CHAPTER 1

OVERVIEW OF MANAGEMENT
CONSULTANCY SERVICES BY CPAs

Introduction to the World of Consulting

Who is a consultant?

A consultant is someone who has expertise in a specific area or areas and offers unbiased opinion
and advice for a fee. The opinion or advice is rendered exclusively in the interests of the client
and can cover review, analysis, recommendation and implementation. A consultant generally
works in conjunction with the resources and personnel of the client but uses employees, sub-
consultants, or others as required for a specific project and in accordance with the agreement.

A consultant is not an employee but an independent contractor usually self-employed, contracted

to perform a short-term or long-term task and may be paid on an hourly, daily or project basis or
other fee arrangement.

Anyone can become a consultant. However, becoming a “successful” consultant could be a

different story. To prosper in consultancy, one has to have expertise that others are willing to pay
for and good business skills. Furthermore, it requires some amount of incentive or motivation for
one to “want” to consult for others.

While many people think of consultants only in terms of the field of professional management
consulting-firms such as Ernst & Young Consulting, Accenture, and others that specialize in
fixing “disintegrating” organizations, the world of consulting is much bigger than that. Anytime
someone pays somebody for his/her unique expertise or advise-he/she is acting as a consultant.

What are reasons for becoming consultants?

Everyone, from all walks of life, with all manner of experience and expectations has reasons for
becoming consultants.

Basically, a consultant is a person with a marketable skill, a perceptive mind, a need for
independence and challenge, an ability to communicate with others and a wish to be an agent of
positive change. In general, the people who go into consulting include:

 People frustrated with their current careers, who see the solutions for problems but are
unable to effectively influence decision-makers.
 People who want a stimulating, dynamic, growing career that satisfies the need for
personal development.
 People dissatisfied with the lack of challenge, opportunity, or creativity in their existing
jobs.
 People graduating from school with training but little experience who wish to work for a
large consulting firm.

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  People who are between jobs and seeking new opportunities and careers
 People who see that they may be laid off and wish to establish themselves in a business
to earn a livelihood; these people may start on a part-time basis while still employed
 Retired people who have expertise and wisdom to offer.
 People who wish to supplement their present income by using their managerial expertise
or technical and academics skills
 People with work experience and industry knowledge or other skills who want to
combine a family life with work at home
 People who understand government operations and the contract process, or who have
built up contracts in government, politics, or industry over the years.

Although many think that money is the main reason people choose to become consultants, that is
not what it is all about. Of course, a lot of people make good money as consultants but to many
people, the benefits of being a consultant go far beyond the size of their bank accounts. Whatever
one’s reason for becoming a consultant, business establishments of all sorts are using consultants
more than ever. In a market research published in 2007 by consulting experts, both consulting
revenues and profits are up and are projected to continue to grow well into the future. One reason
for this is that skilled consultants can be brought into an organization in need. There is no need to
hire someone, pay them high salary and provide them with benefits and even retirement plan.
The most compelling nonmonetary reasons people enter the consulting field are:

1. Sharing their knowledge to help their clients.

2. Building business network and take a step up in one’s corporate career.
3. Having no boss, being independent and making their own decisions.
4. No fear of being laid off.
5. Having a flexible source of income.
6. A means of giving back to the community by providing expertise and assistance in
community-based projects.

To many, a major attraction of becoming a consultant is starting their own consulting firm and
many thousands of consultants have been successful in transitioning to being their own bosses
and lifestyle benefits that result. But of course, starting up one’s consulting firm and keeping it
economically viable is a lot of hard work and risk.

May be the next big question in a prospective consultant’s mind is

“Do I have what it takes to become a consultant?”

One way to find out is to take a “Consulting Challenge Quiz.” This is simple, easy and answered
by respondent closest to his/her personal feelings. Refer to Appendix A if you want to assess
yourself and find out if you possess the qualities required of a consultant.

This book provides you with the guideline to become a successful consultant, whether you are a
beginner who is just getting his business of the ground, or an experienced consultant who wants
to fine-tune his/her already successful practice.

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Evolution of MAS in CPA Firms

Auditing accounting system design and installation, and income tax work have been the
traditional areas of expertise for CPA firms. The field of management consultancy or advisory
services has, however, become a rapidly growing new area. When CPA firms during the course
of an audit discovered problems in a client’s business, it was natural for them to make
suggestions for corrective action. In response, the client often engaged the CPA to make a
thorough investigation of the problem and to recommended new policies and procedures needed
for a solution. Gradually, public accounting firms found themselves becoming more and
involved in management consulting work.

The progressive public accountants have found management consultancy a natural area of
development of their practice because many of these assignments involved planning and control
systems that relied heavily on accounting and related statistical information. In recent years,
responding to the increasing demands of clients for outside assistance, CPA firms have created
separate management advisory service divisions which are staffed by industrial engineers,
lawyers, statisticians, psychologists as well as accountants. The qualifications of management
consultants sometimes include special training and experience, skills and research capabilities to
apply an analytical approach to the solution of management proble3ms.

Because of increasing complexity of business, more and more small and medium-sized
businesses are looking to their auditors for help in the area of controllership. However, as
management advisory services are extended further into other areas, some members of the
profession feel that there is increased pressure against independence of the CPA which cannot
just be taken lightly; in fact, regulatory agenciessuch as the SEC, the Board of Accountancy
through the promulgated Code of Ethics specifically prohibit the CPAs from performing certain
consultancy services to their external audit clients. The accounting firm should therefore strive at
all times to limit itself to providing advice and technical assistance to clients and avoid making
management decisions or taking positions that might impair its objectivity.

Management consulting is a profession whose members provide extremely useful services to

business managers. The profession of management consulting is growing at an accelerating rate
and the end this growth trend is not sight. Everyday new organizations join the ranks of
management consulting clients.

Independent Accounting Firm’s Role in MAS

The role of an independent accounting firm in performing management advisory services is

“to provide advice and technical assistance which should provide for client participation
in the analytical approach and process. Specifying this as the proper role recognizes both the
appropriate place of MAS and the realities of practice. This is the only basis on which the work
should permit it to be done.”

The propriety of this role of advisor is clear if one considers that a consultant is not in a position
to carry out his recommendations since he has no authority to marshal client resources and to

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make management decisions. Should he attempt to do so and allow himself to be placed in such a
role, he ceases to be a consult ant. In short, the accounting firm should avoid making
management decisions or taking positions that might impair the firm’s objectivity.

CPAs Objective in Engaging in MAS

An independent accounting firm’s purpose in engaging in MAS is:

“to utilize the essential qualifications it has available to provide advice and technical
assistance which will enable client management to conduct its affairs more effectively.”

These essential qualifications are based in a part on attributes acquired in conducting other
aspects of practice and include

1) Technical competence.
2) Familiarity with the client’s finance and control systems and his business problems.
3) Analytical ability and experience in problem solution.
4) Professional independence, objectivity and integrity.

Nature of MAS by Independent Accounting Firms

Management advisory services by independent accounting firms can be described as the

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

Management consulting can also be described as an independent and objective advisory service
provided by qualified persons to clients in order to help them identify and analyze management
problems or opportunities. Management consultants also recommended solutions or suggested
actions with respect to these issues and help, when requested, in their implementation.

In essence, management consultants help to effect constructive change in private or public sector
organization through the sound application of substantive and process skills. These activities of
management consultants can involve two types of encounters with clients:

(1) Consultations and

(2) engagements

A consultation normally consists of providing advice and information is provided advice and
information during a short time frame. This advice and/or information is provided orally during
one or more discussions with the client. Sometimes, the advice and/or information will be
definitive when the consultants is fully aware of the situation and possesses sufficient expertise
to require more intensive study or investigation. Often, however, such advice and/or information
will be qualified by stated limitations due to lack of familiarity with underlying technical aspects,
and so on.

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An engagement consists of that form of management advisory or consulting service in which an
analytical approach and process is applied in a study or project. This approach typically involves.

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 are recommendations; and
6) Implementing the solution, if appropriate

and following the client’s decisions to proceed, the independent accounting firm may also be
involved in:

 Planning and scheduling actions to achieve the desired results, and

 Advising and providing technical assistance in implementing,

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.) and
 Financial management,

to produce solutions such as:

 A management information system

 A sales reporting system
 A cost accounting system
 A work measurement program
 Improved production control
 An organization plan with statements of duties and responsibilities, or
 An electronic data processing system.

Rational for Using Management Consultants

Management consultants are generally engaged by key administrators of client organizations

although they are not expected to be as familiar with the organization as are the managers and
administrators. Furthermore, consultants are generally much less costly for the service they
provide than would be a newly hired manager or employee.

A management consultant is hired for at least four valuable reasons:

1. Independent viewpoint
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 A consultant is considered independent, objective and detached to the problems faced by
the organization. These qualifications enable him to see the true nature of the problems
and distinguish between feasible and infeasible solutions. Also, because the consultant is
not involved in the internal policies of the organization, his or her suggestions tend to be
accepted as unbiased.

2. Professional advisor and counselor

An experienced management consultant possesses special knowledge, skills, and a

variety of personal attributes that make him the most desirable candidate to undertake an
engagement involving his area of expertise. Furthermore, an experienced consultant can
introduce new ideas into the organization that were gleamed from other engagements.
Although the law does not restrict the practice of management consultancy only among
CPAs, business firms generally prefer CPAs to act as their management consultant.
Because of the persuasive nature of accounting the academic training and examination
requirement for the CPA certificate, a CPA has a bored base on which to build a
management services practice.

3. Temporary professional service

The use of consultants will be probably less expensive to the company than hiring new
managers or employees to provide professional advisory services. Sometimes,
organizations find themselves short of critical professional resources and management
consultants can in such cases; fill in as temporary professional help.

4. Agent of Change

A management consultant is a catalyst for change. In providing solutions to the client’s

problems, changes may have to be made to the organizational structures, to procedures
and to job responsibilities. These changes are intended to assist managers in the
administration of organizations.

The Consulting Industry

The consulting industry is large. Most definitions of consultancy would include the following:

a) information technology (IT)

b) consulting and system integration
c) corporate strategy
d) operations management
e) human resources management
f) outsourcing

In 2002, for the first time in three decades, the market fell by 6% (Gidron, 2003,
www.feaco2003.com/pdf/gil.gidron.pdf[25 September 2003]) due to a tougher IT market and an

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increased skepticism among consultancy clients following the Enron/Andersen scandal. The net
result has been a reduction in the number of consultants employed and also a reduction in the
average fee rate. The industry however, has grown by leaps and bounds after a flat year in 2003
due to three main factors. These are

1. Increase in demand from industries to bring in specialists to manage non-core activities

when they are needed. globalization and information technology have increased in
complexity and competitiveness of the environment in which business operate and
managers want to stick to their core expertise
2. Continued demand for IT spending. The internet has a major impact on the way many
established industries operate. For example, the airline industry has used e-ticketing to
drive down operating costs.
3. Growth of consulting due to increasing demand from governmental and associated
organizations. Government departments are now outsourcing work and offering tenders
to private firms for capital projects.

Types of Consultancy Firms

IT companies industry has a relatively low concentration. It is fragmented and includes a number
of sectors. In general the trend is for players to be large with global reach of sectors. In general
the trends for players to be large with global reach or small and offering a specialized service.
The main type of consultancy firms are as follows:

a) IT Firms

IT companies have increasingly looked towards consulting as a means of increasing

revenue. The recent trend has been to buy consulting businesses, for example, IBM’s
purchase of PwC Consulting. As a result, IBM has significantly increased its market
shares in consulting businesses.

b) Accounting Firms Offering Consultancy

A major change in U.S according practice occurred following Andersen’s woes and the
consequent implementation of the Sarbanes-Oxley law. Many accountancy firms have
sold off their mainstream consulting operations (particularly IT). Consultancy services
are still offered but they tend to have a narrow focus around financial and transactions
(mergers and acquisition) services.

c) Major Consulting Only Firms

There are a number of large firms with a global reach. They offer a wide range of
services but their core business is consulting. The big names are McKinsey & Co,;
Accenture and Mercer Management Consulting; IBM; Atos KPMG Consulting; Deloitte
Consulting and Cap Gemini Ernst & Young.

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 d) Independents

Many individuals run their own consulting services as sole traders, as small limited
companies and partnerships. They offer a range services, often quite specialized.
Professional bodies such as PICPA offer professional training and accreditation and
provide a forum for all important networking.

Career Structure in Consulting Firms

All management consultancies organize themselves in their own way but they can be quite
hierarchical in their structures especially the larger firms. This structure provides a definite
ladder for gaining experience, building expertise, and developing a career. In practice, teams that
cut across levels of responsibility undertake most consulting projects. Most consultancies, being
team-based, operate with a professional, informal culture. Job titles vary but some of the
common roles (in ascending order of seniority) include the following:

Analysis

Most graduates would start here straight from university or business school. Analysts
are responsible for gathering information and processing it for the consulting team.
Only the large firms offer these positions.

Consultants

These are either analyst who have been promoted after a couple of years of those have
been in industry and have moved to consulting as a career change. Consultants
undertake the evaluation of the client business and make recommendations on its
behalf.

Senior Consultants or Managers

More experienced consultants have responsibility for leading a consulting team

undertaking a project on behalf of a client. They would typically have 3-5 years of
consulting experience and have already demonstrated their ability to take on the
responsibility of running small consulting projects. They would also be more involved
in dealing with members of the client team.

Business Development Managers

Business development managers within the consulting business are responsible for
developing the firm’s products and building its relationship with clients. They will also
be involved in some large, complex consulting projects at a strategic level. Most at this
level would have 5-10 years of consulting experience.

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 Directors (or Partners)

Directors (or partners if a private firm) are the most experienced consultants, who take
a responsibility for the development of the organization as a whole and who lead its
strategic development. They will also maintain contacts with senior personnel in the
client companies and will have overall responsibility for projects. As the most senior in
the organization it would be expected that they would have 10+ years of experience in
this field.

Developing Trends

The practice of management consulting has changed dramatically since the mid 90’s.
Management consultancy now specializes in information systems, automated offices, financial
analysis and modeling budgeting and cost controls, organization structures, personnel
compensation, strategic planning, and the host of other areas. Another trend has been the
improvement of business education. The quality undergraduate and graduate programs in
business are producing better-trained entrants into the ranks of management consulting
profession. As a result of this infusion, management consulting is becoming a catalyst for the
advancement of better management concepts and techniques.

Change in management culture as well as growth in size and complexity of institutions have
likewise propelled the need for management consultants. Competition has forced companies to
re-engineer their inefficient business processes and re-train their work force. Companies have
begun to exercise self- governance where even the lowest unit of employee/worker is
empowered to make decisions and be accountable for those decisions. The flattening or
delayering of the organization runs against the traditional hierarchy of management with hard
and fast internal controls that accountants have grown accustomed to.

Technological developments have occurred at a breathtaking pace in such areas as information

sciences and decision sciences. Computer hardware and software, together with data
communication and robotics represent powerful tools for business management. Globalization
takes place because enhanced telecommunications technology can now substitute physical travel.
More knowledge has become within easy search of many; knowledge literally, can now be at
one’s fingertips as proven by the Internet.

Future Prospects

What do these trends portend for the future of management consulting?

These forces change are deemed to affect any country, any industry and profession. Management
consultancy is not going to be spared from the effects evolving from development and
transformations. a veteran management consultant makes the following predictions:

1. Management consulting will become even more specialized. Consulting firms will need
to continually add new specialties, just as manufacturing firms add new products.

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2. The consultants’ orientation will be towards being an insight-provider, creator and sharer
of information.
3. Management consulting firms will tend either too remain small or to become quite large.
Small firms will prosper by focusing upon narrow areas of specialization while large
firms will have to develop and develop and offer a wide range of services to sustain their
high costs of operations.
4. As consultants grow in number, they will develop more sophisticated means of marketing
their services.
5. Bright graduates of accounting, management and business schools will continue to be
attracted to careers in management consulting.

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