MANAGEMENT ADVISORY SERVICES (MAS)

MAS01

INTRODUCTIOIN TO MANAGEMENT
ACCOUNTING
 MANAGEMENT ADVISORY SERVICES (MAS)

• One of the six CPA board exam subjects (other subjects: AFAR, AUD, FAR, RFBT & TAX)
• Number of items: 70 multiple-choice questions (MCQs), mix of theories and problems
• Topics covered (based on CPA Syllabus effective May 2019):

Part I – MANAGEMENT ACCOUNTING (43%)

• Introduction to Management Accounting

• Cost Concepts and Behavior
• Cost-Volume-Profit Analysis
• Variable and Absorption Costing
• Standard Costing & Variance Analysis
• Financial Planning & Master Budget
• Activity-Based Costing & Activity-Based Management
• Strategic Cost Management
• Responsibility Accounting
• Balanced Scorecard
• Quantitative Techniques
• Relevant Costing & Differential Analysis

Part II – FINANCIAL MANAGEMENT (40%)

• Financial Statement Analysis

• Working Capital Management & Finance
• Operating Leverage, Financing Leverage and Total Leverage
• Capital Budgeting
• Cost of Capital
• Risks and Returns
• Capital Structure & Long-Term Financing Decision

Parts III, IV & V – “THE OTHERS” (17% - 12 out of 70 items)

• Macroeconomics
• Microeconomics
• Management Consultancy
• Project Feasibility Studies
• Ethical Considerations, among others

Basic consideration in MAS

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MANAGEMENT ADVISORY SERVICES- refers to that area of accounting work concerned with providing
advice on technical assistance to help clients improve the use of resources to achieve their goals.

MANAGEMENT CONSULTANT- a person who is qualified by education, experience technical ability, and
temperament to advise or assist businessmen on a professional basis in identifying, defining and solving
specific management problems involving the organization, planning, direction, control and operation of the
firm.

FACTORS FOR THE EMERGENCE AND GROWTH OF MS CONSULTANCY

1. Growth in size and complexity of business firms
2. Complexities in managing and conducting a business
3. Lack of competent staff
4. Trend towards industrialization
5. Need for adequate and timely information in management decision-making
6. Development of techniques for the solution of management problems, and
businessmen’s awareness of their usefulness

REASONS FOR HIRING MANAGEMENT CONSULTANTS

a. Help define specific problems and define solutions.
b. Provide specialized skills and experience.
c. Provide confidential service in which the entity of the clients is concealed.
d. Train client personnel.
e. Help improve intra-company communications.
f. Render an independent opinion.
g. Help get results.

MAS BY CPAs- CPAs performing management consulting and other advisory services are considered in
the practice of professional accounting and are bound by the Code of Ethics for Professional Accountants.

CHARACTERISTICS OF MAS
1. Services are rendered for the management.
2. Involves problem solving.
3. Relates to the future.
4. Broad in scope.
5. Involves varied assignments.
6. Engagements are usually none-recurring.
7. Engagements require highly requires qualified staff.
8. Human relations play a vital role in each engagement.

SCOPE OF MAS
MAS are usually related to the services rendered by CPAs in the areas of auditing, tax, and
accounting and may involve activities such as:
• Counseling management in its analysis, planning, organizing, operating and controlling
functions;

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 • Reviewing and suggesting improvement of policies, procedures, systems, methods,
and organizational relationships;
• Introducing new ideas, concepts, and methods to management: and
• Conducting special studies, proposing plans and programs, and providing guidance
and technical assistance in their implementation.

BROAD AREAS OF MAS

A. AREAS WHICH ARE NORMALLY RELATED TO THE ACCOUNTING AND FINANCE
FUNCTIONS
1. Financial Accounting System Design and Development
2. Management Accounting System Design and Development
3. Development and Establishment of Budgetary Controls

The field covers the following:

1. Cost Accounting
a. Development of standard cost system
b. Cost analysis and control
c. Variance analysis
2. Financial Management
a. Establishment of capital budgeting procedures
b. Study of the cost of capital and cost of debt
c. Financial analysis for project studies
d. Establishment of operating and cash budgets
e. Valuation of common stock for purposes of mergers and sale

B. AREAS WHICH ARE NOT NORMALLY RELATED TO THE ACCOUNTING AND FINANCE
FUNCTIONS:
1. General Management Consultation
a. Management or Operations Audit
b. Measurement of operating Performance
c. Mergers and Acquisitions Programs
d. Development of Compensation Programs
e. Pension Plan Review
f. Special Studies on Industry Potential
g. Long-Range Planning

2. Project Feasibility Studies

- Involves financial, technical and marketing evaluation of proposed projects

3. Organization and Personnel

a. Review of Existing Organization Structure
b. Organization and Administrative Manual Preparation
c. Job Evaluation and Salary Administration
d. Development of Personnel Rating Program
e. Retirement Plan Studies
f. Studies of Cost reduction System

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 g. Determining of Cost Alternatives in Collective Bargaining Agreements

4. Industrial Engineering
a. Production, Planning, Scheduling and Control
b. Plan Layout Studies
c. Inventory Management Studies
d. Materials Cost System Design and Development
e. Preventive Maintenance System Design and Development
f. Development of Work Studies
g. Purchasing Management, including Value Analysis

5. Marketing
a. Product Profitability Analysis
b. Pricing Policy Determination
c. Market Forecasting
d. Distribution Cost Analysis
e. Salesmen’s Incentive Compensation Evaluation

6. Operations Research
- Involves the use of mathematical techniques, such as linear programming. PERT/CPM,
queuing theory, simulation, etc. to solve operational problems.

The services listed above are not necessarily exhaustive nor complete. The practitioner may offer
other services not mentioned above depending on the practitioner’s competence, experience,
technical ability, and professional integrity to meet or deliver such other services he offers.

MAS QUALIFICATIONS BASED ON REQUIRED EXPERTISE

1. Usual Services:
a. Evaluation of form of business organization
b. Analysis of financial and operating statements
c. Design and installation of accounting systems
d. Design for filing system for storing accounting records
e. Suggestions for improvement of internal control
f. Establishment of control to assist management and expedite the audit process
g. Preparation of insurance claims in case of business interruption
h. Research and evaluation o alternative methods of handling a transaction for its effect
on finance and tax consequences
i. Assistance in the preparation of forecasts and budgets
j. Presentation and explanation of statements
k. Assisting clients on purchase or sale of business
l. Testifying on client’s behalf
m. Determination of the effect of various employee compensation plans on net income
n. Aid in labor union negotiations

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 2. Somewhat Specialized Services:
a. Assisting in the installation of a mechanized accounting system
b. Making a cost analysis of operations
c. Finding sources of capital and figuring the approximate cost of small business loans,
bond issue, and stock issuance
d. Giving advice on dividend policy and plans for expansion
e. Calculations on government contracts and allocating costs in complete with reporting
requirements
f. Advising on accounting and tax matters relative to estate planning
g. Surveying credit losses
h. Assisting in bankruptcy and receivership proceedings
i. Recruiting accounting and bookkeeping personnel for the client
j. Preparing an analysis of paper flow
k. Presenting and analyzing the pros and cons of various retirement and profit-sharing
plans
l. Advising on various wage incentive plans

3. Highly Specialized Services:

a. Reviewing the organization structure
b. Auditing management policies
c. Conducting motion studies
d. Surveying an industry of trade for current trends
e. Evaluating the desirability of a particular are for plant location
f. Preparing market analysis
g. Reviewing an insurance program
h. Advertising on data processing allocations

ADVANTAGES OF CPAs OVER OTHER PROFESSIONALS IN MAS PRACTICE

- They are already familiar with the client and his business, and enjoy the client’s confidence.
- They are members of a profession with recognized standing and equipped with technical know-
how in accounting and taxation

ANALYTICAL APPROACH AND PROCESS

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

In case the client requests the consultant to proceed, the latter may also be involved in:
6. Planning and scheduling actions
7. Advising and providing technical assistance in implementing

3 BROAD STAGES
1. Analysis Stage – consists of ascertaining the pertinent facts and circumstances, seeking
and identifying objectives, and defining the problem or opportunity for improvement.

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 2. Design Stage – consists of evaluating and determining possible solutions and presenting
findings and recommendations.
3. Implementation Stage – consists of planning and scheduling actions and advising and
providing technical assistance in implementing.

ROLE OF CONSULTANTS AND CLIENTS IN MAS ENGAEMENTS

❖ IN FULL SCOPE ENGAGEMENTS. These cover all the 7 phases in the analytical process.
CONSULTANT: limited to that of an advisor; in the implementation stage, his role
is merely to provide technical assistance.
❖ IN SPECIAL STUDY ENGAGEMENTS. The client seeks only an impartial and objective study of
a case and the resulting recommendations. These involve only the first 5 stages in the analytical
process.
CONSULTANT: to proceed through the first five phases of the analytical process,
apply objective judgment to the facts, and present findings and
recommendations to the client for decision and further action.
CLIENT: to supply pertinent information and to make decision on the case.
Any action beyond the point of decision is solely the responsibility
of the client.
❖ IN INFORMAL ADVICE. Its structure is informal and no presumption should exist that an extensive
study has been performed.
CONSULTANT: to respond as practicable at the moment and express the basis for
the response.

MAS PRACTICE STANDARDS

All CPAs engaged in MAS practice should observe a set of MAS Practice Standards, which are
classified into general and technical standards. These practice standards are as follows:

GENERAL STANDARDS:

1. PROFESSIONAL COMPETENCE
The MAS practitioners shall undertake only those engagements which he or his firm can
reasonably expect to complete.

2. DUE PROFESSIONAL CARE

The MAS practitioner shall exercise due professional care when performing an
engagement.

3. PLANNING AND SUPERVISION

The MAS practitioner shall adequately plan and supervise an engagement in a manner
that provides reasonable assurance that the work is conducted in accordance with the
understanding with the client and with the professional standards and rules of conduct.

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 4. SUFFICIENT RELEVANT DATA
The MAS practitioner shall obtain sufficient relevant data to complete the engagement in
accordance with the understanding with the client and to provide a reasonable basis for
making conclusions and formulating recommendations in relation to the engagement.

5. FORECASTS
The MAS practitioner shall obtain not permit his name to be used in connection with any
forecast of future transactions in a manner that may lead to the belief that the practitioner
vouches for the achievability of the forecast.

TECHNICAL STANDARDS

1. ROLE OF MAS PRACTITIONER

The practitioner should not assume the role of management or take any position of which
may impair the practitioner’s objectivity in performing an engagement. The practitioner
should maintain his independence to enable him to render his professional judgment and
opinions with objectivity. His main role is that of an adviser.

2. UNDERSTANDING WITH THE CLIENT

A written or oral understanding should be reached with the client concerning the nature,
scope, and limitation of the engagement to be performed.

3. CLIENT BENEFIT
The MAS practitioner should obtain an understanding of the possible benefits the client
wishes to achieve from the engagement before beginning the work. The practitioner should
notify his client of any reservations he may have concerning the realization of the
anticipated benefits.

4. COMMUNICATION OF RESULTS
The MAS practitioner should communicate to the client his principal findings, conclusions,
recommendations, or other results of the engagement, including major facts and
assumptions used limitations, reservations, or other qualifications.

STAGES IN MAS MANAGEMENTS

1. Negotiating the engagements

2. Preparing for and starting the engagement
3. Conducting the engagement
4. Preparing and presenting the reports and recommendations
5. Implementing the recommendations
6. Evaluating the engagements
7. Post engagement follow-up

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 These stages constitute the specific activities involved in the MAS engagement cycle which, in general
terms, are the following:
1. Pre-engagement considerations
2. Engagement planning
3. Engagement management and execution
4. Engagement conclusion

MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

1. User of information Primarily for external users Exclusively for internal users
2. Guiding principles GAAP Principle Management wants & needs
3. Optional/Mandatory Mandatory Discretionary or optional
4. Type of information Primarily monetary in nature Monetary and non-monetary
5. Emphasis of reports Reliability Relevance (timeliness of data)
6. Purpose/End result Financial reporting & compliance Management decision-making
7. Source of data From company’s info system From internal and external sources
8. Amount of detail Compressed & simplified Extensive and detailed
9. Focus of information As a whole As segments and business as a whole 10.
Frequency Periodic (annually, quarterly) As frequent as the need arises
11. Time orientation Mainly historical (past) data Future-oriented using current data
12. Unifying model Assets = Liabilities + Equity No unifying model or equation

COST accounting, while a separate discipline, is a subset of both management and financial accounting.

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MULTIPLE CHOICE: (Sources: CMA/RPCPA/Various Test Banks)

PART 1
1) Management accounting:
A) focuses on estimating future revenues, costs, and other measures to forecast activities
and their results
B) provides information about the company as a whole
C) reports information that has occurred in the past that is verifiable and reliable
D) provides information that is generally available only on a quarterly or annual basis

2) Managers use management accounting information to ________ strategy.

A) choose
B) communicate
C) implement
D) All of these answers are correct.

3. Financial accounting:
A) focuses on the future and includes activities such as preparing next year's operating budget
B) must comply with GAAP (generally accepted accounting principles)
C) reports include detailed information on the various operating segments of the business such
as
product lines or departments
D) is prepared for the use of department heads and other employees

4. The person most likely to use ONLY financial accounting information is a:

A) factory shift supervisor
B) vice president of operations
C) current shareholder
D) department manager

5.Which of the following people is LEAST likely to use management accounting information?
A) the controller
B) a shareholder evaluating a stock investment

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C) the treasurer
D) an assembly department supervisor

6. Financial accounting provides the primary source of information for:

A) decision making in the finishing department
B) improving customer service
C) preparing the income statement for shareholders
D) planning next year's operating budget

7. Which of the following descriptors refers to management accounting information?

A) It is verifiable and reliable.
B) It is driven by rules.
C) It is prepared for shareholders.
D) It provides reasonable and timely estimates.

8. Which of the following statements refers to management accounting information?

A) There are no regulations governing the reports.
B) The reports are generally delayed and historical.
C) The audience tends to be stockholders, creditors, and tax authorities.
D) It primarily measures and records business transactions.

9. Which of the following groups would be LEAST likely to receive detailed management
accounting
reports?
A) stockholders
B) sales representatives
C) production supervisors
D) managers

10) Management accounting information includes:

A) tabulated results of customer satisfaction surveys
B) the cost of producing a product
C) the percentage of units produced that are defective
D) All of these answers are correct.

11) Cost accounting:

A) provides information on the efficiency of factory labor

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B) provides information on the cost of servicing commercial customers
C) provides information on the performance of an operating division
D) All of these answers are correct.

12. Which of the following types of information are used in management accounting?
A) financial information
B) nonfinancial information
C) information focused on the long term
D) All of these answers are correct.

13. Modern cost accounting plays a role in:

A) planning new products
B) evaluating operational processes
C) controlling costs
D) All of these answers are correct.

14. 15) Cost accounting provides all of the following EXCEPT:

A) information for management accounting and financial accounting
B) pricing information from marketing studies
C) financial information regarding the cost of acquiring resources
D) nonfinancial information regarding the cost of operational efficiencies

15. Management accounting includes all of the following EXCEPT

A) implementing strategies
B) developing budgets
C) preparing special studies and forecasts
D) preparing the statement of cash flows

16. Financial accounting is concerned primarily with:

A) external reporting to investors, creditors, and government authorities
B) cost planning and cost controls
C) profitability analysis
D) providing information for strategic and tactical decisions

17. Financial accounting provides a historical perspective, whereas management

accounting
emphasizes:
A) the future

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B) past transactions
C) a current perspective
D) reports to shareholders

18. Management accounting is considered most likely to be successful when it:

A) helps creditors evaluate the company's performance
B) helps investors improve their decisions
C) is timely
D) is relevant and reported annually

19. Control measures should:

A) be set and not changed until the next budget cycle
B) be flexible to allow for employees who are slackers
C) be kept confidential from employees so that competitors don't have an opportunity to
gain a competitive advantage
D) be linked by feedback to planning

20. Planning includes all of the following EXCEPT

A) identifying the problem and uncertainties.
B) obtaining information.
C) providing feedback to help with future decision making.
D) making predictions about the future.

21.A detailed financial plan for the future is known as a:

A) budget.
B) performance report.
C) organization chart.
D) segment.

22. A performance report is:

A) a detailed report comparing budgeted data to actual data for a specific time period.
B) a formal statement of plans for the upcoming period.
C) required to be filed monthly by the Securities and Exchange Commission.
D) not used in decentralized organizations.

23. Samantha Galloway is a managerial accountant in the accounting department of

Mustang Industries, Inc. Samantha has just discovered evidence that some of the

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corporation's marketing managers have been wrongfully inflating their expense reports
in order to obtain higher reimbursements from the firm. According to the Institute of
Management Accountants' Standards of Ethical Conduct, what should Samantha do
upon discovering this evidence?
A) notify the controller.
B) notify the marketing managers involved.
C) notify the president of the corporation.
D) ignore the evidence because she is not part of the Marketing Department.

24. Some raw materials cannot be easily associated with the finished product and cannot
be traced because their physical association with the finished products is too small in
terms of cost. These are considered:
a. Raw Materials
b. Direct Materials
c. Indirect Materials
d. Supplies

25. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.

26. Manufacturing Cost typically consist of:

A. Direct Materials, Direct Labor, and Manufacturing Overhead
B. Direct Materials, Direct Labor, and Selling Cost
C. Production Cost and Marketing Cost
D. Direct Materials, Direct Labor, and Marketing Expenses

27. It is also called Inventoriable Cost which include each of the manufacturing cost and they
are the costs that are necessary and integral part of producing the finished product
A. Period Cost
B. Product Cost
C. Selling Cost
D. Marketing Cost

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28. It is the cost that are identifiable with specific time period rather than salable product and are
deducted outright from revenues under accrual basis of Accounting:
A. Period Cost
B. Product Cost
C. Materials used in Production
D. Indirect Labor

29. It is part of Accounting which involves measuring, recording and reporting of Product Costs
in the company.
A. Cost Accounting
B. Management Accounting
C. Financial Accounting
D. Basic Accounting

30. Prime cost consists of:

A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.

31. Depreciation on a personal computer used in the marketing department of a

manufacturing firm would be classified as:
A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is fixed with respect to the company's output.

32. Ross Corporation shipped finished goods to a customer on credit, but the sale was not
recorded and the costs of the finished goods were incorrectly included on the period's
balance sheet as part of the finished goods inventory. Which one of the following
statements is correct concerning the effects of this error?
A) Accounts receivable was not affected, inventory was overstated, sales were
understated, and cost of goods sold was understated.
B) Accounts receivable was understated, inventory was not affected, sales were
understated, and cost of goods sold was understated.
C) Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was overstated.
D) Accounts receivable was understated, inventory was overstated, sales were

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understated, and cost of goods sold was understated.

33. A cost incurred in the past that is not relevant to any current decision is classified as
a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.

34. Lathe operators at KF Manufacturing are hourly employees who are paid time and a
half for hours worked in excess of 40 hours per week. Lester is a lathe operator who
worked 45 hours during the current week and had no idle time. The correct accounting
for the amounts paid to Lester would be:
A) charge only the overtime premium earned to the overhead account.
B) charge the hourly wage earned plus the overtime premium earned to the overhead
account.
C) charge only the overtime premium earned to the direct labor cost for the project
Lester was working on when the overtime was incurred.
D) charge the hourly wage earned plus the overtime premium earned to the direct
labor cost for the project Lester was working on when the overtime was incurred.

35. Compared to financial accounting, managerial accounting places more emphasis on:
A) the flexibility of information.
B) the precision of information.
C) the timeliness of information.
D) both A and C above.

PART 2

A. 1. A management consultant
a. is a person who is qualified by education, experience, technical ability, and
temperament to advise or assist businessmen on a professional basis in identifying,
defining, and solving specific management problems involving the organization,
planning, direction, control, and operation of a firm.
b. Is a person who is qualified by education, experience, technical ability, and
temperament to replace businessmen on a professional basis in identifying, defining,

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 and solving specific management problems involving the organization, planning,
direction, control, and operation of a firm
c. Is an employee of a client firm who is qualified by education, experience, technical
ability, and temperament to advise or assist businessmen on a professional basis in
identifying, defining, and solving specific problems involving the organization,
planning, direction, control, and operation of a firm.
d. Should be a CPA, holder of a masters degree so he may be considered qualified by
education, experience, technical ability, and temperament to advise businessmen on
how management problems could be solved.

B 2. Management consulting (or management consultancy)

a. is limited to CPA’s
b. is not limited to CPA’s
c. may be practiced by anybody since it is not limited to CPA’s
d. is regulated by law, such that an individual must pass a government licensure
examination first before he could practice the same.

C 3.Generally, the emergence and growth of management consultancy may be attributed

to the following factors, except
a. Growth in size and complexity of business firms.
b. Complexity in managing and conducting a business
c. Lack of incompetent staff
d. Need for adequate and timely information in management decision-making

C 4.One of the factors that contributed to the emergence and growth of management consultancy
is
a. The development of techniques for the solution of management problems, and the
businessmen’s awareness of their usefulness.
b. The development of techniques for the solution of management problems, and the
businessmen’s awareness of how to use them.
c. The trend towards computerization.
d. The complexities in managing and conducting an MAS engagement

A 5. Some reasons for hiring management consultants are as follows, except

a. To help define specific problems and implement solution
b. To provide specialized skills and experience.
c. To provide confidential service in which the identity of the client is concealed.
d. To render an independent opinion.

A 6. Which of the following statement is correct?

a. MAS practice actually stemmed from the CPA’s audit practice.

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 b. Overt symptoms need a more detailed study and a logical extension pf the CPA’s
services
c. Covert symptoms are easy to perceive, call attention to and/or remedy.
d. Covert symptoms may simply be covered in the CPA’s usual letter to management
prepared at the completion of audit.

C 7. The primary purpose of management advisory service is

a. To achieve the objectives of the MAS firm.
b. To help the client maximized its resources
c. To improve the client’s use of its capabilities and resources to achieve the objectives
of such client’s organization.
d. To help the client identify its problems.

A 8. Management advisory service may be defined as

a. The function of providing professional advisory 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.
b. The function of providing quantitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making economic decision.
c. The art of recording, classifying and summarizing in a significant manner and in terms
of money, transactions and events which are in part at least of a financial character,
and interpreting the result thereof.
d. The process of identifying, measuring and communicating economic information to
permit informed judgment and decision by users of information.

C 9. MAS can relate to the following areas, except

a. The management functions of analysis, planning, organizing and controlling
b. The introduction of new ideas, concepts, and method to management.
c. The improvement of policies, procedures, systems, methods, and personal
relationships.
d. The application and use of managerial accounting, control system, data processing,
and mathematical techniques and methods.

C 10. MAS can relate to the following areas, except

a. The management functions of analysis, planning, organizing, and controlling.
b. The application and use of managerial accounting, control systems, data processing,
and mathematical techniques methods.
c. The conduct of special studies, preparation of recommendations, development of
plans and programs, and provision of personnel for the implementation of the
recommendations.
d. None of the above.

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D 11. In providing advisory services, the CPA, or the independent accounting firm, applies an
analytical approach and process, which typically involves the following, except
a. Ascertaining the pertinent facts and circumstances
b. Seeking and identifying objectives.
c. Defining the problem or opportunity for improvement.
d. Evaluating and implementing possible solutions.

B 12. Following are possible end-products of an MAS engagement, except

a. A managerial information system.
b. Blue print of construction project.
c. A cost accounting system.
d. None of the above.

B 13. Following are possible end-products of an MAS engagement, except

a. An organization plan with statement of duties and responsibilities.
b. Blue print of construction project.
c. An electronic data processing system.
d. Sales reporting system.

D 14. Which of the following is a characteristic of management services?

a. Services rendered are for third parties.
b. Engagements are usually recurring.
c. Human relations do not play a vital role in each engagement.
d. It involves problem solving.

A 15. Which of the following statement(s) is (are) true?

1. MAS relates to the future.
2. MAS cover’s a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of assignments are
usually encountered.
4. MAS’ engagements require highly qualified staff.
a. All the statements are true.
b. Only three statements are true
c. Only two statements are true
d. Only one statement is true.

A 16. The PICPA committee on MS classified the broad areas of MAS into two groups.
1. Areas which are normally related to the accounting and finance functions.
2. Areas which are not normally related to the accounting and finance functions.
3. Areas which use mathematical techniques like linear programming, queuing theory
and simulation to solve complicated operational problems.

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 4. Areas which involve financial, technical and marketing evaluation of proposed
projects.
a. 1 and 2
b. 3 and 4
c. 2 and 3
d. 1 and 4

A 17. What are these classifications?

a. Establishment of budgetary controls.
b. Preparation of organization and administrative manuals.
c. Plant layout studies.
d. Development of preventive maintenance systems.

D 18. MA’s areas which are not normally related to the accounting and finance functions may
include
a. Preparation of accounting systems and procedure manuals.
b. Development of management oriented accounting and reporting systems
c. Cost reduction studies
d. Operations research

C 19. Among the MAS areas which are not related to the accounting and finance functions is
marketing, which may include the following, except
a. Product profitability analysis.
b. Determination of pricing policy
c. Inventory management studies.
d. Evaluation of salesmen’s incentive compensations.

A 20. It is an area of management science which uses mathematical techniques like linear
programming, queuing theory and simulation to solve complicated operational problems.
a. Operation research
b. PERT/CPM
c. Industrial engineering
d. Sensitivity analysis

C 21. The fields of cost accounting and financial management are among the MAS areas that
are normally related to the accounting and finance functions. Financial management cases may
involve the following, except
a. Establishment of capital budgeting procedures.
b. Study of the cost of capital and cost of debt.
c. Variance analysis
d. Establishment of operating and cash budgets.

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A 22. MAS may be classified according to the practitioners’ ability and/or expertise. The
services which may be offered readily by the practitioner based on his basic training and
background are called
a. Usual services
b. Somewhat specialized services.
c. Highly specialized services.
d. Unusual services.

B 23. MAS may be classified according to the practitioners’ ability and/or expertise. Those
services which are considered extensions of the usual accounting work and require additional
training and/or experience
a. Usual services.
b. Somewhat specialized services.
c. Highly specialized services.
d. Unusual services.

C 24. MAS may be classified according to the practitioner’s ability and/or expertise. Those
services which require special skills, aptitude, and training which CPAs do not normally posses
are called
a. Usual services
b. Somewhat specialized services.
c. Highly specialized services
d. Unusual services.

B 25. Management advisory services classified as usual services include

a. Giving advice on dividend policy and plans for expansion.
b. Analysis of financial and operating statements for management, stockholders, banks,
and others.
c. Advising on accounting and tax matters relative to estate planning in cooperation with
legal and insurance counsel.
d. Calculations on government contracts and allocating costs in compliance with
reporting requirement.

A 26. An MAS/CPA practitioner may be engaged by a client to design and install an accounting
system. This engagement is under the practitioner’s.
a. Usual services.
b. Somewhat specialized services.
c. Highly specialized services.
d. Exclusive services.

D 27. MAS classified as somewhat specialized services include

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 a. Design and installation of accounting systems.
b. Suggestions for improvements in internal control system.
c. Assistance in the preparation of forecasts and budgets.
d. Assisting in bankruptcy and receivership proceedings.

A 28. MAS classified as highly specialized services include the following, except
a. Research and evaluation of alternative methods of handling a transaction for its effect
on finance and tax consequence.
b. Auditing management policies for their effectiveness.
c. Conducting motion studies for standard cost accounting.
d. Evaluating the desirability of a particular area for plant location.

D 29. MAS classified as usual services include the following, except

a. Evaluation of form of business organization
b. Design of filing system for storing the accounting records
c. Establishment of control for cash, receivables, inventory, plant, property and
equipment, and other items to assist management and expedite the audit process.
d. Preparing market analysis of products and services.

D 30. CPAs are in a more advantageous position than members of other professions to render
MAS because
a. Most CPAs are highly educated.
b. Only CPAs may render MAS.
c. A CPOA is a person with recognized standing.
d. The CPA is already familiar with the client and his business, and enjoys his client’s
confidence.

C 31. In determining the scope or type of service to be rendered, the consultant

a. Has the responsibility to determine the scope of services he is competent to offer,
subject to the pronouncements of his profession.
b. Is expected to maintain his independence to enable him to render his professional
judgment and express his opinions/conclusions with honesty and objectivity.
c. Both a and b
d. Neither a nor b

A 32. Which of the following statement(s) is (are) correct?

1. The scope of services offered by consultants should be adequate to identify and resolve
the client’s basic problems and not just problem symptoms.
2. Should a consultant feel that he cannot effectively handle the proposed engagement
because of limitations in skills, competence, and economic requirements, the consultant
may refer this to another practitioner whom he thinks can effectively do the job.

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 3. It is the responsibility of a practitioner to be sure that the nature and scope of the
management advisory services he elects to offer are in conformity with the Code of
Professional Ethics.
4. Each consultant has the responsibility to evaluate his ability to render MAS of a
professional quality in each specific area, and refrain from representing himself as
qualified and willing to accept work in areas where he does not possess the required
competence.

a. Statements 1, 2, 3, & 4
b. Statements 1, 2, & 4
c. Statements 2, 3, & 4
d. Statements 1 & 4

B. 33. Which of the following statements is incorrect?

a. A CPA engaged in the practice of MAS is bound by the Code of Ethics for Professional
Accountants.
b. Management consulting and other advisory services are among the assurance
engagements performed by professional accountants.
c. Not all MAS practitioners are bound by the Code of Ethics for Professional
Accountants.
d. It is the responsibility of a practitioner to be sure that the nature and scope of the
management advisory services he elects to offer are in conformity with the Code of
Ethics for Professional Accountants.

A 34. The role of an independent accounting firm (or consultant) in performing Management
Advisory Service is
a. To provide advice and technical assistance, and should provide for client participation
in the analytical approach and process.
b. To provide advice and technical assistance, but should not provide for client
participation in the analytical approach and process.
c. To improve the client’s use of its capabilities and resources to achieve the objectives
of the organization.
d. To provide advice and technical assistance and should provide for the consultant’s
participation in the implementation of the recommendation.

D 35. In cases where clients seek to engage the services of a consultant to provide solutions
and results on a basis wherein the client expects to be involved only to a limited extent,
a. There may be a tendency to apply a packaged solution indiscriminately, which inhibits
b. The client might get solutions that do not meet actual needs, and the consultant might
be place in a position inconsistent with his objective advisory role.
c. The consultant must fully inform the client of the limitations and risks inherent in these
types of undertaking.
d. All of the above

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A 36. It refers to the systemic, objective and rational method of solving business problems.
a. Analytical approach and process
b. PERT/CPM
c. Simulation method
d. Sensitivity analysis

B 37. Following are the steps involved in the analytical approach and process presented
random:
1. evaluating and determining possible solutions
2. seeking and identifying objectives
3. presenting findings and recommendations
4. ascertaining the pertinent facts and circumstances
5. defining the problem or opportunity for improvement
6. planning and scheduling actions to achieve the desired results
7. advising and providing technical assistance in implementing

Arrange the above steps in proper order:

a. 1, 2, 3, 4, 5, 7, 6
b. 4, 2, 5, 1, 3, 6, 7
c. 5, 1, 4, 6, 2, 7, 3
d. 7, 5, 3, 1, 6, 2, 4

B 38. The analytical approach and process may be summarized into three broad stages –
analysis, design and implementation.

The analysis stage consists of

a. Planning and scheduling actions to achieve the desired results, as well as advising
and providing technical assistance.
b. Ascertaining the pertinent facts and circumstances, seeking and identifying objectives,
and defining the problem or opportunity for improvement.
c. Evaluating and determining possible solutions and presenting findings and
recommendations.
d. All of the above

C 39. The analytical approach and process may be summarized into three broad stages –
analysis, design and implementation.

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 a. Planning and scheduling actions to achieve the desired results, as well as advising
and providing technical assistance in implementation.
b. Ascertaining the pertinent facts and circumstances, seeking and identifying objectives,
and defining the problem or opportunity for improvement.
c. Evaluating and determining possible solutions and presenting findings and
recommendations.
d. All of the above

A 40. The analytical approach and process may be summarized into three broad stages –
analysis, design and implementation.

The implementation stage consists of

a. Planning and scheduling actions to achieve the desired results, as well as advising
and providing technical assistance in implementing.
b. Ascertaining the pertinent facts and circumstances, seeking and identifying objectives,
and defining the problem or opportunity for improvement
c. Evaluating and determining possible solutions and presenting findings and
recommendations.
d. All of the above

D 41. Which of the following statements is incorrect?

a. Full scope engagement require client representations from both the working and
decision-making levels.
b. The consultant’s role in full scope engagement should be limited to that of an objective
adviser; and, in the implementation stage, his job is merely to provide technical
assistance, degrees, of which depend on the knowledge and experience available in
the clients organization.
c. In carrying out full scope engagement, the consultant should participate up to the
implementation stage and should see to it that the client management accepts overall
responsibility for implementation of the chosen course of action.
d. Once implementation is concluded, the consultant’s participation is also concluded
and only the consultant’s personnel remain to carry on the solution.

B 42. In special study engagements,

a. The consultant’s contribution is to give advice on the overall program and the
organization and composition of the participating groups, to provide technical
assistance to the working level, to monitor progress and to report on this and other
important matters to the senior management group.
b. The client does not seek the consultant’s assistance in achieving the desired result,
but only his professional judgment.

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 c. Client representation from both the working and decision making levels are required.
d. Any action beyond the point of decision is solely the responsibility of the consultant.

A 43. In informal advice,

a. The nature of the services rendered is informal and therefore, no presumption should
exist that an extensive study has been performed to identify and consider pertinent
facts and alternatives.
b. Any action beyond the point of decision is solely the responsibility of the consultant.
c. Once the implementation is concluded, the client’s participation is concluded, and only
the consultant’s personnel remain to carry on the solution.
d. The consultant need not be independent in mental attitude.

D 44. Which of the following statements is correct?

a. In performing MAS, a practitioner must act with integrity and objectivity and be
independent in mental aptitude.
b. Engagements are to be performed by practitioner having competence in the analytical
approach and process and in the technical subject matter under consideration.
c. Due personal care is to be exercised in the performance of a management advisory
service engagement.
d. None of the above.

D 45. Which of the following is incorrect?

a. Before accepting and engagement, a practitioner is to notify his partner of any
reservations he has regarding anticipated benefits.
b. Before undertaking and engagement, a practitioner is to inform his client of all
matters related to the engagement.
c. The MAS practice standards are applicable not only to structural or organized MAS
engagements, but also to “informal advice”
d. All of the above

D 46. Which of the following statements is incorrect?

a. Sufficient relevant data are to be obtained, documented, and evaluated in developing
conclusions and recommendations.
b. All significant matters relating to the results of the engagement are to be
communicated to the client.
c. Engagements are to be adequately planned, supervised, and controlled.
d. In performing MAS, a practitioner must act with maturity and objectivity and be
independent in mental attitude.

A 47. It is a highly personal characteristic which ensures that the practitioner’s statements of
findings and recommendations are free of intentional distortions or misstatements.
a. Integrity

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 b. Objectivity
c. Maturity
d. Independence in mental attitude

B 48. It refers to the consultant’s ability to avoid bias and to maintain an impartial attitude on
all matters under review
a. integrity
b. objectivity
c. maturity
d. independence in mental attitude

D 49. It refers to the ability of the practitioner to maintain his role as an objective adviser or
consultant without making any attempt to make decisions for the management.
a. Maturity
b. Objectivity
c. Integrity
d. Independence in mental attitude

B 50. It involves the technical qualifications of the practitioners and the ability to supervise
the personnel assigned, to evaluate the quality of work performed, and to accept responsibility to
the client for successful completion of the engagement.
a. Competence
b. Competence in professional work
c. Integrity
d. Independence in mental attitude

C 51. It refers to the practitioner’s ability to identify and define client’s needs, to utilize the
analytical approach and process, to apply knowledge of the technical subject matter under
consideration, to communicate recommendations effectively, and to assist in implementing
recommendations.
a. Competence
b. Competence in professional work
c. Competence in management advisory services
d. All of the above

D 52. The practitioner, before starting an engagement, should first make written communications
to inform the client of all significant matters related to the engagement. Examples of such
significant matters are the following, except
a. Objectives of the engagement.
b. Scope of the engagement
c. Role of all personnel who will be involved in the engagement

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 d. None of the above

A 53.Engagements should be adequately planned, supervised, and controlled. Controlling

involves the measurement of progress in attaining the engagement plans and objectives. At
significant engagement points, progress should be measured in terms of
a. Time schedule, accomplishments, and quality of work
b. Accomplishments, time schedule, and expenses incurred
c. Quality of work, number of reports prepared, and time schedule
d. Accomplishments, number of personnel who played a role in the engagement, and
attendance of the participants in the engagement.

D 54. In MAS engagements, sufficient relevant data should be obtained, documented, and
evaluated in developing conclusions and recommendations. In the course of the engagement, the
following should be documented, except
a. The evidential matter obtained and its source
b. The alternatives considered
c. The analytical matter leading to specific recommendations
d. None of the above

D 55. To avoid possible misunderstanding in the future, the practitioner should put in writing
every term agreed upon with the client during negotiation. This may be done through any of the
following, except
a. Proposal letter.
b. Confirmation letter.
c. Contract.
d. None of the above

A 56. It is an offer of service. When accepted or approved, it becomes a contractual agreement.

a. Proposal letter.
b. Confirmation letter.
c. Contract.
d. None of the above

A 57. It may be considered as the master plan for the engagement which serves as a framework
for controlling its progress. It can be used as a planning tool that documents how the agreement
will be carried out, organizes the engagement into scheduled and logical sequences, and
indicates the various tasks necessary to achieve the objectives of the engagement.
a. Engagement work program
b. Master budget
c. Engagement blueprint
d. Engagement plan

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C 58. This stage of MAs engagement involves various activities which may be generally
classified as gathering of the information and analysis/evaluation of information gathered.
a. Negotiating the engagement
b. Preparing the engagement
c. Conducting the engagement
d. Preparing and presenting the reports and recommendations

D 59. One of the activities involved in information gathering is recording the information and
documenting the process. This can be accomplished with the use of engagement working papers,
which is considered very useful for the following reasons, except
a. They provide documentation of the engagement.
b. They provide a historical record of the services to the client.
c. They serve as source of ideas and research material for future engagements.
d. They serve as contractual agreement when accepted and approved by the client.

C 60. Final written reports in MS engagements may be classified as either long form or short
form report.

The short form report

a. Contains all the circumstances about the engagement, including the practitioner’s
findings and recommendations.
b. Is issued to the client when he decides to do the implementation phase without
requesting assistance from the consultant.
c. Is usually issued when, during the execution stage of the engagement, interim
reporting was extensively used, and there was a close and continuous coordination
between the consultant/team members and the client.
d. Summarizes the findings to date, work accomplished in relation to plan, and, when
appropriate, and tentative recommendations.

A 61. An MAS engagement should be evaluated by comparing actual results with established
standards to assess the quality of the engagement. Criteria for evaluation are
a. Achievement of the engagement’s objectives as set forth and agreed upon between
the client and the practitioner, and complete satisfaction of the client company as
regards the results of the engagement.
b. Achievement of the engagement’s objectives as set forth and agreed upon between
the client and the practitioner, and complete satisfaction for the practitioner as regards
the results of the engagement.
c. Both a and b.
d. Neither a nor b.

B 62. Which of the following statements is true?

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 a. A “management letter” is a report submitted by the CPA to management after the
review of the management control stating the coverage of the review and the
deficiencies noted during the review.
b. Management advisory services include the consultative services to management in its
decision-making.
c. Expertise in management advisory services is required by education, auditing and
other experience, and actual performance of management advisory services.
d. Management advisory services include decision=making services performed by the
practitioner for management.

D 63. Which of the following statements is incorrect?

1. A CPA firm’s primary purpose for performing MAS is to enable the staff members to
acquire the necessary continuing education in all areas of business.
2. MAS’ consultation, unlike MAS management, generally involves giving of advice or
information by a CPA in which an analytical process is applied.
3. Management consultancy is an exclusive field of practice for CPAs and is regulated
by law.
4. An area of MAS which is directly related to the accounting and finance functions is
project feasibility study.
a. Only one statement is correct c. Only three statements are incorrect
b. Only two statements are incorrect d. d. All the statements are incorrect.

B 64. Which of the following statements is false?

a. Before accepting an engagement, a practitioner should notify the client of any
reservations he has regarding anticipated benefits.
b. MAS serve only the areas of accounting and finance.
c. In the rendition of MAS, independence must be observed so as to maintain the
essential requisites of impartiality and objectivity.
d. All provisions of the Code of Professional Ethics are applicable to the practice of MAS,
except those related to the expression of an opinion on financial statements.

D 65. Which of the following relate(s) to management advisory services by CPAs?

a. Cost analysis of major investment decisions.
b. Design an/or installation of accounting systems
c. Financial analysis for project feasibility study
d. All of the above

C 66. Which of the following is not a characteristic of MAS?

a. In NAS engagements, the nature of work involved requires a lesser need for junior
assistance.
b. A wider variety of assignments are encountered in MAS rhan in audit engagements.
c. MAS’ engagements are recurring.

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 d. In MAS, actions to be taken are identified, the benefits of which will be received in the
future.

C 68. Which of the following is not an area related to the performance of MAS by independent
accounting firms?
a. Improvement of existing policies, and procedures.
b. Introduction of new ideas, concepts, and method of management.
c. Performance of management functions and making decisions.
d. Conduct of special studies, preparation of recommendations, and formulation of plans
and programs.

B 69. Which of the following will not impair the independence of CPA in the rendition of MAS?
a. The CPA performs decision-making functions for his client.
b. The CPA does not extend his services beyond the presentation of recommendations
of giving of advice.
c. The CPA loses his objectivity and acts in a manner as if he is advocating for the interest
of his client.
d. The CPA performs services wherein he is in effect acting as an employee of the client.

D 70. Which of the following statements is correct?

a. MAS are confined only to such areas as financial accounting, auditing, and tax
services.
b. Because the MAS practitioner must be independent, he must not allow the client to
participate in any phase of his engagement.
c. Although MAS extends beyond the traditional accounting services, MS practitioners
are still bound by the rules of professional ethics in the practice of accounting in
general.
d. In management audit, a team with a mix of members who are accountants and non-
accountants will provide a desirable combination of specialists and will offer a cross-
fertilization of ideas from different business fields.

C 71. The following statements refer to competence of CPAs in management services, except?
a. It is the ability to identify client needs, use analytical approach and process, actual
experience in MS work, and research.
b. In concept, it refers to the technical qualifications of the practitioner and his ability to
supervise and evaluate the quality of work of his staff assigned to the engagement so
as to be responsible for the successful completion of the project.
c. It must be retained in the rendition of NS work and it can be impaired if the CPA
performs decision-making for the client or acts as employee of the client.
d. It is acquired by education, self-study, attendance to professional development
courses, actual experience in MS work, and research.

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A 72. The following characterize management advisory service, except?
a. MAS utilize more junior staff than senior members of the firm.
b. MAS involve decision for the future.
c. MAS are broader in scope and varied in nature.
d. MAS relates to specific problems where expert help is required.

B 73. The following statements relate to MAS practice standards.

1. A practitioner is to notify the client of any reservations he has regarding
anticipated benefits.
2. Throughout the engagement, there ought to be a systematic critical review of
accomplishments 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 the engagement.

Which of the statements pertain(s) to the MAS practice standard on Client Benefit?
a. All the statements c. Statements 1, 3, & 4 only
b. Statement 1 & 3 only d. Statement 1 only

D 74. As a consultant the CPA/MAS practitioner should?

a. Conduct his engagement as if he is a member of the client’s organization.
b. Exercise administrative control over the client’s staff to avoid unnecessary delays in
implementation.
c. Encourage dependence of client on the consultant’s staff so as to pinpoint clear
responsibility in implementing systems.
d. Not take responsibility for making decisions and policy judgments in MAS
engagements.

A 75. Management services of certified public accountants cover all the following, except
a. Audit, tax and legal services
b. Organizational development and planning
c. Systems design, development, and implementation
d. Project feasibility studies

D 76. Which of the following statements is true?

a. A certified public accountant by virtue of having the necessary academic preparations
and by hurdling the licensure examination required to have a CPA license can readily
render management services to the public.

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 b. 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 graduate studies.
c. A CPA with MBA and PhD degrees is automatically qualified to render management
services.
d. 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
services engagement.

D 77. Which of the following statements is false?

a. CPAs performing management services may be considered to be in the practice of
management consulting.
b. Included in the practice of consulting is the provision of confidential service in which
the identity of the client is concealed.
c. Business firms hire management consultants to help define specific problems and
develop solutions.
d. CPAs provide management services to go around the ethical constraints as mandated
by the Accountancy Act.

B 78. Which of the following statements is not acceptable?

a. A CPA represents three major players in rationalizing the industry’s incentives before
the government public hearings.
b. A CPA shares with a new client substantial information regarding another client
belonging to the same industry.
c. A CPA provides consulting services to and existing audit client.
d. A CPA offers and provides consulting services to two major competing clients.

B 79. Mr. X, a CPA firm’s partner-in-charge of quality assurance and review, is arguing with
Mr. Y, the consulting partner, regarding the question on independence as Mr. Y is presently
consulting services to Kambal Co., an audit client of the firm. Related to the issue of
independence, all the statements are valid, except:
a. Independence is never sacrificed for as long as the auditor/consultant is correct in his
decisions for the client.
b. The client is the ultimate decision-maker and the auditor and/or consultant should not
make decision for the client.
c. A CPA who renders both audit and consulting services to a client by virtue of his
competence/expertise and extensive knowledge of the client’s business is in the best
position to render decisions for the client and should do so.
d. It is up to 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
benefits that the client will derive from the engagement.

D 80. A CPA should reject an MAS engagement if

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 a. He audits the financial statements of a subsidiary of the prospective client.
b. The proposed engagement is not accounting related.
c. His recommendations are to be subjected to a review by the client.
d. It would require him to make management decisions for the prospective client.

B 81. In marketing and promotion of themselves and their work, professional accountants,
including those engaged in management consulting, should
a. Use means which brings the profession into disrepute.
b. Not make exaggerated claims for the services they are able to offer, the qualifications
they possess, or experience they have gained.
c. Denigrate the work of other accountants.
d. Not make any claims for the services they offer.

C 82. After making the preliminary audit arrangements, an engagement confirmation letter
should be sent to the client. The letter usually will not include
a. A statement that management letter will be issued outlining comments and
suggestions as to any procedures requiring the client’s attention.
b. An estimate of the time to be spent on the audit work by audit staff and management.
c. A statement that management advisory services would be made available upon
request.
d. A reference to the auditor’s responsibility for the detection of errors or irregularities.

A 83. A CPA engaged in MS practice may not

a. Disclose confidential information unless authorized or legally obligated.
b. Act as independent auditor of the same client-firm.
c. Accept other employment while serving as management consultant.
d. Be independent in mental attitude.

C 84. A CPA engaged in public practice was engaged by a client who has a little accounting
and management experience to perform MAS. After presenting several alternative solutions and
the probable outcome for each, the CPA decided to implement the best alternative solution and
assumed full responsibility for which the client agreed.
a. The CPA did just the right thing.
b. The CPA should have asked the client first if he (the client) is capable to implement
the solution before doing it himself.
c. The CPA should not have implemented the best alternative solution and should not
have assumed full responsibility even if the client agreed, for these should have been
done by the client.
d. The CPA was correct in implementing the solution, but full responsibility should have
been assumed by the client.

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D 84. M and S are partners in an MAS firm. One of the firm’s clients is X Corporation, wherein
M is a board member. X Corporation is not an audit client. X Corporation is negotiating an MS
engagement with the MAS firm.
a. It is unethical for the MAS firm to accept the engagement because it is a violation of
the Standards on Independence.
b. It is unethical for the MAS firm to accept the engagement because S has financial
interests in X Corporation; hence he loses his independence as practitioner.
c. It is not unethical for the MAD firm to accept the engagement since X Corporation may
not be considered as a sister company of the MAS firm.
d. It is unethical for the MAS firm to accept the engagement, as long as there is a full
disclosure of the relationship to all parties at the outset of the engagement and in any
written final report.

D 85. An MS client asked for internal control system evaluation. During evaluation, the
practitioner suggests that certain changes are necessary in handling some accounts. The client
agrees. However, he (the client) requests that his former consultant supervise the installation.

The practitioner knows that such former consultant lacks sufficient experience to provide the
necessary technical direction and supervision. In this case, the practitioner should
a. Tell the client everything he knows about the former consultant so he could be
prevented from surprising the installation.
b. Prevent the former consultant to supervise the installation, but he should not tell the
client anything about his (former consultant’s) capabilities.
c. Should encourage the former consultant to attend a seminar/workshop so he could
learn the basics of engagement supervision.
d. Decline the engagement if the client insists that the former consultant supervise the
installation, and the necessary technical competence would not be provided even
through other means.

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