users to understand financial reports from which to draw sound economic decisions.
2. A Process, an Art and a Discipline. Accounting involves identifying, measuring and communicating economic
information to effect informed economic judgment.
- It is also a discipline that observes accounting standards and professional ethics. Accounting practice is guided
by distinctive standards, rules, methods and procedures to come up with reliable general-purpose financial
reports.
3. The Language of Business. Accounting is the medium of communication through which financial reports are
furnished to different parties for decision making.
- It is an information system that measures business activities, processes information into reports and
communicates the reports to the decision makers.
- Accounting interprets and communicates the true status of the business in terms of its operating results and
financial condition.

Accounting thus plays an essential role to businessmen. It helps them to easily find out needed information
anytime to answer the following business questions:

a. How much is the increase in capital as a result of business operation? (Profitability)

b. Are there available funds to finance the business operation? (Liquidity)

c. Can the business pay its long-term obligations to others? (Solvency)

d. Can the business sustain its long-term profitability and cash flow? (Stability)

e. How much borrowed capital and owner's capital are invested in the business? (Capital Structure)

f. Is there excess cash available for investment opportunities and other uncertainties? (Financial
Flexibility)

4. The Eyes of the Business. Bookkeeping records, as the initial part of accounting activities, enable the owner of a
business to check on his financial progress.

Adequate accounting records assist the owner to prepare plans for the future, avoid material mistakes, analyze
the causes of changes that take place, and draw the best choice among economic alternatives.
 Accountants are economic detectives. Auditing, as an advanced part of accounting activity, verifies the
truthfulness of the financial reports concerning the business results of operation and financial condition.

Functions of Accounting
Philippine Accounting Standards (PAS) No. 1 provides that “Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about economic activities, that is intended to be useful in making
economic decision.”

 The primary function of accountants, then, is to prepare financial reports and provide them to economic
decision makers.
 The basic function of accounting is described in this definition of accounting provided by the American
Accounting Association (AAA):

“Accounting is the process of identifying, measuring and communicating economic

Information to permit informed judgment for an economic decision.”

 The advanced or critical function of accounting is its audit function – to test the reliability of the financial
reports, trace fraudulent transactions and locate and rectify accounting errors.

Purpose of Accounting
The purpose of accounting is to help financial users see the true picture of the business in financial terms.

In helping financial users make sound economic decision, it is therefore necessary that the financial reports prepared by
the accountants be understandable, reliable, relevant and complete.

In a highly competitive world of business, a well-informed management is vital for the survival of a business
organization. The management must have the right information at the right time in the right way to keep due control
over its business affairs and to effect economic decisions with minimal uncertainty.

Objectives of Accounting
The overall objective of financial accounting is to provide useful information for economic decision making.

This objective underscores the fact that financial reporting is not an end in itself. Instead, the output of the financial
accounting process serves as useful input for making rational investment, and other similar economic decisions.

Specifically, the objectives of accounting are the following:

1. To ascertain the result of the business operations;

2. To ascertain the financial position of the business; and
3. To assist financial users in predicting the enterprise’s financial capacity regarding future cash flows, financial
conditions and results of operation.

The main objective of the business is to ascertain the result of operation whether the business earned profit or suffered
loss during the accounting period (usually a year). A financial report called Income Statement is prepared for this
purpose. It contains all revenues and expenditures of the business for a certain period.

For businessmen, it is also very important to know the financial health or financial condition of the firm. A statement
called Statement of Financial Position (formerly called Balance Sheet) is prepared for this purpose. It shows the financial
position (assets, liabilities and owner’s contribution) of the business on a particular day and is usually prepared once a
year on the last day of the financial period.

Accounting also provides significant information to management to carry out its daily tasks and operations properly and
efficiently. Such information helps management in planning, organizing and controlling its various activities.

Scope of Accounting
Knowledge of accounting is essential to all who wish to understand our modern economic system. It is because
accounting in some way touches all aspects of economic activities (profit or nonprofit businesses) including government
and personal finances.
All types of businesses (from sole proprietorship, and partnership to all types of corporation) need financial information
before a sound and more reliable economic decision can be made.

All types of businessmen are required to prepare government reports such as income taxes, business taxes and social
security returns. These government reports must be based upon adequate business records prepared through the use of
accounting.

The success or failure of a business may often be traced to the kind of accounting records that are kept.

The Management Group

Internal users are those who own and/or manage and control the business entity.

To help them make relevant economic decisions in achieving the goal of the firm, the management group needs more
detailed accounting information.

Internal financial reports are usually prepared exclusively for the use of internal users for the efficient operation and
control of business activities.

These reports are not governed by the generally accepted accounting principles. The area of accounting that is
concerned with internal reporting is referred to as management Accounting.

Examples of internal financial reports are variance analysis of cost of production, differential cost report of capital
budgeting, etc.

The Financing Group & Public Group

External users (the financing and public groups) do not own and/or manage and control the business entity. The external
users of financial statements include present and potential investors,

Employees, lenders, suppliers and other trade creditors, customers, government and their agencies, and the public.

They have no direct access to the management of the business, but they use financial statements to satisfy some of their
different needs for information. These needs include the following:

1. Investors. To assess the risk of investments portfolio, investors need information to help them determine
whether they should buy, hold, or sell their investments. They need accounting information to assess their
return on investment.
2. Employees. Workers are interested in the financial statements to determine the employer’s stability and
profitability. Moreover, enterprise’s capability to provide remuneration, retirement benefits and employees’
opportunities can be assessed through financial statements.
3. Lenders. Financial statements are used by lenders to determine whether borrowers can pay their loans and
interest attached to them when due.
4. Suppliers and other trade creditors. Suppliers use the financial statements of their customers to determine the
continuity of the latter’s business. They are interested in the information that enables them to determine
whether debts owed to them will be paid when due. Trade creditors are likely to be interested in an enterprise
over a shorter period than lenders unless they are dependent upon the continuation of the enterprise as a major
customer
5. Customers. Customers use the financial statements of their suppliers to assess the latter’s continuity in business
because some customers are dependent on the existence of their suppliers to insure the availability of supplies
that will sustain their business operation.
6. Government and its agencies. In allocating the national resources, the government is interested in the financial
statements of an enterprise for statistics, income taxes and other regulatory policies.
7. Public. Financial statements may assist the people by providing information about the trends and recent
developments in the prosperity of the enterprise and the range of its activities.

External financial reports are usually prepared for those who have no direct access to the management of the business.
The preparation of these reports is governed by the generally accepted accounting principles. The area of accounting
that is concerned with the preparation and presentation of external reports is referred to as financial accounting.

Examples of external financial reports are statement of financial position, income statement and cash flow statement.

Double-Entry Bookkeeping
The basis of modern accounting theory is double-entry bookkeeping.
The double-entry bookkeeping system is based on the dual aspect concept which says that in every business transaction,
two effects of recording are to be made the value received (debit) and the value parted with (credit).

The basic principle of bookkeeping is the principle of balance. It is a principle that distinguishes double entry
bookkeeping from mere record keeping.

Double entry means that at least two entries are made in recording each transaction or operation. This system causes
one entry to balance with the other and thereby provides a means of proof. If each transaction is so recorded that one
entry may be checked against another entry for the purpose of proof, then the aggregate of all entries may be proven.

An example of double-entry bookkeeping is as follows:

The transaction regarding the initial investment of the owner is recorded twice in the general journal – one is Cash (debit
side) which represents the value received by the business, and the other is Capital (credit side), the corresponding
reciprocal value parted with or the obligation of the business to hold in trust the investment of the owner.

Bookkeeping, Accounting and Auditing

Bookkeeping is the initial activity or clerical part of accounting. It is primarily concerned with procedures in the making
and keeping of accounting records. It is the “how” of accounting.

Accounting is the developed form of bookkeeping. It is the conceptual and logical part of the service activity. It decides
the methodology of such recording. It usually answers the question “why.”

Accounting starts where bookkeeping ends. As the bookkeeper records transactions in the book of accounts, the
accountant classifies, summarizes and prepares financial statements from the recorded transactions. The accountant
also designs, analyzes, and interprets such records and financial statements.

Auditing is the critical part of accounting. It is performed after the accounting work ends. After the financial statements
are prepared, the auditor examines them to verify their truthfulness and compliance with generally accepted accounting
principles.

Auditing confirms the credibility of financial statements and protects or ensures the confidence of financial users. It
usually answers the question “how true.”

Harmonization of Accounting Standards Through the International Accounting Standards Board (IASB)
With the globalization of business and diverse accounting practice, efforts have been made to harmonize accounting
standards across countries. This has resulted in the creation of the International Accounting Standards Committee (IASC)
in 1973. In 2001, the International Accounting Standard Board (IASB) succeeded the IASC.

The main objective of the IASB is to develop a uniform set of high quality, understandable, and enforceable global
accounting standards. Its purpose is to achieve a higher degree of comparability and transparency of financial reporting
to help the world’s capital markets and other users make economic decisions.

The accounting standards promulgated by the IASC are called “International Accounting Standards’ (IAS) but those
promulgated by the IASB are termed “International Financial Reporting Standards’ (IFRS). Currently, the IFRS consists of
the followings:

 International Financial Reporting Standards (IFRS)

 International Accounting Standards (IAS)
 Interpretations of IFRS and IAS
In 2002, the European Union (EU) required all publicly traded EU companies to adopt IFRS starting 2005. Other non-
European countries also changed their national accounting standards to IFRS. Countries like the United States, Japan,
Singapore, Taiwan, Thailand and others retained some of their national standards but converged them closely with IFRS.

The Philippines decided to adopt the accounting standards issued by the IASC and the IASB, with the following
appropriate terms:

 Philippine Financial Reporting Standards (PFRS) corresponding to IFRS;

 Philippine Accounting Standards (PAS) corresponding to IAS; and

Interpretations of the PFRS/PAS corresponding to interpretations of IFRS/IAS.

As of 2007, at least 119 countries have already adopted the IFRS. The IASB projects that in 2011, there would be at least
150 countries adopting the IFRS.

The Financial Reporting Standards Council (FRSC)

On November 18, 1981, the Philippine Institute of Public Accountants (PICPA), the national professional body of CPAs in
the Philippines, created the Accounting Standard Council (ASC) as the accounting standard body in the Philippines, to
establish and improve accounting standards that will be generally accepted in the Philippines.

Basically, the accounting standards in the Philippines called “Statement of Financial Accounting Standards” (SFAS) were
US-based, until the gradual adoption of IAS and IFRS in the Philippines starting in 1997.

The decision to fully adopt the IAS was due to the following reasons:

1. Increasing globalization of businesses;

2. Recognition of IAS by the global financial institutions such as World Bank, World Trade Organization and Asian
Development Bank; and Discussion)
3. Complete support by the Philippine Regulatory Agencies. (See succeeding

In 2004, the Philippine Regulation Commission (PRC) created the Financial Reporting Standard Council (FRSC), replacing
the ASC. The FRSC was created to assist the Board of Accountancy (BOA) to carry out its powers and functions provided
under Republic Act No. 9298, the Philippine Accountancy Act of 2004.

The approved accounting standards of the FRSC are known as the “Philippine Financial Reporting Standards” (PFRS) and
“Philippine Accounting Standards” (PAS) which fully took effect on January 1, 2005.

Philippine Regulatory Agencies

The following Philippine agencies regulate the financial reports and professional activities of CPAs:

1. Bureau of Internal Revenue (BIR) – to ensure compliance of National Taxes (Income Taxes and Business Taxes)
and license requirements of all businesses.
2. Local Government Units (LGU) to ensure payment of local business taxes and other local taxes such as
community tax, real property tax and professional tax.
3. Security and Exchange Commission (SEC) – to keep an eye on the operation of all kinds of corporation (profit or
nonprofit).
4. Bangko Sentral ng Pilipinas (BSP) to regulate the operations of all banks and business import and export
activities.
5. Philippine Institute of Certified Public Accountant (PICPA) to protect the credibility of CPA Certificates and
instill ideals of professionalism, ethics and competence among CPAs.

The Accounting Profession

Accountancy is not only one of the most prestigious professions, but also one of the highest paid. It has a very high
marketability because all businesses, whether profit or nonprofit, need the service of accountants.

An employee’s knowledge of accounting makes him more valuable in the firm because accounting in some way touches
on all aspects of business.

The value of basic accounting knowledge in so many careers has made it a required course in almost all programs of
study in a business field. A student who chooses this course is certainly making one of the greatest investments in his
future.
As a profession, accountancy has evolved to the level of medicine, law, engineering and theology. Accountancy is a
relative newcomer to the ranks of the professions, but it has achieved widespread recognition in recent decades.

The Accountant of the 21st Century

An accountant is expected to be a responsible practitioner imbued with competence, integrity, discipline, moral values
and mental independence in the practice of his profession.

To become a CPA, one must pass the CPA Licensure Exam given by the government through the Board of Accountancy
(BOA).

To keep at the higher standard in the practice of profession and be competitive globally,

He is required to acquire accreditations from the accounting authoritative bodies

Through continuing education by attending seminars, conferences, going back to school

Or conducting research for the profession.

Generally, accountants are involved in a work with confidentiality regarding the financial status of a client company.
They are needed not only to record the business transactions but also to analyze the financial data for business
economic decisions.

The accountant's work may involve management consultancy, business planning, financial and business advising,
economic forecasting as financial analyst, detecting economic frauds, and business decision making.

With the many-sided work that an accountant may engage into, he is expected to possess intellectual, communication,
and interpersonal skills.

Professions' Common Characteristics

All of the recognized professions have several common characteristics the most important of which are as follows:

Standards of Admission to the Profession. Attaining a license requires an individual to meet minimum CPA standards for
education and experience.

The individual must pass the uniform CPA examination, showing mastery of the body of knowledge described above.
Once licensed, CPAs must adhere to the ethics of the profession or else risk governmental and public sanctions.

Responsibility to Serve the Public. A CPA is a representative of the public - creditors, shareholders, consumers,
employees, etc. - in the financial reporting process. The role of the independent auditor is to ensure that financial
statements are fair to all parties.

Public accountants must maintain a high degree of independence from their clients if

they are to be of service to the larger community.

Complex Body of Knowledge. Any practitioner or student of accounting has only to look at the abundance of
authoritative pronouncements governing financial reports to realize that accounting is a complex body of knowledge.

One reason why such pronouncements continue to proliferate is that accounting must reflect what is taking place in an
increasingly complex environment. As the environment changes - such as the trend towards globalization of businesses -
accounting principles and auditing practices must adapt.
The continual growth in the "common body of knowledge" for practicing accountants has led the PICPA to enact
continuing education requirements for CPAs. The need for technical competence and familiarity with current standards
of practice is embodied in the Code of Professional Ethics (CPE).

Need for Public Confidence. Physicians, lawyers, engineers, certified public accountants, and all other professionals must
have the confidence of the public to be successful. To the CPA, however, public confidence is of special significance. The
CPA's product is credibility. Without public confidence, the auditor's attest function¹ serves no useful purpose.

Professional ethics in public accounting, as in other professions, has developed gradually and is still in a process of
change as the practice of public accounting continues to change.

Basic Professional Values and Ethics

For the protection of the public, client, the accounting practitioner, and the accounting profession itself, a CPA should
possess the following basic professional values and ethics:

1. Reputation. A good moral character is a requirement for admission to the CPA exam. A CPA should maintain
public trust and confidence. He is expected to refrain from immoral or dishonorable conduct discreditable to the
accounting profession.

In all cases, an accountant should manifest proper professional behavior to elevate the standing of the
profession and to enhance the confidence of the client and the public in the profession and in the individual
practitioner and the accounting firm.

2. Integrity and Due Care. A CPA should be straightforward and honest in performing professional services.

Integrity is the result of the accountant's independence which is the foundation and cornerstone of the
accounting profession. An accountant will automatically not be considered independent under the following
circumstances:

a. If he has or had, during the period of the report, any direct financial interest in the client or any of its
parents or subsidiaries, or any material indirect financial interest.

b. If, during the period of his report, he was connected with the client (or parents or subsidiaries) as
promoter, underwriter, voting trustee, director, officer or employee.

Due care in the performance of professional services is exercised when an adequate examination has been
made, generally accepted auditing standards were adhered to, all necessary procedures in the circumstances
were performed, proper care alertness were exercised during the examination and material matters were
properly disclosed.

3. Competence. A Competence CPA professes to have the requisite qualifications and technical skill to render
satisfactory service.

Competence is achieved and measured by a formal professional studies, practical training, possession of a CPA
certificate, continuing professional education, innate intelligence, and the capacity to analyze and evaluate
situations and arrive at sound judgments with respect to the complex problems encountered in the accounting
engagement.

The basic rule is that the CPA should not offer or perform services which he is not competent to perform. His
competence moreover, must correspond with the high standards expected of a professional person.

4. Objectivity. Objectivity CPA should show absolute impartiality in the expression of an opinion on the fairness of
the financial statements. As auditor, the CPA should make unbiased and objective judgments in the performance
of his examination and in the consideration of the facts which underline his opinions.

The CPA's responsibility extends to the public in general. It is therefore expected that he will make an impartial
and independent examination.

5. Client Relations and Confidentiality. The relationship between the accountant and the client is confidential. Any
vital information obtained by the accountant in the course of the engagement should not be divulged to a third
party without the client’s consent.

The report rendered by the accountant must be submitted directly to the client who can then furnish copies to
whomever he wishes.

6. Fees and Remuneration. An accounting fee should not be based upon the findings or results of the auditor’s
examination or services.
 An arrangement for a fee that is contingent upon the auditor’s findings or service may affect his independence.
The consequence could be a misrepresentation of the examination findings or results of services.

Thus, the CPA must make an adequate examination corresponding to his report and opinion, regardless of
limitations of time and fee.

7. Publicity and Advertising. An accountant is forbidden to advertise his professional attainments or services.
Publication in a newspaper, magazine, or similar medium of an announcement is prohibited.

Advertising is associated commercial practices in which the emphasis is upon personal gain. It is inconsistent
with the practice of a profession which emphasizes service to the public.

An accountant should not ask for clients either directly or indirectly.

Competitive bidding by CPAS for an auditing engagement is generally held to be unethical. It is a form of
solicitation and, as such, is unprofessional and against the public interest.

He should not encroach into the practice of another accountant.

8. Breaches of Contract. The obligations of the accountant to the client rest upon the agreed scope of the
engagement which, in effect, represents a contractual agreement. The accountant is liable to the client for any
material breach of this contract.

The auditor is liable to the client for negligence in the examination. Fraudulent action by the accountant also
renders him liable.

An accountant is not liable to third parties for simple or ordinary negligence because this would expose the
accountant to an indeterminate liability to the entire business community. He is, however, liable for fraud,
material misrepresentation and gross negligence.

9. Unlawful Activities. The following are considered to be unlawful acts of a CPA which shall be sufficient grounds
for a court proceeding against him:
a. Immoral or dishonorable conduct
b. Fraud in the acquisition of the certificate of registration
c. Gross negligence or incompetence in the practice of his profession
d. Addiction to alcoholic beverages or to any habit forming drugs rendering him incompetent to practice
his profession
e. False or extravagant or unethical advertisement wherein other things than his name, profession,
limitation or practice, office and home address are mentioned
f. Issuing an accountant’s certificate covering the examination of the client’s accounts without observing
the necessary auditing standards
g. Aiding or acting as a dummy for unqualified or unregistered person to practice accountancy
h. Violation of any provision of the ethical standards
i. Insanity and other conducts discreditable to the accounting profession

10. Disciplinary Procedures. A written charge under oath should be submitted to the BOA for a complaint against a
CPA. Five days after the filing of the complaint, the respondent CPA should be given a copy of the said complaint
requiring him to answer it.

The BOA then conducts an administrative investigation of which the decision is to be made by a majority of its
members.

The respondent CPA has the right to be represented by counsel, to have a speedy and public hearing, and to
confront and to cross-examine witnesses against him.

The decision of the BOA becomes final within 30 days after receipt by the respondent of a copy of the decision
unless, during the same period, he has appealed to the PRC, whose decision is deemed final.

Professional Organizations of CPAs

The accounting profession in the Philippines has grown rapidly since its formal recognition with the passing of the first
Accountancy Law (R.A. 3105) in 1923.

This law formally recognized accounting as profession by restricting its practice to persons possessing a CPA certificate. It
created the BOA, vesting it with the authority to conduct CPA examinations, issue CPA certificates and regulate the
practice of public accounting in the Philippines.
As early as November 1929, CPAs in the Philippines formed the profession’s national organization called PICPA which is
primarily formed to:

1. Protect and enhance the credibility of the CPA certificate

2. Maintain high standards in accounting education
3. Instill ideals of professionalism, ethics and competence among accountants
4. Foster unity and harmony among its members

PICPA also functions as the policy-making body of the following accounting organizations which function as its
implementing arms:

 ACPAE – Association of CPAs in Education

 ACPACI – Association of CPAS in Commerce and Industry
 ACPAPP-Association of CPAs in Public Practice
 GACPA – Government Association of CPAs

The professional organizations of CPAs in the field of Management Accounting are as follows:

 PAMA – Philippine Association of Management Accountants

This organization was established to provide its members with educational and professional activities and
knowledge regarding current practices and methods in management advisory services.

 PIMA – Philippine Institute of Management Accounting

It is the PAMA’s implementing arm to propagate and professionalize Management Accounting in the Philippines.
PIMA directs the Certificate in Management Accounting (CMA) Program.

Specialized Fields or Branches of Accounting

CMO No. 3 series of 2007 provides four (4) major specialized fields of accounting. Namely:

1. Public Accounting
2. Private Accounting
3. Government Accounting
4. Accounting Education

Public Accounting

When accountants offer their professional services to clients for a fee like other professionals (e.g. lawyers, doctors and
engineers) do, they are said to be in public accounting. An accountant who engages in public accounting is not an
employee of a client company.

Examples of public accounting firms include Sycip, Gorres, Velayo and Company (SGV & Co.); Isla Lipan and Company;
Punongbayan and Araullo.

The following are the branches of accounting under this category:

External Auditing primarily centers on the critical examination of financial statements by an independent CPA to express
an opinion regarding the fairness of the contents of the financial statements.

An audit does not cover 100% of accounting records. Instead, the CPA reviews a statistically selected sample of records,
then issues an audit report.

Tax Services deals with the accountant’s preparation of the client’s income tax returns,

Business and transfer taxes. He represents the client in tax assessment and
Investigations conducted by the BIR.

Tax accountants must be constantly familiar with the dynamic tax laws, BIR regulations and local tax laws affecting their
clients to effectively dispense advises regarding tax minimization.

Managerial Advisory Services provides assistance to the management. Accountants generally provide industrial advise to
their clients regarding accounting, finance, budgeting, business policies, and organization procedures, systems, product
costs, distribution and other business activities.

As a requirement, an external auditor should be a licensed CPA, but a tax consultant or a management consultant need
not be a CPA.

Private Accounting

Accountants are said to be in private accounting when they are employed in a private enterprise or in a nonprofit
organization. Large companies divide their accounting staffs into departments according to specialized accounting
functions. The branches of accounting under this category are as follows:

Financial Accounting is primarily concerned with the recording and classifying of business transactions culminating in the
preparation of general-purpose financial

Statements or reports regarding the business’ financial position, operating results and

Cash activities in accordance with the GAAP.

Internal Auditing deals with determining the operational efficiency of the company regarding protection of the
company’s assets, accuracy and reliability of the accounting data, and adherence to prescribed managerial policies. This
process is known as financial internal auditing.

A company may hire internal auditors as employees or outsourced auditors for internal auditing function. They do not
report to an accounting or financial officer because that arrangement would destroy the element of independence
critical to their work. Instead, they report directly to an audit committee of the corporation’s board of directors.

Tax Accounting embraces the preparation of various tax returns and tax planning necessary to minimize the impact of
taxes on the firm. Tax accountants are thus specialists in both tax compliance and tax planning.

Tax compliance means following the many detailed and specific rules of the taxing authorities in preparing tax returns.
The term tax planning refers to the study of the possible tax effects of various proposed financial transactions in order to
minimize taxes and maximize profits.

Cost Accounting has something to do with determining the inventory costs and/or product costs of the manufactured
goods and assisting in product pricing activities of the company. Cost accounting data are generally used by the
management for planning and controlling purposes.

Budgeting covers the efficient management of cash by anticipating or predicting monetary objectives in the future
period.
Accounting Systems Design primarily includes the evaluation of the company’s control system to find out any area of
improvement. It includes the establishment of a computerized accounting system. An accountant who works as a system
analyst also designs the accounting forms and installs accounting procedures for the accumulation of accounting data.

International Accounting encompasses special accounting for international transactions, comparisons of accounting
principles in different countries, and harmonization of diverse accounting standards worldwide and tax requirements of
all the countries in which the company does business. A CPA may work as an international accountant or an
international auditor.

Not-for-Profit Accounting deals with special accounting for charitable organizations, philanthropic foundations, religious
groups, governmental agencies, schools, and cooperatives. Not-for-profit organizations may earn profits, but they do not
distribute the income to owners. The profits are usually left in the organization and used for the benefit of the public
which they serve.

Socio-economic Accounting concerns the measurement of the impact of business or governmental agency’s decision on
the public sector. An accountant who is engaged in social accounting augments his accounting study with courses in
social sciences.

The social accountant makes recommendations on how any funds being spent for the good of the general public can
benefit the greatest number of people. This also includes a specialized study on environmental accounting.

Government Accounting mainly focuses on the proper custody of government funds and their purposes. It is generally
used in accounting for the national government and its political instrumentalities – provinces, cities, municipalities, and
barangays.

Many accountants are employed in several government agencies such as the Bureau of Internal Revenue (BIR),
Commission on Audit (COA), the Department of Finance (DOF), and the Department of Budget and Management (DBM).

Accounting Education involves teaching accounting, taxation, and some business subjects. Accounting educators prepare
the curriculum for accounting education.

Many CPAs are also involved in other businesses or other fields of accountancy profession while working as professors,
researchers and reviewers in various universities, colleges, and review centers.