ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41  May 2021 CPA Licensure Examination  Week No. 19
MANAGEMENT ADVISORY SERVICES C.P. Lee  E.S Arañas  K.L. Manuel

MAS-16: VARIOUS TOPICS IN MAS

MANAGEMENT ADVISORY SERVICES/MANAGEMENT CONSULTANCY
 MANAGEMENT ADVISORY SERVICES (MAS) refer to the consulting services performed by CPAs and other
financial advisors primarily aimed to improve the client’s use of its resources and capabilities to achieve
business objectives. Common characteristics of MAS engagements include:
 Broad in scope
 Involves problem-solving
 Involves varied assignments
 Engagements are usually non-recurring
 Relates to the future (i.e., forward looking)
 Engagements usually require highly qualified staff
 Human relations play a vital role in each engagement
 Services are rendered for the management that is usually a third-party client
 MANAGEMENT CONSULTANT refers to a person who is qualified by education, experience, technical
expertise to advise and assist businessmen on a professional basis in identifying and solving specific
management problems regarding business operations. Some of the common reasons for hiring
management consultants include:
 A consultant is considered independent, objective and detached to the problems of the organization
 A consultant possesses special knowledge and skills not normally available from company personnel.
 A consultant serves as a catalyst for needed changes not normally perceived by company personnel.
 In certain business situations, hiring consultants are less expensive than hiring full-time managers.
 Other reasons:
 Lack of competent staff
 Trend towards industrialization
 Growth in size and complexities of business firm
 Complexities in managing and conducting a business
 Emergence of new management solutions and techniques
 Need for adequate and timely information for management decision-making
 Management consultancy is not limited to CPAs. However, CPAs have the distinct advantage over other
business advisors as they are already familiar with the client and its business, and they normally enjoy the
client’s confidence; CPAs are members of a profession with recognized standing and equipped with technical
know-how in accounting and taxation. In most accounting firms, management consultancy or business
advisory departments are kept independent from other departments like audit and tax. Some of the
essential attributes that make A CPA qualified to render management consultancy include:
 Technical competence
 Professional independence, objectivity and integrity
 Analytical ability and experience in solving business problems
 Familiarity with the client’s finance, control systems and business problems
 Consultation, as distinguished from engagements, consists of providing advice and information during a
short time frame. Engagements, on the other hand, consist of that form of management advisory in which
an ANALYTICAL APPROACH and PROCESS is applied in a study or project. This approach typically involves
1) ascertaining pertinent facts 2) identifying objectives 3) defining problems 4) evaluating and determining
possible solutions 5) presenting findings and recommendations 6) implementing solutions, if appropriate.
 MAS engagements can be broadly classified into three (3) stages:
1) ANALYSIS STAGE - involves determining facts and circumstances, identifying objectives, and defining
the problem or opportunity for improvement
2) DESIGN STAGE - involves evaluating possible solutions, communicating findings and presenting
recommendations.
3) IMPLEMENTATION STAGE - involves scheduling actions and providing technical assistance in the
implementation of the recommendations. (NOTE: to maintain independence, the business advisor shall
NOT implement the recommendations but provide technical assistance only during implementation.)
 MAS engagements may also be classified based on seven (7) specific stages: 1) Negotiating the
engagement 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
engagement 7) Post engagement follow-up
 The types of clients served by CPAs in Management Advisory Services include:
 Private-owned business firms
 Professional associations or organizations
 Governmental agencies and organizations
 Not-for-profit nongovernmental organizations
 Others organizations like labor unions and religious groups
 Various types of Management Advisory Services by CPAs:
 Management Accounting-Related Services (e.g., cost analysis and control, variance analysis)
 Financial Management-Related Services (e.g., capital budgeting, financial analysis)
 Design and Appraisal of Accounting System (e.g., accounting software selection)
 Global-Risk Management Solutions (e.g., financial risk management)
 Transaction Services (e.g., due diligence engagements)
 Other Services (e.g., organization and personnel, operations research, marketing, general
management, project feasibility studies)

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY MAS-16
Week No. 19: VARIOUS TOPICS in MAS

 Management Advisory Services may also be classified based on required expertise:

 USUAL SERVICES like evaluating form of business organization, designing accounting systems,
analyzing financial statements, suggesting improvements in internal control, assisting clients in
purchase or sale of business, aiding in labor union negotiations, determining effects of employee
compensation plans, assisting in preparing budgets and forecasts, testifying on client’s behalf.
 SOMEWHAT SPECIALIZED SERVICES like giving advice on dividend policy or business expansion,
making a cost analysis of operations, finding sources of capital, counseling on estate tax matters
 HIGHLY SPECIALIZED SERVICES like reviewing organizational structure, auditing management policies,
conducting motion studies, advising on data processing allocation, preparing market analysis
 Apart from the legal contract between the business advisor and the client, documents used in most MAS
engagements include:
 PROPOSAL LETTER is an offer of service which, if accepted and approved by the client, becomes a
contractual agreement.
 CONFIRMATION LETTER is a brief and concise statement of agreement previously reached with a client.
 ENGAGEMENT LETTER is a contractual agreement used when the client has already agreed that the
business advisor will conduct the engagement.

PROJECT FEASIBILITY STUDY

 A PROJECT FEASIBILITY STUDY is a systematic gathering and analysis of the data aimed to find out
practicability of a business undertaking and, if found practicable, to determine the degree of profitability.
 Users of the feasibility study:
 PROJECT PROPONENTS – the study serves as a basis for selecting good venture, for implementing
activities and for formulating long-range plans.
 CREDITORS & INVESTORS – the study serves as a basis in deciding whether to grant financing and for
determining the amount and terms thereof.
 MANAGEMENT – the study helps in ascertaining the feasibility of expansion programs, in deciding on the
possibility of taking over existing business, as well as the extent of the capital outlay required.
 GOVERNMENT INSTRUMENTALITIES – the study helps to ensure that the project meets necessary legal
requirements, and helps determine the extent of government incentives that may be granted.
 GENERAL PUBLIC – the study aids in minimizing the risk of business failures, reducing waste of valuable
resources, and thereby accelerating economic growth.
 Major aspects of feasibility study:
 MANAGEMENT – assists in the selection of the business structure, personnel set-up, and internal policies
of the enterprise for an effective operation.
 MARKETING – involves the study of the present and future demand and supply for the product,
competition, selling price, and marketing plans for the product.
 TECHNICAL – aims to choose the process to be used, plant capacity, layout, machinery design,
materials and other technical factors to attain cost minimization and profit maximization
 TAXATION – covers the study of tax effects as well as legal tax saving measures and other government
incentives applicable to the project.
 LEGAL – determines legal capacity and restrictions to do business so that legal requirements are met
and possible incentives and protection are availed of.
 FINANCIAL – quantifies the result of marketing, technical, management, taxation and legal aspects and
expresses the profitability of the project in peso terms.
 FINANCING SOURCES – determines possible internal and external sources, terms, and condition of
financing.
 ECONOMICS – involves the study of the project’s contribution to the national economy as a whole.
 CPAs are heavily involved in the FINANCIAL ASPECT of the project feasibility study. The main components
of the financial aspect of the project feasibility study include
 STATEMENT OF ASSUMPTIONS – explicit statements about the possible future behavior of certain
variables affecting a project that serves as the premises for projecting probable results. Realistic
assumptions are needed to provide a definite and specific basis for financial projections.
 PROJECTED FINANCIAL STATEMENTS – usually include projected income statement, balance sheet, and
cash flow statement. The periods covered by these statements would normally commence from the pre-
operating stage of the project until its first few years of operations, with some provision for business
expansion that could lead to extending the life of the project.
NOTE: Using the projected financial statements, evaluation of the project’s viability may further be
enhanced by developing or applying the meaningful financial ratios or analytical tools dealing with the
project’s profitability, liquidity, solvency, stability and capital structure.
 SOURCES OF FINANCING
 INTERNAL sources - funds generated within the firm.
Examples: Retained earnings, sale of fixed assets, and reduction of working capital
 EXTERNAL sources - funds provided by owners (equity) or creditors (debt).
Examples: Issuance of debt securities (bonds) or equity securities (shares)
 Limitations and constraints of a project feasibility study:
 Unavailability of required and necessary information to support conclusion.
 Any significant change in the business environment usually renders results of forecast not coinciding
with actual events.
 Incompetence or inexperience of the one making the judgment resulting in erroneous conclusions and
ineffective recommendations.

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Week No. 19: VARIOUS TOPICS in MAS

ETHICS & NOCLAR

 According to the Statement of Ethical Professional Practice (effective July 1, 2017) by Institute of
Management Accountants (IMA), management accountants shall act in accordance with the overarching
ethical principles of HONESTY, FAIRNESS, OBJECTIVITY and RESPONSIBILITY. In addition, management
accountants have a responsibility to comply with and uphold the following four ethical standards:
STANDARD Management accountants have the responsibility to…
… maintain an appropriate level of expertise and leadership by enhancing knowledge and skills
… perform duties in accordance with laws, regulations and technical standards
1 COMPETENCE … provide decision support information and recommendations that are accurate, clear, concise
and timely
... keep information confidential except when disclosure is authorized or legally required
2 CONFIDENTIALITY … refrain from using confidential information for unethical or illegal advantage
… inform all relevant parties about the appropriate use of confidential information
… mitigate any conflicts of interest and advise concerned parties of any potential conflicts
… refrain from engaging in any activity that would prejudice carrying out duties ethically or might
3 INTEGRITY discredit the profession
… contribute to a positive ethical culture and place integrity of the profession above personal
interests
… communicate information fairly and objectively
… provide all relevant information that could reasonably be expected to influence an intended
user’s understanding of the reports, analyses, or recommendations
4 CREDIBILITY … report any delays or deficiencies in information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable law
… communicate professional limitations or other constraints that would preclude responsible
judgment or successful performance of an activity
 NOCLAR (NON-COMPLIANCE WITH LAWS and REGULATIONS) is defined as “acts of omission or commission,
intentional or unintentional, committed by a client, or by those charged with governance, by management
or by other individuals working for or under the direction of a client which are contrary to prevailing laws
and regulations.” These are some of the important facts about NOCLAR and its provisions:
 The key objectives for a professional accountant under NOCLAR are:
 To comply with the principles of integrity and professional behavior;
 To alert management where appropriate so that they can deal with the consequences of the
non-compliance; or deter the non-compliance if it hasn’t yet happened; and
 To take such further action as appropriate in the public interest.
 NOCLAR applies to laws and regulations that have a direct effect on material amounts in the
financial statements, and other laws and regulations that may be fundamental to an entity’s
business and operations. Clearly, inconsequential matters and misconduct of personal nature are
excluded. Examples of laws and regulations that would be covered are in the areas of:
1) bribery and corruption 2) fraud (including false accounting, falsification of accounting records)
3) insider dealing 4) money laundering 5) terrorist financing 6) financial products and services
7) data protection 8) tax evasion 9) environmental protection 10) public health and safety
 NOCLAR guidance enables accountants to override the duty of confidentiality in order to disclose
NOCLAR to appropriate authorities, especially in circumstances where there is a strong public interest.
 NOCLAR guidance prescribes a differentiated approach for auditors, professional accountants in public
practice as well as for senior professional accountants in business; while the basic ethical principles are
same for all accountants, the implementation of these principles differs according to their roles, levels of
seniority, spheres of influence and different levels of public expectations.
 NOCLAR guidance generally prescribes that the following framework be followed in case of NOCLAR or
suspected NOCLAR:
1. Obtaining an understanding of the matter – including the nature of the act and surrounding
circumstances. In obtaining understanding, taking legal advice and consulting with other members
of the firm (on a confidential basis) may be necessary.
2. Addressing the matter. The accountant shall advise management to take timely and appropriate
actions in order to resolve the situation, to deter possible non-compliance or to disclose the matter
to appropriate authorities where it is required by law.
3. Determining whether further action is needed. The accountant shall assess the appropriateness and
effectiveness of the response of management, including the timeliness of the response and the
extent of investigation and remedial action, and in the light of this response, the accountant must
determine objectively if further action is needed in the public interest. Where the accountant
decides that further action is necessary, it might include disclosing the matter directly to the
appropriate authority and withdrawing from the engagement and client relationship.
4. Determining whether to disclose the matter to an appropriate authority. The determination of
whether to disclose the identified or suspected non-compliance to an appropriate authority depends
on the nature and extent of the actual or potential harm which might be caused to investors,
creditors, employees or the general public. Examples include references to an entity being involved
in bribery and tax evasion or to breaches of regulation which might impact adversely on operating
licenses, financial markets or public health and safety.
5. Documentation. The auditor (accountant) is required (encouraged) to document the process of
compliance with the NOCLAR guidance including the response of management, the courses of action
considered, the judgements made and the decisions taken.
Please refer to AT–13 and AT-20 on the related topics “fraud, error and non-compliance” and “Code of
Ethics for Professional Accountants” for more details on ETHICS & NOCLAR.

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Week No. 19: VARIOUS TOPICS in MAS

MULTIPLE-CHOICE QUESTIONS
1. What is the primary purpose of Management Advisory Services?
a. To help clients identify their problems
b. To help clients maximize their resources
c. To reach and serve more potential clients by the CPA firm
d. To improve the client’s use of its capabilities and resources to achieve business objectives
2. Which of the following is NOT a characteristic of Management Advisory Services (MAS)?
a. MAS is broad in scope
b. Beneficiary of service is management
c. MAS is repetitive as far as the same client is concerned
d. MAS involves problem-solving affecting future operations of the client
3. Which of the following is NOT common reason for hiring a management consultant?
a. To render an independent opinion
b. To provide specialized skills and experience
c. To serve as a catalyst for needed changes in the workplace
d. To implement solutions and decide on business matters on behalf of the client
4. Which of the following is NOT a common qualification of a CPA in MAS practice?
a. Auditor of the client
b. Analytical experience in problem solving
c. Professional independence, objectivity and integrity
d. Familiarity with the client’s financial accounting and internal control systems
5. Management consultancy
a. Is limited to CPAs c. Can be practiced by anybody
b. Is not limited to CPAs d. Is exclusive to the CPA profession
6. Management Advisory Services of CPAs cover all the following, EXCEPT
a. Project feasibility study c. System design and implementation
b. Audit, tax and legal services d. Organizational development and planning
7. Which of the following is not an area in MAS practice?
a. Conducting special studies
b. Marketing and public relations work
c. Introducing new ideas, concepts and methods
d. Reviewing and suggesting improvement of policies, procedures, systems, and methods
8. An MAS consultation, as opposed to an MAS engagement, generally provides advice or information by a
CPA that is based upon
a. The results of an operational audit
b. An analytical approach and process
c. Existing personal knowledge about the client
d. Information obtained during an examination of the client’s financial statements.
9. An MAS engagement, as opposed to an MAS consultation, generally provides advice or information
given by a CPA that is based upon
a. An analytical approach and process
b. Existing personal knowledge about the client
c. An incidental effort devoted to a combination of activities
d. The CPA’s ability to implement management’s recommendation
10. Which of the following is not an analytical approach in MAS engagement?
a. Ascertaining the pertinent facts and circumstances
b. Defining the problem or opportunity for improvement
c. Presenting findings and recommendations
d. Counseling management in planning, operating, and controlling functions
11. A management advisory services engagement generally involves the following activities in what
particular order? (NOTE: this question was given/asked in the 1996 CPA Licensure Examinations)
I. Post engagement follow-up
II. Implementing the recommendation
III. Conducting the engagement
IV. Negotiating the engagement
V. Preparing for and starting the engagement
VI. Evaluating the engagement
VII. Preparing and presenting the report and recommendation
a. VII,VI,V,IV,III,II and I
b. III,IV,V,VI,VII,I and II
c. IV,III,V,VI,II,VII and I
d. IV,V,III,VII,II,VI and I
12. Which of the following statements is NOT acceptable?
a. A CPA provides consulting services to an existing audit client
b. A CPA offers and provides consulting services to two major competing clients
c. A CPA shares with a new client substantial information regarding another client belonging
to same industry
d. A CPA represents three major players in rationalizing the industry’s incentives before the
government public hearings

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Week No. 19: VARIOUS TOPICS in MAS

13. A practitioner should reject an MAS engagement if

a. The proposed engagement is not accounting-related
b. His recommendations are to be subject to review by the client
c. It would require him to make management decisions for audit client
d. He audits the financial statements of a subsidiary of the prospective client
14. Which of the following is NOT an activity covered by feasibility study?
a. Activity based accounting of the endeavor leading to a conclusion
b. Evaluation and analysis of data collected
c. Formulation of recommendation
d. Collection of data
15. Among the following major parts of a project feasibility study, which grouping is considered critical?
a. Management, financial and social returns
b. Technical, financial and environmental aspects
c. Economic benefits, management, financial
d. Marketing, engineering/technical and financial
16. In project feasibility studies, accountants are usually involved in the financial aspect. Included in the
financial aspect is a set of statements that serves as basis for making financial projections. The set of
expressed statements is called:
a. Projected financial statements c. Statement of accounts
b. Statement of projected costs d. Statement of assumptions
17. Determine the incorrect statement about project feasibility studies.
a. Any change which can materially alter the assumptions used in the preparation of the
forecast will render it useless
b. The project study is important for government agencies in order to determine entitlement
to government incentives
c. Project study may also cover the social desirability aspects of a proposed undertaking
d. Since data gathering is a basic step in its preparation, all the necessary and required
information will always be available
18. In a project feasibility study, which of the following statements is FALSE?
a. The project is based on available information and opinions of the party involved in the
preparation of the study.
b. The characteristics of a good feasibility study are comprehensive, objective and simple.
c. The study is primarily a forecast which always tallies with actual events.
d. One of the parties interested in feasibility studies is the stockholder.
19. Which is NOT among the ethical standards set by IMA’s Statements of Ethical Professional Practice?
a. Integrity c. Confidentiality
b. Credibility d. Independence
20. Determine the correct set of IMA’s four overarching ethical principles.
a. Honesty, loyalty, fairness and independence
b. Objectivity, fairness, honesty and openness
c. Honesty, fairness, objectivity and responsibility
d. Responsibility, accountability, objectivity and honesty
21. Integrity is an ethical requirement for all financial managers/management accountants. One aspect of
integrity requires
a. Avoidance of conflict of interest
b. Refrain from improper use of inside information
c. Maintenance of appropriate level of professional competence
d. Performance of professional duties in accordance with applicable laws
22. If a management accountant has a problem in identifying unethical behavior or resolving an ethical
conflict, then the first action to take should be:
a. Resign from the company
b. Consult the board of directors
c. Notify the appropriate law enforcement agency
d. Discuss the problem with immediate supervisor
23. A management accountant discovers that his/her company is violating environmental regulations. If
immediate supervisor is involved, the appropriate action is to
a. Consult the audit committee
b. Confront the immediate supervisor
c. Present the matter to the next higher managerial level
d. Do nothing since she has a duty of loyalty to the organization
24. Appropriate disclosure of NOCLAR to authorities overrides which particular ethical standard?
a. Integrity c. Credibility
b. Competence d. Confidentiality
25. Non-compliance with Laws and Regulations (NOCLAR) Framework was created to comply with which
fundamental principles?
a. Integrity
b. Objectivity
c. Confidentiality
d. Professional competence and due care

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