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Page 1 of 9 | MANAGEMENT ADVISORY SERVICES Handouts No. 01 BASIC CONSIDERATIONS IN MAS RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA

Basic Considerations in Management Advisory Services RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

I. OVERVIEW MANAGEMENT ADVISORY SERVICES DEFINED: Management advisory services refer to the function of providing professional advisory (consulting) 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. II. STRATEGIC DECISIONS AND MANAGEMENT ACCOUNTING Key to a company’s success in creating value for customers while differentiating itself from its competitors A. Mission vs Vision A Mission Statement defines the company’s business, its objectives and its approach to reach those objectives. A Vision Statement describes the desired future position of the company. B. Providing information about the sources of competitive advantage Michael Porter’s Three Generic Strategies 1. Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." 2. Role of management accountant: provide managers information in helping formulate strategy C. Identifying and building resources and capabilities 1. Strategic analysis: matching knowledge of marketplace opportunities and threats with company’s resources and capabilities 2. Balance sheet information about assets a. Current resources i. Cash adequacy ii. Inventory management b. Long-term productive assets: important strategic decisions for the right investments i. Analyze trends and measure efficiencies ii. Develop network of relationships with customers and suppliers iii. Identify financial and nonfinancial costs and benefits associated with alternative choices c. Intangible assets III. MANAGEMENT ACCOUNTANT’S ROLE IN IMPLEMENTING STRATEGY A. Implementing strategy: managers taking action by using planning and control systems to help the collective decisions of an organization 1. Planning a. Thinking process i. Selecting organization goals ii. Predicting results under various alternatives of achieving those goals iii. Deciding how to attain desired goals b. Communicating goals and how to attain them to entire organization 2.

Control a. Taking actions to implement the planning decisions b. Deciding on performance evaluation

3. Feedback: linking planning and control to help future decision making

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Page 2 of 9 | MANAGEMENT ADVISORY SERVICES Handouts No. 01 RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA BASIC CONSIDERATIONS IN MAS

B.

Supporting managers by providing information to improve strategic, planning, and control decisions 1. Three roles of management accountants for success a. Problem solving: comparative analysis for decision making b. Scorekeeping: accumulating data and reporting reliable results c. Attention directing: helping managers properly focus their attention 2.

Goals to assist managers in making better decisions a. Different decisions emphasize roles differently i. Strategy and planning emphasize problem solving ii. Control emphasizes scorekeeping and attention directing b. c.

Interaction among types of decisions means activity/roles done simultaneously Information must be relevant and timely to be useful

C. Enhancing the value of management accounting systems by guiding managers to focus on challenges 1. Customer focus 2. Value-chain and supply-chain analysis a. Companies add value through— i. Research and development ii. Design of products, services, or processes iii. Production iv. Marketing v. Distribution vi. Customer service b. Managers in all business functions are customers of management accounting information 3.

Key success factors a. Cost and efficiency b. Quality c. Time d. Innovation

4.

Continuous improvement and benchmarking

IV. MANAGERIAL ACCOUNTING VS. FINANCIAL ACCOUNTING Seven key differences between managerial accounting and financial accounting as noted by IMA Financial reports are for external users. Managerial accounting reports are for internal users. Financial accounting summarizes past transactions. Managerial accounting has a strong emphasis on the future. Financial accounting data should be objective and verifiable. Managerial accounting data should be relevant. Financial accounting focuses on precision. Managerial accounting focuses on timeliness of information. Financial accounting is concerned with reporting for a company as a whole. Managerial accounting focuses on segments of a company such as product lines, sales territories, divisions, and departments. Financial accounting must conform to generally accepted accounting principles (GAAP). Managerial accounting is not bound by GAAP. Financial accounting is mandatory, Managerial accounting is not. V.

TREASURERSHIP VS. CONTROLLERSHIP FUNCTIONS 1. Provision of Capital 1. Planning and control 2. Investor relation 2. Reporting and interpreting 3. Short-term financing 3. Evaluating and consulting 4. Banking and custody 4. Tax administration 5. Credits and collection 5. Government reporting 6. Investments 6. Protection of assets 7. Insurance 7. Economic appraisal

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Page 3 of 9 | MANAGEMENT ADVISORY SERVICES Handouts No. 01 RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA BASIC CONSIDERATIONS IN MAS

VI. ETHICAL STANDARDS IN MAS The Code of Ethics in effect in the Philippines automatically covers all managerial accountants practicing in the Philippines. In addition to that is the come of ethics developed by IMA. Members of IMA shall behave ethically. A commitment to ethical professional practice includes overarching principles that express our values, and standards that guide our conduct. PRINCIPLES IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in accordance with these principles and shall encourage others within their organizations to adhere to them. STANDARDS A member's failure to comply with the following standards may result in disciplinary action. I. COMPETENCE Each member has a responsibility to: 1. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. 2. Perform professional duties in accordance with relevant laws, regulations, and technical standards. 3. Provide decision support information and recommendations that are accurate, clear, concise, and timely. 4. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. II. CONFIDENTIALITY Each member has a responsibility to: 1. Keep information confidential except when disclosure is authorized or legally required. 2. Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates' activities to ensure compliance. 3. Refrain from using confidential information for unethical or illegal advantage. III. INTEGRITY Each member has a responsibility to: 1. Mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. 2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. 3. Abstain from engaging in or supporting any activity that might discredit the profession. IV. CREDIBILITY Each member has a responsibility to: 1. Communicate information fairly and objectively. 2. Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations. 3. Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.

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Page 4 of 9 | MANAGEMENT ADVISORY SERVICES Handouts No. 01 RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA BASIC CONSIDERATIONS IN MAS

RESOLUTION OF ETHICAL CONFLICT In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues, you should follow your organization's established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses of action: 1. Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated only with your superior's knowledge, assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law. 2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. 3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict. Exercises 1. The primary purpose of management advisory services is a. To conduct special studies, preparation of recommendation, development of plans and programs, and provisions of advice and assistance in their implementation b. To provide service or to fulfill some social need c. To improve the client's use of its capabilities and resources to achieve the objective of the organization d. To earn the best rate or return on resources entrusted to its care with safety of investment being taken into account and consistent with the firm's social and legal responsibilities 2. That kind of accounting concerned with providing information to management in making decisions about the operations of the business a. Responsibility accounting b. Cost accounting c. Management accounting d. Financial accounting 3. Which of the following is not a characteristic of MAS? a. MAS is broad in scope b. MAS involves problem-solving affecting the future operations of the client c. Beneficiary of service is management d. MAS is repetitive as far as the same client is concerned 4. The following characterize management advisory services except a. Involve decision for the future b. Broader in scope and varied in nature c .Utilize more junior staff than senior members of the firm d. Relate to specific problems where expert help is required 5. Management accounting a. Is governed by GAAP b. Draws from disciplines other than accounting c. Is geared primarily to the past rather than the future d. Places more emphasis on precision of data compared with financial accounting that does not 6. In financial accounting, certain rules and regulations must be followed on how financial statements must be presented to the reader. In managerial accounting, no such restrictions generally apply because it is: a. An entirely different field that need not observe the broad guidelines in financial accounting b. Designed to provide management with non-financial information for decision-making. c. Designed to provide accounting and other financial data to assist management in making business decisions. d. A discipline that does not require preparation of financial statements

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Page 5 of 9 | MANAGEMENT ADVISORY SERVICES Handouts No. 01 RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA BASIC CONSIDERATIONS IN MAS

7. The following characteristics refer to Financial Accounting except a. Provides information to external users b. Emphasizes on objective data c. Has no externally imposed standards d. Generate general-purpose financial statements 8. Managerial accounting differs from financial accounting in that financial accounting is a. More oriented toward the future b. Primarily concerned with external financial reporting c. Concerned with non-quantitative information d. Heavily involved with decision analysis and implementation of decisions 9. To distinguish between management accounting and financial accounting, the following statements are correct except a. Management accounting, in view of its various integrated recipients should have a separate data recording and retrieval system from financial accounting b. Financial accounting is bound to GAAP, and management accounting need not be in conformity with GAAP c. Financial accounting can be regarded as the process while management accounting can be regarded as the product of that process d. Management accounting output must be released on time so as not to erode its usefulness financial account output can still be useful even when delayed 10. The basic accounting records that are used to provide data for external financial reporting are also employed in management accounting. In combining and reporting these data to management, however, the accountant can relax the verifiability constraint necessary in public financial reporting and instead prepare data, which, although not adequately verifiable for external reporting, are more useful to management. This principle of management accounting considers the following factors more important than others. a. Verifiability, objectivity and accuracy b. Conservatism c. Relevance, flexibility and timeliness d. Consistency and disclosure 11. The function of management that compares planned results against actual results is known as a. Planning b. Directing and motivating c. Controlling d. Decision making 12. The activities in a management system's control process can be grouped into four (1) Measurement of actual performance (2) Deciding and implementing corrective action (3) Determining standards of performance (4) Comparing actual performance versus standards and analyzing results The above steps must be done in this sequence a. 4, 3, 2, 1 b. 3, 1, 4, 2 c. 1, 3, 4, 2 d. 3, 4, 1, 2 13. Which of the functions of management involves overseeing day-to-day activities? a. Planning b. Directing and motivating c. Controlling d. Decision making

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