Internal Audit Hot Topics Audits of New Accounting … of New Accounting Standards Tim Lietz, CIA, CRMA, MBA Director, Risk Advisory Services November 6, 2018 Internal Audit Hot Topics

Audits of

New Accounting

Standards

Tim Lietz, CIA, CRMA, MBADirector, Risk Advisory Services

November 6, 2018

Internal Audit Hot Topics

Experis | Tuesday, November 6, 2018 2

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Agenda

• Polling the Group

• Overview of the latest Experis-MISTI Internal Audit Survey

• Internal Audit – Hot Emerging Issues

• Internal Audit Approach to New Accounting Standards

• Lessons Learned – 2018 Internal Audit of Revenue Recognition

• National and NC Employment Outlook Trends – Bonus Info


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2018 Survey Report


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What did we learn?


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2018 Internal Audit Priorities Report – Hot Topics


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2018 Internal Audit Priorities Report – Plans


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85 ASUs have been issued:

• From 1/2014 to 9/2018

• The pace is hard to keep up with!

Accounting Standards Updates (ASUs)

ASC 606 Revenue From Contracts

with Customers- Effective 2018 Public; 2019 Private

- Issued May 2014; additional ASUs issued

ASC 842 Leases- Effective 2019 Public; 2020 Private

- Issued Feb 2016; additional ASUs issued

- Systems not working – Reverting to

Spreadsheet

ASC 326 Current Expected Credit

Loss (CECL)- Effective 2020 Public; 2021 Private

- Issued June 2016

The Big Three

2018 Hot Topic Issues

- Financial Reporting Controls

(42.37%)

- Rev Rec/ Lease

Implementation (19.66%)


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Core Principle of ASU 2014-09

“Recognize revenue to depict

the transfer of promised goods or services

to customers

in an amount that reflects the consideration

to which the entity expects to be entitled

in the exchange for those goods and services.”


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Annual leading Restatement categories from 2000 to 2014

– 21% Debt and equity accounts or quasi-debt/equity instrument with

conversion options

– 15% Expense recording (delayed recognition)

– 14% Revenue recognition

Common reporting issues for Detected Financial Frauds

– 40% Revenue recognition

– 29% Accounting irregularities associated with foreign subsidiaries and

affiliates of U.S. companies

– 25% Misclassification of accounts (cash, investments, receivables and

allowances)

Restatements and Frauds - 2000 to 2014

Source: “Characteristics of Financial Restatements and Frauds, An Analysis of Corporate Reporting Quality from 2000

to 2014”; https://www.cpajournal.com/2017/11/20/characteristics-financial-restatements-frauds/


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Internal Audits of New Accounting Standards

Roles and Responsibilities

• CFO Organization: Owner

• Audit Committee: Oversight

– Level of involvement?

• External Auditor: Audit

– Level of involvement in the implementation?

• Internal Audit: What has been your approach?


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Case Study: January/February 2018 Internal Audit


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Scope:

• 10% of Q1 contracts reviewed for compliance with policies and procedures

Observations:

• Inconsistent application of scope and contract combination among business units

• Identified performance obligations in contracts which were not documented in the policy

or contract reviews (Policy and templates were updated)

• Contract reviews included responses that were not in compliance with the requirements

of the standard or policy (Additional training was required)

• Judgment was applied but was not documented in client’s policy. The client could not

support conclusions that the allocation objective was met. (Client management

consulted with the Big 4 partner, the firm’s 606 advisory group and ultimately with their

National office. Dollar thresholds were modified and the policy was updated in order to

support management’s conclusions.)

Lessons Learned: Scope and Observations


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Addressing the risks

Planning the audit to address the significant risks, such as:

• Is there a system solution in place or being implemented? Many issues are being

identified here already.

• Implementing this new standard is hard. Mistakes are going to be made.

• Common situation with clients – external auditor ID’s significant deficiency and hires our

technical accounting team to clean up afterwards. Clients generally have no time to

remediate errors identified by external audit team. Accounting policy changes need to

be made, processes changed and test population accumulated in time to retest

successfully.

• Focal Point – revenue reported as gross or net?

• Financial statement impact - $38 mil issue ID’d with $10 bil client

• Opportunity for IA to be pro-active!!!!

Lessons Learned:


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Contact Information

Tim Lietz, CIA, CRMA, MBA

Regional Director

Risk Advisory Services

(919) 838-7859

[email protected]

Pam Henry, CPA, CGMA

National Solutions Director

Technical Accounting

(303) 916-4028

[email protected]

mailto:[email protected]

mailto:[email protected]


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The Skills

Revolution


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“The best way to succeed today is to

train for tomorrow”

Becky Frankiewicz – ManpowerGroup NA President


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Source: Manpower US Recruitment Difficulty Index (Manpower & Bureau of Labor Statistics data)

Easy HardStrongest Hiring Outlook in ten years at +20 percent intending to hire

2012 2018

Talent Shortages Are Growing Across the Carolinas


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Welcome to the Skills Revolution

High School or Less

Associate's Degree

or Some College

Bachelor’s Degree

or Higher


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Functions Likely to See the Largest Increase and

Decrease in Headcount in the Next Two Years


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Human Strengths Stand Out in the Digital Age


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Bring in outside

experts on a temporary

basis to transfer skills

to existing employees

Recruit staff

with new skill

sets in addition

to existing

employees

Recruit staff

with new skill

sets to replace

existing

employees

Outsource

business

functions to

third parties

Offer internal

training

Offer

external

training

How are Employers Responding to Talent Shortages?


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● How do we manage talent to drive productivity?

● How do we manage a diverse workforce?

● How do we inject flexibility into our workforce mix?

Work Models

● Today’s practices were created with outdated assumptions - so why still

use them?

● What new practices will we need to attract, develop and retain talent?

People Practices

● Do we know all of our talent supply options?

● How can we optimize the talent we have?

● Are we reaching untapped and under-tapped talent pools?

Talent Sources


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• Helping people upskill and future-proof

themselves in a fast-changing world of work

will be the defining challenge of our time.


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Solving the Talent

Shortage


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“Companies perform better when they

understand their people and people

perform better when they are

understood”

Dr. Tomas Chamorro-Premuzic – Chief Talent Scientist,

ManpowerGroup


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2018 ManpowerGroup Talent Shortage

Survey

www.go.manpowergroup.com/talent-shortage-2018

http://www.go.manpowergroup.com/talent-shortage-2018


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SOLVING THE TALENT SHORTAGE

Build, Buy, Borrow and Bridge


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Top 10 Most In Demand Skills In The World


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Why Employers Can’t Find The Talent They Need


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What Employers Are Doing Today


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Employment

Outlook


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ManpowerGroup Employment Outlook Survey

“How do you anticipate total employment at your location

to change in the three months to the end of December 2018 compared to

the current quarter?”

• Quarterly measure of employers’ intentions to increase or decrease the

number of employees in their workplace during the upcoming quarter

• 11,500+ U.S. employers surveyed; nearly 60,000 globally - Net

Employment Outlook is the key statistic


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• Nearly 60,000 employers in 44 countries and territories were surveyed to

measure their hiring intentions for the last quarter of 2018.

• Employers in 43 of 44 countries and territories surveyed expect to add to their

workforces by varying degrees in Q4 2018.

Global Results

• The fourth quarter’s only negative forecast is reported by

Swiss employers.

• Employment forecasts are strongest in Japan, Taiwan, the

United States, Romania and Slovenia.

• The weakest hiring prospects are reported in Switzerland,

Argentina, France and Italy.


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U.S. Results


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• The Outlook is relatively

stable compared with Q3

2018 (+18%) and up slightly

from the same time last year

when the U.S. Outlook was

(+17%).

• Adjusted for seasonal

variation, the Outlook of

(+19%) has been matched

just once before (in Q1

2018) over the past decade.

U.S. Results Seasonally adjusted Outlook +19%


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U.S. Results – Industry Outlooks


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Regional Results

Region

Q4 2018

(Current

Quarter)

Q3 2018

(Previous

Quarter)

Q4 2017

(One Year Ago)

West 20% 17% 18%

Midwest 18% 19% 16%

South 20% 19% 18%

Northeast 18% 16% 18%

(Seasonally adjusted)


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U.S. Metro Area Outlooks Q4 2018


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U.S. State Outlooks Q4 2018


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NC Employment Outlook

4

1

Employers in the North Carolina anticipate a stronger hiring pace

compared to Q3 2018 when the Net Employment Outlook was 25%. At

this time last year, employers expected to pick up hiring activity when the

Outlook was 22%.


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Unemployment Trends 2018

National Unemployment rate 3.7%

• 0.5 percentage point lower than in 2017

North Carolina rate 3.8%

• 0.6 percentage points lower than in 2017

• 0.9 percentage points lower than in 2017

South Carolina rate 3.3%


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The complete results of the Manpower Employment Outlook

Survey can be found online at:

http://meos-press.manpowergroup.us/

There you will also find the results for the 100 Metropolitan

Statistical Areas surveyed, the 50 states, the District of Columbia

and Puerto Rico.

Questions can be directed to [email protected].

http://meos-press.manpowergroup.us/


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QUESTIONS?

Documents

Internal Audit Hot Topics Audits of New Accounting … of New Accounting Standards Tim Lietz, CIA, CRMA, MBA Director, Risk Advisory Services November 6, 2018 Internal Audit Hot Topics