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Charlotte FENG - What you need to know in 2014!

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New COSO Internal Control-Integrated Framework, Revenue Recognition and CGMA Management Accounting Thought Leadership

New COSO Internal Control-Integrated Framework, Revenue Recognition and CGMA Management Accounting Thought Leadership

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  • 1. THE FINANCIAL EXECUTIVES NETWORKING GROUP The Power of Networking. The Power of Friendships. Charlotte FENG Chapter Meeting Monday April 14, 2014
  • 2. What You Need to Know in 2014 Kenneth Witt, CPA,CGMA Technical Manager, Management Accounting Business, Industry and Government Team
  • 3. 333 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
  • 4. 444
  • 5. 555 Who is COSO?
  • 6. 666 How did this get started? 1992 Internal Control - Integrated Framework Wide acceptance with SOX COSO Guidance for Smaller Public Companies – 2006
  • 7. 777 Why the update? Expectations for governance and oversight are greater Globalization Complexity Technology Expectations for fraud prevention and detection 2013 COSO CUBE
  • 8. 888 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?
  • 9. 999 5 Components, 17 Principles
  • 10. 101010 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.
  • 11. 111111 Points of Focus Example
  • 12. 121212 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
  • 13. 131313 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”
  • 14. 141414 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
  • 15. 151515 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
  • 16. 161616 Understanding Controls over Technology Application ControlsGeneral Controls
  • 17. 171717 IT Controls – The Deep Dive COBIT Framework Developed by ISACA Highlights areas of alignment and differences in the frameworks – “complimentary and compatible”
  • 18. 181818 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.
  • 19. Revenue Recognition
  • 20. 202020 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.
  • 21. 212121 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
  • 22. 222222 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
  • 23. 232323 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
  • 24. How to Build World Class Businesses
  • 25. 252525 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
  • 26. 262626 CFO of the Future will create strategic impact
  • 27. 272727 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
  • 28. 282828 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?
  • 29. 292929 Managing Innovation Key to sustainable business success Finance as business partner throughout the innovation lifecycle Managing Innovation: Harnessing the power of finance
  • 30. 303030 The role of finance throughout the innovation lifecycle Leading innovation and managing risk Managing Innovation- 2013 CGMA
  • 31. 313131
  • 32. 323232 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. 
  • 33. 333333 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.
  • 34. 343434 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
  • 35. Discussion
  • 36. Thank You!