Management Advisory Services (MAS) refers to that 1.

Personal Characteristics- integrity, objectivity, and

practice of accounting concerned with providing advice independence in mental attitude
and technical assistance to help management improve
the use of resources in achieving organizational goals.  Integrity means that the process applied in the
The certified public accountant who practices MAS engagement and the corresponding results
work is called an advisor or consultant. thereof are free from deliberate distortions of
information and misstatements. Objectivity
The Manager of the MAS client refers to the fairness in approach in the conduct
of the engagement and in the presentation of
MAS principally serves the needs of the top results. It involves impartially and freedom from
management. Management is entrusted with bias.
organizational resources to make more wealth.  Independence in mental attitude is the
practitioner's ability to maintain impartiality and
Technically, management is difference from governance.
clarity in performing his task to attain his
Governance, being the duty of the Board of Directors, is
professional objective. He should not be
engaged in setting the strategic goals and policies of the
unnecessarily influenced by his personal and
enterprise. Management develop and executes operating
related interests that may impair the integrity of
standards and systems to deliver the goals of the
his performance but always uphold the interests
business.
of his clients and the public in general.
Analytical Approach and Processes
2. Competence - It refers to the practitioner's technical
It involves more than an incident report devoted to qualification to perform the engagement. It measures
combination of activities in determining client intelligence, expertise and required skills to perform an
objectives, fact-finding opportunity, problem definition, act.
evaluation of alternatives, formulation and follow-up.
3. Due Care- Due care reflects the ability of the
Analytical approach and process also refers to the
practitioner to exercise competence and utmost care
systematic, and rational method of solving
from the date the engagement is being negotiated with
organizational problems. It involves at a professional
the client, to the definition of clients’ performance and
level, the ability to find facts and define the basic
needs, formation of engagement teams, development of
problems, identify alternative solutions, and to adopt the
engagement programs, supervision of personnel,
most applicable solution under the circumstances.
preparation of reports, presentation of output to the
Operational advice - counseling management in its client and up to the post-evaluation stage.
analysis, planning, organizing, operating and controlling
4. Client Benefit - Before accepting an engagement, a
functions.
practitioner is to notify the client of any reservations he
Special studies - conducting social studies, proposing has regarding anticipated benefits.
plans and programs and providing guidance and
The practitioner should determine what the client wants
technical assistance in their implementation
to achieve from the engagement before initiating an
Organizational analysis-reviewing and suggesting engagement. He should notify the client any reservation
improvement of policies, procedures, systems, methods, he has concerning the realization of anticipated benefits
and organizational relationships from the engagements. The notification should be made
before accepting the engagement. If during the
Ideas - introducing new approaches, methods, engagement the practitioner comes to know or has a
techniques, and concepts to management belief of knowing that there would be significant change
in the anticipated benefits to the client, he must
MAS Practice Standards
communicate the same to the client.
Technical Standards set the threshold for the personal
quality of the practitioner and serve as guide in his work.
5. Understanding with the Client. Before undertaking processes of the engagement and all his correspondence
an engagement, a practitioner is to inform the client of with the client.
all significant matters relating to the engagements. An
understanding with the client should be forged to Characteristics of a MAS engagement
determine the nature, scope and limitations of the Service is for Management
engagements to be performed. After accepting the
engagement but before undertaking it, the practitioner • Scope is broad • Future orientation
should inform the client on all significant matters
relating to the engagement. Either an oral or •Non-recurring • Highly qualified staff
understanding with the client is acceptable. The
• Diversity
following matters should be well understood with the
client: MAS Engagement Process

6. Planning, Supervision and Control 1. Engagement negotiation

Engagements are to be adequately planned, supervised 2. Engagement planning

and controlled. Adequate planning an supervision is
required to provide reasonable assurance that the work 3. Engagement execution
shall be conducted in accordance with the objectives of
4. Presentation of engagement results
the engagement programs, professional standards and
rules of conduct. Planning involves preparation of a 5. Implementation of recommendation, if applicable
work program. Proper supervision is need to be done.
The extent of supervision depends on the quality of the 6. Post-engagement follow-up
personnel and the complexities of the assignment.
CONTROLLING EXPENSES
Effective control is to be exercised during the
engagement. The quality, quantity and pacing of work is Management accounting is about profit management that
to be monitored with the defined engagement objectives. include expenses as its vital component. Expenses affect
operating results, hence should be understood and
7. Sufficient Relevant Data
intelligently managed. The accounting for the
Sufficient relevant data are needed to provide a accumulation preparation, and presentation of expenses
reasonable basis in making conclusions and formulating to serve as basis for management decisions is the
recommendations to client. The gathering and analysis pioneering area of management accounting.
of data should be documented to serve as basis in
The end-point of operating performance is to generate
verifying the degree of the evidence obtained and the
maximum profit out of the resources used. Traditional
manner on how these evidences are treated to generate
management accounting provides intelligent information
the conclusions being reported.
to managers in order to reduce expenses and increase
8. Communication of Results profit. Reducing expenses requires for its thorough
understanding in line with the planning and controlling
All significant matters relating to the result of the functions of the management. This drives the
engagement are to be communicated to the client. All development of standard costing system leading the
significant matters related to the result of the brilliant formulation of principles, techniques and
engagement are to be communicated to the client. processes, governing the cost- volume-profit analysis
Reports may be done at an interim and or at the end of and profit planning, responsibility accounting,
the engagement. Interim reports are desirable in long or operational budgeting, segment reporting and variance
complex engagements. analysis.
Reports may be in oral, written or visual form. When no
written report is to be issued, the practitioner should
keep a memorandum file documenting the results and
Accountant's Perspectives the cost of inventory is transferred from the asset
classification to cover cost of goods sold classification as
Capital Expenditures v. Operating Expenditures expense. Direct materials, direct labor and factory
overhead are product costs. Direct materials and direct
Capital expenditures are investing outlays normally
labor are called prime costs. Direct labor and factory
requiring large amount of money and resources having a
overhead are called conversion costs. Direct materials,
long-term investment impact to business profitability.
direct labor and variable factory overhead are called
These expenditures would create probable future
variable production costs.
economic value and benefit and are capitalized as assets.
These costs are converted to expense once their related Period costs are those incurred outside of the production
income has been generated. Examples of capital activities. They are incurred to administer a business,
expenditures are those used in long-term projects and sell or distribute a product, conduct researches, or attend
classified as long-term assets and become an expense to customer's needs which are not directly related to the
once consumed in the production or sale of a product. production activities. They are instantly expensed once
incurred.
Operating expenditures are outlays or consumption
used to directly support the normal operating activities Direct Product Cost v. Indirect Product Cost
of the business. They are expensed in the period the
statement of profit or loss is presented because of the Cost are further classified as to their degree of relation to
following reasons: the product.

Cost v. Expenses v. Losses Direct product costs are those that are directly
identified with the finished goods or services or those
Cost are traditionally classified in relation to the that are directly attributable in the process of making
functional activities of the business, that is according to them (i.e., converting materials into finished goods).
the place and purpose of their use. Direct materials and direct labor are direct products
costs, Factory overhead is an indirect product cost.
Costs of goods manufactured are those incurred in
producing goods and services. Examples are direct Product Cost vs. Period Cost
materials, direct labor and factory overhead. Cost of
goods sold are production cost relating to the units are Product cost are those incurred in the process of
that already sold. producing the product. They are inventoriable and are
deferred as assets while the units are unsold. Once sold,
Expenses are those incurred in distributing goods and the cost of inventory is transferred from the asset
managing a business. Marketing promotions and classification to cover cost of goods sold classification as
shipping expenditures are distribution expenses. Those expense. Direct materials, direct labor and factory
relating to systems and control, government compliance, overhead are product costs. Direct materials and direct
and other corporate costs incurred to manage the labor are called prime costs. Direct labor and factory
business are referred to as administration expenses. overhead are called conversion costs. Direct materials,
direct labor and variable factory overhead are called
Both cost and expenses give benefits to the business.
variable production costs.
Losses are reduction in the value of assets without
Period costs are those incurred outside of the production
benefit to the business leading to the impairment of
activities. They are incurred to administer a business,
equity. Examples of losses are loss on sales of
sell or distribute a product, conduct researches, or attend
equipment, loss on inventory obsolescence, loss on
to customer's needs which are not directly related to the
shortages, spoilage and loss on uncollectible
production activities. They are instantly expensed once
Product Cost vs. Period Cost incurred.

Product cost are those incurred in the process of Planned cost v. Actual cost
producing the product. They are inventoriable and are
deferred as assets while the units are unsold. Once sold,
Cost may be classified in relation to its incurrence in a Variable costs vary directly in proportion to the change
future undertaking. in the level of production and sales. Hence, total variable
costs change. That is, if sales increase by 10% total
Planned cost relate to future occurrences and are variables costs also change by 10%. If sales decreased
referred to a multifarious name such as projected costs, by 12%, total variable costs also decreased by 12%.
estimated costs budgeted cost, applied costs and standard Notice that there is a direct or complete proportion in the
costs. change of variable costs and sales. Variable costs change
Projected costs are future values derived from using in total direct proportion to changes in the level of
forecasting models such as profitability, regression and production and sales but constant per unit basis.
causal models. Estimated costs are those future values Examples of variable costs are direct materials, direct
derived out of normal observations without the aid of direct labor, variable overhead, and variable expenses.
standards or any reliable bases. Applied costs are Examples of variable overhead are factory supplies,
estimated values derived using the normal costing indirect materials, indirect labor and repairs. Example of
system. Standard costs are reliable values accepted by variable expenses are delivery expenses, salesmen's
men in the organizations derived from empirical, commission, packaging costs and supplies.
scientific, and controlled studies.

Actual costs are expenditures already incurred and

recorded in the accounting books. The difference
between the planned costs and actual cost is called
planning gap or planning variance.

Sunk cost v. Future cost

Cost may be classified according to their period of

incurrence.

Sunk costs are those that have been incurred in the past
and can no longer be changed. They represent
commitments made by the business in its previous
decisions and cannot be avoided in the future. They are
constant and not differential. They are historical and
irrelevant in short-term decisions.

Future costs are to be incurred in the upcoming periods.

They are relevant and are of value in making decisions.
They affect the upcoming activities where the manager
should plan, organize, direct, and control. They are
sometimes called planned costs, budgeted costs or
estimated costs.

Fixed costs are those that remain constant regardless of

the change in the level of production and sales, but
inversely changes from unit basis Fixed costs could be
either committed or discretionary. Committed fixed
costs are those which incurrences have been committed
by the business in the past by reason of contract,
acquisition or agreement. Examples are rental expenses,
interest expense, insurance expense, executive salaries,
depreciation expense, patent amortization, real estate,
property taxes, and salaries of production executives.