Module 1 decision-making, and
communication.
Accounting
The basic purpose of Accounting
A service activity; the
accounting function is to To provide quantitative
provide QUANTITATIVE financial information about a
information primarily business enterprise that is
FINANCIAL in nature, useful for making rational
about economic entities, economic decision making
intended to be useful in
Accounting helps the owners…..
making decisions
(Accounting Standards 1. Check on their Financial
Council) Progress
An art of Recording, 2. Prepare plans to the future
Classifying and summarizing 3. Avoid Material Mistakes
in a significant manner and in 4. Analyze cause of changes
terms of money, transactions 5. Choose the best amongst
and event . (American economic Alternatives
Institute of Certified Public
Accountant)
The process of The primary objectives of
Identifying, measuring accounting are to provide useful
and communicating and accurate financial information
economic information to for decision-making and to
permit informed judgment maintain a systematic record of a
and decision by users of business's financial health. Key
the information goals:
Accounting as the “Language of
Business 1. Systematic Record-Keeping
a. Record of all financial
Because it provides a
transactions and each
standardized way of
effects on certain
communicating financial
accounts
information
2. Ascertaining Financial
Accounting as the “Eyes of the Performance
Business” a. (made profit or not)
3. Determining Financial
-it provides the crucial
Position
visibility and insight needed
for effective management,
a. to provide a clear c. Managerial Advisory
picture of a business's Services
financial status at a Provides assistance
given point in time. and advice to the
4. Facilitating Decision-Making management to their
5. Ensuring Legal and clients
Regulatory Compliance 2. Private Accounting
o Accountants that engages AS
AN EMPLOYEE of a private
Accounting are Economic enterprise or non-profit
detectives organization.
a. Financial Accounting
Using the Audit function by
primarily concerned
verifying the truthfulness of
with the recording and
financial reports classifying of business
transactions
culminating in the
4 Sectors of Accounting Practice preparation of general-
1. Public Accounting purpose
o This practice is when accountant b. Internal Auditing
offer their professional services deals with determining
for a fee and who engages NOT the operational
AS AN EMPLOYEE OF THE efficiency of the
Company. company regarding
o 3 years before we become a protection of the
full pledge CPA able to sign company's assets,
financial statement accuracy and reliability
of the accounting data
a. External Auditing c. Tax Accounting
Centers on Critical Embraces the
Examination of preparation of various
Financial Statements tax returns and tax
by an independent planning necessary to
CPA to express an minimize the impact of
opinion taxes on entity
b. Tax service d. Cost Accounting
Deals with the Determination of
accountants inventory cost and or
preparation of the product cost of
client’s income tax manufactured goods
Data produced are of all financial
used by the transactions, such as
management for sales, purchases, and
planning, budgeting payments.
and controlling 2. Financial Accounting
purposes Focusing on
e. Non-Profit Accounting preparing/recording of
Special accounting for reports on financial
charitable position/statements
organizations and results of operation
f. Socio-economic for external users, like
Accounting investors, creditors,
Concerns the and government
measurement of the agencies.
impact of business or GAAP
governmental agency’s 3. Managerial Accounting
decision on the public This branch provides
sector financial information for
internal use by
managers and
3. Government Accounting executives. Its purpose
o -Bureau of Internal Revenue is to assist in planning,
(BIR) controlling, and making
o -Commission on Audit (COA) decisions.
o -Department of Finance (DOF) Not as strict as
o - Banko Sentral ng Pilipinas financial accounting,
(BSP) encompasses all types
4. Accounting Education of information
Involves teaching and ( financial or non-
preparation of financial) from wide
curriculums in high range of sources
schools, colleges, 4. Auditing
universities or review Is the process of
centers independently
examining a company’s
financial records to
Branches of Accounting determine if their
accurate or complete
1. Bookkeeping 5. Tax Accounting
focusing on the
systematic recording
Focuses on preparing systematically reduces
tax returns and the asset's reported
advising on tax-related value over its useful life
issues to reflect its decreasing
6. Const Accounting utility. It doesn't cancel
Analyzes the cost out the original cost; it
involved in producing provides a mechanism
goods or services to track its consumption
Help set prices and report a more
7. Government Accounting realistic current value.
Ensure public funds are
used legally and
efficiently, with a focus Types of organization advantages
on accountability and disadvantages
Types of Values 1. Sole Proprietorship
Is the simplest
1. Fair Value
business structure,
An unbiased, rational
owned and run by one
estimate of an asset's
individual. There is no
or liability's potential
legal Distinction
market price. It is the
between the owner and
price at which an asset
the business (but in
would be sold or a
accounting it follows
liability transferred in
the entity concept)
an orderly transaction
2. Market Value
Actual price an asset
a. Advantages
would sell for in a
i. Easy and
specific market
Inexpensive to
3. Book Value
form
Value of an asset or a
Requires
company as reported
minimal
on its balance sheet
paperwork
and no
formal legal
1. Historical cost
processes to
provides the starting
start. You are
point, while
automatically
accumulated
a sole
depreciation
proprietor
just by It is difficult
operating a to raise
business on money
your own. because the
ii. Complete control business
Owner has cannot sell
full authority shares
over all Funding
business typically
decision, and limited to
all profits personal
belong to savings or
them loans based
iii. Simple taxation on the
Business owners
income is personal
“pass credit
through” and iii. Lack of Continuity
taxed as part The business
of the ceases to
owner’s exist upon
personal the owner’s
income death or
b. Disadvantages retirement
i. Unlimited Personal
Liability
Owner is 2. Partnership
personally 1. Is a business that is
responsible owned and operated by
for all 2 or more persons who
business agree to share profit
debts and and losses
obligations a. Advantages
Personal i. Shared resources
assets are at Partner can
risk to cover pool capital,
business skills and
debts expertise,
ii. Limiteed Access to providing a
Capital more robust
foundation work load
for the can lead to
business serious
ii. Easy to Form disputes and
Through a even the
formal dissolution of
partnership the business
agreement iii. Lack of Continuity
iii. Tax Efficiency The
Profits are partnership
taxed as the can dissolve
partners if a partner
individual dies or
income leaves,
b. Disadvantages unless a
i. Unlimited Liability well-defined
In a general partnership
partnership, agreement
each partner outlines a
has unlimited plan for such
personal events.
liability for iv. Limited ability to
business raise capital
debts and
each can be
held
responsible
3. Corporation
for other
2. Is a legal entity
partners
separate from its
actions
owners (Shareholders)
(Mutal
3. Artificial being created
agency)
by operation of law
ii. Potential for Conflict
Disagreemen
ts among
a. Advantages
partners
i. Limited Liability
regarding
Shareholders
business
are only
decisions,
liable for the
profit
amount of
sharing, or
their level, and
investment, taxed as
protecting personal
their income
personal iii. High regulations
asset from Subject to
business more
debts and government
lawsuits regulations
ii. Enhanced ability to and strict
Raise capital reporting
Corporations requirements
can raise
significant
funds by RA 9298 Accountancy Act of 2004
selling
shares of
stock Scope of Practice (Sec. 4)
investors
-these are the areas COA’s can and are
iii. Perpetual Existence
legally allowed to practice their
Life is not
profession in the Philippines
tied to its
owners, can Sectors of Accounting Practice
continue to
a. Practice of Public
exist and
Accountancy
operate even
i. Auditing
if its original
ii. Signing or
owners sell
certification for
there shares
clients of reports of
or pass away
audits, balance
b. Disadvantages
sheet etc.
i. Complex and costly
iii. Design and
to form
installation and
Extensive
revision of
legal
accounting system
procedures
iv. Tax services-
and more
preparing and filing
ii. Double taxation
tax returns and
Profits are
representing clients
taxed at the
before tax agencies
corporate
v. Providing Professional Regulatory Borad of
professional advice Accountancy (BOA)
on various business
Composed of chairman, 6
matters
members all of which appointed
b. Practice in Commerce
by the president from lists of
and Industry - CPA
recommendees (3 each position)-
working in private
list is provided by the
company; involved in
Professional Regulation
decision making requiring
Commission (PRC)
professional
Vice chairman
knowledge*(holder of a
o Elected by the board
CPA title)
among its member for a
c. Practice in Education
term for 1 year
i. CPAs who are
Chairman
involved in the
o Term 3 years
academic side of
the profession. This o can serve for a maximum
applies to those of two successive
who: complete terms
ii. Teach accounting, Section 6
auditing,
management Qualifications of Members of the
advisory services, professional Regulatory board
finance, business o Must be natural-born
law, and taxation citizen and a resident of
subjects. the Philippines
iii. Hold a position as a o Must be a duly registered
dean or department Certified Public Accountant
chairman of an with at least 10 years of
accountancy work experience in any
program. scope of practice of
d. Practice in Government accountancy
i. Working for o Must be of good moral
government character and must not
agencies have been convicted of
crimes involving moral
Section 5
turpitude
Establishes the Professional o Must not have any direct
Regulatory Borad of Accountancy or indirect financial interest
(BOA) in any school that offers
the BSA degree or review
classes for the CPA 2. Objectivity
licensure examination. Should not allow bias, conflict of
o Must not have been a interest or anything that will
director or officer of the override professional or business
APO at the time of judgements
appointment. 3. Professional Competence and
Due Care
Section 13
Continuing duty to maintain
The Certified Public professional knowledge and skills
Accountant Examination at the level required to ensure
o All applicants for that he is competent
registration for the practice 4. Confidentiality
of accountancy shall be Not discloses any such
required to undergo a information to third parties with
licensure examination to out proper authorities
be given by the Board in 5. Professional Behavior
such places and dates as Should comply with relevant laws
the Commission may and regulations and should avoid
designate subject to any action that discredits the
compliance with the profession
requirements prescribed
by the Commission in
accordance with Republic Accounting setting bodies International
Act No. 8981.
Section 14
International Accounting Standards
Qualifications of Applicant for Board (IASB)
Examinations o Is the organization that
o Is a Filipino citizen
establishes International
o Of good moral character Financial Reporting
o Holder of a degree in BS- Standard or IFRS that are
Accountancy accept throughout the
o Has not been convicted of world
any criminal offense o 15 members from various
involving moral turpitude countrie
Process of Establishing the IFRS
CPA code of professional Ethics
1. Integrity
Straightforward and honest
interpretations on PFRS, similar to the
role of the IFRIC for the IASB.
IAS (International Accounting
Standards) and PAS (Philippine
Accounting Standards): Prior to the
IFRS, the IAS were issued. In the
Philippines, these were adopted and re-
named as PAS.
IFRIC (IFRS interpretations
Committee)
- Is the interpretative body of the
IFRS foundation
- aimed at reaching consensus on
the appropriate accounting
treatment (IFRIC Interpretations)
and providing authoritative
guidance on those issues.
Philippines Counter Part of the IASB is
the FASB
IASB (International Accounting
Standards Board) and FRSC
(Financial Reporting Standards
Council): The FRSC is the accounting
standard-setting body in the Philippines
and is the local counterpart of the IASB.
IFRS (International Financial
Reporting Standards) and PFRS
(Philippine Financial Reporting
Standards): PFRS are the standards
adopted and issued by the FRSC, based
on the IFRS.
IFRIC (International Financial
Reporting Interpretations Committee)
and PIC (Philippine Interpretations
Committee): The PIC assists the FRSC
by providing guidance and