ACCOUNTING

AND ITS
ENVIRONMENT
BASIC FINANCIAL
ACCOUNTING AND
REPORTING
 In a market economy, information helps
decision-makers make informed choices
regarding the allocation of scarce
resources under their control.

Accounting is the system that measures

business activities, processes that
INTRODUCTION: information into reports and communicates
the results to decision makers.

Accounting is called the “language of

business”.
Accounting Defined

Accounting is a service activity. Its function is to provide quantitative information, financial in nature,
about economic entities that is intended to be useful in making economic decisions. (SFAS No. 1)

Accounting is an information system that measures, processes and communicates financial

information about an economic entity. (FASB)

Accounting is the process of identifying, measuring, and communicating economic information to

permit informed judgments and decisions by users of the information. (American Accounting
Association, 1966)
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. (American Institute of Certified Public Accountants).
Opportunities in ASEAN Countries

► Mutual Recognition Arrangements (MRA) are contracts between a

National Accountancy Body and Professional Regulatory Authority from
countries that have signed the General Agreement on Trade and Services
in 1995 allowing professional service providers registered in a signatory
country be recognized in another country.
Fundamental Business Model

capital
Sales
Business
owner
Operating Products or

Asset
used
Cash
Assets Services
Banks

return
Cost

Figure 1.1. The Fundamental Business Model

Types of Business

Type Activity Structure Example

Services Selling people’s Hiring skilled staff and selling their time. Software
time development,
accounting, legal.

Trader Buying and Selling Buying a range of raw materials and Wholesaler, Retailer
of products manufactured goods and consolidating them,
making them available for sale in locations near
to their customers or online for delivery.
Types of Business

Type Activity Structure Example

Manufacture Designing products, Taking raw materials and Vehicle assembly, construction,
aggregating using equipment and staff to engineering, electricity, water
components and convert them into finished food and drink, chemicals,
assembling finished goods. media, pharmaceuticals
products.
Raw Materials Growing or Buying blocks of land and Farming, Mining, and Oil.
extracting raw using them to provide raw
materials materials.
Infrastructure Selling the utilization Buying and operating assets; Transport, Hotels, Telecoms,
of infrastructure selling occupancy often in Sports facilities, Property
combination with services Management.
Types of Business

Type Activity Structure Example

Financial Receiving deposits, Accepting cash from depositors Bank, investment
lending and investing and paying them interest; using house
money the money to provide loans to
borrowers, charging them fees
and a higher rate of interest than
the depositors received.
Insurance Pooling premiums of Collecting cash from many Insurance
many to meet claims of customers; investing money to pay
a few. the losses experienced by a few
customers.
 Sole Proprietorship – this business organization has
a single owner called the proprietor who is
generally also a manager.

Forms of Partnership – is a business owned by two or more

persons, who bind themselves to contribute
Business money, property, or industry to a common fund,
with the intention of dividing profits among
Organizations themselves.

Corporation – a corporation is a business owned

by its stockholders. It is an artificial being created
by operation of law, having the rights of
succession and the powers, attributes and
properties expressly authorized by law or incident
to its existence.
Micro, Small and Medium Enterprises

► Republic Act No. 9501 has updated the MSMEs as followed:

► The lending and financial institutions shall allocate at least 10% of their
total portfolio of loan 8% for micro enterprises and 2% for small enterprises.
► Micro enterprises is defined as enterprises with assets of P 3,000,000 before
financing or less and employ not more than 9 workers.
► Small enterprises are those with assets of above P 3,000,000 to P
15,000,000 before financing and employ 10 to 99 workers.
► Medium enterprises are those with assets of above P 15,000,000 to P
100,000,000 before financing and employ 100 to 199 workers.
Activities in Business Organization

Financing Activities – are the methods an organization uses to obtain

financial resources from financial markets and how it manages the
resources.

Investing Activities – involves the selection and management including

disposal and replacement of long-term resources that will be used to
develop, produce, and sell goods and services.

Operating Activities – involve the use of resources to design, produce,

distribute, and market goods and services.
 Accounting provides the financial operations of the
business and also provides information and advice
to other departments.

It records historical events which will aid or produce

Purpose the management in planning, controlling, and
providing decisions. This also helps to comply with
and Phases several regulations such as taxes.

of
These historical events are measured in Monetary
Accounting units.

After recording the transactions, transactions should

be classified and summarized for it to make sense.
 ► The most common form of bookkeeping is
the double entry system which use the terms
“debit” or the value received, and “credit”
the value parted with.
► Single Entry bookkeeping system differs, in
that single entry bookkeeping entails the
enterprise to use a single list only, for example
a sari-sari store has a list of those who still has
Double Entry not paid their purchased goods (otherwise
known as accounts receivable) on their
Bookkeeping books, however because of the nature of
single-entry system, it is only a list and
therefore to be useful must be converted to
double entry ones.
► The demand for information has two sources:
► From owners.
► From the managers.
 Financial Accounting –
concerned with the supply of
information to the owners of
an entity. (For external users)
Accounting
Specifications
Management Accounting –
concerned with the supply of
information to the managers
in an entity. (For internal users)
FUNDAMENTAL CONCEPTS

► ENTITY CONCEPT. An accounting entity is an organization or a section of an

organization that stands apart from other organizations and individual as a
separate economic unit.
► PERIODICITY CONCEPT. An entity’s life can be subdivided into equal time periods
for reporting purposes. Normally the financial statements are issued annually
(once), but this still depends based on the need of information. Some
organizations require monthly financial statements.
► STABLE MONETARY UNIT. The Philippine Peso is a reasonable unit of measure and
that its purchasing power is relatively stable.
► GOING-CONCERN. Financial statements are normally prepared on an
assumption that the reporting entity is a going concern and will continue in
operation for the foreseeable future
 ► Generally Accepted Accounting Principles
– encompass the conventions, rules and
CRITERIA FOR procedure necessary to define accepted
accounting practice at a particular time.
GENERAL The following are its three main criteria:
► Relevance. Which result in information that is
ACCEPTANCE meaningful and useful to those who need to
know something about a certain
OF AN organization.

ACCOUNTING ► Objectivity. To ensure that the information is

not influenced by personal bias or judgment
PRINCIPLE of those who furnish it.
► Feasibility. It can be implemented without
undue complexity or cost.
BASIC PRINCIPLES OF ACCOUNTING

► Objectivity
► Historical Cost
► Revenue Recognition
► Expense Recognition
► Adequate Disclosure
► Materiality
► Consistency
The Philippine Accountancy Act of
2004 (RA 9298)

► The Philippine Accountancy Act of 2004 was signed into effect by

President Gloria Macapagal Arroyo on May 13, 2004.
► This law sets the rules, regulations and requirements for a CPA, and aspiring
CPAs, the set-up of the Board of Accountancy, and the roles of PRC
including the Licensure Examinations for Certified Public Accountants.
 Public Practice in Accountancy
► Shall constitute a person, be it in his/her individual capacity, or as a partner or as a
staff member in an accounting or auditing firm, holding out himself/herself as one
skilled in the knowledge, science and practice of accounting, and as a qualified
person to render professional services as a certified public accountant, or offering or
rendering, or both, to more than one client on a fee basis or otherwise services such
as:
► The audit and verification of financial transactions.
► The preparation, signing or certification for clients of reports of audit, balance
sheet, and other financial accounting and related schedules, exhibits, statements
or reports which are to be used for publication or for credit purposes.
► The design, installation, and revision of an accounting system.
► The preparation of income tax returns when related to accounting procedures.
► When he/she represents clients before the government agencies on tax and other
matters related to accounting or renders professional assistance in matters relating
to accounting procedures and the recording and presentation of financial facts or
data.
Practice in Commerce and Industry

► Shall constitute in a person involved in decision making requiring

professional knowledge in the science of accounting, or when such
employment or position requires that the holder thereof must be a
certified public accountant.
Practice in Education/Academe

► Shall constitute in a person in an educational institution which involve

teaching of accounting, auditing, management advisory services,
finance, business law, taxation, and other technically related
services. Provided, that members of the Integrated Bar of the
Philippines may be allowed to teach business law and taxation
subjects.
Practice in Government

► Shall constitute in a person who holds, or is appointed to, a position in

an accounting professional group in the government or in a
government-owned and/or controlled corporation including those
performing proprietary functions, where decision making requires
professional knowledge in the science of accounting, or where a
civil service eligibility as a certified public accountant is a
prerequisite.
The Professional Regulatory Board
► The Professional Regulatory Board of Accountancy, hereinafter
referred to as the Board under the supervision and administrative
control of the Professional Regulation Commission, hereinafter
referred to as the Commission, shall be composed of a chairman
and six (6) members to be appointed by the President of the
Philippines from a list of three (3) recommendees for each position
and ranked by the Commissions, from a list of five (5) nominees for
each position submitted by the accredited national professional
organization of certified public accountants. The Board shall elect a
vice-chairman from among its members for a term of one (1) year.
► The chairman shall preside in all meetings of the Board and in the
event of a vacancy in the office of the chairman; the vice-chairman
shall assume much duties and responsibilities until such time as a
chairman is appointed.
Qualifications of Members of the Professional
Regulatory Board

► Must be a natural-born citizen and a resident of the Philippines.

► Must be a duly registered Certified Public Accountant with at least ten (10) years of
work experience in any scope of practice in accountancy.
► Must be of good moral character and must not have been convicted of any
crimes involving moral turpitude.
► Must not have any pecuniary interest, directly or indirectly, in any school, college,
university or institution conferring an academic degree necessary for admission to
the practice of accountancy or where review classes in preparation for the
licensure examination are being offer or conducted, nor shall he/she be a member
of a faculty or administration thereof at the time of his/her appointment to the
Board.
► Must not be a Director or Officer of the Accredited National Professional
Organization of Certified Public Accountants (APO) at the time of his appointment.
Qualifications of Applicants for Examinations (Sec.
14)

► Any person applying for examination shall establish the following

requisites to the satisfaction of the Board that he/she:
► Is a Filipino citizen.
► Is of good moral character.
► Is a holder of the degree Bachelor of Science in Accountancy conferred
by a school, college, academy or institute duly recognized and/or
accredited by the Commission on Higher Education (CHED) or other
authorized government offices; and
► Has not been convicted of any criminal offense involving moral turpitude.
 PSA Certificate of Live Birth.

Marriage contract from PSA for married female applicants.

Documents
College diploma with indication therein of date of graduation and
Required in Special Order Number unless it is not required.

support of the Baccalaureate transcript of records with indication therein of date

of graduation and Special Order Number unless it is not required.
requirements:
National Bureau of Investigation Clearance.

Other documents that the Board of Accountancy may require.

 Auditing Theories

Auditing Problems

Financial Accounting and Reporting (including

sustainability standards)

Scope of Advanced Financial Accounting and Reporting

Examination
Taxation (Income Tax and Business Transfer Taxes).

Management Services

Regulatory Framework for Business Transactions (LAW)

Ratings in the Licensure Examinations

► To be qualified as having passed the licensure examinations for accountants, a candidate

must obtain a general average of seventy-five percent (75%) with no grades lower than
sixty-five percent (65%) in any given subject. In the event a candidate obtains the rating of
seventy-five percent (75%) and above in at least a majority of subjects as provided for in this
Act, he/she shall receive a conditional credit for the subjects passed: Provided, That a
candidate shall take an examination in the remaining subjects within two years from the
preceding examinations. Provided further, That if the candidate fails to obtain at least a
general average of seventy-five percent (75%) and a rating of at least sixty-five percent (65%)
in each of the subjects reexamined, he/she shall be considered as filed in the entire
examination. Provided, That the Board may adopt its own internal procedures on the
implementation of this provision.
► Results shall be received 10 calendar days after the last day of the examinations.
► A candidate who fails in two complete attempts are required to take a refresher course
equivalent to 24 units before they are again allowed to take the board examinations.
Professional Organization

► Article IV, Section 30, Republic Act No. 9298, provides that “all registered CPAs whose
names appear in the roster of CPAs shall be united and integrated through their
membership in a one and only registered and accredited national professional
organization of registered and licensed CPAs, which shall be registered with the
Securities and Exchange Commission as a non-profit corporation and recognized by
the Board of Accountancy.
► The Philippine Institute of Certified Public Accountants is the integrated national
professional organization of the CPAs. Its objectives is to:
► Protect and enhance the credibility of the CPA certificate in the service of the public.
► To maintain high standards in accounting education.
► To instill ideas of professionalism, ethics and competence among accountants.
► To foster unity and harmony among members.
Accounting Standards in the
Philippines

► On Nov. 18, 1981, the PICPA created the Accounting Standards Council
(ASC) to establish and improve accounting standards that will be generally
accepted in the Philippines.
► The creation of the council received the support of the following:
► Securities and Exchange Commission
► Central Bank of the Philippines.
► Professional Regulation Commission
► Financial Executives Institute of the Philippines
► The ASC is composed of 8 members.
Financial Reporting Standards Council

The FRSC is composed of fifteen (15) members with a Chairman, who has
been a presently senior accounting practitioner in any scope of accounting
practice and 14 representatives from the following:
Representatives Count
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 preparing the Financial Statements 1
APO (Two from each filed of accounting) 8
Core Competencies Framework for
Accountants

► General Knowledge ► Values

► Organizational and Business ► Professional Ethics
Knowledge
► Moral Values
► Information Technology (IT)
► Accounting Knowledge
► Skills
► Intellectual
► Interpersonal
► Communication
Ethics

► Ethics is concerned with right and wrong and how conduct should be judged to
be good or bad.
► Ethical Dilemnmas:
► White collar crime (fraud, embezzlement, kickbacks, theft)
► Whistle-blowing (going to the authorities or media with proof that a company is
engaged in wrongdoing).
► Conflicts of Interest (a person plays two roles that becomes a conflict).
► Fiduciary Responsibilities (professional must put the clients interest ahead of his own).
► Sexual Harassment
► Discrimination
 Ethical Financial Reporting
► Sarbanes-Oxley Act – protects the investors because of its international dimension. It is designed to
restore public confidence with major provisions as follows:
► The SEC is required to establish a full-time five-member federal oversight board that will police
the accounting industry.
► CFO, and CEOs are required to certify periodic financial reports and are subject to criminal
penalties for violations of securities reporting requirements.
► Accounting firms are prohibited from providing many types of consulting services to the
companies they audit.
► Auditors must maintain financial documents and audit work papers for 5 years.
► Auditors and accountants can be imprisoned for up to twenty years for destroying financial
documents and willful violations of the securities laws.
► A public corporation must change its lead auditing firm every five years.
► There is added protection for whistle-blowers who report violations of the SOX.
► SOX shifts responsibility for financial probity and accuracy to the board’s audit committee.
► It also requires appointment of independent directors, increased financial statement
disclosures, an internal code of ethics among others.
Ethical Standards for Accountants in
the Philippines.

► A professional accountant in public practice is defined as “an individual

who holds a valid certificate issued by the Board of Accountancy (i.e.,
Certified Public Accountant), whether he/she be in public practice,
industry, commerce, the public sector or education.” The Code is in three
parts. Part A establishes the fundamental principles of professional ethics
for professional accountants and provides a conceptual framework for
applying those principles.
► Part B is used by the CPAs in public practice
► Part C applies to professional accountants in business
Fundamental Principles in the Code

► Integrity
► Objectivity
► Professional Competence and Due Care
► Confidentiality
► Professional Behavior
Branches of Accounting

► Auditing
► Bookkeeping
► Cost Bookkeeping, Costing, and Cost Accounting
► Financial Accounting
► Financial Management
► Management Accounting
► Taxation
► Government Accounting
END