- CHAPTER OBJECTIVES This chapter should enable you to know and understand: The nature, scope and importance of Manage- ment Advisory Services. * The historical development and opportunities in MAS Practice. * The professional qualifications and com: ofan MAS consultant. petence * How to organize and manage an MAS Practice.All organizations, whether profit-oriented or not, and regardless of their structure, are established for the attainment of certain goals. Systems and procedures are designed and installed so that the organization's resources may be properly utilized to achieve the organization's objectives. These systems, procedures and other operational activities of the organization require a regular review to be sure that they will continuously work and serve their purpose, to find rooms for improvement if there are any, or change a part of, or the whole system, if needed. For obvious reasons, an individual who belongs to the organization, and hence, a part of the system, is not in a good position to conduct this review. What the organization needs in cases like these is an outsider, a third party, who can objec- tively review the organization's systems and procedures, and help its management identify managerial and operating problems, recommend practical solutions to these problems, and assist in their implementation when necessary. MANAGEMENT CONSULTANCY The individual referred to above is called a Management ‘Gonsultant; who is qualified=by~education,-experience, «technical .ability,, and temperament: to advise or assist businessmen on a professional basis in identifying, defining and solving specific management problems involving the organization, planning, direction, ‘control, and operation of a firm. Since he is not an employee of the organization, he can effectively serve as its objective and impartial adviser. Any professional may practise the same, as long as he has the required competence, experience and technical ability to solve business problems. 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Jo seare ayy ur Ayjeroeds ‘syqo yo Bururesz Teuorssayoid ayy eamnbeu Ayyeoiseq asay ‘suotyouny-soueury pue-bununosse~ayy-o7-parejerAyfewsou ase ysIyM seouy -y rsdnos8 mz O1uy sao1Aseg AsostApy lusWaBeuRW Jo seasE SSPID 8961 FO SW UO sa>ITTWWOCD VdOId SUL peosq aut pai SHOIAUES LNAWADYNVW 4O Svauv aGvoug5 follows : his covers: dit tions au! or operat formance an of operatin6 Pe tions Measure! 8 jes of mere jon programs ri See iaeent of compensa Pp ; v ension plan Al e ecial: ‘audies on industry poten tC Special st . Long range planning ; This involves financial, 8 2 ject easily Se ers ee a is Peire determination " Francing requirements both for equity and ‘debt and the manner of raising them, return on i EF ment, profitability and cash flow. Det Joint venture arrangements may likewise be included. e areas are thes: t. a b. 3. . This includes: a. Review of existing organizational structures b. Preparation of organization and administrative manuals c. Job evaluations and salary administrations d. Development of personnel rating programs Cost determination of alternatives in collective e bargaining agreements f. Study of retirement plans Study of office cost reduction systems 4, ‘AndustrialnEnginecring, This includes: » Production planning, scheduling and control b. Plant layout studies i inventory management studies : Develooment 3 materials control systems of preventive maintenance systems a Wh dabairea éf. Development of work standards . 8- Purchasing management including value analysis Marketing, which covers: a. Product profitability analysis b. Determination of pricing policy c. Market forecasting d. Distribution cost analysis . e. evaluation of salesmen's incentive compensations : This is an area of management science which slike linear programming, queuing theory and simulation to solve complicated operational problems. The -PERT/ is likewise used in preparing plans and schedules. MAS CLASSIFICATIONS BASED ON REQUIRED EXPERTISE Management Advisory Services may be classified according to the practitioners' ability and/or expertise. Such classifications, are usual, somewhat specialized and highly specialized. The coverage and description of each classification are listed as follows: i These may be Offered readily by the Usual_Services. Practitioner based on. his basic-training’ and .back- ground. These include services such as: a. Evaluation of form of business organization: * Sole proprietorship * Partnership * Corporation i b. Analysis of financial and operating statements for management, stockholders, banks and others: * Comparative statistics by year * Ratios and percentages * Funds statements * Break-even analyses c. Design and installation of accounting systems: * Design’ and establishment of books of originalnq ay} JO UONIPUOD yer: } jo StsAyeu sensoursne FO STs 40. eeeucand UL SU9N1> Bunsissy Sydea8 pue syaeyo JO asn $s99U919JUOD pue sura20u sS1APJOY}D015 yw squaWaIeIs JO uopeueldxs pue uoneyuasaag Syuawiadinbad perdes way Buoy , Syuaweasmnbe. yeyrdeo Bupjiog y Je3pnq Buneiadg , ya3pnq ysep 38193pnq pue SISBNDIOZ JO uonBiedaid ayk ur aduRsissy SUOTSIDaP aNuIjUODSIP J0 anunuoy SUOISIDaP aseay Jo Ang » SUOTsIDap 1Da[a4 40 rdadsy 4 8 SUOISIDap Ang 10 aYEW » s@uanbasuod xe} pue Soueury uo J229HF9 SU Oy uoToPsURI eB Surfpuey 30 spoyjaw SATJEUIDITE Jo UOTleNyeAS pue yoieesay SSO] a4}} se yons uordnisazur Ssaursng yo ase> Ul SWIPTD aduesnsul yo uoresedaig ss9d01d ypne ay3 SUpadxa pue jusweBeURW IsIsse 0} sagt dayio Pur Suawdinbs pue Ajsadoid 4 uefd “{io1uaaur S81QBAtaDa4 ‘yse> 30y JosUOD JO jUSWYsT|geisy savtojdua yo saouasqe Aq Pasnes SwWalqoid Jo uoneulTTs 430 UoNEZTU WW x saqaumyioddo “euaizzaquis 21qissod jo UONEZIWIUT x : wuaishs 'auos Teujajur ur sjuawaaoiduit soy suorsa33ng¢ spsoda4 *nunosoe ayi Bursoys soy swaysXs Surry yo usiseq : eysu! “Wiaisds YJoaked ay} Jo UOISIAD! 20 eae « > wettinBaa 40 Aajsnpul soy syunodsa.e jo ea . “hun ara Wuoyuod 03 Wasks Jo UIST syUdWoIEIs Sueur FO uoresedsid ayeqyoey 03 rae tua Teury yo syooq pure (sfeuanol) 4 RL oe t y TTHENTEA % #]@Sun0> aduesnsur Sutuueld = ajeisa 228 UO BuIsTApyY +7 ueTTdWOD ut sysop OD JUaWUISAOZ UO suonemnojeg a pue esa yi uoTeaadoos ur OF eane]a4 sie1zeW xe} pue Zurzuno: sjuawasinbad Bur 10daa YT 201 _ BuneooTe pue sisenu SjuaWasInbay PuapIAIp, pue awoour jou Bunseoaioy Ul dsissy y sjuaw -autnbaa = yetueury a8ues-Buoy Sururfino ur isIssy suotsuedxa. Joy suejd pue Adtjod PuaPIAIp UO adIApe BUIAIn «p SDUENSST 49015 , . ansst puog » SURO] ssauIsng Tews 4 1809 9} ew! -xoidde ay Suran81y Pue jeyded jo sadinos Burpury Pesysaa0 pue sasuadxa Al0jDeF Jo uoringq14ysIp JO¥" stseq sadoid se Swajqoid yons 04 suornjos Burpnyour suoieiado Jo siskfeue ysoo ke Bupyew *q . sjunod5e jo waisks JeiNBe1 ay. yim wiaiscs aurysew ayi SuresZaruy x swoy BuruBisag y tsuiaishs Surzunoose peziueyoau =e jo uoTeTTeIsur aya ur Sunsissy -e |“ #90uaT4adxe~J0/pue™ Sururearyeuoryippe aainboa pue ayy saseaioul Ked jo 1oazya [Tesaao ayy JO uonemnseg y ; siijaueq aBury Bunsoy + suolenoZau uorun soqey ur Ply cu awooul au uo sur;d UoTZesUsdwo> aakoidiua snoiea Jo qaqa ey FO uoneUIWaIag -w ares 10 saBiay y saseo xey y FHTeYEq ,SIUaT]D uo Bur Client personnel have te aS ate such systems > intail to N Seed (AICPA Statemen 2 é This may be dong rks ives from the ‘both-the..working and ee representative by organizing a team compose jcians who can make neti eT together. with a functions affected and client sta: contributions to work directly on t senior client management group Ww! making decisions and eee a) results. The consultant's contributio! i pear ne the overall program and the organization and Composition of the icipati ide technical assistance to the Participating groups, to provide this and working level, to monitor progress and to report on an other important matters to the senior management group. - Client's involvement in carrying out the engagement becomes of greater importance the further the consultant's Participation extends from initial fact finding through implementation. “Once i ion_i d, the i roblem, ; ; No fyould be responsible in d approving programs and here is to give advice on also™concluded,, and -on»the~solution: ROLE IN SPECIAL STUDY ENGAGEMENTS As mentioned earlier, under these client seeks only an impartial and able crue agement, the the resulting recommendations, This: may j y of a case, and Confirmation or denial. of a judgment wich obtaining already tentatively reached, or Marshallin, ft the Client has and views on a case not Previously studied 8 Of pertinent facts The consultant's role in these enga, a ' F through the first five phases of the araveearas is to proceed objective judgment to the facts, and to ical process, to apply recommendations to the client for decision seen paindings and is» ‘ _turther action,ion and subsequently, to-make.decision-on-the-case. The client does not seek the consultant's assistance in achieving the desired result, but only his professional judgment. Any action beyond the point of decision is solely the responsibility of the client. ROLE IN INFORMAL ADVICE as well as the role of the consultant, may be described as follows: "During the course of providing any type of service, independent accounting firms are called upon to give informal advice on many diverse questions....This type of service differs from the structured approach to management advisory services...in that the mature—of such~services is informal and therefore no presumption. exi ed to identify and consider pertinent facts and alternatives. Further, no responsibility is assumed for seeking to achieve client action or for seeking to assure that any ensuing action will be effective. Here, the appropriate role is simply to respond as practicable at the moment and to express the basis for the response so that such informal advice is offered and accepted for what it is." [Statement on . Management Advisory Services No. 3, paragraph 24] MAS PRACTICE STANDARDS The AICPA delineated and described the MAS Practic Standards as follows: "1, -Personal~Gharacteristics. In performing management ‘advisory services, ractitioner must act with i j in mental attitude. 2. Competence. Engagements are to be performed by Practitioners having competence in the analytical approach and process, and in the technical subject matter under consideration. 3. Due~Care. Due professional care is ‘to be exercisedpart One/The MAS Practice by Chay 24 ar ment advisor in the performance of a manage y 4. Glient Benefit, BeTore accepting an on areerres practitioner is to notify the cer enetite ened cleat Before undertaking > Understanding withthe client. Before on Mt his titioner 1s an engagement, a prac : d to the client of all significant matters relate 6 Plone ae i ind Control. Engagements are : to be adequately planned, supervised and eee 7. Sufficie . Sufficient relevant data is to be obtained, documented and evaluated in developing conclusions and recommendations. 8. ion of Results. All significant matters relating to the results of the engagement are to be Communicated to the client.” (Statements on Management Advisory Services) a Management..Advisory Services,.whetherCPAs—or not. Moreso, these are i i These are not intended to apply to "informal advice", as discussed in the Previous section. EXPLANATORY NOTES: STANDARD NO. 1 - PERSONAL CHARACTERISTICS e In __ performing management advisory services, a practitioner must act with integrity ‘and objectivity and be independent in mental attitude. In this standard, three important concepts need to be defined- integrity, objectivity and independence in mental attitude: “Integrity is a ‘highly personal characteristic which ensures that the practitionér's statements of findings and tecommendations are i bility to i ‘ Objectivity is the a avoid- bias ae impartial-attitude. on all matters under review”Chapter _1/Basic Considerations in MAS 25 itude. refers to the ability of the to maintain his role as an objective—adviser or i i empt-to-makedecisions..for practitioner consultant the..management. Clients rely upon the practitioner's professional stature, which depends largely’ on his integrity, objectivity and ability to be independent in mental attitude on all matters relating to client service. The practitioner's role in MS engagements is funda- mental in maintaining this standard. In all aspects of the engagement, he should limit his services to those of an objective advisor’ and avoid assuming the role of management in the decision making process. In developing recommendations for a client, the practitioner should study the problem involved, gather the needed informa- tion, consider alternative solutions, and present his professional judgment. Any management decision to be made as a result of such activities must be made by the client. STANDARD NO. 2 - COMPETENCE - Engagements are to be performed by practitioners having competence in the analytical approach and process, and in the technical subject matter under consideration. A practitioner must perform each technical area of manage- ment advisory services with competence so that the client may be assured that his performance is of professional quality. Competence in management advisory services may be Classified as (a) competence.in-professional-work which involves the ‘technical~-qualifications-of the practitioners and the ability to supervise the personnel assigned, to evaluate the quality of work performed and to accept responsibility to the client for successful completion of the- engagement; and (b) e i i ices. which refers to the practitioner's define client needs, to utilize the Process, to apply knowledge of the under consideration, to communicate effectively, and to assist in implementing ability to identify and analytical approach and technical subject matter recommendations recommendations.part One services Set the The AICPA's Committee °° in MSt paving adequate following standards of comformed b pers application of the 1. MAS are to be P' ;, both t ubject Matter . ji in in the s' i hand process oe i analytical approac! nt advisory assign. under consideration. _ manageme be mai 2. In all matters relating to 4 jtude is to in ment, an «independ d his staff. tained by the member ane) ry exercised i Management in the performance 3. Fi isory services. cation” and~experi- scopetansommajeians cui oF foes not qualify an ificate sence. Mere possession of a CPA certifica Ss. He must undergo a i iti in M ivi t practitioner In : ire eas Saleeiwnicndls beyond the attainment of a degree ba wei ion. Continuin, that is required for admission in the profession. d 8 2 informal instruction and self education may include formal and inform a 1 fers to the practitioner's study. Experience, on the other hand, re iegandeeerae| knowledge and ~ judgment acquired by persona. d Participation in management advisory services engagements an ~other business affairs. : aA In fairness’ to the client and/or the public, the Practitioner, before accepting any engagement, must first determine if he or his firm is in a position to undertake the engagement by objectively evaluating his background and ability vis-a-vis the case on hand, to know if he or his firm possesses the compe- tence requirements of the job. STANDARD NO. 3 - DUE CARE - een, PE CARE Due professional care is to be exercised in the performance of management advisory services, “Duescare involves dili % r in carrying out the assignment. It is concerned with what the practitioner does and how well he does it, Although it does not imply EE fh enact systematic, critical review of the k exercised by the practitioner throy, wor! @ requires the, ghout the engagement. — inChapter 1/Basic Considerations in MAS 27 the_provisions.of—the.Code__of _Professional.Ethics. and other standards of the profession. STANDARD NO. 4 - CLIENT BENEFIT - Before accepting an engagement, a practitioner is to notify the client of any reservations he has regarding anticipated benefits. . In structuring the engagement, the practitioner should consider problem definition, identification of objectives, the benefits to be desired from the engagement, the client's willingness to accept recommendations and ability to implement the’ same. Client's unwillingness to accept or inability to implement appropriate recommendations could impair realization of benefits. Hence, the client should be promptly informed if, during the course of the engagement, the practitioner feels that there is a significant change in the relationship between costs and anticipated benefits. STANDARD NO. 5 - UNDERSTANDING WITH THE CLIENT Before undertaking an engagement, a practitioner is to inform his client of all significant matters related to the engagement. The iti er, before starting an engagement,, should first 1B 8 A ons inf = n 1 significant mat’ 5 which are the: ae Objectives. which reflect.theresults.to be derived. fro Hie. Sheagement. These objectives may be formulated by leveloping sufficient information required through preliminary discussions or investigation. The objectives developed must be clearly expressed by the practitioner as well as the extent and nature_of his involvement. 4 ‘ b. ‘Scope - sufficient information required to identify scope of engagement may likewise be developed by conducting preliminary discussions and/or investigation. The scope should be broad enough to encompass matters likely to be significant in developing appropriate recommendations and producing desired results. ipart Co wo med, the methog, rr! e per to ievements a ajor tasks te catus 2” achiet fined i c. “Approach = the Mengagement S1'he clearly gementew to be used in reporting “oO 7) shou ting an eng oA the timing of such eer before oa erat will constitute established by the prachit Oe ade as "fs the contents Of the s we clear statement shou! 2 a cal product. meee ive roles and responsi. end product. _ The respect! t should be Clearly d. : d the clien ding mus iliti ractitioner and an understanding must bilities of the pI y is involved, joner or the client) defined. In.case a third part raciit who (the P! performance. be made to clearly establish 1 should be responsible for this third party's - details e. Manet n which ret are #0-be- communica are discussed under, Standar: 5 be arranged. to : le should be i f, Timetable - a program or eee aied completion date set the commencement as well as tl of the work to be done. / g. -Fees»- fees and expense arrangements should be properly discussed with the client before an engagement is conducted, All the negotiations and arrangements about the above matters should be recorded in writing, particularly if the engagement is of significant duration or complexity. This can be done in a formal contract, in a letter of understanding, or in a file memorandum summarizing the terms agreed upon orally with the client during the preliminary negotiations. STANDARD NO. 6 - PLANNING, SUPERVISION AND CONTROL- Engagements are to be adequatel: ani : and controlled. y planned, supervised proud the engagement's objectives are set, the practitioner shou! = ¢ objectives into a structured set of Bective aiating pipette targeted time schedule. The formulation of this : ents within and details needed depend largely on the eae a its ae problem and on the number ‘of persons involved. Th lexity of i plan is provisional in nature, which peas his engagemen and/or. revision throughout the engagement.» equire monitoringChapter » Considerations in MAS ee) engagement. Competent personnel should perform and supervise the job. The practitioner in charge should determine the required amount of supervision considering the experience/caliber of the persons involved, as well as the complexity of the assignment. Controlling involves the measurement of progress in attaining the engagement plan and objectives. At significant engagement points, progress should be measured in terms of accomplishments, time schedule and quality of work. STANDARD NO. 7 - SUFFICIENT RELEVANT DATA - Sufficient relevant data is to be obtained, doc- umented and evaluated in developing conclusions and recommendations. In the course of the engagement, the ‘following.should..be documented: 1. the evidential.matter..obtained» and «ts-sources, 2. the alternatives..considered;. and 3. the analytical..process..leading-to-specific recommendations The amount and formality of documentation depend on the nature and scope of the engagement and related circumstances. In all cases, however, any limitations with respect to the source and reliability of the data should be indicated, and the documen- tation should demonstrate that due care has been exercised. STANDARD NO. 8 - COMMUNICATION OF RESULTS All significant matters relating to the results of the engagement are to be communicated to the client. The practitioner should convey to the client his principal findings, recommendations and accomplishments with regards tc the engagement, as well as the major assumptions relied upon any limitations, reservations or other qualifications. These=report: May...be...done--orally--or-in=writing. When no written report i: issued, the practitioner should at least prepare a file memoran dum documenting the significant recommendations and othe relevant information discussed with the client.juawaseBue ay} BUTTeTIOZaN *| Mauer Bes Burmosfoy ay3 aafoaul quawa8eSua H 2 pue uorndaxe . uawidojaaap ayy SLN3WJ9VONA SVW NI S39viS 9POD Ui pue sg TAoid 949K “YIU somyg=Teuorssozo1g~—Fo PALPURIS-O01 Deg GW ayI Jo 1431 aaa MOUS SonoeAd SV UT aBeBua 01 aprosp aya svaD PaHtTEND NOTLNI3Xa CNV LNaWdOTaAaC *SINAWISVONI SUW “S@SPq PUP Sad.nos Jey) se jJam se GueWaSeSUa ay ynoge suotzduinsse_ pue S}OEJ JURDIFIUBIS payeyes asoposip asIMayI] P[noys yode1 ayy “suOT}epuswWOda1 BZurjsoddns pue ayeuoles aya yl Jayz2B01 Sadu0riTDe3d ay Aq pasapisuod saateusdyye jueorzruSis ai SqI4osap prnoys ‘uEWaZeBue e421 Jo adoos pur santd—alqo ayi 0} aAtsuodsai aq pfnoys joded sty, ‘payeorunuiwios aye suolep -UaUIODa1 pue s}]Nsel 7eYy} AaNsua 0} jUaTTD 242 0} parzrugns eq Pinoys y4odas jeuly e yuawa8eBua ay} Jo uoratdwo> uodp syuoday yeury ssuotjepuawWoda1 aateqUaz ‘aze dwos2e 410M fayep ‘pue ueyd 02 uoTeTes UT peystT puigesees aoa OE ABUIUINS SUOT}BOTUNWWOD = WTI93UT ‘ATTEWION or sBurpuly of Sriraord ssasseos 0} pur SUOTSIIap 1uSWeBeUeW ssarnts 100 1 0} pasn aq osye 4 nopua «swayqoud = MatAd. pene Recs gidwioa2e puke sUO}EPUaLWOIE4 ‘suolsnfouoo Keni oeea sear Me 50180.d ayy Jo pawlogur quawaseuew Ww jeury ayy spzemod sop se efor sf aasasazd dieu 4quowaseue i a noys daay pue oles eal 2B eanogua aout J0f | ‘OUOP Pr JO U@WDATOAUT quarp> aur ura SU 10 onus sy eopunWWos WiI22Ut ‘aiqissod se 4 17291 1 ysuorpeotunWWwoD W2IUT(1 “ON Set4ag aurpapiny svw ‘ydolv) ‘Bunt ur Burpueysiapun ayy w4yuoD *saay Bury[Iq pue urysttqeisa doy} siseq ay} uo aai8y Sysom ayi Jo [Je 10 ‘suoryod qUPOTFTUBIS WogIId OYAN suoquiaw jyeys alow JO ayo jo uorediomsed awit [IN 0} UOTPeI[NsUOD JeUOIsedJO Woy AIBA ABW SIYL *vdo aur Aq patwsojiad aq 02 ajo1 ayy uo aai8y *¢ *saatqoalqo 4ay1O JO Wayshs ayy Jo uoreyyeysur ‘suayshs paysas8ns ‘sBuipury fo j10de.1 “at “uawusisse ey. fo onpoid pua ay} Ajmuapy °z ‘ape aq ued yesodoid e aiojaq Aaains payuwty e asinbaa Aew siyy ‘uornjos e yoea1 0} pastnbas st yeyM pue wagoid year ayy uTeIDDsSy *| Fu roae o8eis sty} ul paajoaur sdays ayy ‘juaWe8eZua yons ynoge Burpueyssapun uowwod e yA dn awos pue pansind aq Aew juatua8esue ay} JOU JO JaYyISYM UTeLIaDse 0} jUAaTTD aatpoadsoid ay Jo (4axeW UOISIDap JO JeIOIT¥O Burjues -yBIy Jayio Aue 40) JS01JJQ aatiNDexy 4O JUapIsaig “ay Y suotssnosip Aaeurwtjeid saajoaur juawaseSua ay} Buleio3ay SUNSWADVONA “FHL DNELVELODSN (Z ® 9 saBe1g) UoIsnfoUOD jUaWAaSeBUQ x (Z a8ei¢) Buluueyg jUIWAaSeSuUq (1 e8e3g) suolpesaprsuoD jUaWaSeSus-a1g :Burmoyso} ayi ‘swwia} yesjoues ul ‘apnpour yoTyM ajoAo" Quewiesesus GVW dYI UT P2ATOAUT saTwATOe yIoads ayi aynIsUOD sa8eis asayL dn-mojfoy juawaSe8ua ysog *Z quawasesue ayy Sunenjeaq °9 suofjepuawwode1 ay Suuswardwy °¢ suoepuatutosass pur sjuode1 ayz Zuuaseid pue Sursedsig “h juawe8eBue ay SuNonpuoy °¢ juawa8eBue oyz Burzeis pue 40y Suriedosy *Z d a if sonaBIg SYN SULT aaTdeUDasic in MAS_by CP, art_one/B Considerations * MAS by CPi, /Basi 32. : : in this chapty, vetics of MAS as discussed consultants 4 One of the characteristics of MA Ce However, busi i it involves A rol * iFfi to i help them define and solve business re often ee Pa problems, or management pro} oe ? are usually and ‘solve precisely because’ they contingencies. ‘ Practitioners (or consultants), in ane Problems should see to it that their a superficial symptom. defining the real problem rather than ive client ‘approaches the In most cases, when a prospecti lient may have already Consultant to seek his assistance, such Cc! nosis may be based on diagnosed the problem. However, such diag! f the situation, or i; incomplete data or an incomplete analysis 0: have diagnosed an May lack objectivity. The client may hav ell be loss of Organization problem when the real problem may wi lash communications control; or he may have seen a mere clas of Personalities when the real problem is poor organization Structure or, the prospective client may have thought of cutti Production costs as the way to increase profitability when the Teal problem is to change the product. mix or subcontract the Manufacturing job. Defining the real Problem is not a simple task. In so doing, the practitioner May conduct a study of the background, or Make a Preliminary survey of the client's situation, Problem Definition fine business ting to de: ‘ort is directed towards Review of the Background or MAS client, background information mi Conducting discussions with other. members oan Accounting/MS firm familiar with the client, ae Paecines Previous management letters, Ment work. eeecuiew ot Feports, and other available materials, Papers, annualPreliminary Survey The practitioner may also conduct a client-firm's situation b viewing Client's personnel and other members of the organiza- tion, and Bathering any other pertinent materials from the client and studying the same. Preliminary survey of the’ y touring the client's premises, °inter- Steps in Problem Definition Though there are different a practitioners definitions proaches in defining problems, may consider the following steps in problem 1.. Collection and analysis of the facts needed to define or describe precisely the problem that requires , solution. This may -be done by conducting the aforementioned back- ground review and, preliminary survey. In collecting and analyzing facts, the consultant should separate important and relevant information about the problem from superficial and irrelevant facts, and draw the right conclusions from these important facts. He must be sure that the fact-finding and analysis are accurate and comprehensive enough so ‘he may be able to draw a boundary line around the problem and determine what it is and what it is not. 2. Further analysis to discover the conditions which have created and are sustaining the problem. This is most important because the solution becomes obvious when the Causes are known. 3. Determination of the conditions for its solution and the end results which should be achieved by the solution. In doing this, the practitioner may consider answering the following questions: Why does. it need to be solved? When does.it have to be solved? What is to be gained by solving the problem? What will the solution cost? ; What limitations are there on: the solution? eee EKy ¢ cuice ba cone/the MAS Praclic Part ES GISCUSSIONS ang liminary he practitioner's Pre already make 4 In the course of the pi @ client, he ma aay ae ns with the prospectiv' and comple " negotiatior f the nature joing further, he personal assessment ©: h case, before 8! ement. ‘This roposed engagement. In suc ept the engagert on Id decide whether or not to acceP titioner, because if no eetail is a critical point for the pract jon, he might either extra ee is made in making the decis' git or inadvertently accept an undesirable/inappropriate engagements decline an acceptable one. ent, the practi- engagement, In making a decision to pursue the a 5 tioner may consider the following questions: 2 Can the client benefit from the ee the engage- Will the practitioner's (or his firm's) role Ment be an appropriate one? he Is the nature of the required work ee ae firm/practitioner and consistent with professional stan’ ? * Is the practitioner competent to perform the required work? * Can the work be performed at a cost acceptable to the client? : * Is the client likely to accept and implement appropriate recommendations? Is there any other reason the Practitioner would not want to undertake this engagement? Other factors that must be Considered in making a decision about pursuing an engagement are the client's and Practitioner's reputation, the practitioner's relationship to other clients, and the prospective client's financial condition, The practitioner should carefully consider if accepting an engag. P in an undesirable association. Though th vouch ‘for the client's integrity or reliability, if the reputation of a Prospective clien reflect on the reliability of management and on the firm's own ¢ The possible effects of the engag relationship with others, specially suppliers to the potential client, Moreover, the consultant shouldNN 22 eS resered. Finalig’® to pay for the services to be easement oLY3 the practitioner” should aise rest the eee mS Te ata as his objectivity and independence. A ‘revi ese things ma b aren following steps: Vv be done by considering the ability * eae information from appropriate third Parties that may have a bearing on the Prospective client and its management * Obtain and review available financial information to determine that the Prospective client has the ability to pay for the engagement * Consider how the ‘prospective client's competence may affect the success of the engagement : Consider any circumstances that may make the prospective engagement one that Presents unusual risk or questions of propriety Determination of the Engagements' Nature, Scope and Objectives Once the practitioner ha: problem based on facts and preliminary surveys, S set a tentative definition of the gathered from the background review and has decided that the engagement is an acceptable one, he may continue to conduct the negotiations and hold preliminary discussions with the client to come up with a common ‘understanding as to. the suggested/requested - end product of the engagement, the roles to be played by each party (practitioner and client)? in case the engagement is conducted. P Basis for Establishing and Billing Fees When agreements are made as to the definition, and objectives of the Must Nature, scope Proposed, engagement, the practitioner discuss with the client his Proposals regarding the fees — ®Roles of both parties depend on the type of engagement to t onducted, as discussed in the previous sections of this chapter. eee. rracuce f ETE DY Ch that he will Charge for the engagement, taking ne CONSiders OP the provisions’ of the Code of Professional Et ICS as "eRarg, lee rangement, 5 | The erica of the fees to be charged is based on @ lot o factors such as the type of engagement to be conducteq SCOPE or special ‘tudy “ engagements), nature/complexity of the €a8e to he Solved, period of lime during which the ENBaEMen, will be ©onducted, and the caliber of the Staff whg Practitioner or his > Will handle the engagement. Fee Arrangements Following are some Principal fee Practitioner may Consider: arrangements that F a. is Probably the Most common method oj i arrangement, the amount of fee by applying an hourly /dails Number of ho ecome ne. essary durin; engagement. As Mentii in letter. (a above, this quotation is usually Submitted in Conjunction with the Per diem fee. c. Lump sum or fixed amount. General). this: includes both Per diem’ or Ys Professionaj ~ Quotation fees and out- —_ 3Section 17 of the Code’ of .Professiona) ri., Practitioner fram nhann:——Chapter 1/Basic Considerations in MAS ar of-pocket expenses. Under this arrangement, the practi- toner estimates, aside from the per diem fees of the persons who will work on the engagement, other expenses and eee that may be incurred, which may include travel, living expenses away from home, and cost of services such as stenographic, charting, report typing, statistical work, special research and printing. d. Retainer. This arrangement is usually made for continuous or year-long engagements, whereby the client reserves a certain amount of the practitioner's/consultant's time, usually for a year, where the work contemplated cannot be detailed in advance. As far as the client is concerned, this arrangement is advantageous, for he may be assured of availability of the consultant's services when needed without having to make special arrangements each time for such services. Here, Payment is usually arranged on a monthly basis. Confirmation of the Understanding in Writing To avoid possible misunderstanding in the future, the practi- tioner should put in black and white every term agreed upon with the client during the negotiation. This may be done through a proposal letter, a confirmation letter, an engagement jetter, a contract, or a: file memorandum documenting all the oral understanding, These communication metneds are aescribed in the following paragraphs. Proposal Letter - A letter of proposal is an offer of service. When accepted or approved, it becomes a contractual agree- ment. Generally, this letter covers engagement objectives, scope tole of the parties involved in the engagement, approach to the study, project organization, fees and billing arrangements, an other elements of the. proposed engagement that the clien should know about, in order to make an informed decisio concerning acceptance of the proposal. Confirmation Letter - A’ confirmation letter is a brief an Concise statement of an agreement previously reached withpractice by Cy, AS Prac y A, »/The MA One/ The by 38 sal let hanges to a propo a ter a aflect Change? ent matters. etter may reflect engage! client. This. le or sieclficant’ eng outline a discussi seierene ae contrac Uy pagemel greed that eo - An engage as already af le Sees > client has al s letter’ docune, agreement used when the c This My emt. e engagemen lite ans practitioner will conduct the engags benesits, — plat : ang 2CUIVES, e . »Sey the understanding including obj¢ anner as they are pres¢ Neg ements, in about the same mal sample of an CNB ARE. in a letter of proposal. To illustrate, a in sal. ages 39 & 40. ment letter is shown in Exhibit 1-1 on pag penerall prepared Contract - A contract is a legal docurnent ge mera ae Tete the client, incorporating a proposal letter or engag; t Prepared by the practitioner. File Memorandum - In case the client ie Aue ett Proposal letter is unnecessary or undesirable, the ‘purpos. i standing may simply be reached and will serve ; B ae fe Practitioner should still document this understanding Y Way of a memorandum which should be filed together with the Other documents Pertaining to the client, Up with > Ley the former engagement, and the la the Practitioner, Conditions, terms and arrangements agreed Negotiation Stage, the Practitioner is NOW set to help the client solve his Problem, However, he cannot just Proceed to oa dict the engagement. At this poi at th will be completed effectively and efficiently, « ¢ e MBagement should Carefully plan and prepare for the Practitioner mind that one of the standards " Preparing for the engagement may include acto. : Ctiv: selecting and briefing the members of the mies Such as en, that will be sent to the client, and developing Ss8ement team plan or work Program, engagementChapter 1/Basic Considerations in MAS f “EXHIBIT 1-1 JAVIER, LUCAS, DE JESUS & CO. CERTIFIED PUBLIC ACCOUNTANTS Suite No. 5 Lei-Loi Bldg. Makati, M. Me February 14, 1987 Mr. Juniver Santiago Ram President BELLES INDUSTRIAL CORP. Balintawak, Quezon City Dear Mr. Ram: This letter summarizes our understanding of the arrangements we made in your office last February 12, 1987 regarding your request that we assist your company in revising your accounting system and internal control procedures. We shall conduct a study of Belles! underlying/fundamental reasons why shall assist you in evaluating and your company. Having determined the appropriate system, we shall assist you in preparing a business plan and other programs necessary to install a good accounting system for a better internal control system. To provide an effective framework for this engagement, both parties must have a clear understanding of their respective roles. Our Firm's role comprises the following: * Gathering data about the history of the company * Study and evaluation of major information systems: personnel and logistics Study and evaluation of other information systems such as: marketing, research & development and executive observation Analysis of the basic elements of accounting system Study and evaluation of existing internal control system Assisting in preparation of better internal control procedures existing accounting system and the revision of such is needed. We choosing the system best suited to financial, * ae The following comprises your company's role: * Providing records and other data that we may request during the course of the engagement * Availing your key people for interviews and conferences Making timely decisions on the various aspects of this engagement Cooperating with our staff in developing the business goals and objectives necessary to prepare a workable business program/ plan *Practice b aa part One/The MAS Pr BY Chay + essentia f assisting, evaluating ang Sane ee stiecusnt ode best efforts, we offer 0 aaaurance | tem will be achieved. | Our Firm's advising; Lhough we will ex thal-a perfect accounting Ihe Langible results of this engagement will be an Ac | Manual containing: © Organization Or the accounting, auditing and systems department Basic systems and accounting policies Charl. of accounts and codes Content and source of entries Statements and reports Standard journal entries Procedural and systems flow charts and descriptions Specimen forms We are beginning the work on this engagenent imedistely and eypect. to complete it in approximately eight (B) weeks. The timetable assumes adequate cooperation by your personnel and ready availability of the data required for the preparation of necessary documents. We shall consider the engagement complete when all programs/procedures for the attainment of adequate accounting system have been presented. At this time, we shall provide you with a letter advising that the engagement is complete. If, during the course of the engagement, either of us becomes aware of factors on circumstances that would preclude a successfyl conclusion of the engagement, the engagement may be terminated by one party. notifying the other in writing. Our fees for this engagement are based on number of hours spent at our standard hourly rate plus all out-of-pocket expenditures which will be billed separately. if any part of this letter conflicts with your understanding regarding our engagement and necessary elaboration on terms/conditions should arise, please notify us immediately so we can establish a proper mutual understanding. Ne appreciate this opportunity to serve Belles Industrial Corporation. counting Systems Sincerely yours, CHARMAINE LUCAS Managing Partner JAVIER, LUCAS, DE JESUS & CO.Selecting and Briefing Engagement Team Members In choosing the engagement team members, the practitioner should consider his partner or staff with appropriate skills, experiences and types of thinking to deal with the client's prob- lem effectively. Before B0Ing on to execute the engagement, these team members should first undergo a briefing, to discuss relevant matters about the engagement, such as the statement of the problem to be solved, its nature, and other facts pertaining thereto which were gathered during the negotiation stages as well as pertinent information about the client including the nature and history of the business, organizational structure considering the key officers and staff who may be helpful in solving the problem. The engagement team members should be properly introduced to the client's personnel, either by a written communication or a meeting, to ensure rapport among them in the course of the execution of the engagement. This introduction may include explanation of the roles to be played by both the team members and the client's. representatives, and of the objectives of the engagements, so that the client's personnel may be enlightened as to the real reason why consultants are there--to help rather than to destroy them if something wrong is discovered. This way, the practitioner/team members may be assured of the client's full cooperation in solving the real problem. The Engagement Plan and Work Program Compliance with Practice Standard No. 6, (Planning, Supervi- sion and Control), may be assured if the Practitioner will develop an ‘engagement.plan, which, as indicated earlier, is the translation .of the problem/engagement definition, into steps required to attain the objectives of the proposed project. This engagement plan lays the foundation upon which an engagement work program is built. To illustrate, a sample of Engagement Work Program is shown in Exhibit 1-2 on Page 42. The (or engagement program) may engagement.work program. n be considered as the mpnstec platen tbe— 2ngaceneat which, Serves as a framework for controlling its progress. It can be used as a planning tool that documents how the engagement willMAS Engugemont Work Progr en Client nd Address Code _ Partner in charge to be undertaken Progress meetings Firm liatson ae —<$—$—<<—<— cancer saan Client liaison —— —_——— Estimated fee Brief Description of Engagement. and its Purpose Engagement Subtusks (and comments, iF any)/Ream [Start lind | pu_ | Est, Revised Est. |petual) Date | Hours Prepared by:Le _Consideratior aaa onsiderati n MAS . 43 be carried out, organizes the engagement into scheduled and logical sequences, and indicates the various tasks necessary to achieve the objectives of the engagement. The degree of detail in an engagement program varies on a case to case basis, depending on the circumstances of the specific engagement, the policy of the practitioner's firm, and professional judgment. Generally, this Program includes: a. a statement of objectives and scope of the engagement, b. the approach to be used in attaining the objectives, c. a breakdown of what is to be studied, and the different activities and tasks to be performed, the data to be gathered, client Contacts, supervision, output, etc., d. staffing requirements and schedules showing the assign- ments and responsibilities of each staff as well as the allocations of time to perform each task, including starting and completion, dates, and e. schedule of the tasks and responsibilities of the client's representatives who will participate’ in the various engagement activities. Uses of Engagement Program Some of the uses of engagement programs are: 1. They provide a means for arranging, distributing . and assigning responsibility ‘for various segments of an engagement. 2. They provide a means of control for determining whether all segments of the engagement have been completed. 3. They provide the framework for reporting progress on an engagement, 4. They facilitate the establishment of time and efficiency controls over engagement personnel. 5. They serve as a basis in reviewing or evaluating the engagement, i 6. They provide a basis for establishing and computing fees to be charged for the engagement.40 (S)wafqoid Burano5 ddo 24d Buranoosiq ; S8IQEIIeA fay 9 ! ‘Sdj Uo e}a1 iste 9 Uae surur a TUTWIA} 9, a MOR euOFUL ay) Burdyisser, 7 mmewarsAs ‘TeOIZoT e s1 Uo, SPd Sepniour yey ssaco, “a oa uonenjera 30 siskreuy sisdyeuy uon Puoju *S1U2AB BaNINy anoge suor : ‘suotutdo axIT sauo Trsaiqe ee Ir rae Siodasts 1 : 1 [uo tou apnfour Aew UoreuoyUT asayy saatsuayasduos Pue paserqun INDE VIE paiayzes Uopewozur 40 's>ey ayd 1eY2 41 01 aas Pinoys ay S4auorT2e1d ayy Aq pasn anbruysay Burpurj-19ey ayy JO ssafpaeSay *azetadoidde uaym UOTJPWIOJUT JO sadinos aprsino pue ‘uoleasasqo ‘sarpnys — snoraaud ‘Bunzeyo_ ‘saareuuoljsanb JO asn ‘smataas UeUNd0p ‘sMatAssquT euodiad ~anbruysay Supury-r9ey psepuers ayy jo fe Bursn Aq parayse oq Aew wi juUaWaSeSua ay2 Jo 1YZI ay? UY Yorewiozut Aue ‘wesdosd JOA 2 ee a1. (g) Pue voReWoyUT papacu ma > saounos : oun. Bunre20] (2) “POP. 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SHINE aatsod vapewt suotiduinsse Aue ypiat 49412801 “aauuew Teo1Zoy_ pue 3ea[> B UL suoTepUaWWOSa’ pur sBUIpUTT S,A9UOTITIOe Id aur fle ane SsimoT UH reBers UoHeNoFau ay: Buranp uodn PasiSe se quo Suorzen[eaod HJUSTTID «Joy = guaWNDOP daa Mattim aya ‘Ayyeult 3eYL syoafoad = Aqtaorid iy SVW Ul suOeienianan SSprac’ ~t Part one/ The MA: 480 entation Major Phases in Implementath — ee tn syst Implementation of 4 program oF c toll a Jases? into the following major Phi esse a sign serv! a The general a Bd of system ee Bran Py eelemne oa and indicates, general ante’ ites to be undertaken. itt ies detail how the differen, Seas pecific and step. 1. General De ign ~ in implementation. It s is to be installed or imp! terms, the Cae 2. Detail Design - is in ; i s activities are to be undertaken, Inc ation. In case the by-step instructions on each stage ady include a. General consultant's recommendations already _ n will be the first Design, preparation of the Detail Desig) hase of implementation. 5 3 Testing - This involves trying out ee een a system or programm to check if they will function properly, 4. Conversion - This involves the retirement of the old system and introduction of the new one. 5. Monitored Performance and Follow-up - After formally installing the new system or Program, the same should be closely observed for a reasonable Period of time to check if it is functioning as expected, if the employees have indeed adopted the new system, if, the anticipated benefits are actually being ‘realized, and if the necessary modifications and refinements are considered and introduced, Monitoring or Controlling the Implementation The practitioner can monitor or con’ . recommendations and installing a ee brogramlementation of t and th i with the use e (P (CPM) and measure the progress of the work accom, Re all of which with the prepared work schedule. A Ga. ; Chan ed as compared Exhibit 1-3 on page 49. rt is illustrated inEngagement Work Program Gantt Chart > Exhibit 1-3 3 F averali Proyram for Designing and Installing a ww Cost Accounting System cP Activities Firm Client Combined 10 5 5 3 5 8 T 5 6 A Fanancial and responsibility reports required 10 5 15 |_| Development of cost accounting procedures 12 (22 34 2] | development of production reporting procedures 3 15 18 E] | Development of general accounting procedures 3 12 15 a] | Establishment of normal capacities for all 5 cost centers 1 5 6 S] | Determination and development of material Z costs and yield standards 6 15 2 = Determination and development of labor E standards for each cost center 10 20 30 SG} | dete: and development of other 2 ‘manufacturing cost standards for each 7 cost cent = Inplementat: A 7 2 a = ation and follow = follow-up 10 30 40 El | cegenas zz: Z| OL cctinated B wa ns Chay —— tus CPA Firm| | page: is evaluated omer en Se DURE Sy Se AS Ces mene See a eee n Se ee ue ccs cacae aluating the engagement jy, quality of the engagement. Though evalua Seas engagemen: Blven here as the sixth stage in handling a {th stage, i | evaluation does not start only after the fift ae poi implementing the recommendations. Instead, this. activity” should be undertaken in the course of conducting the engagement, During the engagement, the progress status of the ear sl ould continuously be reviewed and compared with the plan. This wil enable the practitioner to assess the development of the Project, to check if the original objectives and scope of the engagement are being met, or if there is a need to revise the same, including the engagement work program. . At the conclusion of the work, and after the recommendations are implemented, or even after a reasonable period of time from ‘the date of implementation, final evaluation should be done to check if all the expected benefits are realized. Benefits Derived from Evaluation Aside from improving and refining the quality of management advisory services engagements, other benefits may be derived from evaluating the engagement such as: 1, It sets the direction for staff training Program. 2. It enables the Practitioner to timely evaluate the on-the-job performance of his staff. 3. It provides the data for determining required resources for future engagements, It Serves as a tangible evidence of quality consciousness Consistent with the other areas of a CPA's practice. Criteria for Evaluation Basically, the Practitioner should evaluate engagements in accordance with the following criteria: 1. Achievement of the engagement's objectives as set forthnapter_1/Basic Considerations in MAS 31 and agreed upon between the client and the practitioner. 2. Complete satisfaction of the client company as regards the results of the engagement. In conducting the evaluation, the practitioner may focus his attention to specific aspects of the engagement, such as the (1) Proposal, (2) Engagement prograrn, (3) Work program and schedule, (4) Source data and docurnentation, (5) Reports, and (6) Results. In evaluating these aspects, the evaluation ray consider the following criteria, as recommended by the AICPA Committee on Management Services: 1. Proposal a, Were specific problems with the client encountered which might not have arisen if the problern area had been adequately covered in the proposal lettér? b. Did the proposal letter recognize all requirements of firm policy in establishing the engagement? 2. Engagement program ‘a. Did additions to or deletions from the planned scope occur during the engagement? Why? Were these changes approved by responsible client personnel? b. Is there evidence that the skill level of personnel utilized was not commensurate with the requirements of the phase to which they: were assigned? If so, specify the indicator, phase, individual and recommendations for future engagements. : c. Were utilized techniques performed in accordance with firm policy? What change in techniques would ‘you recommend for a similar engagement? 3. Work program and schedule a. Did actual duration differ significantly from plan? State your option as to reason(s) for deviation. b. State your reason if dates of interim reports or engagement completion were hot in accordance with prior client agreement.4, 5. 6. There are dations run Period of ti al or written, tion jent, in the work Source data and Ce ed atter ource eaaati ee _ Were recomm ate evi anization op . dequi ‘ch FB! by 4 h supported ce Wi a specific respects | A et th ; conto arth firm? If a or recontact mam ary te addition’) fe making @ final “ Mieat tor additional information fear? Describe circumstances- interim reports Reports ld with, or in a. Were progress meetings he eeecont : made to the client? If not, state or final reports? b. Did errors of fact occur in interim u would recommend ©. Are there specific changes which yo! improve effective- in report content, format or style to impr\ ness? esults, apn in any of the above may or may not have a major impact on the most important criteria--results, It is in the evaluation of results that extreme caution must be Observed so that personal views are not allowed to cloud available objective and quantifiable evidence. The following would seem to be minimum cri a. What degree of satisfaction b. &. Describe any d. Were additional services, survey engagement, requesteinstructions or Procedures, 6) yisible during the implemen: circumstances, the practiti, and evaluations after r other fact : ors which ti tation/install, ence cree ation stage. Under such wcrc should conduct follow-up visits om the time of implementation) mount of time has passed auld , mM, to check and correct Fee improverssenderstanding, or make necessary modifica. oF satisfaction oe way, the client may be assured of as the concerned, engagement as a whole is SUMMARY All organizations are established for the attainment of certain goals. Because of this, systems and procedures are designed and installed so that the organization's resources may be utilized to their best advantage. To assure continuity of efficient and effective operations towards the attainment of the goals set, a regular review of these Operations by a third party is needed, hence the need for a Management Consultant. This brought about the emergence of Management Consultancy or MAS Practice. The practice of Management Advisory Services is not limited to CPAs alone, any professional equipped with the required competence, experience and technical ability in solving business problems may practise the same. However, more often than not, businessmen ‘avail the services of CPAs than other professionals when business problems arise or likely to arise. CPAs should practice MAS in. conformity with MAS Practice Standards and Code of Professional Ethics. MAS Engagement is comprised of seven stages: Negotiating the engagement; Preparation for and starting the engagement; Conducting the engagement; Preparation and presenting the reports and recommendations; Implementing the recommendations; Evaluating the’ engagement; and Post-engagement' follow-up. It is emphasized in the chapter that though the CPA sis expected to give Tecommendations for. the solution of business problems, the decision-making function rests on ¢he discretion of the client. The CPA's role is limited to that of extencing professional advice,