ACC 203 Conceptual Framework And Accounting Standards Module 1 PDF

ACC 203 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Module 1: C...

ACC 203 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Module 1: Conceptual Framework 1. THE ACCOUNTANCY PROFESSION Objectives: a. Define accounting b. Identify overall objective of accounting c. Describe the practice of the accountancy profession in the Philippines d. Understand the CPD in the field of accounting e. Know the meaning of Generally Accepted Accounting Principles (GAAP) f. Identify the standard-setting body in the Philippines g. Understand the IASB 1.1 ACCOUNTING DEFINITION 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 (Accounting Standards Council). 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 (Committee on Accounting Technology). Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decision by users of the information (American Accounting Association). It also states that accounting has a number of components: Measuring - technical component Identifying - analytical component Communicating - formal component 1.1.1 Identifying - Recognition or nonrecognition of business activities as “accountable events” - Not all business activities are accountable - Accountable Events: when it affects assets, liabilities, and equity; economic activities - External and Internal Transactions External Transactions: economic events involving one entity and another entity Internal Transactions: economic events that take place entirely within the entity only. 1.1.2 Measuring - Assigning of peso amounts to the accountable economic transactions and events. - Measurement bases are historical costs and current value. Historical Cost: original acquisition cost; most common measure of financial transaction Current Value: includes fair value, value in use, fulfillment value, and current cost 1.1.3 Communicating - Process of preparing and distributing accounting reports to potential users of accounting information - Reason why accounting has been called the “universal language of business” - Communication Process: Recording, classifying, and summarizing Recording/Journalizing: systematically maintaining a record of all economic business transactions after they have been identified and measured Classifying: sorting or grouping of similar and interrelated economic transactions into their respective classes; accomplished by posting to the ledger Summarizing: preparation of financial statements 1.2 OVERALL OBJECTIVE OF ACCOUNTING To provide quantitative financial information about a business useful to statement users particularly owners and creditors in making economic decisions. An accountant’s primary task is to supply financial information so that the statement users can make informed judgments and better decisions. Financial reports tell us how well an entity is performing in terms of profit and loss and where it stands in financial terms. 1.3 THE ACCOUNTANCY PROFESSION Republic Act No. 9298 the law regulating the practice of accountancy in the Philippines also known as the Philippine Accountancy Act of 2004 Board of Accountancy (BOA) body authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines; responsible for preparing and grading the Philippine CPA Examination  ACC 203 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Module 1: Conceptual Framework Limitation of the Practice of Public Accountancy Single practitioners and partnerships for the practice of public accountancy shall be registered as Certified Public Accountants in the Philippines - Certificate of Accreditation: issued to CPAs in public practice only upon showing in accordance with rules and regulations promulgated by BOA and approved by the Professional Regulation Commission (PRC) that such registrant has acquired a minimum of three (3) years of meaningful experience in any of the areas of public practice including taxation. - Securities and Exchange Commission (SEC) shall NOT register any corporation organized for the practice of public accountancy. Accreditation to Public Practice Accountancy Certified Public Accountants, firms, and partnerships of CPAs, including partners and staff members are required to register with the BOA and PRC for the practice of public accountancy. - Certificate of Registration: issued by the PRC upon favorable recommendation of the BOA to practice public accountancy which shall be valid for 3 years and renewable every 3 years upon payment of required fees. CPAs generally practice their profession in three main areas, namely: a. Public Accounting b. Private Accounting c. Government Accounting 1.3.1 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 - Public accountants usually offer three kinds of services: auditing, taxation, and management advisory services 1.3.1.1 Auditing o Traditionally been the primary service offered by most public accounting practitioners o a.k.a External Auditing: the examination of financial statements by independent CPAs for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared o the attest function of independent CPAs 1.3.1.2 Taxation o Includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors o the CPA not infrequently represents the client in tax investigations 1.3.1.3 Management Advisory Services o Has no precise coverage but is used generally to refer to services to clients on the ff matters: a. Advice on installation of computer system d. Budgeting b. Quality control e. Forward planning and c. Installation and modification of accounting system forecasting 1.3.2 Private Accounting - Employment in various capacity as accounting staff, chief accountant, internal auditor, and controller - Controller: highest accounting officer in an entity - Major objective of Private Accountant: assist management in planning and controlling the entity’s operations. - Includes maintaining the records, producing the financial reports, preparing the budgets and controlling, and allocating the resources of the entity 1.3.3 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 - Focus: custody and administration of funds 1.4 CONTINUING PROFESSIONAL DEVELOPMENT (CPD) Republic Act No. 10912 – law mandating and strengthening the continuing professional development program for all regulated professions, including the accountancy profession. Continuing Professional Development (CPD) – acquisition of advanced knowledge, skill, and proficiency; raises and enhances the technical skill and competence of the Certified Public Accountant  ACC 203 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS Module 1: Conceptual Framework 1.4.1 CPD Credit Units - Refer to the CPD credit hours required for the renewal of a CPA license and accreditation of a CPA to practice the accountancy profession every three (3) years. - Mandatory for Certified Public Accountants - New BOA Resolution: all CPAs regardless of area or sector of practice shall be required to comply with 120 CPD Units - Recent Promulgation: 15 CPD credit units - renewal of CPA license 120 CPD credit units – accreditation of a CPA to practice the profession - Excess credit units shall NOT be carried over to the next three-year period, except credit units earned for masteral and doctoral degrees. 1.4.1.1 Exemption from CPD o Permanent Exemption: upon reaching the age of 65; only applies to the renewal of license and not for accreditation to practice the accountancy profession 1.5 ACCOUNTING VS. OTHER FIELD OF STUDY 1.5.1 Accounting vs. Auditing Accounting Auditing One of the areas of accounting specialization Constructive in nature Analytical in nature Ceases when the financial statements are already Begins when the work of accountant ends prepared To examine whether the FS are in conformity with the generally accepted accounting principles 1.5.2 Accounting vs. Bookkeeping Accounting Bookkeeping Conceptual; reason or justification for any action Procedural; largely concerned with the adopted development and maintenance of accounting records “Why” of accounting “How” of accounting 1.5.3 Accounting vs. Accountancy Accounting Accountancy broadly speaking, they are synonymous; both refer to the entire field of accounting theory and practice Used in reference only to a particular field of The profession of accounting practice accountancy such as public accounting, private accounting, and government accounting 1.5.4 Financial Accounting vs. Managerial Accounting Financial Accounting Managerial Accounting Recording of business transactions and the Accumulation and preparation of financial eventual preparation of financial statements reports Focus on general-purpose reports known as financial statements For internal and external users For internal users only Area of accounting that emphasizes reporting to Area of accounting that emphasizes developing creditors and investors accounting information for use within an entity 1.6 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) - Rules, procedures, practices, and standards followed in the preparation and presentation of financial statements - They are like laws that must be followed in financial reporting - The process of establishing GAAP is a political process that incorporates the political actions of various interested use groups as well as professional judgment logic and research - Accounting Standards: create a common understanding between preparers and users of financial statements, particularly the measurement of assets and liabilities 1.7 STANDARD-SETTING BODY IN THE PHILIPPINES AND INTERNATIONAL 1.7.1 Financial and Sustainability Reporting Standards Council (FSRSC) - In the Philippines, the development of GAAP is formalized initially through the Accounting Standards Council