PURPOSE AND PHASES OF ACCOUNTING

The accounting function is part of the broader business system, and does not operate in isolation. It handles the
financial operations of the business but also provides Information and advice to other departments. Business
transactions are the economic activities of a business. Recording these historical events is a significant function
of
accounting. Accounts are produced to aid management in planning, control and decision-making and to comply
with regulations.
Before the effects of transactions can be recorded, they must be measured. In order that accounting information
will be useful, it must be expressed in terms of a common financial denominator--money. Money serves as both a
medium of exchange and a measure of value.

To measure a business transaction, the accountant must decide when the transaction occurred (recognition
issue, what value to place on the transaction (valuation issue) and how the components of the transaction should
be classified (classification issue). By simply measuring and recording transactions, the resulting information will
be of limited use. To be useful in making decisions, the recorded data must be classified and summarized.
Classification reduces the effects of numerous transactions into useful groups are categories. Summarization of
financial data is achieved through the preparation of financial statements. These summarize the effects of all
business transactions that occurred during some period.

After going through the preceding phases, it is imperative that the result of the summarization phase be
interpreted or analyzed to evaluate the liquidity, profitability and solvency of the business organization.
Accounting provides the decision-makers with information to make reasoned choices among alternative uses of
Scarce resources
in the conduct of business and economic activities.

PROFESSIONAL ORGANIZATION

Article IV, Section 30, Republic Act No. 9298, The Philippine Accountancy Act of 2004, provides that "all
registered CPAs whose names appear in the roster of CPÂS shall be united and integrated through their
membership in a one and only registered and accredited national professional organization of registered and
licensed CPAS, which
shall be registered with the Securities and Exchange Commission as a nonprofit corporation and recognized by
the Board of Accountancy subject to the approval of the Professional Regulation Commission." The Philippine
Institute of Certified Public Accountants (PICPA) is the integrated national professional organization of CPAs in
the Philippines accredited by the BOA and the PRC per PRC Certificate of Accreditation No. 1-AP0-015 dated
May 19, 2008. It was founded in 1929. PICPA is a registered non-stock corporation. The objectives of the
Institute are as follows:
 To protect and enhance the credibility of the CPA certificate in the service of the
public.
 To maintain high standards in accounting education.
 To instill ideals of professionalism, ethics and competence among accountants.
 To foster unity and harmony among members.

PICPA adheres to the highest ideals of professionalism and commitment to service and upholds such values as:
integrity, professional excellence, innovation, discipline, teamwork, social responsibility and commitment.

ACCOUNTING STANDARDS IN THE PHILIPPINES

Accountants normally follow certain accounting standards. These standards considered authoritative statements
of how a particular type of transaction or events should be reflected in the financial statement. Hence,
compliance with the standards will be necessary for the fair presentation of financial statements.

On Nov. 18, 1981, the Philippine Institute of Certified Public Accountants (PICPA) created the Accounting
Standards Council (ASC) to establish and improve accounting standards that will be generally accepted in the
Philippines. The creation of the Council received the support of the following: the Securities and Exchange
Commission (SEC) and the Central Bank of the Philippines (CB)-regulatory agencies where the financial
statements are filed; the Professional Regulation Commission (PRC) through the Board of Accountancy which
supervises CPAS and auditors; and the Financial Executives Institute of the Philippines (FINEX).
The standards would generally be based on the following: existing Philippines; research or studies by the
Council; locally or internationally available practices in literature on the topic or subject; and statements,
recommendations studies standards issued by other standard-setting bodies such as the e International
Accounting Standards Board (ASB) and the Financial Accounting Standards Board (FASB). The statements and
interpretations issued by the Council represented represent generally accepted accounting principles in the
Philippines. Accounting principle
become generally accepted they have substantial authoritative support from the relevant parties interested in the
financial statements-the preparers and users, auditors and regulatory agencies.

In the Philippines, the body that is responsible for the establishment and improvement of the accounting
standards is the Accounting Standards Council (ASC), a body created by the Philippine Institute of Certified
Public Accountant
(PICPA). However, the Professional Regulation Commission (PRC) replaces the ASC and created accounting
standard body known a Reporting Standard Council (FRSC) to assist the Board of Accountancy in carrying out its
powers and functions provided under Republic Act No. 9298 commonly known as the Revised Accountancy Law
of the Philippines.

Financial Reporting Standards Council

Per Section 9(A) of the Rules and Regulations Implementing Republic Act No otherwise known as the Philippine
Accountancy Act of 2004, the Financial Reporting Standards Council (FRSC) shall be the new accounting
standard setting body.
The FRSC shall be composed of fifteen (15) members with a Chairman, who had been presently a senior
accounting practitioner in any of the scope of accounting practice and fourteen (14) representatives from the
following: one each from the BOA, SEC, BSP,COA and a major organization composed of preparers and users of
financial statements and two representatives each from the accredited national professional organization of
CPAs in public practice, commerce and industry, education/academe and government.

Different Fields of Accounting

Accounting has different fields of study based on the need of a given industry:
1. Financial Accounting deals with the preparation of general-purpose financial statements based on Philippine
Financial Reporting Standards.
2. Management Accounting serves the decision-making needs of internal users such as the management of
the company. The internal reports are not subject to the same rules as the external reports prepared under the
financial accounting and are designed with the special needs of the internal in mind.
3. Cost Accounting records the activities of activities of manufacturing companies to generate timely and
accurate inventory information. The two basic types of accounting systems are job order cost accounting and
process cost accounting.
4. External Auditing is the independent examination of financial statements based on existing Philippine
Standards of Auditing by an independent CPA with the or purpose of expressing an opinion of the fairness of
financial statements of an enterprise.
5. Tax Accounting is the proper and accurate computation of income and business taxes, filing and payment of
taxes based on existing Bureau of internal Revenue (BIR) laws.
6. Government Accounting is the proper accountability and reporting of funds given to a specific agency and
department of the Philippine government.

The Users of the Financial Statements

1. Investors / Shareholders - use the financial statements to make important investment decisions within a firm.
2. Creditors – use the financial statements to make, significant decisions is granting credit with an enterprise.
3. Employees and labor unions -use financial statements to judge the fairness of wages, future job prospects,
and bargain for better wages.
4. Regulators - often have legal authority over certain activities of organization such as Bureau of Internal
Revenue and Securities, Exchange Commission, Bangko Sentral ng Pilipinas.
5. Customers -use the financial information about the continuance of a company especially when they have a
long-term involvement with or are dependent on the entity.
6. Public - use the financial information to assess the contributions of the entity to the economy such as the
number of people they employ and their patronage of local suppliers.

CONCEPTUAL FRAMEWORK
 Is a summary of terms and concepts that underlie the preparation and presentation of financial statements. It is
the underlying theory for the development of accounting standards and revision of previously accounting
standards.
it has the following objectives:
1. Assists FRSC in developing standards that represents GAAP
2. Assists prepares of FS in applying accounting standards and in dealing with issues not yet covered by
GAAP
3. Assist FRSC in tis review and adoption of International Accounting Standards.
4. Assists the auditors in forming an opinion as to whether FS conform to the Philippine GAAP.

Qualitative Characteristics of Financial Statements

Qualitative Characteristics of Financial Statements

FUNDAMENTAL ENHANCING

Verifiability
FAITHFUL
RELEVANCE
REPRESENTATION
Comparability

Predictive value
Neutrality Understandability

Confirmatory Value
Completeness Timeliness

Free from error