Accounting and Auditing in the Philippines
his chapter presents an overview of Philippine accounting and auditing arrangements. It provides context for the following chapters on professional infrastructure, accounting and auditing standards, accounting and auditing training, and government budgeting and accounting arrangements. The chapter comprises eight sections, as follows: Part One: Accounting 1 – Introduction – identifies historical factors that have influenced accounting arrangements. 2 – The “Philippine Accounting System – describes accounting arrangements. These include the regulatory and organizational framework, accounting bases and accounting information systems. 3 – Financial Reporting – describes financial reporting and disclosure requirements. 4 – Quality of Financial Reporting – reviews evidence regarding compliance with disclosure requirements and the quality of Philippine financial reporting. Part Two: Auditing 5 – Governing Laws and Regulations – describes the laws that govern Philippine auditing practices and audit requirements. 6 – Philippine Auditing Practices – examines Philippine auditing practices by comparing these to regional norms and international best practices. 7 – Public Accounting and Auditing Firms – describes the presence of domestic and international accounting firms in the Philippines. 8 – Issue Synopsis: Accounting and Auditing – summarizes the issues identified in this chapter.
DIAGNOSTIC STUDY OF ACCOUNTING AND AUDITING PRACTICES IN THE PHILIPPINES
1. Introduction26 Philippine accounting practices date back to the pre-Spanish period, when Filipinos conducted business with Chinese, Indians and Malays from neighboring countries. These trading activities forced Filipinos to prepare crude accounting records that were based mainly on cash receipts and payments. The Philippines has, for a significant part of its recent history, been exposed to many foreign cultures and influences. The Spanish brought substantial changes to language and religion. The first accounting firms were established by the British in the 1700s. However, the comparatively short American colonial period was the most significant in influencing the Philippines’ major institutions—including the educational system and the formalization of the professions. A number of American businesses established themselves in the Philippines during the 1920s and 1930s. Their activities and requirements influenced the establishment and initial growth period of the public accounting profession. During this time, the passage of the Accountancy Act 1923 created the Board of Accountancy (BOA) and gave it the authority to issue Certified Public Accountant (CPA) certificates. Six years later, the Philippine Institute of Certified Public Accountants (PICPA) was established within the private sector to represent professional interests. Many of the larger Philippine companies were subsidiaries or branches of American companies—their accounting reflected US practices. Even after independence, the US maintained close links with the Philippines through trade and investment. These links strongly influenced public and private sector accounting regulation and practices. Until the mid-1990s, private sector accounting standards replicated those of the US (Although PICPA issued pronouncements to cover issues not covered by the US standards—for instance, “Revaluation of Fixed Assets”). Likewise, the Philippine accounting and auditing regulatory framework is similar to the US framework. It includes both governmental and a supervised form of self-regulation. 26
Much of the information in this introduction is sourced from the following excellent article: Agustin, Emelita, P. December 1994. The Accountancy Profession in the Philippines and the Philippine Institute of Certified Public Accountants (PICPA). Accountants’ Journal. Vol. 44(3). pp. 12-17.
ACCOUNTING AND AUDITING IN THE PHILIPPINES...