Are You an Accountant or an Auditor?

Accounting and auditing are two entirely different things. There are a lot of them in opposite definitions. But for now, I'm going to cite one (or maybe few more hidden in my explanation).

Accountants enjoy being in the office. They can last day in and day out going to office from home and then back to home. They would rather stay in the office than travel. If they have to go out, it could be just another office within the city. And their work are the same everyday, every month end, every year, and so on. Usually, it is those who have family who enjoy being an accountant. But there are also who don't have spouse and kids still enjoy being an accountant.

Auditors on the other hand, although they stay in the office majority of their time, they go to clients from time to time. And it is usually long distance travel. They enjoy meeting new people. Their work is relatively non-repetitive. Auditing one client to another is unique. Auditors are not guided by days, months, or years.  Their timeline is base on working days instead. It doesn't matter what day of the month it is.

Before I end, here's a bonus. Accountants tend to negotiate more since they talk to tax officials of the government. They want to minimise the taxes of their clients as possible. Learning to negotiate is a must if you want to grow as an accountant. On the other hand, auditors tend to be firm. Their audit reports should be set in stone as possible, especially if the process flaw is really risky.

As CPAs and future CPAs, which do you think are you, an accountant or auditor?

Partnership is a Separate Entity

ARTICLE 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n)

ARTICLE 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

Source: http://www.philippinejustice.com/partnership.htm

Interpretation

Partnership has an artificial personality separate and different from its actual partners. Partnership is treated as if it has its own personality. Whenever a partner is entering any agreements on behalf of the partnership, those agreements will be treated as if it is the partnership, not the partner, which enters to agreements. Each partner can act as an agent of the partnership. All partners’ deals on behalf of the partnership will make the latter liable or benefactor depending what those deals are.

A sale by a partner on behalf of the partnership is a sale of the partnership. The partners are mere agents of their partnership.  An expense by a partner on behalf of the partnership is likewise an expense of the partnership.

This is true even if the partnership does not comply yet with Article 1772 of the Philippine Civil Code.  Article 1772 requires that all partnership with P3,000 or more worth of capital must be registered with Security and Exchange Commission (SEC). At the amount of at least P3,000, it is virtually required that all partnerships must be registered with SEC. But non-compliance with the requirement will not stop the partnership from having its own personality. Its liabilities may not be binding but it still has its own personality.

To conclude, all partners are agents of the partnership, and therefore, also bind other partners. Such partnership feature is called Mutual Agency. Partnership is a Mutual Agency, whether registered or not with SEC.

Partnership Explained (Civil Code of the Philippines Article 1767)

Civil Code of the Philippines

ARTICLE 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. (1665a)

(Source: http://www.philippinejustice.com/partnership.htm)

Breaking Down the Definition

A contract is considered a partnership when at least to persons bind themselves to contribute money, property or industry to a common fund to earn and divide those earnings among themselves.

Contract by definition is a written or spoken agreement that is intended to be enforceable by law. It is important to note that a contract usually signifies intention to make the agreement legally binding, whether written or spoken initially.

The Civil Code Article specifically mentioned persons, and not artificial beings.  Meaning, partners must simply be persons and not anything else.

The Civil Code article enumerated what partners may contribute, these are money, property, and industry. These are basically everything what a partner can contribute. Anything can fall under those enumerated. 

Money may be physical cash, cash in banks, or any other things that can be considered as legal tender. 

Properties can be sub-classified further: Real and Personal. Real properties are land and buildings, and any other immovable properties that you can think of. Personal properties are any movable properties. It could be a thing, animal, or anything that can be considered as a property.

Industry is hard work. A person can contribute his or her skills to be a partner. Any work such as accounting, auditing, marketing, advertising, drawing, clerical work, other specialized skills depending on the business being formed by the partnership, anything. 

All these money, properties, and industries of each and every partner who contributed, must be gathered to a common fund. Intentions must be there that these must be used by the partnership in order to earn. These money, properties, and industries must be dedicated for partnership use.

The intention of a partnership must be to earn, and to maximize profit.  Lastly, the earnings must be divided among partners by the end of every operating cycle of the partnership, usually yearend.

If the intention of a partnership is not to earn, it shall not be recognized by law. If the intention of a partnership is to accumulate earnings without any intention of dividing said earning to partners, it shall not be considered as partnership according to the Philippine Law.

To end, the following must be present before a contract can be considered as a partnership:

• Two or more persons must form the partnership
• Partners must contribute money, properties, or industries
• Contributions must be gathered to a common fund
• There must be intention to earn
• There must be intention to divide the earnings among partners