Chapter 1 MAS Practice Standards 6 MULTIPLE CHOICE Basic concepts 4. People who make information-based decision go through steps in their decision-making process. series of fundamental i. Evaluate alternative, iv. Gather appropriate information. ii. Identify constraints. v. Choose the most acceptable alternative. ii, Set objectives. vi._ Identify alternative, ‘The most desirable sequence in the above steps is: n A. iv, iii, vi, Bee C. v D. iii, vi, iv, 1, v (rpcpa) c ‘The most desirable sequence in a decision-making process ‘The normal decision-making process follows the sequence of @ reasoned scientific conclusion, as follows: sat objectives, identity constraints, gather information, identify ~ alternative, evaluate alternative, and choose the best alternative. On the given, the sequence is 3-2-4-6-1-6 (choice-letter °c" is correct.) Ber 2. ACPA should reject management advisory services engagement if ‘A. Itwould require him to make management decisions for an audit client. B._ The proposed engagement is not accounting related. CC. His recommendations are to be subjected to a review by the cient. D._ He audits the financial statements of a subsidiary of the prospective client. (pena) A 2 2. A statement on when should a CPA reject management advisory services engagement. Ei A CPA advisor may render study, analyses, research, interpretation, comment, and the lke except for one authority which exclusively belongs to the manager- that is, the power to make decisions. Therefore, any advisory engagement that requires him to make decisions should be rejected. Hence, choice-etter “a” is the answer. Choice-tettar°b",“c* and “a” are all acceptable. He may accept non-accounting and rnon-finance related engagements as long as he has the competence to do it, and follows the other MAS practice standards in the process of undertaking the advisory engagement. His recommendations may be subject to a review by the client who hires his services and ‘who will be studying further his recommendations. Even if he is an auditor of the financial. statements of the prospective client or any of its affiliates or subsidiaries, a CPA may serve as an advisor to the cient. 3. Which of the following is not a characteristic of management advisory services? ‘A. MAS is broad in concept B. MAS involves problem-solving affecting the future operations of the client. C. Beneficiary of service is management. D. MAS is repetitive as far as the same client is concemed, (rpepa) 3D 2 The one that is not a characteristic of management advisory services.Chapter 1 MAS Practice Standards 7 Q. Choice-letter “dis correct, itis not a characteristic of management advisory services. MAS is not repetitive as far as the same client is concerned. Oncs.a particular problem area of operations is solved, the same is not expected to recur least the ‘solution applied is ineffective which would in return speak of the incompetence of the CPAAdvisor. Choice-etters “a, "b’, and °c’ are some of the characteristics of management ‘advisory services. MAS is broad in concept, involves problem-solving affecting the future operations of the client, and its beneficiary of service is the management. ~ Other characteristics of MAS are: it does not adhere to GAAP, it deals with specific ‘organizational problems, it uses knowledge and techniques adopted from different fields of science, and it is also covered by the standards governing the practice of accountancy. 4, The following characterize management advisory services, except ‘A. Inwolves decisions for the future. B, Broader in scope and varied in nature. C._ Utilize more junior staff than senior members of the firm. D. Relate to specific problems where expert help is required. (rpcpa) c ‘The oné that is not the characteristics of the management advisory services ‘The area of management advisory services has some of the following characteristics: it involves decisions for the future (choice-letter “a’), it covers @ wide area of ‘managerial interests (choice-etter b"), it deals with a specific problem where an ‘expert's help is required (choice-letter d) However, it uses few junior staff as the engagement is highly technical in nature ‘and requires the competence of the advisor (choice-letter ‘c’ is incorrect, and therefore is the correct answer); itis not repetitive nor recurring in nature; it applies technical knowledge of various fields of discipline; and, itis not governed by GAAP” Bye 5. Which of the following is not a characteristic of management services? ‘Design andor installation of accounting system. Financial analysis for project feasibility studies. Cost analysis of major investment decisions. None Gf the above. (rpcpa) 3 99m> ‘The one that is not a characteristic of management services. ‘All of the given choices are areas that relate to management services, such as design andlor installation of accounting system, financial analysis for project, feasibility study, and cost analysis of major investment decisions. Therefore, the correct answer is choice-letter‘d” Bye 6. Which of the following is not a characteristic of management services ‘A. Awider variety of assignments are encountered in MAS than in audit. , the benefits of which will be received in the(Chapeer 1 MAS Practice Standards 8 D. In MAS engagements, the nature of work involved requires @ lesser need for junior assistance, . (rpcpa) 6B 2 The one that is not a characteristic of management services. @ Choice-letter “b” is the correct answer because MAS engagements are not recurring in nature. Choics-etters "a", ‘c’, and ‘c" are all characteristics of management services. MAS, encompasses a wider variety of assignments than in audit. MAS pinpoints action to be taken, the benefit of which will be received in the future, and MAS requires a lesser need for junior assistance, 7. Management services of certified public accountants cover all of the following, except A. Project feasibilty studies. B. System design development and implementation ©. Organizational development and planning. D. Audit, tax, and legal services. 5 (‘pepa) o The area not covered in the practice of management advisory services. The practice of management advisory services (MAS) does not cover those traditional and originating fields of accountancy such a8 auditing, tax services, and legal services. These traditional areas of services by CPAs have already been in ‘existence before the advent of the MAS. practice, and have already developed extensive and highly technical body of knowledge where a specialized area of ‘competence is available. Choice-letter “dis the correct answer. MAS includes all areas of serving management outside the traditional services of auditing, tax, and legal practice. MAS is done in the areas of finance and accounting, industrial engineering, marketing, production, logistics, human resources, information ‘and communications’ technology, operations research, quality control, customer services, marketing, and others which are of concern to management. By~ 8. A certified public accountant’s scope of management services is broad and covers all of the following except ‘A. Change in management engagements. B.. Computerization engagements. C. Audit engagements. D. Re-engineering engagements. (pepe) ‘The choice which isnot covered in the practice of management services. Choice-tetiars “a’, “b", and ‘c" are covered in the practice of management services. ‘Change in management engagement deais with minimizing organizational uncertainties {or better preparation and use of resources which will lead to favorable results Re- engineering job is for a strategic and structural change in the entirety of the organization ‘oF any of is major systems and processes with the aim of simplifying work and process for better productivity, lesser error and produce favorable economic results. ‘Computerization engagements relate to the dynamic field of information technology. ‘Choice etter °c" refers to external auditing which is a tradional and specialized field of accountancy that had already developed its core professional principles, standards, ByeChaprer 1 MAS Practice Standards 8 ‘systems and approaches that make it a stand-alone specializes field of account ‘not covered in the MAS engagements, Ney, and 9. A management advisory services engagement generally involves the following activiies in what order? |. Post engagement follow-up. Hi. Implementing the recommendation ¢ Ni Conducting the engagement |V. Negotiating the engagement \._ Preparing for and starting the engagernont Vi, Evaluating the engagement Vil. Preparing and representing the report and recommendations A VIVI,ViIV, lh land © Mii, Vi Vil, an Bll, IV, V, Vi, Vil, 1, and OV, ¥, HMI HV and inpepa) 9D 2. The ganeral steps in undertaking management advisory sarvices engagamert (2 Choicedetter “a 's correct. Trie management advisory services begins trom negotiating the engagement, then preparing for and starting the engagement, conducting the engagement, preparing and presenting the report and recommendation, implementing the recommendation, evaluating the engagement, and post-engagement follow-up 10. The activities in a management system's control process can be grouped into four: 1. Measurement of actual performance. i. Deciding and implementing corrective action. ‘i, Determining standards of performance. iv, Comparing actual performance versus standards and analyzing results, The above activities must be done in this sequence A. iv ili, i B. iii tiv, © i iitiv, D. iii ia (epepa) 10.8 2, The sequence in a management systers cortol process ‘The control process referred to here is the operating control process. It is done after the planning process is competed ‘The general steps followed in the operating control process are: establishment of control standards (or standards of performance), measurement of actual Performance, comparison of actual performance with established standards and analysis of variances, decision and implementation of remedialicorrective actions. Choice-tetter *b* is correct 11. Asa consultant, the CPA practitioner should ‘A. Exercise administrative control over the client's staff to avoid unnecessary delays. in implementation,Chapter 1 MAS Practice Standards 10 Encourage dependence of the client on the consultant's staff so as to pinooint ‘clear responsibilty in implementing systemn Not take responsibilty for making decisions and policy judgments in MAS engagements. Conduct his engagement as if he is a inember of the client’s organization. (7pop) 9° ® 1.6 2 A statement deveribing what a CPA practitioner in MAS snould do, @ A CPA-consultant and a CPA-advisor should not take responsivity for making decisions and policy judgments in MAS engagements {choice-ietter "a" is the correct answer), A professional CPA-advisor has @ duty of identifying the Srobiems of the client ‘organization in a specific or general business sense, analyzing the causes and effects of the problem, developing and recommending remedial alternatives, anc ‘assisting in the execution and evaluation as to the effectiveness of the alternative chosen. Stil, tné CPA-advisor should not inake decisions on behaff of the client. The power to make decisions rests solely on the hand of the management and not of tr advisor Choice-etter “a’ is incorrect because the CPA-Advisor shouid not exercise administrative control over, but rather coordinate with, the client's staff. Choice-ette “b" is also incorrect because a CPA-Advisor should not encourage dependence of the client on the consuitant’s staff but rather should orient the client on the technique ‘of avoiding andlor soiving the same problem in the future. Choice-letter “c" is inorrect because 2 CPA-Advisor should always maintain impartiality inns professional conduct and therefore should not act as if he an employee of the client 12. Which of the following is not an area related to the performance of management servions by independent accounting firms? ‘A Introducing new ideas, concepts and rnethods to management. 8. Improving existing policies, methods and procedures, C. Performing special studies, preparing recommendations, and formulating plans and programs. . Performing management functions and making decisions. epa} oD ‘An area not related to the performance of management services. Choice-etter “dis the correct answer because performing management furiciors ‘and making decisions are not areas rendered in the practice of management services. A CPA-Advisor who is an independent o.:sider in the organization only advises management and he remains as. such’ in the performance of MAS assignments. Once, the CPA-Advisor makes decisions for and on behaif of his client, he ceases to be an advisor and automatically becomes a manager. Choicedetters ‘a’, “b’, and ‘care all areas related to the performance of management services such as, put nol exclusive to, introducing new ideas, concepts, and methods to management; improving existing policies, methods, and Procedures; and, performing special studies, preparing recommendations, and formulating plans and programs for his client EysChapter 1 MAS Practice Standards n 13, Which of the following is not a qualification of a CPA in MAS practice? A. Familiy withthe cents nancial accountng and intemal corirl systems, B. Analytical experience in problem-solving, ©. Professional independence, objectivity, and integrity. 1D. Auditor ofthe client (pepa) 13.0 7 The one that is not a qualification of @ CPA in MAS practice. 12 Choice-etier “cis correct, being the auditor of the client does not automatically ‘qualify the CPA‘to render MAS practice to his client. This is because the primary criterion in scospting auditing is independence while the paramount criterion in ‘accepting MAS engagement is competence. Choice-ieters “b’, “c', and "d’ are qualifications of a CPA in MAS practice, Choice-letters “a’ and “b’ relate to primary standard of competence while choice- letter *c" relates to the secondary standards of independence and integrity which should always be maintained by the CPA in his professional dealings. 14. Which of the following statements is not true? ‘A In the rendition of MAS, independence must be observed so as to maintein the ‘essential requisite of impartiality and objectivity. B All provisions of the code of professional ethics are applicable in the pracsice of MAS except those rules related to the expression of an opinion on financial statements ©. MAS serves only in the areas of accounting and finance. D. Before accepting an engagement, a practitioner should notify the client of any reservation he has regarding anticipated benefits (rpepay 14, 2. The one that is not a tue statement [2 Cheice-etter °c" is not a true statement MAS serves not only in the area of accounting and finance but in ail other areas of management interests ranging trom human relations, marketing, chanriels of distribution, design and engineering, customer services, industrial engineering, logistics, strategic planning, and other reas of management Choice-etters “a’, "b’, and “o" are all true statements with regard to MAS practice, Choice-etter “a” refers to independence in the MAS practice, choice-etter ‘refers to compliance and adherence to professional ethics save for those that specifically relate to the expression of opinion on financial statements under audit, and choice-letter “d” relates to the MAS Practice Standard of client benefit dentity the following statements as true or faise, Statement 1 MAS principally involves the consultative services to management in his decision making Statement 2 MAS consultation, unlike MAS engagement, generally involves advise of information by @ CPA in which an analytical process is plied Because the CPA must be independent, he must not allow the client to participate in any phase of his engagement. (rpepa)Chapter 1 (MAS Practice Standards 2 Statement 1 Statement 2. Statement 3 A True True False B False True False ©. False False False D. True False False D Identity the given statements as true or false. Choiceetter“d" is correct. Statement 1 is true. Statement 2 is false because MAS consuttancy, like MAS advisory services, apelios analytical processes and approaches. Statement 3 is false because the client, inasmuch as he owns the business organization, always reserves the right to make decisions with respect to the firm and that does not exclude deciding for or against the continuance or interference in the advisory services conducted by an independent professional service provider, such as a CPA engaged in MAS practice, BYa 16. Indicate whether the following statements are true or false. Statement 1. A CPA firm's primary purpose of performing MAS services is to enable the staff members to acquire the necessary continuing ‘education in all areas of business. Statement 2. In management audit, a team with a mix of members who are accountants and non-accountants will produce a desirable ‘combination of specialists and will offer @ cross fertilization of ideas from different business fields. Statement 3." An area of MAS which is directly related to accounting and finance functions is project feasibility study. (rpcpa) True False Statement 1 Statement 2 Statement 2 Statement 1 cet Statement 3. Statement 2 Statement 1 Statement 3 16.8 2_-Identity the given statements as true or false © Choiceetter "b’ is correct. Statement 1 is false because it violates the standard of ‘competence and client benefit. Statement 2 is true. Statement 3 is false because project feasibility study does not only relate to finance end accounting and is therefore included in the non-finance and accounting services. 1AS Practice Standards . The following statements refer to competence of CPAs in management advisory services, except A In concep, it refers to the technical qualification of the practitioner and his ability to supervise and evaluate the quality of work of his staff assigned to the ‘engagement to be responsible for the successful completion of the projact, B. It is acquired by education, self-study, attendance to professional development courses, actual experience in MS work, and research.Chaprer 1 MAS Practice Sandards 15 2. Bye 22, 2 Choice-tetters “a, *b’, and °c" are all situations where the practicing CPA looses: his independence, such ‘as performing decision-making services for his client, or Performing services wherein he is in effect acting as an employee of the client, or acts in a manner as if he is advocating for the interest of his client. These statements relate to MAS standards. i. A practitioner is. to notify the client of any reservation he has regarding anticipated benefits. li, Throughout the engagement, there ought to be a systematic critical review of ‘accomplishments and work should be done within the framework of the Code of Ethios and other professional standards. ii, During the engagement, should there be significant changes between cost and anticipated benefits, the client should be informed. iv. Before the engagement, the practitioner must make arrangement with, and inform the client on significant matters related to the engagement in writing. Of these statements, which pertains to the practice standard on client benefit? Statements | and ii only All statements. ‘Statement i only. ‘Statements i iii and iv only. : (pepe) 9om> A ‘The statement(s) that pertain to MAS standards on client benefit. Statements 1 and 3 are directly related to the MAS standards on client benefit. Statements 2 relates to planning and supervision standard while statement 4 deals with the standard on understanding with the client, Hence, the correct answer of choice-tetter ‘a’. ‘Mr. Rey Carlos, a CPA firms’ partner-in-charge of quality assurance and review is arguing ‘with MF. Fortuna, the consulting partner regarding the question on independence as Mr. Fortuna is presently rendering consulting services to T. Ang and Nga Co., an audit clent of the firm. Related to this issue of independence, all of the folowing statements are not valid FM indopendence is never sacrificed or as ong asthe autorconsuitantiscorect in is for the client B. A CPA who renders both audit and consulting services to a client by vitue of his competencelexpertise and extensive knowledge of the client's business isin the best position to render decisions for the ciient and should do so. C. The clients the ultimate decision maker and the auditor’ and or corisultant should not ‘make decisions for the cent D. tis up to professional judgement and discretion of the auditoriconsuttant to render decisions for the client for as long as his professional fees are commensurate to the benefit that the cient will derive from the engagement. (rpepa) e ‘A statement about independence in consultancy.Chap 1 MAS Practice Standards 16 2 Choice-letter “bis the statement about independence in consultancy. -Choice-letters “a”, and “a” are incorrect statements with regard to independence: because they require the CPA-advisor to make decisions on behatf of the client. 23. After preliminary audit arrangement have been made, an engagement confirmation letter ‘should be sent to the client. The letter usually would not include: ‘A. Anestimate of the time to be spent on the audit work by audit staff and management. B.A reference to the auditor's responstilty for the detection of errors or irregularities. C. A statement that management advisory services would be made available upon ©. A statement that management letter will be issued outining comments and suggestions as to any procedures requiting the client's attention. (rpepa) c q “The one not included in a confirmation letter sent to the client after an audit engagement. ‘Among the choices given, what is not to be found in an audit confirmation letter is @ statement that management advisory services would be made available upon request (Choice-etter‘c"), ‘Choice-tetter Bys “b’, and “c" are included in an audit confirmation letter. Accountancy Act of 2004 and Code of Ethics for Professional Accountants 24, The Revised Accountancy Law incorporates the Code of Professional Ethics for CPAs. ‘The provision of management advisory services is among the areas for public accounting. Iti, however, not exclusive to CPAS. Considering these premises, which of the folowing statements is applicable? ‘A. Management advisory services as a field of practice is considered as an integral part ‘of public accounting thus, the Code of Professional Ethics for CPAs covers ‘management advisory services. 8. CPAs in the practice of auclt and management consulting services may advertise and charge contingent fees. C. The practice of management advisory services should not be extended to existing audit clients since this wil adversely affect the CPAs independence. 1D CPAs in the practice of management advisory services are not bound by the Board of ‘Accountancy Law but are bound by the said law in the practice of audit’ —_(rpcpa) A ‘A statement that is applicable to the Revised Accountancy Law. Choice letter “a’ is correct because management advisory services is considered as an integral part of public accounting within the meaning of the provisions of the Accountancy ‘Act of 2004. Choice letter ‘b” is incorrect because certified public accountants are not ‘allowed to advertise nor charge contingent fees in the conduct of their practice. Choice letter “cig also incorrect because there is no express. provision in the aw prohibiting CPAs to extend their professional services to their existing audit clients. Choice-etter‘d” is also incorrect is defiitaly incorrect because all CPAs, regardless of specific field of ‘endeavor, as long as they are in the practice of accountancy are bound to adhere to the provisions of Accountancy Act of 2004. 6rs 25. Which of the following statements is false? ‘A. CPAs provide. management services to go around the ethical constraints as mandated by the Accountancy Act.Chapter 1 MAS Practice Standards 7 B. Businesses hire management consultants to help define specific problems and develop solutions. . Included in the practice of consulting is the provision of confidential service in which the identity ofthe client is concealed. D. CPAs performing management services may be considered to be in the practice of management consulting. (tpopa) 25.8 7 The false statement with regard to management advisory se’vices. i Choiceetter ‘a" is ¢ talse statement because CPA's who are in the practice of MAS are still covered by the provisions of the Accountancy Act of 2004 and the Code of Ezhics for Professional Accountants since they are still CPAs in the practice of their profession, except those provisions that pertain to the expression of opinion of financial statements under audit Choice-tetter “b’, “c’, and “<' are true statements with regard to the practice of ‘management advisory services. 26, Which of the folowing statements is not acceptable? ‘AA CPA represents three mejor players in the industry in rationalizing the industry's incentive before the Government public hearings. 8. ACPA shares with a new and substantial client information regarding another client belonging to the same industry ACPA provides consulting services to an existing audit client. ACPA offers and provides consutting services to two major competing clients, (rpepa) 2 00 2. The statement that is not acceptable. 1 A CPA-advisor sould not make a decision on behalf of the management ‘Additionally, the CPA advisor ’ should comply with provisions contained. in Accountancy Act of 2004 and the Code of Ethies for Professional Accountants and those guidefines mentioned in the MAS Practice Standards. Shoice-letter “b” is not acceptable for a CPA-Advisor to share with a client any ciassified, material, confidential, or substantial information regarding another client. ‘This relates to the rule and ethics of “confidentiality with the client’ of which the CPA is bound to observe and uphold, Choice letter “bis the correct answer. Choice-letters “a’, “c", and “a? are all acceptable for a.CPA advisor to do because they do not violate any provisions in the Accountancy Act of 2004, Code of Ethios for Professionai Accountants, and does not run counter to any of the MAS Practice Standards. 27. Indicate the statements as either true or false. ‘Statement 1. CPAs in MAS practice must observe the general provision of the ode of Professional Ethics for CPAs, a8 well as the provision thereof of CPAs in Public Accounting, except those provisions of ‘expression of opinion on financial statements. Statement 2 Management consultancy is an exclusive field of practics for CPAs and is regulated by law.Chaprer 1 MAS Practice Standards 18 Statement 3. Although management services (MS) extend beyond the traditional ‘accounting services, MS practitioners are stil bound by the rules of professional ethies:in the practice of accounting in general. (rpcpa) Statement 1 Statement 3. Statement 3 A True False False Bo False True True C. False True True D. The False True D Identify the given statements as true or false. Choice-letter “d" is correct. Statement 1 is true. Statement 2 is false because the filed of management advisory services is open. to all professionals and non- protessionais ake who have the necessary competence and the trust of the manager. Statement 3 is true. BY8 @ done @.Chapter 2 ‘Management Accounting Environment 19 CHAPTER 2 MANAGEMENT ACCOUNTING ENVIRONMENT Academic Areas of Competence a QQ Basic concepts Controllership The planning and controlling cycle The internal controls Treasurership Comparison of management accounting and financial accounting rereend ‘Management Accounting Environment 20 asic concepts = Managers need relevant, detailed, exhaustive, confidential, and timely information to make more reasonable economic decisions. These information ‘are normally not provided in the general-purpose financial infoimation released by financial accountants. = The systems and processes used to gather data, process data, and provide useful quantitative information to management is management accounting. = The head of a management accounting group in an organization is called management accountant. Sometimes, he is called as the Vice President for "Finance, Chief Financial Officer, Accounting Manager, or Budget Director. Traditionally, a management accountant is called as the controller (or comptroller). = Management accounting is “the application of appropriate techniques and concepts in processing the historical and projected economic data of an entity to assist management in establishing a pian for reasonable ‘economic objectives and in the making of a rational decisions with a view towards achieving these objectives.” (AAA Committee on Management ‘Accounting Controllership = Managers make decisions. They make decisions in all phases of their “managerial functions. The functions of management are: planning, ‘organizing and directing, and controling = Management accounting focuses more on the areas of planning and controlling. The seven (7) basic functions of a controller are (code: PREGPET) : Planning and controlling Protection of assets Reporting Evaluation Government relations Economic appraisal Tax administration goaagag The planning and controling cycle. = The planning and controlling cycle sums up the basic concerns ot management accounting. = Planning begins after the organizational structure is put in place. Planning is also a control mechanism (e.g., feedforward control). The basic steps in planning are: © Objectives. Setting the long-run objectives. © Goals. Identifying the short-term and concrete goals. © Standards. Developing standards.Chapter 2 Management Accounting Environinen 2 8 ® Plans. Predicting actions to be undertaken. Plans must be SMART (ie., specific, measurable, attainable, realistic, and time-bounded), ® Budgets. Translating plans into monetary expressions. © Budget revisions. To tune up estimates in line with actual activities. = Actions follow planning. Here, resources are organized and men are directed. In this process, on-line controls are put in place to manitur and ensure actions to be in accordance with pians. Or, i* needed, plans and standards should be revised accordingly = At the end, performance evaluation should be undertaban 1a-check the standards, plans, actions, measures, and other variables ¥ organizational activities, = Hence, the topics in management accounting includes the Following Responsibility accounting (i.., organizational structure Marginal costing (i.e., costs structure) Standard costing (ie., standard-setting) Budgeting (i... short-term planning) Variance analysis (ie., feedback, perfcnrance analysis and evaluation). Material or exceptional variances are attended to by top management (e.g., management by exception). Normai (or expectea) variances are handied by divisional line officers. © Short-term non-routine decisions (i.e., maximizing short-term profits) BVKTg Internal controls = Intemal controls comprise the plan cf an organization and all its coordinate mathods and measures in order to protect the assets, check the accuracy and reliability of accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies = The plan of an organization is best shown in its organizational design or structure. ‘= The methods and measures are the policies in an organization to protect assets, ensure accuracy and reliability of data, promote efficiency and discipline among personnel. = There are 11 cardinal principles of internal controls that may be classified as follows: © Organizational controls ‘* Responsibilities must be fixed, ‘* Functional responsibilities should be segregated. * No one person should be in complete control, of a business transaction, * Allavailable proof of accuracy should be utilized. © Personnel controls * Employees should be carefully selected and trained.Chapter 2 ‘Management Accounting Environment 2 Employees should be rotated ‘* Employees should be bonded, especially those in a position of trust. © Supervision controls ‘Operating instructions should be in writing, Controliing accounts should be used. * The advantages of double-entry accounting should not be ‘overemphasized. Use of mechanical and/or electronic equipment, if feasible. © Organizational design and transaction cycle = Organizational structure should be designed according to resource or functional responsibilities. This is done in relation to transaction cycle. ‘The basic functional responsiblies in a transaction are: = Authorization — © Execution © Recording © Custodianship = Periodic accountability = In designing organizationa! structure, the five basic transactional responsibilities must be segregated. © Treasurership = Conirollership and treasurership constitute. corporate _ finance. Controllership deals with records, systems, and processes to attain the objectives of internal controls and good managing. = Treasurership deals with money, cash, or wealth of an organization. A treasurer knows the sources of money and exercises prudence in using the money of an organization. There are basically three (3) sources of cash — financing, operating, and investing. Financing money comes from owners and creditors. Operating. money comes from customers. Investing money comes from non-current assets. = The functions of a treasurer are listed below (code: PISBCII): Provision for capital Investor relations Short-term borrowings Banking and custodianship Credit and collection Investments Insurance ‘© . Financial Accounting and Management Accounting ‘= The basic differences between financial accounting and management accounting are as follows: oi BoogagaUses GAAP. Reports ere wholistic. Reports are for general- purpose. With unifying equation A = L + c. Focuses on accounting and finance Focuses in the process of preparing the financial statements, Precision '¥ Reports are segmentized '¥ Reports are for management use 'Y Multidisciptinary, also deals with ‘other areas of knowledge and disciplines. ¥ Focuses in the usefulness of financial statements. ¥ Timeliness.