The Accountancy Profession

Florendo Dauz Jr., CPA, MBA, MSA

Accounting Defined
Accounting is a service activity.
The accounting function is to provide quantitative
information, primarily financial in nature, about economic
entities, that is intended to be useful in making economic
decisions.
- Accounting Standards Council (ASC)
Accounting Defined
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.
- American Institute of Public Accountants (AICPA)
Accounting Defined
Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgment and decision by users of the information
- American Accounting Association (AAA)
The Accountancy Profession
Republic Act 9298 – Philippine Accountancy Act of 2004
A person must finish a degree in Bachelor of Science in Accountancy
(BSA) and pass the CPA Licensure Examination given by the Board of
Accountancy (BOA)
The Board of Accountancy is the body authorized by law to promulgate
rules and regulations affecting the practice of the accountancy in the
Philippines.
Limitations of the practice of public
accountancy
Single practitioners and partnerships for the practice of public
accountancy shall be registered public accountants in the Philippines. A
Corporation cannot be registered as practitioner of a profession.
The Professional Regulation Commission (PRC) upon favorable
recommendation of the Board of Accountancy shall issue Certificate of
Registration to practice public accountancy which shall be valid for
three (3) years and renewable every three (3) years.
The Bureau of Internal Revenue (BIR) shall issue an accreditation as tax
practitioner for three (3) years, provided the CPA is accredited by the
BOA.
The Accountancy Profession
CPAs generally practice their profession in three main areas, namely:
a. Public Accounting
b. Private Accounting
c. Government Accounting

Continuing Professional Education

R.A.10912 otherwise known as the “Continuing Professional Development
(CPD) Act of 2016”, is an act which requires CPD as the mandatory
requirement for the renewal of Professional license like CPA.
The required CPD units for CPS is 120 CPD credit units to do public practice a
profession. Under the new amendment, only 15 CPD credit units is required
to RENEW the PRC license.
Generally Accepted Accounting Principles
GAAP represent rules, procedures, practices and standards followed in
the preparation and presentation of financial statements.
Financial Reporting Standard Council (FRSC)
The accounting standard setting body created by the PRC upon the
recommendation of the Board of Accountancy to assist the BOA in its
powers and functions provided under R.A. 9298.
The approved statements of the FRSC are known as Philippine
Accounting Standards (PAS) and Philippine Financial Reporting
Standards (PFRS).
The Accounting standards promulgated by the FRSC constitute the
generally accepted accounting principles in the Philippines.
Composition of FRSC
The FRSC is composed of 15 members with a chairman who had been or is
presently a senior accounting practitioner and 14 representatives from the
following:
BOA 1
SEC 1
BSP 1
BIR 1
COA 1
FINEX 1
PICPA – ACPAPP 2
PICPA – ACPACI 2
PICPA – ACPAE 2
PICPA – GACPA 2
Conceptual Framework
Florendo Dauz Jr., CPA, MBA, MSA
Conceptual Framework
The conceptual framework for financial reporting, promulgated by the
International Accounting Standards Board (IASB) is a summary of the
terms and concepts that underlie the preparation and presentation of
financial statement for external users.
The Conceptual Framework is intended to guide standard-setters,
preparers and users of financial information in the preparation and
presentation of statements.
Purpose of Revised Conceptual Framework
a. To assist the IASB to develop IRFS bases on consistent concepts
b. To assist preparers of financial statements to develop consistent
accounting policy when no Standard applies to a particular
transaction or other event or where an issue is not yet addressed by
IRFS
c. To assist preparers of financial statements to develop accounting
policy when a Standard allow a choice of an accounting policy.
d. To assist all parties to understand and interpret IFRS Standards.
Users of financial information
a. Primary users
The primary users include the existing and potential investers, lenders
and other creditors
b. Other users
Users of financial information other than the primary users
Scope of Revised Conceptual Framework
a. Objective of financial Reporting
b. Qualitative characteristics of useful financial information
c. Financial statements and reporting entity
d. Elements of financial statements
e. Recognition and derecognition
f. Measurement
g. Presentation and disclosure
h. Concepts of capital and capital maintenance
Objective of financial Reporting
The overall objective of financial reporting is to provide financial
information about the reporting entity that is useful to existing a potential
investors, lenders and other creditors in making decisions about providing
resources to the entity.

Specific objectives of financial reporting

a. To provide information in making decisions about providing resources to
the entity
b. To provide information useful in assessing the cash flow prospects of the
entity
c. To provide information about entity resources, claims and changes in
resources and claims
Limitations of financial Reporting
a. General purpose financial reports do not can cannot provide all of
the information that existing and potential investors, lenders and
other creditors need
b. General purpose financial reports are not designed to show the
value of an entity but the reports provide information to help
primary users estimate the value of the entity
c. General purpose financial reports are intended to provide common
information to users and cannot accommodate every request for
information
d. To a large extent, general purpose financial reports are based on
estimate and judgment rather than exact depiction
Ch.3 Conceptual Framework
– Qualitative Characteristics
Florendo Dauz Jr., CPA, MBA, MSA
Qualitative Characteristics
Qualitative Characteristics are the qualities or attributes that make financial accounting
information useful to users.

Fundamental Qualitative Characteristics

The fundamental qualitative characteristics relate to the content or substance of financial
information. These are:
Relevance
Faithful representation
Enhancing qualitative Characteristics
The enhancing qualitative characteristics relate t the presentation or form of the financial
information.
Comparability
Consistency
Understandability
verifiability
Timeliness
Fundamental Qualitative Characteristics
RELEVANCE is the capacity of the information to influence a decision.
To be relevant, the financial information must be capable of making a
difference in the decision made by users.

Ingredients of Relevance
Predictive Value
Confirmatory Value

Materiality, Factors or Materiality

Fundamental Qualitative Characteristics
FAITHFUL REPRESENTATION means that financial reports represent
economic phenomena or transactions in words and numbers.
Ingredients of Faithful Representation
Completeness
Neutrality
Free from Error

Prudence
Conservatism
Substance over form
Enhancing Qualitative Characteristics
The enhancing qualitative characteristics relate to the presentation and form
of the financial information
The enhancing qualitative characteristic are intended to increase the
usefulness of the financial information that is relevant and faithfully
represented.
Comparability
Consistency
Understandability
Verifiability
Timeliness
Cost constraint on useful information
Ch.4 Conceptual Framework:
Financial Reporting and
Underlying Assumptions
Florendo Dauz Jr., CPA, MBA, MSA
General Objectives of Financial Statements
Financial statements provide information about economic resources of
the reporting entity, claims against the entity and changes in economic
resources and claims.

Financial Statements provide financial information about an entity’s

assets, liabilities, equity, income and expenses useful to users of
financial statements in:
a. Assessing future cash flows to the reporting entity
b. Assessing management stewardship of the entity’s economic
resources.
General Objectives of Financial Statements
The finaicial information is provided in the following:
1. Statement of financial position, by recognizing assets, liabilities and
equity
2. Statement of financial performance, by recognizing income and expenses
3. Other statements and notes by presenting and disclosing information
about:
a. Recognized assets, liabilities, equity, income and expenses
b. Unrecognized assets and liabilities
c. Cash flows
d. Contribution from equity holders and distribution to equity holders
e. Method, assumption and judgment in estimating amount presented.
Reporting Entity
A reporting entity is an entity that is required or chooses to prepare
financial statements.
The reporting entity can be a single entity or a portion of an entity, or
can comprise more than one entity.
A reporting entity is not necessarily a legal entity.

Reporting period
The reporting period is the period when financial statements are
prepared for the general purpose financial reporting.
Interim reporting
End of reporting period (Calendar year, Fiscal year)
Underlying Assumptions
Accounting assumptions are the basic notions or fundamental premises
on which the accounting process is based. Accounting assumptions are
also known as postulates.

The conceptual framework for financial reporting mentions only one

assumption, namely going concern. (explicit assumption)
Going concern
The Implicit assumptions are
Accounting entity,
Time periods, and
Monetary unit
Ch.5 Conceptual Framework:
Elements of Financial
Statements
Florendo Dauz Jr., CPA, MBA, MSA
Elements of Financial Statements
Financial statements portray the financial effects of transactions and other
events by grouping them into broad classes according to their economic
characteristics.
These broad classes are termed the elements of financial statements.
The elements directly related to the measurement of financial position are:
a. Assets
b. Liability
c. Equity
The elements directly related to the measurement of financial performance
are
a. Income
b. Expense
Accounting Elements
Assets - A present economic resource controlled by the entity as a
result of past event.
Liabilities – a present obligation of an entity to transfer an economic
resource as a result of past events.
Income – increase in assets or decreases in liabilities that result in
increase in equity, other than those relating to contributions from
equity holders.
Expenses – decreases in assets or increases in liabilities that result in
decreases in equity, other than those relating to distributions to equity
holders.
 Ch.6 Conceptual Framework:
Recognition and Measurement
Florendo Dauz Jr., CPA, MBA, MSA
Recognition
The process of capturing for inclusion in the financial statements an
item that meets the definition of an asset, liability, equity, income or
expenses
Point of sale recognition
Expense recognition
Cause and effect
systematic and rational allocation
immediate recognition
Derecognition
Measurement
Two categories
Historical Cost
Current cost
Fair Value
Value in use
Fulfillment value for liability
Current Cost
 Conceptual Framework:
Presentation and Disclosure;
Concept of Capital
Florendo Dauz Jr., CPA, MBA, MSA
PRESENTATION AND DISCLOSURE
Effective communication of information in financial statements makes the
information more relevant and contributes to a faithful representation of an
entity’s assets, liabilities, income and expense.
Effective communication of information in financial statements also enhances the
understandability and comparability of information in the financial statements

Classification
Classification is the sorting of assets, liabilities, equity, income and expenses on the
basis of shared or similar characteristics.
Classification of income and expenses
Income and expenses are classified as components of profit or loss and
components of other comprehensive Income.
PRESENTATION AND DISCLOSURE
The revised conceptual framework has introduced the term statement
of financial performance to refer to the statement of profit or loss
together with the statement presenting other comprehensive income.

Aggregation
Aggregation is the adding together of assets, liabilities, equity, oncome
and expenses that have similar or shared characteristics and are
included in the same classification.
CAPITAL MAINTENANCE
The financial performance is determined using two financial approaches,
namely transaction approach and capital maintenance approach.
Financial Capital
Financial capital is the monetary amount of the net assets contributed by
shareholders and the amount of the increase in net assets resulting from
earnings retained by the entity
Financial capital is based on historical cost.
Physical Capital
Physical capital is the quantitative measure of the physical productive
capacity to produce goods and services.
The productive assets is based on current cost. Productive assets include
inventory and PPE.
PAS 1 – Presentation of
Financial Statements
Flrorendo Dauz Jr., CPA, MBA, MSA
FINANCIAL STATEMENTS
Financial statements are the means by which the information are
accumulated and processed in financial accounting is periodically
communicated.
General Purpose financial statements – for common users and not to
specific users.
Components of financial statements
1. Statement of financial position
2. Income statement
3. Statement of comprehensive income
4. Statement of change in equity
5. Statement of cash flows
6. Notes, comprising a summary of significant accounting policies and
other explanatory notes.
Objective of financial statements
The objective of financial statements is to provide information about the
financial position, financial performance and cash flows of an entity that is
useful to a wide range of users in making economic decisions.
Financial statements also show the results of the management’s stewardship
of the resources entrusted to it.
To meet this objectives, financial statements provide informationa bout the
following:
a. Assets
b. Liabilities
c. Equity
d. Income and Expenses, including gains and losses
e. Contributions by and distributions to owners in their capacity as
owners
f. Cash flows
Statement of Financial Position
Presentation of current assets
a. Cash and Cash Equivalents
b. Financial assts at fair value such as trading securities and other investments in
quoted equity instruments
c. Trade and other receivables
d. Inventories
e. Prepaid expenses
Noncurrent Assets
A. PPE
B. Long-term Investments
C. Intangible Assets
D. Deferred tax asset
E. Other noncurrent asset
Statement of Financial Position
Presentation of Current Liabilities
a. Trade and other payables
b. Current provisions
c. Short-term borrowing
d. Current portion of long-term debt
e. Current tax liability
• Discretion to refinance, Covenants, breach of covenants, Grace period
Noncurrent liabilities
a. Noncurrent portion of long-term debt
b. Finance lease liability
c. Deferred tax liability
d. Long-term obligations to company officers
e. Long-term deferred revenue
PAS 2 - Inventories
Florendo Dauz Jr., CPA, MBA, MSA
Inventories
Inventories are assets held for sale in the ordinary course of business, in the
process of production for such sale or in the form of materials or supplies to
be consumed in the production process or in the rendering of services.
Trading Concern:
Merchandise Inventory
Manufacturing concern:
a. Finished goods
b. Goods in process
c. Raw Materials
d. Factory or Manufacturing supplies
Service Provider:
Work in progress
Inventories
Cost Formulas
a. First in, first out (FIFO)
b. Weighted Average

Inventory System
a. Perpetual
b. Periodic
Measurement of inventory
Measured at lower of cost or net realizable value (LCNRV)
PAS 32 Noncurrent Asset
Held for Sale (NCA HFS)
Floendo Dauz Jr., CPA, MBA, MSA
NONCURRENT ASSET HELD FOR SALE
Noncurrent asset is an asset that does not meet the definition of a
current asset.
Noncurrent asset held for sale/ Disposal group
The carrying amount will be recovered principally through a sale
transaction rather than through continuing use.
Condition for classification as held for sale
1. The asset or disposal group is available for immediate sale in the
present condition
2. The sale must be highly probable (Sold within one year from the
date of classification as held for sale)
NONCURRENT ASSET HELD FOR SALE
Measurement of asset held for sale
Lower of carrying amount or fair value less cost of disposal.
Subsequent increase in fair value
An entity shall recognize a gain but not in excess of any impairment loss previously
recognized.
Abandoned noncurrent asset
An entity shall not classify as held for sale a noncurrent asset or disposal group
that is to be abandoned.
Change in classification
If NCA HFS is no longer classified as held for sale, it will be measured at the lower
between:
a. Carrying amount of the asset on the basis that the asset ha not been classified
as held or sale
b. Recoverable amount at he date of the subsequent decision not to sell.
PAS 41 - Agriculture
Florendo Dauz Jr., CPA, MBA, MSA
Definition of terms
Biological Assets are living animals and living plants.
Agricultural produce is the harvested product of an entity’s biological assets.
Harvest is the detachment of produce from a biological asset or the
cessation of a biological asset’s life process.
Agricultural activity is the management by an entity of the biological
transformation and harvest of biological assets for sale or for conversion into
agricultural produce or into additional biological asset.
Biological Transformation comprises the process of
growth
degeneration
procreation
Measurement
Biological assets – initially and subsequently recorded at fair value less
cost of disposal
Agricultural produce – measured at fair value less cost of disposal at
the point of harvest.
Agricultural land – not a biological asset but PPE.
Bearer Plants – treated as PPE (PAS 16)
Ex: Trees that produce fruits or vineyards that bear grapes.
Animals related to recreational activities
Treated as PPE (PAS 16)
Cash & Cash Equivalets
Florendo Dauz Jr., CPA, MBA, MSA
Cash Flow Statement
Provisions, Contingency
Florendo Dauz Jr., CPA, MBA, MSA
PROVISION
An existing liability of uncertain timing or uncertain amount.

Recognition of provision:
a. The entity has a present obligation, legal or constructive, as a result
of a past event.
b. It is probable that an outflow of resources would be required to
settle the obligation
c. The amount of the obligation can be measured reliably.
PROVISION
Measurement of provision:
1. Best Estimate
2. Continuous range of possible outcome: Midpoint
3. Expected Value
Example of Provisions
a. Warranties
b. Environmental contamination
c. Decommissioning or Abandonment costs
d. Court Cases
e. Guarantee
f. Restructuring
CONTINGENT LIABILITY
- A possible obligation
- A present obligation from past event but is NOT PROBABLE

• A liability that is EITHER Probable or Measurable but NOT BOTH.

Treatment:
- Not recognized
- Disclosed in the Notes to financial statements
CONTINGENT ASSET
A contingent asset is a possible asset that arises from past event an
whose existence will be confirmed only by the occurrence or
nonoccurrence of one or more uncertain future events not wholly
within the control of the entity.
Treatment:
Probable & Measurable: Disclosed
Virtually Certain & Measurable: Recognized