Lecture: The Accountancy Profession PDF

TOPIC 1: THE ACCOUNTANCY PROFESSION DEFINITION OF ACCOUNTING Accounting is a service activity. The accounting function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision. (ASC) Accounting is the a...

TOPIC 1: THE ACCOUNTANCY PROFESSION DEFINITION OF ACCOUNTING Accounting is a service activity. The accounting function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision. (ASC) 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 a financial character and interpreting the results thereof. (AICPA) Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information. (AAA) a. Identifying  This accounting process is the recognition or nonrecognition of business activities as "accountable" events. Not all business activities are accountable.  An event is accountable or quantifiable when it has an e ect on assets, liabilities and equity. Types of Events  External transactions or exchange transactions are those economic events involving one entity and another entity.  Internal transactions are the economic activities that take place entirely within the entity only. No other parties are involved.  Production is the process by which resources are transformed into products.  Casualty is any sudden and unanticipated loss from fire, flood, earthquake and other event ordinarily termed as an act of God. b. Measuring  The accounting process of assigning of peso amounts to the accountable economic transactions and events. The Philippine peso is the unit of measuring accountable economic transaction.  The measurement bases are historical cost and current value.  Historical cost is the original acquisition cost and the most common measure of financial transactions.  Current value includes fair value, value in use, fulfillment value and current cost. c. Communicating  It is the process of preparing and distributing accounting reports to potential users of accounting information.  Implicit in the communication process are the recording, classifying and summarizing aspects of accounting.  Recording or journalizing is the process of systematically maintaining a record of all economic business transactions after they have been identified and measured.  Classifying is the sorting or grouping of similar and interrelated economic transactions into their respective classes. It is accomplished by posting to the ledger.  Summarizing is the preparation of financial statements which include the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows. THE ACCOUNTANCY PROFESSION Republic Act No. 9298 is the law regulating the practice of accountancy in the Philippines. This law is known as the Philippine Accountancy Act of 2004. The Board of Accountancy is the body authorized by law to promulgate rules and regulations a ecting the practice of the accountancy profession in the Philippines. Accounting is used in reference only to a particular field of accountancy such as public accounting, private accounting, and government accounting. a. PUBLIC ACCOUNTING - The field of public accounting or public accountancy is composed of individual practitioners, small accounting firms and large multinational organizations that render independent and expert financial services to the public.   Auditing or external auditing is the examination of financial statements by independent certified public accountant for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared.  Taxation service includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors.  Management advisory services has no precise coverage but is used generally to refer to services to clients on the following matters:  Advice on installation of computer system  Quality control  Installation and modification of accounting system  Budgeting  Forward planning and forecasting LIMITATION OF THE PRACTICE OF PUBLIC ACCOUNTANCY  shall be registered certified public accountants in the Philippines.  A certificate of accreditation shall be issued to certified public accountants in public practice only upon showing in accordance with rules and regulations promulgated by the Board of Accountancy and approved by the Professional Regulation Commission that such registrant has acquired a minimum of three years of meaningful experience in any of the areas of public practice including taxation. ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY The Professional Regulation Commission upon favorable recommendation of the Board of Accountancy shall issue the Certificate of Registration to practice public accountancy which shall be valid for 3 years and renewable every 3 years upon payment of required fees. b. PRIVATE ACCOUNTING - includes maintaining the records, producing the financial reports, preparing the budgets and controlling and allocating the resources of the entity. c. GOVERNMENT ACCOUNTING - encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property and interpreting the results thereof. The focus of government accounting is the custody and administration of public funds. 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 is the acquisition of advanced knowledge, skill and proficiency and ethical and moral values after the initial registration of the CPA for assimilation into professional practice and lifelong learning. CONTINUING PROFESSIONAL DEVELOPMENT (CPD) CPD CREDIT UNITS It refers to the CPD credit hours required for the renewal of CPA license (15 units) and accreditation of a CPA (120 units) to practice the accountancy profession every three (3) years. Excess credit units earned shall not be carried over to the next three-year period, except credit units earned for masteral and doctoral degrees. Accreditation of a CPA (120 units) Competence Area A: Technical Competence – 30 units Competence Area B: Professional Skills – 5 units Competence Area C: Professional Values, Ethics & Attitude – 5 units Flexible – 80 units Renewal of CPA license (15 units) 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 - represent the rules, procedures, practice and standards followed in the preparation and presentation of financial statements. - are like laws that must be followed in financial reporting. - 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. DIFFERENT ACCOUNTING BODIES THAT PROMULGATE IFRS AND PFRS - GAAP is formalized initially through the creation of the Accounting Standards Council or ASC which is now Financial Reporting Standards Council or FRSC. Financial Reporting Standards Council (FRSC) - FRSC is the accounting standard setting body 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 provided under R.A. Act No. 9298. - FRSC main function is to establish and improve accounting standards that will be generally accepted in the Philippines. - The approved statements of the FRSC are known as Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS). - FRSC is composed of 15 members: o 1 Chairman – presently senior accounting practitioner o 14 representatives  1 BOA  1 BSP  1 COA  1 SEC  1 BIR  1 Major organization of preparers and users of FS – FINEX  8 Accredited national professional org. of CPAs  2 Public Practice  2 Commerce and Industry  2 Government  2 Academe or Education - Philippine Interpretations Commission (PIC) – created by FRSC. o To prepare interpretations of PFRS for approval by FRSC. o To provide timely guidance on financial reporting issues not specifically addressed in PFRS. o Counterpart in the UK is the IFRIC which has already replaced Standing Interpretation Commission (SIC). International Accounting Standards Committee (IASC) It is an independent private sector body, with the objective of achieving uniformity in the accounting principles which are used by business and other organizations for financial reporting around the world. Objectives: a. To formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observance. b. To work generally for the improvement and harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements. IASC is replaced by IASB. International Accounting Standards Board (IASB) It publishes standards in a series of pronouncements called International Financial Reporting Standards (IFRS). IASB has adopted the body of standards issued by the IASC. IASB standard-setting process includes in the correct order research, discussion paper, exposure draft and accounting standard. has adopted in PAS IAS IASC FRSC and and pronouncements and their entirely all PFRS IFRS IASB The move toward IFRS is essential to achieve the goal of one uniform and globally accepted financial reporting standards. Philippine Financial Reporting Standards (PFRS) The Philippine Financial Reporting Standards collectively include all of the following: a. Philippine Financial Reporting Standards which correspond to International Financial Reporting Standards. The Philippine Financial Reporting Standards are numbered the same as their counterpart in International Financial Reporting Standards. b. Philippine Accounting Standards which correspond to International Accounting Standards. The Philippine Accounting Standards are numbered the same as their counterpart in International Accounting Standards. c. Philippine Interpretations which correspond to Interpretations of the IFRIC and Interpretations developed by the Philippine Interpretations Committee.