Page 1 of 7 | FAR Handouts No.

01

INTRODUCTION TO ACCOUNTANCY PROFESSION

& PREFACE TO PFRS
KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION &

PREFACE TO PFRS
KARIM G. ABITAGO, CPA

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The Accountancy Profession
Definition of Accounting
Accounting was defined in various ways by various organizations. Those definitions are as follows:

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(a) Accounting Standards Council (ASC) former standard setting of the PH
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 decision.

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(b) Committee on Accounting Terminology of the American Institute of Certified Public Accountants (CAT of
AICPA) international counterpart of PICPA
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.
(c) American Accounting Association (AAA)

Note: Based from these definitions we can say that:

1. Accounting is a user-based discipline.
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Accounting is the process of identifying, measuring and communicating economic information to permit informed
judgment and decision by users of the information.
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2. Accounting is quantitative in nature. main output: financial statements
3. Accounting is subject to interpretation. accountable events: events or transactions
that has an impact to the entity's assets,
The definition that has stood the test of time is the definition given by AAA. liabilities or equity.
The definition stated three (3) important aspects or components of the accounting process.
(1) Identifying process (Analytical Component) recognition process/journalize
It is the process of analyzing events and transactions to determine whether or not they will be recognized. Always
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remember that only accountable events are recognized (i.e. journalized). On the other hand non-accountable events
are not recognized but disclosed in the notes to financial statements if they have accounting relevance.
Types of events and transactions
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a) External Events – are transactions involving the entity and another entity.
a.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.
a.2) Non-reciprocal transfer – is a one way transaction wherein the entity giving does not receive anything in
return. Examples: donation or gifts, payments of taxes and fines, theft, provision of capital.
a.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
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obligations. Examples: changes in fair value, vandalism, obsolescence.

b) Internal events – are events that do not involve outside party or event.
b.1) Production
need manmade para consider na external, pag non manmade (typhoon, etc.) internal.
b.2) Casualty
(2) Measuring process (Technical Component)
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.

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KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

(3) Communicating process (Formal Component)

It is the process of preparing and distributing accounting reports to potential users of accounting information. Implicit
in the communication process are the recording, classifying and summarizing aspects of accounting.
• Recording or journalizing is the process of systematically maintaining a record of all economic business
transactions after they have been identified and measured.
• Classifying is the sorting or grouping of similar and interrelated economic transactions into their respective
class. Actually, classifying is accomplished by posting to the ledger.
• Summarizing is the preparation of financial statements which include the statement of financial position, income
statement, statement of comprehensive income, statement of cash flows and statement of changes in equity.

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The Accountancy Law
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".

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The Professional Regulatory Board of Accountancy (PR-BOA) is the body authorized by law to promulgate the rules
and regulations.
The Accountancy Fields

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Under RA 9298, the practice of accountancy is sub-classified into four (4) sectors:
(1) Practice in Public Accountancy – involves rendering of accounting and auditing services to one or more client on a
fee basis.
Services rendered:
(a) Auditing has traditionally been the primary service offered by most public accounting practitioners. Auditing or

(b)
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specifically external auditing is the "examination of financial statements by independent certified public
accountant for the purpose of expressing an opinion as to the fairness with which the financial statements are
prepared". This represents the “ATTEST FUNCTION” of CPAs.
Taxation service includes the preparation of annual income tax returns and determination of tax consequences
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of certain proposed business endeavors. The CPA not infrequently represents the client in tax investigations.
(c) Management advisory service has no precise coverage. Generally, this refers to services to clients on matters
of accounting, finance, business policies, organization procedures, product costs, distribution and many other
phases of business conduct and operations.
Limitations:
(a) Certificate of Accreditation
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• Requires three (3) year meaningful experience.

• CPD requirements because corporations have limited liability
(b) No corporation form is allowed to be registered for the practice of public accountancy.
(2) Practice in Commerce and Industry – also known as private accounting. This refers to employment in the private
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sector in a position which involves decision making requiring professional knowledge in the science of accounting.
The highest accounting officer in a business entity is the controller. chief accountant
(3) Practice in Education or Academe – employment in an education institution which involves teaching of accounting,
auditing, MAS, law, taxation, finance and other related subjects.
(4) Practice in the Government – 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.
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Note: Generally speaking, practicing under numbers 2-4 above are considered in private practice.

Preface to PFRS
The Philippine Financial Reporting Standards (PFRSs)

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 Page 3 of 7 | FAR Handouts No. 01

KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

(a) What are IFRS/ PFRS/ GAAP?

Are the laws in accounting, used as a guide in the preparation of financial statements. PFRSs are guiding principles
rather than law, technically speaking. Meaning, PFRSs are principle-based rather than rule based.
PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and
events that are important in general purpose financial statements.
(b) Scope of PFRS
PFRSs apply to all profit-oriented entities preparing general purpose financial statements. These financial statements
are directed towards the common information needs of a wide range of users.

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(c) Structure of PFRS
Standards approved by FRSC include paragraphs in bold type and plain type, which have equal authority. Paragraphs

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in bold type indicate the main principles while paragraphs in plain type indicate supporting principles.
Any limitation of the scope of PFRS is made clear in the standard.
Standard Setting

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(a) Standard Setting Bodies
The current standard setting body in the Philippines is the Financial Reporting Standards Council (FRSC) while the
current standard setting body internationally is the International Accounting Standards Board (IASB). FRSC is the
successor of Accounting Standards Council (ASC). To fully understand these bodies, let us differentiate them.

(a) Setting
(b) Successor of
FRSC
Local
ASC
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Table 1.1 (FRSC vs. IASB)
IASB
International
IASC
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(c) Pronoucement PFRS IFRS
(d) Creator BOA (2006) IFRS Foundation (2001)

Table 1.2 (FRSC vs. ASC)

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FRSC ASC
(a) Creator BOA (2006) PICPA (1981)
(b) Pronouncement PFRS PAS
(c) Composition Chairman + 15 members 8 members including chairman
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COA 1 -
BOA 1 1
SEC 1 1
BSP 1 1
BIR 1 -
Insurance Commission* 1 -
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Major Org. of FS Preparers

1 1
and Users (FINEX)
PICPA (APO) 8 4
2 per sector 1 per sector
15 8

* Due to the issuance of PR-BOA Resolution No. 29, the membership in FRSC was increased from fifteen (15)
to sixteen (16) members to include a representative from the insurance commission.

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 Page 4 of 7 | FAR Handouts No. 01

KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

The pronouncements of FRSC are called PFRS, collectively known as:

(a) PFRS – corresponding to IFRS
(b) PAS – corresponding to IAS
(c) Philippine Interpretations – corresponding to interpretations issued by IFRIC and SIC of IASC and
interpretations issued by PIC.
Note: 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.
(b) FRSC’s appointment and term of office

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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. Any member of ASC is not disqualified from
being appointed to FRSC.

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FRSC members are required to render service to the council on a part-time basis without compensation.
The chairman should be a senior practitioner in any scope of accounting practice.

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(c) The Standard Setting Process (Due Process)
PFRSs are developed through a due process that involves accountants and various interested parties and individuals.
Due process normally involves the following steps.
STEP 1: Consideration of pronouncements of the IASB.
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STEP 2: Formation of a task force, when deemed necessary, to give advice to FRSC.
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
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comment letter to the IASB.
STEP 5: Approval of a standard or an interpretation by a majority of the FRSC members.
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Page 5 of 7 | FAR Handouts No. 01

KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

DISCUSSION EXERCISES
1. Accounting has been given various definitions, which of the following is not one of those definitions?
A. 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.
B. 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 of at least, of a financial character and interpreting the results thereof.
auditing C. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of correspondence between these assertions and
established criteria and communicating the results to interested users.

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D. Accounting is the process of identifying, measuring, and communicating economic information to permit
informed judgment and decisions by users of information.
2. Consider the following statements:

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S1: Identifying is the process of analyzing events and transactions to determine whether or not they will be
recognized. Only accountable events are recognized.
S2: All transfers (whether reciprocal or non-reciprocal) are external events but not all external events are transfers.
technical S3: Measuring, a formal component of the accounting process, is the process of assigning peso amounts to the

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component accountable events.
A. True, false, false D. False, false, true
B. False, true, true E. True, true, true
C. True, true, false
3. What is the overall objective of accounting?
A.
B.
C.
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To measure the periodic income of the economic entity.
To provide information that the creditors can use in deciding whether to grant loans to an entity.
To provide the information that the managers of an economic entity need to control the operations.
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D. To provide quantitative financial information about an entity that is useful in making economic decision
4. Which of the following is considered to be an external event other than transfers?
I. Theft non reciprocal transfer III. Change in market value of assets
II. Vandalism
A. I and II D. I, II and III
B. II and III E. Answer not given
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C. I and III
5. One of the basic features of financial accounting is
A. Direct measurement of economic resources and obligations and changes in them in terms of money.
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B. Direct measurement of economic resources and obligations and changes in them in terms of money and
sociological impact.
C. Direct measurement of economic resources and obligations and changes in them in terms of money and
psychological impact.
D. Direct measurement of economic resources and obligations and changes in them in terms of money and
sociological and psychological impact.
9298
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6. S1: The law regulating the practice of accountancy in the Philippines is RA 9289 or the Philippine Accountancy Act
of 2004.
S2: A corporation can be registered for the purpose of practicing public accounting profession in the Philippines
S3: Continuing Professional Education is required for both renewal of CPA license and accreditation to practice the
accountancy profession
A. True, true, false D. False, false, false
B. False, false, true E. True, false, true
C. True, false, false
7. Determine whether the following statements are true or false:

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KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

I. Independent external auditors perform attest function.

II. If a CPA wants to practice public accountancy, one must obtain first certificate of recognition from the board of
accountancy. certificate of accreditation
A. True, false C. False, false
B. False, true D. True, true
8. Determine whether the following statements are true or false:
I. PFRS sets out recognition, measurement, presentation and disclosure requirements for a specific account or
transaction. PIC
II. Interpretations are authoritative guidelines set by FRSC.

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A. Only I is true C. Both I and II are true
B. Only II is true D. Both I and II are false

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9. S1: PFRSs apply to all profit-oriented entities whether owned by private individuals or the government.
S2: Standards approved by FRSC include paragraphs in bold type and plain type, the former having greater
authority than the latter since it indicate the main principles. both have equal authority
Which of the above statements is incorrect?

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A. S1 only C. Both statements
B. S2 only D. None from the statements
10. PFRS does not apply to which of the following?
I. Financial statements prepared by a non-profit organization.
II.
III.
A.
B.
I and II
II and III
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Special purpose reports prepared by a profit-oriented entity.
General purpose reports prepared by a GOCC, profit-oriented.
D.
E.
I, II and III
Answer not given
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C. I and III
11. Arrange in proper order the due process for projects of FRSC:
I. 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.
II. Consideration of pronouncements of the IASB.
III. Formation of a task force, when deemed necessary, to give advice to FRSC.
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IV. Approval of a standard or an interpretation by a majority of the FRSC members.

V. Consideration of all comments received within the comment period and, when appropriate, preparing a
comment letter to the IASB.
A. I, II, III, IV and V C. II, III, I, V and IV
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B. III, II, I, V and IV D. II, III, V, I and IV

12. Determine whether the following statements are true or false:
Statement 1: FRSC members are appointed by PRC with a term of 3 years renewable for another 3 years.
Statement 2: PIC members are appointed by PRC. FRSC
Statement 3: All sectors of the accountancy profession are represented in FRSC but majority of which came from
Public Practice
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Statement 4: FRSC members render services on a part-time basis and receive financial support from the Bangko
Sentral ng Pilipinas.
A. True, false, false, false C. True, false, false, true
B. True, true, false, false D. True, true, true, true

13. Which of the following statement(s) is(are) incorrect about the Financial Reporting Standards Council (FRSC)

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KARIM G. ABITAGO, CPA

INTRODUCTION TO ACCOUNTANCY PROFESSION
& PREFACE TO PFRS

I. FRSC is responsible for establishing generally accepted accounting principles in the Philippines.
II. FRSC members should be CPAs. not required
III. The Chairman of FRSC will establish a task force when deems it appropriate to assist in identifying problems
and issues with respect to a project on the Council's agenda.
IV. The Chairman and members of the FRSC shall have a term of 2 years renewable for another term 3 years
A. I and III only C. I, II and III only
B. II and IV only D. I, III and IV only
14. Regarding FRSC and its members, determine which of the statements below is true:
A. All FRSC members should be CPAs.

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B. FRSC members work on a full time basis with a salary coming from the national government.
C. The chairman should be a senior practitioner in public practice.
D. All accountancy sectors are equally represented in FRSC by representatives coming from PICPA.

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E. None of the above
15. The process of establishing financial accounting standards
A. Is a democratic process in that majority of practicing accountants must agree with a standard before it becomes

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implemented.
B. Is a legislative process based on rules promulgated by government agencies.
C. Is based solely on economic analysis of the effects each standard will have if implemented.
D. Is a social process which it incorporates political actions of various interested user groups as well as
professional research and logic.
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