FAR 01.

INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO PFRS

TOPIC OUTLINE
PART 1: Introduction to Accountancy Profession
1. Definition of Accounting
2. The Accountancy Law
3. Field in Accountancy
PART 2: Preface to PFRS
1. PFRS
2. Standard Setting

PART 1: Introduction to Accountancy Profession

DEFINITION OF ACCOUNTING
1. Accounting Standards Council (ASC)
 The former standard setting body of the Philippines.
 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.
 Accounting is a professional or a service activity, provided by a certain person. Accountant provide
information to the users of its reports that’ll be used in making economic decisions. Form of
distribution of reports primarily quantitative in nature.
2. Committee on Accounting Terminology of the American Institute of Certified Public Accountants
(CAT of AICPA)
 AICPA is the international counterpart of PICPA, recognized organization of professional accountants in
the Philippines.
 Accounting 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.
 Gives financial information so the user can interpret the result. CAT of AICPA thought of all the financial
information as an artwork and a masterpiece.
3. American Accounting Association (AAA)
 Accounting is the process of identifying, measuring and communicating economic information to
permit informed judgment and decision by users of the information.
 Accounting is a discipline whereas it follows a certain procedure or certain process to come up with a
report to be provided to its user wherein later on the user will use the report in making economic decision.

KEY TAKE-AWAYS FROM THE DEFINITIONS

 Accounting is a user-based discipline.
o The boss of the accountants will be the users of its reports.
 Information provided are contained to what is called Financial Statements, the main output.
 Accounting is quantitative in nature.
 Accounting is subject to interpretations.
o Different interpretation by different users since the financial information is considered abstract.

The definition that has stood the test of time is the definition given by AAA. The best definition currently is the
definition provided by AAA.
o The definition stated three (3) important aspects or components of the accounting process.

1. Identifying process (Analytical Component)

o It is the process of analyzing events and transactions to determine whether or not they will be
recognized.
o Recognition process, somehow synonymous to journalize. Identifying process is the stage or the
component wherein the accountant will determine which will be recorded or not. This is the
analytical aspect of accounting because you need to carefully analyzed what should be recorded
and ignored.
FAR 01. INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO PFRS

o ONLY accountable events are recognized (i.e. journalized). Accountable events are defined as
events or transactions that has an impact on the entity’s assets, liabilities and equities. If the
transactions has no impact, then it should be classified as non-accountable, thus not recognized.
o Non-accountable events are only disclosed in the notes to Financial Statements if they are
relevant. If it is irrelevant, then ignore.
TYPES OF ACCOUNTABLE EVENTS
o EXTERNAL EVENTS
 These are transactions involving the entity and another entity.
1. Exchange – an event wherein there is a reciprocal giving and receiving of economic
resources or extinguishment of obligations.
EXAMPLES: sale, purchase, payment of liabilities
2. Non-reciprocal transfer – is a one-way transaction wherein the entity giving does no receive
anything in return.
EXAMPLES: donation or gifts, payments of taxes and fines, theft
3. External event other than transfer – an event that changes an entity’s economic resources
or obligations caused by an external party or event but does not involve transfer of resources
or obligations.
EXAMPLES: changes in fair value, vandalism, obsolescence
o INTERNAL EVENTS
 These are events that do not involve outside party or event.
1. Production – produce finished goods or finished products
2. Casualty – not man-made transaction thus it is considered as internal events.

2. Measuring process (Technical Component)

o It is the process of determining the monetary amounts at which the elements of the financial
statements are to be recognized and carried in the balance sheet and income statement. Simply
stated, it is the process of assigning amounts to items the entity recognized.
o Measuring process is the stage where you will assign amounts to be record for the item. It should
have a technical basis, standards or source document to come up to a certain amount.

3. Communicating Process (Formal Component)

o It is the process of preparing and distributing accounting reports to potential users of accounting
information.
o Stage wherein the accountant prepare and distribute the report to the user of accounting
information. It should be presented in formal manner.

THE ACCOUNTANCY LAW

o Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines. This law is
known as the “Philippine Accountancy Act of 2004”.
o The Professional Regulatory Board of Accountancy (PR-BOA) is the body authorized by law to
promulgate the rules and regulations.

THE ACCOUNTANCY FIELDS

o Under RA 9298, the practice of accountancy is sub-classified into four (4) sectors:

1. Practice in Public Accountancy

o It involves rendering of accounting and auditing services to one or more client on a fee basis.
o SERVICES RENDERED: Auditing, Taxation Services and Management Advisory Services
o Auditing – unique attest function, giving statement related to the statement given by the others.
o Taxation Services – compliance and tax planning. Compliance is the preparation of the tax return.
Tax planning is a service provided by the practitioner to determine the tax liabilities of the
company to be settled in the future, reduce taxes legally – tax avoidance, right way.
o Management Advisory Services – no precise coverage. Goal: help the client on it problem, could
be anything.
FAR 01. INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO PFRS

o LIMITATIONS: Certificate of Accreditation, No Corporation Form

o Certificate of Accreditation issued by board of accountancy
 Requires three years of meaningful experience and certain CPD units
o No Corporation Form is allowed to be registered for the practice of public accountancy. Allowed:
Sole proprietorship and Partnership. Corporation has its limited liability, public practitioner for
public interest.

2. Practice in Commerce and Industry

o This refers to employment in the private sector in a position which involves decision making requiring
professional knowledge in the science of accounting.
o SERVICES RENDERED: The highest accounting officer in a business entity is the controller. CHIEF
ACCOUNTANT

3. Practice in Education or Academe

o This refers to employment in an education institution which involves teaching of accounting, auditing,
MAS, law, taxation, finance and other related subjects.

4. Practice in the Government

o This refers to employment or appointment to a position in an accounting professional group in the
government or GOCC which involves decision making requiring professional knowledge in the science of
accounting or where civil service eligibility as a CPA is a pre-requisite.

PART 2: PREFACE TO PFRS

PHILIPPINE FINANCIAL REPORTING STANDARDS
o PFRSs are the laws in accounting, used as a guide in the preparation of financial statements.
o By nature, it is not a law but a principle and guide.
o PFRSs are principle-based rather than rule based.
o Follow as much as possible, don’t follow if and only if it will not provide reliable information.
o PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with
transactions and events that are important in general purpose financial statements.
 Conceptual Framework – general concepts, follow if there is no specific principles.
 PFRS – specific principles for specific items.

o SCOPE OF PFRS
o PFRSs apply to all profit-oriented entities preparing general purpose financial statements. It is
regardless of ownership, for as long as it is profit-oriented it is within the scope of application of
PFRS. Profit-oriented prepares two financial statements.
 Special Purpose – for internal reporting
 General Purpose – for external reporting (PFRS), financial statements that are directed
toward the common information needs of a wide range user.
o These financial statements are directed towards the common information needs of a wide range of
users.

STRUCTURE OF PFRS
1. Title
2. Objective
3. Scope
Any limitation of the scope of PFRS is made clear in the standard.
4. Paragraphs
o Bold Type – Paragraphs in bold type indicate the main principles.
o Plain Type – Paragraphs in plain type indicate supporting principles.
BOTH PARAGRAPHS HAVE EQUAL AUTHORITY

STANDARD SETTING BODIES

FAR 01. INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO PFRS

FRSC – Financial Reporting Standard Council

IASB – International Accounting Standard Board.

AREAS OF COMPARISON FRSC IASB

SETTING Local – within the Philippines. International – global phenomenon,
purpose is to promote uniform
accounting standard across the
board.
SUCCESSOR OF ASC – Previous standard setting IASC – International Accounting
body of the Philippines. Standard Council
PRONOUNCEMENT PFRS IFRS
CREATOR BOA (2006) IFRS Foundation (2001)

PFRS is collectively known as PFRS, PAS, and Philippine Interpretation

PFRS supersede PAS
Interpretations are issued to give authoritative guidance on issues that are likely to receive divergent or unacceptable
treatment, in the absence of such guidance. Philippine Interpretations Committee (PIC) is created by FRSC.
Transactions not specifically addressed by PFRS. Guidance has the same authority as PFRS and PAS. Set by
Philippine Interpretation Committee which was created by FRSC.

AREAS OF COMPARISON FRSC ASC

CREATOR BOA (2006) PICPA (1981)
PRONOUNCEMENT PFRS PAS
COMPOSITION Chairman + 14 Members 8 members including chairman
COA 1 -
BOA 1 1
SEC 1 1
BSP 1 1
BIR 1 -
Major Organization of FS Prep 1 1
(FINEX)
PICPA 8 4
(2 per sector) (1 per sector)
NOTES:
o The chairman and all the members of FRSC are appointed by PRC upon recommendation of BOA in
coordination with APO, with a term of 3 years and are renewable for another term.
o Any member of ASC is not disqualified from being appointed to FRSC.
o FRSC members are required to render service to the council on a part-time basis without compensation.
o The chairman should be a senior practitioner in any scope of accounting practice.

STANDARD SETTING PROCESS

PFRSs are developed through a due process that involves accountants and various interested parties and individuals.
The standard-setting process is a social process.
STEP 1: Consideration of pronouncement of the IASB
STEP 2: Formation of a task force, when deemed necessary, to give advice to FRSC.
FAR 01. INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO PFRS

STEP 3: Issuing for comment an exposure draft approved by a majority of the FRSC members.
Comment period will be at least 60 days, unless a shorter period (not less than 30 days) is
considered appropriate by the FRSC.
STEP 4: Consideration of all comments received within the comment period and, when appropriate,
preparing a comment letter to the IASB.
STEP 5: Approval of a standard or an interpretation by a majority of the FRSC members.
(8 members considered majority)