Overview of Management Consultancy Services by CPA’s

Learning objectives

 Discuss the evolution, trends and prospects of management consulting services.

 Understand the consulting industry and career structure in consulting firms.
 Describe the nature of Management Advisory Services by independent accounting firms.
 Distinguish between consultations and engagements.
 Explain the rationale for using management consultants
 Discuss the CPAs role and objective in an MAS engagement.

Introduction to the World of Consulting

What is a consultant? A consultant is someone who has expertise in a specific area or areas and offers unbiased
opinion and advice for a fee. The opinion or advice is rendered exclusively in the interests of the client and can cover
review, analysis, recommendation and implementation. A consultant generally works in conjunction with the resources
and personnel of the client but uses employees, sub-consultants, or others as required for a specific project and in
accordance with the agreement.

A consultant is not an employee but an independent contractor usually self- employed, contracted to perform a
short-term or long-term task and may be paid on an hourly, daily or project basis or other fee arrangement.

Anyone can become a consultant. However, becoming a "successful consultant could be a different story. To
prosper in consultancy, one has to have expertise that others are willing to pay for and good business skills. Furthermore,
it requires some amount of incentive or motivation for one to "want to consult for others.

While many people think of consultants only in terms of the field of professional management consulting - firms
such as Ernst & Young Consulting, Accenture and others that specialize in fixing "disintegrating" organizations, the world
of consulting is much bigger than that. Anytime someone pays somebody for his/her unique expertise or advice -- he/she
is acting as a consultant

What are the reasons for becoming consultants?

Everyone, from all walks of life, with all manner of experience and expectations has reasons for becoming
consultants.

Basically, a consultant is a person with a marketable skill, a perceptive mind, a need for independence and
challenge, an ability to communicate with others and persuade them to follow advice, a desire to help others in an
effective way, and a wish to be an agent of positive change. In general, the people who go into consulting include:

 People frustrated with their current careers, who see the solutions for problems but are unable to
effectively influence decision-makers
 People who want a stimulating, dynamic, growing career that satisfies the need for personal development
 People dissatisfied with the lack of challenge, opportunity, or creativity in their existing jobs
 People graduating from school with training but little experience who wish to work for a large consulting
firm
 People who are between jobs and seeking new opportunities and careers
 People who see that they may be laid off and wish to establish themselves in a business to earn a
livelihood; these people may start on a part-time basis while still employed
 Retired people who have expertise and wisdom to offer
 People who wish to supplement their present income by using their managerial expertise or technical and
academic skills
 People with work experience and industry knowledge or other skills who want to combine a family life
with work at home
 People who understand government operations and the contract process, or who have built up contacts in
government, politics, or industry over the years.
 Although many thinks that money is the main reason people choose to become consultants, that is not what it is
all about. Of course, a lot of people make good money as consultants but to many people, the benefits of being a
consultant go far beyond the size of their bank accounts. Whatever one's reason for becoming a consultant, business
establishments of all sorts are using consultants more than ever. In a market research published in 2007 by consulting
experts, both consulting revenues and profits are up and are projected to continue to grow well into the future. One reason
for this is that skilled consultants can be brought into an organization on short notice, solve a problem and then move on
to another organization in need. There is no need to hire someone, pay them high salary and provide them with benefits
and even retirement plan. The most compelling nonmonetary reasons people enter the consulting field are

1. Sharing their knowledge to help their clients.

2. Building business network and take a step up in one's corporate career
3. Having no boss, being independent and making their own decisions.
4. No fear of being laid off
5. Having a flexible source of income.
6. A means of giving back to the community by providing expertise and assistance in community-based projects.

To many, a major attraction of becoming a consultant is starting their own consulting firm and many thousands of
consultants have been successful in transitioning to being their own bosses and are enjoying the financial, professional
and lifestyle benefits that result. But of course, starting up one's consulting firm and keeping it economically viable is a lot
of hard work and risk.

Maybe the next big question in a prospective consultant's mind is

"Do I have what it takes to become a consultant?"

Many consultants never do a thorough, honest appraisal of their strengths and weaknesses. If you haven't
identified your skills, attributes, and talents, how can you determine your specialty areas and the target market? How are
you able to package and sell your services and take advantage of opportunities? Without this awareness it is difficult to
project the self-confidence necessary to operate your business and respond to questions a potential client might ask you.

Evolution of MAS

Auditing, accounting system design and installation, and income tax work have been the traditional areas of
expertise for CPA firms. The field of management consultancy has, however, become a rapidly growing new area. When
CPA firms during the course of an audit discovered problems in a client's business, it was natural for them to make
suggestions for corrective action. In response, the client often engaged the CPA to make a thorough investigation of the
problem and to recommend new policies and procedures needed for a solution. Gradually, public accounting firms found
themselves becoming more and more involved in management consulting work.

The progressive public accountants have found management consultancy a natural area of development of their
practice because many of these assignments involved planning and control systems that relied heavily on accounting and
related statistical information. In recent years, responding to the increasing demands of clients for outside assistance, CPA
firms have created separate management advisory service divisions which are staffed by industrial engineers, lawyers,
statisticians, psychologists as well as accountants. The qualifications of management consultants sometimes include
special training and experience, skills and research capabilities to apply an analytical approach to the solution of
management problems.

Because of increasing complexity of business, more and more small and medium-sized businesses are looking to
their auditors for help in the area of controllership. However, as management advisory services are extended further into
other areas, some members of the profession feel that there is increased pressure against independence of the CPA which
cannot just be taken lightly The accounting firm should therefore strive at all times to limit itself to providing advice and
technical assistance to clients and avoid making management decisions or taking positions that might impair its
objectivity,
Management consulting is a profession whose members provide extremely useful services to business managers. The
profession of management consulting is growing at an accelerating rate and the end of this growth trend is not in sight.
Everyday new organizations join the ranks of management consulting clients.

Developing Trends

The practice of management consulting has changed dramatically since the mid 90’s. Management consultancy now
specializes in information systems, automated offices, financial analysis and modeling budgeting and cost controls,
organization structures, personnel compensation, strategic planning and a host of other areas. Another trend has been the
improvement of business education. The quality undergraduate and graduate programs in business are producing better-
trained entrants into the ranks of management consulting profession. As a result of this infusion, management consulting
is becoming a catalyst for the advancement of better management concepts and techniques.

Change in management culture as well as growth in size and complexity of institutions have likewise propelled
the need for management consultants. Competition has forced companies to re-engineer their inefficient business
processes and re-train their work force. Companies have begun to exercise self- governance where even the lowest unit or
employee/worker is empowered to make decisions and be accountable for those decisions. The flattening or delayering of
the organization runs against the traditional hierarchy of management with hard and fast internal controls that accountants
have grown accustomed to.

Technological developments have occurred at a breathtaking pace in such areas as information sciences and
decision sciences. Computer hardware and software, together with data communication and robotics represent powerful
tools for business management. Globalization takes place because enhanced telecommunications technology can now
substitute physical travel. More knowledge has become within easy search of many: knowledge literally, can now be at
one's fingertips as proven by the Internet.

Future Prospects

What do these trends portend for the future of management consulting?

These forces of change are deemed to affect any country, any industry and profession. Management consultancy is not
going to be spared from the effects evolving from development and transformations. A veteran management consultant
makes the following predictions:

1. Management consulting will become even more specialized. Consulting firms will need to continually add new
specialties, just as manufacturing firms add new products.
2. The consultants' orientation will be towards being an insight-provider, creator and sharer of information.
3. Management consulting firms will tend either to remain small or to become quite large. Small firms will prosper by
focusing upon narrow areas of specialization while large firms will have to develop and offer a wide range of services to
sustain their high costs of operations.
4. As consultants grow in number, they will develop more sophisticated means of marketing their services.
5. Bright graduates of accounting, management and business schools will continue to be attracted to careers in
management consulting.

The Consulting Industry

The consulting industry is large. Most definitions of consultancy would include the following:
(a) information technology (IT)
(b) consulting and system integration
(c) corporate strategy
(d) operations management
(e) human resources management
(f) outsourcing
Anderson/Enroll Scandal Result

(1) Increase in demand from industries to bring in specialists to manage om-core activities when they are needed
Globalization and information technology have mere used in complexity and competitiveness of the environment in
which business operate and managers want to stick to their core expertise

(2) Continued demand for IT spending. The Internet has a major impact on the way many established industries operate.
For example, the airline industry has used e-ticketing to drive down operating costs.

(3) Growth of consulting due to increasing demand from governmental and associated organizations. Government
departments are now outsourcing work and offering tenders to private firms for capital projects.

The consulting industry has a relatively low concentration. It is fragmented and includes a number of sectors. In
general, the trend is for players to be large with a global reach or small and offering a specialized service. The main types
of consultant firms are as follows:

(a) IT Firms

IT companies have increasingly looked towards consulting as a means of increasing revenue. The recent trend
has been to buy consulting businesses, for example, IBM's purchase of PwC Consulting. As a result, IBM has
significantly increased its market shares in consulting businesses

(b) Accounting Firms Offering Consultancy

A major change in US accounting practice occurred following Andersen's woes and the consequent
implementation of the Sarbanes- Oxley law. Many accountancy firms have sold off their mainstream consulting
operations either to management or to other consultancies (particularly IT). Consultancy services are still offered
but they tend to have a narrow focus around financial and transactions (mergers and acquisition) services.

(e) Major Consulting Only Firms

There are a number of large firms with a global reach. They offer a wide range of services but their core business
is consulting. The big names are McKinsey & Co. Accenture and Mercer Management Consulting: IBM; Atos
KPMG Consulting: Deloitte Consulting and Cap Gemini Ernst & Young

(c) Independents

Many individuals run their own consulting services as sole traders, as small limited companies and partnerships.
They offer a range of services, often quite specialized. Professional bodies such as PICPA offer professional
training and accreditation and provide a forum for all- important networking,

Career Structure in Consulting Firms

All management consultancies organize themselves in their own way but they can be quite hierarchical in their structures
especially the larger firms. This structure provides a definite ladder for gaining experience, building expertise, and
developing a career. In practice, teams that cut across levels of responsibility undertake most consulting projects. Most
consultancies, being team-based, operate with a professional, informal culture. Job titles vary but some of the common
roles in ascending order of seniority) include the following:

Analyst

Most graduates would start here straight from university or business school. Analysts are responsible for gathering
information and processing it for the consulting team. Only the large firms offer these positions
Consultants

These are either analysts who have been promoted after a couple of years or those who have been in industry and have
moved to consulting as a career change. Consultants undertake the evaluation of the client business and make
recommendations on its behalf.

Senior Consultants or Managers

More experienced consultants have responsibility for leading a consulting Team undertaking a project on behalf of a
client. They would typically have 3.5 years of consulting experience and have already demonstrated their ability to take
on the responsibility of running small consulting projects. They would also be more involved in dealing with members of
the client team.

Business Development Managers

Business development managers within the consulting business are responsible for developing the firm's products and
building its relationship with clients. They will also be involved in some large, complex consulting projects at a strategic
level. Most at this level would have 5-10 years of consulting experience.

Directors (or Partners)

Directors (or partners if a private firm) are the most experienced consultants, who take on responsibility for the
development of the organization as a whole and who lead its strategic development. They will also maintain contacts with
senior personnel in the client companies and will have overall responsibility for projects. As the most senior in the
organization, it would be expected that they would have 10+ years of experience in this field.

Nature of MAS by Independent Accounting Firms

Management advisory services by independent accounting firms can be described as 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.

Management consulting can also be described as an independent and objective advisory service provided by qualified
persons to clients in order to help them identify and analyze management problems or opportunities. Management
consultants also recommend solutions or suggested actions with respect to these issues and help, when requested in their
implementation,

In essence, management consultants help to effect constructive change in private or public sector organization
through the sound application of substantive and process skills.

These activities of management consultants can involve two types of encounters with clients:
(1) consultations and
(2) engagements

A consultation normally consists of providing advice and information during a short time frame. This advice
and/or information is provided orally during one or more discussions with the client. Sometimes, the advice and/or
information will be definitive when the consultant is fully aware of the situation and possesses sufficient expertise to
require more intensive study or investigation. Often, however, such advice and/or information will be qualified by stated
limitations due to lack of first-hand observation of the problem situation or lack of familiarity with underlying technical
aspects, and so on.

An engagement consists of that form of management advisory or consulting service in which an analytical
approach and process is applied in a study or project. This approach typically involves

1) Ascertaining the pertinent facts and circumstances

2) Seeking and identifying objectives
 3) Defining the problem or opportunity for improvement
4) Evaluating and determining possible solutions
5) Presenting findings and recommendations, and
6) Implementing the solution, if appropriate

and following the client's decisions to proceed, the independent accounting firm may also be involved in:

-Planning and scheduling actions to achieve the desired results, and

-Advising and providing technical assistance in implementing,

In combination with knowledge and experience in such areas as:

-Organization and management methods
-Office and management functions
-Systems and procedures
-Data processing methods
-Quantitative methods (mathematics, statistics, etc.) and
-Financial management,

to produce solutions such as:

-A management information system
-A sales reporting system
-A cost accounting system
-A work measurement program
-Improved production control
-An organization plan with statements of duties and responsibilities, or
-An electronic data processing system.

Rationale for Using Management Consultants

Management consultants are generally engaged by key administrators of client organizations although they are
not expected to be as familiar with the organization as are the managers and administrators. Furthermore, consultants are
generally much less costly for the service they provide than would be a newly hired manager or employee.
A management consultant is hired for at least four valuable reasons:

1. Independent viewpoint

A consultant is considered independent, objective and detached to the problems faced by the organization.
These qualifications enable him to see the true nature of the problems and distinguish between feasible and
infeasible solutions. Also, because the consultant is not involved in the internal policies of the organization,
his or her suggestions tend to be accepted as unbiased.
Consultants are retained as impartial advisers without any vested interest in the outcome of the
recommendations. Internal staff may not be able to see the problems or may not be sufficiently objective. A
consultant can perform a competent and thorough analysis of the issues. It is easier psychologically for
personnel to adapt to external advice rather than the internal advice of someone who may be acting out of
self-interest

2. Professional advisor and counselor

An experienced management consultant possesses special knowledge, skills and a variety of personal
attributes that make him the most desirable candidate to undertake an engagement involving his area of
expertise. Furthermore, an experienced consultant can introduce new ideas into the organization that were
gleamed from other engagements, Although the law does not restrict the practice of management consultancy
only among CPAs, business firms generally prefer CPAs to act as their management consultant. Because of
the persuasive nature of accounting the academic training and examination requirement for the CPA
certificate, a CPA has a broad base on which to build a management services practice.

Many nonprofit organizations or small and medium-size businesses need assistance in obtaining grants or
loans for their continued survival. They may lack the expertise, ability, or time to research the availability of
funding and prepare a persuasive application. Consultants with an expertise in this area act as advisers or
agents.

Consultants are hired to provide in-house training to keep staff informed of new management and supervisory
techniques or technical knowledge and to improve employee morale.

3. Temporary professional service

The use of consultants will be probably less expensive to the company than hiring new managers or
employees to provide professional advisory services. Sometimes, organizations find themselves short of
critical professional resources and management consultants can in such cases, fill in as temporary professional
help.

Clients frequently wish to supplement skills in their organization by hiring trained, proven, motivated
consultants on a short-term or long- term basis. Consultants may be hired on a project, seasonal, or new
funding basis.

By hiring consultants, clients do not have to contend with the training, instruction, and long-term commitment
for salaries and fringe benefits entailed in hiring a skills employee. Recruitment costs alone for a skilled
employee can be considerable and cannot be justified for short- lived or cyclical need. Consultants are
independent contractors and therefore no tax deductions or fringe benefits are involved.

4. Agent of Change

A management consultant can act as a catalyst for change and stimulating ideas in a highly structured
organization that otherwise might be resistant to change due to its size, bureaucracy, and institutionalized
nature. In providing solutions to the clients' problems, changes may have to be made to the organizational
structures, to procedures and to job responsibilities. These changes are intended to assist managers in the
administration of organizations.
Independent Accounting Firm's Role in MAS

The role of an independent accounting firm in performing management advisory services is

"to provide advice and technical assistance which should provide for client participation in the analytical
approach and process. Specifying this as the proper role recognizes both the appropriate place of MAS and the realities
of practice. This is the only basis on which the work should permit it to be done”

The propriety of this role of advisor is clear if one considers that a consultant is not in a position to carry out his
recommendations since he has no authority to marshal client resources and to make management decisions. Should he
attempt to do so and allow himself to be placed in such a role, he ceases to be a consultant. In short, the accounting firm
should avoid making management decisions or taking positions that might impair the firm's objectivity.

CPA’s Objective in Engaging in MAS

An independent accounting firm's purpose in engaging in MAS is

"to utilize the essential qualifications, it has available to provide advice and technical assistance which will enable client
management to conduct its affairs more effectively”

These essential qualifications are based in part on attributes acquired in conducting other aspects of practice and include

1) Technical competence.
2) Familiarity with the client's finance and control systems and his business problems
3) Analytical ability and experience in problem solution
4) Professional independence, objectivity and integrity

Reference

Management Consultancy Principles and Engagements by Elenita B. Cabrera, BBA, MBA, CPA, CMA