Lesson 1

Financial accounting

Financial accounting

The process leading to the preparation of financial reports for internal and external use.

Financial Reporting Standards Council

The accounting standard setting body created by the Professional Regulation Commission upon recommendation of the Board of Accountancy to assist the BOA in carrying out its powers and functions provided under R.A. Act No. 9298.

Identifying

This accounting process is the recognition or nonrecognition of business activities as accountable events.

External transactions

Exchange transactions are those economic events involving one entity and another entity

Internal transactions

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

General purpose accounting information

designed to meet the common needs of most statement users.

Special purpose accounting information

designed to meet the specific needs of particular statement users which are managerial accounting and tax basis accounting.

Internal users

active owners of the business and management

External users

inactive owners, creditors and lenders, suppliers, potential investors, taxing authorities, regulatory bodies, employees and employee unions, financial analysts, financial advisers and consultants, and the general public

Direct users

They use financial information as a tool to protect their own interest in the enterprise.

Indirect users

They use financial information to provide advice to or protect the interest of a direct user.

Board of Accountancy

is responsible for preparing and grading the Philippine CPA examination.

Measuring

This accounting process is the assigning of peso amounts to the accountable economic transactions and events.

Historical cost

is the original acquisition cost and the most common measure of financial transactions.

Communicating

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

Current value

includes fair value, value in use, fulfillment value and current cost

Financial statements

Primary means of communicating financial information to external parties.

Financial Statements

it consists of statement of financial position, income statement or statement of comprehensive income, statement of cash flows, and statement of changes in equity

Objective of financial reporting

Providing useful financial information to investors, lenders, and creditors.

Financial statements

provide at the least cost the most useful information possible to a wide variety of users.

Financial statements

output where users can use to enhance their decisions.

Equity investors and creditors

are the primary user groups and have the most critical and immediate needs for information in the financial statements.

Entity perspective

Viewing the company as separate from its investors.

Decision-usefulness

Information in financial statements aiding investors in assessing cash inflows.

Accounting

information about business.

Business transactions

has economic effect that is recognized in books.

Financial Accounting

is focused on the recording of business transactions and the periodic preparation of reports on financial position and results of operations.

Management Accounting

Involves decision-making support and financial expertise for organizational strategy.

Areas of Accounting

Public, Private, Government, and Academe sectors.

Service of Accounting

Includes financial statements, auditing, taxation, and advisory services.

R.A. 9298

This law outlines regulations of accountancy and gives designation to CPA.

International Accounting Standards Board

The main international standard setting organization that issued IFRS.

International Accounting Standards Board (IASB)

it replaced IASC in 2001.

International Accounting Standards Board

they hold no authority to require compliance with its accounting standards.

International Accounting Standards Board (IASB)

it is appointed by trustees that have 14 members where 3 members may be part-time members. They have a term of five years that is renewable once.

International Accounting Standards Committee (IASC)

formed in 1973 and issued 41 IAS.

International Financial Reporting Standards (IFRS)

are used by most foreign exchanges.

International Accounting Standards (IAS)

fall under IASC

IFRS Foundation

Appoints members, reviews effectiveness, and fundraises for IASB.

IFRS Foundation

has 22 trustees with a term of three years that is renewable once.

IFRS Foundation

is the new name of the IASC Foundation which has been approved in January 2010 and the change formally took effect on July 1, 2010.

IFRS Interpretations Committee

Formerly known as IFRIC. Identifies and resolves financial reporting issues within IFRS. They shall meet as and when required and 10 voting members shall constitute a quorum.

IFRS Interpretations Committee

has 14 members and the term is renewable every 3 years.

IFRS Advisory Council

formerly called the Standards Advisory Council. Provides advice to IASB on policies and technical issues.

Accounting Standard Council (ASC)

The original accounting standard setting body in the Philippines. Ceated by PICPA on November 19, 1981.

PICPA

Philippine Institute of Certified Public Accountant

Philippine Accounting Standards (PAS)

adopted from IAS.

Philippine Financial Reporting Standards (PFRS)

adopted from IFRS.

Financial Sustainability Reporting Standards Council (FSRSC)

the new accounting standard setting body in the year of 2004 because of R.A. 9298.

Financial Sustainability Reporting Standards Council (FSRSC)

has 15 members including the chairman.

Practice of Public Accountancy

involves rendering of audit or accounting related services to more than one client on a fee basis.

Practice in Commerce and Industry

Refers to employment in the private sector in a position which invloves decision making requiring professional knowledge in the science of accounting and such position requires that the holder thereof must be a CPA.

Practice in Academe

Employment in an educational institution which involves teaching of accounting, auditing, management advisory services, finance, business law, taxation, and other technically related subjects.

Practice in the Government

Employment or appointment to a position in an accounting professional group in the government.

Public Accounting

auditing, taxation, and management advisory services

Private Accounting

accounting staff, chief accountant, internal auditor and controller.

Government Accounting

Bureau of Internal Revenue, Commission on Audit, Department of Budget and Management, Securities and Exchange Commission, and Bangko Sentral ng Pilipinas.

Accounting

Reference only to a particular field

Accountancy

Refers to the profession of accounting practice.

Bookkeeping

Procedural and largely concerned with development and maintenance of accounting records

"How" of accounting

Bookkeeping

January 2005

The Philippines is fully compliant with IFRS effective __, a process which was started back in 1997 in moving from US GAAP to IFRS

2006

The Financial Reporting Standards Council (FRSC) was established to replace and takeover the functions of the ASC.

PFRS consists of:

• Specific Philippine Financial Reporting Standards (PFRS), which are adopted from the IFRSs

• Philippine Accounting Standards (PAS), which are adopted from the IAS

• Philippine Interpretations, which are adopted from the interpretations of the IFRIC and the SIC

• Interpretations of the PIC

Statement of Financial Accounting Standards (SFAS)

The accounting standards developed by the ASC in early years.

Philippine Interpretation Committee (PIC)

Formed by FSRSC in August 2006.