Mindanao State University

College of Business Administration and Accountancy

MANAGEMENT ADVISORY SERVICES CONCEPTS, STANDARDS AND PRACTICES

MANAGEMENT ADVISORY SERVICES – refers to the area of C. Introducing new ideas, concepts and methods to
accounting work concerned with providing advice and management.
technical assistance to help clients improve the use of their D. Conducting special studies, proposing plans and
sources to achieve their goals. programs and providing guidance and technical
assistance in their implementation.
MANAGEMENT ADVISOR OR CONSULTANT – a person who is
qualified by education, experience, technical ability and BROAD AREAS OF MANAGEMENT ADVISORY SERVICES
temperament to advise or assist businessmen on a A. Finance and accounting:
professional basis in identifying, defining and solving
specific management problems involving the organization,  Financial accounting – financial accounting
planning, direction, control and operation of the firm. systems design and development.
 Management accounting – establishment of
FACTORS FOR THE EMERGENCE AND GROWTH OF MAS budgetary controls, cost analysis and control
CONSULTANCY and variance analysis, design and
A. Growth in size and complexity of business firms. development of management accounting
B. Complexities in managing and conducting a systems design and development.
business.  Financial management – establishment of
C. Lack of competent staff. capital budgeting procedures, study of cost
D. Trend towards industrialization. of capital and financial structures and
E. Need for adequate and timely information in establishment of operating and cash
management decision making. budgets.
F. Development of techniques for the solution of B. Non-finance and accounting:
management problems and businessmen‟s
 General management – management of
awareness of their usefulness.
operations audit, measurement of operating
REASONS FOR HIRING MANAGEMENT CONSULTANTS performance, merger and acquisition studies
and long-range planning.
A. Help define specific problems and develop
 Project feasibility studies – preparation of
solutions.
business plan and preparation of project
B. Provide specialized skills and experience.
feasibility study including evaluation of the
C. Provide confidential service in which the identity of
study‟s assumptions and major aspects.
the client is concealed.
 Organization and personnel – job evaluation
D. Train client personnel.
and salary administration, studies of office
E. Help improve inter-company communications.
cost reduction systems, determining cost of
F. Render an independent opinion.
alternative in collective bargaining
G. Help get results.
alternatives and preparation of organization
MAS BY CPAs – CPAs performing management consulting and administrative manual.
and other advisory services are considered in the practice  Industrial engineering – development of work
of professional accounting and are bound by the Code of standards, plant layout studies, production
Ethics for Professional Accountants. CPAs enjoy an planning, scheduling and control and
advantage over other professionals in MAS practice inventory management studies.
because:  Marketing – market forecasting, distribution
A. They are already familiar with the client and his cost analysis, product profitability analysis
business, thus, enjoy the client‟s confidence. and pricing policy and determination.
B. They are members of a profession with recognized  Operating research – use of quantitative
standing and are equipped with technical know- techniques such as PERT, queuing theory,
how in accounting and taxation. regression analysis in solving operational
MAS practice actually stemmed from the CPA‟s audit problems.
practice. MAS CLASSIFICATION BASED ON REQUIRED EXPERTISE
CHARACTERISTICS OF MANAGEMENT ADVISORY SERVICES A. Usual services – those that can be offered readily
A. Services are rendered for the management rather by the practitioner based on his basic training and
than for third parties. background.
B. Involves problem solving. B. Somewhat specialized services – those that require
C. Relates to the future. an extension of the usual accounting work and
D. Involves varied assignments. require additional training and/or experience.
E. Engagements are usually non-recurring.
C. Highly specialized services – those that require
F. Engagements require highly qualified staff.
special skills, aptitude and training which CPAs do
G. Human relations play a vital role in each
not normally possess.
engagement.
ANALYTICAL APPROACH AND PROCESS
SCOPE OF MANAGEMENT ADVISORY SERVICES
The analytical approach and process refers to the
MAS are usually related to the services rendered by CPAs in
systematic, objective and rational method of solving
the areas of auditing, tax and accounting and may involve
organizational problems. It involves a professional-level
activities such as:
ability to find facts and define problems, to structure
A. Counseling management in its analysis, planning,
problems so that attention is focused on fundamentals
organizing and controlling functions.
rather than on symptoms and fringe issues, to find and shift
B. Reviewing and suggesting improvement in policies,
alternative solutions and to adopt general or theoretical
procedures, systems, methods and organizational
solutions to fit particular situations in a particular way.
relationships.
 A. Analysis Stage: b. Bracket quotation basis.
 Ascertaining the pertinent fact and c. Lump sum basis.
circumstances. d. Retainer basis.
 Seeking and identifying objectives.  Confirmation of the understanding in
 Defining the problem or opportunity for writing.
improvement. a. Proposal letter.
b. Confirmation letter.
B. Design Stage: c. Engagement letter.
 Evaluating and determining possible d. Contract.
solutions. e. File memorandum.
 Presenting findings and recommendations. B. Preparing and starting for the engagement – to
C. Implementation Stage: ensure that the engagement will be completed
 Planning and scheduling actions. effectively and efficiently, the practitioner should
 Advising and providing technical assistance carefully plan and prepare for the engagement.
in implementing.  Selecting and briefing engagement team
members.
ROLE OF CONSULTANTS IN MAS ENGAGEMENTS  Preparing the engagement plan and work
A. Full Scope Engagements – these cover all the program.
seven phases in the analytical process. a. The engagement plan translates
the problem definition into steps
CONSULTANT – limited to that of an advisor; in the
required to attain the objectives of
implementation stage, his role is merely to provide
the proposed project.
technical assistance.
b. The engagement work program is
B. Special Study Engagements – the client seeks only considered as the master plan for
an impartial and objective study of a case and the the engagement which serves as
resulting recommendations which involves only the a framework for controlling its
first five stages in the analytical process. progress. It documents how the
CONSULTANT – to proceed through the first five engagement will be carried out,
phases of the analytical process, apply objective organizes the engagement into
judgment to the facts and present findings and scheduled and logical sequences
recommendations to the client for decision and and indicates the various tasks
further action. necessary to achieve the
CLIENT – to supply pertinent information and to objectives of the engagement.
make the decision on the case. Any action beyond C. Conducting the engagement – after carefully and
the point of decision is solely the responsibility of the thoroughly preparing for the engagement, the
client. practitioner and the team members may proceed
C. Informal Advice – its structure is informal and no to conduct the same.
presumption should exist that an extensive study  Information gathering.
has been performed. a. Determining the nature and extent
of information to be collected.
CONSULTANT – to respond as practicable at the
b. Locating the sources of the
moment and express the basis for the response.
needed information.
DETERMINATION OF SCOPE OF SERVICE c. Recording information and
In determining the scope or type of engagement, the documenting the process.
consultant should consider the following guidelines:  Information analysis.
A. Responsibility to establish scope of services. a. Classifying information gathered.
B. Independence. b. Determining causal relationships.
C. Competence. c. Identifying key variables.
D. Requirements for specialization. d. Discovering opportunities and/or
E. Attention to client‟s basic problems. problems.
F. Referral arrangements. e. Developing and evaluating various
G. Code of Ethics for Professional Accountants. courses of actions.
f. Recommending a course of action.
MAS ENGAGEMENT PROCESS – the phases below constitute  Interim communications.
the specific activities involved in MAS engagement cycle: Working papers are to be used to document data
A. Negotiating the engagement – involves preliminary gathering and analysis.
discussions with the appropriate official of the D. Preparing and presenting the reports – the final
prospective client to ascertain whether or not the report may be written, oral or both. The best
engagement may be pursued and come up with approach is either issue a written report and
the common understanding about such supplement it with oral presentation or make an
engagement. oral presentation and supplement it with a written
 Problem definition which could include report. Written reports could either be in long form
review of the background materials about or in short form.
the prospective client and preliminary  Principal findings.
surveys of the client-firm‟s situation.  Conclusions.
a. Overt symptoms.  Recommendations.
b. Covert symptoms.  Major facts and assumptions.
 Determination of the engagement‟s  Limitations.
nature, scope and objectives.  Reservations and other qualifications.
 Agreeing on the basis for establishing and  Other results of the engagements.
billing fees. The general rule is that “the
E. Implementing the recommendations – when the
costs of consultancy service shall be
scope of the engagement covers the consultant‟s
computed based on the consultant‟s
assistance in implementing the recommendations,
actual services plus a reasonable level of
the practitioner should undertake this activity
management.”
without impairing his independence bearing in
a. Per diem basis.
 mind his appropriate role as a mere advisor or orientation in the professional practice. The last five
consultant. standards establish the practitioners‟ relationship with his
 Client understanding. client and his attitude towards work.
 Client decision. PRACTICE STANDARD 1.
 Client expertise.
Personal Characteristics. In performing MAS, a
 Client ability to maintain the new set-up.
practitioner must act with integrity and objectivity and
F. Evaluating the engagement – a MAS engagement be independent in mental attitude.
is evaluated by comparing actual results with
established standards to assess the quality of the PRACTICE STANDARD 2.
engagement. This activity should be undertaken in Competence. Engagements are to be performed by a
the course of conducting the engagement and at practitioner having competence in the analytical
the conclusion of the work. Basically, the approach and process and in the technical subject
practitioner should evaluate engagements in matter under consideration.
accordance with the following criteria: PRACTICE STANDARD 3.
 Achievement of the engagement„s Due Care. Due professional care is to be exercised in
objectives as set forth and agreed the performance of the MAS engagements.
between the client and the practitioner.
 Complete satisfaction of the client PRACTICE STANDARD 4.
company as regards the results of the Client Benefit. Before accepting an engagement, a
engagement. practitioner is to notify the client of any reservations he
G. Post-engagement follow up – the practitioner has regarding anticipated benefits.
should conduct follow-up visits and evaluations PRACTICE STANDARD 5.
after a sufficient amount of time has passed from Understanding with the Client. Before undertaking an
the time of implementation to check and correct engagement, a practitioner is to inform the client of all
any deficiencies or misunderstanding or make significant matters relating to the engagement.
necessary modifications or improvements.
PRACTICE STANDARD 6.
MAS STANDARDS – a CPA is guided by standards in the Planning, Supervision and Control. Engagements are to
performance of his professional practice, including that of be adequately planned, supervised and controlled.
MAS. A professional is guided by moral standards, ethical
standards (such as the Code of Ethics for Professional PRACTICE STANDARD 7.
Accountants), legal standards (such as the Constitution Sufficient Relevant Data. Sufficient relevant data is to
and the Accountancy Act of 2004) and technical be obtained, documented and evaluated in
standards. developing conclusions and communications.

MAS PRACTICE STANDARDS – the AICPA‟s Management PRACTICE STANDARD 8.