Management Advisory Services

Managerial Accounting
Management Advisory Services
DEFINITION, SCOPE, CHARACTERISTICS, AND PURPOSE OF MANAGEMENT ADVISORY SERVICES
Definition
Management Advisory Services (MAS)
- refers to the practice of accounting concerned with providing advice and technical
assistance to help the management improve the use of resources in achieving
organizational goals (MAS Concepts, Practices, and Standards)
- the function of providing professional advisory (consulting) services, the primary
purpose of which is to improve the clients use of its capabilities and resources to
achieve the objectives of the organization
- sometimes referred to as management services, advisory services, business advisory
services, or management consultancy
Nature and Scope
MAS can relate to areas such as:
- The management functions of analysis, planning, organizing and controlling
- The introduction of new ideas, concepts, and methods to management
- The improvement of policies, procedures, systems, methods, and organizational
relationships
- The application and use of managerial accounting control systems, data processing, and
mathematical techniques and methods
- The conduct of special studies, preparation of recommendations, development of plans
and programs, and provision of advice and technical assistance in their implementation
In providing these advisory services, the CPA, or, the independent accounting firm applies an
analytical approach and process which typically involve:
- Ascertaining the pertinent facts and circumstances
- Seeking and identifying objectives
- Defining the problem or opportunity for improvement
- Evaluating and determining possible solutions
- Presenting findings and recommendations
The MAS consultant may also be involved in:
- Planning and scheduling actions to achieve the desired results
- Advising and providing technical assistance in implementing the recommendation
in combination with knowledge and experience in such areas as:
- Organization and management methods
- Office and management functions
- Systems and procedures
- Data processing methods
- Quantitative methods (mathematics, statistics, etc.)
- Financial management
to produce solutions such as:
- A management information system
- A sales reporting system
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A cost accounting system

A work measurement program
Improved production control
An organizational plan with statements of duties and responsibilities
An electronic data processing system (AICPA, Statement on Mgt. Services No. 1)

Characteristics
1. Services rendered are for the management.
2. It involves problem solving.
3. MAS relates to the future.
4. It is broad in scope.
5. It 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.
Purpose of Management Consultancy
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. provide temporary personnel
f. help improve intra-company communications
g. render an independent opinion
h. help get results
B. EMERGENCE AND GROWTH OF MANAGEMENT CONSULTANCY
The practice of Management Consultancy began with the work of some consultants, described
as industrial engineers, in the field of scientific managements. They started a movement towards the
scientific study of business management through the development of new and better technical skills and
methods of managing and their practical application to specific situations in business and industry.
The need for the professional services of management consultants was brought about by
businessmens increasing and continuous demand for assistance in improving their managerial,
operating, and economic performance.
Generally, the emergence and growth of management consultancy may be attributed to the
following factors:
1. Growth in size and complexity in 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

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6. Development of techniques for the solution of management problems, and the
businessmens awareness of their usefulness
C. AREAS OF MANAGEMENT SERVICES
The advisory services rendered by consultants may be divided into two areas (1) those that
relate to finance and accounting and (2) those that do not relate to finance and accounting

FINANCE AND ACCOUNTING

Financial Accounting
- Financial accounting system design
and development

Management Accounting (i.e., cost acctg.)

- Management accounting system
- Design and development
- Development and establishment
of budgetary controls
- Standard
costs
system
development
- Cost analysis and control
- Variance analysis

Financial Management
- Establishment of capital budgeting
procedures
- Study of cost capital (including
cost of debt)
- Financial analysis for project
studies
- Establishment of operating cash
budgets
- Common stock valuation for
purposes of mergers and sale

NON-FINANCE AND ACCOUNTING

General Management
- Management of operations audit
- Measurement
of
operating
performance
- Mergers and acquisition studies
- Development of compensation
program
- Pension plan review
- Special studies on industry
potential
- Long-range planning
Project feasibility studies
- Preparation of project feasibility
study
- Preparation of business plan
- Evaluation of project studys
major assumptions
- Evaluation of project studys
general managements aspects,
marketing
aspects,
technical
(engineering) aspects, financial
aspects, and sociodesirability
aspects
Organization and personnel
- Services of existing organizational
structure
- Organization and administrative
manual preparation
- Job
evaluation
and
salary
administration
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Development of personnel rating

program
Retirement plan benefits
Studies of office cost reduction
systems
Determining cost of alternative in
collective bargaining agreements

Industrial engineering
- Production planning, scheduling
and control
- Plant layout studies
- Materials control system, design
and development
- Preventive maintenance system,
design and development
- Development of work standards
- Purchasing management including
value analysis

Marketing
- Product profitability analysis
- Pricing policy and determination
- Marketing forecasting
- Distribution cost analysis
- Salesmens
incentive
compensation evaluation

Operating research
- Involves the use of mathematical
techniques
like
linear
programming,
dynamic
programming,
Gantt
chart,
PERT/CPM,
queuing
theory,
simulation analysis, regression
analysis, forecasting models, and
others to solve operational
problems

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D. MANAGEMENT ADVISORY SERVICES PRACTICE STANDARDS
Professional standards have been developed and written with respect to the CPAs practice in
the field of management advisory services. The American Institute of Certified Public Accountants
Management Advisory Division have promulgated eight (8) MAS Practice Standards.
The first three are general standards that set the personal qualification for the practitioner and
his orientation n the professional practice. The last five standards establish the practitioners
relationship with his client and his attitude towards work.
Practice Standard 1
PERSONAL CHARACTERISTICS. In performing Management Advisory Services, a practitioner must act
with integrity and objectivity and the independent in mental attitude.
The important personal characteristics of a CPA practitioner are integrity, objectivity and independence
in mental attitude.
Integrity - the process applied in the engagement and the corresponding results thereof are free from
deliberate distortions of information and misstatements. Integrity is a hallmark in accounting profession.
Objectivity - refers to the fairness in approach in the conduct of the engagement and in the
presentation of the results. It involves impartiality and freedom from bias. It firm ups the purpose of the
professionals performance. Objectivity is an intrinsic mental value. It involves practicing the principle of
balance and the pursuit of truth.
Independence in mental attitude - is the practitioners ability to maintain impartiality and clarity in
performing his task to attain his professional objective.
Practice Standard 2
COMPETENCE. Engagements are to be performed by practitioner having competence in the analytical
approach and process, and in the technical subject matter under consideration.
Competence - refers to the practitioners technical qualification to perform the engagement. It
measures expertise and required skills to perform an act. It is acquired through formal and programmed
training and through non-programmed and non-formal experiences as well.
Professional competence means the ability to:
Identify and define clients needs
Select and supervise appropriate staff
Apply an analytical approach and process appropriate to the engagement
Apply knowledge of the technical subject matter under consideration
Communicate recommendations effectively, when required, assist in implementing
recommendations.

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Professional competence - refers to the practitioners personal quality and the quality of his work. It also
refers to his technical qualification to negotiate with the client, organize and supervise the engagement
team, use analytical approach and process for data gathering and data analysis, and deliver results to
the satisfaction of the client.
Practice Standard 3.
DUE CARE. Due professional care is to be exercised in the performance of Management Advisory Services
engagement.
Due professional care must be exercised at all times. Due care reflects the ability of the
practitioner to exercise competence and utmost care from the date the engagement is being negotiated
with the client, to the definition of clients problem and needs, formation of engagement team,
development of engagement programs, supervision of personnel, preparation of reports, presentation
of output to the client, and up to the post-evaluation stage.
Due care requires professional integrity of the practitioner in observing the professions standards.
Practice Standard 4.
CLIENT BENEFIT. Before accepting an engagement, a practitioner is to notify the client of any
reservations he has regarding anticipated benefits.
The practitioner should determine what the client wants to achieve from the engagement
before initiating an engagement.
The client should be notified about any reservation that the practitioner has concerning the
realization of the anticipated benefits.
Practice Standard 5.
UNDERSTANDING WITH THE CLIENT. Before undertaking an engagement, a practitioner is to inform the
client of all significant matters relating to the engagement.
Either an oral or written understanding with the client is acceptable. The following matters should
be well understood with the client:
Engagement objectives.
Nature of the services to be performed.
Engagement scope, including areas of client operations to be addressed and limitations, if any.
Respective roles, responsibilities, and relationships of the practitioner, client, and other parties
in the engagement.
Anticipated engagement approaches, major tasks and activities to be performed and methods
to be used.
Work schedule, timing of reports, and fee arrangements.

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Practice Standard 6
PLANNING, SUPERVISION, AND CONTROL. Engagements are to be adequately planned, supervised and
controlled.
Adequate planning and supervision is required to provide reasonable assurance that the work
shall be conducted in accordance with the objectives of the engagement program, professional
standards, and rules of conduct.
Planning involves the preparation of a work program. It is the translation of the engagement
objectives into a concrete list of actions and events to be undertaken within a defined time frame(e.g.,
time schedule).
Practice Standard 7
SUFFICIENT RELEVANT DATA. Sufficient relevant data is to be obtained, documented and evaluated in
developing conclusions and communications.
Sufficiency refers to the quantity or amount of information gathered.
Relevance refers to the reliability or the quality of the information obtained as a basis in making
conclusions and formulating recommendations.
Practice Standard 8
COMMUNICATION OF RESULTS. All significant matters relating to the result of the engagement are to
be communicated to the client.
All significant matters related to the results of the engagement are to be communicated to the
client. Reports may be done at an interim and at the end of the engagement.
E. STAGES IN MANAGEMENT ADVISORY SERVICES (MAS) ENGAGEMENT
The development, execution and conclusion of an MAS engagement involve the following
stages:
1. Engagement negotiation
2. Engagement planning
3. Engagement execution
4. Presentation of engagement results
5. Implementation of recommendation, if applicable
6. Post-engagement follow-up
ENGAGEMENT NEGOTIATION
It involves preliminary discussions with the client to determine whether the proposed engagement
should be pursued to reach a common understanding with the client about the engagement. The
potential benefits the client derives from an engagement normally serves as the main factor whether

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the engagement is to be pursued. Should the client wish to pursue the engagement, the following are
ordinarily performed:
Identify the clients problem(s) and the services to be rendered by the practitioner.
Identify the engagement goals (i.e., report of findings, suggested systems, etc.)
Come to an agreement on the task to be performed by the advisor.
Come to an agreement of the billing.
ENGAGEMENT PLANNING
Preparing for the engagement may include activities such as selecting and briefing the members
of the engagement team that will be sent to the client, and developing an engagement plan or work
program.
Selecting and Briefing Engagement Team Members
Team members should be carefully selected and trained. Team members must meet the
qualifications as required by the engagement. They are chosen based on the criteria of appropriate
technical expertise and experience in order to complete the engagement competently and efficiently.
The Engagement Plan and Work Program
Engagement work program (or engagement program) master plan for the engagement which
serves as the framework for controlling its progress.
A work program should be developed. A work program contains a list of series of tasks to be done in
achieving the engagement objectives. It serves as the basis for scheduling and assigning tasks,
controlling the engagement projects, preparing project progress report, reviewing and evaluating the
project, and billing the client. It also includes:
engagement objectives and scope of work,
engagement approach,
breakdown of tasks/activities to be performed,
staffing requirements and assignment of tasks to the team members,
and schedule of activities.
ENGAGEMENT EXECUTION
This stage involves data gathering and data analysis.
Data gathering it is the process of collecting sufficient relevant information about the engagement
problem which includes (1) identifying the data to be collected, (2) locating the sources of the data
needed, and (3) documenting the said data and the process of gathering it.
Data analysis systematic and logical evaluation of information in view of developing and
recommending a course of action at the end, in relation with the problem being studied.

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Working papers are to be used to document data gathering and analysis. They provide records to the
advisor as reference to support his position, and on any clarification which may arise in the future.
PRESENTATION OF ENGAGEMENT RESULTS
Engagement reports may be presented in oral or written form. The findings, analyses,
conclusions, recommendations relative to the engagement must be presented for useful and more
reasonable decisions.
An oral presentation has the following advantages;
On-the-spot clarifications. It gives the client an opportunity to raise clarifications on the report.
Emphasis. The advisor can direct the clients attention to the significant points in the report,
validity of the conclusions, and the applicability of recommendations contained in the report.
The Written Report
Written report summarizes the advisors findings, analyses, assumptions, conclusions and
recommendations in a concise and organized manner and may be presented either in long or short form
report.
A written report has the following advantages:
Reference. Written report serves as an available reference on file.
Complements oral presentation. Points which are not clarified during the oral presentation may
be referred to and clarified in the written report.
Types of Written Reports
Long form report contains detailed description of all the circumstances connected with the
engagement and is generally issued when the client decides to implement his decisions without
further assistance from the advisor.
Short form (letter-type) report is limited to the advisors key findings and recommendations.
This is usually issued when interim reports were extensively used during the execution stage and
when there was close supervision between the engagement team members and client
personnel.
IMPLEMENTATION OF RECOMMENDATION
The advisors participation is limited on providing technical advice and assistance to the client to
maintain objectivity. In implementing recommendations, the following should be considered:

Client understanding. The client understands the nature and implications of the recommended
course of actions.
Client decision. The client accepts overall responsibility in implementing the chosen course of
action.
Client expertise. The client is expected to have available resources and fully comprehend the
significance of the changes being made during the implementation.
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Client ability to maintain the new set-up. When changes have been fully implemented, the
client is expected to have the knowledge and ability to adequately maintain and operate newly
implemented systems, processes, or procedures.

Major Phases in Implementation

Implementation of a program or system can be broken down into the following major phases:
1. General Design serves as a basic guide in implementation. It shows what kind of system or
program is to be installed or implemented, and indicates, in general terms, the different
activities to be undertaken.
2. Detail Design indicates in detail how the different activities are to be undertaken, including
specific and step-by-step instructions on each stage or operation. In case the consultants
recommendations already include a General Design, preparation of the Detail Design will be the
first phase of the implementation.
3. Testing involves trying out the various elements of a system or program to check if they will
function properly.
4. Conversion involves the retirement of the old system and introduction of the new one.
5. Monitored Performance and Follow-up after formally installing the new system or program,
the same should be closely observed for a reasonable period of time to check if it is functioning
as expected, if the employees have indeed adopted the new system, if the anticipated benefits
are actually being realized, and if the necessary modifications and refinements are considered
and introduced.
ENGAGEMENT EVALUATION
It is done to assess the quality of the work and make any improvements or refinements in work
quality for future engagements. The engagement should be evaluated in terms of clients level of
satisfaction and achieving the engagement objectives. Areas normally evaluated are the following:
engagement proposal
engagement program and schedule
source data and documentation
engagement results
POST-ENGAGEMENT FOLLOW-UP
It is made after a sufficient amount of time has elapsed to ensure that the systems, procedures,
and other recommendations implemented by the client are executed as designed.
It is also done to make the necessary modifications or corrections that may arise from difficulties
encountered due to misunderstanding of instructions or other factors not foreseen during the
implementation stage. It is also performed to send a message that the advisor is ready and able to make
an after-the-sale-service for clients satisfaction.

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