CHAPTER 1: Accounting Profession

ACCOUNTING STANDARDS COUNCIL (ASC)

- 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 decisions.
COMMITTEE ON ACCOUNTING TERMINOLOGY OF THE AMERICAN ISNTITUTE 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.
AMERICAN ACCOUNTING ASSOCIATION (AAA)
- Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgement and decision by users of the information.

ACCOUNTING
- The very purpose of accounting is to provide quantitative information to be useful in making
an economic decision.
QUANTITATIVE FINANCIAL IN NATURE DECISION MAKING
INFORMATION
Accounting is about The information is likely to be The information should be
quantitative information. financial in nature. useful in decision making.

COMPONENTS OF ACCOUNTING
1. IDENTIFYING
The process of analyzing events and transactions to determine whether or not they
will be recognized.
NONACCOUNTABLE EVENTS or
ACCOUNTABLE EVENTS
QUANTIFIABLE
or QUANTIFIABLE
- Not recognized but is disclosed in the
- When it has an effect
notes through explanations of the financial
on assets, liabilities
statement.
and equity.
- These are important events.

- Only
accountable
RECOGNIZING refers to the process of including the effects of an accountable event in the
events are
statement of financial position (Balance Sheet) or the statement of comprehensive income (Income
Statement) through a journal entry. recognized.
 TYPES OF EVENTS or TRANSACTIONS
1. EXTERNAL EVENTS
- Events that involve an entity and another external party.
TYPES OF EXTERNAL EVENTS
Exchange (Reciprocal Transfer) - An event wherein there is a reciprocal giving and discharging of
economic obligations between an entity and an external party.
Non-reciprocal Transfer – 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.
External Event 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.

2. INTERNAL EVENTS
- Events that do not involve an external party.
- Economic activities take place within the entity.
TYPES OF INTERNAL EVENTS
Production – process by which resources are transformed into finished goods.
Casualty – an unanticipated loss from disasters or other similar events.

MEASURING
- The assigning of numbers, normally in monetary terms, to the economic transactions and
events.
o Historical cost – the most commonly used cost.
o Fair value
o Present value
Philippine Peso
o Realizable value
o Current cost - The unit of measuring
o Replacement cost accountable economic
o Inflation-adjusted costs. transactions in the
Philippines.
COMMUNICATING
- The process of transforming economic data into useful accounting information, such as
financial statements and other accounting reports, for dissemination to users.
- also involves the interpreting the significance of the processed information.
- involves the computation of financial statement ratios. (Some regulatory bodies, such as the Bangko
Sentral ng Pilipinas (BSP), require certain financial ratios to be disclosed in the notes to financial statements.)

COMMUNICATION PROCESS
1. RECORDING – the process of systematically committing into writing the identified and
measured accountable events in the journal through journal entries. JORNALIZING
2. CLASSIFYING – the grouping of similar and interrelated items into their respective
classes through posting in the ledger. POSTING THE LEDGER
LEDGER – a group of accounts which are systematically categorized into asset
accounts, liability accounts, equity accounts, revenue accounts and expense accounts.
3. SUMMARIZING – putting together or expressing in condensed form the recorded and
classified transactions and events. This includes the preparation of the financial
statements and other accounting reports. FINANCIAL STATEMENTS

ACCOUNTING AS AN INFORMATION SYSTEM

- measures business activities, processes information into reports and communicates the reports
to decision makers.
Financial Statements are the key products of this information system. These are the documents that
report financial information about an entity to decision makers.
Financial reports tell us how well an entity is performing in terms of profits and loss and where it
stands in financial terms.

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.
THE ESSENCE of accounting is decision-usefulness.
ACCOUNTANT’s primary task is to supply financial information so that statement users could
make informed judgement and better decision.

Certified Public Accountants practice their profession in THREE MAIN AREAS;

1. Public Accounting – Public accounts offers three kinds of services; auditing, taxation and
management advisory services.
AUDITING – primary service.
 Auding or external auditing (attest function of independent CPAs) 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.
 Taxation – the preparation of annual income tax returns and determination of
tax consequences of certain proposed business endeavors.
 Public accountants must be thoroughly knowledgeable with the tax laws and
regulations and updated with changes in taxation law and court cases
concerned with interpreting taxation law.
 Management advisory services has no precise coverage but 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.
2. Private Accounting -many CPAs are employed in business entities in various capacity as
accounting staff, chief accountant, internal auditor and the highest accounting office in an
entity – the controller.
The major objective is to assist management in planning and decontrolling the
entity’s operations.
Private accounting includes maintain the records, producing the financial reports,
preparing the budgets and controlling and allocating the resource of entity.
Responsible for the determination of the various taxes the entity is obliged to pay.
3. 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.
The focus of government accounting is the custody and administration of public
funds.
ACCOUNTING vs AUDITING
In a broad sense, accounting embraces auditing
Auditing Accounting
- One of the areas of accounting - Essentially constructive in nature, in a
specialization limited sense.
- Is analytical - Ceases when financial statements are
- An auditor’s work begins when the work prepared.
of an accountant ends
- Examines the financial statements to
ascertain whether they are in conformity
with GAAP

ACCOUNTING vs BOOKKEEPING
ACCOUNTING BOOKKEEPING
- Conceptual - Procedural
- Concerned with the why, reason or - largely concerned with development and
justification for any action adopted. maintenance of accounting records.
- The how of accounting

ACCOUNTING vs ACCOUNTANCY
Broadly speaking, the two are synonymous as they refer to the entire field of accounting theory
and practice.
ACCOUNTING ACCOUNTANCY
- Refers to the profession of accounting - Used in reference only to a particular
practice field of accountancy (public accounting,
private accounting and government
accounting.)

FINANCIAL ACCOUNTIGN vs MANAGERIAL ACCOUNTING

FINANCIAL MANAGERIAL
- Primarily concerned with the recording - Accumulation and preparation of
of business transactions and the eventual financial reports for internal users only.
preparations of financial statements. - Emphasizes developing accounting
- Focuses on general purpose report information for use within an entity.
knows as financial statements intended
for internal and external users.
- The area of accounting that emphasizes
reporting to creditors and investors.

Republic Act No. 9298 or PHILIPPINE ACCOUNTANCY ACT OF 2004

 - the law regulating the practice of accountancy in the Philippines.

BOARD OF ACCOUNTANCY (BOA)

- is the body authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession in the Philippines.
- under the supervision and administrative control of the Professional Regulation
Commission (PRC), shall be composed of;
o a chairman
To be appointed
o 6 members
by the President
of the Philippines.

QUALIFICATIONS OF MEMBERS a member of the Board shall, at the time of his/her

appointment, possess the following qualifications:
1. Must be a natural-born citizen and a resident of the Philippines.
2. Must be a duly registered Certified Public Accountant with at least ten (10) years of work
experience in any scope of practice of accountancy.
3. Must be of good moral character and must not have been convicted of crimes involving moral
turpitude.
4. Must not have any pecuniary interest, directly or indirectly:
a. in any school, college, university or institution conferring an academic degree
necessary for admission to the practice of accountancy; (bawal sya involve or teacher or
nagwork in a school nga nay Accountancy subjects or any related accounting practice.)
b. in any school, college, university or institution where review classes in preparation
for the licensure examination are being offered or conducted; (same sa a, bawal ang
member nga involve sya sa mga learning center kung asa iprepare or ihimo ang mga examinations.)
c. He/she shall not be a member of the faculty or administration at the time of his
appointment. (pwde ra sya faculty member or administration before his appointment.)
BOARD COMPOSITION
Chairman Noe G. Quiñanola
Vice Chairman Samuel B. Padilla
MEMBERS;
Thelma S. Ciudadano
Gervacio I. Piator
Maria Teresita Zuñiga-Dimaculangan

PRACTICE OF ACCOUNTANCY
The practice of accounting can be broadly classified into two:
o PUBLIC PRACTICE - does not involve an employer-employee relationship
o PRIVATE PRACTICE - involves an employer-employee relationship, meaning the
accountant is an employee.
FOUR SECTORS IN PRACTICE OF ACCOUNTANCY
1. Practice of Public Accountancy - rendering of audit or accounting related services to more than
one client on a fee basis.
2. Practice of Commerce in the Industry - 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 to 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 a certified public accountant is a prerequisite.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

- represent the rules, procedures, practice and standards followed in the preparation and
presentation of financial statements.
- like laws that must be followed in financial reporting.
PURPOSE is to identify proper accounting practices for the preparation and presentation of
financial statements.
A set of high-quality accounting
standards is a necessity to
ensure comparability and The generally accepted
uniformity in financial accounting principles in the
statements based on the same Philippines is the PHILIPPINE
financial information. FINANCIAL REPORTING
STANDARDS (PFRS).
GENERALLY ACCEPTABLE
1. the standard has been established by an authoritative accounting rule- making body, (PFRSs
adopted by the FRSC)
2. the principle has gained general acceptance due to practice over time and has been proven to
be most useful, (e.g., double-entry recording and other implicit concepts.)

PHILIPPINE FINANCIAL & SUSTAINABILITY REPORTING STANDARDS COUNCIL

(FSRSC)
- established by the Professional Regulatory Commission (PRC) to assist the Board of
Accountancy (BOA) in carrying out its power and function to promulgate accounting
standards in the Philippines.
 In September 2022, the Professional Regulatory Board of Accountancy (PRBOA) issued
Board Resolution No. 44 (s.2022) that contains the approval of the following:
 Adoption of the IFRS Sustainability Disclosure Standards that will be developed by the
International Sustainability Standards Board (ISSB) in the preparation of the general-
purpose financial statements; and
 Renaming of the Financial Reporting Standards Council (FRSC) to Financial and
Sustainability Reporting Standards Council (FSRSC).
o The change in name considers the expanded role of FSRSC in the adoption of future
Sustainability Disclosure Standards.

The Chairman must have been or is presently a

senior accounting practitioner in any of the Before it was only 15
scope of accounting practice. members. IC was newly
added to the FSRSC.
PHILIPPINE SUSTAINABILITY REPORTING COMMITTEE (PSRC)
- FSRSC established the PSRC on October 21, 2022, to evaluate the International
Sustainability Standards Board’s IFRS Sustainability Disclosure Standards for local use and
to issue local interpretation and guidance.
OBJECTIVES
1. issue implementation guidance on Philippine sustainability disclosure standards adopted by the
FSRSC from the sustainability disclosure pronouncements duly issued by the International
Sustainability Standards Board.
2. comment on exposure drafts of proposed sustainability disclosure standards issued by the ISSB
and other documents that may be issued for comment by the FSRSC
3. comment on exposure drafts of sustainability disclosure standards or proposed regulations with
sustainability reporting relevance that may be issued by financial sector regulators (and other
relevant government agencies or stakeholders, such as the SEC, BSP, IC, COA, and the Philippine Stock Exchange.)

PHILIPPINE INTERPRETATION COMMITTEE (PIC)

- The FSRSC formed the Philippine Interpretations Committee (PIC) in August 2006 to assist
the FSRSC in establishing and improving financial reporting standards in the Philippines.
- The role of the PIC is principally to issue implementation guidance on PFRSs.
- Shall deal with accounting issues of reasonably widespread importance and not issues of
concern only to a single entity or small group of entities.
OJECTIVES
1. Issue implementation guidance on Philippine Accounting Standards (PAS), Philippine Financial
Reporting Standards (PFRS) and related Interpretations (referred to as PFRSs) adopted by
FSRSC from accounting pronouncements issued by the International Accounting Standards
Board (IASB).
2. Comment on exposure drafts proposed PFRS and other document that may be issued for
comment by the FSRSC.
3. Comment on exposure drafts of proposed accounting standards and proposed regulations with
accounting relevance that may be issued by government agencies (SEC, BSP, IC, and other
government agencies).
PHILIPPINE FINANCIAL REPORTING STANDARDS
- Are Standards and Interpretations adopted by the Financial and Sustainability Reporting
Standards Council.

HIERARCHY OF REPORTING STANDARDS

An entity considers the following in descending order when selecting accounting policies.
1. Philippine Financial Reporting Standards (PFRS)
2. In the absence of a PFRS that specifically applies to a transaction or evet, management shall
use its judgement in developing and applying an accounting policy that results in information
that is relevant and reliable.
In making the judgement:
1. Management shall refer to, and consider the applicability of the following sources in
descending order:
a. Requirements in PFRS dealing with similar and related issues
b. Conceptual Framework
2. Management may also consider the following
a. Pronouncements of other standard-setting bodies
b. Accounting literature and accepted industry practices

INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)

- The standard-setting body of the IFRS Foundation with the main objectives of developing
and promoting global accounting standards.
- Established as part of the International Financial Reporting Standards Foundation or IFRS
Foundation.
OBJECTIVES
1. Formulate and publish the public interest accounting standards to be observed in the presentation
of financial statements and to promote their worldwide acceptance and observance.
2. Work generally for the improvement and harmonization of regulations, accounting standards and
procedures relating to the presentation of financial statements.
The standards issued by the IASB are the International Financial Reporting Standards (IFRSs),
composed of the following;
1. International Financial Reporting Standards (IFRSs)
2. International Accounting Standards (IASs)
3. Interpretations
INTERNATIONAL FINACIAL REPORTING INTERPRETATIONS COMMITTEE (IFRIC)
- Prepares interpretations of how specific issues should be accounted for under the application
of IFRS
i. Standards do not include specific authoritative guidance
ii. A risk of divergent and unacceptable accounting practices.

ABBREVIATIONS and STUFF

CPA – Certified Public Accountant
- an accounting professional
FSRSC – Financial Sustainability and Reporting Standard Council
- is tasked to assist the BOA with promulgating generally accepted accounting principles in the
Philippines.
PFRS – Philippine Financial Reporting Standards
BOA – Board of Accountancy
- a regulatory body that oversees the practice of accountancy and ensures compliance with professional
standards
PRC – Professional Regulation Commission

- Its mandate is to regulate and supervise the practice of the professionals who constitute the highly
skilled manpower of the country.
CPD – 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.

CPD CREDIT UNITS – the credit hours required for the renewal of CPA license and accreditation of a CPA
to practice the accountancy profession every three years. 120 CPD CREDIT UNIT (80-100-120)
 - A CPA is exempted from CPD upon reaching the age of 65 years old.

PAS – Philippine Accounting Standards

PIC – Philippine Interpretations Committee
IASC – International Accounting Standard Council
IASB – International Accounting Standard Board

- Replaced IASC.

PICPA - Philippine Institute of Certified Public Accountants

BIR – Bureau of Internal Revenue

SEC – Security Exchange Commission
BSP – Bangko Sentral ng Pilipinas

By: Ayanaaa