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BASIC CONSIDERATION IN MAS

Management Advisory Services- refers to that area of accounting work concerned


with providing advice and technical assistance to help clients improve the use of
their resources to achieve their goals.

Management Consultant- a person who is qualified by education, experience,


technical ability and temperament to advise or assist businessmen on a
professional basis in identifying, defining, and solving specific management
problems involving the organization, planning, direction, control, and operation
of the firm.

FACTORS FOR THE EMERGENCE AND CONTROL O MS CONSULTANCY

1. Growth in size and complexity of business firms.


2. Complexities in managing and conducting a business.
3. Lack of competent staff.
4. Trend towards industrialization
5. Need for adequate and timely information in management decision-
making.
6. Development of techniques for the solution of management problems and
businessmens awareness of their usefulness

REASONS FOR HIRING MANAGEMENT CONSULTANTS

1. Help define specific problems and develop solutions.


2. Provide specialized skills and experience.
3. Provide confidential service in which the identity of the client is concealed
4. Train client personnel
5. Help improve intra-company communications
6. Render an independent opinion
7. Help get results

MAS BY CPAs- CPAs performing management consulting and other advisory


services are considered in the practice of professional accounting and are bound
by the Code of Ethics for Professional Accountants.

CHARACTERISTICS OF MAS

1. Services are rendered for the management


2. Involves problem solving
3. Relates to the future
4. Broad in scope
5. Involves varied assignments
6. Engagements are usually non-recurring.
7. Engagements require highly qualified staff
8. Human relations play a vital role in each engagement

SCOPE OF MAS
MAS are usually related to the services rendered by CPAs 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 improvement of policies, procedures, systems,
methods and organizational relationship.
- Introducing new ideas, concepts,and methods to management and
- Conducting special studies, proposing plans and programs and providing
guidance and technical assistance in their implementation.

BROAD AREAS OF MAS

a. AREAS WHICH ARE NORMALLY RELATED TO THE ACCOUNTING AND


FINANCE FUNCTION

1. Financial accounting systems design and development

2. Management accounting systems design and development

3. Development and establishment of budgetary control

The field covers the following:

1. Cost accounting

a. Development of standard cost system

b. Cost analysis and control

c. Variance analysis

2. Financial management

a. Establishment of capital budgeting procedures

b. Study of the cost of capital and cost of debt

c. Financial analysis for project studies

d. Establishment of operating and cash budgets

e. Valuation of common stocks for purposes of mergers and sale

B. AREAS WHICH ARE NOT NORMALLY RELATED TO THE ACCOUNTING AND


FINANCE FUNCTIONS:

1. General management consultation

a. Management or operations audit

b. Measurement of operating performance

c. Mergers and acquisitions studies


d. Development of compensation programs

e. Pension plan review

f. Special studies on industry potential

g. Long range planning

2. Project Feasibility Studies

- involves financial. Technical, and marketing evaluation of proposed projects.

3. Organization and Personnel

a. Review of existing organization structure

b. Organization and administrative manual preparation

c. Job evaluation and salary administration

d. Development of personnel rating programs

e. Retirement plan studies

f. Studies of office cost reduction systems

g. Determining cost of alternatives in collective bargaining agreements

4. Industrial Engineering

a. Production, planning, scheduling and control

b. Plant layout studies

c. Inventory management studies

d. Materials control system design and development

e. Preventive maintenance system design and development

f. Development of work studies

g. Purchasing management including value analysis.

5. Marketing

a. Product profitability analysis

b. Pricing policy determination

c. Market forcasting

d. Distribution cost analysis

e. Salesmens Incentive compensation evaluation.


6. Operations Research

- involves the use of mathematical techniques such as linear programming,


PERT/CPM, queuing theory, simulation etc to solve operational problems.

The services listed above are not necessarily exhaustive nor complete. The
practitioner may offer other services not mentioned above depending on the
practitioners competence, experience, technical ability, and professional
integrity to meet or deliver such other services.

MAS CLASSIFICATIONS BASED ON REQUIRED EXPERTISE

1. Usual Services:

a. Evaluation of form of business organization

b. Analysis of financial and operating statements

c. Design and installation of accounting systems

d. Design of filing systems for storing accounting records

e. Suggestions for improvements in internal control

f. Establishment of control to assist management and expedite the audit


process

g. Preparation of insurance claims in case of business interruption

h. Research and evaluation of alternative methods of handling a


transaction for its effect on finance and tax consequences

i. Assistance in the preparation of forecast and budgets

j. Presentation and explanation of statements

k. Assisting clients in purchase and sale of business

l. Testifying on clients behalf

m. Determination of the effect of various employee compensation plans


net income

n. Aid in labor union negotiations.

2. Somewhat specialized services

a. Assisting in the installation of a mechanized accounting system

b. Making a cost analysis of operations

c. Finding sources of capital and figuring the approximate cost of small


business loans, bond issue and stock issuance
d. Giving advice on dividend policy and plans for expansion

e. Calculation on government contracts and allocating cost in compliance


with reporting requirement

f. Advising on accounting and tax matters relative to estate planning

g. Surveying credit losses

h. Assisting in bankruptcy and receivership proceedings

i. Recruiting accounting and bookkeeping personnel for the client

j. Preparing an analysis of paper flow

k. Presenting and analyzing the pros and cons of various retirement and
profit-sharing plans

l. Advising on various wage incentive plans

3. Highly Specialized Services

a. Reviewing the organization structure

b. Auditing management policies

c. Conducting motion studies

d. Surveying an industry of trade for current trends

e. Evaluating the desirability of a particular area for plant location

f. Preparing market analysis

g. Reviewing an insurance program

h. Advising on data processing allocation

ADVANTAGES OF CPAs OVER OTHER PROFESSIONALS IN MAS PRACTICE

- They are already familiar with the client and his business and enjoy the
clients confidence

- They are members of a profession with recognized standing and equipped


with technical know-how in accounting and taxation.

ANALYTICAL APPROACH AND PROCESS

1. Ascertaining the pertinent facts and circumstances

2. Seeking and identifying objectives

3. Defining the problem or opportunity for improvement

4. Evaluating and determining possible solutions


5. Presenting findings and recommendations

In case the client requests the consultant to proceed, the latter may also be
involved in:

6. Planning and scheduling actions

7. Advising and providing technical assistance in implementing

3 BROAD STAGES

1. Analysis stage- consist of ascertaining the pertinent facts and


circumstances, seeking and identifying objectives, and defining the
problem or opportunity for improvement

2. Design stage- consists of evaluating and determining possible solutions


and presenting findings and recommendations

3. Implementation stage- consist of planning and scheduling actions and


advising and providing technical assistance in implementing.

ROLE OF CONSULTNANTS AND CLIENTS IN MAS ENGAGEMENTS

IN FULL SCOPE ENGAGEMENTS. These covers all the 7 phases in the


analytical process.

CONSULTANT: limited to that of an advisor; in the implementation stage,his


role is merely to provide technical assistance.

IN SPECIAL STUDY ENGAGEMENTS. The client seeks only an impartial and


objective study of case and the resulting recommendations. These involve
only the first 5 stages in the analytical process.

CONSULTANT: to provide through the first five phases of the analytical


process, apply objective judgement to the facts, and present findings and
recommendations to the client for decision and further action

CLIENT: to supply pertinent information and to make decision on the case.


Any action beyond the point of decision is solely the responsibility of the
client.

IN INFORMAL ADVICE. Its structure is informal and no presumption should


exist that an extensive study has been performed.

CONSULTANT: to respond as practicable at the moment and express the


basis for the response.

MAS PRACTICE STANDARDS

All CPAs engaged in MAS practice should observe a set of MAS Practice
Standards, which are classified into general and technical standards. These are
as follows:
GENERAL STANDARDS

1. Professional Competence

The MAS practitioner shall undertake only those engagements which he or


his firm can reasonably expect to complete.

2. Due Professional Care

The MAS practitioner shall exercise due professional care when performing
an engagement

3. Planning and Supervision

The MAS practitioner shall adequately plan and supervise an engagement


in a manner that provides reasonable assurance that the work is
conducted in accordance with the understanding with the client and with
the professional standards and rules of conduct

4. Sufficient relevant data

The MAS Practitioner shall obtain sufficient relevant data to complete the
engagement in accordance with the understanding with the client and to
provide a reasonable basis for making conclusions and formulating
recommendations in relation to the engagement

5. Forecast

The MAS practitioner shall not permit his name to be used in connection
with any forecast of future transactions in a manner that may lead to the
belief that the practitioner vouches for the achievability of the forecast

TECHNICAL STANDARDS

1. Role of MAS practitioner

The practitioner should not assume the role of management or take any
position which may impair the practitioners objectivity in performing the
engagement. The practitioner should maintain his independence to enable
him to render his professional judgement and opinions with objectivity. His
main role is that of an adviser.

2. Understanding with the client

A written or oral understanding should be reached with the client


concerning the nature, scope, and limitations of the engagement to be
performed

3. Client benefit

The MAS practitioner should obtain an understanding of the possible


benefits the client wishes to achieve from the engagement before
beginning the work. The practitioner should notify his client of any
reservations he may have concerning the realization of the anticipated
benefits.

4. Communication of results

The MAS practitioner should communicate to the client his principal


findings, conclusions, recommendations or other results of the
engagement including major facts and assumptions used, limitations,
reservations or other qualifications.

STAGES IN MAS ENGAGEMENTS

1. Negotiating the engagement

2. Preparing for and starting the engagement

3. Conducting the engagement

4. Preparing and presenting the reports and recommendations

5. Implementing the recommendations

6. Evaluating the engagement

7. Post enagagement follow-up

These stages constitute the specific activities involved in MAS engagement cycle
which in general terms are the following:

1. Pre engagement considerations

2. Engagement planning

3. Engagement management and execution

4. Engagement conclusion