INTRODUCTION TO ACCOUNTANCY PROFESSION & PREFACE TO

PFRS
The Accountancy Profession

 Definition of Accounting

(a) Accounting Standards Council (ASC)

(b) Committee on Accounting Terminology of the American Institute of Certified Public Accountants (CAT of AICPA)

(c) American Accounting Association (AAA)

 Under the definition given by AAA, it stated three (3) important aspects or components of the accounting process.

 Types of events and transactions

 The Accountancy Law

 The Accountancy Fields

Under RA 9298, the practice of accountancy is sub-classified into four (4) sectors:

 Preface to PFRS
The Philippine Financial Reporting Standards (PFRSs)
 What are IFRS! PFRS! GAAP?
 Scope of PFRS
 Structure of PFRS

STANDARD SETTING PROCESS (DUE PROCESS) (5)

STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
Standard Setting Body

TABLE 1.1 (FRSC vs. IASB)

FRSC IASB
Setting
Successor
Pronouncement
Creator

TABLE 1.2 (FRSC vs ASC)

FRSC ASC

Creator

Pronouncement

Composition

COA

BOA

SEC

BSP

BIR

INSURANCE COMMISSION

MAJOR ORG OF FS PREPARERS & USERS

(FINEX)

PICPA (APO)

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The Accountancy Profession

Definition of Accounting

Accounting was defined in various ways by various organizations. Those definitions are as follows: (a)
Accounting Standards Council (ASC)

Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about

economic entities, that is intended to be useful in making economic decision.

(b) Committee on Accounting Terminology of the American Institute of Certified Public Accountants (CAT of

AICPA)

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.

(c) American Accounting Association (AAA)

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and
decision by users of the information.

Note: Based from these definitions we can say that:

1. Accounting is a user-based discipline.

2. Accounting is quantitative in nature.

3. Accounting is subject to interpretation.

The definition that has stood the test of time is the definition given by AAA.

The definition stated three (3) important aspects or components of the accounting process.

(1) Identifying process (Analytical Component)

It is the process of analyzing events and transactions to determine whether or not they will be recognized. Always remember that
only accountable events are recognized (Le. journalized). On the other hand non-accountable events are not recognized but disclosed
in the notes to financial statements if they have accounting relevance.

Types of events and transactions

a) External Events - are transactions involving the entity and another entity.

a.1) Exchange - an event wherein there is a reciprocal giving and receiving of economic resources or extinguishment
of obligations. Examples: sale, purchase, payment of liabilities.
 a.2) Non-reciprocal transfer - is a one way transaction wherein the entity giving does not receive anything in

return. Examples: donation or gifts, payments of taxes and fines,· theft, provision of capital.

a.3) External event other 'than transfer - an event that changes an entity's economic resources or obligations
caused by an external party or event but does not involve transfer of resources or obligations, Examples:
changes in fair value, vandalism, obsolescence.

b) Intemal events - are events that do not involve outside party or event. b.1)
Production b.2) Casualty

(2) Measuring process (Technical Component)

It is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and
carried in the balance sheet and income statement.

(3) Communicating process (Formal Component)

It is the process of preparing and distributing accounting reports to potential users of accounting information. Implicit
in the communication process are the recording, classifying and summarizing aspects of accounting.
• Recording or journalizing is the process of systematically maintaining a record of all economic business
transactions after they have been identified and measured.
• Classifying is the sorting or grouping of similar and interrelated economic transactions into their respective
class. Actually, classifying is accomplished by posting to the ledger.
• Summarizing is the preparation of financial statements which include the statement of financial position, income
statement, statement of comprehensive income, statement of cash flows and statement of changes in equity.
The Accountancy Law
Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines. This law is known as the
"Philippine Accountancy Act of 2004".
The Professional Regulatory Board of Accountancy (PR-BOA) is the body authorized by law to promulgate the rules and
regulations.
The Accountancy Fields
Under RA 9298, the practice of accountancy is sub-classified into four (4) sectors:
(1) Practice in Public Accountancy - involves rendering of accounting and auditing services to one or more client on a
fee basis.
Services rendered:
(a) Auditing has traditionally been the primary service offered by most public accounting practitioners. Auditing or
specifically external auditing is the "examination of financial statements by independent certified public
accountant for the purpose of expressing an opinion as to the fairness with which the financial statements are
prepared". This represents the "ATTEST FUNCTION" of CPAs.
(b) Taxation service includes the preparation of annual income tax returns and determination of tax consequences of
certain proposed business endeavors. The CPA not infrequently represents the client in tax investigations.
(c) 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.
Limitations:
(a) Certificate of Accreditation
• Requires three (3) year meaningful experience.
• CPD requirements
(b) No corporation form is allowed to be registered for the practice of public accountancy.
(2) Practice in Commerce and Industry - also known as private accounting. This refers to employment in the private
sector in a position which involves decision making requiring professional knowledge in the science of accounting.
The highest accounting officer in a business entity is the controller.
(3) Practice in Education or Academe - employment in an education institution which involves teaching of accounting,
auditing, MAS, law, taxation, finance and other related subjects.
(4) Practice in the Govemment - employment or appointment to a position in an accounting professional group in the
government or GOCC which involves decision making requiring professional knowledge in the science of accounting or
where civil service eligibility as a CPA is a pre-requisite.
Note: Generally speaking, practicing under numbers 2-4 above are considered in private practice.
Preface to PFRS
The Philippine Financial Reporting Standards (PFRSs)
(a) What are IFRS! PFRS! GAAP?
Are the laws in accounting, used as a guide in the preparation of financial statements. PFRSs are guiding principles
rather than law, technically speaking. Meaning, PFRSs are principle-based rather than rule based.
PFRSs set out recognition, measurement, presentation and d,sclosure requirements dealing with transactions and
events that are important in general purpose financial statements.

(b) Scope of PFRS

PFRSs apply to all profit-oriented entities preparing general purpose financial statements. These financial statements are
directed towards the common information needs of a wide range of users.

(c) Structure of PFRS

Standards approved by FRSC include paragraphs in bold type and plain type, which have equal authority. Paragraphs in
bold type indicate the main principles while paragraphs in plain type indicate supporting principles.
Any limitation of the scope of PFRS is made clear in the standard.
Standard Setting
(a) Standard Setting Bodies
The current standard setting body in the Philippines is the Financial Reporting Standards Council (FRSC) while the
current standard setting body internationally is the International Accounting Standards Board (IASB). FRSC is the
successor of Accounting Standards Council (ASC). To fully understand these bodies, let us differentiate them.
Table 1.1 (FRSC vs. IASB)
FRSC IASB
(a) Setting Local International
(b) Successor of ASC IASC (c)
Pronoucement PFRS IFRS
(d) Creator BOA (2006) IFRS Foundation (2001)

Table 1.2 (FRSC vs. ASC)

FRSC ASC
(a) Creator BOA (2006) PICPA (1981) (b)
Pronouncement PFRS PAS
(c) Composition Chairman + 15 members 8 members lnctudmo chairman
COA 1 -
BOA 1 1
SEC 1 1
BSP 1 1
BIR 1 -
Insurance Commission* 1 -

Major Org. of FS Preparers and

Users (FINEX) 1 1
PICPA (APO) 8 4
 2 per sector 1 per sector
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* Due to the issuance of PR-BOA Resolution No. 29, the membership in FRSC was increased from fifteen (15)
to sixteen (16) members to include a representative from the insurance commission.

The pronouncements of FRSC are called PFRS, collectively known as:

(a) PFRS - corresponding to IFRS (b)

PAS - corresponding to lAS
(c) Philippine Interpretations - corresponding to interpretations issued by IFRIC and SIC of IASC and
interpretations issued by PIC.
Note: Interpretations are issued to give authoritative guidance on issues that are likely to receive divergent or
unacceptable treatment, in the absence of such guidance. Philippine Interpretations Committee (PIC) is created by
FRSC.
(b) FRSC's appointment and term of office
The chairman and all the members of FRSC are appointed by PRC upon recommendation of BOA in coordination with
APO, with a term of 3 years and are renewable for another term. Any member of ASC is not disqualified from being
appointed to FRSC.
FRSC members are required to render service to the council on a part-time basis without compensation. The
chairman should be a senior practitioner in any scope of accounting practice.

(c) The Standard Setting Process (Due Process)

PFRSs are developed through a due process that involves accountants and various interested parties and individuals. Due
process normally involves the following steps.
STEP 1: Consideration of pronouncements of the IASB.
STEP 2: Formation of a task force, When deemed necessary, to give advice to FRSC.
STEP 3: Issuing for comment an exposure draft approved by a majority of the FRSC members; comment period will be
at least 60 days, unless a shorter period (not less than 30 days) is considered appropriate by the FRSC.
STEP 4: Consideration of all comments received within the comment period and, when appropriate, preparing a
comment letter to the IASB.
STEP 5: Approval of a standard or an interpretation by a majority of the FRSC members.