CFAS REVIEWER MIDTERMS
CHAPTER 1
Defining of Accounting
• Accounting Standards Council – Accounting is a service activity. Its main function is to
provide quantitative information that is useful in making economic decisions.
• Committee on Accounting Terminology – Accounting is an art of recording, classifying,
and summarizing in a significant manner and in terms of money.
• American Accounting Association – Accounting is a process of identifying, measuring,
and communicating economic information to permit informed judgement and decisions by
the users of the information.
Important points about Accounting Information
1. Quantitative information
2. Financial in nature
3. Useful in decision making
Three Major Activities of Accounting
1. Identifying – recognition or nonrecognition of business activities as “accountable events”.
• Sociological and psychological matters – beyond the province of accounting
2. Measuring – assigning of peso amounts.
• Historical cost – common measure; original acquisition cost
• Current value – fair value, value in use, fulfillment value
3. Communicating – preparing and distributing account reports.
• Recording - journalizing
• Classifying – grouping of similar accounts; posting to the ledger.
• Summarizing – preparation of financial statements.
Two Main Classifications of Economic Transactions
1. External – events involving one entity and another entity. E.g. Supplier, creditors, investors.
2. Internal – transactions take place within the entity only. Eg. Employees, production
Accountancy Profession
• R.A. 9298/ PH Accountancy act of 2004 – law regulating the practice of accountancy in the
Philippines.
• Board of Accountancy – body authorized by law to promulgate rules and regulations
affecting the process of accountancy profession in the Philippines.
• responsible for preparing and grading the PH CPA examinations. (May and October).
• Financial Reporting Standards Council – accounting standard setting body created by
Professional Regulation Commission upon recommendation of the Board of Accountancy
to assist them to carry out its powers and functions under R.A. 9298.
Limitation of the practice of public accountancy
• Accreditation as a CPA – minimum of three years
• Securities and Exchange Commission – chall not register any corporation organized for
the practice of public accountancy.
Accreditation to practice public accountancy
• CPAs, firms, and partnership CPAs – required to register to Board of Accountancy and
Professional Regulation Commission
• Professional Regulation Commission – give license to CPAs
Three main areas of practicing CPA
1. Public – practitioners, accounting firms, and large multinational organizations that render
independent and expert financial services to the public.
3 Kinds of Services:
1. Auditing – primary service offered by most public accounting practitioners.
- Work begins when work of accountants ends.
EXTERNAL - Independent CPA; express an opinion and check financial statements.
Entities that require audited financial statements:
• Bureau of Internal Revenue – requires to accompany filing of annual income tax return.
• Banks/lending institutions – requires before granting a loan to the borrower.
• Creditors and Investors – rely on audited FS on making economic decisions.
2. Taxation – preparation of annual income tax returns; not needed to be CPA.
• Must be familiar with tax laws and regulations (National Internal Revenue Code
of PH)
3. Management Services - services to clients in terms of advice, quality control,
budgeting, forecasting, etc.
2. Private - accountants employed in business entities as accounting staff, chief accountant,
internal auditor, and controller.
- Assists management in planning and controlling entity’s operations.
• Controller - highest accounting officer
3. Government Accounting - involves receipt and disposition of government funds.
- Focus is custody and administration of public funds.
Continuing Professional Development (CPD)
- Acquisition of advanced knowledge, skill, and proficiency.
• R.A. 10912 – law mandating the continuing CPD for accountancy.
• CPD credit units – hours required to renewal of CPA license.
• 120 CPD credit units - required for accreditation, under BOA Resolution (mandatory).
• 15 CPD credit units – required for renewal.
Exemption from CPD
• 65 years old – permanently exempted.
Bookkeeping
- Procedural; largely concerned with development of accounting records.
- “how” of accounting
Financial accounting VS Managerial accounting
• Financial - record business transactions and eventful preparation of financial statements.
- General purpose: financial statements intended for internal and external users. (formatted)
- Follows GAAP
• Managerial – accumulation and preparation of financial reports for internal users only.
- Not follow GAAP
Generally Accepted Accounting Principles (GAAP)
- Rules, procedures, and standards followed in preparation and presentation of financial
statements.
- Derive credibility through general recognition and acceptance by accounting profession.
- Initially formalized by Accounting Standards Council and replace by FRSC.
• Political process – incorporates political actions of various interested users.
Purpose of Accounting Standards
- To identify proper accounting practices for the presentation of financial statements.
- Common understanding between preparers and users
Financial Reporting Standards Council
- Accounting standards promulgated by them constitute highest hierarchy.
• Philippines Accounting Standards (PAS) and Philippines Financial Reporting Standards
or PFRS – approved statements of FRSC.
Groups mandated to be part of FRSC:
1. Board of Accountancy
2. Securities and Exchange Commission
3. Bangko Sentral ng Pilipinas
4. Bureau of Internal Revenue
5. Commission on Audit
6. Financial Executives Institute of the Philippines (FINEX)
Accredited national professional organizations of CPAs:
• Public Practice
• Commerce and Industry
• Academe for Education
• Government
Philippine Interpretation Committee
- Prepare interpretations of PFRS for approval by the FRSC to provide timely guidance on
financial reporting issues.
- Interpretation that gives authoritative guidance on issues
• International Financial Reporting Interpretations Committee – counterpart of PIC
International Accounting Standards Council
- Independent private sector body; objective of achieving uniformity in the accounting
principles.
International Accounting Standards Board
- Promotes use of high-quality global accounting standards.
• IFRS – established standards by IASB
• Includes research, discussion paper, exposure draft, and accounting standard.
• DUE PROCESS – enables parties to express their views on issues.
ADDITIONAL INFORMATION:
• Overall objective of Accounting: To provide quantitative financial information about an
entity useful in making economic decisions.
• State government – give license to CPAs.
• FRSC – standard setting body in the Philippines.
• Philippine Financial Reporting Standards
- Corresponds to IFRS.
- PAS corresponds to IAS.
- Philippines interpretations corresponds to IFRIC and SIC.
• Accounting standard setting – political process
• International Accounting Standards – formed to develop a single set of high quality IFRS.
• FRS are not truly accepted – danger if politics play role in developing standards.
• Professional judgement of accounts – proper allocation of accounting principles
• Management – primary responsibility for properly applying GAAP.
