LESSON I: ACCOUNTANCY PROFESSION & CONCEPTUAL FRAMEWORK

DEFINITION OF ACCOUNTING practice of the accountancy profession in the

Philippines.
Accounting is the process of identifying,
measuring and communicating economic
information to permit informed judgment and
decision by users of the information. – American Limitation of the practice of public
Accounting Association accountancy

The very purpose of accounting is to 1. Accreditation from BOA and PRC

provide quantitative information to be useful in
2. 3 years meaningful experience
making economic decision.
3. SEC shall not register any corporation organized
Components:
for the practice of public accountancy
1. Identifying – analytical component
FOUR SECTORS OF THE ACCOUNTANCY
2. Measuring – technical component
PROFESSION
3. Communicating – formal component
1. Public Accounting/Public Practice. Services
Identifying. Recognition or non-recognition of
offered Auditing. Taxation and Management
business activities as “accountable” events.
Advisory Services.
Not all business activities are accountable.
2. Private Accounting/Commerce and Industry.
An event is accountable or quantifiable Objective is to assist management in planning and
when it has an effect on assets, liabilities and controlling the entity’s operations.
equity.
3. Government Accounting. Its focus is the custody
The subject matter of accounting is and administration of public funds.
economic activity. Economic activities are
4. Academe/Education.
transactions which may be classified as external
and internal. Continuing Professional Development (CPD)

Measuring. Assigning of peso amounts to the refers to the inculcation, assimilation and
accountable economic transactions and events. acquisition of knowledge, skill, proficiency, and
ethical and moral values after the initial
The measurement bases are historical cost, current
registration of the Certified Public Accountant.
cost, realizable value and present value. Historical
cost is the most common measurement of financial Exemptions from CPD
transactions.
Permanently Exempted. CPA upon reaching
Communicating. Process of preparing and the age of 65 years old.
distributing accounting reports to potential users
of accounting information. Temporarily Exempted:

1. Recording or Journalizing. Process of 1. The CPA is working or practicing

systematically maintaining a record of all economic the profession or furthering
business transactions after they have been studies abroad.
identified and measured. 2. The exemption is for the
duration of stay abroad.
2. Classifying. Is the sorting or grouping of similar 3. The CPA has been out of the
and interrelated economic transactions into their country for at least two years
respective classes. immediately prior to the date of
renewal of license and
3. Summarizing. Is the preparation of Financial
accreditation.
Statements.
GENERALLY ACCEPTED ACCOUNTING
Overall Objective of Accounting
PRINCIPLES
The overall objective of accounting is to “provide
Represent the rules, procedures, practice
quantitative financial information about a business
and standards followed in the preparation and
that is useful to statement users particularly
presentation of financial statements. These are like
owners and creditors, in making economic
laws that must be followed in financial reporting.
decisions.”
Purpose of accounting standards
THE ACCOUNTANCY PROFESSION
To identify proper accounting practices for
Republic Act No. 9298 “Philippine Accountancy Act
the preparation and presentation of financial
of 2004” is the law regulating the practice of
statements. It create a common understanding
accountancy in the Philippines.
between preparers and users of FS particularly the
Board of Accountancy. Is the authorized by law to measurement of assets and liabilities. It is
promulgate rules and regulations affecting the necessary to ensure comparability and uniformity
LESSON I: ACCOUNTANCY PROFESSION & CONCEPTUAL FRAMEWORK
in financial statements based on the same c. To assist the FRSC in the review and
financial information. adoption of IFRS
d. To assist users of financial statements
in interpreting the information
contained in FS.
e. To assist auditors in forming an opinion
Composition of FRSC as to whether financial statements
conform with Philippine GAAP.
Composed of 15 members with a Chairman f. To provide information to those
who had been or is presently a senior accounting interested in the work of FRSC in the
practitioner and 14 representatives from the formulation of PFRS.
following: Authoritative status of Conceptual Framework
- Standards or Interpretation overrides the
Board of Accountancy Conceptual Framework
1 - In the absence of Standard or
Securities and Exchange Commission interpretation, applicability of Conceptual
1 Framework in developing and applying
Bangko Sentral ng Pilipinas accounting policy that results in
1 information that is relevant and reliable
Bureau of Internal Revenue - Conceptual Framework is not a Standard, It
1 does not define standard
Commission on Audit - Nothing in the Conceptual Framework
1 overrides any specific standard.
Major organization of preparers and users Users of Financial Information
of FS Primary Users
Financial Executives Institute of a. Existing and Potential Users
Phil. (FINEX) 1 b. Lenders and Other Creditors
Accredited national professional Other Users
organization of CPSs: a. Employees
Public Practice b. Customers
2 c. Governments and other agencies
Commerce and Industry d. Public
2 Scope of Conceptual Framework
Academe or Education a. Objective of financial reporting
2 b. Qualitative characteristics of useful
Government financial information
2 c. Definition, recognition and
The chairman and members of the FRSC shall measurement of the elements from
have a term of 3 years and renewable for another which financial statements are
term. Any member of the ASC shall not be constructed
disqualified from being appointed to the FRSC. d. Concepts of capital and capital
CONCEPTUAL FRAMEWORK maintenance
Financial Reporting and Assumptions A. Financial Reporting
The Conceptual Framework for Financial Is the provision of financial information
Reporting is a complete, comprehensive and single about an entity to external users that is useful to
document promulgated by the IASB. them in making economic decisions and for
Is a summary of the terms and concepts assessing the effectiveness of the entity’s
that underlie the preparation and presentation of management. It encompasses not only financial
financial statements for external users. statements but also other information such as
Is an attempt to provide an overall financial highlights, summary of important
theoretical foundation for accounting which will financial figures, analysis of financial statements
guide standard-setters, preparers and users of and significant ratios. It also include nonfinancial
financial information in the preparation and information such as description of major products
presentation of statements. and a listing of corporate officers and directors.
It is the underlying theory for the Objective of Financial Reporting
development of accounting standards and revision - Forms the foundation of Conceptual
of previously issued accounting standards. Framework
It is concerned with general purpose - “Why”, purpose or goal of accounting
financial statements, including consolidated - Overall Objective is to provide financial
financial statements. information about the reporting entity that
Purposes of Conceptual Framework is useful to existing and potential investors,
a. To assist the FRSC in developing lenders and other creditors in making
accounting standards and reviewing decisions about providing resources to the
existing standards. entity.
b. To assist preparers of financial Specific Objectives of Financial Reporting:
statements in applying accounting 1. Provide information useful in decision
standards and in dealing with issues making (Economic Decisions)
not yet covered by GAAp 2. Assessing future cash flows
LESSON I: ACCOUNTANCY PROFESSION & CONCEPTUAL FRAMEWORK
3. Economic resources and claims
(Financial Position)
4. Changes in economic resources and
claims (Financial Performance)

Accrual Accounting
Means that income is recognized when
earned regardless of when received and expense is
recognized when incurred regardless of when paid.
Limitations of Financial Reporting
a. General purpose financial reports DO
NOT and CANNOT provide all of the
information that existing and potential
investors, lenders and other creditors
need.
b. GPFR are not designated to show the
value of an entity as a whole but it
provide information to help the primary
user estimate the value of the entity
c. GPFR are intended to provide common
information to users and cannot
accommodate every request for
information.
d. GPFR are based on estimate and
judgement rather than exact depiction.
UNDERLYING ASSUMPTIONS
Accounting assumptions/Postulates – basic
notions or fundamental premises on which the
accounting process is based. It serve as the
foundation or bedrock of accounting in order to
avoid misunderstanding but rather enhance the
understanding and usefulness of the financial
statements.

Conceptual Framework for Financial Reporting

mentions only One assumption – Going Concern
Assumption.

Basic assumptions: Accounting Entity, Time Period

and Monetary Unit.
Going Concern Assumption
Means that in the absence of evidence to
the contrary, the accounting entity is viewed as
continuing in operation indefinitely.
The very foundation of cost principle. Thus,
assets are normally recorded at cost. As a rule,
market values are ignored.
Accounting Entity Assumption
The entity is separate from the owners,
managers, and employees who constitute the
entity.
Time Period Assumption
Requires that the indefinite life of an entity
is subdivided into accounting periods which are
usually of equal length for the purpose of preparing
financial reports on financial position, performance
and cash flows.
Monetary Unit Assumption
Has two aspects, namely quantifiability and
stability of the peso.
Quantifiability – assets, liabilities, equity,
income and expenses should be stated in terms of
a unit of measure (Philippine Peso)
Stability of Peso – Purchasing of the peso is
stable or constant and that its instability is
insignificant and therefore may be ignored.