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ACC 111-01

ACCOUNTING: The first view

Definition of accounting
ASC (Accounting Standards Council)
“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 decision”.
AICPA (American Institute of Certified Public Accountants)
“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”.
AAA (American Accounting Association)
“Accounting is the process of identifying, measuring and communicating economic information to permit
informed judgement and decision by users of the information”.
Purposes of accounting
1. Provide quantitative information.
2. The information is likely to be financial in nature.
3. The information should be useful in decision making.

Accounting is an information system that measures business activities, processes information into reports
and communicates the reports to decision makers. The key product of this information system is a set of financial
statements.
Out of the varied definitions of accounting, the definition that stood the test of time is the definition given
by the American Accounting Association (AAA). The components of accounting are as follows: [1] Identifying, [2]
Measuring and [3] Communicating.
IDENTIFYING
This accounting process is the recognition or non-recognition of business activities as “accountable”
events.
NOT ALL BUSINESS ACTIVITIES ARE ACCOUNTABLE
Business activities/ event is accountable or quantifiable when it has as effect on Assets, Liabilities, and
Equity. In other words, the subject matter of accounting is economic activity or the measurement of economic
resources and economic obligations.
Business transactions are exchanges of equal monetary values. This definition implies the following
concept of understanding:
1. For every value received, another value is given away as an exchange.
2. These values are measured in terms of pesos which are presumed to be equal.

MEASURING
This accounting process is the assigning of peso amounts to the accountable economic transactions and
events. If accounting information is to be useful, it must be expressed in terms of a common financial denominator.
The measurement bases are historical cost, current cost, realizable value and the present value. Historical cost is the
most common measure of financial transactions.

COMMUNICATING
Communicating is the process of preparing and distributing accounting reports to potential users of
accounting information. Identifying and measuring are pointless if the information contained in the accounting

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS
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records cannot be communicated in some form to potential users. Communicating is the reason why accounting has
been called as the “universal language of business”.
What’s in communicating?
It is implicit in the communication process are the recording, classifying and summarizing aspects of
accounting.
Recording. It is the process of systematically maintaining a record of all economic business transactions
after they have been identified. The phase of accounting which involves the routine and mechanical process of
writing down the business transactions and events in the books of accounts in a chronological manner called
JOURNALIZING.
Classifying. This refers to the sorting or grouping of similar and interrelated economic transactions into
their respective classes. This is actually the process of transferring the entries from journal to the ledger called
POSTING.
Summarizing. This refers to 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.
Objective of Accounting
“Provide quantitative financial information about a business that is useful to statement users particularly
owners and creditors, in making economic decisions”.

THE ACCOUNTANCY PROFESSION


Republic Act No. 9298 “Philippine Accountancy Act of 2004” is the law regulating the practice of
accountancy in the Philippines. The Board of Accountancy is authorized by law to promulgate rules and regulations
affecting the practice of the accountancy profession in the Philippines.
 Limitation of the practice of public accountancy
1. Accreditation from BOA and PRC
2. 3 years meaningful experience
3. SEC shall not register any corporation organized for the practice of public accountancy

FOUR SECTORS OF THE ACCOUNTANCY PROFESSION


1. Public Accounting/Public Practice. Services offered – Auditing, Taxation and Management Advisory Services.
2. Private Accounting/Commerce and Industry. Objective is to assist management in planning and controlling the
entity’s operations.
3. Government Accounting. Its focus is the custody and administration of public funds.
4. Academe/Education.

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)


Refers to the inculcation, assimilation and acquisition of knowledge, skill, proficiency, and ethical and
moral values after the initial registration of the Certified Public Accountant.
Exemptions from CPD
Permanently Exempted. CPA upon reaching the age of 65 years old.
Temporarily Exempted:
1. The CPA is working or practicing the profession or furthering studies abroad.
2. The exemption is for the duration of stay abroad.
3. The CPA has been out of the country for at least two years immediately prior to the date of
renewal of license and accreditation.

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS
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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Represent the rules, procedures, practice and standards followed in the preparation and presentation of
financial statements. These are like laws that must be followed in financial reporting.

Purpose of Accounting Standards


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.
In the Philippines, the development of generally accepted accounting principles is formalized initially
through the creation of the Accounting Standards Council or ASC. The ASC was replaced by the Financial Reporting
Standards Council or FRSC. FRSC is the accounting standard setting body created by the Professional Regulation
Commission (PRC) upon recommendation of the Board of Accountancy to assist the Board of Accountancy in carrying
out its powers and functions provided under Republic Act No. 9298. RA 9298, also known as the Philippine
Accountancy Act of 2004, is the law regulating the practice of accountancy in the Philippines.
FRSC – Financial Reporting Standards Council
“The main function of FRSC is to establish and improve accounting standards that will be generally accepted in
the Philippines.”
The accounting standards promulgated by the Financial Reporting Standards Council constitute the highest
hierarchy of generally accepted accounting principles in the Philippines. The approved statements of the FRSC are
known as Philippine Accounting Standards or PAS and Philippine Financial Reporting Standards or PFRS. The FRSC
is composed of 15 members with a Chairman who had been or is presently a senior accounting practitioner and 14
representatives from the following:
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue 1
Commission on Audit 1
Major organizations of preparers and users of
financial statements – Financial Executives Institute of Philippines or FINEX 1
Accredited national professional organization of CPAs:
Public Practice 2
Commerce and Industry 2
Academe or Education 2
Government 2
Total 14
The Chairman and members of the FRSC shall have a term of 3 years renewable for another term. Any
member of ASC shall not be disqualified from being appointed to the FRSC.

IASB – International Accounting Standards Board


The International Accounting Standards Committee or IASC 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. It was 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, and the United States of America. The IASC is headquartered in London, United Kingdom.
Objectives of IASC
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.

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS
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b. To work generally for the improvement and harmonization of regulations, accounting standards and procedures
relating to the presentation of financial statements.
The IASC was replaced by International Accounting Standards Board or IASB. IASB publishes standards in a
series of pronouncements called “International Financial Reporting Standards” or IFRS. However, the IASB has
adopted the body of standards issued by IASC. The pronouncements of the IASC continue to be designated as
“International Accounting Standards” or IAS. The IFRS is a global phenomenon intended to bring about greater
transparency and a higher degree of comparability in financial reporting.
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 issued are based on American accounting standards.
However, at present, the FRSC has adopted in their entirety all International Accounting Standards and International
Financial Reporting Standards. The move toward IFRS is essential to achieve the goal of one uniform and globally
accepted financial reporting standards.
The Philippines is fully compliant with IFRS effective January 2005, a process which was started back in 1997
in moving from USA GAAP to IFRS. The following factors are considered in deciding to move totally to international
accounting standards.
a. Support of international accounting standards by Philippine organizations, such as the Philippine SEC, Board of
Accountancy, and PICPA.
b. Increasing internalization of business which has heightened interest in a common language for financial reporting.
c. Improvement of international accounting standards or removal of free choices of accounting treatments.
d. Increasing recognition of international accounting standards by the World Bank, Asian Development Bank and
World Trade Organization.

PFRS – Philippine Financial Reporting Standards


The Financial Reporting Standards Council issues standards in a series of pronouncements called “Philippine
Financial Reporting Standards” or 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 Interpretation which correspond to Interpretations of the IFRIC and the Standing
Interpretations Committee, and Interpretations developed by the Philippine Interpretations Committee.

EXERCISE 1: Multiple Choice


1. It is a global phenomenon intended to bring about transparency and a higher degree of comparability in financial
reporting in order to achieve the goal of one uniform and globally accepted financial reporting standards.
a. IFRS
b. Borderless accounting
c. World trade
c. Information Technology

2. The Philippine Financial Reporting Standards collectively include

a. PFRS corresponding to IFRS


b. PAS corresponding to IAS
c. Philippine Interpretations corresponding to IFRIC and SIC Interpretations and Interpretations developed by PIC.

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS
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c. All of these are included in the Philippine Financial Reporting Standards

3. Which of the following statements is true regarding the FRSC?

a. The FRSC is created by PRC upon recommendation of BOA to assist BOA in carrying out its powers and functions
under RA 9298.
b. The FRSC shall be composed of 15 with the Chairman and 14 representatives.
c. The Chairman and members of FRSC are appointed by PRC upon recommendation of BOA and shall have a term of
three years renewable for another term.
d. All of the statements are true.

4. It is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy
profession in the Philippines.

a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
5. Which of the following statements is incorrect in relation to accountable event?

a. An event is accountable when it has an effect on asset, liability or equity.


b. The subject matter of accounting is the measurement of economic resources and obligations.
c. Only economic activities are emphasized and recognized in accounting.
d. Sociological and Psychological matters are quantifiable.

6. the most common financial attribute used in measuring financial information is

a. Historical cost
b. Current cost
c. Realizable value
d. Present value

7. The communicating process of accounting includes all of the following, except

a. Recording
b. Classifying
c. Summarizing
d. Interpreting

8. What is the overall objective of accounting?

a. To provide information that the managers of an economic entity need to control the operations.
b. To provide information that the creditors can use in deciding whether to grant loans to an entity.
c. To measure the periodic income of the economic entity.
d. To provide quantitative financial information about an entity that is useful in making economic decision.

9. What is the law regulating the practice of accountancy in the Philippines?

a. RA 9298
b. RA 9198
c. RA 9928
c. RA 9892

10. This accounting process is the recognition or non-recognition of business activities as accountable events.

a. Identifying
b. Measuring
c. Communicating
d. Reporting

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS
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EXERCISE 2: True or False

1. PFRS does not include 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.
2. 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 is the only objective of IASC.
3. The key product of an accounting as an information system is a set of financial statements.
4. The main function of FRSC is to establish and improve accounting standards that will be generally
accepted in the Philippines.
5. The recording process is the assigning of peso amounts to the accountable economic transactions and
events. If accounting information is to be useful, it must be expressed in terms of a common financial denominator.

Sources: Valix, C., Peralta, J. & Valix, C.A. (2015). Financial Accounting Volume One; Dabalos, F., Fornolles, M., Magallanes, J., Matero, C., Matero, M., & Paclijan, E.
(2008). Fundamentals of Accounting; Lopez, R. (2016). Worktext in bookkeeping (A simple transformation from Bookkeeping into Accounting. IAS/PAS and
IFRS/PFRS