ACCOUNTANCY ACT OF 2004

Republic Act No. 9298, known as the Philippine Accountancy Act of 2004 was
signed into law by President Gloria Macapagal-Arroyo on May 13, 2004. This
law repealed Presidential Decree No. 692, the Revised Accountancy Law,
which was enacted May 5, 1975. Some sections of the law are presented as
follows:

Scope of Practice (Sec. 4)

The practice of accountancy shall include, but not limited to, the following:

Practice of Public Accountancy

Shall constitute in a person, be it 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 (CPA); or offering or rendering, or both, to more
than one client on a fee basis or otherwise, services such as:

 The audit or verification of financial transaction and accounting

records; or
 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, or to be filed with a court or government agency,
or to be used for any other purpose; or
 The design, installation, and revision of accounting system; or
 The preparation of income tax returns when related to accounting
procedures; or
 When he/she represents clients before 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 subjects: 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 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 of Accountancy and its

Composition (Sec. 5)

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 Commission, 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 such
duties and responsibilities until such time as a chairman is appointed.

Qualifications of Members of the Professional Regulatory Board

(Sec. 6)

A member of the Board shall, at the time of his/her appointment, possess the
following qualifications:
Communication

This refers to active listening skills and the ability to communicate effectively
one’s points of view, both orally and in writing, at all organizational levels;
being able to justify one’s position, deliver powerful presentations and to
persuade and convince others. The CPA must demonstrate skills such as the
ability to: verbally and/or in writing explain financial/statistical/administrative
matters/policies/procedures/regulatory matters/audit results at a level
appropriate to the audience; ask clear, concise and relevant questions to
obtain desired information to perform a task; and negotiate effectively.

Values

Values must concentrate on:

Professional Ethics

Since the objectives of the accountancy profession are to work in accordance

with the highest standards of professionalism, to attain the higher level of
performance and generally to meet the public interest, the need for CPAs to
conform to the ethical standards of the profession become vital. These
include integrity, objectivity and independence, professional competence
and due care, confidentiality, and professional behavior.

Moral Values

Beyond ethical rules, there is a need for CPAs to be able to discern between
what is morally right or wrong.

IFAC RESEARCH: FUTURE-FIT ACCOUNTANTS

The International Federation of Accountants (IFAC) is an international body

representing all the major accountancy bodies across the world. Its mission is
to develop the high standards of professional accountants and enhance the
quality of services they provide.
IFAC in its research report, Future-Fit Accountants, probes the roles that Chief
Financial Officers (CFOs) and their finance functions will need to adopt over
the next decade to remain integral to their organizations.

The focus Is on inspiring confidence in the profession and preparing it for the
future. By understanding how professional accountants working in business
and the public sector can continue to contribute to successful and resilient
organizations, the accountancy profession can better advocate for, and
prepare professional accountants to deliver in future-fit roles.

IFAC tapped into the experiences of business and finance function leaders on
its Professional Accountants Business Committee, as well as interactions with
the customers of finance: CEOs, board directors, and other stakeholders.

Introduction to the Code

A distinguishing mark of the accountancy profession is its acceptance of the

responsibility to act in the public interest. Therefore, a professional
accountant’s responsibility is not exclusively to satisfy the needs of an
individual client or employer. In acting in the public interest a professional
accountant should observe and comply with the ethical requirements of the
Code.

A professional accountant is a 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. Parts B
and C illustrate how the conceptual framework is to be applied in specific
situations. Part B applies to professional accountants in public practice. Part
Č applies to professional accountants in business. Professional accountants in
public practice may also find the guidance in Part C relevant to their
particular circumstances..

Fundamental Principles

A professional accountant is required to observe the following fundamental

principles:

Integrity
A professional accountant should be straightforward and honest in all
professional and business relationships. Integrity also implies fair dealing and
truthfulness. A professional accountant should not be associated with
reports, returns, communications or other information where they believe
that the information:

(a) Contains a materially false or misleading statement;

(b)Contains statements or information furnished recklessly ; or

© Omits or obscures information required to be included where such

omission or obscurity would be misleading.

Objectivity

A professional accountant should not allow bias, conflict of interest or undue

influence of others to override professional or business judgments.

Professional Competence and Due Care

A professional accountant has a continuing duty to maintain professional

knowledge and skill at the level required to ensure that a client or employer
receives competent professional service based on current developments in
practice, legislation and techniques. A professional accountant should act
diligently and in accordance with applicable technical and professional
standards when providing professional services (i.e., services requiring
accountancy or related skills performed by a professional accountant
including accounting, auditing, taxation, management consulting and
financial management services). In addition, they should conform with the
technical and professional standards of the following:

 Board of Accountancy (BOA)/Professional Regulation Commission (PRC)

 Securities and Exchange Commission (SEC)
 Financial and Sustainability Reporting Standards Council (FSRSC;
formerly FRSC)
 Auditing and Assurance Standards Council (AASC)
 Relevant legislation
Competent professional service requires the exercise of sound judgment in
applying professional knowledge and skill in the performance of such service.
Professional competence may be divided into two separate phases:

1. Attainment of professional competence. The normal pattern of

development starts initially with a high standard of general education
followed by specific education, training and examination in
professionally relevant subjects, and whether prescribed or not, a
period of work experience.

2. Maintenance of professional competence. This requires a continuing

awareness and an understanding of relevant technical professional and
business developments. Continuing professional development develops
and maintains the capabilities that enable a professional accountant to
perform competently within the professional environments.

Diligence encompasses the responsibility to act in accordance with the

requirements of an assignment, carefully, thoroughly and on a timely basis.
A professional accountant should take steps to ensure that those working
under the professional accountant’s authority in a professional capacity have
appropriate training and supervision. Where appropriate, a professional
accountant should make clients, employers or other users of the professional
services aware of limitations inherent in the services to avoid the
misinterpretation of an expression of opinion as an assertion of fact.

Confidentiality

A professional accountant should respect the confidentiality of information

acquired as a result of professional and business relationships and should not
disclose any such information to third parties without proper and specific
authority unless there is a legal or professional right or duty to disclose.
Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of the
professional accountant or third parties.

Professional Behavior
A professional accountant should comply with relevant laws and regulations
and should avoid any action that discredits the profession.

In marketing and promoting themselves and their work, professional

accountants should not bring the profession into disrepute. Professional
accountants should be honest and truthful and should not: make
exaggerated claims for the services they are able to offer, the qualifications
they possess, or experience they have gained; or make disparaging
references or unsubstantiated comparisons to the work of others.

THE ACCOUNTANCY PROFESSION

Characteristics

Accountancy qualifies as a profession because it possesses the following

attributes:

 All members of the accountancy profession are Certified Public

Accountants, which means
 That they have earned a Bachelor of Science in Accountancy degree
and have passed the CPA
 Licensure Examinations. CPAs have their own body of language. They
use terminology peculiar to the profession (e.g. debits and credits).
 CPAs adhere to a Code of Ethics. This code upholds the CPA’s
responsibility to serve the public with competence and integrity. The
public, in return, expresses its confidence to CPAS by relying on the
financial statements they audit.
 Like other professions, CPAs are members of a national organization,
the PICPA, whose role is to ensure the continued improvement of the
accountancy profession to meet the demands of the times.

Career Opportunities
The professional accountant is presented with a myriad of opportunities. The
demand for accounting services has increased with the increase in number,
size and complexity of businesses.

The accountant may be engaged in any of the following areas of

competence:

Public Practice

Accountants who render services on a fee basis and štaff accountants

employed by them are engaged in public practice. Public accountants, who
practice individually or as members of public accounting firms, should be
certified public accountants (CPAs). They offer their professional services to
the public. Their work includes auditing, taxation and management advisory
services.

Some public accountants pool their talents and work together in a single
firm. Most public accounting firms are called CPA firms since most of their
professional employees are CPAs. Firms vary greatly in size. Some are small
proprietorships and others are large partnerships. There are large global CPA
firms with more than 1,000 partners.

In the United States, some of the largest accounting firms (in alphabetical
order) are as follows: Deloitte & Touche, Ernst & Young, KPMG, and
PriceWaterhouse Coopers. Arthur Andersen & Co. is now history; she used to
be the biggest but succumbed to pressures brought about by a lot of
financial fiascos including that of Enron, Sunbeam, Waste Management and
WorldCom. These firms employ only about 12 percent of the CPAs in the
United States but they audit the financial statements of approximately 85
percent of the top corporations.

In the Philippines, the biggest firm with eight offices across the country is
Sycip Gorres Velayo & Co. (SGV & Co.) with over 1,800 professionals from
various disciplines. SGV & Co. is a member practice of Ernst & Young Global.
The other bigger firms are Punongbayan & Araullo, Laya Mananghaya & Co.,
C.L. Manabat & Co., Isla, Lipana & Co. (Joaquin Cunanan & Co.), Constantino,
Guadalquiver & Co., Carlos J. Valdez & Co., Alba Romeo & Co., Diaz Murillo
Dalupan & Co. and Reyes Tacandong & Co. among others.

The top partners In these large accounting firms earn about the same
amount as the top executives of other large businesses. Public accounting is
the frequently traveled career path because it offers excellent opportunities
to gain multi-faceted business experience. It is normal to hear of managers,
executives and even supervisors becoming a large corporation’s chief
executive or financial officer. Sample Entry-level jobs: Audit Staff, Tax Staff,
Management Services/Consulting Staff; Middle-level positions: Audit
Manager, Tax Manager, Consulting Manager; Advanced positions: Partner,
Senior Partner, Senior Consultant/Financial Advisor.

Commerce and Industry

Accountants employed in this area vary widely in their scope of activities and
responsibilities. Sample Entry-level jobs: Financial Accounting and Reporting
Staff, Management Accounting Staff, Tax Accounting Staff, Internal Audit
Staff, Financial Analyst, Budget Analyst, Credit Analyst, Cost Accountant;
Middle-level positions: Comptroller, Senior Information Systems Auditor,
Senior Fraud Examiner, Senior Forensic Auditor, Advanced positions: Chief
Financial Officer, Chief Information Officer.

Government Service

Accountants may be hired by the following: Congress of the Philippines,

Commission on Audit (COA), Bureau of Internal Revenue (BIR), Department of
Finance, Department of Budget and Management, Bangko Sentral ng
Pilipinas (BSP) and the local government units (e.g. provincial, city or
municipal governments).

Sample Entry-level jobs: State Accounting Examiner, State Accountant, LGU

Accountant, Revenue Officer, Audit Examiner, Budget Analyst, Financial
Services Specialist; Middle-level positions: State Accountant V, Director III
and Director IV, Government Accountancy and Audit, Financial Services
Manager, Audit Services Manager, Senior Auditor; Advanced positions:
National Treasurer, Vice President for Finance/CFO (for GOCCs),
Commissioner, Associate Commissioner, Assistant Commissioner, (COA, BIR,
BOC).

Education/Academe

This area guarantees the continued development of the profession by

endeavoring to clarify and address emerging issues through research and
sharing the results obtained with their colleagues. Considered as modern day
heroes, they make others understand the body of accounting knowledge. In
addition, they painstakingly prepare candidates for the tough CPA exams.
With the advent of information technology, this sector is being challenged to
focus accounting education from the “transfer of knowledge” approach to
the more effective “learning to learn” approach.
Sample Entry-level jobs: Junior Accounting Instructor; Middle-level positions:
Senior Faculty, Accounting Department Chair; Advanced positions: Vice
President for Academic Affairs, Dean

BRANCHES OF ACCOUNTING

The work that accountants undertake ranges far beyond that of simply
summarizing information in order to calculate how much profit a business
has made, how much it owes, and how much is owed to it. Although this
work is still very important, accountants are involved in other types of work.
Of course, other information specialists (such as market researchers and
operations analysts) have also been drawn into the preparation of
management information, and at one time, some observers expected
accounting to be taken over by these newer and mores scientifically-based
disciplines. However, this has not happened. There are three main reasons:

1. Financial information supplied to external users still has a dominant

influence on internal management information;
2. Other information specialists have been reluctant to become involved
in detailed accounting matters; and
3. Accountants have been quick to absorb new methods and techniques
into their work.

The main branches of accounting and their brief descriptions are discussed
as follows:

Auditing

Auditing is the accountancy profession’s most significant service to the

public. An external audit is the independent examination that ensures the
fairness and reliability of the reports that management submits to users
outside the business entity. The result of the examinations is embodied in the
independent auditor’s report. Once the required financial statements have
been prepared by management, they have to be evaluated in order to
ensure that they do not present a distorted picture.

External auditors are appointed from outside the organization. The external
auditor’s job is to protect the interests of the users of the financial
statements. By contrast, internal auditors are employees of the company.
They are appointed by, and answer to, the company’s management though
they work independently of the accounting and other departments. They
ensure the accuracy of business records, uncover internal control problems
and identify operational difficulties.

To differentiate further, internal auditors perform routine tasks and undertake

detailed checking of the company’s accounting procedures, whereas external
auditors are likely to go in for much more selective testing. Nonetheless,
they usually work very closely together, although the distinction made
between them still remains important.

Bookkeeping

Bookkeeping is a mechanical task involving the collection of basic financial

data. The data are first entered in the accounting records or the books of
accounts, and then extracted, classified and summarized in the form of
income statement, balance sheet and cash flows statement. This process
normally takes place once a month. An income statement shows whether the
business has made a profit or loss during the period, i.e. it measures how
well the business has done. A balance sheet lists what the entity owns (its
assets), and what it owes (its liabilities) as at the end of the period. The cash
flows statement presents the cash inflows and outflows of the business
during the period

The bookkeeping procedures usually end when the basic data have been
entered in the books of accounts and the accuracy of each entry has been
tested. At that stage, the accounting function takes over. Accounting tends to
be used as a generic term covering almost anything to do with the collection
and use of basic financial data. It should, however, be more properly applied
to the use to which the data are put once they have been extracted from the
books of accounts. Bookkeeping is a routine operation, while accounting
requires the ability to examine a problem using both financial and non-
financial data.

Cost Bookkeeping, Costing, and Cost Accounting

Cost bookkeeping is the process that involves the recording of cost data in
books of accounts. It is, therefore, similar to bookkeeping except that data
are recorded in very much greater detail: Cost accounting makes use of
those data once they have been extracted from the cost books in providing
information for managerial planning and control. Accountants are now
discouraged from using the term 'costing' unless it is qualified in some way,
i.e. by referring to some branch of costing (such as standard costing), but
even so you will still find the term 'costing' in general use.

The difference between bookkeeping per se and cost bookkeeping is largely

one of degree of detail. A cost accounting system contains a great deal more
data, and thus once the data are summarized there is much more
information available to the management of the company. Cost accounting
deals with the collection, allocation, and control of the cost of producing
specific goods and services. This accumulation and explanation of actual and
prospective cost data is important to control current operations and to plan
for the future. Cost accounting now forms one of the main sub- branches of
management accounting.

Financial Accounting

Financial accounting is focused on the recording of business transactions and

the periodic preparation of reports on financial position and results of
operations. Financial accountants accord importance to generally accepted
accounting principles. Financial accounting is the more specific term applied
to the preparation and subsequent publication of highly summarized
financial information. The information supplied is usually for the benefit of
the owners of an entity, but it can also be used by management for planning
and control purposes. It will also be of interest to other parties, e.g.
employees and creditors.

Financial Management

Financial management is a relatively new branch of accounting that has

grown rapidly over the last 30 years. Financial managers are responsible for
setting financial objectives, making plans based on those objectives,
obtaining the finance needed to achieve the plans, and generally
safeguarding all the financial resources of the entity. Financial managers are
much more heavily involved in the management of the entity than is
generally the case with either financial or management accountants. It
should also be noted that the financial manager, draws on a much wider
range of disciplines (such as economics and mathematics) and relies more
extensively on non-financial data than does the more traditional accountant.
Management Accounting

Management accounting incorporates cost accounting data and adapts them

for specific decisions which management may be called upon to make. A
management accounting system incorporates all types of financial and non-
financial information from a wide range of sources.

Taxation

Tax accounting includes the preparation of tax returns and the consideration
of the tax consequences of proposed business transactions or alternative
courses of action. As typically known, accountants involved in tax work are
responsible for computing the amount of tax payable by both business
entities and individuals but their work is really more complex. Accountants
with this specialization aim to comply with existing tax statutes but are also
in constant legal search for ways to minimize tax payments. It is not
necessary for either companies or individuals to pay more tax than is lawfully
due. If tax experts attempt to reduce their clients’ tax liabilities strictly in
accordance with the law, this is known as ’tax avoidance’. Tax avoidance is a
perfectly legitimate exercise, but tax evasion (the non-declaration of sources
of income on which tax might be due) is a very serious offense.

Government Accounting

It is concerned with the identification of the sources and uses of resources

consistent with the provisions of city, municipal, provincial or national laws.
The government collects and spends huge amount of public funds annually
so it is necessary that there is proper custody and disposition of these funds.