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THE FINANCIAL EXECUTIVES NETWORKING GROUP
The Power of Networking. The Power of Friendships.
Charlotte FENG Chapter Meeting Monday April 14, 2014
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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.
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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
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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
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Discussion
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Thank You!