INTRODUCTION ‘The word account in everyday language is often used as a substitute for an explanation OF 2 report of certain actions or events. if you are an employee, for example, you may have to explain to your employer just how you have been spending your time, or # you are @ manager, you may have to report to the owner on how the business i doing in order to explain or to report, you, of course, have to remember what you were doing or what happened. As it is not always easy to remember, you many need to keep some written record. In effect, such records can be said to form the basis of 2 rudimentary accounting (or reporting) system. Accounting has evolved, as in the case of medicine and law, in response to the social and economic needs of society. As business and society become more complex, accounting develops new concepts and techniques to meet the ever-increasing needs for financial information. Without such information, many complex economic developments and social programs may never have been undertaken. In a market economy, information helps decision-makers make informed choices regarding the allocation of scarce resources under their control. When decision-makers are able to make well-informed decisions, resources are allocated in 2 way that better meets the needs and goals of those within the market. Accounting is relevant in all walks of life, and it is absolutely essential in the world of business. Accounting is the system that measures business activities, processes that information into reports and communicates the results to decision-makers. For this reason, accounting is called the language of business. The task of learning accounting is very similar to the task of learning 2 new language. it is complicated by the fact that many words used in accounting mean almost but not quite the same thing as the identical words mean in everyday, non-accounting usage. Some words in accounting are really used in a different sense.of business. Without accoun ; pel “function optimally; it wouldn’t know whether it’s making a profit, and if + its financial situation, Also, a sound understanding of this language will bring ab tt ifinegerpantiof the financial ase a living. Personal financial planning, ¢ q 1, business loans, income t; better paeesine scouting ‘axes and investments are DEFINITIONS OF ACCOUNTING Accounting-is.a ee Its function is to provide quantitative infor n, ‘primarily financial)in nature, about economic entities that is intended to be usefulin making economic decisions (Statement of Financial Accounting Standards No. 1, “Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises” (Manila: Accounting Standards Council, 1983), par. 1). ‘count financial information about an economic entity (Statement of Financial Accounting Concepts aan i ‘ ing) is an information system, that measures, processes and communicates No, 1, “Objectives of Financial Reporting by Business Enterprises” (Norwalk, Conn.: Financial Accounting Standards Board, 1978), par. 9). We (Accounting is the process) of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information~ (American Accounting Association, “A Statement of Basic Accounting Theory” (Evanston, Il: t ‘American Accounting Association, 1966), par. 1; Accounting Principles Board, Statement No. 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises” (New York: AICPA, 1970), par. 40). Accounting is the art of recording, classifying and summarizing in a significant manner andin terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof (American Institute of Certified Public Accountants, “Review and Resume”; Accounting Terminology Bulletin No. 1 (New York: AICPA, 1953), par. 9). EVOLUTION OF ACCOUNTING “Wf you would understand anything, observe its beginning and its development.” ~-Aristotle Accounting history is important to accounting pedagogy policy and practice. It makes it possible to better understand our present and to forecast our future. Accounting history is the “study of the evolution in accounting thought, practices and institutions in response to changes in the environment and societal needs. It also considers the effect that this evolution has worked on the environment.” bs f ae) Committee on Accounting History, Report of the Committee, Accounting Review, supplement to Vol. XLMy 1920, p. 53.4 ae das " SE enter ee is checked against the invo ie first a lading. Later, symbols impressed on wet cl le tokens, me experts consider this stage of record beginning of the art of writing, which spread rapidly along the trade routes and hold throughout the known civilized world. Babylonia, Greece Account records date back to the ancient civilizations of China, A athe and Egypt. People in these civilizations maintained various types of records of 7” business activities. During the 1* dynasty of Babylonia (2286-2242 B.C.), its law / Which was based on the’Code of Hammurabi, requires merchants trading goods to give buyers a sealed memorandum containing the agreed price before it can be | “considered enforceable.) The agreed-upon transaction was recorded by the (Scribe » (the predecessor of the modern accountant) on a small mound of clay with the Parties affixing “their signatures” on it. This clay was allowed to dry and served as the record of the transaction. For the more important ones, the record can be kiln- dried. a ass At around 3600 B.C. in Babylonia, clay tablets also recorded payments of wages. - The rulers of these civilizations used accounting to keep track of the costs of labor er and materials used in building structures as in the case of the pharaohs of Egypt in al building their great pyramids. le Accounting is one of our oldest skills. The earliest collections of understandable \ writing track how many bushels of grain came into the king’s warehouse. Tablets recorded who brought in the grain and how much the king took as his share. Even in the early days, tax collecting is an activity closely linked to accounting. The presence of bookkeeping in the ancient world has been attributed to various factors including (i) the invention of writing; (ii) the introduction of Arabic numerals; (iii) the decimal system; (iv) the diffusion of knowledge of algebra; (v) the presence of inexpensive writing materials; (vi) the rise of literacy; and (vii) the existence of a standard medium of exchange. A. C. Littleton in Accounting Evolution to 1900 lists seven preconditions for the emergence of systematic bookkeeping: The Art of Writing, since bookkeeping is first of all a record; Arithmetic, since the mechanical aspect of bookkeeping consists of a sequence of simple computations; Private Property, since bookkeeping is concerned only with recording the facts about property and property rights; Money, (i.e, among economy), since bookkeeping is unnecessary except as it reduces all transactions in properties or property rights to this common denominator; Credit (i.e. uncompletedinca Empire, which spanned the west coast of South America throughout 11" to 14” centuries, used knotted cords of different lengths and colors called 4 ‘to keep accounting records. Development of more formal account-keeping methods is attributed © the merchants and bankers of Florence, Venice and Genoa during the 13° to 19) centuries. Double-entry bookkeeping is not a discovery of science; it is the outcome of continued efforts to meet the changing necessities of trade. German philosopher ‘Oswald Spengler wrote in The Decline of the West (1928) that the invention of double-entry bookkeeping was the decisive event in European economic history. The Florentine Approach Renaissance Florentine markets were a fascinating combination of formalization, in the form of account books and double-entry bookkeeping, and of informal social networks, constructed out of the surrounding rules of Florentine sociality. To them, doing business and living life were extensions of each other. Business was ‘conducted on logic of friendship, but friendship in turn was instrumental, as well as emotional. Account books were not inconsistent with social exchange; rather, they formalized and made social exchange easier. The explosion of commercial credit, at that time, required a system of recording. The earliest evidence of business bookkeeping in Florence, France was evidenced by the bank ledger fragments of 1211 (transcribed in 1887 by Pietro Santini) and with the development of accounting in Tuscany, Italy during the 13th century, as evidenced in the account-books or extracts. But, these were within the framework "of the “narrative” or “paragraph” type of accounting record (a sezioni sovrapposte), perhaps derived from the “charge and discharge” format used in public accounts. The system was primitive; accounts were not related in any special way (in terms of equality for entries), and balancing of the accounts was lacking. The emergence of double entry itself, was first witnessed in the “ledgers” of Renieri (64 fier) Fini & Brothers (1296-1305) and Giovanni Farolfi & Company (1299° Belg te 5 OM reco kept for the firm’s branch in Salon, tae 1300. Although these records are incomplete, they show enough tified as double-entry bookkeeping, These details include the use of d Credits and duality of entries. They are the oldest known existing examples of the double-entry system. i Sn (Amatino Manucci was the inventor of double-entry bookkeeping. He managed to Construct a comprehensive and fully-articulated set of double-entry records, with a regular balancing procedure on closure of the General Ledger. He used five books—general ledger, two merchandise ledgers, expenses ledger, and cash book (with the white ledger as a sixth)—constituted what looks very like a true double-entry system. In addition, there were at least two subsidiary books. He gave importance to the aspect of financial control. The books were logically subdivided, with segregation of cash and goods accounts from the main ledger, a Perpetual inventory of each line of agricultural produce and each grade of cloth or yarn dealt in, and full records of debtors and creditors, expenses, profits, interest and partners’ drawings, as well as the state of account with the head office at Nimes, and an estimate (15% per annum) of the expected rate of return on capital employed.” The Method of Venice Luca Pacioli, a Franciscan friar and a celebrated mathematician, is generally associated with the introduction of double-entry bookkeeping. In 1494 he published his book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita or “Everything about Arithmetic, Geometry, Proportions and Proportionality,” which includes, Particularis de Computis et Scripturis or “Details of Calculation and Recording," describing double-entry bookkeeping. His treatise reflected the practices of Venice at the time, which became known as the Method of Venice or the Italian method. Therefore, he did not invent double-entry bookkeeping, but rather described what were prevalent accounting practices of the day. Although Pacioli made no claim to developing the art of bookkeeping, he has been regarded as the father of double- entry accounting. He stated that the purpose of bookkeeping was “to give the trader without delay information as to his assets and liabilities.” Pacioli also advised the computation a G. A, Lee (1977), “The Coming of Age of Double Entry: The Giovanni Farolfi Ledger of 1299-1300", Accounting Historians Journal, 4{2): 79-95.t of the commercial — red with the developmen e double-entry method in the fourteenth century. d_ dramatist, referred tO double-entry human intellect.” werner Sombart, double-entry pookkeePing is born Aon. keeping prosPe! b ie use of th t the famous German poet an ‘one of the finest discoveries of ‘economist-sociolOgist, believed that m of Galileo and Newt of the same spirit aS the syste! avary and Napoleonic Commercial Code ting regulation devel The earliest systematized form of en oe tHe ic ition to protect ¢ Europe, starting in France in 1673. The 6 an annual fair value statement of financial POS! bankruptcies: ent for businé ‘This legal requirem introduced in the Ordonnance de Commerce Jean-Baptiste colbert during the reign of Louis XIV, cede of 1807, that influenced the bookkeeping throughout continental EUroPe Francophone Africa, Code or Code Napoléon is the French civil wte on March 21, 1804. The commercial Joped in continental the submission of he economy from esses to keeP accounting records was first Vm 673 which was Put through by ‘nd the Napoleonic Commercial provisions of commercial law and beyond. code, é: 1 Code was ado stablished under pted in The Napoleonic Napoléon Bonapa 1807. f Jacques Savary, the elder (1622-1690) ba merchandise is starting to deteriorate, he could find at the factory or wholesa ‘Although this is the oldest know! le, Vance” reported that t rather than historica rket valuation was low ) in an early accounting text stated, “If this or go out of style, or is that which one judges ers at 5% less, it must be reduced to this mn formulation of the lower-of-cost-or- several earlier accounting texts . | cost valuation of inventory in er. Inventory valuation at the ce in 1673", price.” market _princip! recommended current cost specific examples where the mal ’ lower-oF cost-or-market was required by the Code of Commerce in Fran , in Prussia in 1794 (Vance, 4943), and in the German Commercial Code of 1884 (Schmalenbach, 1959, p. 17). As Savary was the principal author, the French Commercial Code of 1673 was also called the Code Savary. up similar transactions in Petri was the first person to gro! the monthly totals in the journal, rather than recording Inthe 17" century, Nicolas a separate record and enter all transactions seriatim, that is, in a series. In 1769, Benjamin We i J forkman published The A’ " me! known American accounting textbook. pen eget) Oe ae 19-27. 2 _ Vance, L., 1943. Tt it : rhe authority of history in inventory valuation. Th .. ces Jn. The Accounting Review 18 (3), 2 Littleton, A. C., 1941. A genealogy for “cost or market.” The Accounting Review 16 (2), 161-67. 6a eet Sahil ahd Sa ‘ ; ‘occurred in England from the mid-18" to any changed the method of producing UL goods from the hz Imethod to the factory system, With this change came the problem of cee re volume of products. The specialized field of cost accounting emerged this need for the analysis of various costs. ' The expanded business operations initiated by the Industrial Revolution required increasingly large amount of funds to build factories and purchase machinery. This need resulted to the development of the corporate form of organization. The Browth of corporations spurred the development of accounting. Corporate owners, the shareholders, were no longer the managers of their business. Managers had to create accounting systems to report to the owners the results of their stewardship Of the business, This situation created a need for an independent report to provide assurance that management's financial representations are reliable. Accountancy was still an indeterminate calling in Britain as late as the 1830s. Men then engaged in accounting not only made simple accounts but also found it financially necessary to act as auctioneers, appraisers, agents and debt collectors. The profession was shaped by legislation. Accountancy reached the shores of the United States of America as a natural result of the investments being made by British businessmen into the land of opportunities. Railroads, heavy users of debt financing in the late 1800s, were the first American firms to issue balance sheets to absentee creditors. By 1880, the US railroad system had accumulated $4.6 billion of investments which was roughly equivalent to 40% of the American economy's annual output. Depreciation was formally considered given that the railroad companies used higher value and longer-lived equipment— locomotives, rail cars and track—than previous established enterprises. With the hauling of freight, the equipment gradually lost productive capacity and needed to be replaced. This lost presented a financial reporting problem since it was never clear when the wear and tear took place. Also, there’s the problem of matching of revenues and expenses. The concept of depreciation was largely ignored until the 1909 US corporate income tax law permitted a deduction for depreciation charges in the calculation of taxable income. At the beginning of the 20" century, some managers began to use depreciation to smooth reported earnings. A 1912 Journal of Accountancy editorial complained that that depreciation had become a tool used by management to counter fluctuations in profits. In good years, heavy depreciation charges were made. Bad years saw no provision or an inadequate charge.Oh ee any subsidiaries jieved that the y's relative financial steel’s consolidated ory. The era of 4 ote that it was ners is ‘any great American aa ome 150 pillion dwarfed ROE erican War several ated by congress for the spanish-A™ ly | statements ial accounting had daw and circumstantia final — “the most complete n,” noting that the company’s cor the $50 million appropri years earlier. Schmalenbach and The Model Chart cademic and »n Schmalenbach (1873-1955) w2° 2 German a a in Halver, and attended the Leipzig college Se res ee Schmalenbach was a professor'at the University ©! renal fanguage journals on the subjects of economics, busi “al accounting. i ‘In the early 1920s, Professor Schmal “failure to compare meaningfully the companies. This led to a research on the problem and tl oe node! Chart of Accounts. With this book, he lai subsequent developments in uniform accounting in Germany. fasis for corresponding efforts in other European countries. Schmalenbach claimed that important information could be accounts. The results of one’s firm should show through-flows more usefully than felences, What he termed "Dynamic Balances" were to be promptly and regularly prepared and presented, so that external changes and internal efficiencies could be gauged. inter-firm comparisons were also to be facilitated of Accounts ‘ economist. He was e starting in 1898. tributor to ted repeatedly with his financial data made available PY different he publication of his book, id the foundation for all It also became the lenbach was frustral gained from a firm's Imposition of Income Tax and Conflicts with Financial Accounting In the year 10 CE, Xin Dynasty’s Em| We in Ne ors of rots tor proesionals snd sited eat % of profits, for professionals and skilled To pay for i i Be ee eee eaipment: in preparation for the Napoleonic wars, William Bee ane, is ritain levied an income tax in his budget of December 1798. ie Sd parent established the Bureau of Internal Revenue to assess gp reo ices ie urone taxes to help finance the Civil War. In 1943, the US x withholding as the only way to collect on high tax rates: i wart var oe? Note that all returns required to be filed by the Tax Code shall be prepared always in conformity with the provisions of the Tax Code. In case of conflicts with generally accounting principles (GAAP), in the final reckoning, the Tax Code will prevail. Information Age Dan Brinklin and Bob Frankston wrote VisiCalc for the Apple I, the first electronic spreadsheet, the most important business application for the personal computer. Tremendous advances in information technology have further revolutionized accounting in recent years. Tasks those are time-consuming when done manually can now be done with speed, consistency, precision and reliability by computers. « There is an abundance of accounting applications and modules to suite the businesses’ various needs. With the proliferation of netbooks and smartphones along with its mind-boggling array of applications, surely, doing business will change. This will necessarily bring changes to the field of accounting. As they say, information technology is it, you either breathe it or perish. Pacioli’s Double-Entry Bookkeeping Modern bookkeeping systems are still based on principles established in the 15” century, although they have had to be adapted to suit modern conditions. Why has a recording system devised in medieval times lasted for so long? There are two main reasons: 1. it provides an accurate record of what has happened to a business over a specified period of time; and 2. information extracted from the system can help the owner or the manager operate the business much more effectively. In essence, the system provides the answers to three basic questions which owners want to know: 1. What profit has the business made? 2. How much does the business owe? 3. How much is owed to it?industrial sophisticated | ‘a business may be sO big or so complex that ‘the owners. to unit for them. Indeed, the senior manasa them | their junior colleagues to tell them what is happening. ith situations where owners — sokkeeping system did not have to deal wi ted from managers. It was designed largely to supply summarized only to the owner-managers ‘of a business who knew in detail from their m was not intended to cope with what was going on. The syste production or trading operations. so that it + frea n day-to-day reporting remote from had to be adapted for modern business practice eisai Asa result, Pacioli’s system os ‘the demand for information from two main sources: iness is doing; and to time how the busi g ind control it. order to help plan 2! 1, from owners, who want to know from time 2. from the managers, who need information in ire the same information and so based ‘Owners and managers do not necessarily req on this accounting has developed into two main specializations: ‘Accounting, which is concerned with the supply of infor ofan entity; and ‘Accounting, mation to the which is concerned with the supply of information to accot wunting into these two broad categories While it is useful to classify acco! fe range of other interest are now involved in supplying information to a wid such as customers, employees, governments and their agencies, in the public and suppliers and other trade cre estors, ditors, ACCOUNTING AND THE NON-ACCOUNTANT Whatever your job, whether you repair machines in a factory, teach or nurse sick patients in a hospital, you probably feel that you time filling in forms and reading reports Why? Why can’t you can It is true that in many organizations there is now a large proportion get out of hand, but usually there is a reason behind it mation seats may, for example, be required by law. S atuton ‘obligation to publish, ie. to make available for public inspec ae of material ie agi This process requires a consider rs rae ee before it can be summarized in a form Eaiecectl en ese referred to this process as financial — oe i for you to be become involved ‘accounting, company ply with the law you have no option.There main reasons why you should study accountings = 1. To make sure that you follow legal requirements. As we have sesnaanil Organizations are required by law to disclose publicly information abot le activities. The required information is inevitably complex, it is normally written in a strange technical language, and it is often presented in a highly prescribed format. The responsibility for complying with the law rests ultimately with the senior management of the organization. While the accountant may help with the detailed Preparation of the accounts, the overall responsibility cannot be delegated to them. It follows that any non-accountant who aspires to be a senior manager cannot avoid having to know something about this process; and 2. To help you do a better job. Larger organizations almost certainly have some form Of detailed internal information supply. You may be involved in both supplying and Feceiving it. Its purpose is to help you and other managers do your respective jobs much more efficiently and effectively. It is supposed to help you plan your department's activities, to monitor and to control them, and to provide additional information about decisions you have to take about your department's affairs. This will often be translated and reported to you in financial terms (although you will also receive some non-financial information). It will not mean anything and you will not be able to use it if you do not understand it. Furthermore, you certainly will not have been able to contribute to the development of the information system so that it is of particular benefit to you. We believe these arguments fully justify the time that you will be giving to the study of accounting. By the time that you have worked your way through this book, we hope you will find, despite your initial fears, that accounting can be both interesting and useful. BRANCHES OF ACCOUNTING The work that accountants now undertake ranges far beyond that of simply summarizing information in order to calculate how much profit a business has made, how much it owes, and how much is owed to it. Although this work is still very important, accountants have gradually got involved in other types of work. Of course, other information specialists (such as market researchers and operational analysts) have also been drawn into the preparation of management information, and at one time, some observers expected accounting to be taken over by these newer and mores nuition; i ists have ; and Dk hods and techniques Into thelr been reluctant to become involved ' have been quick to absorb new met! inches of accounting and their brief descriptions are discussed below, 4 in the collection of financiay ~ nccountaney and ecountng ' re engage ¢ members are Er jon of information in 2 form ountancy is a profession whos ital the summary of that data, and then the presen yee iy i isions. Many writers use ney’ and helps recipients take effective decis! Te eae book we s! ‘as synonymous terms, but in this : i Bs profession, and the term ‘accounting’ to refer to the subject. Auditing ‘Auditing forms a most important branch of accountancy. Once accounts have been prepared, they may have to be checked in order to ensure that they do not present 4 distorted picture. The checking ‘of accounts and the reporting on them is known as ‘auditing. Businesses have their accounts audited as a legal requirement. Auditors are usually trained accountants who specialize in checking accounts rather than preparing them. If they are appointed from outside the organization, they are usually referred to as external auditors. Corporate external auditors are appointed by by the management. The auditor's job is to protect the swer to them, and not to anyone in the company, the shareholders, and not interests of the shareholders; they an‘ loyees of the company. They are appointed by, By contrast, internal auditors are emp! and answer to, the company’s management. al auditors perform routine tasks and undertake detailed checking whereas external auditors are likely to go in for heless, they usually work very closely together, Intern of the company’s accounting procedures, much more selective testing. Nonet! although the distinction made between them still remains important. It might occur to you that because internal auditors are employees of the company they must have much less independence than external auditors. In practice, however, even external auditors have limited independence. This is because the directors of a company usually recommend the appointment of a particular firm of auditors to the shareholders. It is rare for shareholders to object to the directors’ recommendation, and so if the directors are in dispute with the auditors they can always hint that they are 12 i:The bookkeeping procedures usually end when the basic data have been entered in the books of account and the accuracy of each entry has been tested. At that stage, the accounting function takes over. Accounting tends to be used as a generic term cove! almost anything to do with the collection and use of basic financial data. It should, _ however, be more properly applied to the use to which the data are put once they have been extracted from the books of account. Bookkeeping is a routine operation, while “accounting requires the ability to examine a problem using both financial and non- financial data. Cost Bookkeeping, Costing, and Cost Accounting Cost bookkeeping is the process that involves the recording of cost data in books of account, It is, therefore, similar to bookkeeping except that data are recorded in very much greater detail. Cost accounting makes use of those data once they have been extracted from the cost books in providing information for managerial planning and control. Accountants are now discouraged from using the term ‘costing’ unless it is qualified in some way, ie. by referring to some branch of costing (such as standard costing), but even so you will still find the term ‘costing’ in general use. The difference between a bookkeeping/accounting system and a cost bookkeeping/cost accounting system is largely one of degree. A cost accounting system contains a great deal more data, and thus once the data are summarized there is much more information available to the management of the company. Cost accounting now forms one of the main sub-branches of management accounting. Financial Accounting Financial accounting is the more specific term applied to the preparation and subsequent publication of highly summarized financial information. The information supplied is usually for the benefit of the owners of an entity, but it can also be used by management for planning and control purposes. It will also be of interest to other Parties, e.g. employees and creditors. 13Financial Management Financial management is a relatively new branch of accounting that has grown fa ‘over the last 30 years. Financial managers are responsible for setting fina, objectives, making plans based on those objectives, obtaining the finance needeg q achieve the plans, and generally safeguarding all the financial resources of the entity, Financial managers are much more heavily involved in the management of the entiy, than is generally the case with either financial or management accountants. It shoyig also be noted that the financial manager draws on a much wider range of disciplines (such as economics and mathematics) and relies more extensively on non-financial data than does the more traditional accountant. Management Accounting Management accounting incorporates cost accounting data and adapts tien for specie. decisions which management may be called upon to make. A management Sccounting system incorporates all types of financial and non-financial information from a Wide range of sources. Taxation Taxation is a highly complex technical branch of accounting. Account work are responsible for computing the amount of tax payable by both business entities and individuals. It is not necessary for either companies or individuals to pay more tax than is lawfully due, and so it is quite in order for them to minimize the amount of tax payable. If tax experts attempt to reduce their clients’ tax liabilities strictly in accordance with the law, this is known as ‘tax avoidance’. Tax avoidance is a perfectly legitimate exercise, but tax evasion (the non-declaration of sources of income on which tax might be due) is a very serious offense. In practice, the borderline between tax avoidance and tax evasion can sometimes be a fairly narrow one. ants involved in tax Other Aspects The main branches of accounting described above cannot always be put into such neat categories. Accountants in practice (that is, those who work from an office and offer their services to the public) usually specialize in auditing, financial accounting or | taxation. Most accountants working in commerce, industry or the pubic sector will be employed as management accountants, although some may deal specifically with” auditing, financial accounting, or taxation matters. ACCOUNTANCY IN THE PHILIPPINES Although accounting has been practiced in the Philippines since the Spanish period and possibly even before, the seeds of Philippine accountancy as a recognized profession were planted on March 17, 1923, when Act No. 3105 was approved by the Sixth Legislature. Entitled “An Act Regulating the Practice of Public Accounting; Creating the | Board of Accountancy (BOA); Providing for Examination, for the Granting of Certificates, 14Since then, both the profession and the body that directly regulates it h ve grown rapidly. Don Vicente Fabella, founder of the Jose Rizal University in 1919, hi distinction of being the first Filipino CPA in the United States. From 43 register accountants in 1923, the number of CPAs has grown to over 135,000 as at today. At least 2,500 new CPAs are added to the roster every year. Many of these professionals have distinguished themselves not only in the field of accountancy itself but in many other areas of human endeavor, Local accounting firms and partnerships have likewise entered the mainstream of international practice, establishing tie-ups with the Big Five of the accounting world, namely, Arthur Andersen (now defunct), PriceWaterhouseCoopers, Ernst & Young, KPMG, and Deloitte Tohmatsu International. The biggest of the local firms, SGV & Co., was the first to offer services outside the country and initiated the establishment of The SGV Group composed of leading national accounting firms in East and Southeast Asia. The increasing complexity of professional regulation and the developments in the Practice of the profession have occasioned the expansion of the Board of Accountancy — from three members (president and two members) under Act No. 3105 in 1923, through six (chairman and five members) under Republic Act No. 5166 (“The Accountancy Act of 1967”) in 1967, to seven (chairman and six members) under Presidential Decree No. 692 ("The Revised Accountancy Law") in 1975. Republic Act. No. 9298 ("The Philippine Accountancy Act of 2004”), still provides for the same composition. Under the stewardship of the Professional Regulation Commission (PRC), the Board of Accountancy discharges its mandate of supervising, controlling and regulating the practice of accountancy with authority and distinction. In 1975, with the accreditation by the PRC of the Philippine Institute of Certified Public Accountants (PICPA) as the bona fide professional organization representing CPAs in the country, the Board has coordinated with PICPA to further strengthen the profession. With PICPA, it has worked for the passage of The Accountancy Act of 1967; the issuance of the Code of Professional Ethics in 1978; the issuance of guidelines in 1987 for the mandatory continuing professional education (CPE) program for CPAs; the integration of the accounting profession completed in 1987; the biennial oath-taking of new CPAs; standards setting for the profession through membership in the Accounting Standards Council (now FRSC) and the Auditing Standards Practices Council (now AASC); the declaration of the Accountancy Week, the new Code of Ethics, and The Accountancy Act of 2004.d Trade Organi ii that Philippine accountants e global playing field against accountants from other : ‘to hold their own. This is due, in no small measure, and distingv shed careers of the country’s accountants, to the linkages that loca z oh orged with the world’s biggest accounting firms, and to the intes! ity with yard of Accountancy and the Professional Regulation Commission are | ring a profession that has acquired a global perspective. ~ Characteristics of the Accountancy Profession ses the following attributes: ‘Accountancy qualifies as a profession because it posses: n are Certified Public Accountants, chelor of Science in Accountancy = All members of the accountancy professio' which means that they have earned a Ba‘ degree and have passed the CPA Licensure Examinations. = CPAs have their own body of language. They use terminology pec' profession (e.g. debits and credits). CPAs adhere to a Code of Ethics. This code upholds the serve the public with competence and integrity. The public, its confidence to CPAs by relying on the financial statements they audit uliar to the 1e CPA’s responsibility to in return, expresses CPAs are members of a national organization, the PICPA, d improvement of the accountancy = Like other professions, whose role is to ensure the continue profession to meet the demands of the times. Scope of Practice Republic Act No. 9298, known as the Philippine Accountancy Act of 2004 was signed into jaw by President Gloria Macapagal-Arroyo on May 13, 2004. This law repealed Presidential Decree No, 692, the Revised Accountancy Law, which was enacted May 5, 41975. The new law provides that the practice of accountancy shall include, but not be limited to, the following: Practice of Public Accountancy = shall constitute in a person, be it his/her individual capacity, or as a partner or as a de member in an accounting or auditing firm, holding out himself/herself as one skilled in the knowledge, science and practice of accounting, and as a qualified person to ‘at professional services as a certified public accountant (CPA); or offering or ndering, or both, to more than one client on a fee basis or otherwise, services such as: = the audit or verification of financial transaction and accounting records; or 16Lee Sao Dit bi Ko “ Preparation of income tax returns wi : ‘ when he/she Fepresents clients before overnment Matters related to accounting tal Telating to eee Or renders profession 5 IN - fsaicicl factsaraeee Procedures and the recording and presentation of Practice in Commerce and Industry a cule Constitute in 4 Person involved in decision making requiring professional ion Be in the science of accounting, or when such employment or position requires ‘at the holder thereof Must be a certified Public accountant. Practice in Education/Academe ~ shall constitute in a accounting, auditing, and other technically the Philippines (isp) m: Person in an educational institutio management advisory services, related subjects: Provided, That lay be allowed to teach business In which involve teaching of finance, business law, taxation, members of the Integrated Bar of law and taxation subjects. Practice in Government ~ shall constitute in a person who holds, Professional group in government or Corporation, including those performing requires professional knowledge in the s eligibility as a certified public accountant i or is appointed to, a position in an accounting in a government-owned and/or -controlled Proprietary functions, where decision making cience of accounting, or where a civil service is a prerequisite, Code of Ethics for Philippine CPAs A distinguishing mark of the accountancy profession is its acceptance of the esponsibility to act in the public interest Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer. In acting in the public interest a professional accountant should observe and comply with the ethical requirements of the Code. A professional accountant is a defined as “an individual who holds a valid certificate issued by the Board of Accountancy (i.e., Certified Public Accountant), whether he/she be in Public practice, industry, commerce, the public sector or education,” Some portions of the Code of Ethics are as follows: Wwsociated with reports, info Bea irs Hk elas that the information; ‘or other informat Pstaind materially itement; Contains false or misleading sta’ \ c Contains ; tements or information furnished recklessly; es dies OR : Bene information required to be included whet © Omits or o| or obscurity would be misleading. ; | professional accountant should not allow bias, conflict of interest or undue influence faeces override professional or business judgments. Professional Competence and Due Care A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent Professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when Providing professional services (ie. services requiring Y or related skills performed by a professional accountant including accounting, auditing, taxation, management consulting and financial management services). In addition, they should conform with the technical and professional Standards of the following: (BOA) / Professional Re; accountancy Board of Accountancy ‘gulation Commission (PRC) * Securities and Exchange Commission (SEC) . Financial Reporting Standards Council (FRSC) Auditing and Assurance Standards Council (ASC) Relevant legislationwledge Ietent oN and With ervices ssional 8 and ‘hnical lying: jonal , ‘ ne Where appropriate, a professional accountant should make clients, employers or other users of the professional services aware of limitations inherent in the services to avoid the misinterpretation of an expression of opinion as an assertion of fact. i * Confidentiality A professional accountant should respect the Confidentiality of information acquired as 2 result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is o legal or professional right or duty to disclose. Confidential information acquired as a result of Professional and business relationships should not be used for the personal advantage of the professional accountant or third parties, Professional Behavior A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. In marketing and promoting themselves and their work, professional accountants should not bring the profession into disrepute. Professional accountants should be honest and truthful and should not: make exaggerated claims for the services they are able to offer, the qualifications they possess, or experience they have gained; or make disparaging references or unsubstantiated comparisons to the work of others. ACCOUNTING STANDARDS IN THE PHILIPPINES Accounting standards are authoritative statements of how Particular types of transaction and other events should be reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for the fair Presentation of financial statements. 19Accounting Standards Council (ASC) On November 18, 1981, the Philippine Institute of Certified Public Accountants (pcp) created the Accounting Standards Council (ASC) to establish and improve accounting standards that will be generally accepted in the Philippines. The creation of the Council received the support of the following: the Securities ang Exchange Commission (SEC) and the Central Bank of the Philippines (C8)—regulatory agencies where the financial statements are filed; the Professional Regulation Commission (PRC) through the Board of Accountancy—which supervises CPAs and auditors; and the Financial Executives Institute of the Philippines (FINEX)—which is the largest organization of financial executives who are responsible for the preparation of the financial statements. The ASC was composed of eight (8) members—four from PICPA including the designated Chairman; and one each from SEC, CB, PRC and FINEX. The standards would generally be based on the following: existing practices in the Philippines; research or studies by the Council; locally or internationally available literature on the topic or subject; and statements, recommendations, studies or standards issued by other standard-setting bodies such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASE). accepted The statements and interpretations issued by the Council represent generally ‘Accounting principles become generally accounting principles in the Philippines. t from the relevant parties accepted if they have substantial authoritative support interested in the financial statements—the preparers and users, auditors and regulatory agencies. Financial Reporting Standards Council (FRSC) When created per Section 9(A) of the Rules and Regulations Implementing Republic Act No, 9298 otherwise known as the Philippine Accountancy Act of 2004, the Financial Reporting Standards Council (FRSC) shall be the new accounting standard setting body thus, replacing the Accounting Standards Council (ASC) Thie FRSC shall be composed of fifteen (15) members with a Chairman, who had been or presently a senior accounting practitioner in any of the scope of accounting practice and fourteen (14) representatives from the following: one each from the BOA, SEC, BSP, BIR, COA and a major organization composed of preparers and users of financial statements; and two representatives each from the accredited national professional organization of | CPAs in public practice, commerce and industry, education/academe and government.i 21 a Effective Apri 1 jational, accounting standard setti Accounting Stehdarde NG Tesponsibilities from its Committee was forme; accountancy bodies Netherlands, Predecessor body, ‘din 1973 through an from Australia, agreement made by ’s the United Kingdom and | Canada, France, Germany, Japan, Mexico, ‘the ireland, and the United States of America. Statements of International Acco: > unting Standards issued by the Board of the eer con Accounting Standards Committee (1973-2001) are designated International Accounting Standards" (1As). Board announ " The International Accounting Standards F ced in April 2001 that its acc International . ‘ounting standards would be designated Financial Reporting Standards" (IFRS). Philippine Asc Moves to IAS/IFRS In developing accountin, g standards that will be generally accepted in the Philippines, the Accounting Standards Council (ASC) considered standards issued by other standard-setting bodies such as the U.S. Financial Accounting Standards Board (FASB) and the International Accounting Standards Committee (now the IASB). In the past years, the ASC based most of the standards it issued on U.S. accounting standards. Starting in 1996, however, the ASC issued accounting standards that were based on international accounting standards. In 1997, the ASC made a decision to move totally to International Accounting Standards (AS) and eventually to International Financial Reporting Standards (IFRS). Accounting standards issued by the ASC were renamed to correspond better with the issuances of the IASC and IASB. Philippine Accounting Standards (PASs) correspond to the adopted International Accounting Standards (IAS). Philippine Financial Reporting Standards (PFRSs) correspond to the adopted International Financial Reporting Standards (IFRSs). SFASs and SFASs/IASs not superseded by revised IASs and new IFRSs will be re-issued as PASs. Previously, Standards issued by the ASC were designated as SFASs. PHILIPPINE ASSOCIATION OF COLLEGIATE SCHOOLS OF BUSINESS (PACSB) In 1960, the Industrial Development Center of Manila and the International Cooperation Administration (now Agency for International Development of the United States State Department) initiated the organization of a team of deans of business schools in the: / ) Philippines. Officially designated as the Philippine Schools of Management and Busi istratic bservation tour cove, roup left in 1961 for an o cove ‘Administration Study Mecdesier ins and foundations concerned with businese twelve universities ant The team focused their observations on curriculum eens weal S4. general school administration and, facuy development, school-industry relations, ‘qualifications and relations. Upon its return, the expedition team invited representatives no on ee tae and formed an Executive Committee which was later pees The paca into the Philippine Association of Collegiate Schools of cen ‘ eae ror was formally organized on July 21, 1962 with Dr. pane es pe ‘a ace 4 i is ing its 50 years of exi 5 = Dela President. In 2012, the PACSB is celebrating its 5¢ e Pr Cruz as past presidents are: Dean Belen Enrile-Gutierrez; pee care a SCR em ; i as; Dean Cleotilde G. ; Fr, Sotero D. Lopez; Dean Felimon V. De Las Alas; =n Emmanuel Ma. R. Balcruz, OSB; Dean Jose L. Papa; Dean Mercedes ee peutete Dean Jose Baltazar; Dr. Mariano M. Lerin; Fr. Dionisio C. Cachero, OAR; Dean eon : T. Africa; Dr. Remedios S. Ching; Dean Victorino Frias; Dr. Arlyn S. Villanueva and Dr. Vicente k. Fabella. The current president is Dr. Reynaldo S. Bautista. This discussion on PACSB is significant because it educates the business students on the effective and efficient efforts of the PACSB to continuously improve business education inthe Philippines. The PACSB is always at the forefront of the following developmental activities: * Conduct of seminars for faculty development. ® Provisions of consultancy and other services to member schools. pbserheading curriculum changes and revisions and upgrading rules and standards for business education. * Conduct of dialogues with government agencies (e.g. the Professional Regulation Commission, the Commission on Higher Education), * linkeges with businesses, industries, associations agencies and institutions concerned with business education J Scholarship and research grants for faculty members of business schools. * Student involvement in surveys monitoring performance of government * Annual conferences for business schools nationwide. agencies. Service Commission (CSC), the Philippi i ok, cea ie the Philippine Council for Manager International Federation fo, Education, sement, the Junior Achieve F Business Education and theConroe a This aggregation re deans and educators, These business edi lucator eilcation, Thrcush rs have taken the challenge of advancing the quality of | the ye; is ‘ were implemented by Rca ‘he following proactive programs and strategic p © init 4 ee tis Annual Search for Outstanding Business Educators in the Philippines in ; Le ation with Petron Foundation, Inc. as its major sponsor; rete ee member of the Philippine Movement for Good Governance sail of advocating good governance and responsible citizenship; Bi nized an) international educational tour in Bangkok, Thailand; established linkages with the Management Association of the Philippines, Personal Management Association of the Philippines, Philippine Council of Management and Philippine Institute of Certified Accountants; organized an inter-school bowling tournament; assisted the individual members in research and publication of instructional materials, accreditation and ISO certification; * supported the Commission on Higher Education in the development of new policies and standards in business and management education; * conducted faculty development seminars and other customized programs; © hosted the annual national conventions of deans and educators in business. With the innovative leadership of its 2" President (SY2004-2005), Dr. Carlo R.H. Magno, PCDEB started to accredit professional business educators into the Philippine Academy of Professionals in Business Education (PAPBE). The Search for Outstanding Business Education Students was implemented during the term of its 3 President (SY2005- 2006), Dr. Raul C. Addatu. The PCDEB Journal was also released. In SY2006-2007, with. Dean Jose Maria Gonzales as President, the 1* week of December was declared. as National Business Week under Presidential Proclamation 1189. The 5" President was Dr. Ma. Flordeliza Anastacio. During her term, the 1* Business Education-Industry Summit was conceptualized and implemented. The 6” President was Dr. Victor Manabat. He initiated the well-attended Faculty Development Program held in five (5) key cities. The 7” and 8" President were Dr. Felix Asprer and Dr. Nelson — Abeleda, respectively. The current president is Dr. Amado L. Magsino. és