Chapter 1: Professional Practice of Accountancy
conduct established by its administering body
Role of Professional Accountant in the Economy
 Free-market economy can only exist if there is sharing of accurate,
neutral, transparent and reliable information among parties.
 The reported data must reflect the economics of transactions.
 All rely on information provided by others, which is why economic
decisions are often made under conditions of uncertainty.
 The credibility the certified public accountants add to the
information independently reduces the decision maker’s risk.
Accountancy as a Profession
Major Characteristics of a Major Profession
 Systematic Theory
o Accounting Theory – financial accounting and reporting
standards and practices
o Auditing Standards – science of validation
 Professional Authority
o The professional determines what is good and bad and the
client agrees to its professional judgments
o Basis of authority is its expertise in the systematic theory of
accounting and auditing
 Community Sanction
o To apply as a CPA, one must satisfy government,
educational, and experience requirements and pass the CPA
licensure board examination.
o Actions of accountants should be judged by the standards
established by the profession itself.
 Regulations Code
o To prevent abuse of monopoly of accountants, the Rules of
Professional Conduct or Code of Ethics have been
promulgated and made legally binding.
 A Culture
o Accounting has developed a culture evidenced by factors
such as the informality that guides relationships among
practitioners.
Code of Ethics Definition
 Mastery of a particular intellectual skill, acquired by training and
education
 Adherence by its members to a common code of values and
 Acceptance of a duty as a whole
Professional Accountant
 A Professional Accountant is an individual who holds a valid
certificate issued by the Board of Accountancy.
o In Public Practice – accountant, irrespective of functional
classification, which provides professional accounting
services
o In Business – accountant employed or engaged in an
executive or non-executive capacity contracted by such
entities
Scope of Practice
 Practice in Public Accountancy
o Skilled in the knowledge, science and practice of accounting
o Qualified to render professional services as a CPA
o Offering and/or rendering to more than one client on a fee
basis
o Services such as:
 Audit of financial transactions and accounting
records and statements
 Design, installation and revision of accounting
system
 Preparations of income tax returns
o Rendering professional assistance in matters relating to
accounting procedures
 Practice in Commerce and Industry
o Involved in decision making requiring professional
knowledge in the science of accounting
o When such employment require the holder must be a CPA
 Practice in Education or Academe
o Involved in an educational institution which constitutes
teaching of accounting, auditing, MAS, finance, business
law, taxation and other related subjects.
 Practice in Government
o Involved in a position in the professional group in
government, where decision making requiring professional
knowledge in the science of accounting
 o When a civil service eligibility as a CPA is a prerequisite  Must be signed by PRC Chairperson and the BOA
Chairman and Members
Requirements to Enter the Accountancy Profession  Renewable in three years
 Pre-qualification Educational Requirements o Indication of the Certificate of Registration, Identification
o Professional Accounting Education Card and Professional Tax Receipt
 Accounting, Finance and Related Knowledge
 Organizational and Business Knowledge Developing Capabilities and Competence
 Information Technology, Knowledge and  All professional accountants are obliged to engage in a lifelong
Competencies learning to keep up-to-date on developments influencing the
o Professional Skills and General Education profession and the quality of the services they provide through:
 Intellectual Skills o Advanced professional education pursued at academic
 Technical and Functional Skills institutions or through programs of professional bodies
 Personal Skills o On and off-the job training and experience programs
 Interpersonal and Communication Skills o Continuing professional development courses or activities
o General Education Areas of Mindset
o Professional Values, Ethics and Attitudes  Professionalism and Ethical Behavior
 CPA Licensure Examination  Professional Judgment
o Qualifications  Organizational and Environmental Awareness
 Must be a Filipino Citizen  Investor and Wider Stakeholder Focus
 Is of good moral character  Change, Uncertainty and Complexity
 Holder of a degree in Bachelor of Science in
Accountancy
 Not been convicted of any criminal offense
involving moral turpitude
o Scope of Examination
 Financial Accounting and Reporting
 Advanced Financial Accounting and Reporting
 Management Advisory Services
 Auditing
 Taxation
 Regulatory Framework for Business Transactions
o Rating
 Must obtain a general average of 75%, with no
grades lower than 65% in any given subject
 -------------------------------------------------------------
 Other Legal and Regulatory Requirements
o Oath
o Issuance of Certificate of Registration and Professional
Identification Card
Chapter 2: Practice of Public Accountancy Professional Organizations
 Philippine Institute of Certified Public Accountants (PICPA)
Certified Public Accountant o The accredited national professional organization of CPAs
 A person who, after obtaining the required education passes an o Serves all members in the different sectors of the
extensive examination and is licensed by the country to practice as accounting profession through a set of technical and social
a professional accountant. services
 Sectoral Organizations
Regulatory and Professional Organizations Influencing the Profession
o Association of CPAs in Public Practice (ACPAPP)
Regulatory Government Agencies
o National Association of CPAs in Education (ACPAE)
 Professional Regulatory Commission (PRC)
o Association of CPAs in Commerce and Industry (ACPACI)
o Administers, implements and enforces the regulator policies
o Government Association of CPAs (GACPA)
by the National Government with respect to regulation and
Standard-Setting Bodies
licensing of the various professions under its jurisdiction
 International Federation of Accountants (IFAC)
 Professional Regulatory Board of Accountancy (BOA)
o A non-profit, non-governmental, non-political international
o Consists of a Chairman and six members (7)
organization of accounting bodies
o Agency empowered to administer the Accountancy Law
o Membership is open to accountancy bodies recognized by
o The only body that may revoke and issue CPA certificates
law or general consensus as substantial national
and grant licenses to practice.
organizations of good standing within the accountancy
 Securities and Exchange Commission (SEC)
profession
o Regulates the registration and operations of corporations,
o Membership in the IFAC automatically includes membership
partnerships and other forms of associations
in the IASC
o Assists in providing investors with reliable information upon
 International Accounting Standards Board (IASB)
which to make investment decisions
o Made up of 14 Board members
o Establishes rules and regulations for any CPA associated
o Committed to developing a single set of high quality, global
with audited financial statements submitted to the
accounting standards that require transparent and
Commission
comparable information in general purpose financial
 Commission on Audit (COA)
statements
o Agency that audits or determines whether the government
 Financial Reporting and Standards Council (FRSC)
units handle their funds accordingly to existing laws and
o Accounting standard setting body that assists the BOA in
whether programs are conducted efficiently and
carrying out its powers
economically
o Composed of a Chairman and 14 members (representatives)
 Bureau of Internal Revenue (BIR)
from the following:
o Responsible for enforcement of the tax laws, rules and
 Board of Accountancy (1)
regulations.
 Securities and Exchange Commission (1)
o Conducts compliance audits of the income tax returns of
 Central Bank of the Philippines (1)
individuals and corporations to determine that income has
 A major organization composed of preparers and
been computed and taxes paid as required by the National
users of financial statements (1)
Internal Revenue Code (NIRC)
 Commission on Audit (1)
 Accredited National Professional Organizations:
  Public Practice (1)
 Commerce and Industry (1)
 Academe/Education (1)
 Government (1)
 International Auditing Practices Committee (IAPC)
o Standing committee of the Council of IFAC
o Responsible for the development and issuance on behalf of
the Council, standards and statements on a variety of audit
and attest functions
o Issues the International Standards on Auditing (ISA) that are
to be applied in the audit of financial statements, audit of
financial statements
 Auditing and Assurance Standards Council (AASC)
o Auditing standard setting body that assists the BOA in
carrying out its powers
o Composed of a Chairman and 17 members (representatives)
from the following:
 Board of Accountancy (1)
 Securities and Exchange Commission (1)
 Central Bank of the Philippines (1)
 A major organization composed of preparers and
users of financial statements (1)
 Commission on Audit (1)
 Accredited National Professional Organizations:
 Public Practice (9)
 Commerce and Industry (1)
 Academe/Education (1)
Types of Services of a Professional Accountant
 Assurance Services
o Independent Financial Statement Audit
 The most predominant type of assurance
engagement, most commonly referred to as an
external audit
 An assurance engagement that provides a high level
of assurance which assures that the financial
statements are free of material misstatement
o Reviews
 Involves limited investigations of a much narrower
scope than an audit and undertaken for the
purposes of providing a limited assurance
 May be historical or prospective
o Other Assurance Services
 Assurance Services on Information Technology
 CPA Web Trust Service
 Information System Reliability Service
 Assurance Service on Other Types of Information
 Business Performance Measurements
Services
 Health Care Performance Measurement
 Risk Assessment
 Eldercare Plus
 Non-Assurance Services
o Agreed-upon Procedures
 Determines the procedures performed and the
professional accountant provides a report of factual
findings as a result of undertaking those procedures
 The intended user assesses the procedures and
findings and draws his/her conclusions
o Compilation
 Presenting in the form of financial statements that
is the representation of management without
undertaking to express any assurance on the
statements
 Uses accounting expertise rather than auditing
expertise
o Tax
 Prepares the necessary tax return files
 Determines the tax consequences of planned or
planned potential transactions and suggests courses
of actions
o Management Consultancy/Advisory Services
 Professional services that employ the practitioner’s
technical skills, education, observations used in a
consulting engagement
o Accounting and Data Processing
  Services include doing manual or automated - Responsible for the subject matter and may be
bookkeeping, journalizing, and/or preparing responsible for the subject matter information
financial statements (assertion) in an assertion-based engagement
 Serves as a substitute for or supplement to the o Intended Users
accounting personnel of the client - Persons for whom the practitioner prepares the
o Other Non-Assurance Services assurance report
- The responsible party can be one of the intended
Assurance Engagements users, but not the only one
 Assurance refers to the auditor’s satisfaction as to the reliability of  Appropriate Subject Matter
an assertion being made by one party for the use of another party o Form of:
 Assurance Engagements means an engagement in which a - Financial and non-financial performance or
practitioner expresses a conclusion designed to enhance the degree condition
of confidence of intended users - Physical characteristics
 Assertion-Based Engagements are assurance engagements that - Systems and processes
involve the evaluation and measurement of the subject matter by - Behavior/Compliance
the responsible party and the subject information in the form of an o Must be:
assertion - Identifiable and capable of consistent evaluation or
 Direct Reporting Engagement are engagements where the measurement against the identified criteria
practitioner either directly performs the evaluation or the - Information about it can be subjected to
measurement of the subject matter or obtains a representative that procedures for gathering sufficient appropriate
has performed the evaluation or measurement evidence to support an assurance
 Reasonable Assurance Engagement is an engagement that aims to  Suitable Criteria
reduce the assurance engagement risk to an acceptably low level as o Benchmarks used to evaluate or measure the subject
the basis for a positive form of expression matter
 Limited Assurance Engagement is an engagement that aims to o Criteria must exhibit:
reduce the assurance engagement risk to a level that is acceptable - Relevance
but where that risk is greater than for a reasonable assurance - Completeness
engagement as a basis for a negative form of expression - Reliability
- Neutrality
Elements of an Assurance Engagement - Understandability
 Three-Party Relationship  Sufficient Appropriate Evidence
o Practitioner o Professional Skepticism
- The person who provides the assurance - Recognizes that circumstances may exist that the
- Gathers evidence to obtain assurance and provide a cause of the subject matter information to be
conclusion to the intended users materially misstated
o Responsible Party - Used to make a critical assessment of the validity if
- Responsible for the subject matter in a direct the evidence obtained and is highly alert to
reporting engagement evidence that contradicts or brings into question
the reliability of documents
o Sufficiency and Appropriateness of Data
 - Sufficiency is the measure of the quantity of
evidence
- Appropriateness is the measure of quality of
evidence
- The greater the risk, the more evidence is likely to
be required. However, the higher the quality of
evidence, the less may be required
- The professional accountant uses professional
judgment and
o Materiality
- Relevant when the practitioner determines the
nature, timing and extent of evidence gathering
information
- The assessment of materiality are matter for the
practitioner’s judgment
o Assurance Engagement Risk
- The risk that the practitioner expresses an
inappropriate conclusion when the subject matter
was materially misstated
- The level of assurance obtained by the practitioner
is likely to enhance the intended users’ confidence
to a degree that is clearly more than
inconsequential
 Inherent Risk – the susceptibility of the
information to a material misstatement
 Control Risk – risk that a material
misstatement will not be prevented on a
timely basis by related internal controls
 Detection Risk – risk that the practitioner
will not detect the material misstatement
that exists
o Assurance Report
- The practitioner prepares a written report
containing a conclusion that conveys the assurance
obtained about the subject matter information