CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

CHAPTER 1
THE ACCOUNTANCY
PROFESSION
OBJECTIVES
•To understand the definition of accounting.
•To identify the overall objective of accounting.
•To describe the practice of the accountancy profession in
the Philippines.
•To understand the Continuing Professional Development in
the field of accounting.
•To know the meaning of generally accepted accounting
principles.
•To identify the standard-setting body in the Philippines.
•To describe the creation of the International Accounting
Standards Board.
•To know the meaning of IFRS.
 DEFINITION OF ACCOUNTING
The Accounting Standards Council provides the following
definition:
Accounting is a service activity. The accounting function
is to provide quantitative information, primarily financial
in nature,about economic entities, that i intended to be
useful in making economic decision

The Committee on Accounting Terminology of the

American Institute of Certified Public Accountants
defines accounting as follows:
Accounting is the art of recording, classifying and
summarizing in significant manner and interms of money,
transactions and events a which are in part at least of a
financial characterand interpreting the results thereof.
 DEFINITION OF ACCOUNTING
The American Accounting Association in its Statement
of Basic Accounting Theory defines accounting as
follows:
Accounting is the process of identifying, measuring and
communicating economic information to permit
informed judgment and decision by users of the
information.

The definition also states that accounting has a

number of components, namely:
a. Identifying as the analytical component.
b. Measuring as the technical component.
c. Communicating as the formal component.
 OVERALL OBJECTIVE OF
ACCOUNTING
The overall objective of accounting is to provide
quantitative financial information about a business
that is useful to statement users particularly
owners and creditors in making economic decisions.

The primary task of an accountant is to supply

financial information so that the statement users
could make informed judgment and better decision.
 PRACTICE OF
ACCOUNTANCY
PROFESSION
1. Public Accounting
2. Private Accounting
3. Government Accounting
 Public accounting is the practice of the
accountancy profession.
Individual practitioners, small accounting
firms and large multinational
organizations render independent and
Public expert financial services to the public
such as auditing, taxation and
Accounting management advisory services.

3 Kinds of services rendered by a public

accountant
1. Auditing
2. Taxation services
3. Management advisory services
 Private accounting means that Certified
Public Accountants are employed in business
entities in various capacity as staff, chief
accountant, internal auditor, and controller.
The highest accounting officer in a business
entity is the controller, accounting

The major objective of the private accountant

is to assist management in planning and
Private controlling the operations of the entity.

Accounting Private accounting includes maintaining the

records, producing the financial reports,
preparing the budgets and controlling and
allocating the costs of the business.

The private accountant has also the

responsibility for the determination of the
various taxes the business is obliged to pay.
 Government 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

Government thereof.

The focus of government accounting is the

Accounting custody and administration of public funds.

Many Certified Public Accountants are

employed in many branches of the
government, more particularly the Bureau
of Internal Revenue, Commission on Audit,
Department of Budget and Management,
Securities and Exchange Commission and
even in a police agency like the National
Bureau of Investigation.
 Distinguish Accounting and auditing

In a broad sense, accounting embraces auditing. Auditing is

one of the areas of accounting specialization.

In a limited sense, (accounting is essentially constructive in

nature. Accounting ceases when financial statements are
already prepared.

On the other hand, auditing is analytical. The work of an

auditor begins when the work of the accountail ends.
Distinguish Accounting and book keeping

Bookkeeping is procedural and largely concerned with

development and maintenance of accounting records.

Bookkeeping is the "how" of accounting.

Accounting is conceptual and is concerned with the why,

reason or justification for any action adopted. Bookkeeping
is a procedural element of accounting as arithmetic is a
procedural element of mathematics.
Distinguish financial accounting and
managerial accounting
Financial accounting focuses on general purpose reports
known as financial statements which are intended for
internal and external users.
Financial accounting is the area of accounting that
emphasizes reporting to creditors and investors.
Managerial accounting is the accumulation and
preparation of financial reports for internal users only.
In other words, managerial accounting is the area of
accounting that emphasizes developing accounting
information for use within an entity.
 Generally Accepted Accounting
Principles (GAAP)
Generally accepted accounting principles encompass the conventions, rules and
procedures necessary to define what is accepted accounting practice.

Generally accepted accounting principles are conventional.

The principles become generally accepted by agreement often tacit agreement

rather than by formal derivation from a set of postulates and basic concepts.

The principles have developed on the basis of experience, reason, custom, usage
and practical necessity.

Generally accepted accounting principles represent the rules, procedures,

practice and standards followed in the preparation and presentation of financial
statements.

Generally accepted accounting principles are like laws that must be followed in
financial reporting.
Financial Reporting Standards
Council (FRSC)
The FRSC is the accounting standard setting body created by the
Professional Regulation Commission upon recommendation of the Board of
Accountancy to assist the Board of Accountancy in carrying out its powers
and functions provided under R.A. Act No. 9298.

The main function is to establish and improve accounting standards that

will be generally accepted in the Philippines.

The accounting standards promulgated by the Financial Reporting

Standards Council constitute the highest hierarchy of generally accepted
accounting principles in the Philippines.

The approved statements of the FRSC are known as Philippine Accounting

Standards or PAS and Philippine Financial Reporting Standards or PFRS,
 Philippine Interpretations Committee
The Philippine Interpretations Committee or PIC was
formed for the following role:
a. To prepare interpretations of PFRS for approval by the
FRSC.
b. To provide timely guidance on financial reporting issues
not specifically addressed in current PFRS.

The interpretations are intended to give authoritative

guidance on issues that are likely to receive divergent or
unacceptable treatment because the standards do not
provide specific and clearcut rules and guidelines.
 International Accounting
Standards Committee (IASC)
The IASC is an independent private sector body, with the objective of
achieving uniformity in the accounting principles which are used by
business and other organizations for financial reporting around the world.

It was formed in June 1973 through an agreement made by professional

accountancy bodies from Australia, Canada, France, Germany, Japan,
Mexico, the Netherlands, the United Kingdom and Ireland, and the United
States of America.

The approved statements of the IASC are known as International

Accounting Standards or IAS.
 International Accounting
Standards Board (IASB)
The International Accounting Standards Board or IASB now replaces the
International Accounting Standards Committee or IASC.

The IASB publishes standards in a series of pronouncements called

International Financial Reporting Standards or IFRS. However, the IASB has
adopted the body of standards issuedby the IASC.

The pronouncements of the IASC continue to be designated as

International Accounting Standards or IAS.

The IFRS is a global phenomenon intended to bring about greater

transparency and a higher degree of comparability in financial reporting.

Such phenomenon is essential to achieve the goal of one uniform and

globally accepted financial reporting standards
 The Financial Reporting Standards Council issues
standards in a series of pronouncements.called Philippine
Financial Reporting Standards or PFRS. The Philippine
Financial Reporting Standards collectively include all of the
following:
P a. Philippine Financial Reporting Standards which
correspond to International Financial Reporting Standards.

F The Philippine Financial Reporting Standards are numbered

the same as their counterpart in Internatioinal Financial
Reporting Standards.

R b. Philippine Accounting Standards which correspond to

International Accounting Standards.
The Philippine Accounting Standards are numbered the

S same as their counterpart in International Accounting

Standards.
c. Philippine Interpretations which correspond to
Interpretations of the IFRIC and the Standing
Interprfetations Committee, and Interpretations developed
by the Philippine Interpretations Committee.
THANK YOU!