Mastery of Management Services

Overview of Management Acctng

MANAGEMENT ADVISORY SERVICES=refers to the function of providing professional advisory

(consulting) services, the primary purpose of which is to improve client’s use of its capabilities and
resources to achieve the objectives of the organization.

Three objectives of management accounting:

1. To provide information for costing services, products and other objects of interest to
management.
2. To provide information for planning, controlling, evaluation, and continuous improvement.
3. To provide information for decision making.

How Managerial Accounting Adds Value:

1. Provides managers with information (e.g., product costs, budgets, cash flows). The
information includes financial and nonfinancial data to help managers with strategic planning
and decision making.
2. Assists in directing and controlling activities.
3. Motivates managers to achieve the organization’s goals by communicating the plans, providing
a measurement of how well the plan was achieved, and prompting an explanation of
deviations from plans.
4. Measures performance not only for the entire organization, as in financial accounting, but also
for many subunits (divisions, departments, managers).
5. Assesses the organization’s competitive position in the rapidly changing business environment.
Looks at how well the firm is doing internally, in the eyes of its customers, from the standpoint
of innovation and continuous improvement, and financially.

Distinctions between Management Accounting and Financial Accounting

Management Accounting Financial Accounting
Targeted user Internal users External Users
Restrictions No mandatory rules for Must follow GAAP
preparing reports
Types of information Financial and nonfinancial Financial information
Time orientation Emphasizes the future Historical orientation
Aggregation Detailed information about Information about overall firm
product lines, departments, etc. performance
Measurement Any measurement not Measured in monetary value
necessarily money

In general, accounting information needed by internal users differs from that needed by external users
in the following ways:
1. More flexible
2. Does not have to comply with GAAP or other rules
3. Forward looking
4. Timely
5. Emphasizes segments, not necessarily the entire organization

Role of Accountants and Treasurer

The chief financial officer (CFO) or controller is the chief accountant responsible for:
 The supervision of the accounting department
 Preparation of reports
 The interpretation of information to line managers

The treasurer is responsible for:

 Raising capital
 Safeguarding assets
 Managing investments
 Insurance coverage
 Credit policy of the organization

LINE personnel are directly involved in carrying out the mission of the organization (e.g., assembly
workers in a factory, doctors in a hospital, teachers in a school).

STAFF personnel (accountants, lawyers, personnel directors, and other administrative position)
provide support for the organization’s mission.

CHARACTERISTICS OF MANAGERIAL ACCOUNTING REPORT

1. Relevance
2. Timeliness
3. Accuracy
4. Clarity
5. Conciseness

Jasmin May P. Baniaga, CPA, CMA, MBA Page 1

Mastery of Management Services
Overview of Management Acctng

MANAGEMENT ADVISORY SERVICES PRACTICE STANDARDS:

1. Personal Characteristics
a. a. Integrity c. Independence
b. Objectivity
2. Competence
a. Analytical proficiency
b. Knowledge and techniques
3. Due Care
4. Client Benefit
5. Understanding with the client
6. Planning, Supervision and Control
7. Sufficient relevant data
8. Communication of results

ETHICAL CONSIDERATIONS IN MANAGEMENT ADVISORY SERVICES:

Professional limitations or restrictions imposed by the ethical codes:
a. Solicitation of clients and encroachment.
b. Advertising
c. Use of the CPA's name
d. Division of profits and fees with the laity
e. Incompatible occupation (independence/integrity)
f. Contingent fees
g. Competitive fees
h. Forecasts

STAGES IN MAS ENGAGEMENT:

1. Negotiating the engagement
2. Preparing for and starting the engagement
3. Conducting the engagement
4. Preparing and presenting the report and recommendations.
5. Implementing the engagement
6. Evaluating the engagement
7. Post-engagement follow-up

CONFIRMATION OF THE UNDERSTANDING IN WRITING:

a. Letter of Proposal
A letter of proposal includes the following:
1. The objectives and benefits of the engagement
2. The scope of the work and the role of the CPA
3. The approach to the study
4. The project organization
5. Fees and billing arrangements
6. Firm qualifications where appropriate

b. Letter of Agreement

ENGAGEMENT PROGRAM - a detailed plan, usually in writing, for carrying out a management
services engagement.
a. Contents of an Engagement Program
1. The objectives and description of each task to be accomplished
2. A description of tangible output required at completion of each task
3. A list of the manpower required
4. A list of the personnel assigned
5. The starting and completion dates

b. Conducting the Engagement

In general, the conduct of an engagement may be divided in two phases:
1. Gathering of data, and
2. Evaluating or analyzing the data gathered

c. Standard Techniques Utilized by Consultants in Fact-Finding:

1. Personal interviews
2. Document reviews
3. Previous studies
4. Observations
5. Charting

PREPARING AND PRESENTING THE REPORT AND RECOMMENDATIONS:

a. Interim report
b. Final report
1. Long form report
2. Short-report Letter

Jasmin May P. Baniaga, CPA, CMA, MBA Page 2

Mastery of Management Services
Overview of Management Acctng

MAS BY CERTIFIED PUBLIC ACCOUNTANTS (CPA’s)

CPA’s performing MAS are considered in the practice of accountancy and are bound by the
Code of Ethics for Professional Accountants.

ESSENTIAL ATTRIBUTES THAT MAKE A CPA QUALIFIED TO RENDER MAS

 Technical competence
 Familiarity with the clients finance and control systems and business problems
 Analytical ability and experience in problem solution
 Professional independence, objectivity and integrity

SCOPE OF MAS BY CPA’s

MAS are usually related to the services rendered by CPA’s in the areas of auditing, tax, and
accounting, and may involve activities such as:
 Counselling management in its analysis, planning, organizing, operating, and controlling
functions.
 Reviewing and suggesting improvements of policies, procedures, systems, methods, and
organizational relationships.
 Introducing new ideas, concepts, and methods to management
 Conducting special studies, proposing plans and programs, and providing guidance and
technical assistance in their implementation.

ADVANTAGES OF CPA’s OVER OTHER PROFESSIONALS IN MAS PRACTICE

 They are already familiar with the client and its business, and enjoy the client’s confidence
 They are members of a profession with recognized standing and equipped with technical
know-how in accounting and taxation

TYPES OF CLIENTS SERVED BY CPA’s IN MAS ENGAGEMENTS

1. Private-owned business firms
2. Governmental agencies and organizations
3. Not-for profit non-governmental organizations
4. Professional associations or organizations
5. Others (labor unions, religious organizations)

VARIOUS TYPES OF MANAGEMENT ADVISORY SERVICES BY CPA’s

1. MANAGERIAL ACCOUNTING-RELATED SERVICES=this involves providing assistance to
management related to planning and controlling business operations as well as decision-
making. Examples are cost reduction studies, cost accounting systems, financial statement
analysis, budgeting and their preparation, variance analysis and responsibility accounting.

2. FINANCIAL MANAGEMENT-RELATED SERVICES=this involves the study of working capital

and long-term capital requirements as well as analysis and study of capital investment
proposals. Examples are capital budgeting, working capital management, study on cost of
capital and optimal capital structure.

3. DESIGNS AND APPRAISAL OF ACCOUTING SYSTEM=this involves development of an

accounting system for a newly organized firm or the revision, partial or complete, of an
existing accounting system. Examples are systems engagement and accounting software
selection and implementation.

4. GLOBAL-RISK MANAGEMENT SOLUTION=this involves managing the totality of risks-

financial, operational and systems, and strategic to improve financial and business
performance. Examples are financial risk management, strategic risk management; systems
risk management, compliance risk management and internal audit services.

5. TRANSACTION SERVICE=this involves services related to mergers, acquisition, divestitures,

joint ventures and strategic alliances. Examples are due diligence services to uncover
potential financial and strategic risks and rewards.

6. OTHER SERVICES:
 Project feasibility studies
 Operations research (quantitative methods)
 Industrial engineering
 Financial advisory services
 Project finance and privatization
 Valuation services
 Business recovery services
 Dispute analysis and investigations
 Computer risk management
 Organizational management and marketing consultation

Jasmin May P. Baniaga, CPA, CMA, MBA Page 3