CHAPTER 5 MAS PRACTICE STANDARDS AND ETHICAL CONSIDERATIONS MAS Practice Standards The AICPA’s Management Advisory Services Division promulgated and recommended the eight standards which will serve as guidelines to all MAS practitioners. These are: 1 Personal Characteristics. In performing Management Advisory Services, a practitioner must act with integrity and objectivity and be independent in mental attitude. Competence. Engagements are to be performed by a practitioner having competence in the analytical approach and process, and in the technical subject matter under consideration. Due Care. Due professional care is to be exercised in the performance of Management Advisory Services engagements. Client Benefit. Before accepting an engagement, a practitioner is to notify the client of any reservations he has regarding anticipated benefits. Understanding with client. Before undertaking an engagement, a practitioner is to inform kis che of all significant matters related to the engagement., Planning, Supervision and Control, Enga; $ ai gements are t planned, supervised and controlled. ‘Fe to be adequately Sufficient Relevant Data. Sufficient relevant. dat ta documented, and evaluated in developing s mh ttined, . concjusi recommendations. onclusions and Communication of Results. All significant matters Telating to the result Sul of the engagement are to be communitated to the client,MAS Practice Standards and Ethical Considerations 71 Personal Characteristics Standard No. I. In performing Management Advisory Services, a practitioner must act with integrity and objectivity and be independent in mental attitude. J, \ The CPA, while performing Management Advisory Services, practices in a unique professional environment, evolving from his traditional role in the attestation to the fairness of financial statements. ‘megrity is a highly personal characteristic which ensures, that practitioner's 3 statements of findings and recommendations ae free of intentional distortions or misstatements, Objectivity is is the ability to avoid bias and to maintain an impartial attitade on ail matters under review. A practitioner may undertake only those engagements in which he can maintain an independent mental attitude. This requirement is based on the practitioner's obligation to the client ard on the need to avoid impairment of public confidence in the profession. x 3 the role which a practitioner assumes in a management advisory service "engagement is fundamental to his maintaining integrity, objectivity and-an independent mentai attitude. In all aspects of the practitioner's performance of management advisory services, he must avoid assuming the role of management, limiting his services to those of an objective researcher, analyst, or advisor, rather than a decision maker. Cunmpeten Standard No. 2. Engagements are to be performed by a practitioner having competence in the analytical approach and process, and in the technical subject matter under consideration. In each technical area in which a practitioner performs management advisory ices,the-services performed are to be of professional quality. Competence in professional work involyes: (a) the technical qualifications of the ners and (b) the ability to supervise the personnel assigned, to evaluate f work performed, and to eccept responsibility to the client for successful completion of the engagement. t_advisory_services is the ability to e tie analytical approach and process, to 1 subject matter under consideration, to Compeierve in_performing_managems71_Chapter 5 _ communicate recommendations effective g the ly, and to assist in implementin recommendations. and maintained through a combination of education and Competence is acquired experience. Education, beyond that which is initially required for admission to the profession, includes formal and informal instruction and self-study. red by personal Experience relates to the knowledge and judgment acquit participation in management advisory services engagements and other business Pits Competence may be augmented by research and by consultation with others. Due Care Standard No. 3, Due professional care is to be exercised in the performance of a management advisory services engagement The concept of ‘due care is concerned with what the practitioner does and how he does it. It involves diligence and appropriate attention in carrying out the assignment. It does require systematic critical review by the practitioner. throughout the engagement of work accomplished and judgment exercised. Due professional care requires that all work be done withi: isi a! a k ne within the provision hi Code of Professional Ethics end other Professicnal Standards a CPAs. la Client Benefit Standard No, 4. Before acceptin: . i : . 4, cepling an engagement, a ner-is fo 4 client of any reservations he has regarding atcipeted| ae Sey Problem definition, identification of obdjecti t be considered in stocuring the engegemens, While none ees the ce benefits are obvious both to the client and to the practtione ee taticpated benefits often requires sufficient exploratory a 7 oe of al leness and also requires the exercise of judgment. osestablish thei quantified in financial or statistical terms, but ‘many ‘thers ee benefits can be fiers are jess tangible. The client’s willingness to ace; jent 8 spt recommendati is abili thes # S endations and his ab it tem, so d be pteeeaeaty by the practitioner, ie ility to implement esta ‘penefits aeree ate recommendations could im ait e ee Potent efits. during the course of the aeerent ee et . ie relationshipis Practice Standards and Ethical Considerations 73 beaween anticipated bene"ts and costs changes significantly, the client sh informed : Uaderstunding with Client Standard Na. §. Before untitertaking an engagement, a practitio his client of all significant matiers related to the engagement, Engagement’s Objectives, (b) its Scope, (c) the Approach, (4) the Rol Personnel, (e) the Maser in which Results are to be Communicated A oreliminary discussion or investigation is generally necessary todé ormation for formulating engagement objectives and identi Seope. 2 engagement objectives reflect the results expected to bedi There should be @ clear expression by the practitioner as to both the engag pijectives and the extent and nurtre of the practitioner's involvement. ity Wed ety ee in developing appropriate recommendations and producing desired: Particular atteniion ‘should be given to inform the client of possible’ consequences of significant constraints uM The +e rol of the practitioner and the client should be defin Where a third party is involved, it is especially important to: establish which party the practitioner or the client assumes responsibility for. third party performance. Definition of :najor tasks to b2 performed, the methods to bé used in reporting engagement status and achievements, and the timing of porting should be established. re snould be established. There should tement as to the content of the end product. : d responsi suis bea Theie should be an expression of wiza work will commence, the estimated °°: completion date, and the fee ard expense arrangements. These matters should bé recorded in writing particularly for engagements of significant duration or itv. This can be done in a formal contract, in a letter of understanding, fe memorandum summarizing the terms of'an oral agreement with the ould a significant aspect of the engagement change as work progress, le a new arrangement wite the client and a written record thereof.ua Chapter S$ Ese Planning, Supervision, and Control Standard No. 6 Engagements are to be adequately planned, supervised and controlled. are based directly on the practitioner's Planning, supervision and control 7 he engagement and as to the role of all understanding with the client as to tl personnel concerned. Planning Planning is the translation of engagement objectives into a structured set of activities and events within a targeted time schedule. The resultant engagement plan is to be used in supervising and controiling the engagement. Supervision Engagement must be performed and supervised by competent personnel. The practitioner in charge must exercise judgment as to the appropriate amount of supervision, based on the experience of the persons involved and the complexity of the engagement Control Effective control requires measurement of Progress in meeting the engagement plan and objectives. Adequate documentations should be maintained to permit measurement and assessment of progress at significant engagements points. . Sufficient Relevant Data Standard No. 7. Sufficient relevant data is to be obtained, documented evalucted in developing conclusions and recommendations, 7 A practitioner must exercise his professi j professional judgment in determini ' . rapes ni ining th yy and amount of data required. Such determinations take into eaeaee tee ne ad scope of the engagement and related circumstances, The ay a reliability of the data, and any limitations with Tespect thereto: ean considered in formulating conclusions. miceMAS Practice Standards and E. al Considerinions 75 The amount and formality of documentation will vary according to the nature and scope of the engagement. The documentation should demonstrate that due care has been exercised. It should record, as appropriate (a) the evidential matter obtained and its source, (b) the alternatives considered and (c) the analytical process leading to specific recommendations. Communications of Results Standard No. 8. All significant matters relating to the results of the engagement are to be communicated to the client. The principal findings, recommendatioris, and accomplishments, and the major assumptions relied upon, should be conveyed to the client, together with any limitations, reservations, or other qualifications. Reports to the client may be written or oral. When a practitioner does not issue a written report to the client, he should prepare a file memorandum documenting the significant recommendations and other pertinent information discussed with the client. Interim Communications Interim communications are desirable. Interim communication encourages the involvement of management, helps preserve managements role as decision maker. and keeps management informed of progress towards the final conclusions, recommendations, and accomplishments. Interim communications should normally summarize (a) findings to date, (b) work accomplished in relation to pian, and (c) when appropriate, tentative recommendations. They are also used to review problems encountered, to obtain management decision, and to reassess priorities. Final Report A final report should be made to the client upon completion of an engagement to ensure that results and recommendations'are communicated. Reports should be Fesponsive to the objectives and scope of the engagement. The nature of work performed and the extent of interim communications will influence the degree of detail of the final report.“16 Chapter 5 ———————— Ethical Considerations Code of Ethics for Professional Acconntants in the Philippines Relevaut to Management Consultancy Services Professional accountants as defined in the Code of Ethics are “those persons who hold a valid certificate issued by the Board of Ac-ountancy (i.c., Certified Public Accountants), whether they be in public practice, (including a sole proprietorship or partnership), industry, commerce, the public secior or education.” The following provisions in the Code of Ethics for Professional Accountants in the Philippines are considered applicable and relevant in providing Management Consultancy services: Fundamental Principles Par 15.In order to achieve the objectives of the accountancy profession, professional accouritants have to’ observe a number of prerequisites or fundamental principles. Fer 16, The fiundemental principles are: © Integrity A professional accountant should be sirsigh:forward and ho: performing professional services. ° Objectivity 7 A professional accountant should be fair and should net allow prejudice or dias, conflict of interest or influence of others to override objectivity. ° Professional Competence and due Care A professional accountant should perform Frofessicnal services with . due care, competence and diligence and hes a conti ing duty tc i ty maintain professional krowledge and skill et a level required { cnsure that @ client or employer recsives the advantage of eee professional service based on up-to-date developments in acti . legislation and techniques. cae caeens ° Confidentiality A professional eccountant should res: i ! s : ; nd respect the confidentiality information acquired during the course of performing eee ries an 1 oF dis inform: i services and should not use or disclose any such informetion withoutPart A— Applicable ta ali Profe: MAS Practice Standards and Ethical Consi wions 77 and speeitic authority or unicss there is a legal or professional right or duty to disclose. Professional Behavior A professional accountant should act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession. The obligation to refrain from any conduct which might bring discredit to the profession requires IFAC member bodies to consider, when developing ethical requirements, the responsibilities of a professional accountant to clients, third parties, other members of the accountancy profession, staff, employers, and the general public. Technical Standards A professional accountant should carry out professional services in accordance with the relevant technical and professional siandards. Professional accountants have a duty’ to carry out with care and skill, the instructions of the client or cmployer insofar as they are compatible with the requirements of integrity, objectivity and, in the case of professioral xecountanty its public practice, independence (see Section 8). {n eddition, they should conform with the technical and professional standards of the followin; ¢ Board of Accountency (BOA}/Professional Regulation Commission (PRC); © Securities end Exchange Commission (SEC) g Standards and Practices Council (ASPC): © Accounting Standards Council (ASC); ° Relevant legislation. sional Accountants SECTION 1 Insegrity and Objectivity Ld Integrity implies aot merely honesty but fair dealing and truthfulness. The principle of objectivity i accoun' poses the obligation on all professional tants to be fair, intellectually honest and free of conflicts of3 serve in many different capacities and should Professional Professional accountants f demonstrate their objectivity in varying circumstances. accountants. in public practice undertake assurance engagements, and render tax and other management advisory services. Other professional accountants prepare financial statements as a subordinate of others, perform intemal auditing services, and serve in financial management capacities in industry, commerce, the public sector and.education. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, professional accountants should protect the integrity of their professional services, and maintain objectivity in their judgment. In selecting the situations and practices to be specifically dealt within ethics requirements relating to objectivity, adequate consideration | should be given to the following factors: (a) Professional accountants are exposed to situations which involve the possibility of pressures being exerted on them. These pressures may impair their objectivity. . (b) It is impracticable to define and prescribe al! such situations where these possible pressures exist. Reasonableness should prevail in establishing standards for identifying relationships that ere likely to. or appear to, impair a professional accountant’s objectivity. (©) Relationships should be avoided which allow prejudi influences of others to override objectivity. bias or (d) Professicnal accouintants have an obligati ae igation to ensui 1a engaged on Professional services adhere to ia * 5 ere objectivity. te principle of (e) Professional accountants should neith I i 7 er accey z i entertainment which might reasonably ers ea vr significant and improger influence on their professional a on hose with whom they deal. Professional accountants aid av ‘a circumstances which would bring their profeesiont cron on disrepute. ‘onal standing into¢ Standards and Ethical Considerations 79 — Yon Konsiderations 79) SECTION 2 Resolution of Ethical Conflicts 21 22 From time to time, professional accountants encounter situations which give rise to conflicts of interest. Such conflicts may arise in a wide variety of ways, mnging from the relatively trivial dilemma to the extreme case of fratd and similar illegal activities. It is not possible to attenipt to itemize a comprehensive check list of potential cases where conflicts of interest might occur. The professional accountant should be constantly conscious of and be alert to factors which give rise to conflicts of interest. [t should be noted that an honest difference of opinion between a professional accountant and another party is not in itself an ethical issue. However, the facts and circumstances of each case need investigation by the parties concerned. It is recognized, however, that there can be particular factors which occur when the responsibilities of a professiona! accountant may conflict with internal or external demands of one type or another. Hence: © There may be the danger of pressure from an overbearing supervisor, manager, Girector cr partner; cr when there are family or personal rélationships which can give rise to the possibility of pressures being exerted upon them. Indeed, relationships or interests which could adversely influence, impair or threaten a professional accountant’s integrity should be discouraged. © A professional «ccountant may be asked to act contrary to technical and/or professional standards. « A question of divided loyalty as between the professional accountant’s superior and the required professional standards of conduct could occur. © Conflict could arise when-misleading information is published which may be to the advantage of the employer or client and which may or may not benefit the professional accountant as a result of such publication. In applying standards of ethical conduct, professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical conflict. When faced with sigaificant ethical issues, professional9 Chapter 5 _ 25 2.6 Furthermore, Philippine local laws, regulations or professional stand: accountants should follow the established policies of the employing organization to seek a resolution of such conflict. If those policies do not resolve the ethical conflict, the following should be considered: ¢ Review the conflict problem with the immediate superior.- If the problem is not resolyed with the immediate superior and the professional accountant determines to go to the next higher managerial level, the immediate superior should be notified of the decision. If it appears that the superior is involved in the conflict problem, the professional accountant should raise the issue with the next higher level of management. When the immediate superior is the Chief Executive Officer (or equivalent), the next higher reviewing level may be the Executive Committee, Trustees, partners” Management Committee. ¢ Seck counseling and advice on’ a confidential basis with an independent advisor or the applicable professional accountancy body or regulatory body to obtain an understanding of possible courses of action. © If the ethical conflict still exists after fully exhausting all levels of internal zeview, the professional accountant as a last resort may have no other recourse on significant matters (e.g, fraud) than to resign and to submit an information memorandum to an appropriate representative of that organization. ards may require certain serious matters to be reported to an external body as an enforcement or regulatory euthority (e.g. BOA/PRC, SEC) Any professional accountant in a senior position should endeavor to ensure that policies are established within his or her employing organization to seek resolution of conflicts. Confidectial counseling and advice should be avai accountants who experience ethical conflicts. to professionalHAS Practice Standards and Ethical Considerations 81 SECTIO® 3 Professional Competence 3.1 3.2 Professional accountants should not_portray themselves _as having expertise or experience they do not possess. Professional competence may be divided into two separate phases: (a) Attainment cf professional competence The attainment of professional competence requires initially a high standard of general education followed by specific education, training and examination in professionally relevant subjects, and whether prescribed or not, a period of work experience. This should be the normal pattern of development for a professional accountant. (b) Maintenance of professional competence ¢ maintenance of professional competence requires a continuing awareness of development in the accountancy profession including relevant national and international pronouncements on accounting, auditing and other relevant regulations and siatutory requirements. (il) & professional ‘auntant should adopt a program designed to x) in the performance cf ‘professional appropriate national and international pronouncements. SECTION 4 Professional accountants have an obligation to respect the confidentiality of information about a client’s or employer's sffeirs acquired in the cours: of professionel services. The duty of confid=ntiality continues even sfter the end of the relationship between the professional accountant and the client or employer.a * §2_Chopter 5 42 43 44 4s 46 47 48 be determined by P by a professional accountant Confidentiality should always be observed L disclose information or there unless specific authority has been given to is a legal or professional duty to disclose. Professional accountants have an obligation ‘to ensure_ that staff under their control and persons from whom advice and assistance are obtained respect the principle of ‘confidentiality Confidentiality is not only a matter of disclosure of information. It also requires that a professional accountant acquiring information in the _ course of performing professional services neither uses nor appear fo use that information for personal advantage or for the adventage of a third party. A professional accountant has access te much confidential information about a client’s or employer's affairs not otherwise disclosed to the public. Therefore, the professional accountant should be relied upon not to make unauthorized disclesures to other persons. This does not apply to disclosure of such information in order properly to discharge the professional accountant’s responsibility according to the profession's standards. It is in the interest of the public and the profession that the profession’s standards relating to confidentiality be defined, and guidance given on the nature and extent of the duty of confidentiality and the circumstances ia which disclosure of information acquired during the course of providing professional services shall be permitted or required. It should be recognized, however, that confidentiality of information is part of statute or law, and therefore, detailed ethical require pine law. The following are exemples of the points which should be considered in determining whether confidential information may be disclosed: disclosure is aut d, When authorization to disclose is given by the client or the’ employer, the interests of all the parties including those third parties whose interests might be affected shouid be considered.Practice Standards and Ethical C (b) When disclosure is required by law. Examples of when a professional accountant is required by law to disclose confidential information ai (i) To produce documents or to give evidence in the course of legal proceedings; and (ji) To disclose to the appropriate public authorities infringements of the law which come to light. (c) When there is a professional duty or right to disclose: (iy ‘© comply with technical standards and ethics requi such disclosure is not contrary to this section; (ii) To protect the professional interests of a professional accountant in legal proceedings; Gii)To comply with the quality review of a member body or professional body; and (iv) To respond to an inquiry or investigation by a member body or regulatory body. 49 When the professional accountant has determined that confidential information cen be disclosed, the following points should be considered: «© Whether or not all the relevant facts are known and substantiated, to the extent it is practicable to do so; when the situation involves unsubstantiated fact or opinion, professional judgment should be used in determining the type of disclosure to be made, if any; © What type of communications is expected and the addressee; in particular, the professional accountant should be satisfied that the parties to whom the communication is addressed are appropriate recipients and have the responsibility to act on it; and ether or not the professional accountant would incur any legal « W ity having made a communication and the consequences thereof,$4 Oke S — Vi all such situations, the professional accountants should consider the pont to constilt Legal counsel and/or the professional regulatory body. SECTION § Indepemdence ss There is a broad range of engagements to provide a high or moderate level of assurance. Such engagements may include: © Engagements to report on a broad range of subject matters cove: financial and non-financial information; * Attest and direct reporting engagements; « & gagements to report internally and exter + Engagements in the private and public sector. S&S The subject mstter of an assurance engagement may take many forms, such as the following: * Dats (for example, historical or prospective financial information, statistical information, performance indicators); © Systems and processes (for example, internal controls); or ® Behavior (for example, corporate governsnce, compliance w regulation, humen resource practices). 86 Not all engagements ferformed by professional accountants are assurance engagements. Other engagements frequently performed by professional accountants thst are not assurance engagements include: * Agreed-upon procedures; * Compilstion of finzacial or cther information, © Preparation of tax retums when no conclusio consulting; is expressed, end tex ¢ Managereat consu! © Other advisory services.MAS Practice Standards and Ethical Considerations 88 B46 Ron-assurance services were provided to the audit client during or after the period covered by the financial statements but before the Humencement of professional services in connection with the audit and those services would be prohivited during the period of the audit engagement, consideration should be given to the threats: to independence, if any, arising from those services. If the threat is other than clearly insignificant, safeguards should be considered and applied a5 necessary to reduce the threat to an acceptable level. Such safeguards might include: * Discussing independence issues related to the provision of the non- assurance services with those charged with governance of the client, such as the audit committee; * Obtaining the audit client’s acknowledgement of responsibility for the results of the nicn-assurance services," + Precluding personnel who provided the non-assurance services from participating in the audit engogement; and + Engaging another firm to review the results of the non-assurance services or having another firm re-perform the non-assurance services to the extent necessary to enable it to take responsibility for those services. 8.47 Non-assurance services provided to a noniisted audit client will not impair the firms indopendence when the client becomes a listed entity provided: * The previous non-assurance services were permissible under this section for non-listed audit clients; "The services will be terminated within a reasonable period of time of the client becoming a listed entity, if they are impermissible under this section for listed audit clients; and «The firm has implemented appropriate safeguards to eliminate any threats to independence arising from the previous services or reduce them to an acceptable level. Provision of Non-Assurance Services to Assurance Clients i ith vit ir lients a range of 8.155 Finns have traditionally provided to their assurance cl ge non-zssurance services thet are consistent with their skills and expertise.86 Chapter 5 - 8.156 8.157 Assurance clients value the benefits that derive from having these firms, who have a good understanding of the business, bring their knowledge and skills to bear in other areas. Furthermore, the provision of such nen- assurance services will often result in the assurance team obtaining information regarding the assurance client’s business and operations that is helpful in relation to the assurance engagement. The greater the knowledge of the assurance client’s business, the better the assurance team will understand the assurance client’s procedures and controls, and the business and financial risks that it faces. The provision of non- assurance services may, however, create threats to the independence of the firm, a network firm or the members of the assurance team, particularly with respect to perceived threats to independence. Consequently, itis necessary to evaluate the significance of any threat created by the provision of such services, In some cases, it may te possible to eliminate or reduce the threat created by application of safeguards, In other cases, no safeguards are avaiizble to reduce the threat to an acceptable level. The foliowing activities would generally create self-interest or self- review threats that are so significant that only avoidance of the activity or refusal to perform the assurence engagement would reduce the threats to an acceptable level: © Authorizing, executing or consummatin: 1 a transaction, or otherwise exercising authority on behalf cf the essurance client, or having the authority to do so; © Determining which recommendation of the firm shou! implemented; and ae ¢ Reporting, in 2 management Tole, to these cheraed with governance. . : The examples set out in Paragrephs 8.163 through 2 i accounting records and financial Statements, et. al) ae ade a context of the provision of non-assurance Services to an assurance i ‘ ‘The potential threats to independence wil! most frequently arise Siar non-assurance service is provided to an audit clicrt. The fini a statements ofan entity provide frencial information sbouta row ns of transactions and events that have affected the entity. Th ibe matter of other assurance services, however, may be limited in aen 81 MAS Practice Standards and Ethical Consider: Treats to inc.pondence, however, may also arise when a firm provides’ =. + & non-assurmce service related to the subject matter of a nomemut! assurance engagement, In such cases, consideration should be given’. 7s... the significance of the firm’s involvement with the subject matter of the! non-audit assurance engagement, whether any self-review threaté's;. created and whether any threats to independence could be reduced'te acceptable level by application of safeguards, or whether the nea. assurance engagement should be declined. When the non-assurinée service is aot related to the subject matter of the non-audit assuranc: gagement, the threats to independence will generally be clearly ificant + Having custody of an assurance client’s assets; ing assurance client employees in the performance of ties; and * Supervis their nermal recurring acti + Preparing source documents or originating data, in electronic or cther form, evidencing the occurrence of a transaction (for example, purchase orders, payroll time records, and customer orders). ‘ence of any threat created should be evaluated and, if the creat is other than clearly insignificant, safeguards should be considered applied as necessary to climinate the threat or reduce it to an accegtable level. Such safeguards might include: *» Making arrangements so that personnel providing such services do noi participate in the assurance engagement, «> Involving an additional professional accountant to advise on the potential impact of the activities on the independence of th: firm and the assurance team; or «© Other relevant safeguards set out in national regulations. ) Mow developments in business, the evolution of financial markets, rapid changes in information technology, and the consequences for management and control, make it impossible to draw up an all-inclusive list of all situations when providing non-assurance services to an88 Chapte assurance client might create threats to independence and of the different safeguards that might eliminate these threats or reduce them to an acceptable level. In general, however, a firm may provide services beyond the assurance engagement provided any threats to independence have been reduced to an acceptable level. 8.160 The following safeguards may be particularly relevant in reducing to an acceptable level threats created by the provision of non-assurance services to assurance clients: ® Policies and procedures to prohibit professional staff from making management decisions for the assurance client, or lity for such decisions; assuming respons jon of non- * Discussing independence issves related to the provi assurance services with those charged with governance, such as the audit committee; © Policies within the assurance client regarding the oversight responsibility for provision of non-assurance services by the firm; © Involving an additional professional accountant to advise on the potential impact of the non-assurance engagement on the independence of the member of the assurance team and the firm; « Involving an additional professional accountant outside of the firm to provide assurance on a discrete aspect of the assurance engagement; * Obtaining the assurance client’s acknowledgement of responsibility for the results of the work performed by the firm; * Disclosing to those charged with governance, such as the audit comiittee, the nature and extent of fees charged; or ° Making arrangements $0 that personnel providin 1g Non-assurance services do not participate in the assurance engagement. 8.161 Before the firm accepts an engagement to provide a non-assurance service to an assurance client, consideration should be given to whether the provision of such a service would create a threat to independence. In situations when a threat created is other than clearly insignificant, the sponrassurance engagement should be declined unless. appropriate8.162 WAS Practice Standards and Ethical Considerations 89 safe n_be applied to eli i applied to eliminate the threat or reduc : acceptable level mete The provision of certain non-assurance services to audit clients may create threats to independence so significant that no safeguard could eliminate the threat or reduce it to an acceptable level. However, the Provision of such services to a related entity, division or discrete financial statement item of such clients may be permissible when any threats to the firm’s independence have been reduced to an acceptable level by arrangements for that related entity, division or discrete financi; statement item to be audited by another firm or when another firm re-performs the non-assurance service to the extent necessary to bie it to take responsibility for that service. * Valuatioa Services vA) 8.174 A valuati coniprises the making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole. \ selfreview threat may be created when a firm or network firms performs a valuation for an audit client that is to be incorporated into the client's financial statements. 1 the valuation services involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, the self-review threat created could not bs reduced to an acceptable level by the application of any safeguard. Accordingly, such valuation services should not be provided or, alternatively, the only course of action would be to withdraw from the audit engagement. Performing valuation services that are neither separately, nor in the aweregate, material to the financial statements, oF that do not involve a Sionificant dearce of subjectivity, may create a self-review threat that sould be reduced to an acceptable level by the-application of safeguards. Such safeguards might include: |90 Chapter 5 _ * Involving an additional professional accountant who was not a member of the assurance team to review the work done or otherwise advise as necessary; © Confirming with ‘the audit client their understanding of the underlying assumptions of the valuation and the methodology to be used and obtaining approval for their use; ¢ Obtaining the audit client’s acknowledgement of responsibility for the results of the work performed by the firm; and 2. Making arrangements so that personnel providing such services do not participate in the audit engagement. In determining whether the above safeguards would be effective, consideration should be given to the following matters: © The extent of the audit client’s knowledge, experience and ability to evaluate the issues concerned, and the extent of their involvement in determining and approving significant matters of judgment; © The degree to which established methodologies and professional guidelines are applied when performing a particular valuation service; * For valuations involving standard or established methodologies, the degree of subjectivity inherent in the item concerned; + The reliability end extent of the underlying data: © The degree of dependence on future events of a nature which could create significant volatility inherent in the arnounts involved; and © The extent and clarity of the disclosures in the financial statements. 8.175 ¥ hen a firm, or a network firms, performs a valuation service for an audit ction te the purposes of making a filing or return to a tax authority, puting an amount of tax due by the assurance client, or for the fee ee this would not create a significant threat 10 independence because such valuations are generally subj a review, for example, by atex authority, att (0 extemal 8.176 When the firm performs a valuation that fo; "ms part of the subject matter of an assurance engagement that is not an audit engagement, the firmtandards and £1 al Considerations 91 should consider any seif-review threats. I the threat is other thai insignificant, safeguards should be cons to eliminate the threat or reduce it to an in clearly dered ond applied as necessary acceptable level. Provision of Taxation Services to Audit Clients 8.177 The firm may be asked to Taxation services comy compliance, Provide taxation services to an audit client. prise a broad range of services, including n Planning, provision of formal taxation opinions and assistance in the resolution of tax disputes. Such assignments are generally not seen to create threats to independence. Provision of Inte I Audit Services to Andit Clien| S 8.178 AS sclfreview threal may be created when a firm, or network firm, provides internal audit services to an audit client. Internal audit services may comprise an extension of the firm's audit service beyond requirements of generally accepted auditing standards, assistance in the performance of a client’s internal audit activities or outsourcing of the activities. In evaluating any threats to independence, the nature of the service wili need to be considered. For this purpose, internal audit services do not include operational internal audit services unrelated to the internal accounting controls, financial systems or financial statements, £179 Services involving an extension of the procedures required to conduct an accordance with Philippine Standards on Auditing would not be considered to impair independence with respect to an audit client provided that the firm’s or network firm’s personne} do not act or appear to act in a capacity equivaient to a member of audit client management. 8.179 When the firm, or a network firm, provides assistance in the performance of a client’s internal audit activities or undertakes the outsourcing of some of the activities, any self-review threat created may ccept: el by ensuring that there is a clear ed to an acceptable leve n t sa clear ca or between the management and control of the internai audit by audit client management and the internal audit activities themselves. i a 8.181 Performing a significant portion of the audit client’s internal audit . ci 2, activ ct a self-review threat, an irm, « firm, ivities may create a self-revie at, and a firm, or networt jities92 Chapter 5 ee should consider the threats and proceed with caution before king on such activities. Appropriate safeguards should be put in place, and the firm, or network firm, should, in particular, ensure that the audit client acknowledges its responsibilities for establishing, maintaining and monitoring the system of internal controls. 8.182 - 8.183 8.184 The provision of services by a firm or network fi Safeguards that should be applied in all-circumstances to reduce any threats created to an acceptable level include ensuring that: (a) The audit client is responsible for internal audi activities and acknowledges its responsibility for establishing, maintaining and monitoring the system of internal controls; (b) The audit client designates a competent employee, preferably within senior management, to be responsible for internal audit activities; (©) The audit client, the audit committee or supervisory body approves the scope, risk and frequency of internal audit work; (d) The audit client is responsible for evaluating and determining which recommendations of the firm should be implemented; (e) The andit client evaluates the adequacy of the intemal audit Procedures performed ‘and the findings resulting from the performance of those procedures by, among other things, obtaini and acting on reports from the firm: and (f) The findings and recommendations resulting from the internal audit activities are reported appropriately to the audit committee or supervisory body. : Consideration should also be given to whether such non-assurance services should be provided only by personnel not involved in the audit engagement and with differeat reporting lines within the firm. Provision of IT Systems Services to Audit Clients at invol a Fi im to an audit clie1 that invoive the Gcsign and implementation of financial information technology systems that are used to generate information formiag pa f aclient’s financial statements may create a selfreview thane eet8.186 8.187 8.188 provision of such services to an a safeguards ere put in place ensuring that (a) The audit client acknowledges its responsibility for establishing. andy ir monitoring a system of internal controls; (b) The audit client designates a competent employee, preferably within’ senior management, with the responsibility to make all management ' decisions with respect 10 the design and implementation of the ardware or software system; (c) The audit client makes all management decisions with respect to the design and implementation process; lequacy and results of the design and (4) ‘The audit © i and aplement stem audit client is responsible for the operation of the system ware of software) and the data used or generated by the system. fh to Whether such non-assurance rsonnel not invoived in the audit ines within the firm, Consideration should al. ervices should be provided only by per engagement and with different reporting | in of services by a firm or network firm io an audit client e either the design or the implementation of financial logy systems that are used to generate information forming part of a client’s financial statements may also create a self- review threat. The significance of the threat, if any, should be evaluated and, if the threat is other than clearly insignificant, safeguards should be considered and applied 2s necessary to eliminate the threat or reduce it to an acceptable level. The provisic The provision cf services in connection with the assessment, design and implementation of internal accounting controls and tisk management controls are not considered to create a threat to independence provided that firm or network firm personnel do not perform management functions.Recruiting Senior Management 8.200 The recruitment of senior management for an assurance client, such as those in a position to, affect the subject of the assurance engagement, may create current or future self-interest, familiarity and intimidation threats. The significance of the threat will depend upon factors such as: © The role of the person to be recruited; and The nature of the assistance sought. Thke firm could generally provide such services as reviewing the professional qualifications of a number of applicants and provide advice on their suitability for the post. In addition, the firm could generally produce a short-list of candidates for interview, provided it has been drawn up using criteria specified by the assurance client, The significance of the threat created should be evaiuated and, if the threat is other than clearly insignificant, safeguards should be considered and applied as necessary to reduce the threat to an acceptable level, In ali cases, the firm should not make management decisions and the decision as to whom to hire should be left to the client: Corporate Finance and Similar Activities 8.201 The provision of corporate finance services, advice or assistance to an assurance client may create advocacy and self-review threats. In the case of certain corporate finance services, the independence threats created would be so significant no safeguards could be applied to reduce the threats to an acceptable level. For example, promoting, dealing in, or underwriting of an assurance cliént’s shares is not compatible with providing assurance services. Moreover, ‘committing the assurance client to ths terms of a transaction or consummating a transaction 1 behalf of the client would create a threat to independence so signifi 7 no safeguard could reduce the threat to an acceptable level. nee of. an audit client the provision of those corporate finance vices acid to above by a firm or a network firm would create a treatia independence re in a re ~ significant no safeguard could reduce the threat to an@ tical Considerations 95 Some FAhie 4s a consultant achieves multidimensional growth and the firm prospers, the nature of the problems and challenges he faces evolves. At the outset of his consulting career, he would be typically concerned about cash flow, marketing, - and developing the ex 5 r r Pertise required to complete more diverse assignments. In midcarcer during the firm’s dramatic growth, the issues become those of finding the right alliance partners, developing long-term relationships and establishing Proper fee levels. Once the firm becomes a going concer, some ethical challenges become the unique issnes related to its success. How would you LIfe possibe : nnd to these challenges? id, should he simp even worry about perceived val harge the highest fee Ne A consuitant says that he travels first class, stays on the concierge floor of the best hotels and prefers limousines over taxis. He believes that he is worth it and es longas he is honest about it, the client should be billed for bis normal travel preferences. A consultant is seeing three clienis on a certain trip. He says thet if he attempts to prorate the expenses, their accounting systems will question the charges. However, if he simply bills each one for the entire airfare not be a single question. He is asking if he shoulda’t make it easier on himself and on the clients and bill each of for 100% since i visit exch one anyway. 4. A competitor of one of the consulant’s largest its wants to hire the consultant because his reputation has been ussociated with his client’s svecess, Is there any problem with taking on competitive organizations? A client offers the consultant first-class airfare to visit its European offices. The consultant says that he can use his free airtine mileage to take his entire family and by cashing in the first-class tickets, pay for their food, lodging and recreation. He believes there is no rae to explain all this to the client since he considers it his personal business. a tions have happened to many consultants. There are no Mest of the above situa “biguous situations when policy and magic answers to ethical dilemmas. In Precedent do rot apply, this author] J 96 Chapter 5 “Do the right thing. You can’t do much better than consistently try todo the right thing.” In each of the above instances, here is what the author would consider the right thing to do. 1. Should You Change the Highest Fees You Can Get Away With? If one is charging on a fee basis and the client is aware of and accepts the fee, the client obviously has determined that the value is worth the investment. However, the following should be observed. a. It is never advisable to overpromise and undeliver. If the consultant is justifying the high investment through extravagant promises and providing only marginal delivery, he is not building long-term potential. b. If the consultant is charging a per diem or a fec based on some other fixed standard, there is never an excuse to charge for anything other than actual hours performed, on-site or off-site. Padding days or hours goes beyond an ethical transgression — it is theft. . Shovld You Travel First Class and Bill the Client? If the client approves of a luxurious travel style, there is no problem. However, the consultant’s primary goal is improve the client’s condition. Does the consultant help fiscally through this kind of expense which anyway has nothing to do with his value or expertise? Does he help credibility through this kind of image with the client’s people? Some suggestions may be helpful in this kind of situation. a. Ifthe client does not offer it, don’t abuse it. b. If one wants to travel first class, use limos and the best hotels cherge the client for economy, taxis and standard hotel rates and shoulder the luxury travel difference out of his personal pocket, c. Even if the consultant is willing to personally pa y E y for the d in travel expense (luxury vs. economy), if the use of limos ova bills causes questions about the “high-priced consultants” ref in from being to0 visible or just if can be helped, travel modesty =nical MAS Practice Standards and ‘onsiderations 97 3. Should You Bill More Than One lient for the Scare Basic Prxpenses? Never double-bill (or, in this case, triple-bill). Send a cover letter with Statemeat of Expetises explaining why the client is being charged one- . third of the full amount on some of the receipt (for example, airfare) and the full arnount on others (for example, car rental fees for days working exclusively for that client). Tum the procedure into an opportunity to demonstrate your faimess and fiscal responsibility toward that client. 4. Should You Ace mpetitor? opt an Assignment from a Client's Basically, there is nothing wrong with working for several clients within the same industry. After all, many prospective clients use “experience in their industry” as a hiring condition. The following criteria may be used in accepting an assignment from a client's competitor: {a) Make it a condition that the consultant will not be asked to do anything that will reveal confidential information; directly or indirectly, (b) Try to assign different personnel to each project. (c) Inform the present client of the competitor's request and the tentative project and ask the client if it wishes the consultant to decline the offer. (d) If the new assinniment is accepted under the preceding criteria, the consultaat shou! not divulge anything leamed to the current client. 5. Should You Use Tickets Supplied by Your Client to Bring Your Spouse Along? While the consultant might think this as his personal business, the tickets are the clients. “Innocent” falsehcods can develop into complicated and unnecessary questions about one’s standards. Either tell the client what one intends to do or he should not do it. if. the consuliant is uncomfortable telling the client about it, the chances are strong that what he is doing is unacceptabie. One of the benefits of building a successful consulting firm is the opportunity and necessity to ponder on develop criteria for or take an action about ethical issues with clients and collengues. Some guidelines that a consultant may find ster he i3 doing the right thing ct set are: Useful in determining:a 98 Chapter 5 1. Does the activity improve the client's condition or merely his own? 2. Is the activity something that one will be comfortable explaining to the client? 3. Is the activity something that the consultant could be proud of and would publicize as a trait? 4. Is there harm being done to anyone without their being able'to respond? 5. Is this treatment something the consultant would willingly subject himself to? The above questions may not just involve simple yes or no answers. But the very act of putting the question to the client may be difficult to help one avoid ethical compromise. Code of Ethics for Management Consultants Code of Conduct for management consvitants represents the attitude, principles and approaches that have been found to contribute most to success and make for equitable and satisfactory client relationship. A summary of the Code of Ethics developed by’ the AICPA, Institute of Managertent Consultants and Association of Management Consulting Firms, to promote the highest quality of performance in the practice of management consultancy is presented below. The common principles found in this Code of Ethics can 1 be broadly classified into four areas: I. Basic responsibilities Il. Practice standards IJ. Fee arrangements IV. Business conduct_ MAS Practice Standards and NSIBILET IES OF MANAGEM! CONSULTAN Ef: ——— Integrity and objectivity 1 0 Not knowingly misrepresent facts and never subordinate Judgment to is others. 2. Place the interests of clients ahead of personal int. i it intogty. per ial Interests and serve the client with 3. Inforn the clients of any special relationships, circumstances, of intere influence judgment or impair objectivity 2 * Srisetests tat might 4, Do not assume tho rolo of management or take any positions that might impair objectivity. ____Indepandonce 1, Take an independant position with tho cliont, making Certain that eavica to a cents based on impartial consideration of all portinent facts and responsible opinions. 2. Do not serve an entorpriso without independence with respect to that enterprise. 3. Do not serve a client under terms or conditions that might impair bjacivity, independence, or integrity. Reserve the right to withdraw if conditions devalop that intorfare with the successful conduct of the assignment. 4. 90 nut serve two or more competing cliants in areas of vital interest without Informing liant. Confidential information 1. Guard as confidential ail information concoming the affairs of a clisnt thet is gathered during the course of a professional assignment. 2. Do not take advantage of material or inside info-mation resulting from & profecsional relationship with a client, 3. Do not disclose eny confidential infurmation obtained in the coursa of a professlonat engagement except with the client's convent. HL PRACTICE STANDARDS FOR MANAGEMENT CONSULTANTS. Professional competonce . 1 dertake only engagements that can be completed with professional competence. 2 cent only assignments for which the necessary qualifications are poseessed. 3. Present qualifications for serving a client solely in terms of competence, experience, -_and standing. _ a fanning, supervision, end duo cave a t jing an ascignment, confer with the cliont or prospective dient In ‘ eee a aina end fpathor sufficient facts to gain an adequate understanding of the problern, the scope of study needed to volve it, and the possible bsnofits that may accrue to the client. ; : ficicl to the clients, and do not scoept 2. Accept only assignments believed to ba benefic pone any pie len o auch limited scope that the an cannot be served effectively. 3. Adequately pian and supervise an engagement. cactivg 4. Assign personnel qualed by knowledge, experience, and character fo ah service in anelyzing and solving the particular Langer ihe chs “ . 5. Provide the cont itn rahe eaumeted {20 or foe bass for the proposed pproach, and - where possibla pie Rerioeat excopt where client relationships make it unnecessary.ci 100 Chapter 5 4 Exercise due professional care in the performance of an engagement. i" conditions change during the engagement, discuss with the client any changes in the objectives, scope, and approach or other aspects of the engagement and obtain ea ee agreement (preferably in writing) to such changes before taking action on Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to an engagement. Do not knowingly without permission use proprietary data, procedures, materials, or techniques that others have developed but not released for public use. Reporting resutts Perform each assignment on an individual basis and develop recommendations designed pecifically for the solution of each client's problems. 2. Develop solutions that are realistic and practical ‘and that can be implemented - . promptly and economically. 3. Acquaint client personnel with the principles, methods, and techniques applied, so that the improvement suggested or installed can be properly managed and continued after completion of the engagement. 4, Maintain continuity of understanding and knowledge of client's problems, and the work that has been done to solve them, by maintaining appropriate files of reports no submitted to cients. 5. Do not guerantee any specific result, such as the amount of cost reduction or profit increase. 6. Do not permit yur name to be used in conjunction with any forecast of future transactions -in a manner that could lead to the belief that you vouch for the achievabilty of the forecast. Ek. FEE STRUCTURE STANDARDS FCR MANAGEMENT CONSULTANTS. 1. Charge reasonable fees that ere commensurate with the nature cf services performed and responsibilty assumed, Resscnableness is based on services performed, time required, experience, abilty, reputation, responsibil benefits that socrue to the clients. Sanaa one Do not offer or render professional services under an arrangement whereby no fee ‘will be charged unless a specified finding or resuk is obtained, or wher 4 is otherwise contingent on the findings or resulis of the service. ae Where feasible, agree with the client in advance on the fee or fee basi the sis. Do not pay a fee or commission to obtain a client or franchise a business practice; een haat! i. a ae Bcenpt a commission, fen, er ober valuable consideration for recommending ‘Do not structure pricing or charging practices in a way that impairs it objectivity or contributes to a conflict of Interest with the een Ee ereee aeMAS Practice Standards and Ethical Considerations 101 IV. BUSINESS-CONOUCT STANDARDS FOR MANAGEMENT CONSULTANTS. 1. Strive continuously to advance and protect the standards of tho consulling profession 2. Contribute to the development and understanding of better ways, to manage corporations, governmental erganizations, and other institutions in our society. 3. Share methods and techniques used in serving clients. 4, Avoid. not only professional improprieties but also the appearance of improprieties, and never commit an act discreditable te the profession. 5. Do not advertise services in a manner that is false, misleading, deceptive, self- laudatory, or in any other manner derogatory to the dignity of the profession. 6. Do not concurrently engage in any business or occupation that would create a conflict of interest in rendering professional services. 7. Oo not accept an assignment for a client while another management consultant is serving that client unless satisfied that any conflict between the two engagements are recognized by, and have the consent of the client. @. Oo not make offers cf employment to consultanis on the staff of another consulting firm without first informi the other firm. . 2. Do not solicit employees of clients, for the purpose of employing them, except with tive client's consent. 10. Do not associate, in a responsible capacity respecting client work, with any consultant who does not adhere to the code of professional ethics. Each consultant has a responsibility to himself or herself, to the profession to live by this code of ethics and to encourage others to do the same, Entcrcement of the code is everyone’s responsibility.REVIEW QUESTIONS AND Cy Questions 1. What is the meaning of the CPA’s “role” in the practice of management advisory services? 2. Why are practice standards necessary in the consulting practice? 3. Why must a consultant act with integrity, objectivity and independence in performing MAS? 4. Compare competence in performing a professional work in general and competence required in performing management advisory services. How is due professional care exercised in the performance of an MAS engagement? 6. What significant matters should de discussed with the client before undertaking an engagement? 7. Discuss briefly how a con: MAS engagement. for, supery and centrols an 8. How should the results of the engagement be communicated to the client. 9. Whst are the uses of interim communications or progress reports? UL Trne or False. i. Which of the following statements is false? a. An accounting firm may admit a non-CPA as principal who is a professional expert in mai nent sei firm's competence to offer management a clients. b. The accounting firm is not allowed to advertise that it is offering management advisory services, c. A CPA after presenting his report in a mana engagement may Becept furth engagement to render advice end tech el assistance in the impiementation of his recommendation. €s io enhance the ory services to nent servicesd MAS Practice Stand A CPA may continue rendering management services to a client even after conflict of interest has arisen if in good faith he was not aware of the same at the time he accepted the engagement. Which of the following statements is true? a. b. In management services engagement, the independent CPA renders technical advice. A CPA in a management services engagement may take position that would impair its independence if the client is not his audit client at the same time. Strict adherence to generally accepted accounting principles in MAS is required. A non-CPA is prohibited under: the revised accountancy law to engage in professional management advisory services practice, Which of the following statements is correct? a o A CPA-MAS practitioner need not be concerned with independence in his clients since the overriding consideration for the MAS engagement is competence. Management advisory services by independent CPA may involve making decisions for client. To maintain his independence, a CPA limits his services to that of recommending and designing an accounting system but leave the actual implementations and installation to the client. Documentation is not as essential in an MAS engagement as it in an audit engagement. Which of the following statements is true? a b. Due professional care may or may not be exercised in the performance of a management advisory service engagement. Before accepting an engagement, a practitioner does pot beye e notify the client of any reservations he has regarding enticipate benefits. oo. i e is to inform king an engagement, a practitioner ee the significant matters related to his client of some if not all of the engagement. Engagements are 10 be adequ controlled. ately planned, supervised, and{10d Chapter 5 5. To attain the hi Farin the highest standards of professionalism, highest levels of rs fl nance and meet public interest requirement, a CPA who pyniucs management consultancy services should meet the following basic requirements except a. credibility, b. professionalism, ©. — confidence, d. top-of-the-line and world-class facilities. To achieve the objectives of the accountancy profession, professional accountants including those providing management advisory services should observe among others the following principles except a. integrity. b. confidentiality. c. knowledge of up-to-date technical and professional standards, ¢. careful selection of clients to include only those big and financially capable business entities. Should ethical conflicts arise, the professional accountant who is also a managersent consultant should observe the following except a. folic w the established policies of the firm to seck resolution of such conflict. b. review t.2 conflict problem with the immediate superior unless it appears that the immediate superior is the one involved in the conflict problem. ©. seek counseling and advice publicly with the applicable professional accountancy body (e.2., PICPA) or regulatory body (e.g. BOA). ign if all possible levels of internal review and courses of action have been exhausted and submit an information memoraridum to an appropriate representative of the firm, * Confidentiality of informtion about a cl ethical principles that should always be consultant. The following situations alloy information otherwise considered confide: a. when disclosure is authorized by th b. to produce document procesdings. fient’s affairs is one of the observed by a management w the consultant to disclose atial except a e client, ts to give evidence in the course of legalon MAS Practice Standards and Ethical Consiceray a eStandards and Ethical Comideratons 108 ©. when disclosure is Necessary to protect the Professional interests of a professional accountant in legal Proceedings, 12 ZesPond to an inquiry of shareholders and creditors of the business entity, d. Service is provided to the audit client of the same professional Sccountant during or after the period covered by the financial should be given to threats to independence, if any, arising from the Consultancy service. If the threat is significant, szfeguards are to be considered and applied as necessary to reduce the threat to an acceptable level. These safeguards include the following except a. obtaining the audit client’s acknowledgment of tesponsibility for the results of the consultancy service, b. precluding personne! who provided the consultancy services from participating in the audit engagement, ‘ ©. engaging another firm to review the results of the consultancy services or another firm to re-perform the non-assurance services to the extent necessary to enable it to take responsibility for those services, d. declining acceptance of the audit engagement. If. Cases Case J During the course of an engagement, you and a junior consultant od iol Payments, fraud, and other questionable management Practices. a e 7 eat is large publicly held corporation. Shortly after the discovery, the junior i makes the following comment: sr imei mene We're here as confidential counselors and have been nade ey ie a ane by a client who has been completely open. What — ees right and wrong? Do we have to be policemen as well as Whatwesponse should you make to this comment?due Unupier > ones) ee Case 2 — yar rapes by the president of a company to make an overall policy SHOU be enn 204 is organizational siacture to determine what actions th akent to improve efficiency. After an exhaustive study, you come to © conclusion that the president should be removed from his position. What action should you take? ' Yo stu Case 3 As a consultant, you are at a critical point in your review of the client’s financial control system. You find the procedures clearly antiquated; and data going into the annual report inchide grounds for serious challenges by a dissident - stockholder. The trouble is that the president himself designed the system while he was controller. He is bound to upset at what is more than occasional criticism of his work. Volatile as he is, he might even persudde the board of directors to discharge you. This has been and will continue to be an extremely profitable client. Should you tell it as it is or should you soft-pedal the subject? Case 4 Your firm has been invited by a hospital to perform a feasibiliry study ~ concerning a new wing for the hospital. Your firm has an outstanding reputation in this area, and the hospital feels that a positive recommendation from your firm would help it’sell the bonds to provide the needed financing. As you discuss the engagement with the client, you become aware that the decision has already been made to construct the new wing and that your study is being pursued merely as an attempt to help sell the bonds. As you contemplate the study, you conclude there is only a 50 percent chance that the results will show it to be economically desirable to pursue the expansion. However, a negativé outcome would completely undermine any attempts to sell the bonds. The job is yours if you want it, and it would be a very profitabie contract. What should you do? Case 5 Your firm has engaged by a manufacturing firm to make a study of top management. As the study neared completion, the president instructed you as to what she expected the recommendations and findings to be and directed you to come to this conclusion. What should be your response?Standards and Ethical Considerations 107 Case 6 ‘As an internal consultant, you were asked to evaluate and recommend reorganization of top management. From the beginning it was apparent that you were in “over your head” in this one, and you wished they had given the job to ‘an external management consultant. Now you’re on the brink of recommending some changes that literally involve the guy who signs your paycheck. He keeps telling you to pull no punches in your report, but it’s hard to believe he could be that objective. What should you do? Case 7 You are the sole owner of your own management consulting practice; however, you have several consultants who work for you on a full-time basis, Your firm’s specialty is marketing, and you have developed an outstanding reputation for your ability to develop marketing programs that are successful. One of the major fobacco manufacturers has recently offered you a very profitable consulting contract’to develop a marketing program for the soutneastem portion of the Philippines. Personally, you do not. smoke and you fect it is wrong for other people to smoke. Is it ethical for you to accept the engagement, feeling as you do? Case 8 The manager of a medi finn to conduct 2 position evaluation program for all employees in the public works department. He indicates that he has favorable knowledge of your firm in this area but s nggests that the citizens of the city, and the employees 86 well, have little, if any, 1 ini ific public knowledge of your firm. He therefore suggests ‘retaining & speci relations fir to assist in giving your organ! ization higher visibility. He suggests that you should spend approximately 10 percent of the total fee, which would be agreed upon in advance, for this public relations effort. Is it ethical to accept this arrangement? d cigy asked y Case 9 / i i edium-sized, publicly held 5 director and 2 consuitant for a m ned oe 5 eon plans for the next few months, you £0 through’ the following thought process-108 Chapter 5 \ . : oO) Asa director I’m supposed to represent the shareholders, but I wouldn’t be here unless our firm had been doing a lot of good consulting work for management. I know, too, that we've got a couple of dam good consultants coming off a long assignment next month, and so far there’s no new assignment for them. The President has been thinking about applying some sophisticated planning techniques to replace the current, old-fashioned forecasts. Now might be the time to do it. Frankly, I don’t think a company this size has to get so fancy, but if he wants it, and considering keeping those two good staffers at full billing...I think I'd better have Charles bring it up at the next director's meeting. rit refrain from voting, so there should be no question... Discuss the ethics of the consultant-director’s position and thought process.