Chapter 1

The Accountancy Profession

**Accounting Standards Council**

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 decision.

The **Committee on Accounting Terminology** of the

**American Institute of Certified Public Accountants** provides.

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.

American Accounting Association

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

Important points

One

Accounting is about quantitative information.

Important points

Two

The information is likely to be financial in nature.

Important points

Three

The information should be useful in decision making.

The definition that has stood the test of time is the definition given by the American Accounting Association.

This definition states that the very purpose of accounting is to provide quantitative information to be useful in making an economic decision.

The definition also states that accounting has a number of

components, namely: A

Identifying as the analytical component

The definition also states that accounting has a number of

components, namely: B

Measuring as the technical component

The definition also states that accounting has a number of

components, namely: C

Communicating as the formal component.

Identifying

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


* Not all business activities are accountable.
* For example, the hiring of employees, the death of the entity president and the entering into a contract are all business activities but such events are not accountable because such activities cannot be quantified or expressed in terms of a unit of measure.

An event is accountable or quantifiable when it has an effect on

assets, liabilities and equity.

the subject matter of accounting is

economic activity or the measurement of economic resources and

economic obligations.

economic activities

Only _________ are emphasized and recognized in accounting.

external and internal.

Economic activities of an entity are referred to as transactions which may be classified as

External transactions or exchange transactions

are those economic events involving one entity and another entity.

Examples of external transaction

a. Purchase of goods from a supplier

b. Borrowing money from a bank

c. Sale of goods to a customer

d. Payment of salaries to employees

e. Payment of taxes to the government

Internal transactions

are the economic activities that take place entirely within the entity only. No other parties are involved.

examples of internal transactions

Production and casualty loss

Production

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

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

common financial denominator

If accounting information is to be useful, it must be expressed in terms of ________

unintelligible or incomprehensible

Financial statements without monetary amounts would be largely

Historical cost

is the original acquisition cost and the most

common measure of financial transactions.

Current value includes

\
* fair value
* value in use
* fulfillment value and
* current cost.

Communicating

is the process of preparing and distributing

accounting reports to potential users of accounting information.

Identifying and measuring

are pointless if the information contained in the accounting records cannot be communicated

in some form to potential users.

communicating process

is the reason why

accounting has been called the "universal language of business"

Recording or journalizing

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 accounts, liability accounts, equity accounts, revenue accounts and expense accounts.

Summarizing

is the preparation of financial statements which include the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows.

The overall objective of accounting

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

Accounting is an information system

It measures business activities, processes information into financial reports and communicates the reports to decision makers.

supply financial information so that the statement users could make informed judgment and better decision.

accountant's primary task is to

Financial reports

tell us how well an entity is performing in terms of profit and loss and where it stands in financial terms.

Republic Act No. 9298 or The Philippine Accountancy Act of 2004.

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

degree in Bachelor of Science in Accountancy and pass a very difficult government examination given by the Board of Accountancy.

In the Philippines, in order to qualify to practice the

accountancy profession, a person must finish a

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.

The Board of Accountancy

is responsible for preparing and grading the Philippine CPA examination.

May and October

This computer-based examination is offered twice a year, one in ____ and another one in __________,__ in authorized testing centers around the country.

\

Single practitioners and partnerships

They practice of public accountancy shall be registered certified public accountants in the Philippines.

certificate of accreditation

A _________ 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

The Securities and Exchange Commission

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

Certified public accountants, firms and partnerships of certified public accountants, including partners and staff members

they are required to register with the Board of Accountancy and Professional Regulation Commission for the practice of public accountancy.

\

Certificate of Registration

The Professional Regulation Commission upon favorable recommendation of the Board of Accountancy shall issue the ________ to practice public accountancy which shall be valid for 3 years and renewable every 3 years upon payment of required fees.

a. Public accounting

b. Private accounting

C. Government accounting

Certified Public Accountants generally practice their profession in three main areas, namely:

The field of public accounting or public accountancy

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

auditing, taxation and management advisory services

Public accountants usually offer three kinds of services, namely

\
As a matter of fact, large multinational accounting firms have separate division for each of these services.

Auditing

has traditionally been the primary service offered by most public accounting practitioners.

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 independent CPAs.

Taxation service

includes the preparation of annual income

tax returns and determination of tax consequences of certain proposed business endeavors.

To offer this service effectively and efficiently,

, the public accountant must be thoroughly familiar with the tax laws and regulations and updated with changes in taxation law and court cases concerned with interpreting taxation law.

Management advisory services

have become increasingly important in recent years

audit and tax services

are undoubtedly the mainstay of public accountants.

The term management advisory services has no precise coverage but is used generally to refer to services to clients on the following matters:

a. Advice on installation of computer system

b. Quality control

c. Installation and modification of accounting system

d. Budgeting

e. Forward planning and forecasting

accounting staff, chief accountant, internal auditor and controller.

PRIVATE ACCOUNTING

Many Certified Public Accountants are employed in business entities in various capacity as

controller

The highest accounting officer in an entity is known as the

assist management in planning and controlling the entity's

operations.

The major objective of the private accountant is to

records, producing the financial reports, preparing the budgets and

controlling and allocating the resources of the entity.

Private accounting includes maintaining the

custody and administration of public funds.

The focus of government accounting is the

* Bureau of Internal Revenue
* Commission on Audit
* Securities and Exchange Commission
* Bangko Sentral ng Pilipinas

Many Certified Public Accountants are employed in some branches of the government, more particularly

Republic Act No. 10912

is the law mandating and strengthening the continuing professional development program for all regulated professions, including the accountancy profession.

All certified public accountants

they shall abide by the

requirements, rules and regulations on continuing

professional development to be promulgated by the Board of

Accountancy, subject to the approval of the Professional

Regulation Commission

Continuing professional development

is the acquisition of advanced knowledge, skill and proficiency.

Continuing professional development

raises and enhances the

technical skill and competence of the Certified Public Accountant.

The CPD credit units

refer to the _______ hours required for the renewal of CPA license and accreditation of a CPA to practice the accountancy profession every three years.

120 CPD credit units

. Under the new BOA Resolution, all Certified Public

Accountants regardless of area or sector of practice shall be

required to comply with

CPA license and accreditation of CPA

The Continuing Professional Development is required for the

renewal of _______ to practice the accountancy profession.

mandatory

The Continuing Professional Development has become ________ for Certified Public Accountants.

only 15 CPD credit units

As recently promulgated, ________ are required for the renewal of CPA license.

120 CPD credit units

are required for accreditation of a CPA to practice the accountancy profession.

credit units earned for

masteral and doctoral degrees.

Excess credit units earned shall not be carried over to the

next three-year period, except

65 years.

A CPA shall be permanently exempted from CPD

requirements upon reaching the age of ______

\
However, this exemption applied only to the renewal of CPA license and not for the purpose of accreditation to practice the accountancy profession.

Auditing

is one of the areas of accounting specialization.

Accounting

ceases when financial statements are

already prepared.

\
On the other hand, auditing is analytical. The work of an

auditor begins when the work of the accountant ends.

auditor

After the financial statements are prepared, the _______ will

begin to perform the task of auditing.

financial statements

The auditor examines ________ the to ascertain whether they are in conformity with generally accepted accounting principles.

Bookkeeping

is procedural and largely concerned with development and maintenance of accounting records.

\
Bookkeeping is the "how" of accounting.

conceptual

Accounting is and is concerned with the why, reason or justification for any action adopted.

Bookkeeping

is a procedural element of accounting as arithmetic is a procedural element of mathematics.

Accounting versus accountancy

Broadly speaking, the two terms are synonymous because they both refer to the entire field of accounting theory and practice.

accountancy

Technically speaking, however ________ refers to the profession of accounting practice.

Accounting

is used in reference only to a particular field of accountancy such as public accounting, private accounting and government accounting.

Financial accounting

is primarily concerned with the recording of business transactions and the eventual preparation of financial statements.

financial statements

Financial accounting focuses on general purpose reports known as _________ intended for internal and external users.

Financial accounting

is the area of accounting that

emphasizes reporting to creditors and investors.

Managerial accounting

is the accumulation and preparation of financial reports for internal users only.

managerial accounting

is the area of accounting that emphasizes developing accounting information for use within an entity.

Generally accepted accounting principles

represent the rules, procedures, practice and standards followed in the preparation and presentation of financial statements.

\
\
he principles have developed on the basis of experience,

reason, custom, usage and practical necessity.

\

Generally accepted accounting principles

are like laws that must be followed in financial reporting.

Political process

The process of establishing GAAP is a _______which incorporates political actions of various interested user groups as well as professional judgment, logic and research.

identify proper accounting practices for the preparation and presentation of financial statements.

The overall purpose of accounting standards is to

common understanding

Accounting standards create a ________ between preparers and users of financial statements particularly the measurement of assets and liabilities.

high-quality accounting standards

A set of ______ is a necessity to ensure comparability and uniformity in financial statements

based on the same financial information.

Accounting Standards Council or ASC

In the Philippines, the development of generally accepted accounting principles is formalized initially through the creation of the

Financial Reporting Standards Council or FRSC

The _______ now replaces the Accounting Standards Council.

The Financial Reporting Standards Council (FRSC)

is 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.