PCPA key terms

The accounting standards adopted in the Philippines, issued by the Financial Reporting Standards Council and largely converged with IFRS, that govern the preparation of general purpose financial statements.

The foundational document that sets out the objective of general purpose financial reporting, the qualitative characteristics of useful information, the elements of financial statements, and recognition and measurement concepts.

The assumption that an entity will continue in operation for the foreseeable future without liquidating or materially curtailing its activities, which justifies measuring assets and liabilities on a non-liquidation basis.

A method of accounting that recognizes transactions and events when they occur rather than when cash is received or paid, matching revenues with the expenses incurred to earn them in the same period.

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, often described as an exit price.

The amount initially recognized less principal repayments, adjusted for cumulative amortization of the difference between the initial and maturity amounts using the effective interest method, and reduced for impairment.

The excess of an asset's carrying amount over its recoverable amount, recognized in profit or loss, or against revaluation surplus for revalued assets, when the asset's value has declined.

A framework requiring an entity to identify the contract, identify the performance obligations, determine the transaction price, allocate it to those obligations, and recognize revenue when each obligation is satisfied.

The tax effect of temporary differences between the carrying amounts of assets and liabilities and their tax bases, recognized as a deferred tax liability or asset and measured at expected future tax rates.

Financial statements that present a parent and its subsidiaries as a single economic entity, combining their assets, liabilities, income and expenses after eliminating intragroup balances and transactions.

Items of income and expense that standards require to be recognized outside profit or loss, such as revaluation surplus and certain remeasurements, presented separately within equity.

The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated, comprising inherent risk, control risk and detection risk.

Information is material when omitting or misstating it could reasonably influence the economic decisions of users; auditors apply it in planning procedures and evaluating uncorrected misstatements.

An attitude of questioning mind and critical assessment of audit evidence, remaining alert to conditions that may indicate misstatement arising from error or fraud.

Information used by the auditor in reaching the conclusions on which the audit opinion is based; it must be sufficient in quantity and appropriate in terms of relevance and reliability.

The processes designed by those charged with governance and management to provide reasonable assurance about reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations.

An audit opinion that is qualified, adverse, or a disclaimer of opinion, issued when the auditor concludes the financial statements are materially misstated or sufficient appropriate evidence cannot be obtained.

Those matters that, in the auditor's professional judgment, were of most significance in the audit of the current period, selected from matters communicated with those charged with governance.

An engagement in which the practitioner performs procedures agreed with the engaging party and reports factual findings without expressing assurance or an opinion on the subject matter.

A written statement from management confirming its responsibilities and the representations made during the audit, dated close to the audit report date and required as audit evidence.

The principal Philippine statute imposing national internal revenue taxes, including income tax, estate and donor's tax, value-added tax, excise tax and documentary stamp tax.

Republic Act No. 10963, which amended the National Internal Revenue Code by revising individual income tax rates, adjusting estate and donor's tax, and increasing excise taxes on selected goods.

An indirect tax on consumption imposed at each stage of sale of goods, services and properties and on imports, where input tax paid on purchases is credited against output tax on sales.

Tax withheld by a payor on specified income payments, which the payee may credit against its own income tax due for the same taxable year and report on its return.

Tax withheld at source on certain passive income, such as specified interest and dividends, which settles the income tax on that income and is no longer creditable against other taxes due.

A tax equal to two percent of gross income imposed on domestic corporations whenever it exceeds the regular corporate income tax, applied beginning the fourth taxable year of operations.

Arranging one's affairs within the letter of the law to reduce tax, for example through allowable deductions or tax-favored structures; it is lawful, unlike evasion which involves concealment or falsification.

The principle that a sum of money available today is worth more than the same sum received later, because it can be invested to earn a return, underlying compounding and discounting.

The present value of a project's expected future cash flows minus its initial investment; a positive result indicates the project is expected to increase the value of the firm.

The average rate a company expects to pay to finance its assets, weighting the after-tax cost of debt and the cost of equity by their respective proportions in the capital structure.

A model that estimates the required return on equity as the risk-free rate plus beta multiplied by the market risk premium, linking expected return to systematic risk.

Central bank actions, such as changing policy interest rates and reserve requirements, that influence money supply and credit conditions to keep inflation low and stable.

The ethical standards adopted in the Philippines, based on the international code issued by the IESBA, setting out fundamental principles and independence requirements binding on CPAs.

The fundamental ethical principle requiring a CPA to be straightforward and honest in all professional and business relationships, including when reporting information and giving advice.

The ethical principle requiring a CPA not to compromise professional or business judgment because of bias, conflict of interest, or the undue influence of others.

A state of mind and appearance free from relationships or interests that could compromise objectivity in an assurance engagement, required for audit and review engagements.

The duty not to disclose information acquired through professional work without proper authority or a legal or professional duty to do so, and not to use it for personal advantage.

Learning and development activities that CPAs must complete to maintain and enhance their competence, required for renewal of the professional identification card issued by the PRC.

A committee of the board of directors, normally composed of independent directors, that oversees financial reporting, internal control, risk management and the relationship with external auditors.