Internal Audit Hot Topics Audits of New Accounting Standards. Tim Lietz, CIA, CRMA, MBA Director, Risk Advisory Services

Transcription

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

2 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 Experis Tuesday, November 6,

3 2018 Survey Report Experis Tuesday, November 6,

4 What did we learn? Experis Tuesday, November 6,

5 2018 Internal Audit Priorities Report Hot Topics Experis Tuesday, November 6,

6 2018 Internal Audit Priorities Report Plans Experis Tuesday, November 6,

7 Accounting Standards Updates (ASUs) 85 ASUs have been issued: From 1/2014 to 9/2018 The pace is hard to keep up with! The Big Three ASC 606 Revenue From Contracts with Customers - Effective 2018 Public; 2019 Private - Issued May 2014; additional ASUs issued 2018 Hot Topic Issues - Financial Reporting Controls (42.37%) - Rev Rec/ Lease Implementation (19.66%) 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 Experis Tuesday, November 6,

8 Core Principle of ASU 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. Experis Tuesday, November 6,

9 Restatements and Frauds to 2014 Annual leading Restatement categories from 2000 to % 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) Source: Characteristics of Financial Restatements and Frauds, An Analysis of Corporate Reporting Quality from 2000 to 2014 ; Experis Tuesday, November 6,

10 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? Experis Tuesday, November 6,

11 Case Study: January/February 2018 Internal Audit Experis Tuesday, November 6,

12 Lessons Learned: Scope and Observations 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.) Experis Tuesday, November 6,

13 Lessons Learned: 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!!!! Experis Tuesday, November 6,

14 Contact Information Tim Lietz, CIA, CRMA, MBA Regional Director Risk Advisory Services (919) Pam Henry, CPA, CGMA National Solutions Director Technical Accounting (303) Experis Tuesday, November 6,

15 The Skills Revolution Experis Tuesday, November 6,

16 The best way to succeed today is to train for tomorrow Becky Frankiewicz ManpowerGroup NA President Experis Tuesday, November 6,

17 Talent Shortages Are Growing Across the Carolinas Easy Strongest Hiring Outlook in ten years at +20 percent intending to hire Hard Source: Manpower US Recruitment Difficulty Index (Manpower & Bureau of Labor Statistics data) Experis Tuesday, November 6,

18 Welcome to the Skills Revolution Bachelor s Degree or Higher Associate's Degree or Some College High School or Less Experis Tuesday, November 6,

19 Functions Likely to See the Largest Increase and Decrease in Headcount in the Next Two Years Experis Tuesday, November 6,

20 Human Strengths Stand Out in the Digital Age Experis Tuesday, November 6,

21 How are Employers Responding to Talent Shortages? Offer internal training Offer external training 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 Experis Tuesday, November 6,

22 Talent Sources 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? Work Models How do we manage talent to drive productivity? How do we manage a diverse workforce? How do we inject flexibility into our workforce mix? People Practices 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? Experis Tuesday, November 6,

23 Helping people upskill and future-proof themselves in a fast-changing world of work will be the defining challenge of our time. Experis Tuesday, November 6,

24 Solving the Talent Shortage Experis Tuesday, November 6,

25 Companies perform better when they understand their people and people perform better when they are understood Dr. Tomas Chamorro-Premuzic Chief Talent Scientist, ManpowerGroup Experis Tuesday, November 6,

26 2018 ManpowerGroup Talent Shortage Survey Experis Tuesday, November 6,

27 SOLVING THE TALENT SHORTAGE Build, Buy, Borrow and Bridge Experis Tuesday, November 6,

28 Top 10 Most In Demand Skills In The World Experis Tuesday, November 6,

29 Experis Tuesday, November 6,

30 Why Employers Can t Find The Talent They Need Experis Tuesday, November 6,

31 What Employers Are Doing Today Experis Tuesday, November 6,

32 Employment Outlook Experis Tuesday, November 6,

33 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 Experis Tuesday, November 6,

34 Global Results Nearly 60,000 employers in 44 countries and territories were surveyed to measure their hiring intentions for the last quarter of Employers in 43 of 44 countries and territories surveyed expect to add to their workforces by varying degrees in Q 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. Experis Tuesday, November 6,

35 U.S. Results Experis Tuesday, November 6,

36 U.S. Results Seasonally adjusted Outlook +19% The Outlook is relatively stable compared with Q (+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. Experis Tuesday, November 6,

37 U.S. Results Industry Outlooks Experis Tuesday, November 6,

38 Regional Results Region Q (Current Quarter) Q (Previous Quarter) Q (One Year Ago) West 20% 17% 18% Midwest 18% 19% 16% South 20% 19% 18% Northeast 18% 16% 18% (Seasonally adjusted) Experis Tuesday, November 6,

39 U.S. Metro Area Outlooks Q Experis Tuesday, November 6,

40 U.S. State Outlooks Q Experis Tuesday, November 6,

41 NC Employment Outlook Employers in the North Carolina anticipate a stronger hiring pace compared to Q when the Net Employment Outlook was 25%. At this time last year, employers expected to pick up hiring activity when the Outlook was 22%. Experis Tuesday, November 6,

42 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 South Carolina rate 3.3% 0.9 percentage points lower than in 2017 Experis Tuesday, November 6,

43 The complete results of the Manpower Employment Outlook Survey can be found online at: 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 Experis Tuesday, November 6,

44 QUESTIONS? Experis Tuesday, November 6,