BASIC CONSIDERATIONS IN MANAGEMENT ADVISORY SERVICES I. OVERVIEW MANAGEMENT ADVISORY SERVICES DEFINED: It refers to the function of providing professional advisory (consulting) services, the primary purpose of which is to improve the client's use of its capabilities and resources to achieve the objectives of the organization. II. STRATEGIC DECISIONS AND MANAGEMENT ACCOUNTING Key to a company’s success in creating value for customers while differentiating itself from its competitors A. Mission VS Vision Mission Vision Defines the company’s business, its objectives | It describes the desired future position of the and its approach to reach those objectives. company. B. Providing information about the sources of competitive advantage Michael Porter's Three Generic Strategies 1. Porter called the generic strategies “Cost Leadership’, “Differentiation” and “Focus”, He then subdivided the Focus strategy into two parts: “Cost Focus” and “Differentiation Focus.” 2. Role of management accountant: provide managers information in helping formulate strategy. C. Identifying and building resources and capabilities 1. Strategic analysis: matching knowledge of marketplace opportunities and threats with ‘company’s resources and capabilities. 2. Balance sheet information about assets a. Current resources i. Cash adequacy ii. Inventory management b. Long-term productive assets: important strategic decisions for the right investments i. Analyze trends and measure efficiencies ii. Develop network of relationships with customers and suppliers ili, Identify financial and non-financial costs and benefits associated with alternative choices c. Intangible assets TIL. MANAGEMENT ACCOUNATNT'S ROLE IN IMPLEMENTING STRATEGY ‘A. Implementing strategy: managers taking action by using planning and control systems to help the collective decisions of an organization 1. Planning a. Thinking process i. Selecting organization goals ii. Predicting results under various alternatives of achieving those goals iii, Deciding how to attain desired goalsse = ‘Communicating goals and how to attain them to entire organization Control Taking actions to implement the planning decisions Deciding on performance evaluation Feedback: linking planning and control to help future decision making B. Supporting managers by providing information to improve strategic, planning and control decisions 1. a. b. c Three roles of management accountants fro success a. Problem solving: comparative analysis for decision making b. c Scorekeeping: accumulating data and reporting reliable results Attention directing: helping directors properly focus their attention Goals to assist managers in making better decisions Different decisions emphasize roles differently i. Strategy and planning emphasize problem solving ii. Control emphasizes scorekeeping and attention directing Interaction among types of decisions means activity/roles done simultaneously Information must be relevant and timely to be useful C. Enhancing the value of management accounting systems by guiding managers to focus on challenges 1 2. a. b. 3. a. b. c d. 4. Customer focus Value-chain and supply-chain analysis Companies add value through i. Research and development Design of products, services or processes Production Marketing v. Distribution vi. Customer service Managers in all business functions are customers of management accounting information Key success factors Cost and efficiency Quality Time Innovation Continuous improvement and benchmarking IV. MANAGERIAL ACCOUNTING VS. FINANCIAL ACCOUNTING MANAGERIAL ACCOUNTING FINANCIAL ACCOUNTING © Reports are for internal users @ Reports are for @ Has a strong emphasis on the future @ Summarizes past transactions @ Data should be relevant @ Data should be objective and verifiable @ Focuses on timeliness of information @ Focuses on precision@ Focuses on segments of a company @ Not bound by GAAP @ Not mandatory V. TREASURERSHIP VS CONTROLLERSHIP Vi. ‘TREASURERSHIP Provision of capital Investor relation Short-term financing Banking and custody Credits and collection Investments Insurance @ Concerned with reporting for a company as a whole Must conform with GAAP Mandatory CONTROLLERSHIP Planning and control Reporting and interpreting Evaluating and consulting Tax administration Government accounting Protection of assets Economic appraisal ETHICAL STANDARDS IN MANAGEMENT ADVISORY SERVICES The Code of Ethics in effect in the Philippines automatically covers all managerial accountants in the Philippines. In addition to that is the code of ethics developed by IMA. Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values and standards that guide our conduct. PRINCIPLES IMA’s overarching ethical principles include: honesty, fairness, objectivity, and responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. STANDARDS ‘A member's failure to comply with the following standards may result in disciplinary action 1. COMPETENCE Each member has a responsibility to: @ Maintain an appropriate level of professional expertise by continually developing knowledge and skills. @ Perform professional duties in accordance with relevant laws, regulations and technical standards. @ Provide decision support information and recommendations that are accurate, lear, concise and timely. @ Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. 2. CONFIDENTIALITY Each member has a responsibility to: @ Keep information confidential except when disclosure is authorized or legally required. © Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates’ activities to ensure compliance. @ Refrain from using confidential information for unethical or illegal advantage 3. INTEGRITY Each member hac a recnoncihility to:@ Mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. @ Refrain from engaging in any conduct that would prejudice carrying out duties ethically, @ Abstain from engaging in or supporting any activity that might discredit the profession. 4, CREDIBILITY Each member has a responsibility to: @ Communicate information fairly and objectively. © Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses or recommendations. @ Disclose delays or deficiencies in information, timeliness, processing, or internal con trolls in conformance with organization policy and/or applicable law. RESOLUTION OF ETHICAL CONFLICT In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conduct. When faced with ethical issues, you should follow your organization's establishment policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following action: 1. Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners, Contact with levels above the immediate superior should be initiated only with your superior's knowledge assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law. 2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. 3. Consult your own attorney as to legal obligations and rights concerning the ethical conduct.