Audits of
New Accounting
Standards
Tim Lietz, CIA, CRMA, MBADirector, Risk Advisory Services
November 6, 2018
Internal Audit Hot Topics
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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 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
Pam Henry, CPA, CGMA
National Solutions Director
Technical Accounting
(303) 916-4028
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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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“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
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SOLVING THE TALENT SHORTAGE
Build, Buy, Borrow and Bridge
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Why Employers Can’t Find The Talent They Need
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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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• 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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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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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].