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

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

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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 ControlsGeneral 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.

19. 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

24. 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

35. Discussion

36. Thank You!