Management Advisory Services (MAS)

Management Advisory Services

• Management Advisory Services (MAS) involves accounting practices that offer advice and technical assistance.
• MAS assists management in using resources to meet goals.
• Certified Public Accountants who perform MAS are called advisors or consultants.

The Manager of the MAS Client

• MAS meets the requirements of top-level management
• Organizational resources are entrusted to management to increase wealth

Management vs. Governance

• Management differs technically from governance
• Governance is a Board of Directors duty to set strategic goals and policies
• Management creates and implements operating standards to help the business meet its goals

Analytical Approach and Processes

• Involves a combination of activities to determine client objectives
• Activities include opportunity and fact-finding, problem definition, alternative evaluation, formulation, and follow-up
• Approach addresses organizational problems with rational, systematic methods
• Requires professionals to define problems, find solutions, and adopt suitable measures

MAS Services Include

• Operational guidance for management’s planning, operation, and control
• Special studies to guide implementation of plans and provide support
• Organizational analysis through policy and system reviews
• Introducing new methods, approaches, and concepts to management

MAS Practice Standards

• Technical standards define the personal qualities that practitioners should have

Personal Characteristics

• Integrity, objectivity, and independence are key traits
• Integrity ensures processes and results are free of distortions or misrepresentations
• Objectivity ensures fairness in approach and presentation, free of bias
• Independence allows practitioners to stay impartial and clear in their tasks

MAS Competencies

• Competence is when a practitioner has the technical ability to complete an assignment

Due Care

• Due care means that a practitioner can exercise the competence and care needed

Client Benefit

• Practitioners determine what the client wants to achieve and communicate observations before starting the engagement
• Practitioners also communicate when there is a belief the anticipated benefits to the client will change

Client Understanding

• Practitioners must inform the client on all significant matters
• The nature and scope of an engagement should be understood
• The practitioner must also inform the client of all significant matters

Planning, Supervision, and Control

• Engagements require being planned, supervised, and controlled
• Adequate planning and supervision ensure work aligns with objectives, standards, and conduct rules
• Control should be exercised, including work quantity, quality, and pacing being monitored

Relevant Data

• Accurate conclusions and recommendations require adequate data, data that is collected and analyzed must be documented

Communication Of Results

• All important engagement details must be communicated
• Reports can be interim or final, including oral, written, or visual formats
• Practitioners should keep a memorandum file of all results and communications, should a written report not be issued

Characteristics of a MAS Engagement

• Service is intended for management
• Broad scope
• Future focus
• Non-recurring
• Done by highly qualified employees
• There is always diversity

MAS Engagement Process

• Engagement negotiation
• Engagement planning
• Engagement execution
• Presentation of engagement results
• Implementation of recommendation, if applicable
• Post-engagement follow-up

Controlling Expenses

• Management accounting focuses on profit management, with expenses as a key element
• Expense accounting serves as the foundation for management decisions
• Traditional management accounting provides information to help managers cut costs and boost profits

Capital Expenditures vs. Operating Expenditures

• Capital expenditures are large, long-term investments that increase future business profitability
• These are classified initially as assets and become expenses as they contribute to production or sales
• Operating expenditures are current costs that are expensed when profit and loss statements are presented
• This is because the expenditures directly support the business's normal operations

Cost vs. Expenses vs. Losses

• Costs relate to the functional activities of a business
• Cost of goods manufactured includes materials, labor, and overhead
• Cost of goods sold is the production cost for already sold units
• Expenses are the distribution and management expenses
• Marketing and shipping are examples of distribution expenses
• Administration expenses encompass system control, compliance, and corporate overheads
• Both expenses and costs benefit a business
• Losses occur when asset value declines, with examples including equipment sales, obsolescence, shortages, and uncollectibles

Product Cost vs. Period Cost

• Product costs occur during production and exist as assets until the products are sold
• Direct materials, labor, and overhead make up product costs
• Direct materials and direct labor are prime costs
• Direct labor and factory overhead are conversion costs
• Combined, direct materials, labor, and variable factory overhead are production costs
• Period costs are outside of production and are expensed immediately
• Period costs relate to administration, sales, research, and customer service

Direct Product Cost vs. Indirect Product Cost

• Direct product costs are those linked to finished goods or their creation
• Direct materials and direct labor are direct costs
• Factory overhead is an indirect product cost

Planned Cost vs. Actual Cost

• Planned costs project future or estimated expenses with names such as budget costs
• Applied costs use normal costing systems and standard costs use reliable values with empirical studies
• Actual costs are those already in the books
• The difference between planned and actual costs is the planning gap or variance

Sunk Cost vs. Future Cost

• Past costs that can't be recovered are sunk costs
• Sunk costs are fixed, historical, and not relevant to short-term decisions
• Future costs will be incurred in upcoming periods with managers responsible for planning
• Future costs are also called planned, budgeted, or estimated costs

Fixed Costs

• Fixed costs stay the same regardless of sales or production changes, may be committed or discretionary
• Committed fixed costs stem from past contracts or agreements
• Examples include rent, insurance, salaries, depreciation, amortization, property taxes, and executive salaries

Variable Costs

• Variable costs change directly with production and sales, with per-unit costs remaining constant
• Direct materials, labor, and variable overhead are examples of variable costs
• Factory supplies, indirect materials, labor, and repairs are variable overhead
• Delivery, commissions, and packaging are examples of variable expenses