Accountancy Profession PDF

## Chapter 1: Introduction to the Financial Reporting Environment ### Chapter Outline: - Nature of Accounting - Purpose and Objective of Accounting - Components of Accounting - Phases of Accounting - Accounting Standard-Setting Bodies - The Accountancy Profession in the Philippines ### Nature of A...

## Chapter 1: Introduction to the Financial Reporting Environment ### Chapter Outline: - Nature of Accounting - Purpose and Objective of Accounting - Components of Accounting - Phases of Accounting - Accounting Standard-Setting Bodies - The Accountancy Profession in the Philippines ### Nature of Accounting **Definition of Accounting:** - Accounting is a service activity, its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. - Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information. - A system that measures business activities, processes given information into reports and communicates those findings to decision makers. - 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 financial character and interpreting the results thereof. **Defined by:** - Accounting Standards Council (ASC) - American Accounting Association (AAA) - Philippine Institute of Certified Public Accountants (PICPA) - American Institute of Certified Public Accountants (AICPA) ### Purpose and Objective of Accounting To provide the information needed by users in making economic decisions. ### Components of Accounting - Identifying - Measuring - Communicating **Identifying** This process involves the recognition or non-recognition of business activities or transactions as accountable events. **Note:** Only economic activities or those transactions that have financial character are accountable. - An event is accountable only if it has an effect on assets, liabilities, or equity. **Measuring** - This process involves assigning amounts to accountable economic events and transactions. **Communicating** - This process involves summarizing information into accounting reports and distributing them to users of accounting information. **Note:** This component is the reason why accounting is called the language of business. ### Phases of Accounting - Recording - Classifying - Summarizing - Interpreting **Recording** All financial transactions that occurred are recorded or written in a systematic and chronological manner in the appropriate books. A phase of accounting that is known as bookkeeping. **Classifying** Involves sorting (or arranging/organizing) and grouping similar items under a common category. **Summarizing** Involves summing up events or summarizing financial data through the preparation of various financial or accounting reports, graphs, or charts to make them easy to understand or interpret. **Interpreting** Involves analyzing and understanding the financial reports in a manner that allows the users of financial information to make sound or meaningful judgments regarding the financial condition and performance of the business. ### Accounting Standard-Setting Bodies - International Accounting Standards Board (IASB) - International Financial Reporting Standards Interpretations Committee (IFRSIC) - Financial Reporting Standards Council (FRSC) - Philippine Interpretations Committee (PIC) **International Accounting Standards Board (IASB)** The International Accounting Standards Board (IASB) is an independent, private sector body that issues accounting standards called International Financial Reporting Standards (IFRSs). The IASB was formed in 2001 to replace the International Accounting Standards Committee (IASC). **Note:** Accounting standards issued by the IASC are called International Accounting Standards (IAS): - These were adopted by the IASB. IFRSs are developed through the IASB due process, which involves various interested individuals and organizations from around the world. This due process involves the following stages: - Setting and planning the project agenda - Development and publication of the discussion paper - Development and publication of the exposure draft - Post-standard publishing procedures - Development and publication of a finalized accounting standard **Figure 1: The IASB Accounting Standard-Setting Process** **International Financial Reporting Standards Interpretations Committee (IFRSIC or IFRIC)** International Financial Reporting Standards Interpretations Committee (IFRSIC) is the interpretative body of the IASB. - This committee develops authoritative interpretations of existing IAS and IFRS (called the IFRIC Interpretations) and provides guidance on financial reporting issues not specifically addressed by IAS and IFRS. - An IFRIC Interpretation becomes part of IFRS once they are approved by the IASB. **History of the IFRSIC:** - Before December 2001 The IASB's interpretative body is called the Standards Interpretations Committee (SIC). SIC issued SIC Interpretations. - December 2001 SIC was reconstituted as IFRIC. IFRIC issues IFRIC Interpretations. **Financial Reporting Standards Council (FRSC)** The Financial Reporting Standards Council (FRSC) is the accounting standard-setting body in the Philippines established by the Professional Regulation Commission (PRC) under the Implementing Rules and Regulations of the Republic Act No. 9298 (R.A. 9298), the Philippine Accountancy of Act of 2004, to assist the **Note:** - The IFRS Foundation created another standard setting-board, the International Sustainability Standards Board (ISSB) that sets IFRS Sustainability Disclosure Standards on how a company discloses information in the financial statements about sustainability-related factors that could create or erode its enterprise value in the short, medium, and long term. **Professional Regulatory Board of Accountancy (PRBOA) Resolution No. 44 Series of 2022 was published on September 16, 2022, which announces the approval of the board of the following:** - The adoption of the IFRS Sustainability Disclosure Standards that will be developed by the International Sustainability Standards Board (ISSB) in the preparation of the general-purpose financial statements; and - Renaming of the Financial Reporting Standards Council (FRSC) to Financial and Sustainability Reporting Standards Council (FSRSC). **Philippine Sustainability Reporting Committee (PSRC)** Philippine Sustainability Reporting Committee (PSRC) was created by the Financial and Sustainability Reporting Standards Council (FSRSC) to provide technical support to the FSRSC in the adoption and issuance of guidelines and standards of sustainability reporting in the Philippines. PSRC is composed of 15 members representing the following: - Bangko Sentral ng Pilipinas (BSP), - Board of Accountancy (BOA), - Securities and Exchange Commission (SEC), - Insurance Commission (IC), - Climate Change Commission, - Commission on Audit (COA), - Organizations of Major Preparers of Financial Statements, and - Sectoral representatives from the Public Practice and the Academe. **Philippine Interpretations Committee (PIC)** The Philippine Interpretations Committee (PIC) was established by the FRSC in August 2006 to develop authoritative interpretations of existing PAS and PFRS and provide guidance on financial reporting issues not specifically addressed in PAS and PFRS. **Note:** - A PIC Interpretation becomes part of PFRS once they are approved by the FRSC. - PIC replaces the Interpretations Committee established by the ASC in 2000. - Its international counterpart is the IFRSIC. **The following table summarizes the pertinent details about the accounting standard-setting bodies:** | Body/Committee | International Accounting Standards Board (IASB) | International Financial Reporting Standards Interpretations Committee (IFRSIC) | Financial Reporting Standards Council (FRSC) | Philippine Interpretations Committee (PIC) | |---|---|---|---|---| | Scope of the body/committee | Global | Global | Philippines | Philippines | | Predecessor | International Accounting Standards Committee (IASC) | Standards Interpretations Committee (SIC) | Accounting Standards Council (ASC) | Interpretations Committee established by the ASC | | Accounting Standards issued | The IAS issued by the IASC were adopted. | The SIC Interpretations issued by the SIC were adopted. | PAS and PFRS | PIC Interpretations | **Note:** - Accounting standards were created with the goal of identifying suitable accounting practices for the preparation and presentation of financial statements. - Accounting standards ensure that preparers and users of financial statements have a common understanding of how assets and liabilities are measured. - To assure comparability and uniformity in financial statements based on the same financial data, a set of high-quality accounting standards is required. ### The Accountancy Profession in the Philippines - Republic Act No. 9298 (R.A. 9298) - Professional Regulatory Board of Accountancy (PRBOA) - Philippine Institute of Certified Public Accountants (PICPA) - Scope of Practice of Accountancy - Continuing Professional Development (CPD) **Republic Act No. 9298 (R.A. 9298)** The law regulating the practice of accountancy in the Philippines is the Republic Act No. 9298 (R.A. 9298) or the Philippine Accountancy Act of 2004. **Professional Regulatory Board of Accountancy (PRBOA)** The Professional Regulatory Board of Accountancy (PRBOA) is the body authorized by law to promulgate rules and regulations affecting the practice of accountancy in the Philippines. - PRBOA is under the supervision of the Professional Regulation Commission (PRC). **Philippine Institute of Certified Public Accountants (PICPA)** The Philippine Institute of Certified Public Accountants (PICPA), founded in November 1929, is the accredited professional organization (APO) of CPAs by the PRC. **Scope of Practice of Accountancy** The practice of accountancy shall include, but not limited to, the following: - **Public Accountancy:** This field of practice involves rendering independent professional services to the public. These professional services usually fall into one of the following: - Auditing financial statements - Preparing tax returns - Consultancy services - CPAs are required to register with the PRBOA and PRC for the practice of public accountancy. - A certificate of accreditation shall be issued to CPAs in public practice only when the registrant has acquired a minimum of three (3) years of meaningful experience in any of the areas of public practice including taxation. - The PRC, upon favorable recommendation of the PRBOA, shall issue the Certificate of Registration to practice public accountancy, which shall be valid for three (3) years, renewable every three years upon payment of required fees. - **Commerce and Industry:** - This field of practice, also known as private accountancy, involves assisting management in planning, controlling, and decision-making activities. - CPAs under this scope of practice are employed by a private company. - **Education or Academe:** - This field of practice involves the teaching of accounting, auditing, management services, finance, business law, taxation, and other technically related subjects. - **Government:** - CPAs under this field of practice are employed in government and their agencies, such as Bureau of Internal Revenue (BIR), Bureau of Customs (BOC), Commission on Audit (COA), etc. **Continuing Professional Development (CPD)** - Continuing Professional Development (CPD) is an ongoing training requirement to enhance the technical skill and competence of CPAS. - All CPAs, regardless of the sector of practice, shall, accumulate at least 120 CPD units to be accredited to practice the accountancy profession. **Note:** - However, only 15 CPD units are required for the renewal of the CPA license. - CPD units refer to the CPD hours required for the renewal of a CPA license and accreditation of a CPA to practice the accountancy profession every three years. - Excess units earned shall not be carried over to the next three-year period, except units for master's and doctorate degrees. **A CPA is permanently exempted from acquiring the CPD requirements for license renewal upon reaching the age of 65.** **Note:** This exemption applies only to the renewal of the CPA license and not for the accreditation to practice the accountancy profession. -000-