Management Services and Management Audits by Professional Accountants

Walsh Francis J. Jr. , Internal Auditing, Studies in Business Policy, No. 111, National Industrial Conference Board, 1963. An extensive and illustrative treatment of the expansion of the internal audit function to include operational and management audits, based on the practices of 177 companies engaged in manufacturing, banking, insurance, and service industries, is contained in this report.

Brown Richard , A History of Accounting and Accountants (Edinburgh: T. C. and E. C. Jack, 1905), pp. 186–187.

Yarwood F. N. , “A Public Accountant's Work and Duties,” The Accountant, XXV: 1266 (March 11, 1899), 286.

Management Services Handbook, ed. De Vos Henry (New York: American Institute of Certified Public Accountants 1964), pp. 3–17; How to Get Started in Management Services, “Management Services by CPAs,” Bulletin No. 8 (New York: The American Institute of Certified Public Accountants, 1963), pp. 30–35; and Redfield James E. , A Study of Management Services by Certified Public Accountants (Austin: Bureau of Business Research, University of Texas, 1961), pp. 89–103.

The trend toward the creation of separate departments for management services by public accounting firms is reported by Buckley John W. , “Extended Services of Certified Public Accountants: An Investigation of Management Services and Management Audit” (unpublished doctoral dissertation, University of Washington, 1964), pp. 30–36: E.g., 80 per cent of firms with a professional staff of twenty-six persons or more reported separate departments for management services. See also Vos De , op. cit., pp. 22–23, and Redfield , op. cit., p. 53.

Carey John L. , The CPA Plans for the Future (New York: The American Institute of Certified Public Accountants, 1965), pp. 216 ff.

American Institute of Accountants, A Classification of Management Services by CPAs, 1956. This list, which had a divided reception among public accountants, contained some 107 services classified functionally as to general management and administration; finance; production; sales; office management; purchasing traffic and transportation; personnel; research development; and other professional services. Other classified lists occur in Committee on Management Services by CPAs. “Management Services by CPAs” (New York: American Institute of Certified Public Accountants, 1957), pp. 8–10; and Buckley , op. cit., pp. 429–431.

Sources of Tables I and II and Figure I, Buckley , op. cit., p. 44; other surveys include American Institute of Certified Public Accountants, Revenue and Expenses of Accounting Firms, A Management of Accounting Practice Bulletin, Map 14b, Second Annual Survey, 1963; Committee on Management Services, The Georgia Society of Certified Public Accountants, “Management Services Survey,” The Georgia CPA, II: 2 (Fall 1960), 8–11; Redfield, op. cit., pp. 44–55.

Note comment of Perrin Stryker, “The Ambitious Consultants,” Fortune, XLIX: 6 (May 1954), 82 ff. “Consultants, unlike doctors and lawyers, have no recognized standards of training, do not have to qualify for a license to practice, and have no professional society that can enforce standards by disbarment. Certified public accountants are subject to all of these constraints.”

Redfield , op. cit., pp. 68–73, based on a survey of 223 CPA firms, reported the following reaction to client experience with consultants outside the accounting profession:

Question: If your firm has knowledge of services performed by management consultants, indicate the clients' satisfaction and your satisfaction with respect to each of the areas below, generally:

Respondents Clients

SatisfiedDissatisfiedSatisfiedDissatisfied

Quality of work and/or personnel29%71%32%68%.

Quantity of work30703367

Fees charged21791783

Follow-up assistance and advice16841585

It should not be implied that all management consulting is deserving of criticism. On the contrary, there are many excellent and reputable management consulting firms and associations. For example, the Association of Consulting Management Engineers, Inc., has developed standards and ethics and has high membership admission requirements; see How the Management Consulting Profession Serves Business Enterprise (New York: Association of Construction Management Engineers, 1961), pp. 20–23, and Shay Philip W. , “Ethics and Professional Practices in Management Consulting,” Advanced Management Journal, XXX: 1 (Jan. 1965), 13–20.

Stryker Perrin , op. cit., notes that management firms are able to bill an average of only about 60 per cent or 150 days out of a 260-day working year and their fee structure must account for the 110 days of idle-period overhead. Also, because accounting firms have corresponding practices in auditing and taxes, they are able to allocate office overhead to their over-all activities and are not obliged to recover these in total from management services.

Indicative of this interest has been the establishment of a Study Committee on The Common Body of Knowledge for CPAs under joint sponsorship of the Carnegie Corporation and the American Institute of Certified Public Accountants. The development of specific educational programs, standards, examinations, and credentials directly related to the practice of management services is noted particularly in the United Kingdom and Canada. See, for example, “Management Accounting Diploma in United Kingdom,” The Canadian Chartered Accountant, July 1964, p. 8; “Management Consultancy Ethics,” The Accountant, March 13, 1965, p. 360; “Certificate in Management Information: Courses in Oral Tuition,” The Accountant, July 10, 1965, p. 61; and “The Certificate in Management Information: Institute Conference in London,” The Accountant, May 29, 1965, pp. 751–752.

Worthy James C. , “The Management Audit,” Proceedings of the Annual Meeting, Academy of Management, 1962, pp. 176.

Carey John L. , op. cit., pp. 202 and 238.

For a discussion of this question, I recommend Greenwood William T. , “The Management Audit in the Business School Curriculum,” Proceedings of the Annual Meeting, Academy of Management, 1962, pp. 172–175.

See also Johnson Robert B. , “Management Projects and the Consultant,” Systems and Procedures Journal, XV: 5 (Sept.-Oct. 1964), 28–31.