Conceptual Framework and

Accounting Standards
Chapter 1 – The Accountancy Profession
• Technical Knowledge
• To define accounting
• To identify the overall objective of accounting
• To describe the practice of the accountancy profession in the Philippines.
• To understand the Continuing Professional Development in the field of
accounting
• To know the meaning of GAAPs
• To identify the standard-setting body in the Philippines
• To understand the International Accounting Standards Board
 Definition of Accounting
• ASC
• The Committee on Accounting Terminology of the AICPA
• The AAA
 Important Points
• Quantitative Information
• Financial in Nature
• Useful in decision making
• The definition states that accounting has number of components:
• Identifying as analytical component
• Measuring as the technical component
• Communicating as the formal component
 Identifying
• Recognition or nonrecognition of business activities as “accountable”
events
• Not accountable if cannot be quantified or expressed in terms of a unit of
measure.

• Accountable or Quantifiable when it has an effect on assets liabilities and

equity
• The subject matter of accounting is economic activity or the measurement
of economic resources and economic obligations.
• Only economic activities are emphasized and recognized in accounting
• Sociological and psychological matters are beyond the province of
accounting
 External and Internal Transactions
• External transactions or exchange transactions are those economic events
involving one entity and another entity.
• Ex. Purchase of goods from a supplier
• Borrowing money from a bank
• Sale of goods to a customer
• Payment of Salaries to employees
 Internal Transactions
• Are the economic activities that take place entirely within the entity only.
No other parties are involved.
• Examples are production and casualty loss
• 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.
 Measuring
• Is the accounting process of assigning peso amounts to the accountable
economic transactions and events.
• Fs without monetary amounts would be largely unintelligible or
incomprehensible
• Measurement bases are historical cost and current value.
• Current value includes fair value, value in use, fulfillment value, and
current cost.
 Communicating
• Is the process of preparing and distributing accounting reports to potential
users of accounting information
• Communicating process is the reason why accounting has been called the
“ universal language of business”
• Implicit in the communication process are the recording, classifying, and
summarizing aspects of accounting.
 Overall Objective of Accounting
• Is to provide quantitative financial information about a business useful to
statement users particularly owners and creditors in making economic
decisions.
• Accounting is an information system that measures business activities,
processes information into financial reports and communicates the reports
to decision makers.
• An accountant’s primary task is to supply financial information so that the
statement users could make informed judgement and better decision.
• Financial reports tell us how well an entity is performing in terms of profit
and loss and where it stands in financial terms.
 The Accountancy Profession
• Republic Act no. 9298 is the law regulating the practice of accountancy in
the Philippines
• It is known as the Philippine Accountancy Act of 2004.
• In order to qualify to practice the accountancy profession, a person must
finish a degree in Bachelor of Science in Accountancy and pass a very
difficult government examination given by the Board of Accountancy.
• The Board of Accountancy is the body authorized by law to promulgate
rules and regulations affecting the practice of the accountancy profession
in the Philippines
• The Board of Accountancy is responsible for preparing and grading the
Philippine CPA examination.
• This examination is offered twice a year, one in May and another one in
October, in authorized testing centers around the country
 Limitation of the Practice of Public Accountancy

• Single practitioners and partnerships for 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.
• The SEC shall not register any corporation organized for the practice of
public accountancy
 Accreditation to Practice Public
Accountancy
• Certified Public Accountants, firms and partnerships of certified public
accountants, including partners and staff members are required to register
with the BOA and PRC for the practice of public accountancy.
• The PRC upon favorable recommendations of the BOA shall issue a
Certificate of Registration 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:
• Public Accounting
• Private Accounting
• Government Accounting
 Public Accounting
• 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 namely
• Auditing
• Taxation
• MAS
 Auditing
• Primary service offered by most public accounting practitioners
• Auditing or external auditing is the examination of financial statements by
independent certified public accountant for the purpose of expressing
opinion as the fairness with which the financial statements are prepared.
• External auditing is the attest function of independent CPAs.
• BIR requires audited financial statements to accompany the filing of
annual income tax return.
• Banks and other lending institutions frequently require an audit by an
independent CPA before granting a loan to the borrower.
• Creditors and prospective investors place considerable reliance on audited
financial statements on making economic decision.
 Taxation
• Includes the preparation of annual income tax returns and determination
of tax consequences of certain proposed business endeavours.
• The CPA not infrequently represents the client in tax investigations.
• To offer this service effectively and efficiently, the public accountant
must be thoroughly familiar with the tax laws and regulations and updated
with changes in taxation law and court cases concerned with interpreting
taxation law.
 Management Advisory Services
• Have become increasingly important in recent years although tax audit
and tax services are undoubtedly the mainstay of public accountants.
• It has no precise coverage but is used generally to refer to services to
clients on the following matters:
• A. Advice on installation of computer system
• B. Quality Control
• C. Installation and modification of accounting system
• D. Budgeting
• E. Forward planning and forecasting
 Private Accounting
• CPAs are employed in business entities in various capacity as accounting
staff, chief accountant, internal auditor and controller.
• Controller is the highest accounting officer.
• Main objective is to assist management in planning and controlling the
entity’s operations.
• It includes maintaining the records, producing financial reports, preparing
budgets and controlling and allocating resources of the entity.
 Government Accounting
• It 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 is on the custody and administration of funds.
• CPAs are employed in BIR, COA, SEC and BSP.
 Continuing Professional Development
• Republic Act no. 10912 is the law, mandating and strengthening the
continuing professional development program for all regulated
professions, including accountancy profession.
• All CPAs shall abide by the requirements, rules and regulations on
continuing professional development to the promulgated by the BOA,
subject to the approval of the PRC.
• Continuing professional development is the acquisition of advanced
knowledge, skill and proficiency.
• Continuing professional development raises and enhances the technical
skill and competence of the CPA.
 CPD Credit Units
• It refer to the CPD credit hours required for the renewal of CPA license
and accreditation of a CPA to practice the accountancy profession every
three years.
• Under the new BOA Resolution, all CPAs regardless of area or sector of
practice shall required to comply with 120 cpd credit units.
• The Continuing Professional Development is required for the renewal of
CPA license and accreditation of CPA to practice the accountancy
profession.
• The Continuing Professional Development has become mandatory for
CPAs.
• 15 CPD credit units are required for the renewal of license.
• 120 CPD credit units are required for accreditation of a CPA to practice
the accountancy profession.
• Excess credit units earned shall not be carried over to the next three year
period, except credit units earned for masteral and doctoral degrees.
 Exemption from CPD
• A CPA shall be permanently exempted from CPD requirements upon
reaching the age of 65 years.
• However, the exemption applied only to the renewal of CPA license and
not for the purpose of accreditation to practice the accountancy
profession.
 Accounting vs. Auditing
• Accounting embraces auditing. Auditing is one of the areas of accounting
specialization.
• Accounting is essentially constructive in nature. Accounting ceases when
financial statements are already prepared.
• Auditing is analytical. The work of an auditor begins when the work of the
accountant ends.
• After the financial statements are prepared, the auditor will begin to
perform the task of auditing.
• The auditor examines the financial statements to ascertain whether they
are in conformity with generally accepted accounting principles.
 Accounting vs. Bookkeeping
• Bookkeeping is procedural and largely concerned with development and
maintenance of accounting records.
• Bookkeeping is the how of accounting
• Accounting is conceptual and is concerned with the why, reason or
justification for any action adopted.
• Bookkeeping is a procedural element of accounting as arithmetic is a
procedural element of mathematics.
 Accounting vs. Accountancy
• Synonymous because they both refer to the entire field of accounting
theory and practice.
• Accountancy refers to the profession of accounting practice.
• Accounting is used in reference only to a particular field of accountancy
such as public accounting, private accounting and government accounting.
 Financial vs. Managerial Accounting
• Financial Accounting is primarily concerned with the recording of
business transactions and the eventual preparation of financial statements.
• Financial Accounting focuses on general purpose reports known as
financial statements intended for internal and external users
• Financial Accounting is the area of accounting that emphasizes reporting
to creditors and investors.
• Managerial Accounting is the accumulation and preparation of financial
reports for internal users only.
• In other words, managerial accounting is the area of accounting that
emphasizes developing accounting information for use within an entity.
 Generally Accepted Accounting
Principles
• These accounting rules, procedures and practices came to be known as
generally accepted accounting principles or simply GAAP.
• The principles have developed on the basis of experience, reason, custom,
usage and practical necessity.
• It represents 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.
 Purpose of Accounting Standards
• Is to identify proper accounting practices for the preparation and
presentation of financial statements.
• It 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.
 Financial Reporting Standards Council
• The development of generally accepted accounting principles is
formalized initially through the creation of the Accounting Standards
Council or ASC.
• The FRSC now replaces the ASC.
• It is the accounting standard setting body created by the PRC upon
recommendation of the BOA to assist the BOA in carrying out its powers
and functions provided under R.A. Act. 9298.
• The main function is to establish and improve accounting standards that
will be generally accepted in the Philippines.
• The accounting standards promulgated by the FRSC constitute the highest
hierarchy of GAAPs in the Philippines.
• The approved statements of the FRSC are known as PAS and PFRS>
 Compositions of FRSC
• Composed of 15 members with a chairman who had been or is presently a
senior accounting practitioner and 14 representatives from the following:
• BOA 1 SEC 1 BSP 1 BIR 1
COA 1
• Major organization of preparers and users of FS – FINEC 1
• Accredited national professional organizations of CPAs:
• Public Practice 2 / Public Practice 2 / Academe Education 2 / Government
2
• The chairman and member of the FRSC shall have a term of 3 years
renewable for another term.
 Philippine Interpretations Committee

• It was formed by the FRSC in August 2006 and has replaced the
Interpretations Committee or IC formed by the ASC in May 2000.
• The role of the PIC is to prepare interpretations of PFRS for approval by
the FRSC and to provide timely guidance on financial reporting issues not
specifically addressed in current PFRS.
• Interpretations are intended to give authoritative guidance on issues that
are likely to receive divergent or unacceptable treatment because the
standards do not provide specific and clearcut rules and guidelines.
• The counterpart of the PIC in the International Accounting Standards
Board is the International Financial Reporting Interpretations Committee
or IFRIC.
 International Accounting Standards
Committee
• Is an independent private sector body, with the objective of achieving
uniformity in the accounting principles which are used by the business
and other organizations for financial reporting around the world.
• Formed in 1973 through an agreement made by professional accountancy
bodies from Australia, Canada, France, Germany, Japan, Mexico, the
Netherlands, The United Kingdom and Ireland, the United States of
America.
• The IASC is headquartered in London, United Kingdom.
 Objectives of IASC
• 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.
• To work generally for the improvement and harmonization of regulations,
accounting standards and procedures relating the presentation of financial
statements.
 International Accounting Standards
Board
• Replaces the International Accounting Standards Committee or IASC.
• It publishes standards in a series of pronouncements called International
Financial Reporting Standards or IFRS.
• Has adopted the body standards issued by the IASC.
• The pronouncements of the IASC continue to be designated as
International Accounting Standards or IAS.
• The IASB standard setting process includes in the correct order:
• Research, discussion proper, exposure draft and accounting standard.
• The IASB declared that the merits of proposed standards are assessed
from a position of neutrality.
• A due process system is employed to enable interested parties to express
their views on issued under consideration.
 Move towards IFRS
• In developing accounting standards that will be generally accepted in the
Philippines, standards issued by other standard setting bodies such as the
USA Financial Accounting Standards Board (FASB) and the IASB are
considered.
• In the past years, most of the Philippine standards are based on American
Accounting Standards.
• At present, the FRSC has adopted in their entirety all International
Accounting standards and International Finance Reporting Standards.
• The move toward IFRS is essential to achieve the goal of one uniform and
globally accepted financial reporting standards.
Philippine Financial Reporting Standards
• Issues standards in a series of pronouncements called Philippine Financial
Reporting Standards or PFRS.
• The Financial Reporting Standards collectively include all of the
following:
• A. PFRS which correspond to IFRS. The PFRS are numbered the same as
their counterpart in IFRS.
• PAS which correspond to IAS. The PAS are numbered the same as their
counterpart in IAS.
• C. Philippine Interpretations which correspond to Interpretations of the
IFRIC and Interpretations developed by the PIC.
 Gentle Reminder
• Dream/ Goal / Objective : You, our students, will become a good CPA and
will be employed in a company where do you want to work.
 Role of the Parents
• To support as much as possible all the materials, vitamins, and other
expenses that you will be incurring.
• To allow you not to work anymore (limit household chores)
 Role of the Teachers
• Will guide you how to become CPAs.
• Will help you in all the materials needed.
• Will help you understand the topics.
• Will screen you if you have potentials to become CPAs.
• Will challenge you in the quizzes and exams.
 Role of the Students
• Will study, familiarize and understand as much as possible all the concepts
and all the topics covered in the CPALE.
• Will solve and understand as many problems as you can.
• Will maximize time from first year up to the CPA board exam.
 To become CPA
• You need to get 75% average grade in the 6 subjects.

• Goodluck, God bless us all!

End!