Classification of the Broad Areas of MAS The broad areas of Management Advisory Services have been classified into

two groups namely: A. Areas of MAS which are normally related to the accounting and finance functions. This classification is based on the fact that some areas of MAS basically require the professional training of CPAs and among these are the following: a. b. c. d. e. B. Preparation of accounting systems and procedures manual Development of management-oriented accounting and reporting systems Evaluation of the applicability and economics of using mechanized equipment Establishment of budgetary controls Cost reduction studies

Personal Finance. This is a relatively new field in management services. Individuals or families solicit advice from management consultants for reasons such as to improve their finances, avoid insolvency and to maximize returns on their savings. These require financial planning and control and investment management. Based on the foregoing enumeration, it is apparent that to perform the services as enumerated under group B, the CPA's background knowledge would not suffice. Independent accounting firms performing these services engage the services of CPAs who have expanded their own knowledge and expertise in these areas thru formal study (i.e., advanced studies) or training and experience. They also engage the services of non-accounting personnel such as engineers (chemical, electrical, mechanical, etc.) mathematicians, psychologists, marketing men and others.

Distinguishing Characteristics of MS Engagements The following are the distinguishing characteristics of management service engagements: y Service is for Management. Management service engagements are performed for management rather than for the benefit of third parties. Related to the Future. Management service engagements are future oriented for they are concerned with future activities and the benefits that may he derived therefrom. Problem- solving. The CPA is consulted to define and solve specific problems. Non-recurring. They are not repetitive in nature. The assignment is completed when a satisfactory solution has been developed or when the expert opinion of the consultant has been rendered to the satisfaction of the client. Should the client need the consultant's help in the future, such an engagement, in most cases, would be on solving other problems. Broad in Scope. Management service engagements are broad in scope for they are not primarily related to only one business function. Varied Assignments. They involve a wider variety of assignments as compared to those in auditing and tax service. Greater Job Specifications. Management service engagements require greater qualifications among the staff members for they must be able to discern, identify, and solve problems and gain confidence and cooperation of the client and his employees. Requires Good Human Relations. The consultant must practice good human relations for he must bring about a satisfactory relationship with the client and consequently, the successful completion of an engagement.

Areas of MAS which are not directly related to accounting and finance functions. This function is based on the fact that some areas of MAS require training in professions other than that of a CPA and among them are the following: y General management consultation. This include management or operations audit, measurement of operating performance, studies of mergers and acquisitions, development of compensation programs, review of pension plans, special studies on industry potential, and long-range planning. Project feasibility studies. This covers financial, technical and marketing evaluations. The financial feasibility section includes determination of financing requirements, the manner of raising them, return on investment, profitability and cash flow. Should it be considered necessary, the study may also include the development of joint venture arrangements.

y y

y y Organization and personnel. This category includes review of existing organization structure, the preparation of organization and administrative manuals, job evaluation and salary administration, personnel rating programs, personnel audits, cost determination of alternatives in collective bargaining agreements, studies of retirement plans and studies on office cost reduction. Industrial engineering. This category is quite broad and the services rendered by independent accounting firms under this are mostly in production planning, scheduling and control, plant layout studies, inventory management studies, development of materials control system, development of work standards, and purchasing management including value analysis. Marketing. This covers such areas as product profitability analysis, determination of pricing policy, forecasting of market, distribution cost analysis and evaluation of salesmen's incentive compensation. Operations research. This is an area of management science which uses mathematical techniques such as linear programming, queuing theory and simulation, to solve complicated operational problems. The PERT/CPM technique has also been used as a planning and scheduling tool in expansion programs, plant and building construction, major maintenance scheduling and new product planning.

Classification of Management Services Based on Required Expertise Considering the CPA's training and background, management services have been classified into usual, somewhat specialized, and highly specialized.* A. Usual Services. These are the services which a CPA can readily offer because of his background. 1. Analysis of financial and operating statements for management, banks, stockholders and others: a. Comparative statistics by year b. Ratios and percentages c. Funds statement d. Break-even analysis

Aside from the foregoing, the services of a management consultant may be sought by individuals or families who are desirous of improving their finances or who are on the brink of insolvency. The services involved are classified under personal finance.

2.

Design and installation of accounting systems a. Setting up of book of original entry and general ledger to expedite preparation of financial statements. b. Revision of system to conform with uniform chart of accounts for industry or regulatory body. c. Installation or revision of the payroll systems. Assistance in the preparation of budgets and forecasts: a. Operating budget b. Cash budget c. Working capital requirements d. Long term capital requirements Evaluation of form and business organization a. Proprietorship b. Partnership c. Corporation Presentation and explanation of statements at conferences and stockholders' meeting a. Use of charts and graphs Research and evaluation of alternative methods of handling a transaction for its tax consequence and effect on finance: a. Buy or lease decisions b. Make or buy decisions c. Acceptor reject an order decision d. Continue or discontinue decisions Assisting client in purchase or sale of business: a. Analysis of financial condition of the business under consideration. b. Preparation of projected statements and analysis thereof. Setting-up of control for cash, receivable, inventory, fixed assets, and other items to assist management and expedite the audit process. Determination of the effect of various employee compensation plans on net income.

3.

Giving advice on dividend policy and plans for expansion a. Assist in outlining long-range financial requirements b. Assist in forecasting net income and dividend requirements Advising on accounting and tax matters relative to estate planning in cooperation with legal and insurance counsel: a. Valuation of the real estate and composition of assets b. Calculation of real estate tax and provision for payments Assisting bankruptcy and receivership proceedings: a. Calculation of estimated amounts available to satisfy creditors and disposition of funds Presenting and analyzing the pros and cons of various retirements and profit sharing plans, including their tax consequences. Recruiting accounting or bookkeeping personnel for client. Preparing an analysis of paper flow to determine who handles what and why. Finding sources of capital and figuring the approximate cost: a. Small business loans b. Bond issue c. Stock issuance

4.

3.

5.

4.

6.

5.

7. 8.

6.

9.

7.

10. Surveying credit losses 11. Calculations on government contracts and allocating costs in compliance with reporting requirements. 12. Advising on various incentive plans.

8.

C.

Highly Specialized Services. These require special skills, aptitude, and training not normally possessed by the CPA. 1. Preparing market analysis of products and services: a. Territorial differences b. Setting up quotas c. Per capita consumption Conducting time and motion studies for standard cost system. Surveying an industry or trade for current trends. Auditing management policies for their effectiveness. Reviewing an insurance program to determine if the coverage is adequate. Evaluating the desirability of a particular area for plant location: a. Real estate value and taxes b. Accessibility to raw materials and labor c. Local cost of labor Reviewing the organization structure to determine if the duties and responsibilities are assigned locally and efficiently: a. Interview of employees b. Work flow analysis c. Effectiveness of communication d. Work standard and job classification Advising on data processing installation: a. Forms and procedures b. Adapting conventional accounting data to computer language

9.

10. Preparation of the insurance claim in such cases, such as big business interruption or fire loss. 2. 11. Testifying on clients' behalf: a. Tax case b. Merger or sale 12. Suggestions for improvements in internal control: a. Minimization of possible embezzlement opportunities. b. Alleviation or elimination of problems caused by the absence of one clerical employee 13. Design of filing systems for storing the accounting records. 14. Aid in labor union negotiations: a. Costing fringe benefits b. Calculation of the overall effect of pay increases B. Somewhat Specialized Services. These are extension of the common accounting work but need additional training and/or experience to properly serve the client. 1. Making cost analysis of operations including solutions to such problems as proper basis for distribution of factory expenses. 8. 2. Assisting in the installation of a mechanized accounting system: a. Designing forms b. Integrating the machine system with the regular system of accounts 7.

3. 4. 5.

6.