MODULE 2: BRANCHES OF ACCOUNTING (Part 2)

Definition: Auditing is an unbiased examination and evaluation of the financial statements of an organization, as defined by Investopedia.com.
Process: Auditing involves numerous steps aimed at determining whether a company’s financial statements are presented truthfully.
Professionals Involved: The accountants who perform the auditing procedure are specifically called auditors.
- Independence: Auditors must be independent from the company being audited. This independence ensures the credibility of the audit results.
- Conflict of Interest: If an employee of the company conducts the audit, users will have concerns regarding potential manipulation of results.

Credibility: The process improves the credibility of financial statements.
Audited Financial Statements: Financial statements that undergo auditing are termed as audited financial statements.
Auditor’s Opinion: These statements are accompanied by the auditor’s opinion, which serves as the basis for evaluating the truthfulness and potential material errors in the financial statements.

Guidelines: Tax accounting records financial transactions differently from general accounting.
- Standards: While it adheres to some guidelines from the Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS), it is not obligated to implement all aspects of these standards.
- Primary Reference: Tax accounting follows the National Internal Revenue Code (NIRC), drawing a parallel with how PFRS and PAS are foundational for financial accounting.

Definition: Cost accounting is a branch of accounting that provides information for management and financial accounting (as cited by Horngren, et al.).
Focus: It specifically deals with the costs incurred by a business, particularly relevant to manufacturing companies.
Functions: The main purposes are to gather data for controlling costs and setting selling prices.
Reflections in Financial Statements: The gathered cost-related information appears in financial statements under proper classifications.
Example: In a bicycle shop, cost accounting helps determine the cost of manufacturing bicycles, including adding a profit margin to set the selling price. This supports management decisions regarding production quantity, pricing strategies, and inventory valuations in financial statements.

Cost: The resource sacrificed to achieve an objective (e.g., money, resources, time).
Cost Object: Anything assigned a cost (e.g., cost of a pair of jeans, cost of a pair of Jordan XI shoes).
Cost Driver: An activity that causes the incurrence of costs (e.g., number of working hours related to salaries).
Direct Cost: Costs that can be directly traced to a cost object (e.g., materials, labor).
Indirect Cost: Costs that cannot be traced directly to a cost object (e.g., factory supplies, supervisor’s salary).
Fixed Cost: Costs that do not change within a relevant range of activity (e.g., factory rent, insurance costs).
Variable Cost: Costs that fluctuate with the level of activity or production (e.g., costs of materials, labor, selling).

Program Overview: The Bachelor of Science in Accountancy (BSA) is typically a 4-5 year course encompassing subjects related to accounting, auditing, administration, and business laws and taxation.
- Scope: The curriculum highlights the business environment but also includes fields like banking, finance, government, and nonprofit organizations.
- Technological Training: Students are trained in computerized accounting systems to meet evolving technological demands.
- Teaching Methods: Schools offer diverse teaching techniques including classroom discussions, case analysis, individual/group reporting, feasibility studies, and lectures from industry experts.
- Internship Requirement: Some institutions mandate an internship program equivalent to a subject to provide real-life accounting experiences.

Sections on the Exam:
- Management Advisory Services
- Auditing
- Taxation
- Regulatory Framework for Business Transactions
- Financial Accounting and Reporting
- Advanced Financial Accounting and Reporting
Regulatory Body: The content is prepared by the Board of Accountancy (BOA) and approved by the Professional Regulation Commission (PRC).
Frequency: The CPA board examinations occur twice a year, typically in October and May.

Passing Score:
- Average rating must be not less than 75%.
- No single subject rating lower than 65%.
Conditional Credits: If a candidate scores 75% or higher in the majority of subjects, they receive conditional credit; these candidates must re-examine remaining subjects within two years.
Failing Policy: Candidates failing two complete examinations can only retake if they complete at least 24 additional relevant course units.
Examination Occurrence: Each re-examination is considered part of one complete examination.

Overview: PICPA is a national organization for CPAs in the Philippines, focusing on improving accounting standards.
Sectoral Organizations Under PICPA:
1. Association of Certified Public Accountants in Public Practice (ACPAPP): CPAs involved in auditing, taxation, and management advisory services.
2. Government Association of Certified Public Accountants (GACPA): CPAs employed by government entities.
3. Association of Certified Public Accountants in Commerce and Industry (ACPACI): CPAs working in private firms in roles like Chief Accountant and Internal Auditor.
4. National Association of Certified Public Accountants in Education (nACPAE): CPAs employed in educational institutions and review centers.

Definition: A branch of accounting centered on creating new knowledge.
Methods: Involves applying models from hard sciences to financial data such as statements, stock prices, surveys, and experiments.
Applications:
- Deciding and implementing new accounting/auditing standards.
- Presenting complex economic transactions in financial statements.
- Evaluating the impact of new tax laws on clients.
- Investigating how the accounting profession influences capital markets.
Research Techniques: Researchers emulate scientific methods used in other sciences.
Future Importance: The evolving nature of accountancy suggests that research will continue to be essential.