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Module 1 CCA4

The document discusses management advisory services (MAS) provided by CPAs, including definitions of MAS and management consultants, factors for the emergence of MAS consultancy, reasons for hiring management consultants, characteristics and scope of MAS, broad areas of MAS, classifications of MAS based on required expertise, advantages of CPAs over other professionals in providing MAS, the analytical approach and process used in MAS engagements, and the roles of consultants and clients in MAS engagements.

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0% found this document useful (0 votes)
47 views7 pages

Module 1 CCA4

The document discusses management advisory services (MAS) provided by CPAs, including definitions of MAS and management consultants, factors for the emergence of MAS consultancy, reasons for hiring management consultants, characteristics and scope of MAS, broad areas of MAS, classifications of MAS based on required expertise, advantages of CPAs over other professionals in providing MAS, the analytical approach and process used in MAS engagements, and the roles of consultants and clients in MAS engagements.

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tone30412
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We take content rights seriously. If you suspect this is your content, claim it here.
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Colegio de San Gabriel Arcangel

Area E, City of San Jose del Monte, Bulacan

Lesson Module

Course Title: CCA: MANAGEMENT ADVISORY SERVICES Level: Fourth Year


Course Code: CCA3 Lesson No.: 1
Lesson Hours: 2

Subject Matter: BASIC CONSIDERATION IN MAS

Procedures:
A. Motivation

B. Lesson Presentation
Overview of MAS practice by CPA

DEFINITION
 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 growth of MS consultancy


1. Growth in size and complexity of business firms.
2. Complexities in managing ang 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
businessmen’s awareness of their usefulness.

 Reasons for hiring management consultants


a. Help define specific problems and develop solutions.
b. Provide specialized skills and experience.
c. Provide confidential service in which the identity of the client is concealed.
d. Train client personnel
e. Help improve intra-company communications
f. Render an independent opinion
g. Help get results

 MAS by CPA’s
CPA’s performing management consulting and other advisory services are
concerned 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 rather than for third parties
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 CPA’s in the areas of
auditing, tax and accounting and may involve activities such as:
 Counseling management in its analysis, planning, organizing, operating,
and controlling functions
 Reviewing and suggesting improvement in policies, procedures, systems,
methods, and organizational relationships
 Introducing new ideas, concepts, and methods to management and;
 Conducting special studies, proposing plans and programs and providing
guidance and technical assistance in their implementations.
 Broad areas of MASS
A. Areas normally related to the accounting and finance functions:
1. Financial accounting systems design and development
2. Management accounting systems design and development
3. Development ang establishment of Budgetary Controls
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 mergers and sale
B. Areas not normally related to the accounting and finance functions
1. General management consultation
a. Management or operating audit
b. Measurement of operating performance
c. Mergers and acquisition 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 organizational 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 designs and development
f. Development of work standards
g. Purchasing management, including value analysis

5. Marketing
a. Product profitability analysis
b. Pricing policy determination
c. Market forecasting
d. Distribution cost analysis
e. Salesmen’s incentive compensation evaluation
6. Operation research
Involves the use of mathematical techniques such as linear programming,
PERT/CPM, queueing theory, simulation, etc. to solve operational
problems

 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 forecasts and budgets
j. Presentation and explanation of statements
k. Assisting clients in purchase or sale of business
l. Testifying on client’s behalf
m. Determination of the effect of various employee compensation plans on
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 operation
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. Calculations on government contracts and allocating costs in compliance
with reporting requirements
f. Advising on accounting and tax matters relative to estate planning
g. Recruiting accounting and bookkeeping personnel for the client
h. Assisting in bankruptcy and receivership proceedings
i. Surveying credit losses
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 CPA’s over professionals in MAS practice


They are already familiar with the client and his business and enjoy the client’s
confidence.
They are members of a profession with recognized standing and are 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

 Three broad stages


1. Analysis stage – consists 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 – consists of planning and scheduling actions and
advising and providing technical assistance in implementing.

 Role of consultants and clients in MAS engagements


 In full scope engagements
These cover all the seven 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 engagement


Consultant: to proceed through the first five phases of the analytical
process, apply objective judgment to the facts and present findings and
recommendations for 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 practices standards


All CPA’s engage in MAS practice should observe a set of MAS practice
standards, which are classified into general and technical standards. These
practice standards are as follows:

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 to provide a
reasonable basis for making conclusions and formulating recommendations
in relation to the engagement

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

Technical standards
1. Role of MAS practitioner
The practitioner should not assume the role of management or take any
position which may impair the practitioner’s objectivity in performing an
engagement. The practitioner should maintain his independence to enable
him to render his professional judgment and opinion 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


a. Negotiating the engagement
b. Preparing for and starting the engagement
c. Conducting the engagement
d. Preparing and presenting the reports and recommendations
e. Implementing the recommendations
f. Evaluating the engagement
g. Post engagement follow-up

 These stages constitute the specific activities involved in the 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

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