CONCEPTUAL FRAMEWORK AND

ACCOUNTING STANDARDS:

The Accountancy Profession

Prepared by:

Jasmin G. Gura, CPA, MBA

Stanley T. Sabuya, CPA, MBA
Chapter 1 (The Accountancy
Profession)
After studying this chapter, you should be able to:
1. To understand the definition of accounting.
2. To identify the overall objective of accounting.
3. To describe the practice of the accountancy profession in
the Philippines.
4. To understand the Continuing Professional Development in
the field of accounting.
5. To know the meaning of generally accepted accounting
principles
6. To identify the standard setting body in the Philippines
7. To describe the creation of the International Accounting
Standards Board
8. To know the meaning of IFRS.
Definition of Accounting
Accounting is the “process of identifying,
measuring and communicating economic
information to permit informed judgments
and decisions by users of the information.”
(American Association of Accountants)
Important Points:

One – Accounting is a quantitative

information
Two – The information is likely to
financial in nature
Three – The information should be
useful in decision making
Important Points:

The definition also states that the

very purpose of accounting is to
provide quantitative information to
be useful in making economic
decision making.
Three important activities included in
the definition of accounting:
1.Identifying (analytical component)
2.Measuring (technical component)
3.Communicating (formal component)
Identifying
Identifying is the process of analyzing
events and transactions to determine
whether or not they will be
recognized (Millan, 2018).
Recognition refers to the process of
including the effects of an accountable
event in the statement of financial position
or the statement of comprehensive income
through a journal entry.

Only accountable events are recognized

(journalized).
An accountable event is one that affects
the assets, liabilities, equity, income or
expenses of an entity. It is also known as
economic activity, which is the subject
matter of accounting.
Non-accountable events are not recognized
but disclosed only in the notes, if they have
accounting relevance. The disclosure only
in the notes is not an application of the
recognition process.
Types of events or transaction (Millan,
2018)

A.External events- are events that involve

an entity and another external party.
B.Internal events-are events that do not
involve an external party. Types of internal
events
Types of external events:
1. Exchange (reciprocal transfer)- an event
wherein there is a reciprocal giving and
receiving of economic resources or
discharging of economic obligations
between an entity and an external party.
Ex. Sale, purchase, payment of liabilities, receipt of
notes receivable in exchange for accounts receivable,
collection of receivables, etc.
 2. Non-reciprocal transfer- is a “one way”
transaction in that the party giving
something does not receive anything in
return while the party receiving does not
give anything in exchange.
Ex. Donations, gifts or charitable contributions, payment
of taxes, imposition of fines, theft, provision of capital
by owners,etc. and the like.
3. External events other than transfer- an
event that involves changes in the
economic resources or obligations of an
entity caused by an external party or
external source but does not involve
transfers of resources or obligations.
Ex. Changes in fair values and price levels, obsolescence,
technological changes, etc.
Types of internal events:
1.Production- the process by which
resources are transformed into finished
goods. Ex conversion of raw materials into
finished products, production of farm products,
etc.
2. Casualty- an unanticipated loss
from disasters and other similar
events. Ex loss from fire, flood, earthquakes
and other catastrophes.
Measuring
Measuring involves assigning numbers,
normally in monetary terms, to the
economic transactions and events.
Several measurement bases used in
accounting, include, but not limited
to (Millan, 2018):
1.Historical cost
2.Fair value
3.Present value
4.Realizable value
5.Current cost
6.Fulfillment value
The most commonly used is historical costs,
which is usually combined with the other
measurement bases. Accordingly, financial
statements are said to be prepared using
mixture of costs and values.

Costs include historical cost and current

cost while values include the other
measurement bases.
Communicating
Communicating is the process of
transforming economic data into useful
accounting information, such as financial
statements and other accounting reports,
for dissemination to users. It also
involves interpreting the significance of
the processed information (Millan, 2018).
The communicating process of accounting
involves three aspects:
1. Recording- refers to the process of
systematically committing into writing the
identified and measured accountable
events in the journal through journal
entries.
2.Classifying- involves the grouping of
similar and interrelated items into their
respective classes through posting in the
ledger.
3.Summarizing- putting together or
expressing in condensed from the recorded
and classified transactions and events. This
includes the preparation of financial
statements and other accounting reports.
Accounting as an information system
Accounting identifies and measures
economic activities, processes
information into financial reports, and
communicates these reports to decision
makers.
Types of information provided by
accounting (Millan, 2018)
1.Quantitative information- information
expressed in numbers, quantity, or units.
2.Qualitative information- information
expressed in words or descriptive form.
Qualitative information is found in the
notes to financial statements as well as
on
the face of the other financial statements.
3. Financial information- information
expressed in money. Financial information
is also quantitative information because
monetary amounts are normally expressed
in numbers.
The overall objective of accounting is to
provide quantitative financial information
about a business that is useful to
statement users particularly owners and
creditors in making economic decisions.
(Valix, Peralta, & Valix, 2020)
The Accountancy Profession
Under RA 9298 also known as “Philippine
Accountancy Act of 2004”, the practice of
accounting is sub-classified into the
following:
1. Practice of Public Accountancy- involves
the rendering of audit or accounting
related services to more than one client on
a fee basis.
2. Practice in Commerce and Industry-
refers to the employment in the private
sector in a position which involves decision
making requiring professional knowledge in
the science of accounting and such
position requires that the holder thereof
must be a certified public accountant.
3. Practice in Education/Academe-
employment in an educational institution
which involves teaching of accounting,
auditing, management advisory services,
finance, business law, taxation, and other
technically related subjects.
4. Practice in the Government-
employment or appointment in a position
in an accounting professional group in the
government or in a GOCC, including those
performing proprietary functions where
decision making requires professional
knowledge in the science of accounting, or
where civil service eligibility as certified
public accountant is a prerequisite.
The Board of Accountancy (BOA) is the
professional regulatory board created
under R.A. No. 9298 to supervise the
registration, licensure and practice of
accountancy in the Philippines. BOA
consists of 1 chairperson and 6
members appointed by the President
of the Philippines. The Board shall elect a
vice- chairperson from among its members for a
term of one (1) year.
Continuing Professional Development
Republic Act No. 10912 or the “CPD Act
of 2016
was enacted to promote and upgrade the
practice of the professions in the country
and institute measures that will
continuously improve the competence of
the professionals in accordance with the
international standards of practice, thereby,
ensuring their contribution in uplifting the
general welfare, economic growth and
development of the nation.
Continuing Professional Development has
become mandatory for CPAs (15 CPD credit
units to renew CPA license, but 120 CPD
credit units are required for accreditation of
a CPA to practice the accountancy
profession)
Accounting vs. Auditing
Auditing is the process of evaluating the
correspondence of certain assertions with
established criteria and expressing an
opinion thereon. Accounting embraces
auditing. The work of an auditor begins
when the work of the accountant ends.
Accounting vs. Bookkeeping
Bookkeeping refers to the process of
recording the accounts or transactions of
an entity. Bookkeeping normally ends with
the preparation of the trial balance. Unlike
accounting, bookkeeping does not require
the interpretation of the significance of the
processed information.
Accounting vs. Accountancy
Accountancy refers to the profession or
practice of accounting. Accounting refers to
the particular field of accountancy which
can be broadly classified into two:
1. Public practice- public practice does not
involve an employer- employee
relationship.
2. Private practice- involves an employer-
employee relationship, meaning the
account is an employee.
Financial accounting vs. Managerial
accounting
Financial accounting is the branch of
accounting that focuses on general
purpose reports of financial position and
operating results known as the financial
statements.
Managerial accounting is the accumulation
and preparation of financial reports for
internal users only.
Generally Accepted Accounting Principles
(Millan, 2018)
GAAP represents the rules, procedures,
practice and standards followed in the
preparation of and presentation of financial
statements. (laws followed in financial
reporting).
The Philippine Financial Reporting
Standards (PFRSs) represent the generally
accepted accounting principles (GAAP) in
the Philippines.

The PFRSs are Standards and

Interpretations adopted by the Financial
Reporting Standards Council (FRSC).
They comprise:
a.The Philippine Financial Reporting
Standards (PFRSs)
b.Philippine Accounting Standards (PASs)
c.Interpretations
PFRSs are accompanied by guidance to
assist entities in applying their
requirements. A guidance states whether it
is an integral part of the PFRSs. A guidance
that is an integral part of the PFRSs is
mandatory.
The purpose for accounting standards
For financial statements to be useful, they
should be prepared using reporting
standards that are generally acceptable.
The overall purpose of accounting
standards is to identify proper accounting
practices for preparation and presentation
of financial statements.
Financial Reporting Standards
Council
FRSC is the official accounting
standard setting body in the
Philippines created under the
Philippine Accountancy Act 2004
(R.A. No. 9298).
The FRSC is composed of fifteen
(15) individuals- a chairperson who
had been or presently a senior
accounting practitioner in any of the
scope of accounting practice and
fourteen (14) representative
members.
Philippine Interpretations Committee
PIC is a committee formed by the
Accounting Standards Council (ASC),
the predecessor of FRSC, with the role
of reviewing the interpretations of the
International Financial Reporting
Interpretations Committee (IFRIC) for
approval and adoption by FRSC.
International Accounting Standards
Committee
The International Accounting Standards
Board (IASB) is the standard-setting body
of the IFRS Foundation with the main
objectives of developing and promoting
global accounting standards.
The IASB was established in April 1, 2001
as part of the International Accounting
Standards Committee (IASC) Foundation.

The IASC Foundation is a non- profit

organization based in Delaware, USA and is
the parent of the IASC Foundation was
renamed to IFRS Foundation.
Move to IFRSs
Prior to the full adoption of the IFRSs in
2005, the accounting standards used in the
Philippines were previously based on US
GAAP, i.e., the Statements of Financial
Accounting Standards issued by the
Federal Accounting Standards Board (FASB),
the US national standard setting body.
The move to IFRSs was primarily brought
about by the increasing acceptance of IFRSs
worldwide and increasing globalization of
businesses thereby increasing the need for
a common financial reporting standards
that minimize, if now eliminate,
inconsistencies of financial reporting
among nations.
Philippine Financial Reporting Standards
The Philippine Financial Reporting
Council issue standards in a series of
pronouncements called the PFRS which
collectively include all of the following:

a.PFRS which corresponds to IFRS

b.PAS which corresponds to IAS
c. Philippine Interpretations which
correspond to interpretations of IFRIC and
Standing Interpretations Committee, and
Interpretations developed by the Philippine
Interpretations Committee.
The IFRSs are standards issued by the IASB
after it replaced its predecessor, the
International Accounting Standards
Committee (IASC) in April 1, 2001. The
IASs are standards issued by the IASC,
which were adopted by the IASB. The
PFRSs and PASs are based on these
standards.
References:

Valix, C., Peralta, J., Valix, C.A. (2020). Conceptual Framework and
Accounting Standards. Manila City, Phils. GIC Enterprises & Co.,
Inc.

Millan, Z.V. (2018). Conceptual Framework and Accounting

Standards. Baguio City, Phils. Bandolin Enterprises.

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