Among all the industries, I can say that accounting can easily count as one of the backbones of society. Why? This is because businesses, big and small, and even the government have some kinds of accounting system in place. According to LinkedIn’s special report on Philippine’s workforce, individuals who crunch numbers for a living are quite in demand. The report only goes to show that the field of accounting, like medicine, science, and technology, is fundamental in helping society function properly.
The accounting practice in the Philippines
- Did you know that the system of accounting in the Philippines can be traced back to our ancestors when we exchanged goods and services with the Chinese, Indians, and Malays? During this time, “accounting” was a simple matter of hands exchanging cash. Eventually, this straightforward way of buying and selling evolved into a more polished state when travelers from the West started coming over.
- When the Americans arrived and established businesses in the country, it greatly influenced the accounting practice in the Philippines. Initially, business schools popped up to have a pool of accountants for American businesses and subsidiaries. Later, schools like University of the Philippines, Jose Rizal College, Far Eastern University and De La Salle College started to offer their own accounting programs.
- Eventually, the Board of Accountancy (BOA) was established and the Accountancy Act 1967 was passed. Under the legislation, only Filipinos and foreigners from countries that extend the same privileges to Philippine accountants can become CPAs or Certified Public Accountants and work in the Philippines.
- Under the Revised Accountancy Law 1975, only registered Philippine CPAs are allowed to be partners in accountancy firms in the country. The SEC and the Board of Accountancy review and grant the license to the firms.
- Philippine accounting firms eventually offered services outside the country, establishing connections with the Big Five of the industry. These firms include Isla Lipana &Co., Navarro Amper & Co., R. G. Manabat & Co., and Sycip Gorres Velayo & Co.
- Although international practices became a subsequent influence, some features in Philippine’s accounting system still take after that of the US. For instance, the accounting processes are controlled by both government and institutional laws.
- Accounting practice in the Philippines abide by four major legislations; namely, the Revised Accountancy Law 1975, the Corporation Code, the Revised Securities Act 2000, and the National Internal Revenue Code 1999. The Revised Accountancy Law 1975 dictates everything you need to do to become a CPA and as a CPA.
- While the Corporation Code provides the rules for limited liability corporations, the Revised Securities Act 2000 dictates requirements regarding financial reporting for companies. Both legislations come from the Securities and Exchange Commission or SEC. Meanwhile, groups and individuals who prepare and submit financial statements should conform to the National Internal Revenue Code 1999.
- Most of the accounting policies in the Philippines are adopted from the International Accounting Standards and the US Financial Accounting Standards Board. Financial reporting and disclosure requirements should also conform with the National Internal Revenue Code, Statements of Financial Accounting Standards (SFAS), and the Securities and Exchange Commission. For instance, the SFAS requires businesses to use the accrual accounting basis when preparing financial statements.
- CPAs are required to audit and sign financial statements of companies that have quarterly sales of more than P100,000. Financial statements required by law are the balance sheet, income statement and cash flow statement. Also, companies that are listed with the SEC should prepare their financial statements in conformity with standards set by the Accounting Standards Council or ASC.
- Interestingly, the world perceives the quality of accounting practice in the Philippines as less reliable than that of other Asian countries. The report from the World Bank on the same showed that Philippine corporate financial statements are only reliable when they are audited by a widely-trusted firm like the Big Five.
- The Philippines’ quality of financial reporting ranked just above five (5), where 10 (ten) was the highest, in a study conducted by the Association of Southeast Asian Nations (ASEAN). It seems that while the preparation of financial statements meets standards, the content compromises the quality of the reporting.
- Auditing is also another part of the accounting practice in the Philippines. The Auditing Standards and Practices Council (ASPC) provides the guidelines for auditing practices in the country.
- Auditing reports should conform to the Philippine Financial Reporting Standards (PFRS). The standards set here are taken from the revised International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS).
- Starting January 2005, the Banko Sentral ng Pilipinas (BSP) used the PFRS to promote fairness, transparency, and accuracy in financial reporting by financial institutions. However, there were several deviations in preparing prudential reports to the BSP.
- As of February 2016, CPAs must now submit a Certificate of Compilation Services (CCS) when filing financial statements with the BIR and the SEC. This process is in accordance with a resolution from the Professional Regulatory Board of Accountancy (PRBA).
ConclusionThe ins and outs of accounting in the Philippines are not for the faint-hearted. I guess this explains the need for accountancy graduates to have certificate-worthy number-crunching skills. There is a lot of guidelines to comply with, both local and international, in the preparation and reporting of financial statements because a single mistake can mean result to, not only millions but billions of losses.
Oojeema is designed to lessen errors in financial statement reporting.