Accounting Ethics and Standards

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Questions and Answers

What does integrity in a professional accountant involve?

Making subjective decisions based on personal feelings

Prioritizing profit over ethical considerations

Omitting details that might mislead clients

Being straightforward and honest in business relationships (correct)

Which of the following best describes the concept of objectivity for accountants?

Making decisions based solely on factual data (correct)

Allowing personal relationships to influence professional judgments

Letting external influences dictate business practices

Ignoring the qualifications and experiences of others

Confidentiality for professional accountants means they should:

Use acquired information for personal gain

Respect confidentiality and not disclose information without authority (correct)

Share information publicly once the professional relationship ends

Disclose client information to friends for personal insight

What is one potential issue regarding integrity in accounting?

Associating with materially false or misleading information Signup and view all the answers

How should an accountant handle a conflict of interest?

Disclose it to all parties involved Signup and view all the answers

Under what circumstances is disclosure permitted by law in the context of confidentiality?

To comply with technical standards Signup and view all the answers

What is one of the duties or rights to disclose that is allowed when not prohibited by law?

To comply with quality reviews Signup and view all the answers

Who is responsible for the appointment of members to the Professional Regulatory Board of Accountancy?

The President of the Philippines Signup and view all the answers

How many members compose the Professional Regulatory Board of Accountancy?

Six Signup and view all the answers

What qualification is required for a member of the Professional Regulatory Board of Accountancy?

Must be a natural-born citizen and a registered CPA Signup and view all the answers

In which of the following practices is public accountancy applicable?

Commerce and industry Signup and view all the answers

Which of the following scenarios does NOT allow for the lawful disclosure of confidential information?

To comply with a personal desire for transparency Signup and view all the answers

What is the responsibility of the Board of Accountancy regarding members?

To elect a vice-chairman from its members Signup and view all the answers

What is the primary function of the FRSC in the Philippines?

To establish GAAP in the Philippines Signup and view all the answers

How many members are there in the IASB?

16 members from different countries Signup and view all the answers

Which of the following is NOT a characteristic of IASB members?

They must represent their home country Signup and view all the answers

What is the purpose of the IFRS Interpretations Committee?

To issue implementation guidance on PFRSs Signup and view all the answers

Which organization replaced the Accounting Standards Council?

The Financial Reporting Standards Council Signup and view all the answers

What voting requirement is needed to issue a new IFRS?

9 out of 16 votes Signup and view all the answers

What is a major challenge facing the accounting profession mentioned in the content?

Nonfinancial measurement and reporting key performance indicators Signup and view all the answers

Which pronouncement type is specifically focused on the framework of financial reporting?

Conceptual Framework for Financial Reporting Signup and view all the answers

What constitutes income for a reporting entity?

Increases in economic benefits during the period Signup and view all the answers

Which of the following is an example of expenses for a reporting entity?

Decreases in economic benefits through outflows Signup and view all the answers

What is the relationship between profit and loss?

Profit equals income minus expenses Signup and view all the answers

Which of the following entities can be considered a reporting entity?

A parent and its subsidiaries as a single reporting entity Signup and view all the answers

What is the minimum frequency for preparing annual financial statements?

Every twelve months Signup and view all the answers

Which of the following statements about interim financial statements is correct?

They are optional and not required Signup and view all the answers

What does 'management stewardship' refer to in financial reporting?

Management's oversight of economic resources Signup and view all the answers

Which of the following best describes a reporting period for financial statements?

The period at which financial statements are prepared Signup and view all the answers

Which expense type is recognized immediately due to the lack of future economic benefits?

Loss from Disposal of Asset Signup and view all the answers

What type of costs are classified as transaction costs?

Legal fees incurred during acquisition Signup and view all the answers

What does derecognition of an asset entail?

Removal of the asset from the financial statement Signup and view all the answers

When is an expense recognized under systematic and rational allocation?

Over the periods benefited Signup and view all the answers

Which level of fair value input is characterized by quoted prices in an active market for identical assets?

Level 1 - Observable Inputs Signup and view all the answers

What is the result of derecognition of a liability?

The entity loses control over the liability Signup and view all the answers

Which of the following expenses would typically utilize systematic and rational allocation?

Depreciation on machinery Signup and view all the answers

Which statement best describes fair value measurement?

Fair value is the price that would be received to sell an asset in an orderly transaction Signup and view all the answers

Study Notes

Integrity

Straightforwardness and honesty is critical in all business relationships
Professionals must be honest in all communications
Accountants must not be associated with materially false information
They must not omit information that may mislead

Objectivity

Accountants should not allow personal bias to influence their professional judgments
They must not allow undue influence from others to affect their decisions
Their judgment should be free from influences that would affect decision making

Confidentiality

Confidentiality is an important standard for accountants
They must not disclose information to third parties without proper authority
This rule applies to all information acquired through professional and business relationships
Confidentiality must be maintained even after the professional relationship ends
Exceptions: disclosure is permitted by law, is authorized by the client or the employer, or required by law

Scope of Practice

Accountants can practice in various fields, including:
- Public Accountancy
- Commerce and Industry
- Education/Academe
- Government

Professional Regulatory Board of Accountancy (BOA)

Composed of a chairman and six members
Appointed by the President of the Philippines
Members are elected from a list submitted by the accredited national professional organization of CPAs

Qualifications of BOA Members

Must be a natural-born citizen and a resident of the Philippines
Must be a registered CPA with at least 10 years of work experience in any scope of practice of accountancy

International Financial Reporting Standards (IFRS)

The IFRS Foundation is the umbrella organization for the International Accounting Standards Board (IASB)
The IASB's role is to develop and issue IFRS
The IFRS Advisory Council assists the IASB
The IFRS Interpretations Committee provides guidance on IFRS application

IASB Membership

16 members from different countries
Serve five-year renewable terms
Paid a salary
Must be independent from any other professional organization
Independent from their past employers
Selected for their expertise in standard-setting

IASB Autonomy

The IASB is not part of any professional organization
Answerable only to the IFRS Foundation

IASB Independence

Full-time members sever all ties from their past employers

IFRS Voting

Nine of 16 votes are required to issue a new IFRS

Three Major Types of Pronouncements by the IASB

International Financial Reporting Standards (IFRS)
Conceptual Framework for Financial Reporting (CFRS)
International Financial Reporting Standards Interpretations (IFRS-I)

Financial Reporting Standards Council (FRSC)

Establish GAAP in the Philippines
Successor to the Accounting Standards Council (ASC)

Philippine Interpretations Committee (PIC)

Enhance financial reporting standards
Issue implementation guidance on Philippine Financial Reporting Standards (PFRSs)
Replaced the Interpretations Committee created by the ASC
Members include accountants from public practice, academia, regulatory bodies, and users of financial statements

Challenges Facing the Accounting Profession

Nonfinancial measurement: how to report significant key performance measurements, like customer satisfaction indexes
Financial performance needs to provide information about economic resources and claims
The entity reporting does not necessarily match the legal entity
Financial statements can be prepared on an interim basis (three months, six months, or nine months)
Financial statements must be prepared on an annual basis

Recognition and Derecognition

Expense is recognized when revenue is recognized
Expense is recognized when payment is made or received
Expense is recognized when the fair value of the consideration given to acquire the asset is determined
Derecognition is the removal of an asset or liability from the statement of financial position
Derecognition of an asset occurs when the entity loses control of the asset
Derecognition of a liability occurs when the entity no longer has a present obligation for the liability

Cause and Effect Association

Expense is recognized when there is a direct relationship between the cost incurred and the revenue earned
Examples include the cost of merchandise inventory, doubtful accounts, warranty expense, and sales commission

Systematic and Rational Allocation

Expense is recognized by allocating the cost over the periods benefited
Examples include depreciation, amortization, and allocation of prepayments

Immediate Recognition

Expense is recognized outright when there is no future economic benefit or the asset no longer qualifies as an asset
Examples include administrative and selling expenses and loss from disposal of an asset

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Description

Test your understanding of ethical standards in accounting, focusing on integrity, objectivity, and confidentiality. This quiz covers the principles professionals must adhere to in maintaining honest and unbiased communication. Additionally, it explores the importance of confidentiality in business relationships.