Assessment 2: Basic Considerations in MAS

A CPA should reject MAS engagement if:

• It would require him to make management decisions for an audit client.

• The proposed engagement is not accounting-related.

• His recommendations are to be subjected to a review by the client.

• He audits the financial statements of a subsidiary of the prospective client.

Mr. Rey Carlos, a CPA firm’s partner in charge of quality assurance and review, is arguing with Mr. Fortuna, the consulting partner, regarding independence because Mr. Fortuna is rendering consulting services to T. Ang & Nga Co., an audit client. Regarding independence, which of the following statements is valid?

• Independence is never sacrificed as long as the auditor/consultant is correct in their advice for the client.

• A CPA who renders both audit and consulting services to a client, by virtue of their competence/expertise and extensive knowledge of the client’s business, is in the best position to make decisions for the client and should do so.

• The client is the ultimate decision maker, and the auditor/consultant should not make decisions for the client.

• It is up to the professional judgement and discretion of the auditor/consultant to make decisions for the client as long as their professional fees are commensurate to the benefit that the client will derive from the engagement.

A type of managerial accounting which refers to the determination of operating cost regardless of cost behavior is:

• Differential accounting

• Full-cost accounting.

• Responsibility accounting.

• Profitability accounting.

In financial accounting, certain rules and regulations must be followed on how financial statements are presented. In managerial accounting, no such restrictions generally apply because it is:

• An entirely different field that need not observe the broad guidelines in financial accounting.

• Designed to provide management with non-financial information for decision-making.

• Designed to provide accounting and other financial data to assist management in making business decisions.

• A discipline that does not require the preparation of other financial statements.

• All of the above.

The following characteristics refer to financial accounting, except:

• Provides information to external users.

• Emphasizes objective data.

• Has no externally imposed standards.

• Generates general-purpose financial statements.

As a consultant, a CPA practitioner should:

• Exercise administrative control over the client's staff to avoid unnecessary delays in implementation.

• Encourage dependence of client on the consultant's staff to pinpoint clear responsibility in implementing systems.

• Not take responsibility for making decisions and policy judgments in MAS engagements.

• Conduct his engagement as if he is a member of the client's organization.

Management accounting is an integral part of the management process and provides essential information for the following objectives, except:

• Maintaining the current level of resource utilization as well as internal and external communication.

• Measuring and evaluating performance.

• Planning strategies and controlling the current activities of the organization.

• Enhancing objectivity in decision-making.

Which of the following will not impair the independence of a CPA in the rendition of MS?

• The CPA performs decision-making services for his client.

• The CPA performs services wherein he is in effect, acting as an employee of the client.

• The CPA loses his objectivity and acts as if he is advocating for the interest of his client.

• The CPA does not extend his services beyond the presentation of recommendations or giving of advice.

Which of the following is not an area related to the performance of MS by independent accounting firms?

• Introducing new ideas, concepts and methods to management.

• Improving existing policies, methods and procedures.

• Performing special studies, preparing recommendations, and formulating plans and programs.

• Performing management functions and making decisions.

Which of the following statements is true?

• Adequate training and experience in both the analytical approach and process in a particular undertaking are requisites for the CPA to be involved in management service engagement.

• A CPA with MBA and Ph.D. degrees is automatically qualified to render MS.

• Competence as a standard in the rendition of MS by a CPA may be equated to having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and other postgraduate studies.

• A CPA, by virtue of having the necessary academic preparation and by hurdling the licensure examination, is automatically qualified to render MS.