The Accountancy Profession

Accounting is a service activity and the function is to provide quantitative information, primarily financial in
nature, about economic entities, that is intended to be useful in making economic decision. (Accounting
Standards Council)

Overall Objective: To provide quantitative financial information about an entity that is useful in making
economic decision.
Components of Accounting: Identifying- accounting process is the recognition or nonrecognition
1. Identifying (analytical) of business activities as accountable events.
2. Measuring (technical)
3. Communicating (formal)
Not all business activities are accountable
The subject matter of accounting is economic activity or the measurement of economic resources and
economic obligations
Sociological and psychological matters are beyond the province of accounting

External transaction Internal transactions

Known as exchange transactions are those economic events
involving one entity and another entity.
 Purchase of goods from supplier
 Borrowing money from a bank
 Sale of goods to a customer
 Payment of salaries to employees
 Payment of taxes to the government
Economic events involving the entity only
 Production is the process by which resources are
transformed into products
 Casualty is any sudden and unanticipated loss from fire,
flood, earthquake and other event ordinarily termed as
an act of God.

Measuring- the assigning of peso amounts to the accountable

Historical cost is the most common financial attribute used in measuring financial information

Communicating- is the process of preparing and distributing accounting reports to potential users of accounting
information.

Communicating process is 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 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 classes. It is accomplished by posting to the ledger. The ledger is a group of accounts which
are systematically categorized into asset, liability, equity, revenue and expense accounts.
Summarizing is the preparation of financial statements.
R.A 9298 “Philippine Accountancy Act of 2004- the law regulating the practice of accountancy in the
Philippines.

Board of Accountancy- it is the body authorized by law to promulgate rules and regulations affecting the
practice of the accountancy profession in the Philippines.

SEC shall not register any corporation organized for the practice of public accountancy

Main Areas in the Practice of the Accountancy Profession:

 Public accounting
 Private accounting
 Government accounting

Public accounting- composed of individual practitioners, small accounting firms and large multinational
organizations that render independent and expert financial services to the public.

 Auditing is the primary services of CPAs in public practice. Auditing or 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. External
auditing is the attest function of the independent CPAs.
 Taxation service include the preparation of annual income tax returns and determination of tax
consequences of certain proposed business endeavors.
 Management advisory services has no precise coverage but it refer to services to clients on matters of
accounting, finance, business policies, organization procedures, product costs, distribution and etc.
o Advice on installation of computer system
o Quality control
o Installation and modification of accounting system
o Budgeting
o Forward planning and forecasting
o Design and modification of retirement plans
o Advice on mergers and consolidations

Private accounting- accountants employed in entities in various capacity as accounting staff, chief accountant or
controller.
Highest accounting officer in an entity is known as the controller.
The major objective of the private accountant is to assist management in planning and controlling the entity’s
operations.

Government accounting- it is the area of the accountancy profession that 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
Bureau of Internal Revenue
Commission on Audit
Department of Budget and Management
Securities and Exchange Commission
Bangko Sentral ng Pilipinas

Continuing professional development refers to the inculcation and acquisition of advanced knowledge, skill,
proficiency and ethical and moral values after the initial registration of the CPA for accumulation into
professional practice and lifelong learning.

Raises and enhances the technical skill and competence of the CPA
The Continuing Professional Education is required for both renewal of CPA license and
accreditation to practice the accountancy profession.

CPD credit units or CPE credit hours required: 60 credits units for three years, provided that a minimum of
15 credit units shall be earned each year.

65 year old CPA- permanently exempted from the CPE requirement for the renewal of CPA license.

Accounting versus Auditing, Bookkeeping and Accountancy

Accounting Auditing
Embraces auditing. One of the areas of accounting.
Constructive in nature. Ceases when FS are already prepared. Analytical. Begins when the work of accountant ends.
Accounting Bookkeeping
Conceptual and is concerned with the why, reason or Procedural and largely concerned with development and
justification for any action adopted. maintenance of accounting records. “How of accounting”
Accounting Accountancy
Used in reference only to a particular field of accountancy Profession of accounting practice

Financial Accounting versus Managerial Accounting

Financial Accounting Managerial Accounting
Primarily concerned with the recording of business transactions Accumulation and preparation of financial reports for internal users
and the eventual preparation of FS only
Emphasizes reporting to creditors and investors Emphasizes developing accounting information for use within an
entity.
Need to follow GAAP Not need to follow GAAP
Generally Accepted Accounting Principles (GAAP)
 Rules, procedures, practice and standards followed in the preparation and presentation of financial
statements.
 Developed on the basis of experience, reasons, custom, usage and practical necessity.
 The process of establishing GAAP is a social process which incorporates political actions of various
interested user groups as well as professional judgment, logic and research.

Purpose: identify proper accounting practices for the preparation and presentation of financial
statements.
Create common understanding between preparers and users of financial statements particularly the
measurements 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

Financial Reporting Standards Council

 It is the accounting standard setting body in the Philippines at the present time.
 The FRSC is created by Professional Regulation Commission upon recommendation of the Board of
Accountancy in carrying out its powers and functions under R.A 9298.
 The main function is to establish and improve accounting standards that will be generally accepted in the
Philippines.
 The FRSC shall be composed of 15 with a Chairman and 14 representatives.
 The Chairman and members of FRSC are appointed by Professional Regulation Commission upon
recommendation of the Board of Accountancy and shall have a term if three years renewable for another
term.

Philippine Interpretations Committee

 The role is to prepare interpretations of PRFS for approval by the FRSC and to provide timely guidance on
financial reporting issues not specifically addressed in current PFRS.
 Intended to give authoritative guidance on issue that are likely to receive divergent or unacceptable
treatment because the standards do not provide specific and clear-cut rules and guidelines.

International Financial Reporting Standards

It is a “global phenomenon” intended to bring about transparency and a higher degree of comparability in
financial reporting in order to achieve the goal of one uniform and globally accepted financial reporting
standards.

International Accounting Standards Committee

 Independent private sector body, with the objective of achieving uniformity in the accounting principles
which are used by business and other organization for financial reporting around the world.
 Formed in June 1973 though an agreement made by professional accountancy bodies.
 Headquartered in London, United Kingdom
 Objectives:
o 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.
o To work generally for the improvement and harmonization of regulations, accounting standards and
procedures relating to the presentation of financial statements.

International Accounting Standard Board

 Was formed to develop a single set of high quality IFRS
 Published standards called IFRS
 Employs a “due process” system which enables interested parties to express their view on issues under
consideration.
 Adopted the body of standards issued by the IASC

Philippine Financial Reporting Standards collectively include:

 PFRS corresponding to IFRS
 PAS corresponding to IAS
 Philippine Interpretations corresponding to IFRIC and SIC Interpretations and Interpretations developed by
PIC.
Due Process in standard-setting by IASB
 IASB operates in full view of the public
 Public hearings are held on proposed standards.
 Interested parties can make their views known.

Proper application of accounting principles is most dependent upon professional judgment of the accountant.

Once an accounting standard has been established the standard is continually reviewed to see if modification is necessary.

The singularly unique function performed by Certified Public Accountants is the attest function which means that CPAs are
primarily responsible for expressing an opinion as to the fairness of financial statements.

 CPAs are licensed by state government

 Accounting standard-setting can be described as a political process which reflect political actions of
various interested user groups as well as a product of research and logic
 Continuing Professional Development is required for both renewal of CPA license and accreditation to
practice the accountancy profession
 IASB promotes the use of high quality and understandable global accounting standards
 The IASB declared that the merits of proposed standards are assessed from a position of neutrality.
 Standard-setting process includes Discussion paper, research, exposure draft and accounting standard
 The IASB employs a due process system which enables interested parties to express their views on issues
under consideration
 Possible danger if politics plays too big a role in developing IFRS: Financial reporting standards are not
truly generally accepted
 IFRIC Interpretations issued by IASB
o Are considered authoritative and must be followed
o Cover newly identified financial reporting issues not specifically addressed.
o Cover issues where unsatisfactory or conflicting interpretations have developed.
 Financial accounting is concerned with general purpose reports on financial position and financial
performance
 Financial accounting can be broadly defined as the area of accounting that prepares general purpose
financial statements to be used by parties both internal and external to the entity
 Financial accounting emphasizes reporting to creditors and investors
 GAAP derive their credibility and authority from general recognition and acceptance by the accountancy
profession.
 The primary responsibility for properly applying GAAP lies with management