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/ 88
Crapter 1
THE ACCOUNTANCY PROFESSION
Coane ee] A meld ag
Learning Objectives:
After studying this chapter, we should be able to:
1. familiarize the background of the accountancy profession, the career opportu
of 2 CPA and salient points of the Philigpine Accountancy Act of 2004;
2. learn the various acronyms related to business, government agencies and
accountancy profession;
understand the reason why Philippine ASC has shifted to IAS; and
4. understand the effect of global accounting practice to our Filipino accountants.
THE ACCOUNTANCY PROFESSION
Accountancy is not only one of the modest, less expensive but also the most prestigious
profession in the land today. Since it existed way back in 1923, it hardly gained
recognition among the professions unlike medicine, engineering and law. Accountano
is least known and unpopular because of the nature of services it accorded to its clie
which is handled with much needed “confidentiality”. Aside from this, the profession
becomes the most feared of and dreaded of all, because it maintained the highest
mortality rate among courses that require board examinations.
Despite the mortality rate problem, accountancy emerged as the most sought-after
profession with the tremendous growth and development of business in the country
today, From a dismal 43 registered Certified Public Accountants in 1923 to
approximately 162,000 as of October 2015 with Mr. Armand Fabella of the Jose Rizal
College as holder of the first CPA Certificate or PRC-CPA Certificate No, 001 Grain |
The accountancy profession-demands a quality of high standards performance at all
times to the public it served. Be it in government service, in commerce and industry or
in the academe which requires integrity, competence, due care and diligence in the
performance of duty which are embodied in the Code of Ethics for CPAs. Much more in
public practice where the CPA should maintain a high degree of independence in mental
attitude on matters concerning the impartiality of financial reports and maintain secrecy
of confidential information because credibility of the profession is at stake in the
performance of the “attest function.
Itis a welcome development to note that Accountancy is the first among the professions
here in the Philippines to be included under the World Trade Organization's (WTO)
policy of liberalization of services. This means that Filipino accountants will be.freely
competing with other accountants from other parts of the world in the global field of
accounting practice.
WHAT IS AN ACCOUNTANT?
A Certified Public Accountant or a Professional Accountant is a holder of a baccalaureate
degree in Bachelor of Science in Accountancy (BSA), who has taken and passed the
difficult and competitive licensure examination for Certified Public Accountants and
carries the title as "CP.A. ", vested by the laws of the Republic to practice Public
Accounting in general under the supervision of the Professional Regulation Commission
‘The course in BS Accountancy replaces all business courses majoring in the subjects of
accounting under the old curriculum. So, those who have taken and passed the said
examination are included in the above definition of the profession.
In the past, it has been the practice of private companies especially in areas where there
are only few CPAs to hire commerce-accounting graduates (under board) and offered
the position as accountant or bookkeeper/accountant although they are not, in the real
sense of the word. This created confusion and misled the public of what really is the role
of a bookkeeper and a professional accountant.
At this juncture, the work of a bookkeeper is clearly distinguished from the work of a
professional accountant in Chapter 4.
{At present, the Board of Accountancy employs strictness in the implementation of the
standards and regulations of the practice wherein it requires the registration of staff and
partners of a CPA firm or we have to comply with the accreditation requirements with
both the Professional Regulation Commission and Board of Accountancy before we can
be allowed to practice public accountancy. The Accountancy Profession and ils Development
WHAT ARE THE CAREER OPPORTUNITIES OF AN ACCOUNTANT?
nes ‘we become accountants, there we find several opportunities to grab with. We can
'e employed and worked in various fields of endeavor such as the following:
Public Accounting - under this field, we are in public practice. And as a public
practitioner, we have two options to choose from. Itis either, we will become individual
practitioners and join partnership with other individual practitioners or getting
employed with firms of CPAs like, Punongbayan & Araullo, Sycip Gorres Velayo & Co.
(SGV & Co.) Ampil Elises Ciudadano & Co., Reyes Tacandong & Co. and many other
auditing firms. In which case, we are to render services to the public for a fee. We are
not an employee of the client company under audit but assume the role as
"independent entity" vested with freedom to exercise our own judgment in carrying out
the engagement requiring our independence and impartiality of the report we
prepared. Our work will include auditing, the examination of financial statements and
report our findings to the management; taxation, the preparation of Income Tax Returns
and management services, the design and installation of accounting systems. Once we
choose this field, we will become a member of the Association of CPAs in Public Practice
(ACPAPP) sector.
Government Accounting - under this field, we are to render services to the government.
We will gain employment in the National Government Agencies (NGA), such as
Department of Finance, Securities and Exchange Commission, Bangko Sentral ng
Pilipinas, National Bureau of Investigation, Bureau of Internal Revenue, Department of
Budget and Management, Department of Public Works and Highways, Department of
Trade and Industry, etc. ar in the Government-Owned and Controlled Corporations
{GOCC), such as Government Service Insurance System, Social Security System, Home
Development and Mutual Fund, etc. At present all cities, provinces and municipalities
which are. considered as Local Government Units (LGU) are already employing
accountants pursuant to Republic Act 7160 known as the "Local Government Code of
1991". This widens the job opportunities of accountants. Once we choose this field, we
will become a member of the Government Association of CPAs (GACPA) sector
Private Accounting - under this field, we will gain employment in private firms and hold
positions as Chief Accountant, Accounting Manager, Internal Auditor, Finance Manager
or the highest accounting officer of an enterprise which is known as the “Comptroller”
Once we choose this field, we will become a member of the Association of CPAS in
Commerce and Industry (ACPACI) sector.
= there are CPAs who join in the academe and sacrifice the high
sion for the sake of love in accounting education. They are our
hers, CPA Reviewers where only few become authors in
Accounting Education
income generating profes
accounting professors, researc!
5 nasser t
accounting books; the unsung heroes who are committed to painstakingly prepare the
Rerdidates to the difficult examinations for Certified Public Accountants. Once we
Choose this Field, we will become a member of the Association of CPAS in Education
(ACPAE) sector.
ther accountants become entrepreneurs in their own rights. They managed their own
dusinesses, With all these, can we imagine how versatile the accountants are?
‘AN CPAs are members of the national professional organization known as “Philippine
Institute of Certified Public Accountants” (PICPA).
CODE OF PROFESSIONAL ETHICS FOR CPAs IN THE PHILIPPINES
‘The Code of Ethics for Professional Accountants in the Philippines was recently adopted
from the revised Code of Ethics for Professional Accountants developed by International
Federation of Accountants (IFAC) which took effect om June 30, 2008:
The use of this Code of Ethics has been approved by the Board of Directors of the
Philippine institute of Certified Accountants (PICPA) and the same has been adopted By
the Board of Accountancy (BOA) and finally approved by the Professional Regulation
Commission {PRC) as part of the rules and regulations of the BOA for the practice of
accountancy profession. This is the start of the relationship among business,
‘government, the investing public and other users of financial information.
The Internal Federation of Accountants (IFAC) is an international body representing all
the major accounting bodies across the world. Its mission is to develop, adopt and
implement with high quality international standards and guidance; contributing to the
development of strong professional accounting organizations and accounting firms and
to high quality practice of by professional accountants worldwide.
Being a member of international Federation of Accountants (IFAC), it is committed to
‘observe the following fundamental principles, viz:
Integrity - A professional accountant should be straightforward and honest in all
professional and. business relationships. Integrity also implies fair dealing and
truthfulness. A professional accountant should not be associated with reports, returns,
communications or other information where they believe that the informatior
2) Contains a materially false or misteading statement;
'b) Contains statements or information furnished recklessly
<) Omits or obscures information required to be included where such
omission or obscurity would be misleading.
~ A professional accountant should not allow bias, conflict of interest oF
under influence of others to override professional or business judgments, @
6 ‘he Accountancy Profession and ite Developmen
professional Competence
buy i alain Habaiiairy Due Care - A professional accountant has a continuing
client or employer receives ‘nowledge and skill at the level required to ensure that 2
sasloons pein nie professional service based on current
oe aligeatly AeA aster ‘Aprofessional accountant should
ce eesrtlng poke aa applicable technical and professional standards
se stared greenies services [i.e., services requiring accountancy or related
Se eee cane fessor accountant including accounting , auditing, taxation,
reac financial management services). In addition, they should
on ene and professional standards of the following,
reas untancy (BOA) / Professional Regulation Commission (PRC)
, ss and Exchange Commission (SEC)
+ Financial Reporting Standards Council (FRSC)
+ Auditing and Assurance Standards Council (AASC)
« Relevant legislation
es professional service requires the exercise of sound judgment in applying
ige and skill in the performance of such services. Professional
competence may be divided into two (2) separate phases:
1. Attainment of professional competence. The normal pattern of development
starts initially with a high standard of general education followed by specific
education, training and ‘examination in professionally relevant subjects, and
whether prescribed or not, a period of work experience.
2. Maintenance of professional competence. This requires a continuing awaren®
and an understanding of relevant technical professional and business
developments. Continuing professional development develons and maiftains
the capabilities that enable a professional accountant to perform competently
within the professional environments.
Diligent encompasses the responsibility to act in accordance with the requirements of
an assignment, carefully, thoroughly and on timely basis. A professional accountant
should take steps to ensure that those working under the professional accountart’s
authority in a professional capacity have appropriate training and supervision.
nal accountant should make clients, employers or other
'; aware of limitations inherent in the services to avoid
an assertion of fact,
Where appropriate, a profession
users of the professional service
the misinterpretation of an expression of Opinion 3S
Confidentiality - A professional ‘accountant should respect the confident
information acquired as a result of professional and business relationships and should
not discloge any such information to third parties without proper and specific authority
Unless there is a legal or professional right or duty to disclose. Confidential information
acquired as a result of professional and business relationships should not be used for
the personal advantage of the professional accountant or third parties.
ry of
7 Chapter 1
Professional Behavior ~ A professional accountant should comply with relevant laws
and regulations and should avoid any action that discredits the profession.
In marketing and promoting themselves and their work, professional accountants
should not bring the profession into disrepute. Professional accountants should be
honest and truthful and should not: make exaggerated claims for the services they are
able to offer, the qualifications they posses, or experience they have gained; or make
disparaging reference or unsubstantiated comparisons to the work of others.
CORE COMPETENCIES FRAMEWORK FOR ACCOUNTANTS.
It has been a problem in the past on how to bridge the gap between clientele-
companies’ needs and what our graduates from the academe can offer. A competency:
based approach to the preparation of professionals offers a systematic and effective
way of bridging this gap.
A competency-based approach to education is one where the competencies, and skill
sets required of a newly admitted professional are identified through a formal process
and are later validated by business and industry and subject matter experts. Such
identified competencies (or learner outcomes) have predetermined performance
measures for assessing skill acquisition.
The government has undertaken efforts to improve the entry-level qualification
Fequirements for the Filipino CPAs by releasing the well-defined set of competencies,
‘Core Competency Framework for Entry to the Philippine Accountancy Profession. The
‘core competencies for accountants identify the knowledge, skill, and professional values
that new CPAs need to have in order to successfully face the challenges of today’s
changing environment and the future.
The strategi
Boal is to produce technically competent and ethical professional
accountants ready to compete internationally. Hence, the higher education structure
(which includes the curriculum and course syllabi) should develop the following
minimum core competencies:
Knowledge - The CPAs knowledge must cover:
General Knowledge - Of emphasis here are gaining an understanding of the different
Cultures in the world and developing an international perspective. it is generally
believed that the traits that will make our Filipino CPAs prominent in the global
marketplace are:
* competency in the English language (the lingua franca of business),
* adaptability to Western business practices,
* level of training and
® good capabilities in dealing with foreign partners he Accountarey Jrofession and ita. Development
Oruanlzational and Business Knowledge - In addition to the core knowledge in areas
such as economics, quantitative methods and business statistics, organization
behavior, marketing and operations management, the CPA must be conversant
Of International business and have an understanding of how the global business
system works, He should also have an appreciation of the importance of ethics
and corporate governance in business. The CPA must demonstrate competence
in the following:
+ administrative capability and efficiency
+ decision modelling
# risk analysis and management
* measurement
* industry and sector perspective
Information Technology (IT) Knowledge This includes not only being conversant with
IT concepts for business system but sound knowledge on internal control in computer.
based systems, development standards and practices for business systems,
management of the adoption, implementation and use of IT, evaluation of computer
business systems, and managing the security of information.
Accounting Knowledge - This includes core knowledge related to accounting and
related areas and must include proficiency in the international accounting and auditing
standards, cost management and the latest concepts in management accounting, recent
‘tax laws, business and commercial laws. It also includes knowledge of corporate finance
and the Philippine capital markets, professional ethics and environmental accounting
and reporting. The CPA should demonstrate competence in the following:
* Basic Accounting and Preparation of Financial Statements, the Accounting
Profession and International Accounting Standards
* Advanced Financial Accounting Practices
# Advanced Financial Reporting Principles
‘* Management Accounting - Basic Concepts
‘© Management Accounting-Information for Planning, Decision-Making and Control
* Taxation
* Business and Commercial Laws
* Auditing — Fundamentals
'* Auditing Advanced Concepts
‘* Business Finance and Financial Management
Skills
The skills to be developed include: Chapter 1 7
rey out abstract logical thinking
Intellectual - This set of skills includes the ability to ca generation of
‘and understand critical thinking. It also includes creative thinking OF pi iil oF
‘New ideas; visualization or “seeing things in the mind's eye”; and reasor crn obec
discovery of a rule or principle underlying the relationship between (Wo iauciahed
and applying it when ‘solving a problem, The CPA must demonstrate the .
* analysis
* problem solving
# strategic/critical thinking
Interpersonal - This involves developing the ability of CPAs to work in groups ae
a team player. It includes the skills to participate as member ofa ‘team: and contril ting
to group effort; teaching others new skills; working to satisfy clients’ expectations,
negotiation skills and working with diversity or working well with men and women from
diverse backgrounds. The CPA must demonstrate attributes, such as:
* being a team player
'* persuasion, confidence and diplomacy
iscreetness, open mind and patience
* capability for work and ability to respond well to pressure
Communication - This refers to active listening skills and the ability to communicate
effectively one's points of view, both orally and in writing, at all organization levels;
being able to justify one’s position, deliver powerful presentations and to persuade and
‘convince others. The CPA must demonstrate skills such as the ability to:
‘verbally and/or in writing explain financial/statistical/administrative
matters/policies/procedures/regulatory matters/audit results at a level
appropriate to the audience,
‘ask clear, concise and relevant questions to obtain desired information to perform
a task.
* Negotiate effectively
Values
Values must concentrate on:
Professional Ethics - Since the objectives of the accountancy profession are to work in
accordance with the highest standards of professionalism, to attain the higher level of
performance and generally to meet the public interest, the need for CPAs to conform to
the ethical standards of the profession become vital These include integrity, objectivity
and independence, professional competence and due cafe, confidentiality, and
professional behavior.
‘Moral Values - Beyond ethical rules, there is @ need for CPAs to be able to discern
between what is morally right or wrong.
10 Te Aocountartcu Profession andl its Development
THE ACCOUNTANCY LAW ‘OF 2004
oe pct developments in the accountancy profession is the signing into
RA. No. 9258. — by her Excellency, Madam President Gloria Macapagal-Arroyo,
presidential De wn as "Philippine Accountancy Act of 2004" which repealed
wl Decree No. 692 formerly known as the "Revised Accountancy Law" that was
enacted on May 5, 1975 by his Excellency, the late President Ferdinand E. Marcos.
The law mentions the revival of the Continuing Professional Development (CPD) for CPAS
which originally took effect in 1987. It states that, "All Certified Public Accountants shall
abide by the requirements, rules and regulations on continuing professional education to
be promulgated by the Board, subject to the approval of the Commission, in
coordination with the accredited national professional organizations of certified public
accountants or any duly accredited educational institutions. For this purpose, a CPD
Council is hereby created to implement the CPD program".
Other salient poit
ts of the law are as follows:
+ The Board of Accountancy and its Composition (Sec. 5)- The Board of Accountancy
(BOA), under the supervision and administrative control of the Professional
Regulation Commission (PRC) shall be composed of a chairman and six (6)' members
to be appointed by the President of the Philippines from a list of three (3)
recommendees for each position and ranked by the Commission, from a list of five
(5) nominees for each position submitted by the accredited national professional
organization of Certified Public Accountants. The Board shall elect a vice-chairman
from among its members for the term of one (1) year. The chairman shall preside in
all meetings of the Board and in the event of a vacancy in the office of the chairman,
the vice-chairman shall assume such duties and responsibilities until such time that
achairmanis appointed.
‘* Admission Requirements to the CPA Board Examinations (Sec. 14) - Any person
applying for examination shall establish the following requisites to the satisfaction
of the Board that he/she:
1. isa Filipino Citizen
2. has a good moral character
4. is@ holder of the degree of Bachelor of Science in Accountancy conferred by a
school, college, academy or institute, duly recognized and/or accredited by
the Commission on Higher Education (CHED) or other authorized government
offices; and
4, has not been convicted of any criminal offense involving moral turpitude
« Scope of the CPA Board Examination (Sec. 15) - The licensure examination for CPA
shall cover the following subjects with the corresponding weights in units of two (2)
and maximum number of hours of three (3), viz: Theory of Accounts , Business Law
and Taxation, Management Services, Auditing Theory, Auditing Problems, Practical
iL Chanter t
Accounting Problems |, Practical Accounting Problems Il;
id
The purpose of this CPA Examination is to test the overall knowledge an
competence of the candidates. The contents and coverage of these eens a
in accordance with the outline or syllabus prepared and issued by Bo: sad
Accountancy upon approval by the Professional Regulation Commission, Tie None
however, subject to the approval of the Commission, may revise or exclude any of
the subjects and their syllabi, and add new ones as the need arises.
of the academe and
However, after having series of consultations with the members
other stakeholders, the Board Licensure Examination for Certified Public Accountants
{BLECPA) through the Professional Regulatory Board of Accountancy has resolved and
approved on Dec. 15, 2015, Resolution No. 275 series of 2015 that the following
changes be made to the existing subjects, thereby, reducing the number of the CPA
Examination subjects from seven (7) to six (6) starting May 2016 examinations and
onwards, viz:
From, 7 To
1. Theory of Accounts T. Financial Accounting and Reporting
2. Practical Accounting Problems | 2. Advanced Financial Accounting and
3. Practical Accounting Problems I Reporting
4, Management Services 3. Management Advisory Servic
|S. Auditing Theory Seri
6. Auditing Problems 4 Auditing
S. Taxation
7. Business Law and Taxation 6. Regulatory Framework for Business
Transactions ce
The approved resolution does not depart radically from the prescribed content of the
BLECPA subjects but serve merely to rationalize and integrate related subjects for better
comprehension and more effective application of the theory into practice.
‘* Rating in the Licensure Examination (Sec. 16)- To be qualified as having passed the
licensure examination for accountants, a candidate must obtain a general average
of seventy-five (75%), with no grades lower than sixty-five (65%) in any given
subject, In the event a candidate obtains the. rating of seventy-five (75%) and above
in at last a majority of subjects as, provided for in this Act, he / she shall receive a
conditional credit for the subjects passed: Provided, That a candidate shall take an
examination in the remaining subjects within two years from the preceding
examination: Provided further, That if the candidate fails to obtain at least a general
average of seventy-five (75%) and a rating of at least sixty-five percent (65%) in each
of the subjects re-examined, he/she shall be considered as failed in the entire
examination.
12 ountancy Profession and its Development _
'ved tesolution shall not be deemed to affect those who are eligible to take
tional or removal examinati
fons pursuant to Section 16 of 298, ani
as such, shall be allowed within a perio sar Wan ba ohectoey oe
That this appro
the condi
scheme, i.e. original six (6) subjects.
conditional or removal examination after
considered as having failed in the entire
New subjects for the BLECPA as prescribe
Provided, that if an examinee fails to pass the
the lapse of the two (2) year period, he/she shall
examination, and henceforth, has to take all the
d under this resolution
* Reports of Rating (Sec. 17) - The Board shall submit to the commission the ratings
obtained by each candidate within ten (10) calendar days atter the examination,
unless extended for Just cause . Upon the release of the results of the examination,
the Commission shall send by mailing the rating received by each examinee at
his/her given address using the mailing envelope submitted during the examination
* Failing Candidates to Take Refresher Course (Sec. 18) - Any candidate who fails in
two (2) complete Certified Public Accountant Board Examinations shall be
disqualified from taking another set of examinations unless he/she submits
evidence to the satisfaction of the Board that he/she enrolled in and completed at
least twenty-four (24) units of ‘Subject given in the licensure examination. For
Purposes of this Act, the examination in which the candidate was conditioned
together with the removal examination on the ‘subject in which he/she failed shall
be counted as one complete examination.
The Accountancy Law of 2004's declaration of Policy provided that “the state recognizes
the importance of accountants in nation building and development. Hence, it shall
develop and nurture competent, virtuous, productive and well-rounded professional
accountant whose standards of practice and service shall be excellent, qualitative, word
class and globally competitive through regulatory measures, programs and activities
that fasten their professional growth and development."
‘THE BIRTH OF THE PHILIPPINE ACCOUNTING STANDARDS (PAS)
Accounting Standards are authoritative statements of how particular types of
transactions and other events should be reflected in the financial statements.
The Accounting Standards Council (ASC) was created by Philippine Institute of Certified
Public Accountants (PICA) on November 18, 1981. It is a standard-setting body which
is tasked to establish and improve the “Generally Accepted Accounting Principles”
(GAAP) in the Philippines. The approved statements and the relative interpretations of
the ASC are known as “Statement of Financial Accounting Standards” or SFAS which will
be effective only upon approval by the Professional Regulation Commission (PRC) and
unless indicated to the contrary, shall not be retroactive.
13 ‘Chapter |
it nominated by PICPA
The ASC is composed of eight (8) members with four (4) members MT tray ng
and one (1) each from Securities and Exchange Commission (sec),
ard of
Pipincs (85), Profesional Regulation Conmsson (PRC) specfeall the RA Of
Accountancy (BOA) and the Financial Executive Institute of the Philippines fe
term of office of the members is two (2) years which can be renewed.
At present, however, Section 9 (A) of the Rules and Regulations Implementing ey 9298
otherwise known as the Philippine Accountancy Act of 2004, created the new
accounting standard-setting body known as the Philippine Financial Reporting Standards
Council (PFRSC) to replace the Accounting Standards Council. Consequently, the
Statement of Financial Accounting Standards (SFAS) are now known as the Philippine
Accounting Standards (PAS).
The PFRSC is created by the Professional Regulation Commission (PRC) upon
recommendation of the Board of Accountancy (BOA) to assist the Board of Accountancy
in carrying out its powers and functions.
The PFRSC is composed fifteen (15) members with a Chairman who has been or is
presently a senior accounting practitioner and fourteen (14) representatives from the
following:
Board of Accountancy
Securities and Exchange Commission
Bangko Sentral ng Pilipinas
Bureau of Internal Revenue
Commission on Audit
‘Major organization of preparers and users of financial Statements
Accredited National Professional Organization of CPAs:
Public Practice
Commerce and Industry
Academe or Education
Government
Total
The Chairman and members of the Council shall have a term of three (3) years
renewable for another term. Any member of the ASC shall qualify for appointment to
the PERSC. However, the ASC shalll continue to function until the full creation of PERSC.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) REPLACES THE
INTERNATIONAL ACCOUNTING STANDARDS COUNCIL (IASC)
With the growing and seemingly unstoppable internationalization of business and
trade, the IASC, a private independent standard-setting body was created with the
objective of achieving uniformity in accounting principles which are used by business
and other organizations for financial reporting around the world by formulating and
publishing for the public interest, the accounting standards to be observed in the
14 The Accountancy Frofession and its Development _
Presentation of financial statements, to promote their worldwide acceptance and to
work for the improvement and harmonious application of accounting standards and
procedures.
The approved statements of the IASC are known as International Accounting Standards
(as).
The IAS was founded in 1973 through an agreement made by the professional
sccountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the
Netherlands, the United Kingdom, Ireland and the United States of America
'n 1997, after nearly 25 years of achievements, the IASC concluded that if it were to
effectively continue to perform its task, it must find a way to bring about convergence
between national accounting standards and practices and high quality global accounting
standards, And as a result, not too long after, on July 1, 2000, the IASC was replaced by
International Accounting Standards Board (IASB). The IASB has come out with new
reporting standards that are called International Financial Reporting Standards (VERS).
Although the IASB has no legal authority to impose the standards that it promulgates,
‘many countries support them. For the meantime, the pronouncements of the IASC will
Continue to be designated as international Accounting Staiidards (IAS).
PHILIPPINE ASC HAS SHIFTED TO IAS
{In an effort to improve and harmonize the accounting standards relative to the
Preparation and presentation of financial statements, the Philippine Accounting
Standards Council which in many decades “nostly based its Accounting Standards from
the United States or American Accounting Standards has shifted to International
Accounting Standards (AS) in 1997 but it was ‘only in the year 2000 wherein the
Philippine ASC made a sweeping revision of its old "Statement of Financial Accounting
Standards" (SFAS) to conform with its counterpart, the IAS.
Currently, the IASB has revised its UASS which the ASC adopted and are called Philippine
Accounting Standards (PASs). The IASB has also formulated new standards and are
called International Financial Reporting Standards {\FRS) which the ASC adopted and are
Called Philippine Financial Reporting Standards (PERS). In short, Philippine Accounting
Standards (PASs) corresponds to the adopted International Accounting Standards (\ASs)
and Philippine Financial Reporting Standards (PFRSs) corresponds to the adopted
International Financial Reporting Standards (\FRSs).
‘The move of Philippine ASC to shift to 1AS could be attributed to the following factors:
1. The Philippine organizations, such as the Securities and Exchange Commission,
Board of Accountancy and Philippine Institution of Certified Public Accountants
(PICPA) support the IASB standard;
2. The removal of free choice of accounting alternative treatment under the IASB
15 J
‘Chapter 1
ing oround the
stondords which will redound to having a uniform financial reporting o
world and; Bonk
3. The 14SB standard wos recognized by Asion Development Bank (ADE): World!
‘and World Trade Organization (WTO).
GOVERNMENT SECTOR ADOPTS INTERNATIONAL ACCOUNTING STANDARDS
ed the
Meanwhile, in the government sector, the Commission on Audit (COA) adonts
International Accounting Standards on January 1, 2014 and they cat. PRLIPPING yore
Sector Accounting Standards (PPSAS) and was fully implemented 0” 127800)
after the creation ofthe Philippine Public Sector Accounting Standards cot
on October 10, 2008. The role ofthe PPSASS ist assist the omission in foomuaaet
and implementing the public sector accounting standards which will redoune &
establishing and maintaining linkages with international bodies, professional
crganizations and academe on accounting related fields on financial management:
provide quality accounting
ncial reporting by the
transparency and
around the
The PPSAS will align with prevailing international standards,
standards thereby enhancing the quality and uniformity in fina
Philippine public sector entities, and ensuring accountability,
comparability of financial information with other public sector entities
world. It sets out the recognition, measurement, presentation and disclosure
Fequirements for financial reporting in the Philippine Government. PPSAS shall apply to
all National Government Agencies (NGAs) which refer to departments, agencies,
bureaus, state universities and colleges, government instrumentalities and commissions
including judiciary and constitutional ‘commission, Local Government Units and
Government-Owned and/or Controlled Corporation.
AIMING TOWARDS GLOBALIZATION
Globalization has resulted in business enterprises entering into transactions that extend
beyond the borders of their home country as evidence by multinational corporations
which have grown widely with their subsidiaries and affiliates located in other parts of
the world. It has also awakened the need for accounting principles and standards to
have international acceptability. It is toward this trend of accounting practice where we
are in now. This gives opportunity to Filipino accountants to be able to practice
‘accounting freely in other parts of the world. Just imagine, we will be competing with
other accountants from other parts of the world! The worst scenario is, what if these
foreign investors bring along with them their own accountants for reason that we are
not so familiar with their nature of business? Itis like the "rules" in playing basketball.
We do not know when is a shot to be counted as “two or three points", how many
dribbles that a player should make before he "takes off for a twinner" or when is a
“technical foul” or flagrant foul” be called, etc. There are rules of the game which are
obsolete and new rules emerged are adopted.
16 ro
MOE Na URC uM)
COM ee man UM ev At
with them in the global arena of
accounting practice’. 1.3.
1-4,
15.
1-9,
1-10.
1-11.
1-12,
1-13.
1-14.
1-15.
1-16.
18
ind what made it
Why is accountancy profession considered as less ener i.
unpopular as compared- to medicine, law, engineering, et
services affe
How does the World Trade Organization's policy on liberation of iffect
the practice of accountancy profession?
What are the career opportunities of a CPA? Differentiate and explain.
: ps
Can a CPA in the government service be allowed to practice public accounting?
Can a CPA in the government service be allowed to teach accounting and the
related subjects in colleges and universities?
What is a CPA?
Why is continuing professional development for CPA's important?
|s attending a formal CPA review a must requirement in taking the CPA Board
Examination? Explain?
Does the accreditation requirements of staff and partners of a CPA firm aimed to
limit the number of CPA practitioners? Explain.
What is the main purpose of the CPA Examination?
What are the admission requirements to the CPA Exam?
What is the required passing grade of CPA candidate?
When is a CPA candidate considered "conditioned"?
How many times a CPA candidate should fail before he/she be ‘alicWed fo take.
refresher course? Explain
{s it necessary for a CPA candidate to pass all the six (6) Subjects given by the
Board of Accountancy? Explain.
Why was the Accounting Standards Council (ASC ofthe Philippines created? ‘The Accountancy Profession and its Development
1-17, What is ASC? What attributed Accounting Standards Council to totally shift to
International Accounting Standards?
118, What do you call the government's version of International Accounting
Standards that was adopted by COA?
119. What was the effectivity of the full implementation of the International
‘Accounting Standards by the government sector?
1-20. What replaces the Accounting Standards Council?
Quizzers-------------.
ra
Identification of Acronyms
Instructions: Give the full text of the following acronyms which are related to business,
government offices and accountancy profession
1. PRC
2. WTO
3. ACPAPP
4. GACPA
SO ACPAB coher incre TS
SiACPACL se Beer eS
7. PICPA. $$
& BSA SE
3. CPD ES Le
10. SEC BRS ee Sha ge ene Ai
11. BSP spies ecg lag pemeepapreiener oo,
12. NBI $$ $$
13. BIR
14. DEM.
19 Chapter 1
15. on
16. LGU
17. DPWH i ke ig alt
18. CHED
19. Asc
20. sFas
21. GAAP
22. BOA
23, FINEX
AE ih cs (alg ee
Se Wie Rl deeuialste eee ee
hie. ee Oe
ee ee
ude Sih a ee
Men
24. COA ee
25. FASB ean Sl nce em
(28 GOO jy i
27. PERS a ee
28. PAS ee
29. IAS ee
30. IASC ee ea
31. IASB
32. IFRS econ ee ee
33. CPA Cio ere ieee eee pe SS ee
34, SSS ee ee ee
35) GSIS 3 ee
S36: HOME cosy Se Sey eee
37. FRSC es
38, ADB eae LT eet Cw
99) PPSAS: 5) Aa act eS Teed verge SY
40. IFAC eer ee A EEG Ea ete
20 True or False
Instruction: Write letter T if the statements are correct and F if the statement Is wrong.
_— 1. Accountancy is not only one of the modest, less expensive but also the
‘most prestigious profession in the country today.
2. It was in 1923 that accountancy profession was first recognized through
the passing of the accountancy law.
3. Until today, the accountancy profession maintains the highest mortality
rate among courses that require board examinations.
}. Accountancy is the first among the professions here in the Philippines to
be included under the World Trade Organization's policy liberalization of
services.
5. Accountancy is considered a profession because it has a body of
principles, assumptions and a set of ethical standards.
6. Republic Act 7160 which is known as the "Local Government Code of
1991" created cities, provinces and municipalities as Local Government
Units.
7. The Board of Accountancy employs strictness, whereby before a CPA can
engage into public practice, he has to obtain accreditation with
Professional Regulatory Commission and Board of Accountancy.
8. All CPAs employed in the government agencies are considered as public
Practitioners.
9. The knowledge of accounting is important and beneficial to those who are
engaged in business only.
|
}
!
10 A CPA who is teaching in the subjects of taxation in a college or university
is not considered to be in the exercise of profession.
i 11. A CPA Is not allowed by law to engage in any lawful business activity if he
is a public practitioner.
12. R, A, 9298 known as “Philippine Accountancy Act of 2004" repealed P.D.
692 formerly known as the "Revised Accountancy Law",
13. The Board of Accountancy shall be composed of a chairman and 6
members to be appointed by the President of the Philippines.
14. The purpose of the CPA Board Examination is to test the overall
21 Chapter 1 _
14, The purpose of the CPA Board Examination is to test the overat,
knowledge and competence of the candidates.
xylaw, the Professio'
‘Board of Account
labi and add new ones
ard Exar, the candidate must
h no grades lower than,
nal Regulatory Commission,
tancy may revise or exclude
15. Under the new accountand
as the need arises.
subject to the approval of the
any of the subjects in their syll
16. To be qualified as having passedhe CPA B08"
cotrns atlenoral average of 75% and above wt
165% in any given subject.
ome a CPA two years after
ally bec
romatically s that he/she failed,
he remaining subject
plete CPA Board shall be disqualifies
ron unless he/she has enrolled and
in the licensure examination,
17. A conditional candidate shall aut
without taking examinations on t!
18. Any candidate who failed in 2 com
from taking another set of examin2
completed at least 24 units of subject given
19, The Philippine Financial Reporting Standards Councilis the new standard
senna eel which is tasked to establish and improve the Generally
‘Accepted Accounting Principles in the Philippines.
20. The objective of International Accounting Standard is to achieve
uniformity in the accounting principles which are used by Business and
Sther organizations for financial reporting around the world.
1-3
Multiple Choice
Instructions: Encircle the letter of the corresponding correct answer.
1. When was the year that accountancy profession was first recognized through
the passing of accountancy law?
a. 1910
b, 1923, : ae
2. It is in this field of professional
It ol practice where CPAs are consi as
independent entity” vested with freedom to exercise his o eee id
impartiality of the reports he prepared — ee
Ff a. Government Accounting
b. Management Accounting 7 Hee
ublic Accounting
22 —————
‘The Accountancy Profession and its Development
3. A CPA who chooses to join in the academe as a university professor, CPA
Reviewer, Researcher, etc. is amember of what sector—
a. Association of CPAs in Commerce and Industry
b. Government Association of CPAs
© Association of CPAs in Public Practice
d, Association of CPAs in Education
4, Many accountants are employed in business enterprise as chief accountant or
comptroller. Said accountants are engaged in-
a. General Accounting ¢. Private Accounting
b. Government Accounting d. Public Accounting
5. The accredited national professional organization of CPAs is-
a. Association of CPAs in Commerce and Industry
b. Association of CPAs in Educ;
c.
d
Government Association of CPAs
Philippine Institute of CPAs
6, ACPA in public practice who is engaged in the design and installation of general
accounting system is said to be performing a/an-
a. management services work c._ tax servicing work
b. auditing work d. none of the above
7. ACPA in public practice who carefully examines, tests and checks accuracy of
accounting data ~
a. Auditor accountant
b. Bookkeeper d. budget officer
8 ACPA in public practice who examines financial statements and renders opinion
that is free from bias is said to be engaged in-
‘a, -management accounting c. bookkeeping
b. auditing d. none of the above
9, Presidential Decree 692 which was previously known as the “Revised
‘Accountancy Law” which’ was re-enacted May 5, 1975 was repealed by the
Republic Act No. 9298 is known as ~
23 Chapter 1
Philippine Accountancy Act of 2004
a
b, Revised Accountancy Law af 2004
&.PICPA Law of 2004
d. Professional Accountancy Act of 2004
18?
10, The CPA Board Examination covers how many sublet
_ s subjects
a. G subjects 4. Ssubjects
b. 7 subjects
irman and how mar
11, The Boord of Accountancy shall be composed of 2 chal! ny
members?
6 members
b Smonber members
24
12. The Board of Accountancy shall elect a Vice-Chairman from among its members
for the term of-
aise c. 3years
b. 2years 4. 4years
13. Any person applying for examination shall establish the following requisites to
the satisfaction of the Board that he/she ~
a. isa Filipino citizen
has good moral character
has not been convicted of any criminal offense involving moral
turytude
d. allofthe above
14, How many calendar days that the Board of Accountancy shall submit to the
Professional Regulatory Commission the ratings that the candidate obtained
during the board exam?
a. 8 calendar days €. 10 calendar days
b. 9 calendar days d. 11 calendar days
15, Aconditioned candidate, shall take an examination in the remaining subjects-
a. within 2 years from the preceding exami
b. 2 years from the last day of release"
©. 2 years after date the review course started
4, noneed to take the exam as already considered "passed The Accvuntancy Lrofession and ils Development
16, The new standard-setting body ¢
18.
19,
20.
21
ated in 200% to replace the Accounting
Standards Council (ASC).
a. International Sta dards Commitioe
b. Financial Reporting Standards Council
. Financial Accounting Standards Board
d. Statement of Financial Accounting Standards
Due to the creation of FRSC, the Accounting St
anclards Council's Statement of
Financial Accounting Standards (SFAS) are now be
ing renamed as
a. Philippine Accounting Standards
b, International Accounting Standard
c. PICPA Standard
4, Standards of Reporting
The chairman of the Philippine Financial Reporting Standards Council (PFRSC)
must have been or presently a=
a senior accounting practitioner
a member of PICPA
a member of the Board of Accountancy
a chairman of the Professional Regulation Commission
Roop
What do you call the approved statements of the International Accounting
Standards Board (IASB)?
a. International Accounting Standards
b. International Financial Reporting Standards
International Financial Statements
d, none of the above
The members of the Professional Regulatory Board of Accountancy shall be
appointed by the-
Association of CPAs in Public Practice
Professional Regulation Commission
Philippine Institute of CPAs
President of the Philippines.
nese
Which of the following is not a qualification of an applicant for the CPA licensure
examination?
a. He/she is of good moral character
b, He/she is at least 21 years of age Chapter 1
23. Which among the following is the work of a public
© He/she isa Filipino citizen Science in Accountancy
of
4. He/she is a holder of the degree of Bachelor
22, Which of the following statements is correct?
nditioned and the
a. The examination in which the candidate 2° O07 64 shall be
removal examination on the subject in which
counted as two (2) complete examination sg examinations wit
$4 Any candidate who fails in two (2) OmPICN TT tions,
no longer be allowed to take another set Of MOF nations
Any candidate who fails in two (2) complete Cr inations unless
shall be disqualified from taking another set of Peer Te he/she
he/she submits evidence tothe satisfaction OFT rice,
enrolled in and completed at least twenty-four
given in the licensure examination.
4d. None of the above
practitioner which has a
purpose of expressing an opinion on financial statements?
a. taxation
b. management advisory services
c. external auditor
d. internal auditor
24, Aprofessional accountant in public practice is prohibited from divulging any
confidential information as a result of professional and business relationship to
third parties without specific authority from the management.
objectivity
confidentiality
due care
none of these
aos
25. A professional accountant should not allow bias, conflict of interest or under
26
influence of others to override professional or business judgments.
a. objectivity
b. integrity
c. professional competence
d. none of these Cuarter 2
ACCOUNTING AND BUSINESS
Learning Objectives
After studying this chapter, we should be able to:
1._know the acronym for MSMEs;
understand the importance of accounting in business as well as the keeping of
records;
3. understand GAAP and basic assumptions underlying GAAP;
learn and acquire familiarity in the format of the basic financial statements;
5. togain familiarity of account classifications and account titles as well
———
WHAT IS MSMEs?
MSMEs is the acronym for Micro, Small and Medium Enterprises. This accounts for 99%
of the total business enterprise in the country and provided employment for 61% of the
country’s labor force,
Realizing that MSMEs could be of big help to bolster our economy and it faced a
problem in terms of financing, Pres. Gloria Macapagal-Arroyo signed into law R.A. 9501
‘on May 23, 2008. Under this law, banks and lending institutions are required to allocate
at least 10% of their total loan portfolio so that MSMEs can avail of credit facilities to
increase capital build-up; 8% for Micro and Small Enterprises and 2% for Medium
Enterprises thereby increasing the net assets threshold of the MSMEs as follows:
2) Micro Enterprises are those with assets, before financing of P3M or less and
t employ not more than 9 workers;
4) Small Enterprises are those with assets, before financing of above P3M to
15M and employ 10 to 99 workers;
©) Medium Enterprises are those with assets, before financing of above P15M to
100M and employ 100 to 199 workers.
27 Chapter 2
