LESSON 1: MS

Concepts,
Practices and
Standards
Presentation prepared by Majdi D. Jalal, CPA
Topic outline:
•Introduction (Stats and Foundation)
•Areas of Practice
•Standards in MAS
•Process of Engagement
•Letter, Program, and Forecasts
•Role of Practitioner
•Characteristics of MAS
•Billing of Services
Introductio
nManagement Advisory Services
Consultancy
Financial/transaction risk services
Consulting services
Business advisory services
Advisory services
Where did this MAS begin?
Introduced by industrial engineers,
through Scientific Management
(discussed in ManScie), later
developed with the help of different
fields of expertise
Why do CPAs perform MAS?
Because the market demands.
Before, CPA’s used to perform purely
audit/accounting services (which
don’t include consultancy). As they
get access to financial info of their
clients, they are able to understand
their clients better and can provide
advice and recommendations.
Growing Industry
Top 4 Firms combined earned
45.36B USD from advisory, 38.5%
of their revenues in 2017.
KPMG 64% in 2017
Deloitte 50% in 2019/20
PwC 32.51% in 2017
EY Global 36.93% in 2017
Why is there a need for
consultancy services?
A company is owned by stockholders
with BOD (responsible for governance, and in charge
of strategic goals and policies). Stockholder
s
They hire managers to manage the
operations of the company.
Managers may find difficulty in
addressing or resolving problems in managers
business operations.
So, they ask for advisory services from
external consultants (who can be objective
and independent).
consultants
 Companies need to beat the
competition to survive.
Iphone, Samsung, Xiaomi, Vivo, Oppo,
etc.
Toyota, Nissan, Ford, Mitsubishi, Geely,
Jetour, Suzuki, etc.
Globalization has made trading
products and services globally easier.
Hence, managing a company is
becoming more and more challenging
and complicated.
Take the case of Nokia, it didn’t
innovate and adapt. Hence, it got lost
Is MAS part of the scope of accountancy
practice?
The law implies but the market yells…
Scope of practice
(Employer-employee
(client-service provider relationship)
relationship)

Public Commerce & Industry

Accountancy
(teaching
(Employer is accounting, auditing,
government) MAS, finance, and
BL)

Government Academe/Educatio
So what is MAS for
Accountants?
Management Services refers
to that practice of
professional accountant
concerned with providing
advice and technical
assistance to help
management improve the use
of resources in achieving
organizational goals
(e.g. FS preparation, Operation Control and Efficiency,
and Compliance with rules and regulations)

Advisor, consultant, or
Role of BOD
Setting the strategic
goals and policies
Role of Management (client)
- Plan, finance, invest, earn, operate
- Entrusted by investors to use
their money for the - business, for
return
- They may need assistance of
experts in running business affairs
(e.g. CPA or other professionals)
- They are still the
decision-makers, not the advisor
Role of CPA as advisor/Consultant
Provide professional advice and technical
assistance to managers
Independent and competent CPA who
enjoys the trust and confidence of the
manager.
Identify problems and recommend solutions
Pattern or format of service may vary, and
not governed by specific standards (unlike
auditing/accounting), because companies
are different.
What approach an
advisor/consultant always use?
Analytical approach and process
“typically involves more than an incident effort
devoted to some combination of activities in
determining client objectives, fact-finding,
opportunity, problem definition, evaluation of
alternatives, formulation, and follow-up”
Professional competence to find facts (gather
data),
define problems (not symptoms)
identify alternative solutions
recommend most suitable solution
Analysis stage,
 Area of
MS
practice
What specific services do MS
What specific services do MS
practitioner do?
Area of MS Practice
It relates to traditional CPA services
(e.g. auditing, tax, and financial accounting).
As extension to those services, CPA may also be
asked to provide:
Operational advice, special studies, organizational
analysis, and innovations.
Area of MS Practice
Two periods of practices
Pioneering consultancy
services
Finance and Non-finance and
Accounting: Accounting
 Emerging Trend
Management consulting, transaction and
restructuring, risk consulting and others
Standards
in MS
Practice
What standards governing performance
of MS practice?
First, as professional CPAs, they are guided
by the standards of

morality and amorality ethics and rules to preserve integrity

What standards governing performance
of MS practice?
Second, they must also be guided by
technical processes and approaches
(benchmark)
What are the fundamental principles
for CPAs in the Philippines?
Code of Ethics for Professional Accountants (PICPO) + I
maintain good reputation
of profession and refrain
from acts which might bring
discredit
Do your responsibilities
ethically
Do “right thing” not “make
things right”
Do the right thing from the
start, instead of rectifying
the process.
 Baseline of MS professional
practice.

“Integrity requires as member to be,

among others, honest and candid
within the constrains of the
standards in client confidentiality.”

It is hallmark in the accounting

profession.

Straight-forward/honest: sum of what you say

and do, hindi puro salita lang
should not use nor disclose any information
without proper and specific authority or
legal/professional right to disclose.

“shielded with the right to remain silent”

 regularly acquire/maintain skills and
knowledge for technical qualification, reject
the engagement if not competent (must have
technical qualification, sufficient analytical
skills, knowledge, staff, or ability to
recommend)
- it is not guarantee for
perfection/infallibility
- abide with code of ethics
“Professional competence refers to the practitioner’s
technical qualification to perform engagement. It measures
intelligence, expertise, and required skills to perform an act.
It is acquired through formal and programmed training and
through non-programmed and non-formal experiences as
well.”
A professional accountant should be fair and should not allow
prejudice or bias, conflict of interest or influence of others to
override objectivity.
“Objectivity is a state of mind, a quality that lends value to a
member’s services. It is a distinguishing feature of the
profession. The principle of objectivity imposes the obligation to
be impartial, intellectually honest, and free of conflicts of
interest.”
Professional behavior
John is a CPA working as a consultant for a small manufacturing company, GreenTech, which is
experiencing financial difficulties. The company’s owner, Mr. Lee, is under significant pressure
and asks John to “adjust” the financial statements to make the company’s performance
look better to potential investors and lenders.

Action Demonstrating Professional Behavior:

John understands the importance of accurate and truthful financial reporting and knows that
altering financial statements would violate ethical standards and legal requirements. He politely
but firmly explains to Mr. Lee that manipulating the financial statements is unethical and
could lead to severe legal consequences for both the company and him personally. Instead,
John offers to help GreenTech improve its financial position through legitimate means,
such as cost reduction strategies, improving cash flow management, and identifying potential
areas for revenue growth. He also advises Mr. Lee on how to present the company’s situation
transparently to investors and lenders, focusing on the long-term benefits of honesty and
integrity.
INTEGRITY
Maria is a business consultant hired by a mid-sized company, Tech Innovators, to advise them
on a potential merger with a larger competitor, FutureTech. As part of her due diligence, Maria
conducts a thorough analysis of both companies’ financials, market positions, and potential
synergies.

During her review, Maria discovers that FutureTech has been inflating its projected revenues
to appear more attractive to potential partners. This information significantly impacts the
valuation and potential success of the merger. However, Maria knows that if she reveals this to
Tech Innovators, it could derail the deal, which might cost her firm a substantial fee.

Action demonstrating integrity:

Despite the potential financial loss to her consulting firm, Maria decides to act with integrity. She
presents her findings to Tech Innovators, clearly explaining the discrepancies in
FutureTech’s financial projections and the risks associated with moving forward with the merger
under these conditions. She also advises them on the best course of action, even if it means
renegotiating the terms or walking away from the deal entirely.
CONFIDENTIALITY
Alex is a business consultant working with a large retail company, ABC Corp., to help them
improve their supply chain efficiency. During the engagement, Alex gains access to
confidential information, including ABC Corp.’s proprietary supply chain processes,
financial performance, vendor agreements, and future expansion plans.

A few weeks into the project, Alex is approached by a competitor of ABC Corp., XYZ Retail, who
is interested in hiring him for a similar consulting engagement. During the initial discussion, XYZ
Retail’s representative tries to coax Alex into sharing insights about ABC Corp.’s
strategies, implying that it could influence their decision to hire him.

Action demonstrating confidentiality:

Despite the potential for new business, Alex exercises his duty of confidentiality by firmly
refusing to disclose any information about ABC Corp. He explains that as a consultant, he is
bound by confidentiality agreements and ethical obligations to protect his clients' private
information. Instead, he offers to discuss how he could help XYZ Retail without breaching any
confidential information from his current or past clients.
Professional Competence and Due Care
Susan is a CPA consultant working with a mid-sized technology company, BrightTech, which is
expanding its operations internationally. The company seeks Susan’s advice on how to
comply with the complex tax regulations in several new countries where they plan to
establish operations .
Action demonstrating Professional Competence and Due Care
Before providing advice, Susan recognizes that international tax regulations are intricate and
constantly evolving. To ensure she gives accurate and relevant advice, Susan:
1. Continues Professional Education: Susan attends a specialized workshop on international tax
laws and stays updated with the latest tax codes and treaties relevant to the countries in question.
2. Conducts Thorough Research: She carefully reviews the tax regulations, double-checking for any
recent changes or nuances that might impact BrightTech’s operations.
3. Tailors Her Advice: After gathering the necessary information, Susan provides BrightTech with a
detailed report outlining the tax implications of their expansion
4. Follows Up: Understanding that international tax laws are subject to change, Susan advises
BrightTech to set up regular reviews of their tax strategies. She offers to assist them with ongoing
monitoring and updates to ensure continued compliance.
Professional Competence and Due Care
Emma is a CPA consultant hired by a large corporation, StellarTech, to evaluate a potential
acquisition of a smaller company, InnovateCo. StellarTech’s CEO is enthusiastic about the
acquisition and believes it will significantly boost their market share. However, the CEO is
also a close friend of InnovateCo’s founder, which might create pressure to present the
acquisition favorably.

Action Demonstrating Objectivity:

Emma understands the importance of remaining objective and unbiased in her assessment. She
conducts a thorough and impartial evaluation of InnovateCo’s financial health, market
position, and potential risks. During her analysis, Emma discovers that InnovateCo has some
financial weaknesses and operational inefficiencies that could pose challenges for StellarTech.
Despite knowing the CEO’s strong personal interest in the deal, Emma presents her findings
honestly and without bias. She outlines both the strengths and risks associated with the
acquisition, providing a balanced view that includes potential drawbacks and areas that need
improvement. She also offers recommendations for mitigating the identified risks if the
acquisition proceeds.
What are the technical standards for
professional accountants in general?
Professional accountants have duty to carry out
with care and skill, objectivity, and independence
(for public practice, e.g. auditors).
In addition, they should conform with technical
and professional standards:
1. PR-BOA
2. SEC
3. Auditing Standards and Practices Council (ASPC)
4. Accounting Standards Council (ASC); and
5. Relevant legislations (e.g. RA 9298)
What are the standards for Consulting
services in particular?
AICPA Code of Professional Conduct:
Controlling standards
1. Professional competence – undertake what can be reasonably
expected to completed with competence
2. Due professional care – careful and diligent
3. Planning and supervision – make a plan and always supervise
the performance of services
4. Sufficient relevant data – always base on sufficient evidence and
data
What are the standards for Consulting
services in particular?
General Standards
1. Client interest – serve for the interest of client while maintaining integrity
and objectivity
determine what the client wants to provide them with benefits,
notify the client of any reservation (limitation) of benefits, before starting
any significant change in anticipated benefits shall be communicated
consider the ability and willingness of client in implementing recommendations
2. Understanding with Client – written/oral understanding of their
1. dfd

responsibilities (both client and practitioner), and nature/scope/limitations of engagement and

others (e.g. approaches, schedules/timing, and fees)
3. Communication with Client – shall communicate conflicts,
reservations of benefits/scope, findings or events, and reports (written or oral but
with at least memorandum file documenting the results and processes)
4. Application of Professional judgement– apply
judgement in applying standards for Consulting
Process of MS Engagement
 Presentatio
negotiation execution n of results

proposal
Planning & Implementatio
evaluation Follow-up
Proposal,
Confirmatio
n, and
Engagemen
t Letter
MS proposal letter
A proposal letter is an offer of
service. When accepted or
approved, it comes a contractual
agreement.

objectives, scope, role of parties,

approach to study, project
organization, fees and billing
arrangements, and others
•A confirmation letter
is a brief and concise
statement of an
agreement previously
reached with a client.
MS Engagement Program
An engagement program is a written
detailed plan of work to be performed in
carrying out the MAS engagement.

Objectives/description
Output
Personnel
Start and completion
Engagement Letter is a contractual agreement
used when the client has already agreed that
the practitioner will conduct the engagement.
File Memorandum – In case the client thinks a
written proposal is unnecessary or
undesirable, and oral undertaking should be
documented by way of memorandum.
Management Letter (in audit) is a report by the
CPA to management after the review of
management controls, stating some
Forecasts are intellectual
approximations of expected outcomes
and conditions. Estimates are measured
results of future actions and events.
Practitioner must not vouch for the
achievability of the forecast. Neither
should he allow his name to be used
which may lead to the belief that he is
vouching for its achievability.
Role of MS
practitioner Again, practitioner is just an
advisor (providing
recommendation and solutions).

But the manager remains to be

the decision-maker.

He/she must be independent to

remain objective.
Characteristics of an MS
engagement
Service for
management

Not to third or
other parties
•Scope is broad.

beyond finance,
accounting, auditing
an tax services
Future
orientation
Focuses on
potential
benefits
Non-recurrin
g

non-repetitive, vary
time-to-time,
client-to-client
highly
qualified staff
to complement required level of
expertise
 diversity
Flexibility in approach
Consultancy

Generally, bill = cost + fee

Costs:
•salaries/billing rates (e.g.
overhead cost, social welfare,
management fee)

•reimbursable costs (fixed

rate or actual costs to be
liquidated)

•Escalation (with
adjustments for contingency)
 Methods of Billing

1. Actual fees + per diem

2. Lump sum, Flat or fixed rates
3. Maximum fee basis (quotation)
4. Retainer basis (like salary, e.g. monthly
basis)
5. Out-of-pocket cost (actual + professional
fee)