Cluster 1 Reviewer

ACCOUNTANCY PROFESSION

DEFINITION OF ACCOUNTING

 Accounting is about quantitative information

 The information is likely to be financial in nature
 The information should be useful in decision making

American Accounting Association (AAA)

“Accounting is the process of identifying, measuring and communicating economic

information to permit informed judgment and decision by users of the information”

“The very purpose of accounting is to provide quantitative information to be useful in

making economic decision”

COMPONENTS OF ACCOUNTING

 Identifying
o this accounting process is the recognition and nonrecognition of business
activities as “accountable” or quantifiable events
o An event is accountable when it has effect on assets, liabilities and equity
o In other words, the subject matter of accounting is economic activity or the
measurement of economic resources and economic obligations

Example of non-accountable transaction: hiring of employees, because they can’t be

quantified in terms of a unit of measure

 Measuring
o This accounting process is the assigning of peso amount to the accountable
economic transactions and events
o If accounting information is to be useful must be expressed in terms of a
common financial denominator. The Philippine peso is the unit of measuring
accountable economic transactions
o Measurement bases: historical cost, current cost, realizable value, and
present value
 Communicating
o Is process of preparing and distributing accounting reports to potential users
of accounting information
o Communication process is the reason why accounting has been called the
“universal language of business”
o Part of the communication process are the 3 aspects of accounting:
 Recording or Journalizing – maintaining a record of all economic
events
 Classifying – posting to the ledger
 Summarizing -preparation of Financial Statements/Reports

OVERALL OBJECTIVE OF ACCOUNTING

 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
 An accountants primary task is to supply financial information so that the statement
users could make informed judgement and better decision
 The essence of accounting is decision-usefulness

ACCOUTANCY PROFESSION IN THE PHILIPPINES

 Republic Act No. 9298 is the law regulating the practice of accountancy profession in
the Philippines. This law is known as the “Philippine Accountancy Act of 2004”
 Accountancy has developed as a profession attaining a status equivalent to that of
law and medicine
 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 very
difficult government examination given by the Board of Accountancy
 Board of Accountancy, Body authorized by law to promulgate rules and regulations
affecting the practice of the accountancy profession in the Philippines. They are
responsible for preparing and grading the Licensure Examination for Certified Public
Accountant(LECPA) in the Philippines

SECTORS OF ACCOUNTANCY PROFESSION

1. Public Practice Sector/Public Accounting

a. Composed of individual practitioners, small and large accounting firms.
b. Services: Auditing, Taxation and Management Advisory Services
Cluster 1 Reviewer

Limitations of the Public Practice Sector:

- Single practitioners and partnerships shall be registered certified public accountants

in the Philippines
- Accreditation – must acquire a minimum of 3 years of meaningful experience in any
of the areas of public practice including taxation. Accreditation is valid for 3 years
and renewable every 3 years upon payment of the required fees
- The SEC shall not register any corporation organized for the practice of public
accountancy
2. Commerce & Industry Sector/Private Accounting
a. CPAs employed in business entities in various capacity as accounting staff,
chief accountant, internal auditor and controller
b. The major objective of the private accountant is to assist the management in
planning and controlling the entity operations
3. Government Sector/Government Accounting
a. CPAs employed in different branches of the government
b. The focus of the government accounting is the custody and administration of
public funds
4. Education Sector/Academe
a. CPAs who are employed in schools, like universities and colleges who are
teaching accounting subjects

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)

 Republic Act No. 10912 is the law mandating and strengthening the continuing
professional development program for all regulated professions, including the
accountancy profession.
 Continuing professional development refers to the inculcation and acquisition of
advanced knowledge, skill, proficiency, and ethical and moral valued after the initial
registration of the Certified Public Accountant for assimilation into professional
practice and lifelong learning
 Continuing professional development raises and enhances the technical skill and
competence of the Certified Public Accountant

CPD CREDIT UNITS

 The CPD Credit Units 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
 It is to be emphasized that the Continuing Professional Development has become
mandatory for Certified Public Accountants
 The Continuing Professional Development is required for the renewal of CPA license
and accreditation of CPA to practice the accountancy profession
 Renewal of License – 15 CPD units
 Accreditation – 120 CPD units

EXEMPTION FROM CPD

 A CPA shall be permanently exempted from CPD requirements upon reaching the age
of 65 years
 However, this exemption applied only to the renewal of CPA license and not for the
purpose of accreditation to practice the accountancy profession

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

 Generally accepted accounting principles represent the rules, procedures, practice

and standards followed in the preparation and presentation of financial statements
 Generally accepted accounting principles are like laws that must be followed in
financial reporting

PURPOSE OF ACCOUNTING STANDARDS

 The overall purpose of accounting standards is to identify proper accounting

practices for the preparation and presentation of financial statements
 Accounting standards create a common understanding between preparers and users
of financial statements particularly the measurement of assets and liabilities
 A set of high-quality accounting standards is a necessity to ensure comparability and
uniformity in financial statements based on the same financial information

ACCOUNTING STANDARDS SETTING BODIES

Cluster 1 Reviewer

MOVING TOWARDS IFRS

 In the past years, most of the Philippine standards issued are based on American
accounting standards
 The Philippines is fully compliant with IFRS effective January 2005, a process which
was started back in 1997 in moving from USA GAAP to IFRS
 At present the FRSC had adopted in their entirety all International Accounting
Standards and International Financial Reporting Standards
 The move toward IFRS is essential to achieve the goal of one uniform and globally
accepted financial reporting standards