MS CONCEPTS, PRACTICES, AND

STANDARDS

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 names

• Management services
• Advisory services
• Business advisory services
• Financial and advisory services
 The market demands for innovative services
• Increasing complexity of operations have contributed to
changes in managing organizations
• Organizational structures, systems, and processes are
redesigned to meet and beat competition, not to exist but
to survive.
The market demands for innovative services …(continued)

• Technological revolution has deeply influenced the way

things are done in a society, organization and at individual
levels
• Convenience & comfort became the major aspirations
The market demands for innovative services …(continued)

• Converging of markets globally has made business

operations even more complex
• 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
 The manager as the MS client
• Management is entrusted with organizational resources to make
wealth.
• Management puts in the structure, develops operating standards
or systems and executes plans to achieve firm goals
• Management 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 arise
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 CPA as advisor or consultant …(continued)

• 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.”
• 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)

1. Ascertaining the pertinent facts and circumstances

2. Seeking and identifying objectives Analysis Stage
3. Defining the problem or opportunity for improvement
4. Evaluating and determining possible solutions
Design stage
5. Evaluating findings and recommendations

In case the client requests the consultant to proceed, the latter may also be
involved in:
6. Planning and scheduling actions
Implementation stage
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
• Emerging consultancy services
 Pioneering or traditional 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 MS services
• Management • Transaction and • Risk Consulting
consulting restructuring 1. accounting advisory
1. business 1. corporate finance services
performance 2. restructuring services 2. financial risk
services 3. transaction services management
2. business 4. forensic services 3. forensic
effectiveness 4. internal audit, risk, and
5. valuation services
3. financial compliance services
management 6. business recovery
services 5. global risk
4. people and change management solutions
7. investment advisory
5. IT advisory services services 6. dispute analysis and
investigations
 MAS Classifications based on required expertise

• Usual services
• Somewhat specialized services
• Highly specialized 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
• Establishment of control to assist management and expedite audit process
• Preparation of insurance claims in case of business interruption
 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
requirements
• Advising on accounting and tax matters relative to estate planning
• Surveying credit losses
 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
• Preparing market analysis
• Reviewing an insurance program
• 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.
• Legal standards - meant to promote compliance, fairness,
and justice to all men. (RA 9298)
 MAS Practice Standards
• General Standards
• Technical Standards
 Controlling/General Standards
• Professional competence
• Due professional care
• Planning and supervision
• Sufficient relevant data
 Technical Standards
• Role of MAS Practitioner
• Understanding with the client (nature, scope & limitations
of engagement)
• Client benefit
• Communication of results
 Technical standards …(continued)
• 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
From Course Hero
 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
 Fundamental principles for CPAs in the Philippines …(continued)

Objectivity - to not allow bias, conflict of interest or undue

influence of others to override professional or
business judgments.
- information should be truthful & verifiable
 Fundamental principles for CPAs in the Philippines …(continued)

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.
 Fundamental principles for CPAs in the Philippines …(continued)

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.
 Fundamental principles for CPAs in the Philippines …(continued)

Professional behavior - to comply with relevant laws and

regulations and avoid any action that discredits the
profession.
 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.
 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: provides the following:
• The objectives and description of • Distribution of responsibilities.
the work to be performed. • Determination of the completion of
various parts of the engagement
• The description of measurable • Specific approaches and techniques to
output at the end of the particular be undertaken
work. • Basis for the preparation and comparison
• A list and description of required of the program reports.
personnel. • Specific approaches and techniques to
be undertaken
• The estimated date of start and
• Basis for preparation and comparison of
completion. 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
• Maximum fee basis
• Retainer basis
• Out-of-pocket expenses
End