ROFESSION 1 and decision by use’THE ACCOUNTANCY PROFESSION QUESTION 1-1 Define accounting. ANSWER 1-1 The Accounting Stendards Council defines accounting as follows: Accounting is a service activity. Its function isto provide quantitative information, primarily financial in nature, about economic entities, that is intended tobe useful in making economic decision. i zs mittee on Accounting Terminology of the American The Com! ublic Accountants defines accounting as Institute of Certified Pi follows: 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. The American Accounting Association in its Statement of Basic Accounting Theory defines accounting as follows: Accounting isthe process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information. - qQUESTION 1-2 What are the three important activity oi e8 in the procese as embodied in the accounting definition es ANSWER 1-2 The accounting definition provides three im| i d s ortal in the accounting process, namely: Petient activities a. Identifying b. Measuring c. Communicating QUESTION 1-3 Explain the identifying process of accounting. ANSWER 1-3 Identifying means the recognition or nonrecognition of “accountable” events. Not all business activities are accountable. An event is accountable or quantifiable when it has an effect on assets, liabilities and equity. In other words, the subject matter of accounting is economic activity or the measurement of economic resources and economic obligations. Only economic activities are emphasized and recognized in financial accounting. Sociological and psychological matters are beyond the province of accounting. QUESTION 1-4 Explain the two classifications of economic transactions or events ANSWER 1-4 Economic. activities of an entity are referred to as transactions which may be classified as external and internal. External transactions or exchange transactions are those economic events involving one entity and another entity. Purchase of merchandise from a supplier, borrowing money from a bank, sale of merchandise to customer and payment of salaries to employees are examples of external transactions. % 7Internal transactions are economic events involving the entit; galy “These are the economic activities that take place entircly within the entity. Production and casualty lose are e: of internal transactions. Production is the process by which resources are transformed into products. Casualty ie any sudden and unanticipated loss from fire, r ly termed as an flood, earthquake and other event ordinaril: act of God or act of nature. man QUESTION 1-5 Explain the measuring process of accounting. ANSWER 1-5 Measuring or measurement is the process of detarmining the moneta sounts at which the elements of the financiai be_recognized and carried in_ ary amounts at wl statements are to! d carried in the balance sheet and income statem If accounting information is to be useful, it must be expressed in terms of a common financial denominator. Financial statements without monetary amounts would be largely unintelligible or incomprehensible. The Philippini is the unit of measuring accountable economic transactions. - The measurement bases are historical cost, current cost realizable value and present value. Historical cost 1s the most_common.. ° ~— » QUESTION 1-6 Explain the communicating process of accounting. ANSWER 1-6 Communicating is the process of preparin: nd distributing. accounting reports to potential users of acco ating information... Identifying and measuring are pointless if the information contained in the accounting records cannot be communicated in some form to potential users, like the investors, owners, managers, creditors and other interested parties. Actually, the one Dvereall is the reason why counting has been the “universal language ¢ of business’. ieQUESTION 1-7 What aspecta of accountin i r _ are communicating process? . included in the ANSWER 1-7 The communicating process includes the following: 1. Recording or journalizing is the proc i Paintaining a@ record of all soonomge eaically 2. Classifying is the Sorting or grouping of similar and iota ned economic transactions or simply Posting to the 3. Summarizing is the preparation of financial statements. QUESTION 1-8 What is the overall objective of accounting? ANSWER 1-8 The ove jective. ing is to provide quantitative financial informatio: overall objective-of accounting n_about a business that is useful to statement users particularly owners ‘s in making economic decisions. The primary task of.an accountant is to supply financial, information so that the statement users could make informed judgment and better decision. . QUESTION 1-9 What do you understand by the accountancy profession? ANSWER 1-9 Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines. This law is known as the ‘Sptatipane Ascountancy Ret of 2008" ancy has developed as a profession attaining a status equivalent to that of law and medicine.In the Philippines, in order to qualify to practice the accountancy profession, a person must finish a degree in Bachelor of Science in Accountancy and pass a very difficult government examination given by the Board of Accountancy. ‘The Board of Accountancy. is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines. QUESTION 1-10 Explain the accreditation to practice public accountancy. ANSWER 1-10 Certified Public Accountants, firms and partnership of certified public accountants, including partners and staff members thereof, are required to register with the Board of Accountancy and Professional Regulation Commission for the practice of public accountancy. The PRC upon favorable recommendation of the Board of Accountancy shall issue the Certificate of Registration to practice public accountancy which shall be valid for 3 years and renewable every 3 years upon payment of required fees. Certified Public Accountants generally practice their profession in three main areas, namely public accounting, private accounting and government accounting. QUESTION 1-11 Explain the limitation of the practice of publi i-countancy. ANSWER 1-11 A certificate of accreditation shall be issued to certified public accountants in public practice only upon showing in accordance with rules and regulations promulgated by the Board of Accountancy and approved by the Professional Regulation Commission that such registrant has acquired a minimum of three years of meaningful experience in any of the areas of public practice including taxation. ySingle practitioners an; rabips for the practice o ii Public public accountancy shall be registered certified ippines, accountants in the The Securities and Exchange Commission shall not Yegiste, aceruccrPoration organized for the practice of Public accountancy, QUESTION 1-12 What is public accounting? ANSWER 1-12 Public accounting, in essence, is the practice of the accountancy Profession. Individual Practitioners, small accounting firms and la e multinational organizations render independent and expert ancial services to the public such as auditing, and ment advisory services, . QUESTION 1-18. Explain the three kinds of services rendered by a Public accountant. . : ANSWER 1-13 L auditing has traditionally been the primary service offered most public accounting practitioners. Auditing or specificall external auditing is the “examination o financia statements by independent certified public accountant for the purpose of expressin; h Which the fin an opinion as to the fairness wit) ancia statements are Prepared”. 2. Taxation ice includes the Preparation of annual income tax returns and determination of tax consequences of certain Proposed business endeavors, a The CPA not infrequently represents the client in ¢ax investigations. §. 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,er QUESTION 1-14 Explain private accounting. ANSWER 1-14 Private accounting means that Certified Public Accountants are employed in business entities in various capacity as accounting staff, chief accountent, internal auditor and controller. The highest accounting officer in a business entity is the controller. . The major objective of the private accountant is to assist management in planning and controlling the operations of the entity. Private accounting includes maintaining the records, producing the financial reports, preparing the budgets and controlling and allocating the costs of the business. The private accountant has also the responsibility for the determination of the various taxes the business is obliged to pay. QUESTION 1-15 . Explain government accounting. ANSWER 1-15 Government accounting encompasses the process of analyzing classifying, summarizing and communicating all transactivis involving the receipt and disposition of g. vernment funds and property and interpreting the results thereof. The focus of government accounting is the custody and administration of public funds. Many Certified Public Accountants are employed in ruany branches v° the government, more particularly the Bureau of Internal Revenue, Commission on Audit, Department of Budyc and Management, Securities ard })xchange Commission and even in a police agency like the National Bureau of Investigtion 7QUESTION 1-16 What do you understand by the Continuing Professi Education or CPE? a repens Ssotpasional ANSWER 1-16 All certified public accountants shall abide by the requirements, rules and regulations on continuing professional education to be promulgated by the Board of Accountancy, subject to the aprroval of the Professional Regulation Commission, in coordination with the accredited national professional organization of certified public accountants or any duly d educational institution. Continuing professional education refers to the inculcation, assimilation and acquisition of knowledge, skill, proficiency, and ethical and moral values after the initial registration of the Certified Public Accountant. Continuing professional education raises and enhances the’ technical skill and competence of the Certified Public untant. QUESTION 1-17 What is the meaning of CPE credit units? ANSWER 1-17 © The CPE credit units refer to the CPE credit hours required for the renewal of CPA license and accreditation of a CPA to practice the accountancy profession every-three years. - + total CPE credit units shall be 60 credit units for three $ars provided that a minimum of 15 credit units shall be earned each year. Any excess credit units in one year may be carried over to the succeeding years within the three-year period. Excess credit units earned shall not be carried over to the next three-year period, except creditmits earned for masteral and doctoral degrees. . 7 a to be emphasized that the Continuing Professional ucation has become mandatory for Certified Public untants. The Continuing Professional ion i: i the renewal of CPA license and ne neditation SEGEA TY : ditati t Practice the accountancy profession 1 MOP Of CPA toQUESTION 1-8 What are the exemptions from CPE? i ANSWER 1-18 \ A CPA shall be permanently exempted from CPE requirements upon reaching the age of 66 years. However, this exemption applied only to the renewal of CPA license and not for ihe purpose of accreditation to practice the accountancy profession. : ACPA who is working or practicing the profession or furthering studies abroad shall be temporarily exe mpted from compliance with the CPE requirement during the period of stay abroad, provided the CPA has been out of the country for ast two years immediately prior to the date of renewal. QUESTION 1-19 Distinguish accounting and auditing. ANSWER 1-19 In a broad sense, accounting embraces auditing. Auditing is one of the areas of accounting specialization. In a limited sense, accounting is essentially constructive in nature. Accounting ceases when financial statements are already prepared. ‘te. On the other hand, auditing is analytical. The work of an auditor begins when the work of the accountant ends. QUESTION 1-20 Distinguish accounting and bookkeeping. ANSWER 1-20 Bookkeeping is procedural and largely concerned with ment and maintenance of accounting records. Bookkeeping is the “how” of accounting. Accounting is conceptual and is concerned with the why, reason or justification for any action adopted. . . 4 Bookkeeping is a procedural element of accounting as tic is a procedural element of mathematics. 4 , 8 % ~~QUESTION 1-21 Distinguish financial accounting and managerial accounting ANSWER 1.21 Financial accounti is primarily concerned with the Tecordin, of business transactions nd the eventual Preparation a statements. Financial acco unting focuses on general Purpose reports known, 8s financial statements, These financial statements arg intended for internal and external users. Financial accouhting is the area of accounting that emphasizes reporting to creditors and investors. ' Managerial Occounting is the accumulation and preparation of financial reports for internal users only. In other words, managerial accounting is the area of accounti at emphasizes developing accounting information for use within an entity. QUESTION 1-22 What is the meaning of generally accepted accounting principles? ANSWER 1-22 Generally accepted accounting principles (GAAP) encompass the conventions, rules and Procedures necessary to define what is accepted accounting practice, Generally accepted accounting Principles are conventional. The principles become generally accepted by agreement often tacit agreement rather than by formal derivation from a set of postulates and basic concepts. The principles have developed on the basis of experience, reason, custom, usage and practical Necessity, + Simply stated, enerally accepted accounting Principles represent the “rules, procedures, practice and standards followed in the preparation and Presentation of financial statements.” Generally accepted accountin, @ principles are like laws that must be followed in financia| . 1 reporting.QUESTION 1-23 What is the purpose of accounting standards? ANSWER 1-23 The overall purpose of accounting stand proper accounting practices for the _ presentation of financial statements. Accounting standards create a common understanding between preparers and users of financial statements particularly the measurement of assets and liabilities. A set of high-quality accounting standards is a necessity to ensure comparability and uniformity in financial statements based on the same financial information. QUESTION 1-24 ‘What do you understand by the Financial Reporting Standards Council or, FRSC? “S.ANSWER 1-24 In the Philippines, the development of generally accepted accounting principles is formalized initially through the creation of the Accounting Standards Council or ASC. The FRSC now replaces the ASC. The FRSC is the accounting standard setting body created by the Professional Regulation Commission upon recommendation of the Board. of Accountancy to assist the Board of Accountancy in carrying out its powers and functions provided under R.A. Act No. 9298. The main function is to establish and improve accounting standards that will be generally accepted in the Philippines. ards is to identify preparation and The accounting standards promulgated by the Financial Reporting Standards Council constitute the “hi;hest here accepted accounting principles The approved statements of the FRSC are known as J Accounting Standards or PAS and Philippine Financial Reporting Standards or PFRS.QUESTION 1-25 What is the composition of FRSC? ANSWER 1-25 The FRSC is composed of 15 with a Chairman who had bee, or is presently a senior accounting practitioner and }4 representatives from the following: . Board of Accountancy ties and Exchange Commission Bangko Sentral ng Pilipinas Bureau of Internal Revenue mmission on Audit Major organization of preparers and users of id financial statements — Financial Executives Institute of the Philippines or FINEX ited national professional organization of CPAs: Public Practice Commerce and Industry Academe or Education Tnment Total - eperererey IT Ino 0920 v0 The Chairman and members of the FRSC shall have a term of 3 years renewable for another term. Any member of the ASC shall not be disqualified from being appointed to the FRSC. QUESTION 1-26 Whet do you understand by the Philippine Interpretations Committee? ANSWER 1-26 The Philippine Interpretations Committee or PIC has replaced the Interpretations Committee or IC formed by the Accounting Standards Council. The role of the PIC is: a. To a interpretations of PFRS for approval by the b. To provide timely guidance on financial reporting issues not specifically addressed in current PERS.ln other words, interpretations are intended to give ‘authoritative guidance” on issucs that are likely to reeeive divergent or unacceptable treatment because the standards do not provide specific and clearcut rules and guidelines. The counterpart of the PIC in the United Kingdom is the International Financial Reporting Interpretations Committee or IFRIC which has already replaced the Standing Interpretations Committee or SIC. QUESTION 1-27 : What do you understand by the International Accounting Standards Committee (IASC)? . ANSWER 1-27 The IASC is an independent private sector body, with the objective of achieving uniformity in the accounting principles which are used by business and other organizations for financial reporting around the world. It was formed in June 1973 through an agreement made by "ete, 7 : “tee professional accountancy bodies from Australia, Canada, ance, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of America. QUESTION 1-28 What are the objectives of the International Accounting Standards Committee? ANSWER 1-28 a. To formulate and publish in the public interest accounting standards to be‘ observed in the presentation of financial statements and to promote their worldwide acceptance and observance. b. To work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to thé presentation of financial statements. The approved statements of the IASC are known as Istersational Accounting Standards or IAS.QUESTION 1-29 the factors considered by the Philippines in deciding What are totally to internaticnal accounting standards? ANSWER 1-29 . Si rt of international accounting standards Philippine * organizations, such as the Philippine SEC, Board of Accountancy and PICPA. b. Increasing internalization of business which has heightened interest in a common language for financial reporting. c. Improvement of international accounting standards — Removal of free choices of accounting treatments. Increasing recognition of international accounting standards the World Bank, Asian Development Bank and World Trade ization. QUESTION 1-30 What do you understand by the International Accounting Standards Board? . ANSWER 1-30 The International Accounting Standards Board or IASB now replaces the International Accounting Standards Committee or . : The LASB Publishes standards in a series of pronouncements sailed “International Financial Reporting Standards” or a. However, the IASB has dopted the i by rants as adop’ e body of standards issued The pronouncements of the IASC contir to i as “{nternatene Accounting Standards” or eke designated The IFRS is a global Phenomenon intended to bri ater trans ne 7 ring about eae i paren 7 and a higher degree of comparability - Such phenomenon is essential to achi chieve the goal of one 7 Po at and globally accepted financial reportingQUESTION 1-81 What do you understand by the “Philippine Financial Reporting Standards"? ANSWER 1-31 The Financial Reporting Standards Council issues standards in a series of pronouncements called “Philippine Financial Reporting Standards” or PFRS. The Philippine Financial Reporting Standards collectively include all of the following: a Philippine Financial Reporting Standards which correspond to International Financial Reporting Standards. The Philippine Financial Reporting Standards are numbered the same as their counterpart in Internatioinal Financial Reporting Standards. : . b. Philippine Accounting Standards which correspond to International Accounting Standards. The Philippine Accounting Standards are numbered the / 5 FI 7 same as their counterpart in International Accounting ‘}, Standards. Philippine Interpretations which correspond to Interpretations of the IFRIC and the Standing Interprfetations Committee, and Interpretations developed by the Philippine Interpretations Committee. %