01: MANAGEMENT SERVICES & MANAGEMENT ACCOUNTING

Management Services (Consultancy) – refers to the professional service performed by

specially trained and experienced persons in giving assistance to
management in improving managerial, operating, and economic performance
of the various institutions of our society.

 Management consultancy is not an exclusive field of practice for CPAs and is not
regulated by law

Analytical approach and process in providing professional services (advise)

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
Should the company continue the engagement, the latter may also be involved
6. Planning and scheduling actions to achieve the desired results
7. Advising and providing technical assistance in implementing his recommendations

Scope of Services
Full Scope Engagement – Performing 1 – 7 in the analytical approach (provide technical
assistance in the implementation)
Special Study Engagement – Performing 1 – 5 only in the analytical approach
Informal Advice–Respond as practicable at the moment and state the basis for his response
(does not assume responsibility because no extensive study has been
performed)

Characteristics of Management Services Engagement

1. Service is for 5. Broad in Scope
Management 6. Varied Assignments
2. Related to the Future 7. Greater Job Specifications
3. Problem-solving 8. Requires Good Human
4. Non-recurring Relations

Practice Standards
1. Personal 5. Understanding with Client
Characteristics 6. Planning, Supervision, and
2. Competence Control
3. Due Care 7. Sufficient Relevant Data
4. Client Benefit 8. Communication of Results

Stages in MS Engagement
1. Negotiating the engagement 5. Implementing the
2. Preparing for and starting the engagement recommendations
3. Conducting the engagement 6. Evaluating the engagement
4. Preparing and presenting the report and 7. Post-engagement follow-up
recommendations

Management Accounting – the application of appropriate techniques and concepts to

economic data so as to assist management in establishing plans for
reasonable economic objectives and in the making of rational
decisions with a view toward achieving these objectives.

Objective – To provide management information needed in:

a. Planning, evaluating and controlling operations, decision making.
b. Safeguarding the organization’s assets
c. Communicating with interested parties outside the organization, such as shareholders
and regulatory bodies.

Scope – Management accountants do the following tasks:

a. Data accumulating c. Problem - Solving
b. Interpreting and reporting of information

Relationship of Financial Accounting, Management Accounting and Cost Accounting:

 Management Accounting – concerned with providing financial information to persons
within the organization to enable them to make informed judgments
and effective decisions.
Financial Accounting – the systematic recording of business transactions governed by
GAAP leading to the preparation of financial statements for the use
of various interested parties, internal as well as external.

Areas of Concern Financial Accounting Management Accounting

a. Objective Provide data to Internal users
internal and external
users
b. Compliance with GAAP Need to conform with Need not conform
GAAP
c. Emphasis on the Past oriented Future oriented
future
d. Relevance and All-purpose reports Information must be
flexibility of data are prepared relevant for a
particular decision
e. Emphasis on precision Emphasis on precisions Emphasis on timeliness
and timeliness of
report
f. Reporting Company as a whole Segments of the Company
requirements
g. Compliance with law Required by law Not mandatory

Cost Accounting – the systematic set of procedures for recording and reporting
measurements of the cost of manufacturing goods and performing services
in the aggregate and in detail.

Activities for Management Accountant:

1. Planning – quantifying and interpreting the effects on the organization of
planned transactions and other economic events.
2. Reporting – both internal and external needs for information about past or
future events.
3. Controlling – interpret information pertinent to the organization and
communicate the implications of the information being reviewed.
4. Resource management – implementing a system of reporting that is aligned with
organizational responsibilities.
5. Information systems development – the information system must meet the needs of
all people who require information to perform their jobs.
6. Technological implementation – be familiar with current technology relative to
information processing and accounting techniques appropriate to controlling and
using the information.
7. Verification – assure the accuracy and reliability of information derived from
the accounting system.
8. Administration – development and maintenance of an effective and efficient
management accounting organization.

Two important people in Management: Comptroller and Treasurer

Comparison between Controller and Treasurer

Controller’s Function
1. Planning and control
2. Internal reporting
3. Evaluation and consulting
4. External reporting
5. Protection of assets
6. Economic appraisal
Treasurer’s Function
1. Provision of capital
2. Short-term financing
3. Banking and custody
4. Credits and collections
5. Investor relation
6. Foreign exchange management

TRUE-FALSE STATEMENTS
1. Reports prepared in financial accounting are general-purpose reports, whereas
reports prepared in managerial accounting are usually special-purpose reports. Commented [L1]: TRUE
2. Managerial accounting information generally pertains to an entity as a whole and is
highly aggregated. Commented [L2]: FALSE- relates to sub-units of entity
3. Managerial accounting applies to all forms of business organizations. and may be very detailed
Commented [L3]: TRUE
4. Managerial accounting internal reports are prepared more frequently than are
classified financial statements. Commented [L4]: TRUE
5. The management function of organizing and directing is mainly concerned with setting
goals and objectives for the entity. Commented [L5]: FALSE
6. The controller of a company is responsible for all of the accounting and finance
issues a company faces. Commented [L6]: FALSE
7. Controlling is the process of determining whether planned goals are being met.
Commented [L7]: TRUE
8. Decision-making is an integral part of the planning, directing, and controlling
functions. Commented [L8]: TRUE
9. Senior accountants are also known as the finance manager or financial controller.
Commented [L9]: TRUE
10. The theory that suggests that a firm's management accounting system is influenced
by factors such as the external environment and technology is called contingency
theory. Commented [L10]: TRUE
11. The systems and procedures implemented to provide regular information to assist
with control are called control systems. Commented [L11]: TRUE

MULTIPLE CHOICE QUESTIONS

1. What type of accounting system is part of an organization’s management information

system for internal use only?

A. Financial accounting
B. Management accounting
C. Governmental accounting
D. All of the given answers

2. Which of the following statement/s about management accounting is/are true?

I. It is a part of an organization’s management information system.
II. It is relied on by managers to plan and control an organizations’ operations.
III. It is relied on by external users to make investment decisions.

A. I and II C. III
B. I, II and III D. II

3. Which of the following is not an objective of management accounting?

A. Providing information for making decisions

B. Providing information for planning
C. Providing information for control
D. Providing information for profit and loss statements

4. Planning is:

A. comparing actual performance against targets

B. setting objectives and formulating plans for future operations
C. measuring the performance of managers against preset targets
D. motivating managers towards achieving organizational goals

5. Managerial accounting applies to each of the following types of businesses except

A. service firms.
B. merchandising firms.
C. manufacturing firms.
D. Managerial accounting applies to all types of firms.

6. 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 is called a

A. Management Accountant.
B. Certified Public Accountant
C. Accounting Technician.
D. Management Consultant.
7. Consulting services differ fundamentally from the CPA’s function of attesting to the
assertions of other parties. In a consulting service.

A. The practitioner expresses a conclusion about the reliability of a written

assertion that is the responsibility of another party, the assertor.
B. The work is generally performed only for the use and benefit of the client.
C. The client develops the findings, conclusions, and recommendations.
D. The nature and scope of work is determined solely by the consulting services
practitioner.

8. Management consulting (or management consultancy)

A. Is limited to CPAs.
B. Is not limited to CPAs.
C. Maybe practiced by anybody since it is not limited to CPAs.
D. Is regulated by law, such that an individual must pass a government licensure
examination first before he could practice the same.

9. It is the analytical approach and process applied in Consulting Services. It

typically involves some combination of activities relating to determination of
client objectives, fact finding, definition of the problems or opportunities, up to
implementation and follow up.

A. Consulting Services
B. Consulting process
C. Business Process
D. Problem Solving

10. It refers to the systematic, objective, and rational method of solving business
problems.

A. Analytical approach and process

B. PERT/CPM
C. Simulation method
D. Sensitivity analysis

11. The analytical approach and process may be summarized into three broad stages -
analysis, design, and implementation.

The design stage consists of

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.

12. Which of the following statements is incorrect?

A. Full scope engagements 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 client’s organization.
C. In carrying out full scope engagements, 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.

13. 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.
C. Client representations 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.

14. 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.

15. During the course of an audit, the client’s controller asks your advice on how to
revise the purchase journal so as to reduce the amount of time his staff takes in
posting. How should you respond?
A. Explain that under the Code of Professional Ethics you cannot give advice on
management advisory services areas at the same time you are doing you are doing
an audit.
B. Explain that under the Statement of Management Advisory Services informal advise
of this type is prohibited
C. Respond with definite recommendations based upon your audit of these records but
state that you do not assume any responsibility for any changes unless your
specific recommendations are followed
D. Respond as practicable at the moment and express the basis for your response so
it will be accepted for what it is

16. 'Control' involves:

A. formulating details of operations and finances for the next financial year
B. comparing actual performance against targets
C. deciding whether to expand activities
D. All of the given answers

17. Part of the planning process involves:

A. formulating details of operations and finances for the next financial year
B. comparing actual performance against targets
C. making a choice between available alternatives
D. measuring the performance of managers against preset targets

18. The role of management accounting is to:

A. provide information to parties outside the organization

B. provide information to managers within the organization
C. provide information to government agencies
D. All of the given answers

19. The benefits of management accounting information include:

A. improved decisions
B. more effective planning
C. greater efficiency of operations
D. All of the given answers

20. Management accounting:

A. must comply with Australian accounting standards

 B. focuses primarily on the needs of managers internal to the organization
C. provides information for parties external to the organization
D. involves reports focusing on the enterprise in its entirety.

21. The costs of providing information to management should be less than the
benefits. Which of the following are costs of management accounting information?
I. Salary cost of management accounting personnel
II. Computer operating costs
III. Managers' time in reading and acting on the information

A. I,II and III C. I and II only

B. II and III only D. None of the given answers

22. Animus is a mining company. Which of the following is an example of 'planning'?

A. Awarding bonuses to Aimus top performing executives

B. Setting production targets for the company's new mines
C. Developing correction actions to respond to lower-than-expected production
levels in the existing mines
D. Pursuing legal actions against environmental activists who stole mining
equipment

23. Internal reports must be communicated

A. Daily
B. Monthly
C. Annually
D. As needed

24. Financial statements for external users can be described as

A. user-specific.
B. general-purpose.
C. special-purpose.
D. managerial reports.

25. Managerial accounting reports can be described as

A. general-purpose.
B. macro-reports.
C. special-purpose
D. classified financial statements.

26. The reporting standard for external financial reports is

A. industry-specific
B. company-specific.
C. generally accepted accounting principles.
D. department-specific.

27. Which of the following statements about internal reports is not true?

A. The content of internal reports may extend beyond the double-entry accounting
system.
B. Internal reports may show all amounts at market values.
C. Internal reports may discuss prospective events.
D. Most internal reports are summarized rather than detailed.

28. Internal reports are generally

A. aggregated. C. regulated.
B. detailed. D. unreliable.
29. What activities and responsibilities are not associated with management's
functions?

A. Planning C. Controlling
 B. Accountability D. Directing

30. Management accounting focuses on:

A. compliance with the accounting standards

B. meeting the needs of external users
C. effective and efficient management of resources
D. financial data only

31. Planning is a function that involves

A. hiring the right people for a particular job.

B. coordinating the accounting information system
C. setting goals and objectives for an entity.
D. analyzing financial statements

32. The managerial function of controlling

A. is performed only by the controller of a company

B. is only applicable when the company sustains a loss.
C. is concerned mainly with operating a manufacturing
D. includes performance evaluation by management.

33. A manager that is establishing objectives is performing which management

function?

A. Controlling
B. Directing
C. Planning
D. Constraining

34. In determining whether planned goals are being met, a manager is performing the
function of

A. planning.
B. follow-up.
C. directing.
D. controlling.

35. Directing includes

A. providing a framework for management to have criteria to terminate employees

when needed.
B. running a department under quality control standards universally accepted.
C. coordinating a company's diverse activities and human resources to produce a
smooth-running operation.
D. developing a complex performance ranking system to give certain high performers
good raises.

36. Controllers are ordinarily concerned with

A. Investor relations
B. Credit extension and collection of bad debts
C. Short-term financing
D. Preparation of tax returns

37. The treasury function includes

A. Preparation of tax returns

B. Cash custody and banking
C. Reporting to government
D. Financial reporting.