Unit I

Introduction to Accounting

Overview

|Background |The evolution of accounting is attributed to the social and economic needs of society. As business and society |
| |become more complex, accounting develops new concepts, methods and techniques to meet the ever changing and |
| |increasing needs for financial information. Without the necessary information furnished by accounting, many |
| |complex social programs and economic development may never have been realized. |
| |Information, in any market economy, assists decision-makers in making wise choices regarding the use of limited |
| |resources under their control. When decision-makers are able to make well-informed decisions, resources are |
| |allocated in a manner that better meets the needs and goals of companies within the given market. |
| |The Philippines, being a developing country, would need a great deal of reliable and timely information to compete|
| |in the global market and accounting will play an important role in this prevailing competitive global structure of|
| |the economy. Companies use accounting information to evaluate the business situations around the world. It is |
| |therefore necessary that future accountants, businessmen, entrepreneurs and economists must be trained properly on|
| |how to generate and interpret this financial information. |

|Purpose |The purpose of Unit I “Introduction to Accounting and Basic Accounting Principles” is to provide students with |
| |brief descriptions of the nature and scope of accounting. This unit also includes simple explanation of the 13 |
| |basic accounting concepts. |

|In this unit |This unit contains the following topics: |

|Topics |See Page |
|Nature and Scope of Accounting |2 of A |
|History of Accounting Thought |5 of A |
|Users of Financial Statements |6 of A |
|Forms of Business Organizations |8 of A |
|Basic Accounting Concepts |9 of A |
|The Accounting Profession |17 of A |
|Basic professional values and business ethics |18 of A |

Nature and Scope of Accounting

|Overview |The two terms accounting and bookkeeping have been used interchangeably and without distinction. This line of |
| |thought finds support based on the condition prevailing during the early times when businesses were not as complex|
| |and multifarious as they are nowadays. However, recognition of the importance of accounting in the development of |
| |modern business methods, the industrial revolution and the growth of unlimited companies that provided the impetus|
| |for the development of accounting as a profession has led to the distinction in the concepts and effects of |
| |bookkeeping as against accounting. |

|Definition |The following definitions differentiates bookkeeping from accounting: |
| |Bookkeeping deals primarily with the systematic method of recording and classifying financial transaction of |
| |business. It is considered to be the procedural element of accounting as arithmetic is a procedural element of |
| |mathematics. Normally, books are set up and prepared in a manner that ensures an orderly recording and |
| |classification of business transactions. However, because of the rapid economic growth and technological changes,|
| |which necessitate the mechanization of the bookkeeping job, the demand for bookkeepers has been reduced. The |
| |bookkeeping process is now basically done through the use of computers and soft wares designed for such purpose. |
| |Accounting as differentiated from bookkeeping has been authoritatively defined by the American Institute of |
| |Certified Public Accountants (AICPA), as the art of recording, classifying and summarizing in a significant manner|
| |and in terms of money, transactions and events that are, in part at least, of a financial character, and |
| |interpreting the results thereof. Accounting is also defined by the Philippine Institute of Certified Public |
| |Accountants (PICPA) as a system that measures business activities, processes given information into reports, and |
| |communicates those findings to decision-makers. |

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Nature and Scope of Accounting, Continued

|Definition, con’t |The “art” in AICPA’s definition connotes that accounting is an art of communication. Although the primary |
| |function of accounting is to supply of financial information, it also provides non-financial information. |
| |Moreover, accounting is referred to as a science in the sense that is a systematized knowledge. A growing body of |
| |accounting theories seeks to place accounting in the context of human knowledge and activity in general. |
| |Hence, an accountant is a bookkeeper and more, for he must not only be well- versed with the recording process but|
| |must also be concerned with the functions of interpretation and analysis of financial statements which require the|
| |exercise of reason, judgment and intelligence of a higher order. It is these functions that best distinguish |
| |accounting from bookkeeping. |

|Language of Business |Accounting is a special kind of language. It is often described as the “language of business” because it is the |
| |medium of communication between a business firm and the various parties interested in its financial activities. It|
| |is the tool, which enables firms to communicate to various interested third parties certain quantitative |
| |information about the financial activities of a business. |
| |Accounting is often utilized whenever there are business transactions. And business transactions normally involve |
| |people. One cannot engage in business without involving and affecting other persons. The activities of a business |
| |enterprise involve and affect many parties -- management, owners, short-term and long-term creditors, employees, |
| |prospective investors, the government, and even the general public. All these interested parties need to be |
| |informed about the financial affairs of a business enterprise. Accounting, therefore, serves this need of |
| |providing quantitative information, primarily financial in nature, about economic entities that is useful in |
| |making economic decisions. |
| |The principal accounting reports are the financial statements, i.e., the Statement of Financial Position, Income |
| |Statement and the Cash Flow Statement. As the major end products of accounting, these statements convey to |
| |management and/or interested outsider(s) the messages about the financial activities of the business. |

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Nature and Scope of Accounting, Continued

|Language of Business, |Information needed by different parties is of three kinds: |
|con’t. |The financial condition or position of the business, i.e., the amounts and kinds of its assets and liabilities, |
| |and the status of the owners’ interest at a given point in time. |
| |The financial performance or results of operations, i.e., whether the business operating activities during a given|
| |period of time resulted in net income or a loss. |
| |The financing and investing activities which are responsible for the changes in the financial resources of the |
| |business, i.e., the sources and applications of fund during a given period of time. |
| |This information, furnished through accounting, are utilized by end-users as basis for reaching important |
| |decisions affecting themselves, the business enterprise, the government and other parties. |

History of Accounting Thought

|Overview |Accounting has a long history. Some scholars claim that writing arose in order to record accounting information. |
| |Account records date back to the ancient civilizations of China, Babylonia, Greece and Egypt. The rulers of these|
| |civilizations used accounting to keep track of the cost of labor and materials used in building structures like |
| |the great pyramids. |

|History |Accounting developed as a result of the information needs of merchants in the city-states of Italy during the |
| |1400s. In that commercial climate a monk, Luca Pacioli, a mathematician and friend of Leonardo da Vinci, published|
| |the first known description of double-entry bookkeeping entitled Summa de Arithmetica, Geometria, Proportioni et |
| |Proportionalite (Everything about Arithmetic, Geometry, and Proportion), published in Venice in November 1494. |
| |This book contained primarily principles of mathematics and incidentally set of accounting procedures. (Horngren, |
| |Harison and Robinson,1995). |
| |The pace of accounting development increased during the Industrial Revolution as the economics of developed |
| |countries began to mass-produce goods. Until that time, merchandise was priced based on managers’ hunches about |
| |cost but increased competition required merchants to adopt more sophisticated accounting system. |
| |In the nineteenth century, the growth of corporations, especially those in the railroad and steel industries, |
| |spurred the development of accounting. Corporate owners, were no longer necessarily the managers of their |
| |business. Managers had to create accounting systems to report to the owners how well their businesses were doing. |
| |Government played a role in leading more development in the field of accounting when it started using the income |
| |tax. Accounting supplied the concept of “income”. Also, government at all levels has assumed expanded roles in |
| |health, education, labor and economics planning. To ensure that the information that it uses to make decisions is |
| |reliable, the government has required strict accountability in the business community. |
| |At the beginning of the third millennium, there would still be a lot of developments in the field of accounting. |
| |The great challenge of globalization and the effects of new technologies (e.g. super computers, robotics, inter |
| |and intra-net, etc.) pose a shift in the structure and pattern in this field. More and better information are now |
| |being required and therefore, accounting, being the means used in communicating business and financial information|
| |must also evolve into a more efficient level. |

Users of Financial Statements

|Overview |Today's accountant focuses on the ultimate needs of decision-makers who use accounting information, whether |
| |decision makers are inside or outside the business. Accounting "is not an end in itself," but is an information |
| |system that measures, processes, and communicates financial information about an identifiable economic entity |
| |(Needles, Belverd, et al, 1999). It provides a vital service by supplying the information decision-makers needs |
| |to make "reasoned choices among alternative uses of scarce resources in the conduct of business and economic |
| |activities.” |

|Internal Users |Those who are directly involved in the business enterprise such as: |
| |Owners. The owner provides the money/capital that the business needs to begin operations. Through the financial |
| |reports, the owner can properly manage and monitor the business, analyzing whether or not he can expect reasonable|
| |return from his investment. |
| |Management. Managers of business use accounting information to set goals for the organization, to evaluate the |
| |progress made toward those goals, and to take corrective action if necessary. |
| |Employees. The employees that made up the work force of the company will be interested in information about the |
| |stability and profitability of the company. Through the financial statements, employees will be able to assess the|
| |ability of the enterprise to provide remuneration, retirement benefits and other employee opportunities and |
| |benefits. Employees and labor unions may make wage demands based on the accounting information that shows their |
| |employer’s reported income. |

|External Users |Those who are not directly involved in the operation of the business such as: |
| |Potential investors. Investors use financial reports in evaluating what income they can reasonably expect from |
| |their investment. |
| |Creditors (which includes money lenders, suppliers and other trade creditors). Potential lenders or current |
| |creditors determine the borrower’s ability to meet scheduled payments. |
| |Customers. This group is interested in information about the continuance of an enterprise, especially when they |
| |have a long-term involvement with, or are dependent on the company’s offerings either in the form of goods or |
| |services, |
| |Taxing authorities. Local and national government levy taxes on individuals and businesses. The amount of the |
| |tax is determined using accounting information. |
| |Government regulation agencies. Most organizations face government regulation. For example, the Securities and |
| |Exchange Commission (SEC) requires businesses to disclose certain financial information to the public. The SEC, |
| |like many government agencies, bases its regulatory activity in part on the accounting information it receives |
| |from firms. |
| |Nonprofit organizations. Nonprofit organizations, e.g., churches, most hospitals, government agencies, and |
| |colleges, which operates for purposes other than to earn a profit use accounting information in much the same way |
| |that profit-oriented businesses do. |
| |Other users. Consumer groups and the general public may also be interested in the amount of income that the |
| |businesses earned. |

Forms of Business Organization

|Based on Ownership |There are three basic forms of business organization according to ownership. This classification is based on |
| |owner/s investing or putting capital on a business being started. |
| |Sole or single proprietorship. When only one person makes the investment. |
| |Partnership. When two or more persons agree to operate the business as co-owners under certain conditions. The |
| |persons owning this form of business are called partners. |
| |Corporation. A body formed and authorized by law to act as a single person although constituted by one or more |
| |persons and legally endowed with various rights and duties. This is the more popular form of business organization|
| |today. Persons who put in capital in a corporation are called stockholders. |

|Based on Operations or |Business may also be classified according to business operations or activity after the necessary capital has been |
|Activity |received from the owner or owners and the business starts its operations. The purpose for which the business has |
| |been formed will determine the nature of its activities. |
| |Service concern. Businesses engage in the rendering of services to others for a fee, like the beauty parlor, law |
| |firm, dental clinic, and medical clinic. |
| |Merchandising or trading concern. Businesses that are into the buying and selling of goods or commodities like the|
| |grocery store, drug store and department store. |
| |Manufacturing concern. Businesses that are engaged in the processing of products or the conversion of raw |
| |materials into finished goods that are then sold like the furniture factory and shoe factory. A trading or |
| |merchandising business differs from a manufacturing concern in that the former buys finished goods, which are |
| |ready for sale, while the latter produces or manufactured the goods that it sells. |

Basic Accounting Concepts

|Overview |The basic accounting concepts are the ground rules that govern how accountants measure, process and communicate |
| |financial information. These principles have been developed by the accounting profession over the years to |
| |provide a consistent system of financial reporting in a constantly changing business environment (Smith, Keith, et|
| |al, 1993). |
| |These concepts assure users of financial statements that the reports are prepared in specific ways so that they |
| |are reliable and comparable for the usefulness of these reports rests on their reliability and comparability. |

|Purpose |The basic accounting concepts serve three basic purposes: |
| |They help increase the confidence of financial statement users that the financial statements are |
| |representationally faithful. |
| |They provide companies and accountants who prepare financial statements with guidance on how to account for and |
| |report economic activities. |
| |And they provide independent auditors of financial statements with basis for evaluating the fairness and |
| |completeness of those statements (Chasteen, l., Flaherty, R., O'Connor, M., 1998). |

|Entity Concept |For accounting purposes, an entity is the organizational unit for which accounting records are maintained, e.g., |
| |Joseph Labrador Accounting Firm. Under entity concept, the business is regarded as having a separate and distinct |
| |personality from that of the owner/s – generating its own revenue, incurring its own expenses, owning its own |
| |assets, and owing its own liabilities (Smith, Keith, et al, 1993). This means that the personal transactions of |
| |owners must not be combined with transactions of the business. |
| |This concept also requires that an accountant record only those financial activities that occur between the entity|
| |being accounted for and other parties. Thus, the accounting entity assumption establishes boundaries or limits as |
| |to what information should be included in the financial statements of a given company. |

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Basic Accounting Concepts, Continued

|Entity Concept, con’t |Business Transaction. A business event that can be measured in terms of money that affects the enterprise. This |
| |would give rise to an exchange between the business and another party: “value received and value parted with”. |
| |Example: A barber provides services to a customer by trimming the latter's hair: “value parted with” by the |
| |barber will be his service and time; and the “value received” is the payment made by the client. |

|Monetary Concept |Money is a common unit of measure that we can use to record economic transactions and prepare financial |
| |statements. Under this concept, money is used as the unit of measure in preparing the various financial reports of|
| |the company (example of these would be in terms of Peso ( P ), Dollar ( $ ), etc.). |
| |It is a common belief that everybody understands money—it's universally available, its certainly relevant to |
| |financial transactions and its easy to use. But money, the "peso" in our case, as a measure of economic activity |
| |does not have a constant value especially in recent years. It is not time in itself that causes the change in the |
| |value of money but economic events, e.g., change in government leadership, chaos in the stocks markets, etc. The |
| |stable money concept assumes that, monetary unit of measure does not change value overtime, even if in fact it |
| |does. The assumption is made in order to ensure objectivity in reporting data on the financial statements. |

|Time Period Concept or |It is also known as periodicity concept. It divides the life of the business into regular intervals (usually one |
|Periodicity |year) at the end of which financial statements are prepared. This means that the economic activities undertaken |
| |during the life of an accounting entity are assumed to be divisible into various artificial time periods for |
| |financial reporting purposes. For example, it is assumed that a reasonable report of income earned can be made |
| |annually or quarterly, even though the revenue generating activities of a business are continuous. |

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Basic Accounting Concepts, Continued

|Time Period Concept, |This is the assumption that implies that it is necessary to measure accounting income for periods of time less |
|con’t. |than the life of a firm and that measurement will not be precise but will be timely and therefore useful (Smith, |
| |Keith, et al, 1993). |
| |In choosing one year, the business has two options: |
| |Calendar Year. A twelve-month period beginning with January 1 and ending December 31. |
| |Fiscal Year. The length of the fiscal period is determined by the nature of the business and the frequency of the |
| |need for data regarding the financial condition and progress of the business. A yearly fiscal period does not |
| |start with January 1 and end on December 31. (e.g., educational institutions normally follows a fiscal year |
| |beginning May 1 and ending April 30). |

|Revenue Realization |Revenue or income is the inflow of assets that results from producing goods or rendering services. Revenue is not|
|Concept |earned all at one point in time. Instead, the earning process extends over a considerable length of time. |
| |The revenue realization concept provides that income is recognized when earned regardless whether cash is |
| |received. This means that both of the following conditions are met: |
| |The earning process is essentially complete; |
| |An exchange has taken place (Smith, Keith, et al, 1993). |
| |These two conditions for most of the companies are met at the time goods are sold or services rendered. To wit: |
| |Two points of income recognition: |
| |Income is considered earned when services are fully rendered. |
| |Income is considered earned when goods or merchandise are fully delivered. |

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Basic Accounting Concepts, Continued

|Accrual Concept |This concept requires that income be recorded when earned regardless whether cash is received. And an expense be |
| |recognized when incurred (e.g., when services or benefits have already been received) regardless whether payment |
| |is made. |
| |To apply the accrual concept, accountants have developed the accrual accounting. The accrual method of accounting |
| |attempts to record the financial effects on a company of transactions and other events and circumstances in the |
| |periods in which those transactions, events, and circumstances occur rather than only the periods in which cash is|
| |received or paid by the firm. This means that accrual accounting consists of all techniques developed by |
| |accountants to apply both the accrual and matching concepts (Needlers, Powers, et al, 1999). |
| |Throughout this study guide we illustrate the accrual basis of accounting, Essentially, the accrual basis records |
| |expenses (i.e., cost of items used or consumed in business operations, e.g., electricity, water, supplies, etc.) |
| |when incurred and revenues (i.e., price of goods sold or services rendered, e.g., service income, sales) when |
| |earned. |
| |It is also worth mentioning here that other than the accrual basis, we also have what we call the cash basis of |
| |accounting, which generally records a journal entry upon exchange of cash, typically does not require many |
| |adjusting entries (Dyckman, T., Dukes, Davis, C., 1998). |

|Matching Concept |This concept states that all expenses incurred to generate revenues must be recorded in the same period that the |
| |income are recorded to properly determine net income or net loss of the period. There is a cause-and-effect |
| |relationship between revenue and expense recognition implicit in this definition |
| |Revenues are inflows of resources resulting from providing goods or services to customers. For merchandising |
| |companies, the main source of income is sales revenue derived from selling merchandise. Service firms on the |
| |other hand generate revenue by providing services. |

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|Matching Concept, con’t |Expenses on the other hand are outflows of resources incurred in generating revenue. They represent the costs of |
| |providing goods and services. The matching principle is a key player in the way we measure expenses. We attempt to|
| |establish a causal relationship between revenues and expenses. If causality can be determined, expenses are |
| |reported in the same period that the revenue is recognized. If the causal relationship cannot be established, the|
| |expense is either related to a particular period. Allocated over several periods, or expensed as incurred |
| |(Spiceland, D., Sepe, J., 1998). |

Example:
| Revenues earned in June and collected in June |P30,000 |
| Revenues earned in June but collected in July | 20,000 |
| Revenues earned in May but collected only in June | 10,000 |
| Expenses incurred in June and paid in June | 10,000 |
| Expenses incurred in June but payable in July | 15,000 |
| Expenses incurred in May but paid in June | 7,000 |
| |Net Income or Net loss is computed by deducting total expenses of the period to total revenue of the same period. |
| |If total revenue is greater than total expenses, the company’s result of business operation is a net income. But |
| |if total expense is greater, the result is a net loss. |

Net Income for June:

| Revenues (30,000 + 20,000) |P50,000 |
| Expenses (10,000 + 15,000) | 25,000 |
| Net Income |P25,000 |
| |====== |

|Objectivity or |This principle requires that all transactions must be evidenced by business documents free from personal biases |
|Reliability Concept |and independent experts (e.g., CPA) can verify reports. |
| |Example: Official receipts, invoices, vouchers, etc. |

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Basic Accounting Concepts, Continued

|Cost Concept |Assets, i.e., resources acquired by the business, must be recorded at acquisition price (i.e., what you have to |
| |give up in exchange for an ownership of an asset) and no adjustments are to be made on this valuation in later |
| |periods. |
| |The cost principle assumes that assets are acquired in business transactions conducted at arm's length |
| |transactions, i.e., transactions between a buyer and a seller at the fair value prevailing at the time of the |
| |transaction. For non cash transactions conducted at arm's length, the cost principle assumes that the market value|
| |of the resources given up in the transaction provides reliable evidence for the valuation of the item acquired |
| |(Dyckman, T., Dukes, Davis, C., 1998). |
| |The cost principle provides guidance primarily at the initial acquisition date. Once acquired, the original cost |
| |basis of some assets is then subjected to depreciation, depletion, amortization, etc. over time to reflect the |
| |said assets in the Statement of Financial Position in a more realistic valuation. |

|Going Concern Concept |In the absence of information to the contrary, this concept assumes that the business is to continue its |
| |operations indefinitely. This means that the business will stay in operation for a period of time sufficient to |
| |carry out contemplated operations, contracts, and commitments. This non liquidation assumption provides a |
| |conceptual basis for many of the classifications used in accounting. Assets and liabilities, for example, are |
| |classified as either current or long term on the basis of this assumption. If continuity is not assumed, the |
| |distinction between current and long term loses its significance; all assets and liabilities become current. |
| |Continuity supports the measurement and recording of assets and liabilities at historical costs and not at their |
| |liquidation values (i.e., estimated net realizable amounts) (Dyckman, t., Dukes, Davis, C., 1998). |

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Basic Accounting Concepts, Continued

|Conservatism Concept |This concept has a powerful influence in valuing assets and measuring net income. When faced which uncertainties,|
| |the accountant traditionally leans towards the direction of caution, choosing the method that would give the |
| |business a less favorable financial condition and lowers net income. |
| |The reasoning behind this assumption is that investors prefer information that does not unnecessary raise |
| |expectations. For example: |
| |In recognizing assets, preferably the lower of two alternative valuations would be recorded. |
| |In recognizing liabilities, preferably the higher of two alternative amounts would be recorded. |
| |In recording revenues, expenses, gains, and losses where there is reasonable doubt as to the appropriateness of |
| |alternative amounts, the one having the least favorable effect on net income should be preferred. |
| |Conservatism assumes that when uncertainty exists, the users of financial statements are better served by |
| |understatement than by overstatement of net income and assets (Dyckman, t., Dukes, Davis, C., 1998). |

|Consistency Concept |This concept states that once a method is adopted, it must not be changed from year to year to allow comparability|
| |of financial statements between years and between businesses. |
| |For example if the Periodic Inventory System was used by the firm in accounting for their inventories, the firm |
| |should not change the method into Perpetual Inventory System in the following year and then go back again to |
| |Periodic on the next year. |
| |Consistency in this case means that the reported information conforms to procedures that remain unchanged from |
| |period to period. Comparisons overtime are difficult unless there is consistency in the way accounting principles|
| |are applied across accounting year. |

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Basic Accounting Concepts, Continued

|Materiality concept |This concept refers to relative importance of an item or event. An item/event is considered material if knowledge|
| |of it would influence the decision of prudent users of financial statements. |
| |To illustrate an instance where strict conformity with GAAP is not necessary because an item is immaterial, |
| |consider a low-cost asset, such as a P150 waste can. This item can be recorded as an expense in full when |
| |purchased rather than an asset subject to depreciation. The peso amount involved is simply too small for external|
| |users of financial reports to worry about. |

|Disclosure concept |All relevant and material events affecting the financial condition/position of a business and the results of its |
| |operations must be communicated to users of financial statements. |
| |We must remember that the purpose of accounting is to provide information that is useful to decision-makers. So, |
| |naturally, if there is accounting information not included in the primary financial statements that would benefit |
| |users, that information should be provided to. |
| |Supplemental information is disclosed in a variety of ways including: |
| |Parenthetical comments or modifying comments placed on the face of the financial statements. |
| |Disclosure notes conveying additional insights about company operations, accounting principles, contractual |
| |agreements, and pending litigation. |
| |Supplemental financial statements that report more detailed information than is shown in the primary financial |
| |statements. (Spiceland, D., Sepe, J., 1998) |

The Accounting Profession

|Overview |The success of the accountant in the accounting profession depends on how well he understands the accounting |
| |procedures and principles, and on how clearly and accurately he can communicate financial information to the users|
| |of the statements. |

|Classification |The nature of these works though relies on the position, which the accountant holds in his field. The positions |
| |in the field of accounting are generally classified into two, namely, public accounting and private accounting. |
| |Public Accountants are those who serve the general public and collect professional fees for their work such as |
| |doctors and lawyers do. Their works include auditing, income tax planning and preparation and management |
| |consulting. Those public accountants who have certain professional requirements are designated as Certified |
| |Public Accountants (CPAs). |
| |Private Accountants work for a single business, e.g. PLDT, Meralco, Jollibee, etc. Charitable organizations, |
| |educational institutions and government employ private accountants. Some accountants would also pursue a career |
| |in education and research |

|Certified Public |A Certified Public Accountant (CPA) is a professional accountant who earns his title through a combination of |
|Accountant |education, qualifying experience, and an acceptance score in the written national examination given by the Board |
| |of Accountancy. |
| |The Board of Accountancy prepares, grades and gives the results of the examination to the Professional Regulation |
| |Commission (PRC) who then issues licenses that allow qualifying examinees to practice accounting as CPAs. |
| |CPAs must also be of good moral character and must carry on their professional practices according to a code of |
| |professional conduct. |

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The Accounting Profession, Continued

|Organizations |The Philippine Institute of Certified Public Accountants (PICPA) is the national professional organization of CPAs in the |
| |country. |
| |In order to formalize the accounting standard-setting function in the Philippines, the Philippine Institute of Certified Public |
| |Accountants (PICPA) established the Accounting Standards Council (ASC) which is now known as the Financial Reporting Standards |
| |Council (FRSC). |
| |The council's main function is to establish and improve accounting standards that will be generally accepted in the Philippines |
| |(Preface to Statements of Financial Accounting Standards of ASC, 1999). |
| |The FRSC (known before as Accounting Standards Council) is the same body that formulates the Generally Accepted Accounting |
| |Principles (GAAP) or now known as the International Financial Reporting Standards (IFRS). These principles/standards are the |
| |most important accounting guidelines that provide the general framework determining what information is included in the financial|
| |statements and how this information is to be presented. |
| |The FRSC/ASC has approved in November 2004 the adoption of International Accounting Standards (IAS) 1, Presentation of Financial |
| |Statements, issued by the International Accounting Standards Boars (IASB), as the Philippine Financial Reporting Standards |
| |(Preface to Philippine Accounting Standard (PAS) 1 of ASC, 2005). |
|Basic professional |Ethical values provide the foundation on which a civilized society exists. Without the foundation, civilization collapses (Smith |
|values and business |and Smith, 2010). Michael Josephson, in Chapter 1 of Ethical Issues in the Practice of Accounting, 1992, described the "Ten |
|ethics |Universal Values." They were as follows: honesty, integrity, promise-keeping, fidelity, fairness, caring, respect for others, |
| |responsible citizenship, pursuit of excellence, and accountability. |
| |The purpose of ethics in business is to direct business men and women to abide by a code of conduct that facilitates, if not |
| |encourages, public confidence in their products and services (Smith and Smith, 2010). |
| |Can ethics be taught? At some point in life, ethics must be taught. People are not born with innate desires to be ethical or to |
| |be concerned with the welfare of others. The role of the family includes teaching children a code of ethical behavior that |
| |includes the basic values such as honesty, self-control, concern for others, respect for legitimate authority, fidelity, |
| |civility, etc. |
| |More recently, the National Commission on Fraudulent Financial Reporting (Treadway Commission) indicated that curricula should |
| |integrate the development of ethical values with the acquisition of knowledge and skills. The educators and educational |
| |institutions must play a very significant role in shaping values of the youth of today. |