BRANCHES OF ACCOUNTING:

Four Major Specialized Fields of Accounting

1, Public Accounting Engages in public accounting is not an employee of a client company.
Examples: Sycip, Gorres, Velayo and Company ( SGV & Co.); Isla Lipan and Company;
Punongbayan and Araullo.
A. External Auditing- primarily centers on the critical examination of financial statements by an
independent CPA to express an opinion regarding the fairness of the contents of the financial
statements.
B . Tax Services -deals with the accountants preparation of the clients income tax returns,
business and transfer taxes. He represents the client in tax assessment and investigations
conducted by the BIR.
C. Managerial Advisory Services provides assistance to the management. Accountants
generally provide industrial advice to their clients regarding accounting, finance, budgeting,
business policies, and organization procedures, systems, product costs, distribution and other
business activities.
As a requirement, an external auditor should be a licensed CPA, but a tax consultant or a
management consultant need not be a CPA.
2. Private Accounting Accountants are said to be in private accounting when they are
employed in a private enterprise or in a nonprofit organization. Large companies divide their
accounting staffs into departments according to specialized accounting functions.
A. Financial Accounting is primarily concerned with the recording and classifying of business
transactions culminating in the preparation of general-purpose financial statements or reports
regarding the business financial position, operating results and cash activities in accordance
with the GAAP.
B. Internal Auditing deals with determining the operational efficiency of the company
regarding protection of the companys assets, accuracy and reliability of the accounting data,
and adherence to prescribed managerial policies. This process is known as FINANCIAL
INTERNAL AUDITING.
C. Tax Accounting embraces the preparation of various tax returns and tax planning
necessary to minimize the impact of taxes on the firm. Tax accountants are thus specialists in
both tax compliance and tax planning. TAX COMPLIANCE means following the many detailed
and specific rules of the taxing authorities in preparing tax returns. TAX PLANNING refers to
the study of the possible tax effects of various proposed financial transactions in order to
minimize taxes and maximize profits.
D. Cost Accounting has something to do with determining the inventory costs and/or
product costs of the manufactured goods and assisting in product pricing activities of the
company. Cost accounting data are generally used by the management for planning and
controlling purposes.
E. Budgeting covers the efficient management of cash by anticipating or predicting monetary
objectives in the future period.
3. Government Accounting mainly focuses on the proper custody of government funds and
their purposes. It is generally used in accounting for the national government and its political
instrumentalities provinces, cities, municipalities, and barangays.
Many accountants are employed in several government agencies such as the BIR, COA, DOF (
Dept. of Finance), and DBM.
4. Accounting Education (Practice in Education/Academe)
Accounting education involves teaching accounting, taxation, and some business subjects. A
CPA who intends to teach in college level is required to have masters degree. Faculty
members of some universities are encouraged to finish doctorate degree and required to
engage in research work.
Accounting educators prepare the curriculum for accounting education. Some write several
books in accounting, taxation and other related business fields.
Many CPAs are also involved in other businesses or other fields of accountancy profession and
at the same time working as professors, researchers and reviewers in various universities,
colleges, and review centers.
USERS OF ACCOUNTING INFORMATION
The users of accounting information may be classified based on the extent of their
participation in the affairs of the business that is, internal users comprising the management
group, and external users comprising the financing and public groups.
A. The MANAGEMENT GROUP Internal users are those who own and/or manage and control
the business entity. To help them make relevant economic decisions in achieving the goal of
the firm, the management group needs more detailed accounting information.
Internal financial reports are usually prepared exclusively for the use of internal users for the
efficient operation and control of business activities.
These reports are not governed by the generally accepted accounting principles. The area of
accounting that is concerned with internal reporting is referred to as management
accounting.
Examples of internal financial reports are variance analysis of cost of production, differential
cost report of capital budgeting, etc.
B. The FINANCING GROUP AND PUBLIC GROUP External users ( the financing and public
group) Do not own and / or manage and control the business entity.
They have no direct access to the management of the business, but they use financial reports
to satisfy some of their needs for financial information.
1. Investors to assess the risk of investments portfolio, investors need information to help
them determine whether they should buy, hold, or sell their investments. They need
accounting information to assess their return on investment.
2. Employees- Workers are interested in the financial statement to determine the employers
stability and profitability. Moreover, enterprises capability to provide remuneration,
retirement benefits, and employees opportunities may be evaluated through financial
reports.
3. Lenders Financial statements are used by lenders to determine whether borrowers can
pay their loans and interest attached to them when due.
4. Suppliers and other trade creditors Suppliers use the financial statements of their
customers to determine the continuity of the latters business. They are interested in the
information that enables them to determine whether debts owed to them will be paid when
due.
5. Customers Customers use the financial statements of their suppliers to assess the latters
continuity in business because some customers are dependent on the existence of their
suppliers to insure the availability of supplies that will sustain their business operation.
6. Government and its agencies In allocating the national resources, the government is
interested in the financial reports of an enterprise for statistics, income taxes, and other
regulatory policies.
7. Public Financial reports may assist the people by providing information about the trends
and recent developments in the prosperity of the enterprise and the range of its activities.
External financial reports are usually prepared for those who have no direct access to the
management of the business. The preparation of these reports is governed by the generally
accepted accounting principles. The area of external reports is referred to as FINANCIAL
ACCOUNTING.
THE GAAP Generally Accepted Accounting Principles
The authoritative body of accountancy formulated standard principles, assumptions, and
procedures that are called GAAP. These principles are used uniformly by accountants in
measuring, recording, and reporting financial activities of an entity. These are developed
based on experience, research, and careful study. They become generally accepted by
agreement among accounting practitioners.
The main objective of GAAP is expressed in the phrase of the standard auditors report which
states to fairly present the financial statements in conformity with generally accepted
accounting principles.