PCAOB Audit Alert #11: New Internal Control Testing Standards & Excel

Compliance Made Simple

PCAOB AuditAlert #11 & Excel Tango

Updating your internal controls to the new standards

Sept. 24, 2014

Presented by:

Sonia Luna &

Rohn Martino

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Agenda

• Part II Reports Exposed– Lessons Learned– How Excel Impacts

failed areas

PCAOB Alert #11: Excel Tango

• PCAOB –Alert#11– Common Audit Failures– Level Of Precision– Old Vs. New– Key Report Testing

• Resources– COSO Implementation

LinkedIN Group– CCA & Excel Diagnostic

• Questions

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Polling Question 1

Have you started to update your controls using the new PCAOB

Audit Alert #11 Standards?

Where am I? %age

A Running to Finish Line 75%

B Getting There 50%

C Formulating a Plan 25%

D Not Started 0%

PCAOB Alert #11: Excel Tango

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• Caused audit procedure layering

• More in-depth written description of estimates and use of judgment, especially review controls

• Detailed documentation and testing of system reports utilized in performance of controls.

New PCAOB Auditing BAR!

PCAOB Alert #11: Excel Tango

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External Audit Firm: Closing The Books (Findings)

PCAOB Alert #11: Excel Tango

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Closing The Books [Contd.]

Source: PCAOB Audit Alert #11 (Oct. 2013)

PCAOB Alert #11: Excel Tango

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Level of precision in Plain English?

• How detailed is management’s review of journal entries?

• Document your thought process– Dollar Threshold– Percentage of Revenue– Geographic Location– Lines of Business– Other Risk Factors– Timing

PCAOB Alert #11: Excel Tango

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Good isn’t good enoughgood v. NEW PCAOB control Language

Older Language (“OK”)

Quarterly, Controller reviews the AR allowance for adequacy and reasonableness of reserve amounts by initialing and dating the “AR reserve” analysis.

PCAOB Alert #11: Excel Tango

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Good isn’t good enoughgood v. NEW PCAOB control Language

Older Language (“OK”)

Quarterly, Controller reviews the AR allowance for adequacy and reasonableness of reserve amounts by initialing and dating the “AR reserve” analysis.

Audit Controller initials & Match Total $ = DONE!

PCAOB Alert #11: Excel Tango

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NEW PCAOB control Language“new standards for control language”

Older Language (“OK”)

Quarterly, Controller reviews the AR allowance for adequacy and reasonableness of reserve amounts by initialing and dating the “AR reserve” analysis.

Updated Control (“Better”)

Quarterly, Controller reviews AR balances of significant customers with o/s balances greater than $10K and 5% of AR balance and those under that threshold by customer type (e.g. geographical location, types of orders, etc.), to review the AR allowance for accuracy and completeness. Adjustments, if needed, are sent via email to the AR manager, final review of the AR reserve analysis is initialed and dated by the Controller which agrees to the final g/l balance for the period.

PCAOB Alert #11: Excel Tango

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Documentation in Excel

• Notate use of a threshold for review– What is sufficient?

• What other considerations are key?

• How to document Management’s review?

• Every reviewer is different – Depth of review Manager vs. Controller

PCAOB Alert #11: Excel Tango

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Excel Risk Assessments

Key Steps:Step 1: Inventory your spreadsheetsStep 2: In-scope worksheets, rate them (see below)

PCAOB Alert #11: Excel Tango

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Evaluate & Testing Strategies (High/Mod/Low)

PCAOB Alert #11: Excel Tango

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Testing Sample – lead sheet

PCAOB Alert #11: Excel Tango

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Automate Internal Controls for Excel

PCAOB Alert #11: Excel Tango

CIMCON Software provides a complete set of tools to automate your internal controls: • XLRisk for Discovery,

Risk Assessment and Link Mapping

• XLAudit for remediation of High Risk Files

• SOX-XL for Change Management, reviews and approvals

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Automated Spreadsheet Inventory

PCAOB Alert #11: Excel Tango

• Scan network locations, SharePoint, workstations

• Create Inventory by Department

• File Details Scanned– # of Formulas– # of Links– # of Macros– Invisible Cells– Keywords– Hidden Rows– Over 30 more

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Spreadsheet Risk Assessment

PCAOB Alert #11: Excel Tango

Identify the High, Medium and Low Risk spreadsheets in each department based on their Complexity, Materiality, and Criticality.

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Spreadsheet Risk Assessment

PCAOB Alert #11: Excel Tango

For each High Risk spreadsheet, analyze its Risk Scorecard and the factors that make it high risk.

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Data Lineage

PCAOB Alert #11: Excel Tango

• All Links Captured to Illustrate How Data Flows Within a Model

• Link Status is Checked and Displayed. Broken Links are highlighted.

• All File Types Shown

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Formula and Cell Analysis

PCAOB Alert #11: Excel Tango

• Highlight Issues Directly Within the Spreadsheet

• Analyze Formulas for Errors, Best Practice, Logical Issues.– Formulas With Constants– Inconsistent Formulas– Invisible Cells– Numbers Formatted as Text– Over 50 Analyses

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Reporting and Documentation

PCAOB Alert #11: Excel Tango

• Workbook Analysis ReportGenerate reports that documents all the attributes of the spreadsheet.

• Heat Map ReportHighlights possible issues or errors within the spreadsheet that may require remediation. – Broken Links– Invisible Cells– Formulas with Constants – Formulas with Absolute Cell

References– Cells with Errors– Numbers stored as text

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Change Control

PCAOB Alert #11: Excel Tango

• Track all significant changes to the spreadsheet including changes to calculations, links, macros and queries.

• Set up email alerts, .exceptions or reporting on critical changes

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Version Control

PCAOB Alert #11: Excel Tango

• Create snapshots of spreadsheets at key points in time (e.g. after Financial Close). • Compare any 2 snapshots (e.g. compare today’s version with last month’s approved version) to speed up reviews and approvals.

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Management Review

PCAOB Alert #11: Excel Tango

Implement a structured, secure and fully documented review process, with management dashboards that speed reviews and financial close.

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Benefits

PCAOB Alert #11: Excel Tango

For Excel Owners and Approvers: Implements a structured process to manage Excel to reduce errors, identify high risk files, and speed approvals at the time of financial close, using automated tools for file compare, audit trails and reports. Automated system for logic inspection, detection and removal of errors, and spreadsheet documentation eases compliance with policies and procedures.

For Auditors: Reduces cost from tedious and time-consuming audits of manual processes.

For Management: Reduce risk from spreadsheet errors that can cause huge losses, loss of reputation and stock price, using Management Information dashboards where risky activity is immediately highlighted.

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Conclusion

PCAOB Alert #11: Excel Tango

The CIMCON Suite of tools implements a SpreadsheetManagement Process that is:

Traceable

Repeatable

Accountable

Auditable

Consistent

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COSO Implementation Group

Join Our LinkedIn GroupCOSO Framework Discussion & Webinars

http://www.linkedin.com/groups/2013-COSO-Implementation-4888186/about

Technical Community sharing Ideas ,Templates, WEBINARS, Advise and Learn from others implementing new framework.

JOIN Today!

PCAOB Alert #11: Excel Tango

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Control Compliance Analysis (“CCA”)

Email us for 5 SPOTS ONLY: Info@avivaspectrum.com

Subject: CCA

CCAReport

BenchmarkIn-take

PCAOB Alert #11: Excel Tango

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Free Excel Toolkit ($400 Value)

• Visual logic inspection• Highlight errors in seconds • Documentation and Map Links• Over 50 Different Analyses

First 5 people to email us will win a free copy of XLAudit (limit 1 license per company): Info@avivaspectrum.com

Subject: XLAUDIT

PCAOB Alert #11: Excel Tango

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Send Questions

Sonia Luna- President, CEOAviva Spectrumwww.linkedin.com/in/sonialuna www.slideshare.net/soxppt www.avivaspectrum.com/podcasts

PCAOB Alert #11: Excel Tango

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Connect with Rohn

PCAOB Alert #11: Excel Tango

Rohn Martino Sr. Manager, Sales and MarketingCIMCON Softwarermartino@cimcon.comwww.linkedin.com/in/rohnmartinowww.sarbox-solutions.com(978) 692-9868 Ext. 222