FAR 01 Accountancy and PFRS Preface

Question 1

What is the definition of Accounting according to Accounting Standards Council (ASC)?

Answer 1

Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.

Question 2

What is the definition of Accounting according to Committee on Accounting Terminology of the American Institute of Certified Public Accountants (CAT of AICPA)?

Answer 2

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 a financial character and interpreting the results thereof.

Question 3

What is the definition of Accounting according to American Accounting Association (AAA)?

Answer 3

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.

Question 4

Note: Based on the definitions of Accounting, we can say that:

Answer 4

1. Accounting is a user-based discipline.
2. Accounting is quantitative in nature.
3. Accounting is subject to interpretation.

Question 5

What Accounting definition has stood the test of time?

Answer 5

Definition by AAA

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.

Question 6

The definition that has stood the test of time is the definition given by AAA. The definition stated three (3) important aspects or components of the accounting process:

Answer 6

(1) Identifying process (Analytical Component)
(2) Measuring process (Technical Component)
(3) Communicating process (Formal Component)

Question 7

It is the process of analyzing events and transactions to determine whether or not they will be recognized.

Answer 7

Identifying process (Analytical Component)

Question 8

Explain accountable and non-accountable events.

Answer 8

Always remember that only accountable events are ‘recognized’ (i.e. journalized).

On the other hand nonaccountable events are not recognized but ‘disclosed in the notes to financial statements’ if they have accounting relevance.

Question 9

What are types of events?

Answer 9

1. External Events
2. Internal Events

Question 10

These are transactions involving the entity and another entity.

Answer 10

External Events

Question 11

What are the types of external transactions?

Answer 11

a. 1) Exchange
a.2) Non-reciprocal transfer
a.3) External event other than transfer

Question 12

An event wherein there is a reciprocal giving and receiving of economic resources or extinguishment of obligations. Examples: sale, purchase, payment of liabilities.

Answer 12

Exchange

Question 13

It is a one-way transaction wherein the entity giving does not receive anything in return. Examples: donation or gifts, payments of taxes and fines, theft, provision oft

Answer 13

Non-reciprocal transfer

Question 14

An event that changes an entity’s economic resources or obligations caused by an external party or event but does not involve transfer of resources

Examples: changes in fair value, vandalism, obsolescence.

Answer 14

External event other than transfer

Question 15

These are events that do not involve outside party or event.

b.1) Production
b.2) Casualty

Answer 15

Internal events

Question 16

It is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.

Answer 16

Measuring process (Technical Component)

Question 17

It is the process of preparing and distributing accounting reports to potential users of accounting information.

Answer 17

Communicating process (Formal Component)

Question 18

Implicit in the communication process are:

Answer 18

Recording
Classifying
Summarizing

Question 19

It is the process of systematically maintaining a record of all economic business transactions after they have been identified and measured.

Answer 19

Recording or Journalizing

Question 20

It is the sorting or grouping of similar and interrelated economic transactions into their respective class. Actually, it is accomplished by posting to the ledger.

Answer 20

Classifying

Question 21

It is the preparation of financial statements which include the statement of financial position, income statement, statement of comprehensive income, statement of cash flows and statement of
changes in equity.

Answer 21

Summarizing

Question 22

It is the law regulating the practice of accountancy in the Philippines.

Answer 22

Republic Act No. 9298: “Philippine Accountancy Act of 2004”

Question 23

It is the body authorized by law to promulgate the rules and regulations regarding the Accountancy profession.

Answer 23

Professional Regulatory Board of Accountancy (PR-BOA)

Question 24

The Accountancy Fields Under RA 9298, the practice of accountancy is sub-classified into four (4) sectors:

Answer 24

1. Practice in Public Accountancy
2. Practice in Commerce and Industry
3. Practice in Education or Academe
4. Practice in the Government

Question 25

Involves rendering of accounting and auditing services to one or more client on a fee basis.

Answer 25

Practice in Public Accountancy

Question 26

What are the services rendered under the Practice of Public Accountancy:

Answer 26

a. Auditing
b. Taxation service
c. Management advisory service

Question 27

It has traditionally been the primary service offered by most public accounting practitioners. It is the “examination of financial statements by independent certified public accountant for the purpose of expressing an opinion as to the fairness with which the financial statements are prepared”.

Answer 27

Auditing/External Auditing

Question 28

Auditing represents the __________ function of CPAs.

Answer 28

Attest

Question 29

It includes the preparation of annual income tax returns and determination of tax consequences of certain proposed business endeavors. The CPA not infrequently represents the client
in tax investigations.

Answer 29

Taxation service

Question 30

It has no precise coverage. Generally, this refers to services to clients on matters of accounting, finance, business policies, organization procedures, product costs, distribution and many other phases of business conduct and operations.

Answer 30

Management advisory service

Question 31

What are the limitations for the practice of Public Accountancy?

Answer 31

(a) Certificate of Accreditation
- Requires three (3) year meaningful experience.
- CPD requirements

(b) No corporation form is allowed to be registered for the practice of public accountancy.

Question 32

This refers to employment in the private sector in a position which involves decision making requiring professional knowledge in the science of accounting.

Answer 32

Practice in Commerce and Industry/Private Accounting.

Question 33

The highest
accounting officer in a business entity is the

Answer 33

Controller

Question 34

It is employment in an education institution which involves teaching of accounting, auditing, MAS, law, taxation, finance and other related subjects.

Answer 34

Practice in Education or Academe

Question 35

It is employment or appointment to a position in an accounting professional group in the government or GOCC which involves decision making requiring professional knowledge in the science of accounting or where civil service eligibility as a CPA is a pre-requisite.

Answer 35

Practice in the Government