Explanatory Discussion of the Standards 1.

Personal Characteristics Clients are after the objectivity of opinions and reliability of recommendations of CPAs. The CPAs' professional status and the reliance of the clients on that status, depend to a large extent upon his integrity, objectivity, and ability to be independent in mental attitude on all matters relating to client service. Integrity - quality or state of being of sound moral principles, honesty and sincerity. This is a highly personalized characteristic that ensures that the practitioner's statement of findings and recommendations are free of intentional distortions and misstatements. Objectivity - ability to avoid bias and to maintain an impartial attitude in all matters under review. Independence in Mental Attitude is the ability to maintain the role of an objective consultant without making any attempt to influence the decisions of management. When the CPA maintains his role as an objective researcher, analyst or adviser and does not consider himself a part of the management by taing on the role of decision maker.

2. Competence A practitioner's services must be of professional quality in each of the technical areas in which he performs MAS. Competence in professional Work - involves the technical qualifications of the practitioner and his ability to supervise personnel assigned to evaluate the quality of work performed. Competence in performing MAS - ability to identify and define client needs, to utilize the analytical approach & process, and to assist in implementing the recommendations.

3. Due Care Concerned with what the consultant does and how well it was done. It does not imply infallibility on the practitioner's work but requires systematic critical review of the work performed in an engagement.

4. Client Benefit

Standard requires the practitioner to notify the client of any reservations he had regarding the anticipated benefits of the engagement. The practitioner must serve the client interest by seeking to accomplish the objectives established by the understanding with the client while maintaining integrity and objectivity. (Source: http://www.aicpa.org) 5. Understanding with Client Establish with the client a written or oral understanding about the responsibilities of the parties and the nature, scope, and limitations of services to be performed, and modify the understanding if circumstances require a significant change during the engagement. Significant matters that the client and practitioner must understand: Objectives - clear cut understanding about objectives so that the practitioner's recommendations are in line with the management's objectives. Scope - Should be broad enough to encompass matters likely to be significant in developing recommendations. Approach - Clear cut understanding on what will constitute completion of the engagement as well as the contents of the end product. Personal Role - Clear description of the respective roles and responsibilities of both practitioner and client. Timetable - prepared schedule that set commencements as well as the completion time of the work to be done. Fees - Matters like fees and expenses must be properly arranged with the client before an engagement is conducted.

6. Planning, Supervision, and Control After the objectives of the engagement have been set, the engagement plan is developed by translating the objectives into a structured set of activities within a targeted time schedule. Monitoring and revisions throughout the engagement is also required.

7. Sufficient relevant data Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed. This standard

requires the practitioner to exercise professional judgment in determining the type and amount of data required to be the basis for recommendations.

8. Communication of Results Principal findings, recommendations and accomplishments, and the major assumptions relied upon, must be conveyed to the client. Interim Communication -Encourages the involvement of management, helps preserve managements role as decision-maker, and keeps management informed of the progress towards the final conclusions. Final Report - Should be made upon completion on the engagement to ensure that the results and recommendations are communicated.

Organizing Management Advisory Services Practice A public accounting firm may be organized as a sole practitioner, or as a partnership. Most CPA firms are organized as a partnership. In a partnership the professional staff consists of partners, managers and supervisors, seniors and staff accountants. When a firm is organized as a partnership, it is generally required that partners be certified public accountants. Lay (non-CPA) officers should not have any influence on professional matters. Partners They get clients for the firm and maintain primary contact with clients. Generally, partners review and approve the work of subordinates. Only partners may sign reports that result from the engagement. Managers and Supervisors Generally, managers and supervisors prepare, review, and approve drafts of reports and other communications. Senior Accountants They also draft programs (for audit and MAS), reports, tax returns, and other communications to clients. Staff Accountants (Often called junior accountants), Participate in engagements under the supervision of more experienced accountants. They prepare schedules and reports of findings, work on tax return, and sometimes assist in proofreading and checking.

Stages of Management Advisory Services Engagement 1. Negotiating the engagement 2. Preparing for and starting the engagement

3. 4. 5. 6. 7.

Conducting the engagement Preparing and presenting reports and recommendations Implementing the recommendations Evaluating the engagement Post-engagement follow-up

I.

Negotiating the Engagement In this stage, the practitioner will be called for a preliminary conference to discuss with the prospective client the terms and conditions of the prospective engagement. Its purpose is to arrive at a common understanding as a basis for working together. A letter of proposal is a formal communication to the prospective client, setting forth; the engagement objectives, the scope, the approach to the study, the role of the parties involved in the engagement, end-results to be achieved, fees and billing arrangement, and other terms of the proposed engagement, for the clients consideration and approval. Contractual agreement (engagement letter) of the engagement exists when the letter of proposal is accepted or approved. The file memorandum documents all oral understanding between the practitioner and the client.

II.

Preparing for and Starting the Engagement The usual steps to prepare for and start the engagement follow: 1. Selecting and briefing members of the engagement team. Member of the team is selected depending upon the nature and complexity of the engagement. 2. Preparation and approval of the engagement program. It is a list of work procedures to be followed in conducting the engagement. 3. Introduction of the members of the engagement team to the client. This introduction may include explanation of the roles of the members of the engagement team and clients representatives.

III.

Conducting the Engagement

Conducting the engagement involves activities which include: Gathering of data and information. Analysis of evaluation of the information gathered.

A. GATHERING OF DATA AND INFORMATION Gathering of data and information means collecting facts that might bear upon the problem. This includes: a. Determination of the nature and extent of the data to be gathered; o We must know the essence and scope of the data or information that we will gather; o It must be sufficient and relevant under the circumstances; o It should not only include numerical facts but also subjective ones like opinions, viewpoint and representations about future events. b. Locating the resources of the information, and; o We must know where to find the information that we needed. Information can be obtained through: inquiries or personal interview, observation, and Document review using flowchart, previous studies and other outside sources of information deemed appropriate. c. Recording the information and documenting the process. o We must record the information (evidence) obtained in conducting the engagement using the engagement working paper.

B. ANALYSIS OR EVALUATION OF INFORMATION The analysis or evaluation of information is a logical and systematic process that includes the tasks of: Classifying the information gathered Determining the causal relationship Identifying key variables Discovering problem(s) and opportunities for improvement Developing and evaluating various courses of action Recommending a course of action

Engagement Working Paper It is the compilation of the evidences that will support the recommendation to be submitted to the client upon completion of the engagement. Usefulness provided by the working paper: It provides documentation of the engagement. It provides historical record to the services rendered to the client. It serves as the source of ideas and research material for future engagements. Notes: In the course of conducting an engagement, it is advisable for the practitioner to continuously communicate with the client. Should significant changes occur as to the scope and procedures to be taken, the practitioner should review them with the client and have the work program subsequently reflect them. The practitioner should not proceed unless the client approves the change.

IV.

Presenting and Preparing Reports and Recommendations The accomplishment of an engagement is concluded by the submission of final report than can be oral, in writing or both. The final report contains the analysis, conclusions, and recommendations. It can either be: Long-form Report documents all the circumstances surrounding the engagement including all findings and recommendations. This type of report is issued when then client decides to do the implementation phase without consulting assistance. Short-form Report presented in a letter-format and is restricted to the consultants key findings and recommendations. It is normally used in cases where the engagement involves extensive interim reporting.

V.

Implementing the Recommendation

In general, a CPA-practitioner should not undertake any assignment to implement recommendation unless: a. The client understands the nature and implications of the recommended course of action; b. Management has made a firm decision to proceed with the implementation based on his understanding and consideration of alternatives; c. Management accepts overall responsibility for implementation of the chosen course of action; d. Sufficient expertise will be available in the client organization to fully comprehend significance of the changes being made during implementation; and e. When changes have been fully implemented, client personnel have the ability to adequately maintain and operate such systems as may be involved.

VI.

Evaluating the Engagement

Evaluation of the engagement involves comparison of actual results with previously established standards so as to determine the quality of the engagement and the reasons for any deficiencies encountered. The evaluation does not start only when recommendations are being implemented; rather, the activity is undertaken all throughout the course of conducting an engagement. VII. Post-Engagement Follow-Up

Follow-up visits and observation of the system over a reasonable length of time after the installation is done is a necessary part of a management advisory services engagement. Such follow-up work is necessary to check or correct any deficiencies. This also assures clients satisfaction as far as engagement as a whole is concerned. This action benefits also the future engagement.

Multiple Choice Questions: 1. That kind of accounting concerned with providing information to management in making decisions about the operations of the business: a. Responsibility accounting b. Cost accounting c. Management accounting d. Correct answer no given

(rpcpa) 2. The following characterize management advisory services except: a. Involve decision for the future. b. Broader in scope and varied in nature. c. Utilize more junior staff than senior members of the firm. d. Relate to specific problems where expert help is required. (rpcpa) 3. Management services of certified public accountants cover all of the following except: a. Project feasibility studies b. Systems design, development and implementation c. Organizational development and planning d. Audit, tax and legal services (rpcpa) 4. Which of the following does not relate to management services by CPAs? a. Design and/or installation of accounting system b. Financial analysis for project feasibility studies c. Cost analysis of major investment decision d. None of the above (rpcpa) 5. Which of the following statement is true? a. Adequate training and experience in both the analytical approach and process in the particular undertaking are requisites for the CPA to be involved in a management service engagement b. A CPA with MBA and Ph. D degree is automatically qualified to render management services c. Competence as a standard in the rendition of management services by a CPA may be equated to having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and other post-graduates studies d. A certified public accountant by virtue of having the necessary academic preparation and by having the licensure examination required to have a CPA license can readily render management services to the public (rpcpa) 6. As a consultant, the CPA practitioner should

a. Exercise administrative control over the clients staff to avoid unnecessary delays in implementation b. Encourage dependence of client on the consultants staff so as to pin point clear responsibility in implementing systems c. Not take responsibility for making decisions and policy judgments in MAS engagements d. Conduct his engagement as if he is a member of the clients organization (rpcpa) 7. Which of the following statements is false? a. CPAs provide management services to go around the ethical constraints as mandated by the Accountancy Act b. Business hires management consultants to help define specific problems and develop solutions c. Included in the practice of consulting is the provision of confidential service in which the identity of the client is concealed d. CPAs performing management services may be considered to be in the practice of management consulting (rpcpa) 8. The Accountancy Act of 2004 (or RA 9298) incorporates the Code of Professional Ethics for CPAs. The provision of management advisory services is among the areas of public accounting. It is, however, not exclusive to CPAs. Considering these premises, which of the following statements is applicable? a. Management advisory services as a field of professional practice is considered as an integral part of public accounting thus, Code of Professional Ethics for CPAs covers management advisory services b. CPAs in the practice of audit and management consulting services may advertise and charge contingent fees c. The practice of management advisory services should not be extended to existing audit clients since this will adversely affect the CPAs independence d. CPAs in the practice of management advisory services are not bound by the Board of Accountancy Law but are bound by the said law in the practice of audit (rpcpa) 9. A certified public accountants scope of management services is broad and covers all the following except: a. Change in management engagements

b. Computerization engagements c. Audit engagements d. Re-engineering engagements (rpcpa) 10. Indicate whether the following statements are true or false Statement 1 A CPA firms primary purpose for performing MAS services is to enable the staff members to acquire the necessary continuing education in all areas of business Statement 2 MAS consultation, unlike MAS engagement, generally involves advise or information by a CPA in which an analytical process is applied Statement1 Statement 2 a. True False b. False True c. False False d. True True (rpcpa) 11. Which of the following is not a characteristic of Management Advisory Services? a. MAS is broad in concept b. MAS involves problem-solving affecting the future of the client c. Beneficiary of service is management d. MAS is representative as far as the same client is concerned (rpcpa) 12. A management advisory services engagement generally involves the following activities in what order? I. Post engagement follow-up II. Implementing the recommendation III. Conducting the engagement IV. Negotiating the engagement V. Preparing for and starting the engagement VI. Evaluating the engagement VII. Preparing and representing the report and recommendations a. VII, VI, V, IV, III, II and I b. IV, III, V, VI, II, VII and I c. III, IV, V, VI, VII, I and II d. IV, V, III, VII, II, VI, and I (cma)

13. A CPA should reject management advisory services engagement if a. It would require him to make management decisions for an audit client b. The proposed engagement is not accounting related c. His recommendations are to be subjected to a review by the client d. He audits the financial statements of a subsidiary of the proposed client (cma) 14. Which of the following is not a characteristic of management services? a. A wider variety of assignment are encountered in MAS that in audit b. MAS engagements are recurring c. MAS pinpoint actions to be taken, the benefits of which will be received in the future d. In MAS engagement, the nature of work involved requires lesser need for junior assistance (rpcpa) 15. Which of the following is not an area related to the performance of management services by independent accounting firms? a. Introducing new ideas, concepts and methods to management b. Improving existing policies, methods and procedures c. Performing special studies, preparing recommendations, and formulating plans and programs d. Performing management functions and making decisions (rpcpa) 16. The following statements refer to competence of CPAs in management advisory services except: a. In concept, it refers to the technical qualification of the practitioner and his ability to supervise and evaluate the quality of work of his staff as assigned to the engagement so as to be responsible for the successful completion of project b. It is acquired by education, self-study, attendance to professional development courses, actual experience in MS work, and research c. It is the ability to identify clients needs, use analytical approach and process, apply technical knowledge, communicate recommendations and assist in implementation d. It must be retained in the rendition of MAS work and it can be impaired if the CPA performs decision-making for the client or acts as employee of the client (rpcpa) 17. Competence in management advisory services is acquired by

a. Education b. Auditing and other experience c. Actual performance of management advisory services d. All of these (rpcpa) 18. Which of the following in not a qualification of a CPA in MAS practice? a. Familiarity with the clients financial accounting and internal control syste ms b. Analytical experience in problem-solving c. Professional independence, objectivity, and integrity d. Auditor of the client (rpcpa) 19. These statements relate to MAS practice standards 1. A practitioner is to notify the client of any reservation ha has regarding anticipated benefits 2. Throughout the engagement, there ought to be a systematic critical review of accomplishment and work should be done within the framework of the code of ethics and other professional standards 3. During the engagement, should there be significant changes between cost and anticipated benefits, the client should be informed 4. Before the engagement, the practitioner must make arrangements with, and inform the client on significant matters related to engagement, in writing Of these statements, which pertains to the practice standard on the client benefit? a. Statements 1 and 3 only b. All statements c. Statement 1 only d. Statements 1, 3, and 4 only (rpcpa) 20. Which of the following statements is not acceptable? a. A CPA represents 3 major players in the industry in rationalizing the industrys incentive before the government public hearings b. A CPA shares with new and substantial client information regarding another client belonging to the same industry c. A CPA provides consulting services to an existing audit client d. A CPA offers and provides consulting services to two major competing client

(rpcpa) 21. A CPA should reject management advisory services engagement if: a. It would require him to make management decisions for an audit client b. The proposed engagement is not accounting related c. His recommendations are to be subjected to a review by the client d. He audits the financial statements of a subsidiary of the prospective client (rpcpa) 22. Which of the following does not impair independence of a CPA in the rendition of management services? a. The CPA performs decision-making services for his client b. The CPA performs services wherein he is in effect acting as an employee of the client c. The CPA eases its objectivity and acts in a manner as if he is advocating for the interest of his client d. The CPA does not extend his service beyond the presentation of recommendations or giving of advice (rpcpa) 23. Indicate whether the following statements are true or false: Statement 1 Management consultancy is an exclusive field of practice for CPAs and is regulated by law Statement 2 An area of MAS which is directly related to the accounting and finance functions is project feasibility study Statement 1 Statement 2 a. False False b. True True c. True False d. False True (rpcpa) 24. Mr. Rey Carlos, a CPA firms partner-in-charge of quality assurance and review is arguing with Mr. Ruben Fortuna, the consulting partner regarding the question on independence as Mr. Fortuna is presently rendering consulting services to Tam Co., an audit client of the firm. Related to this issue of independence, all of the following statements are not valid except: a. Independence is never sacrificed for as long as the auditor/consultant is correct in his decision for the client

b. A CPA who renders both audit and consulting services to a client by virtue of his competence/expertise and extensive knowledge of the clients business is in the best position to render decisions for the client and do so c. The client is the ultimate decision maker and the auditor/ and or consultant should not make decisions for the client d. It is up to the professional judgment and discretion of the auditor/consultant to render decision for the client for as long as his professional fees are commensurate to the benefit that the client will derive from the engagement (rpcpa) 25. After preliminary audit engagement has been made, an engagement confirmation letter should be sent to the client. The letter usually would not include: a. An estimate of the time to be spent on the audit work by audit staff and management b. A reference to the auditors responsibility for the detection of errors or irregularities c. A statement that management advisory services would be made available upon request d. A statement that management letter will be issued outlining comments and suggestions as to any procedures requiring the clients attention (cma)