CONCEPTUAL FRAMEWORK AND
ACCOUNTING STANDARDS
CHAPTER 1 – THE ACCOUNTANCY
PROFESSION
Definition of Accounting
according to The Accounting Standards
Council:
- 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
decision.
according to The Committee on
Accounting Terminology of the American
Institute of Certified Public Accountants:
- 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.
according to The American Accounting
Association in its Statement of Basic
Accounting Theory:
- Accounting is the process of
identifying, measuring and
communicating economic
information to permit informed
judgement and decision by users of
the information.
Important Points:
One – Accounting is about quantitative
information
Two – The information is likely to be
financial in nature
Three – The information should be
useful in decision making
- the very purpose of accounting is to
provide quantitative information to
be useful in making and economic
decision (American Accounting
Association)
this definition states that
accounting has a number of
components, namely:
a. Identifying as the analytical
component
b. Measuring as the technical
component
c. Communicating as the formal
component
a. Identifying
- recognition or nonrecognition of
business activities as “accountable”
events
- NOT all business activities are
accountable
- an event is accountable or
quantifiable when it has an effect
on assets, liabilities and equity
 - only economic activities are
emphasized and recognized in
accounting
External and Internal Transactions
economic activities of an entity are
referred to as transactions which may be
classified as external and internal
external transactions – also known as
exchange transactions, are economic
events involving one entity and another
entity.
examples: purchase of goods from a
supplier, borrowing money from a bank,
sales of goods to a customer
internal transactions – economic activities
that take place entirely within the entity.
examples: production – the process by
which resources are transformed into
products
casualty loss – any sudden and
unanticipated loss from fire, flood,
earthquake and other event ordinarily
termed as an act of god.
b. Measuring
- assigning of peso amounts to the
accountable economic transactions
and events
- if accounting information is to be
useful, it must be expressed in
terms of a common financial
denominator
- The Philippines peso is the unit of
measuring accountable economic
transactions
- The measurement bases are:
historical cost – original acquisition
cost
> the most common measure of
financial transactions
current value – includes fair value,
value in use, fulfillment value and
current cost.
c. Communicating – the process of
preparing and distributing
accounting reports to potential
users of accounting information.
- the reason why accounting has
been called the “universal
language of business”
- implicit in the communication
process are the recording,
classifying, and summarizing
aspects of accounting.
Recording – also called as
journalizing, is the process of
systematically maintaining a
record of all economic business
transactions after they have
been identified and measured.
Classifying - sorting or grouping
of similar and interrelated
economic transactions into their
respective classes
- accomplished by posting to the
ledger
- ledger – group of accounts
which are systematically
categorized into asset accounts,
liability accounts, revenue
accounts, and expenses
accounts.
Summarizing – the preparation
of financial statements which
include the statement of
financial position, income
statement, statement of
comprehensive income,
statement of changes in equity,
and statement of cash flows.
Accounting as an information
system
Accounting is an information
system that measures business
activities, processes information
into reports and communicates
the reports to decision makers.
financial statements – key
product of accounting
- documents that report financial
information about an entity to
decision makers.
- financial reports tell us how
well an entity is performing in
terms of profit/loss and where it
stands in financial terms.
Limitation of the Practice of Public
Accountancy
- Single practitioners and
partnerships for the practice of
public accountancy shall be
registered certified public
accountants in the Philippines.
- A certificate of accreditation shall
be issued to CPAs 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 areas of public
practice including taxation.
- The SEC shall not register any
corporation organized for the
practice of public accountancy.
Accreditation to practice public
accountancy
CPAs, firms and partnership of CPAs,
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.
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.
CPAs generally practice their
profession in three main areas:
a. Public accounting – composed of
individual practitioners, small
accounting firms and large
multinational organizations that
render independent and expert
financial services to the public
- usually offer three kinds of
services: auditing, taxation, and
management advisory services.
Auditing – the primary service
offered by most public accounting
practitioners.
- the examination of financial
statements by independent CPA for
the purpose of expressing an
opinion as to the fairness with
which the financial statements are
prepared.
Taxation – preparation of annual
income tax returns and
determination of tax consequences
of certain proposed business
endeavors.
Management Advisory Services –
services to clients on matters of
accounting, finance, business
policies, organization procedures,
product costs, distribution and
many other phases of business
conduct and operations.
example: advice on installation of
computer system, quality control,
installation and modification of accounting
system, budgeting, forward planning and
forecasting
b. Private accounting
- many CPAa are employed in business
entities in various capacity as accounting
staff, chief accountant, internet auditor
and controller
- controller – highest accounting officer
- major objective: assist management in
planning and controlling the entity’s
operations
c. Government accounting
- encompasses the process of analyzing,
classifying, summarizing and
communicating all transactions involving
the receipt and disposition of government
funds and property and interpreting the
results thereof
- focus: custody and administration of
public funds
- CPAs may be employed in these
branches of the government
a. Bureau of Internal Revenue
b. Commission on Audit
c. Department of Budget and
Management
 d. Securities and Exchange
Commission
e. Bangko Sentral ng Pilipinas
COUNTINUING PROFESSIONAL
DEVELOPMENT
Continuing Professional Development –
the inculcation and acquisition of
advanced knowledge, skill, proficiency,
and ethical and moral values after the
initial registration of the CPA for
assimilation into professional practice and
lifelong learning.
- raises and enhances the technical
skill and competence of the CPA
RA No. 10912 – law mandating and
strengthening the continuing professional
development program for all regulated
professions
CPD Credit Units – credit hours required
for the renewal of CPA license and
accreditation of a CPA to practice the
accountancy profession every three years
- all CPA regardless of area or
sector of practice shall be required
to comply with 120 CPD credit units
- required for the renewal of CPA
license
- 120 CPD credit units are required
for accreditation of a CPA to
practice the accountancy
profession.
- mandatory
- exemption: a CPA shall be
permanently exempted from CPD
requirements upon reaching the
age of 65 years
accounting vs auditing
accounting – constructive
ceases when financial statements
are already prepared
auditing – analytical
examines the financial statements
to ascertain whether they are in
conformity with GAAP
accounting vs bookkeeping
bookkeeping – procedural, concerned
with development and maintenance of
accounting records
- “how” of accounting
accounting – conceptual; concerned with
the why, reason or justification for any
action adopted
accounting vs. accountancy
accountancy – profession of accounting
practice
accounting – reference to a particular  ensure comparability and
field of accountancy (i.e., public uniformity in financial
accounting, private accounting and statements
government accounting)

financial accounting vs. managerial

accounting
financial accounting – concerned with
recording of business transactions and
the eventual preparation of financial
statements
- emphasizes reporting to creditors and
investors (external users)

managerial accounting – the

accumulation and preparation of financial
reports for internal users only (within an
entity)

GAAP (Generally Accepted Accounting

Principles)
- accounting rules, procedures,
practice and standards followed in
the preparation and presentation of
financial statements
- purpose:
 identify proper accounting
practices for the preparation &
presentation of financial
statements
 create a common understanding
between preparers and users of
financial statements particularly
the measurement of assets and
liabilities