The Accountancy Profession

Financial Accounting and Reporting

1. Accounting, definition
a) The accounting function is to provide quantitative information, primarily financial in nature, about economic
entities, that is intended to be useful in making economic decisions.

2. Accounting, components
a) identifying (analytical component)
i. this accounting process is the recognition or nonrecognition of business activities as “accountable” events
(also known as “economic activity” or “transaction”).
1. an event is accountable (or quantifiable) when it has an effect on assets, liabilities and equity.
b) measuring (technical component)
i. this accounting process is the assigning of peso amounts to the accountable economic transactions and
events.
c) communicating (formal component)
i. is the process of preparing and distributing accounting reports to potential users of accounting
information.
ii. implicit in the communication process are the recording, classifying and summarizing aspects of accounting
1. recording (or journalizing)
a) is the process of systematically maintaining a record of all economic business transactions after they
have been identified and measured.
2. classifying
a) is the sorting or grouping of similar and interrelated economic transactions into their respective
classes.
b) this is accomplished by posting to the ledger.
i. the ledger is a group of accounts which are systematically categorized into asset accounts,
liability accounts, equity accounts, revenue accounts and expense accounts.
3. summarizing
a) is the preparation of financial statements which include the
i. statement of financial position
ii. income statement
iii. statement of comprehensive income
iv. statement of changes in equity
v. statement of cash flows

3. Transactions, classifications
a) External transactions (or exchange transactions)
i. are those economic events involving one entity and another entity.
b) Internal transactions
i. are economic events involving the entity only.

4. Accounting as an information system

a) accounting is an information system that measures business activities, processes information into reports and
communicates the reports to decision makers.
b) a key product of this information system is a set of financial statements – the documents that report financial
information about an entity to decision makers.
c) financial reports tell us how well an entity is performing in terms of profit and loss and where it stands in financial
terms.

5. Accounting, overall objective

a) to provide quantitative financial information about a business that is useful to statement users particularly owners
and creditors, in making econiomic decisions.

6. The accountancy profession

a) at present, Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines.
b) this law is known to as the “Philippine Accountancy Act of 2004”.
c) in the Philippines, in order to qualify to practice the accountancy profession, a person must finish a degree in
Bachelor of Science in Accountancy and pass a government examination given by the Board of Accountancy.
d) The Board of Accountancy is the body authorized by law to promulgate rules and regulations affecting the
practice of the accountancy profession in the Philippines.
e) The Philippine CPA examination is offered twice a year, one in May and another one in October, in authorized
testing centers around the country.
7. Limitation of the practice of public accountancy
a) single practitioners and partnerships for the practice of public accountancy shall be registered certified public
accountants in the Philippines.
b) a certificate of accreditation shall be issued to certified public accountants 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 of the areas of public practice including taxation.
c) the Securities and Exchange Commission shall not register any corporation organized for the practice of public
accountancy.

8. Accreditation to practice public accountancy

a) Certified public accountants, firms and partnerships of certified public accountants, 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.
b) The Professional Regulation Commission 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.

9. Certified Public Accountants generally practice their profession in three main areas, namely:
a) Public accounting
i. individual practitioners and accounting firms render independent and expert financial services to the public.
ii. public accountants usually offer three kinds of services, namely
1. auditing (or external auditing)
a) 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.
i. The Bureau of Internal Revenue requires audited financial statements to accompany the filing of
annual income tax return.
2. taxation
a) services include the preparation of annual income tax returns and determination of tax
consequences of certain proposed business endeavors.
3. management advisory services
a) the term is used generally to refer 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.
b) Private accounting
i. Many Certified Public Accountants are employed in business entities in various capacity as accounting staff,
chief accountant, internal auditor and controller.
ii. The highest accounting officer in an entity is known as the controller.
iii. The major objective of the private accountant is to assist management in planning and controlling the entity's
operations.
iv. Private accounting includes maintaining the records, producing the financial reports, preparing the budgets
and controlling and allocating the resources of the entity.
v. The private accountant has also the responsibility for the determination of the various taxes the entity is
obliged to pay.
c) Government accounting
i. 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.

10. Continuing Professional Development (CPD)

a) refers to the inculcation and acquisition of advanced knowledge, skill, proficiency, and ethical and moral values
after the initial registration of the Certified Public Accountant for assimilation into professional practice and lifelong
learning.

11. CPD credit units

a) refer to the CPD credit hours required for the renewal of CPA license and accreditation of a CPA to practice the
accountancy profession every three years.
b) under the new BOA Resolution, all Certified Public Accountants regardless of area or sector of practice shall be
required to comply with 120 CPD credit units in a compliance period of three years.
i. excess credit units earned shall not be carried over to the next three-year period, except credit units earned
for masteral and doctoral degrees.
ii. a CPA shall be permanently exempted from CPD requirements upon reaching the age of 65 years.
1. However, this exemption applied only to the renewal of CPA license and not for the purpose of
accreditation to practice the accountancy profession.

12. Accounting versus bookkeeping

a) bookkeeping is procedural and largely concerned with development and maintenance of accounting records.
b) accounting is conceptual and is concerned with the why, reason or justification for any action adopted.
i. it includes the processes of identifying, measuring and summarizing.
13. Financial accounting versus managerial accounting
a) financial accounting
i. is primarily concerned with the recording of business transactions and the eventual preparation of financial
statements for creditors and investors.
b) managerial accounting
i. is the accumulation and preparation of financial reports for internal users only.

14. Generally Accepted Accounting Principles (GAAP)

a) represent the rules, procedures, practice and standards followed in the preparation and presentation of financial
statements.
b) are like laws that must be followed in financial reporting.

15. Purpose of accounting standards

a) to identify proper accounting practices for the praparation and presentation of financial statements.
b) create a common understanding between preparers and users of financial statements particularly the
measurement of assets and liabilities.
c) to ensure comparability and uniformity in financial statements.

16. Financial Reporting Standards Council (FRSC)

a) the accounting standard setting body created by the Professional Regulation Commission upon recommendation
of the Board of Accountancy to assist the Board of Accountancy in carrying out its powers and functions provided
under R.A. Act No. 9298.
b) The accounting standards promulgated by the FRSC constitute the “highest hierarchy” of generally accepted
accounting principles in the Philippines.
c) The approved statements of the FRSC are known as Philippine Financial Reporting Standards (PFRS) and
Philippine Accounting Standards (PAS).

17. Philippine Interpretations Committee (PIC)

a) was formed by the FRSC.
b) The role of the PIC is to prepare interpretations of PFRS for approval by the FRSC and to provide timely guidance
on financial reporting issues not specifically addressed in current PFRS.

18. International Accounting Standards Board

a) an independent private sector body, with the objective of achieving uniformity on the accounting principles which
are used by business and other organizations for financial reporting around the world.
b) it was formed in June 1973 through an agreement made by professional accountancy bodies from Australia,
Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United
States of America.
c) it is headquartered in London, United Kingdom.
d) publishes standards in a series of pronouncements called “International Financial Reporting Standards” (IFRS).
e) adopted the body of standards issued by International Accounting Standards Committee (IASC) which is now
replaced by IASB. The pronouncements of the IASC continue to be designated as “International Accounting
Standards” (IAS).

19. Move toward IFRS

a) at present, the FRSC has adopted in their entirety all IFRS and IAS.

20. Philippine Financial Reporting Standards (PFRS)

a) standards issued by the FRSC.
b) collectively include all of the following
i. PFRSs which correspond to IFRSs
ii. Philippine Accounting Standards (PAS) which correspond to IAS
iii. Philippine Interpretations which correspond to
1. Interpretations of the International Financial Reporting Interpretations Committee (IFRIC)
2. Interpretations of the Standing Interpretations Committee (SIC, now replaced by IFRIC)
3. Interpretations developed by the Philippine Interpretations Committee (PIC)