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Acctg 15 - Midterm Lesson Part1 PDF
Acctg 15 - Midterm Lesson Part1 PDF
OVERVIEW OF MANAGEMENT
CONSULTANCY SERVICES BY CPAs
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.
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.
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:
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.
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.
“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.
“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.
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:
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.
and following the client’s decisions to proceed, the independent accounting firm may also be
involved in:
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.
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
The consulting industry is large. Most definitions of consultancy would include the following:
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
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
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.
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.
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.
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.
Future Prospects
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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