Lesson 1:
Definition of
Accounting
Lesson 2:
Business, its
Motive and Role in
Society
Lesson 3:
1.
Nature of Business
and type of
Business
Organizations
Lesson 4:
Overview of Generally Accepted
Accounting
Accounting Principles (GAAP)
and underlying
assumptions
1
Lesson 1: Definition of
Accounting
Accounting is defined as:
▣ It 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 decision. (Accounting Standard Council)
▣ It is a process of identifying, measuring and communicating economic
information to permit informed judgment and decision by users of the
information. (American Accounting Association)
▣ It is an art of recording, classifying and summarizing in a significant manner and
in terms of money, transactions and events which are in part at least in financial
character and interpreting the results thereof. (American Institute of Certified
Public Accountant)
To summarize, the essential characteristics of accounting based on the above
definition:
▣ Quantitative in nature
▣ Provide financial information
▣ To be used in making economic or financial decision
2
Lesson 2: Business and its Motive
▣ What is business?
▣ Sources of Capital
• The main source of capital of the business is its investor or
owner.
• With a successful business, investor succeeds not only in
getting back what was invested (return of capital) but
receives more than the amount he or she has invested
(return on capital).
Why is accounting considered as the language of business?
3
Lesson 3: Nature of Business and type of Business Organizations
▣ Nature of Business
1. Service
2. Merchandising
3. Manufacturing Business
4. Agri-Business
5. Hybrid Business
Types of Business Organizations
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperative
4
Why does accounting profession
developed and used standards?
▣ Guidelines or standards have been developed by the
accounting profession to ensure truth, fairness and
consistency in the preparation of the financial
statements.
▣ Qualitative Characteristics
□ Understandability
□ Relevance (feedback value and predictive value)
□ Reliability ( faithful representation, substance over
form, neutrality, prudence)
□ Comparability (consistency)
5
Lesson 4: GAAP and underlying Assumptions
▣ Some of the Generally Accepted Accounting Principles are the following:
1. Cost Principle
2. Objectivity Principle
3. Materiality Principle
4. Matching Principle
5. Consistency principle
6. Adequate Disclosure Principle
Basic Accounting Assumptions or Concepts
1. Going concern
2. Business entity concept
3. Monetary value
4. Time period
5. Accrual Basis
6
Lesson 5: Elements of Financial Statements
▣Assets
▣Liabilities
▣Equity
▣Revenue and Expenses
7
Let’s Review!
1. Almost everyone will benefit from the understanding of accounting terms
and concepts, as this knowledge will enable them to
a) Become professional accountant
b) Prepare their own income tax return
c) Better understand economic activities
d) Act in an ethical manner
Answer c.
8
Let’s Review!
2. This quality allows data-users to assess the similarities and differences
other than from the same enterprise over different periods of among
different enterprises for the same period of time
a) Neutrality
b) Consistency
c) Completeness
d) Comparability
Answer d.
9
Let’s Review!
3. The form of business organization where capital is owned by two or more
persons who agreed to divided their income and net loss based on profit
and loss ratio.
a) cooperatives
b) corporation
c) Partnership
d) Sole proprietorship
Answer c.
10
Let’s Review!
4. These are the means by which the information accumulated and processed
in financial accounting is periodically communicated to users.
a) Financial statements
b) Audit report
c) Interim statements
d) None of the above
Answer a.
11
Let’s Review!
5. The accounting period that the business may use for financial reporting
depends upon
a) The accountant’s time table
b) The availability of accounting data
c) The need of the owner of the said information
d) None of the above
Answer c.
12
Let’s Review!
6. The difference between total assets and total liabilities is called
a) Revenue
b) Owner’s equity
c) Working capital
d) Equities
Answer b
13
Let’s Review!
7. Which of the following is not considered as “financing activity?”
a) Cash received as investment by the owners
b) Cash withdrawn by the owner
c) Cash received from bank loan
d) Purchased of IT Equipment
Answer d
14
THE ACCOUNTING
PROFESSION AND
ITS DEVELOPMENT
Chapter 1
Chapter Outline:
■ The Accountancy Profession
■ What is an Accountant?
■ What are the Career Opportunities of an Accountant?
■ Code of Ethics for CPAS in the Philippines
■ Core Competencies Framework for Accountants
■ The Accountancy Law of 2004
■ The Birth of the Philippine Accounting Standard (PAS)
■ International Accounting Standards Board (IASB)
■ Philippine ASC moves to IAS
■ Government Sector Adopts IAS
■ Aiming Towards Globalization
Learning Objectives:
After studying this chapter, you should be able to:
• Familiarize the background of the accountancy profession,
the career opportunities of a CPA and salient points of the
Philippine Accountancy Act of 2004.
• Learn the various acronyms related to government
agencies and accountancy profession;
• Understand the reason why Philippine ASC moves to IAS;
and
• Understand the effect of global accounting practice to our
Filipino accountants
THE ACCOUNTANCY
PROFESSION
■Most prestigious profession
■Least known and unpopular Confidentiali
ty
■Most feared of and dreaded of all
THE ACCOUNTANCY
PROFESSION
Vicente Fabella – the first Filipino CPA and a holder of 000001 PRC
License Number.
Demands quality of high standards performance at all times to the
public it served.
Competen
Integrity Due Care Diligence
ce
1st Profession to be included under the World Trade Organization’s
(WTO) policy of liberation of services.
WHAT IS AN ACCOUNTANT?
■Holder of Baccalaureate degree in Bachelor
of Science in Accountancy
■Passed the most difficult and
competitive Licensure Examination for
Certified Public Accountants.
WHAT ARE THE CAREER
OPPORTUNITIES OF AN
ACCOUNTANT?
■ Public Accounting – audit, tax and management services.
Member of the Association of CPAs in Public Practice (ACPAPP)
■ Government Accounting – employment in government agencies.
Member of the Government Association of CPAs (GACPA).
■ Private Accounting – employment in private companies. Member
of the Association of CPAs in Commerce and Industry (ACPACI)
■ Accounting Education – CPAs who join in the academe and
sacrifice the high income generating profession for the sake of
love in accounting education. Member of the Association of CPAS
in Education (ACPAE).
CODE OF PROFESSIONAL ETHICS
FOR CPAS IN THE PHILIPPINES
■ Adopted from the revised Code of Ethics for Professional
Accountants developed by International Federation of
Accountants (IFAC) which took effect on June 30, 2008.
■ IFAC - 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 by professional accountants worldwide.
CODE OF PROFESSIONAL ETHICS
FOR CPAS IN THE PHILIPPINES
■ Integrity – straightforward and honest in all professional
and business relationships. Fair dealing and truthfulness.
Shall not associate on reports where they believe :
– Contains a materially false or misleading statement;
– Contains statements or information furnished
recklessly
– Omits or obscure information required to be included
where such omission or obscurity would be misleading
CODE OF PROFESSIONAL ETHICS
FOR CPAS IN THE PHILIPPINES
■ Objectivity – should not allow bias, conflict of
interest or under influence of others to override
profession or business judgments.
■ Professional Competence and Due Care –
continuing duty to maintain professional knowledge
and skill at the level required to ensure that client or
employer receives competent professional service
based on current developments in practice,
legislation and techniques.
CODE OF PROFESSIONAL ETHICS
FOR CPAS IN THE PHILIPPINES
■ Confidentiality – respect the confidentiality of
information acquired as a result of professional and
business relationship and should not disclose any
such information to third parties without proper and
specific authority unless there is a legal or
professional right or duty to disclose.
■ Professional Behavior – should comply with
relevant laws and regulations and should avoid any
action that discredits the profession.
CORE COMPETENCY
FRAMEWORK
■ Knowledge
– General Knowledge
■ Competency in the English Language
■ Adaptability to Western business practices
■ Level of training and
■ Good capabilities in dealing with foreign partners.
– Organizational and Business Knowledge
■ Administrative capability and efficiency
■ Decision modelling
■ Risk analysis and management
■ Measurement
■ Industry and sector perspective
CORE COMPETENCY
FRAMEWORK
■ Knowledge
– Information Technology Knowledge
– Accounting Knowledge
■ Basic accounting and preparation of financial statements
■ Advanced financial accounting practices
■ Management accounting
■ Taxation
■ Business and commercial laws
■ Auditing - fundamentals
■ Auditing – advanced concepts
■ Business finance and management
CORE COMPETENCY
FRAMEWORK
■ Skills
– Intellectual
■ Analysis
■ Problem solving
■ Strategic/critical thinking
– Interpersonal
■ Team player
■ Persuasion, confidence and diplomacy
■ Discreetness, open mind and patience
■ Capability for work and ability to respond well to pressure
CORE COMPETENCY
FRAMEWORK
■ Skills
– Communication
■ Verbally and/or in writing explain financial/statistical/administrative
matters
■ Ask clear, concise and relevant questions to obtain desired information
■ Negotiate effectively
■ Values
– Professional Ethics
■ Integrity, objectivity and independence, professional competence and
due care, confidentiality, and professional behavior.
– Moral Values
The Accountancy Law of 2004
May 5, 1975 May 13, 2004
Revival of the
RA 9298 Continuing
Presidential “Philippine Professional
Decree 692 Accountancy Development for
Act of 2004” CPAs which took
effect in 1987
The Accountancy Law of 2004
Other Salient Points:
1. The Board of Accountancy and its Composition (Sec 5)
Composed of a chairman and 6 members to be appointed by the
President of the Philippines.
2. Admission requirements to the CPA Board Examinations
A Filipino citizen
Has good moral character
Holder of degree of BSA conferred by school, college, academy or
institute duly recognized by CHED.
Has not been convicted of any criminal offense involving moral
turpitude.
The Accountancy Law of 2004
Other Salient Points:
3. Scope of CPA Board Examination
From To
1. Theory of Accounts 1. Financial Accounting and
2. Practical Accounting Problems Reporting
1 2. Advanced Financial
3. Practical Accounting Problems Accounting and Reporting
2
4. Management Services 3. Management Advisory
Services
5. Auditing Theory 4. Auditing
6. Auditing Problems
7. Business Law and Taxation 5. Taxation
6. Regulatory Framework for
Business Transactions
The Accountancy Law of 2004
Other Salient Points:
4. Rating in the Licensure Examination
1. General Average of 75%, with no grade below 65%
2. If a candidate obtains the rating of 75% and above in at least majority of
the subject, he shall receive a conditional credit for the subject passed.
Provided, he shall take an examination in the remaining subjects within 2
years from the preceding examination.
Provided Further, if he fails to obtain at least 75% of the re-examined subjects,
he shall be considered as failed in the entire examination
The Accountancy Law of 2004
Other Salient Points:
5. Reports of Rating – 10 calendar days after the examination, unless
extended for just cause.
6. Failing candidate to take Refresher Course – candidate who failed in
two complete exam shall be disqualified from taking
another set of exam unless he/she submits evidence
to the satisfaction of the Board that he/she enrolled in
and complete at least 24 units of subjects given in
the licensure exam.
The Birth of Philippine
Accounting Standards (PAS)
■ Accounting Standards Council (ASC)
■ Created by PICPA on Nov. 18, 1981
■ Standard setting body which is tasked to established and improve the
Generally Accepted Accounting Principles (GAAP).
■ Statement of Financial Accounting Standards or SFAS and needs the
approval by the Professional Regulation Commission (PRC), and shall be
retroactive unless indicated.
■ Composed of 8 members with 4 members nominated by PICPA and one
each from Securities and Exchange Commission (SEC), Bangko Central
ng Pilipinas (BSP)Professional Regulation Commission (PRC) specifically
the Board of Accountancy (BOA) and the Financial Executive Institute of
the Philippines (FINEX). The term of office is 2 years which can be
renewed.
The Birth of Philippine
Accounting Standards (PAS)
■ Philippine Financial Reporting Standards Council (PFRSC)
■ The new accounting standard setting body, replaces the Accounting
Standards Council (ASC)
■ The Statement of Financial Accounting Standards (SFAS) are known as
the Philippine Accounting Standards (PAS)
■ Created by the Professional Regulation Commission (PRC) upon
recommendation of the BOA to assist the board in carrying out its
powers.
■ Composed of 15 members with a Chairman who has been or is
presently a senior accounting practitioner and 14 representatives from:
BOA, SEC, BSP,BIR, COA, Major Organizations of preparers and users of
Financial Statements, Accredited National Professional Organization
