Public and professional accounting

AUDITING THEORY Red Sirug

PUBLIC ACCOUNTING PROFESSION

AT – Public Accounting Profession Red Sirug Page 1

Characteristics/Attributes of a Profession:a. Mastery of a particular intellectual skill, acquired by training and education; b. Adherence by its members to a common code of values and conduct established by its

administering body, including maintaining an outlook which is essentially objective; and

c. Acceptance of a duty to society as a whole (usually in return for restrictions in use of a title or in the granting of a qualification)

Accountancy meets all characteristics of a profession as follows:a. To be a member of the accounting profession, one must first obtain a BSA degree, pass a

difficult CPA board exam and continue learning through meaningful working experience and continuing professional education.

b. In acting in the public interest a professional accountants observe and comply with the ethical requirements of the Code of Ethics for professional accountants in the Philippines.

c. A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer.

The Code of Ethics for CPAs in the Philippines – the document that contains the norms and principles governing the practice of the accountancy profession in the highest standards of ethical conduct

Objectives of the Accountancy Profession:1. To work to the highest standards of professionalism2. To attain the highest levels of performance, and 3. To meet the public interest requirement

Public interest – the collective well-being of the public the CPA serves Public interest imposes responsibility on the accountancy profession and on its

members Public – community of people and institutions who rely on the objectivity and

integrity of CPAs; consists of clients, credit grantors, governments, employers, employees, investors, the business and financial community, and others who make such reliance

Important Role of CPAs in Society: The public rely on CPAs for:a. Sound financial accounting and reportingb. Effective financial management andc. Competent advice on a variety of business and taxation matters

CPA – a person who holds a valid Certificate of Registration and a Professional Identification card issued by the PRC/BOA to those who satisfactorily complied with all the legal and procedural requirements for such issuance, including in appropriate cases, having passed the CPA licensure examination

Also referred to as professional accountant A member of the accountancy profession in the Philippines

Regulation of the Accounting Profession:1. Public Regulation – RA 9298 otherwise known as “The Philippine Accountancy Act of

2004” (including its Implementing Rules and Regulations)2. Regulation by the Profession – through the implementation of the Code of Ethics for

professional accountants / CPAs in the Philippines3. Regulation within the Firm – through implementation of a system of quality control

Organizations that Affect Public Accounting:

1. Regulatory Government Agencies:

a. Professional Regulation Commission (PRC) – the government agency that administers, implements and enforces the regulatory policies of the Philippine Government with respect to the regulation and licensing of the various professions (such as the accountancy profession) under its jurisdiction the professional regulation commission of the Philippines created under RA No. 8981

The PRC derives its authority from the PRC Modernization Act of 2000.

The PRC is the government agency that has overall jurisdiction over the regulatory boards (such as the Board of Accountancy) in the Philippines.


b. Professional Regulatory Board of Accountancy (BOA) – the government agency empowered to administer/enforce the Philippine Accountancy Act of 2004 (RA 9298) BOA is under the administrative supervision of the PRC

Objectives of RA 9298: The standardization and regulation of accounting education; The examination for registration of CPAs; and The supervision, control, and regulation of the practice of accountancy in the

Philippines.

Councils/committee formed to assist BOA:1. Financial Reporting Standards Council (FRSC) – assists BOA in the

establishment and promulgation of GAAP in the Philippines2. Auditing and Assurance Standards Council (AASC) – created to assist

BOA in the establishment and promulgation of GAAS in the Philippines3. Education Technical Council (ETC) – assists BOA in continuously upgrading

accounting education in the Philippines4. Quality Review Committee (QRC) – conducts an oversight into the quality

of audits of financial statements through a review of the quality control measures instituted by an Individual CPAs, Firm or Partnership of CPAs engaged in the practice of public accountancy to ascertain his/her/its compliance with prescribe professional, ethical and technical standards of public practiceFunctions of the QRC:a. Conduct quality review on applicants for registration to practice

accountancy and render a report which shall be attached to the application for registration.

b. Recommend to the BOA the revocation of the Certificate of Registration and the Professional Identification Card of CPAs who has not observed the quality control measures and who has not complied with the standards of quality prescribed for the practice of public accountancy

c. In the event that the QRC cannot accomplish the aforesaid functions for any reason whatsoever, the BOA or its duly authorized representatives may conduct the required quality review.

5. PRC CPE Council – assists BOA in implementing its CPE program

c. Securities and Exchange Commission (SEC) – the government agency that regulates the registration and operations of corporations (whether stock or non-stock), partnerships and other forms of associations in the Philippines

Laws governing the registration: Civil Code of the Phils. – for partnerships Corporation Code of the Phils. – for corporations Securities Regulation Code

Overall objective of the SEC: The overall objective of the SEC is to assist in providing investors with reliable

information upon which to make investment decisions.

SEC reportorial requirements: The SEC prescribes financial reporting requirements. SEC requires companies that plan to issue new securities to the public to

submit a registration statement to the SEC for approval. The financial statements to be filed with the SEC shall be accompanied by a

Statement of Management’s Responsibility for Financial Statements.

Composition of SEC: a chairperson and four (4) commissioners appointed by the President of the Philippines for a term of 7 years

d. Bangko Sentral ng Pilipinas (BSP) – regulates and supervises the banking industry The primary objective of the BSP is to maintain price stability conducive to a

balanced and sustainable economic growth. It also aims to promote and preserve monetary stability and the convertibility of the peso.

Monetary Board – the policy-making body of the BSP

Composition of Monetary Board: composed of 7 members appointed by the President of the Philippines for a term of 6 years, as follows:

BSP Governor


A member of the Cabinet to be designated by the President of the Philippines Five (5) members from private sector

e. Commission on Audit (COA) – the government agency examines whether government units handle their funds in compliance with existing laws and regulations and whether their programs are being conducted effectively, efficiently and economically

Principal duties of the COA: a. Examine, audit and settle all accounts pertaining to the revenue or receipts and

expenditures or uses of government funds and property.b. Act as central accounting office of the government (Keep the general accounts

pertaining thereof and preserve the vouchers pertaining thereof),c. Define the scope of its audit and examination.d. Promulgate accounting and auditing rules and regulations including those for

the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds and property.

e. Submit to the President, at the time fixed by law, an annual financial report of the government, its subdivisions, agencies and instrumentalities, including GOCCs, and recommend measures necessary to improve their efficiency and effectiveness.

f. Perform such other duties and functions as may be prescribed by law.

The COA is the highest and final authority in state auditing. Its jurisdiction and responsibility is defined by the Philippine Constitution (under Article IX – D).

The COA acts as the sole external auditor of all government departments and agencies, including government-owned or controlled corporations.

Commission proper – governing body of COA

Composition: The COA is composed of a Chairman and two (2) Commissioners to be appointed by the President of the Philippines with the consent of the Commission of Appointments for a term of 7 years without reappointment

Qualifications of COA members:1. Natural-born citizens of the Philippines2. At least thirty-five years of age at the time of their appointment3. CPAs with not less than 10 years of auditing experience or members of the

Philippine Bar who have been engaged in the practice of law for at least 10 years, and

4. Not have been candidates for any elective position in the elections immediately preceding their appointment

COA Audit: The COA conducts a comprehensive audit that includes financial, compliance, and management audits.

At no time shall all Members of the COA belong to the same profession.

f. Insurance Commission (IC) – government agency regulates and supervises the insurance industry for the promotion of national interest

g. Bureau of Internal Revenue (BIR) – government agency that enforce tax laws; the BIR is empowered to collect taxes to raise revenues for the use and support of the government

2. Standard-Setting Bodies:

a. Local/Domestic: (1) Financial Reporting Standards Council (FRSC) – accounting standard-setting

body/council created by the BOA

FRSC Composition/Membership:Chairman (had been or presently a senior practitioner in any of the scope of accounting practice) 1BOA 1SEC 1BSP 1BIR 1COA 1A major organization composed of preparers and users of FS 1Accredited National Professional Organization of CPAs (APO) –


PICPA: Public practice 2 Commerce and industry 2 Academe/Education 2 Government 2 8 Total members 15

(2) Auditing and Assurance Standards Council (AASC) – auditing standard-setting body/council created by the BOA

AASC Composition/Membership:Chairman (had been or presently a senior accounting practitioner in public accountancy)

1

BOA 1SEC 1BSP 1COA 1Association or organization of CPAs in active public practice of accountancy

1

Accredited National Professional Organization of CPAs - PICPA: Public practice 6 Commerce and industry 1 Academe/Education 1 Government 1 9 Total members 15

BIR representation. The BIR, although represented in the FRSC, is not represented in the AASC.

Appointment. The Chairman and members of the FRSC and AASC shall be appointed by the PRC upon the recommendation of the BOA in connection with the APO (PICPA).

Term of office. The Chairman and members of both the FRSC and AASC shall have a term of 3 years renewable for another term.

Main function of FRSC and AASC: To assist BOA in carrying out its powers and functions on monitoring the conditions affecting the practice of accountancy and adoption of such measures, including promulgation of accounting and auditing standards, rules and regulations and best practices

b. Foreign/International: (1) International Federation of Accountants (IFAC) – the recognized

global/worldwide organization for the accountancy profession

The International Federation of Accountants (IFAC) is the worldwide organization for the accountancy profession. Founded in 1977, its mission is “to serve the public interest, IFAC will continue to strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high-quality professional standards, furthering the international convergence of such standards and speaking out on public interest issues where the profession’s expertise is most relevant.”

IFAC is comprised of 158 members and associates in 123 countries worldwide, representing approximately 2.5 million accountants in public practice, industry and commerce, the public sector, and education. No other accountancy body in the world and few other professional organizations have the broad-based international support that characterizes IFAC.

(2) International Accounting Standards Board (IASB) – the international accounting standard-setting body Foreign counterpart of the FRSC Its issuances are called IFRS It replaced the International Accounting Standards Committee (IASC)

(3) International Auditing and Assurance Standards Board (IAASB) – international auditing standard-setting body Foreign counterpart of the AASC It replaced the International Auditing Practices Committee (IAPC)


Both the IASB and IAASB are under the IFAC.

3. Professional and Sectoral Organizations:

a. Philippine Institute of Certified Public Accountant (PICPA) – the globally-recognized and integrated national professional organization of CPAs in the Philippines accredited by the BOA and the PRC

PICPA is designated as the accredited professional organization (APO) in the Philippines.

The Mission of PICPA is to enhance the integrity of the accountancy profession, serve the best interest of its members and other stakeholders, and contribute to the attainment of the country's national objectives.

As the APO, PICPA is tasked to meet the following requirements:a. It is established for the benefit and welfare of the CPAs, the advancement of

their profession, and the attainment of other professional ends;b. Its membership is open to all registered CPAs without discrimination;c. It's membership shall include CPAs in all sectors;d. It shall have a creditable plan to enlist into active membership within

three (3) years, at least a majority of the CPAs in the practice of accountancy.

e. It shall have adequate chapters/regions in major areas in the Philippines to effectively attend to the needs of its members. Its national directors shall be elected in accordance with the provisions of the Corporation Code.

f. It shall be judicious and prudent in the management of its financial resources.g. It shall have a full-time career Executive Director who shall implement the

policies promulgated by the PICPA Board of Directors and shall have direct supervision over the PICPA Secretariat.

h. It is duly registered as a non-stock corporation or association by the SEC.i. It has paid the prescribed accreditation fee.

PICPA must renew its accreditation once every three years.

b. Sectoral Organizations Serve the needs of CPAs in different scopes of practice Provide seminars, programs and workshops that specifically serve the interests of the

CPAs in their respective sectors Each sector has its own organization as follows:

(1) Public Practice – Association of CPAs in Public Practice (ACPAPP)(2) Commerce and Industry – Association of CPAs in Commerce and Industry

(ACPACI)(3) Education/Academe – Association of CPAs in Education (ACPAE)(4) Government – Government Association of CPAs (GACPA)


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Public and professional accounting