THE FINANCIAL EXECUTIVES NETWORKING GROUP

The Power of Networking. The Power of Friendships.

Charlotte FENG Chapter Meeting Monday April 14, 2014

What You Need to Know in 2014

Kenneth Witt, CPA,CGMA Technical Manager, Management Accounting Business, Industry and Government Team

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Objectives

Today’s program will help participants better understand:

Hot Issues Affecting the Accounting Profession in 2014

COSO Internal Control – Integrated Reporting

Revenue Recognition

How to Build World-Class Businesses

Characteristics and Practical Considerations

Short-Term vs. Long-Term Thinking

Role of Management Accounting

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Who is COSO?

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How did this get started?

1992 Internal Control - Integrated Framework

Wide acceptance with SOX

COSO Guidance for Smaller Public Companies – 2006

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Why the update?

Expectations for governance and oversight are greater

Globalization

Complexity

Technology

Expectations for fraud prevention and detection

2013 COSO CUBE

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What is not changing... What is changing...

• Core definition of internal

control

• Three categories of objectives

and five components of internal

control

• Each of the five components of

internal control are required for

effective internal control

• Important role of judgment in

designing, implementing and

conducting internal control, and

in assessing its effectiveness

• Changes in business and

operating environments

considered

• Operations and reporting

objectives expanded

• Fundamental concepts

underlying five components

articulated as principles

• Additional approaches and

examples relevant to

operations, compliance, and

non-financial reporting

objectives added

What’s Changing? What’s not?

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5 Components, 17 Principles

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Points of Focus Support Principles

Included to assist management in designing and maintaining controls

May (or may not apply)

No requirement to perform separate evaluation.

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Points of Focus Example

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COSO Internal Control- Integrated Framework

Four Volumes

Executive Summary

Framework and Appendices

Illustrative Tools for Assessing Effectiveness of a System of Internal Control

Internal Control over External Financial Reporting: A Compendium of Approaches and Examples

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Timing of Adoption

COSO – not a standard setter

May 2013 – New Framework Launched

Dec 2014 – Original Framework Superseded

SEC Comments of Chief Accountant

Deferring to COSO plans for superseding original

Will monitor adoption after original superseded and raise questions if companies using a “suitable, recognized framework”

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Implementation 1 of 2

1) Create a team and a plan - Keep CEO, Audit Committee and BoD informed

2) Use a building-block approach - Use the five components and principles

3) Build off what you’re currently doing - Map the principles to your controls

4) Pay attention to the points of focus - Use them as a guide to implementation

JoA July 2013

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Implementation 2 of 2

5. Use the Illustrative Tools for Assessing the Effectiveness and Internal Control Over External Financial Reporting: A Compendium of Approaches and Examples - These documents accompany the framework

6. Focus on the role of IT - Changes in technology were a driving force in the decision to update

7. Look for added value - Increase efficiency, not just compliance

8. Make the switch - Disclose which Framework you are using

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Understanding Controls over Technology

Application Controls General Controls

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IT Controls – The Deep Dive

COBIT Framework

Developed by

ISACA

Highlights areas of

alignment and differences

in the frameworks –

“complimentary and

compatible”

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Internal Control “Perfect Storm”

“We are currently in a ‘perfect

storm’ in the area of internal

control over financial

reporting, which demands

effective action by all

participants in the financial

reporting and auditing chain,”

Jeannette Franzel, PCAOB

Management, internal auditors

and external auditors will be

navigating the updated

“Internal Control - Integrated

Framework” from the

Committee of Sponsoring

Organizations of the Treadway

Commission, or COSO, at the

same time that outside

auditing firms are taking steps

to respond to the PCAOB’s

inspection findings of their

audits of internal control.

Revenue Recognition

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Revenue Recognition

Converged IASB and FASB standard scheduled to be launched 1Q 2014

Currently over 200 specialized and/or industry-specific revenue recognition requirements under U.S. GAAP

One principles-based standard

The objective of the new guidance is to establish the principles to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of revenue from contracts with customers.

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Issue Final Standard

1Q 2014

Public Company 12/31 Y/E

Jan 2017

Private Company 12/31 Y/E

Jan 2018

New Revenue Standard

Objectives:

More robust standard to address issues as they arise

Increase comparability across industries and markets

Improve disclosure – better understand economics

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Start now to address challenges 2 of 2

Contract determination criteria

Commercial substance – changes in cash flows expected

Commitment to perform obligations

Identification of rights, responsibilities and payment terms

Contract modifications

Impact of past modifications in determining balances

Identifying different performance obligations

Components of contract – different recognition patterns

Selling price estimates

Documenting adjustments, credits, booking reserves

JoA Dec 2013

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Start now to address challenges 2 of 2

Transfer over time – new depiction

“Cost-to-cost” approach vs. % of completion – units of delivery

Ratio of costs incurred vs. total

May require change in performance incentives

If revenue recognition changing, look at incentives

Disclosures

Disaggregation of reported revenue

Narrative explanation of changes in balances, performance obligations etc.

Take inventory of disclosure requirements and systems and processes to capture needed information

How to Build World Class Businesses

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CGMA - Robust portfolio of resources

CGMA Innovation

Reports

CGMA Events

CGMA.org

Online CGMA Magazine and

Newsletter Social Media and Online

Community

Practical Tools

Videos and Web Casts

Professional Development Products

Print Magazine

Harvard ManageMentor

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CFO of the Future will create strategic impact

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Building World Class Businesses: For the Long-term

World-Class Businesses focus on:

Clear Strategy

Cost Leadership

Durable Supply Chain

Motivated Staff

Satisfied Customers and

Innovation

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Cost Leadership and Durable Value Chain

From Insight to Impact: Unlocking the opportunities of big data

Focuses on finance role in linking decisions to data

Key questions:

What drives the business?

What do customers care about most?

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Managing Innovation

Key to sustainable business success

Finance as business partner throughout the innovation lifecycle

Managing Innovation: Harnessing the power of finance

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The role of finance throughout the innovation lifecycle

Leading innovation and managing risk Managing Innovation- 2013

CGMA

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Chartered Global Management Accountant

®

(CGMA) The CGMA designation elevates the profession of management

accounting.

The AICPA is committed to promoting the role of management accountants in business and government by establishing this groundbreaking designation.

The CGMA designation recognizes your experience and skills globally.

The CGMA designation builds on your CPA designation and adds power to your résumé by demonstrating your business acumen, ethics and commitment. CGMAs work with key employers and influences worldwide and showcase their value around the world.

The CGMA designation connects you to a community of like-minded peers.

CGMA designation holders are a global community of professional management accountants sharing best practices, creating innovation and meeting new challenges.

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Chartered Global Management Accountant

®

(CGMA)

With the CGMA designation, you get the tools you need to succeed.

Management accounting tools, webinars, reports and research will challenge your thinking and keep you at the forefront of your profession, giving you a competitive edge.

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Chartered Global Management Accountant

®

(CGMA)

Balanced Scorecard Highlight areas that companies must address to maintain sustainable

business models and manage the link between the short and long term

Harvard Manage Mentor Online learning and performance support resource that addresses

critical management skills on demand

Essential Tools for Management Accountants This evolving collection of resources brings together the top tools used

by management accountants and outlines when and how to best use them for maximum value

Discussion

Thank You!