CFAS Reviewer summary CH1-3 Valix 2020 PDF

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CH 1:THE ACCOUNTANCY PROFESSIONDefinition of Accounting Accounting Standards Council:  Acctg is a service activity  Provide quantitative information primarily financial in nature, about economic entities, that is intended to be useful in making economic decision Committee on Accounting Terminology...

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CH 1:THE ACCOUNTANCY PROFESSION Definition of Accounting Accounting Standards Council:  Acctg is a service activity  Provide quantitative information primarily financial in nature, about economic entities, that is intended to be useful in making economic decision Committee on Accounting Terminology of the American Institute of CPA:  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 financial character and interpreting results thereof American Accounting Association (Basic Acctg Theory):  Accounting is the process of identifying, measuring and communicating economics information to permit informed judgement and decisions by users of the information IMPORTANT POINTS 1. Acctg is abt quantitative information 2. Info is likely to be financial in nature 3. Info should be useful in decision making AMERICAN ACCOUNTING ASSOCIATION - Provide quantitative information to be useful in making an economic decision *acctg has no of components 1. Identifying - analytical component 2. Measuring - technical “ 3. Communication - formal “ 1. IDENTIFYING -recognition/nonrecognition of business activities as “accountable events” -X all bus are accountable -an event is accountable/quantifiable when it has an effect on asset, liab, and equity -subject matter of acctg is economic activity/the measurement of economic resources and obligations -only economic activities are emphasized and recognized in accounting Transactions - economic activities of an entity EXTERNAL TRANSACTIONS (or exchange transactions) involving one entity and another entity INTERNAL TRANSACTIONS - entity only Examples:  Production - resources -> products  Casualty - sudden and unanticipated loss, act of God 2. MEASURING - Assigning of peso amnt -if acctg info is to be useful, it must be expressed in terms of a common financial denominator -measurement bases are historical cost and current value  Historical cost - original acquisition cost, common measure of financial transactions  Current value - includes fair value, value in use, fulfillment value, current cost

3. COMMUNICATING - process of preparing and distributing accounting reports to potential users of acctg info - reason why acctg is called the “universal language of business” - implicit in the communication process are the recording, classifying, and summarizing aspects of accounting  Recording/journalizing - process of systematically maintaining a record of all economic business transactions after they have been identified and measured  Classifying - sorting/grouping of similar and interrelated economic transactions into their respective classes, accomplished by posting to the ledger *ledger - group of accounts which are systematically categorized into asset, liab, equity, revenue, and expense accounts.  Summarizing - preparation of financial statements (includes statement of financial position, income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows) ACCOUNTING AS AN INFORMATION SYSTEM - Measures business activities, process information into reports and communicates the reports to decision makers Set of financial statements - key product of IS , the doc that report financial information about an entity to decision makers Financial reports - tell us how well an entity is performing in terms of profit and loss and where it stands in financial terms OVERALL OBJECTIVE OF ACOUNTING - provide quantitative information about a business that is useful to statement users particularly owners and creditors in making economic decisions Accountant’s primary task - supply financial information so that the statement users could make informed judgement and better decisions - essence of accounting is decision-usefulness ACCOUNTANCY PROFESSION RA No. 9298 (Philippine 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 practice of the accountancy profession in the Philippines - responsible for preparing and grading the Philippines CPA examination (May & October) LIMITATION OF THE PRACTICE OF PUBLIC ACCOUNTANCY - single practitioners & partnership for the practice of public accountancy shall be registered CPA in the Philippines - certificate of accreditation shall be issued to CPA in public practice upon showing in accordance with rules and regulations promulgated by BoA and PRC - registrant has acquired min 3 years of experience in any of the areas of public practice including taxation - SEC shall not register any corporation organized for the practice of public accountancy

ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY BoA & PRC (Professional Regulation Commission) - CPAs are required to register for the practice of public accountancy  Certificate of Registration - the PRC will issue upon favorable recommendation of the BoA, valid for 3 years and renewable every 3 years upon payment of required fees CPA generally practice their profession in 3 main areas: 1. PUBLIC ACCOUNTING  Render independent and expert financial services to the public  Offer 3 kinds of services: auditing, taxation, management advisory service AUDITING - primary service offered by most public accounting practitioners - external auditing examination of financial statements by independent CPA for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared - external auditing is the attest function of independent CPAs TAXATION - includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors - the public accountant must be thoroughly familiar with the tax laws and regulations MANAGEMENT ADVISORY SERVICES - no precise coverage - refer to services to clients on matters of accounting, finance, business policies, organization, procedures, product cost, distribution and many other phases of business conduct and operations Includes: A. Advice on installation of comp system B. Quality control C. Installation and modification of acctg system D. Budgeting E. Forward planning and forecasting F. Design and modification of retirement plans G. Advice on mergers and consolidations 2. PRIVATE ACCOUNTING CPAs - acctg staff, chief accountant, internal auditor, and controller Controller - highest accounting officer of an entity - assist management in planning and controlling the entity’s operations - private accountants have the responsibility for the determination of the various taxes and the entity is obliged to pay - includes maintaining the records, producing the financial reports, preparing the budgets, controlling and allocating the resources of the entity 3. GOVERNEMENT ACCOUNTING - encompasses the process of analyzing, classifying, summarizing and communicating all transactions involving the receipt and disposition of government funds and property and interpreting the results thereof - FOCUS: the custody and administration of public funds -BIR, COA, Department of Budget and Management, SEC, BSP

CONTINUING PROFESSIONAL DEVELOPMENT (CPD) - inculcation and acquisition of advanced knowledge, skill, proficiency, and ethical and moral values after the initial registration of the CPA for assimilation into professional practice and lifelong learning - raises and enhances the technical skill and competence of the CPA RA NO. 10912 - Law mandating and strengthening the cpd program for all regulated professions, including the accountancy profession CPD CREDIT UNITS - CPD credit hours required for the renewal of CPA license and accreditation of a CPA to practice the accountancy profession every 3 years - under the new BOA Resolution, all CPAs regardless of sector shall be required to comply with 120 CPD credit units - required for the practice of CPA license and accreditation of CPA to practice the accountancy profession - only 15 CPD credit units are required for the renewal of CPA license - 120 CPD credit units required for accreditation of a CPA to practice the accountancy profession EXEMPTION FROM CPD PERMANENTLY EXEMPTED - upon reaching the age of 65 - the exemption applied only to the renewal of CPA license and not for the purpose of accreditation to practice the accountancy profession Accounting vs Auditing Acctg  embraces auditing  essentially constructive in nature  ceases when FS are already prepared Auditing  analytical  work of an auditor begins when the work of the accountant ends  auditor examines the FS to ascertain whether they are in conformity with generally accepted accounting principles Accounting vs Bookkeeping Bookkeeping  Procedural  Concerned with development and maintenance of accounting records  “how” of accounting  Procedural element of acctg Accounting  Conceptual  Concerned with the “why”, reason or justification for any action adopted Accounting vs Accountancy Accountancy  Profession of accountancy practice Accounting  Used in reference only to a particular field of accountancy such as public, private and government accounting

Financial Accounting vs Managerial Accounting Financial  Recording of bus transactions and eventual preparation of FS  Focuses on general purpose reports known as FS intended for internal and external users  Area of acctg that emphasizes reporting to creditors and investors Managerial  Accumulation and preparation of financial reports for internal users only  Developing accounting information for use within an entity GENERALLY ACCEPTED ACCOUNTING PRINCIPLES -acctg rules, procedures, and practices -principles have developed on the basis of experience, reason, custom, usage, and practical necessity - represents the rules, procedures, practices and standards followed in the preparation of FS -”like laws” that must be followed in FS -the process of est GAAP is a “political process” which incorporates political actions of various interested user groups as well as professional judgement, logic, and research PURPOSE OF ACCTG STANDARDS -identify accounting practices for the preparation and presentation of FS -creates a common understanding between preparers and users of FS (assets and liab) -to ensure comparability and uniformity FINANCIAL REPORTING STANDARDS COUNCIL ASC - GAAP is formalized initially -replaced the ASC -acctg standard setting body created by the PRC upon rec of the BOA to assist the BOA in carrying out its powers and functions provided under RA Act No 9298 -main function: establish and improve accounting standards that will be generally accepted in the Philippines -acctg standards promulgated by FRSC constitutes the “highest hierarchy” of GAAP in the Phils. -Philippine Accounting Standards/ Philippine Financial Reporting Standards (PFRS) - approved statement of FRSC COMPOSITION OF FRSC -15 members w/ a chairman (senior acctg practitioner) -3 yrs renewable for another term -any member of ASC, X disqualified from being appointed PHILIPPINE INTERPRETATIONS COMMITTEE -formed by FRSC (Aug, 2006) -replaced IC (Interpretations Committee), formed by ASC (May, 2000) Role: prepare interpretations of FRSC for approval by the FRSC & to provide timely guidance on financial reporting issues, X specifically addressed in current PFRS -interpretations are intended to give authoritative guidance = unacceptable treatment, bc standards do X provide clearcut rules IFRIC - counterpart of PIC (UK), replaced Standing Interpretations Committee (SIC)

INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE -independent private sector body Objectives: achieving uniformity in the acctg principles which are used by business for financial reporting around the world -formed June 1973 -australia, canada, france, germany, japan, mexico, netherlands, uk, ireland, us -headquartered in london, uk Objectives of IASC A. To formulate and publish in the public interest accounting to be observed in the presentation of FS and to promote their worldwide acceptance and observance B. To work generally for the improvement and harmonization of regulations, acctg standards and procedures relating to the presentation of FS INTERNATIONAL ACCOUNTING STANDARDS BOARD -Replaced IASC International Financial Reporting Standards - IASB publishes standards in a series of pronouncements -adopted the body of standards issued by IASC IAS - Pronouncement of the IASC continue to be designated -correct order research, discussion paper, exposure draft and acctg standard MOVE TOWARD IFRS USA FA Standards Board (FASB) & IASB are considered -most of the Philippine standards issued are based on American acctg standards (past years) -FRSC adopted IAS and IFRS entirety (present) -Objective: one uniform and globally accepted financial reporting standards - Phil is fully compliant with IFRS effective Jan 2005 (started 1997), moving USA GAAP to IFRS A. Support of IAS by Phil org (phil SEC, BOA, PICPA) B. Increasing internalization of business which has heightened interest in a common language for financial reporting C. Improvement of IAS/removal of free choices of acctg treatments D. Increasing recognition of IAS by the World bank, asian development bank, world trade org PHILIPPINE FINANCIAL REPORTING STANDARDS - the FRSC issues standards in a series of pronouncements called “PFRS” A. Correspond to IFRS *the PFRS are numbered the same as their counterpart in IFRS B. Correspond to IAS *numbered the same C. Correspond to interpretations of the IFRIC and the Standing Interpretations Committee, & the Interpretations developed by the Philippine Interpretations Committee...