Topic 1

Topics
• Nature and scope of management services as a professional practice in accountancy
• Importance of analytical approach & process to MS practice
• MS Practice Standards
• MS Engagement Process
• Characteristics of MS engagements
• MS proposal letter
• MS engagement work program
• Billing clients in MS engagements
• Importance of MS practice in changing business environment

MS Profession in numbers for 2021

Consulting/Advisory Revenues Total

Deloitte $20B $50B
PWC 17B 45B
EY 16B 40B
KPMG 14B 32B
TOTAL $67B $167B
% of Consulting/Advisory Revenues over Total = 67/167 = 40%

Advisory as an accountancy field-common name

• Management services
• Advisory services
• Business advisory services
• Financial and advisory services

The market demands for innovative services

• The increasing complications in terms of customer behavior, demands, need and wants, whether discovered or created, have contributed to a great shift in managing
organizations.
 Business organizations have gradually geared towards service orientation not just in terms of product quality but more in terms of processes- on how the service is delivered.
• Organizational structures, systems, and processes are redesigned to meet and beat competition, not to exist but to survive.
•Technological revolution has deeply influenced the way things are done in a society, organization and at individual levels
• Convenience & comfort became the major aspirations for technological innovations and improvements.
• Converging of markets globally has made business operations even more complex (EU, NAFTA, ASEAN, APEC)
 World Trade Organization (WTO) has been playing a dominant role in integrating tariff, trade and services among its member countries.
 Tariff rates are envisioned to be eliminated in the coming years by gradual reduction in rates over a period of time.
 Professional and technical services are now in stage of unification where MRA (mutual recognition agreements) among member nations are starting to be in place.
 International trade is expected to be more fluid and free flowing.
• The intensity of meeting business survival and beating competition led managers to improve their processes
• Because of this, advisory/consulting services are in high demand

Reasons for emergence & growth of MS Consultancy

• Growth in size and complexity of business firms
• Complexity in managing and conducting a business
• Lack of competent staff
• Trend towards industrialization
• Need for adequate and timely information in decision-making
• Development of techniques to solve management problems & businessmen’s awareness of their usefulness

Foundation of Management Services

• Section 4 of RA 9298 or the Philippine Accountancy Act of 2004 states that:
“Section 4. Scope of Practice - The practice of accountancy shall include, but not limited to, the following:
a) Practice of Public Accountancy
b) Practice in Commerce and Industry
c) Practice in Education/Academe
d) Practice in Government

Management Advisory Services- practice of accounting concerned with providing advice and technical assistance to help management improve the use of resources in achieving
organizational goals. It primarily serves the needs of top management
Advisor or consultant- the CPA who practices MAS work
The manager as the MS client
• Management is entrusted with organizational resources to make wealth.
Governance- being the duty of the BOD, is engaged in setting the strategic goals and policies of the enterprise.
• Management puts in the structure, develops operating standards or systems and executes plans to achieve firm goals
• Manager or Management Team is entrusted to increase the wealth of the business
• Management is facing inherent & uncontrollable risks
• Management is always involved in decision-making activities
In these activities, management may get the services of independent professional advisor.

The CPA as advisor or consultant

• The practice of management advisory services arises when an independent CPA is contracted by a manager to render his professional and business expertise to help define
problems and recommend solutions, except those covered in auditing, assurance, tax and legal services.
• The job of an advisor is to provide advice and technical assistance to managers.
• The professional practicing in the field of accountancy should introduce himself as a certified public accountant (CPA)
• He should not introduce himself as tax expert, financial auditing expert, legal expert, management expert and the like.

Analytical approach and process

 “Typically involves more than an incident effort devoted to some combination of activities in determining client objectives, fact- finding, opportunity, problem definition,
evaluation of alternatives, formulation and follow-up.”
 Systematic, objective, and rational method of solving organizational problems
• It involves a professional competence to find facts and define the basic problem (not the symptoms), identify alternative solutions, and to adopt the most applicable solution under
the circumstances.
Phases in Analytical Approach & Process …(continued)
Analysis Stage
1. Ascertaining the pertinent facts and circumstances
2. Seeking and identifying objectives
3. Defining the problem or opportunity for improvement
Design Stage
4. Evaluating and determining possible solutions
5. Evaluating findings and recommendations
Implementation Stage
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

MAS engagements
• Full scope engagements – covers all 7 phases of the analytical approach and process
• Special study engagements – involve only the first 5 phases of the analytical approach and process
Role of Consultant – limited to that of an advisor; in the implementation stage, his role is merely to provide technical assistance
Role of Client – supply pertinent information and make the decision on the case

Areas of MS Practice
• Operational advice - counseling management in its analysis, planning, organizing, operating, and controlling functions.
• Special studies - conducting special studies, proposing plans and programs and providing guidance and technical assistance in their implementation.
• Organizational analysis - reviewing and suggesting improvement of policies, procedures, systems, methods, and organizational relationships.
• Innovations - introducing new approaches, methods, techniques, and concepts to management.

Areas of Advisory Services:

Pioneering consultancy services
1. those relating to finance and accounting - include financial accounting,
management accounting, and finance management.
2. those not relating to finance and accounting - include all other areas rendered in the field of advisory services such as:
a. General management
b. Project feasibility studies
c. Organization and personnel
d. Industrial Engineering
e. Marketing
f. Operating research

Emerging consultancy services

Management consulting Transaction and restructuring Risk Consulting

1. Business performance services 1. corporate finance 1. accounting advisory services
2. Business effectiveness 2. restructuring services 2. financial risk management
3. Financial management 3. transaction services 3. forensic
4. people and change 4. forensic services 4. internal audit, risk, and compliance services
 5. IT advisory services
Usual services
 Evaluation of form of business organization
 Analysis of financial and operating statements
 Design and installation of accounting systems
 Design of filing systems for storing accounting
records
 Suggestions for improvements in internal control
5. valuation services
6. business recovery services
7. investment advisory services
MAS Classifications based on required expertise
Somewhat specialized services
 Assisting in the installation of mechanized
accounting system
 Making a cost analysis of operations
 Finding sources of capital and figuring the
appropriate cost of small business loans, bond issue
and stock issuance
 Giving advice on dividend policy and plans for
expansion
 Calculations on government contracts and allocating
costs in compliance with reporting
5. global risk and management solutions
6. dispute analysis and investigations
Highly specialized services
 Reviewing the organization structure
 Auditing management policies
 Conducting motion studies
 Surveying an industry for current trends
 Evaluating the desirability of a particular area for
plant location
  requirements
 Establishment of control to assist management and  Advising on accounting and tax matters relative to  Preparing market analysis
expedite audit process estate planning
 Preparation of insurance claims in case of business  Surveying credit losses  Reviewing an insurance program
interruption
 Advising on date processing allocation

Standards in the conduct of his work

• Moral standards - governed by spiritual laws, canons, societal beliefs, and traditions that define acceptable relationship with his creator and his environment.
• Ethical standards - relates to relationship with client, colleagues, fellowmen, and the society in general. Has Code of Ethics for Professional Accountants in the
Philippines
• Legal standards - meant to promote compliance, fairness, and justice to all men. Professionals have the Constitution, or equivalent legal document, of his country to serve
as the primary guide in respecting legal standards. (RA 9298)

MAS Practice Standards

Controlling/General Standards Technical Standards
 Professional competence  Role of MAS Practitioner
 Due professional care  Understanding with the client (nature, scope & limitations of engagement)
 Planning and supervision  Client benefit
 Sufficient relevant data  Communication of results
Technical Standards
 A professional accountant should carry out professional services in accordance with the relevant technical and professional standards.
 They should also conform with the technical and professional standards of the following:
 Board of Accountancy/ Professional Regulation Commission
 Securities and Exchange Commission
 Auditing Standards and Practices Council
 Accounting Standards Council
 Relevant legislation
Fundamental principles for CPAs in the Philippines
 Integrity - to be straightforward and honest in all professional and business relationships.
- it is a hallmark of the accounting profession
- an outward process

 Objectivity - to not allow bias, conflict of interest or undue influence of others to override professional or business judgments
- information should be truthful & verifiable
- state of mind, a quality that lends value to a member’s services.
- distinguishing feature of the profession
- practicing the principle of balance and the pursuit of truth
- information strictly held confidential
- inward-outward process

 Professional competence and due care - to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent
professional services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and
professional standards.
- due care, competence, diligence
Professional competence- practitioner’s technical qualifications
- intelligence, expertise, and required skills acquired through formal and programmed training and through non-programmed and non-formal experiences
as well
Competence- process applied in an engagement and is paramount in the practitioner’s work.
Due professional care- exercise competence and utmost care from the date the engagement is being negotiated with the client.
 - requires professional integrity
- diligence and appropriate attention carrying an assignment
Confidentiality - to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to
third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the
professional accountant or third parties.

Professional behavior - to comply with relevant laws and regulations and avoid any action that discredits the profession.
- act in a manner consistent with the good reputation

Application of Professional Judgment

Professional Judgment must be used in applying Statement on Standards for Consulting Services in a specific instance since the oral or written understanding with the client may
establish constraints within which services are to be provided.

MAS engagement negotiation- involves preliminary discussions with the client to determine whether the proposed engagement should be pursued to reacjh a common
understanding
MS Engagement Process
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.

Engagement Planning
 A work program should be developed.
  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 - the process of collecting sufficient relevant information about the engagement problem which includes identifying the data to be collected, locating the
sources of the data needed, and documenting the said data and the process of gathering it.
 Data analysis - the systematic and logical evaluation of information in view of developing and recommending a course of the action at the end, in relation with the problem
being studied.

Presentation of Engagement Results

 Engagement reports may be presented in oral or written form.
 Oral presentation advantages: on-the-spot clarifications and emphasis.
 Written report advantages: reference, complements oral presentation

Implementation of Recommendation
 The advisor's participation is limited on providing technical advice and assistance to the client to maintain objectivity. The following recommendations should also be
considered:
 Client understanding.
  Client decision.
 Client expertise.
 Client ability to maintain the new set-up.

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 client's level of satisfaction in achieving the engagement objectives.

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.
 Post- engagement follow-up 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.

The MS Proposal Letter

 The objectives and benefits of the engagement.
 The scope of the work and the role of the advisor.
 The approach to be used in the study.
 The project plan and organization.
 Fees and billing arrangements.
 Firm's qualifications, when appropriate.
The MS engagement program
normally includes:
 The objectives and description of
 the work to be performed.
 The description of measurable output at the end of the particular work.
 A list and description of required personnel.
 The estimated date of start and completion.

provides the following:

 Distribution of responsibilities.
 Determination of the completion of various parts of the engagement
 Specific approaches and techniques to be undertaken
 Basis for the preparation and comparison of the program reports.
 Specific approaches and techniques to be undertaken
 Basis for preparation and comparison of the program reports

Forecasts
 Forecasts are intellectual approximations of expected outcomes and conditions. Estimates are measured results of future actions and events.
 The practitioner must not vouch for the achievability of the forecasts. Neither should the practitioner allow his name to be used which may lead to the belief that he is
vouching for the achievability of the forecasts.
Role of an MS practitioner
 The role of an MS practitioner is that of an advisor.
 The practitioner must not assume the role of the manager in making decisions.
 He should not take any position which may impair his objectivity in performing the engagement.
 He should always maintain impeccable independence to enable him to render his professional judgment and opinion with utmost objectivity.

Characteristics of an MS engagement
 Service is for management
 Involves problem solving
 Scope is broad
 Future orientation
 Non-recurring
 Highly-qualified staff
 Diversity (involves varied assignments)
 Human relations play a vital role in each engagement

Consultancy Fees
 the costs of consultancy shall be computed based on the consultant's actual services plus a reasonable level of management fee.
 Salaries or billing rates: overhead costs, social charges, management fee
 Reimbursable costs: based on agreed fixed rate or agreed actual costs
 Escalation
Methods of billing clients
 Actual fees charges plus per diem basis
• flat or fixed fee basis
• Retainer fee basis
• Maximum fee basis
• Out-of-pocket expenses