IFRS Update USF Accounting Circle Conferencesoa.forest.usf.edu/USF2017CPEDay2.pdf · 2017. 5. 16. · © 2017 Grant Thornton LLP All rights reserved. © 2017 Grant Thornton LLP All

© 2017 Grant Thornton LLP All rights reserved.© 2017 Grant Thornton LLP All rights reserved.

IFRS Update

USF Accounting Circle Conference

May 2017

© 2017 Grant Thornton LLP All rights reserved.

Disclaimer

This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered.

For additional information on matters covered in this presentation, contact your Grant Thornton LLP adviser.


Agenda

IFRS Update

• Revenue from contracts with customers

• Leases

• Financial instruments

• IASB project update


Agenda

IFRS Update


• Leases




IFRS 15, Revenue from Contracts with Customers

IFRIC 13

IFRIC 15

IAS 11

SIC 31

IAS 18

IFRIC 18

Standards replaced by IFRS 15


Out of scope:• Leases (IAS 17)• Insurance (IFRS 4)• Financial instruments (IFRS 9)• Rights/obligations within scope of

IFRS 10, IFRS 11, IAS 27 or IAS 28• Certain non-monetary exchanges

6

What is in Scope?

© 2017 Grant Thornton LLP All rights reserved.7

Identify the contract with the

customer

Recognize revenue as

performance obligations satisfied

Allocate the transaction

price to performance obligations

Determine the

transaction price

Identify performance obligations


Five step approach


Step 1: Identify the contract with the customer

• Enforceable by law

• Written, oral, or implied

• Will vary across jurisdictions, industries, and entities


A contract does not exist if both parties have the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party (IFRS 15.12)

A contract is wholly unperformed if:

• Entity has not yet transferred promised goods/service to customer

• Entity has not yet received or is not entitled to receive any consideration

Step 1: Identify the contract with the customer

Considering termination provisions



customer





Determine the

transaction price



Five step approach


Identify promises

Assess if promises meet the definition of a performance

obligation

Step 2: Identify the performance obligations

Identify promises


Not limited to explicit goods / services

Includes implied promises (IFRS 15.24)

Does not include activities that the entity must undertake to fulfill a contract (administrative tasks, setup activities)

Disregard promises deemed to be immaterial in the context of the contract


Identify promises


• a performance obligation = promise to transfer to customer either: (IFRS 15.22)

− a good or service that is distinct, or

− a series of distinct goods or services that are substantially the same and have the same pattern of transfer

13


When is a promise a performance obligation?


14

Distinct(IFRS 15.27)

Customer can benefit either alone or with other readily available resources

(IFRS 15.28)

Readily available resource = Sold

separately or customer has

already obtained

Separately identifiable

(IFRS 15.29)

Significant integration services

not provided

No significant customization or

modification

Not highly dependent or interrelated


What does "distinct" mean?

Judgment required



customer





Determine the

transaction price



Five step approach


Transaction price

Time value of money

Variable consideration (including right of

return)

Noncash consideration

Consideration payable to customer

Transaction price

The amount of consideration an entity expects to be entitledto in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties(IFRS 15.47)

Step 3: Determine the transaction price

Transaction price considerations

1

2

3

4



customer





Determine the

transaction price



Five step approach


Allocate transaction price to performance obligations in amount that reflects consideration to which entity expects to be entitled in exchange for those goods or services (IFRS 15.73)

18

Step 4: Allocate the transaction price to the performance obligations

Core principle

Good A

$$Service 1

$$$Good B

$$$$

Total $$$$$$

$$$


Allocate based on relative standalone selling price (SASP) of each performance obligation

Observable price when sold separately is the best evidence of SASP. If no observable price, estimate, maximizing use of

observable data.

Consider all information that is reasonably available and apply estimation methods consistently

in similar circumstances

Do not adjust for changes in standalone selling price. Allocate changes in transaction price on

same basis as at contract inception.

Step 4


Overview


20

• Estimate what customers will pay

• Consider competitors’ pricing and adjust for own costs and margins

• Needs judgment!

• Forecast costs and add appropriate margin

• Needs judgment!

• Estimated SSP = total TP minus the sum of the observable SSPs of the other performance obligations

• Restricted use!

Estimation methods (IFRS 15.79)

Adjusted market

assessment

Expected cost plus margin

Residual


Estimating the stand-alone selling price (“SSP”)



customer





Determine the

transaction price



Five step approach


Core principle is to recognize revenue:

As customer obtains control of the promised goods or services (IFRS 15.31)

In an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services (IFRS 15.73)

22

Step 5: Recognize revenue

New model

Over time

Point in time


Control is ability to direct use of and obtain substantially all of remaining benefits from an asset

Control includes ability to prevent other entities from doing the same (IFRS 15.33)

23

Step 5: Recognize revenue

Definition of control


Effective date (IFRS 15.C1)

24

Effective date Annual periods beginning on or after January 1, 2018 and interim periods within those annual periods

Early application? Permitted

Transition and implementation(IFRS 15.Appendix C)


Agenda

IFRS Update


• Leases




WHOis affected?

• Entities that lease assets as a lessee or a lessor

WHATis the impact?

Lessees

• All leases "on-balance sheet", some exemptions

• "Front loaded" lease expense

• Lease liability to exclude most option periods and contingencies

Lessors

• Only minor changes from current Standard – IAS 17

• Impact on business model and customers

WHEN are the changes effective?

• Annual periods beginning on or after January 1, 2019

• Various transition reliefs

• Early application is permitted if IFRS 15, Revenue from Contracts with Customers is applied

IFRS 16, Leases – Snapshot


Identifying a lease

Does IFRS 16 apply to all leases?

NO. The following leases are excluded from scope of IFRS 16:

• Leases to explore for or use minerals, oil, natural gas etc.

• Leases of biological assets in scope of IAS 41

• Service concession arrangements in scope of IFRIC 12

• Licenses of intellectual property granted by a lessor in scope of IFRS 15

• Rights under licensing agreements in scope of IAS 38 for films, videos, plays, manuscripts, patents and copyrights*

*Lessee may elect (but is not required) to apply IFRS 16 to leases of other intangible assets in scope of IAS 38


Identifying a lease

Does IFRS 16 apply to all leases?

NO. There are also two optional recognition exemptions applying to:

• Low value asset leases • Short-term leases


Short-term leases

• Treat similar to IAS 17 operating lease if lease term is 12 months or less at commencement

• Cannot qualify if lease contains a purchase option

• Use of this exemption is an accounting policy choice that must be made consistently for each class of underlying asset

• Treat similar to IAS 17 operating lease if fair value of identified asset when new is around US$5,000 or less

• Assessment of value is based on absolute value of each leased asset when new

• Leases of assets such as low value IT equipment, office equipment and furniture would typically qualify

• Use of this exemption is accounting policy choice on lease-by-lease basis

Low-value asset leases

Optional exemptionsAccounting by lessees


Identifying a leaseSo what is a lease?

Definition of a “lease”

A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration(IFRS 16.Appendix A)


Identifying a lease

What is the contract? (i.e. the “unit of account” question)

IFRS 16 will sometimes be applied to:

• Component of a contract (for a contract with lease and non-lease components)

• Combination of contracts representing a single lease, or

• Portfolio of leases (as a practical expedient)

Contract A(non-lease

components)

Contract C

Contract B

Portfolio of leases

Lease component


Combining contracts (IFRS 16.B2)

Account for two or more contracts as a single contract if:

• Entered into at, or near, the same time

• With same counterparty, or related parties of the counterparty, and

• Meet one or more of the following: Negotiated as a package – commercial objective cannot be

understood without considering contracts together Consideration paid in one contract depends on price or

performance of the other contract Rights to use underlying assets in the contracts form a single

lease component

Identifying a lease


Contract A

Contract C

Contract B


Separating components (IFRS 16.12 & 16.B32-B33)

Contracts may contain both lease and non-lease components

It’s a lease component if:

• Lessee can benefit from use of underlying asset either on its own or together with readily available resources

• Underlying asset not highly dependent on, or highly related with, other assets

Identifying a lease


Contract A(non-lease components)

Contract C

Contract B

Lease


Definition of a lease Separating components

Account for lease and non-lease components separately:

Lease components − apply IFRS 16

Non-leasecomponents − apply

other standards

Consider practical expedient:

Lessees can make a policy election (by underlying asset

class) to account for lease and non-lease components as lease

components

If no expedient, allocate

consideration to lease and non-lease

components:

Lessees – use relative SSP*

Lessors – using IFRS 15

1 2 3Basic ruleUse practical expedient

Allocate

* standalone selling price

Contract A(non-lease components)

Lease


Portfolio of leases (IFRS 16.B1)

• A practical expedient (it’s discretionary)

• May apply IFRS 16 to a portfolio of leases if:

- Leases have similar characteristics

- Impact on F/S is materially the same as result obtained by applying to leases individually

• Use estimates and assumptions that reflect the size and composition of the portfolio

Identifying a lease


Contract A

Contract C

Contract B

Portfolio of leases


Identifying a lease

Does my contract contain a lease?

Flowchart: The three key evaluations

Contract is (or contains) a lease

Contractis not

(does not contain)a lease

Is there an identified asset? (IFRS 16.B13)

Does the customer have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use? (IFRS 16.B9(a))

Does the customer have the right to direct the use of the identified asset throughout the period of use? (IFRS 16.B9(b))

Yes

Yes

Yes

No

No

No


Accounting by lesseesLessees – Balance sheet

IAS 17 IFRS 16

Finance leases Operating leases All leases

Assets–

Liability $ $ –

Off balance sheet rights/obligations –

$ $ $ $ $ $ $

$ $ $ $ $


Accounting by lessees Lessees – profit or loss

IAS 17 IFRS 16

Finance leases Operating leases All leases

Revenue (no change) $$$ $$ $$$$$

Operating costs (excluding deprecation and amortisation)

None None

EBITDA

Depreciation and amortisation

Depreciation –

Operating profit

Finance costs Interest expense –

Profit before tax

Rent expense

Depreciation

Interest expense


Accounting by lessees

Definition of “lease term”

The non-cancellable period for which lessee has right to use underlying asset, together with both:

a) periods covered by option to extend lease if lessee is reasonably certain to exercise that option, and

b) periods covered by an option to terminate lease if lessee is reasonably certain not to exercise that option” (IFRS 16.Appendix A)

Note that if only the lessor has right to terminate, non-cancellable period includes period covered by their option to terminate (IFRS 16.B35)


Termination penalties if lease term reflects exercise of a termination option

Exercise price of a purchase option if lessee is reasonably certain to exercise that option

Amounts expected to be payable under residual value guarantees

Variable paymentslinked to an index/rate based on level of index/rate at commencement

Initial measurement of the lease liability

LesseesMeasuring the lease liability

Discount at rate implicit in the lease (or lessee's incremental borrowing rate)

Fixed (and in-substance fixed) future payments for lease elements, less any lease incentives receivable over lease term (including payments in optional extension periods if extension "reasonably certain")


Estimated cost of removing and/or restoring leased asset

Initial direct costs

Lease incentives already received

(lease incentives receivable over the lease term were already deducted when computing the initial liability)

Lease payments made to lessor at or before commencement date

Lessees

Initial measurement of right-to-use asset

Measuring the right-of-use asset

Initial amount of lease liability


Finance lease Operating

lease

Lessor accountingWhat has changed?

Lessor accounting requirements are similar to IAS 17:

• distinction between finance and operating leases retained.

• definitions of each type of lease, and supporting indicators of a finance lease - substantially the same

• basic accounting mechanics are similar - some different/more explicit guidance like sub-leases.


Effective date and transitionHighlights

Effective from January 1, 2019• early application permitted if IFRS 15 also applied

Lessees are permitted to choose between two transition methods• full retrospective approach

• modified retrospective approach

Lessors are not required to make any adjustments on transition • except for intermediate lessors in a sub-lease

Apply consistently to all leases


Agenda

IFRS Update


• Leases




IFRS 9, Financial InstrumentsWhat's changed?

Area Extent of changes from IAS 39

Scope

Classification and measurement - financial assets

Classification and measurement - financial liabilities

Impairment

Derecognition

Embedded derivatives

Hedge accounting

no or minor changes some changes significant changes


Classification & measurement of financial assets

New categories of financial

assets

Equity fair value through

OCI introduced

Embedded derivatives not

separated

Impairment Hedge accounting

New 3-stage expected credit

loss model

Same model for all in-scope

fin. assets

No impairment for equity fin.

assets

Qualifying for hedge

accounting

Rebalancing and dis-

continuation

Time value of options and

forward points

Main changes at a glance


Financial asset classificationWhat's changed?

• New categories for classifying and measuring financial assets

• Classification determined by:− business model− contractual cash flows

• No "cost option" for unquoted equity investments


Financial assets and embedded derivatives What's changed?

• IFRS 9 eliminates IAS 39's requirement to separate embedded derivatives within hybrid contracts if host contract is an asset within scope of IFRS 9

• Classify entire asset using IFRS 9 classification rules

• Financial assets with separable embedded derivatives under IAS 39 will often be accounted for at FVTPL in their entirety under IFRS 9


Financial asset classificationWhat's changed?

Loans & receivables –amortized cost

Held to Maturity – also amortized cost, very restrictive category

FVTPL

Available for sale – FV with changes in OCI, some gains/losses in P&L

Amortized cost

Fair value through OCI

FVTPL

Equity fair value through OCI (optional designation)

IAS 39 IFRS 9


IAS 39's existing categories of financial liabilities Largely unchanged

Fair value through profit or loss

Amortized cost

… embedded derivatives still separated unless "closely-related" or entire contract measured at FVTPL


New requirements to address "own credit" issue

Designation on initial recognition permitted if:

Applies to financial liabilities designated under fair value option

Split fair value gain/loss

OCI• own credit risk part

of FV gain/loss• no recycling to P&L

P&L• remaining FV

gain/loss

Would presenting own credit-related portion of FV gains/losses "create or increase an accounting mismatch"?

Yes

P&L100% of FV gain/loss

No


Stage 1: performing

• No significant deterioration

• 12 month expected losses

• Gross interest

Stage 2: under performing

• Significant deterioration (but no objective evidence)

• Lifetime expected losses

• Gross interest

Stage 3: non-performing

• Objective evidence

• Lifetime expected losses

• Net interest

credit risk = low credit risk > low

Deterioration in credit quality

A new 3-stage expected loss model


Effective date

31 Dec 15 20172016 Mar June Sept Dec

Issue dateJuly 24 2014

Early adoption permitted

Effective date

January 1 2018

Annual f/sDecember 31

2018

Half year report June 30

2018

Own credit risk changes can be early adopted separately


Agenda

IFRS Update


• Leases



© 2017 Grant Thornton LLP All rights reserved

Project Next step Expected timing

Insurance contracts New Standard May 2017

Disclosure initiative:

• Principles of disclosure (IAS 1 and IAS 8)

• Definition of materiality (IAS 1 and IAS 8)

• Materiality practice statement

Exposure draft

Exposure draft

Practice statement

Not known

June 2017

June 2017

Conceptual Framework New Framework 2017 Q4 or later

Primary financial statements DP or ED 2017 Q4 or later

Business combinations under common control Discussion paper 2017 Q4 or later

Dynamic risk management Discussion paper 2017 Q4 or later

Rate regulated activities Discussion paper 2017 Q4 or later

Financial instruments with characteristics of equity Discussion paper 2017 Q4 or later

IASB project updateMajor projects


IASB project updateInsurance contracts – where are we today?


What is this project about?

• Objective of research project - improve existing guidance in IFRS that helps entities determine basic structure and content of complete set of financial statements

• Focus - reviewing existing guidance in IAS 1 and IAS 8

IASB project updateDisclosure initiative – principles of disclosure

Status: DP issued March 30, 2017



• Refine definition of materiality and clarify its characteristics

• Exposure draft to propose specific amendments to IAS 1 and IAS 8

IASB project updateDisclosure initiative – definition of materiality

Next step: Exposure Draft



• Develop non-binding guidance to help preparers, auditors and regulators to use judgment when applying concept of materiality

• Encourage disclosure of sufficient relevant (i.e. material) information

• Prevent disclosure of too much irrelevant (i.e. immaterial) information

IASB project updateDisclosure initiative – materiality practice statement

Next step: Practice Statement


Why undertake this project?

• Some parts of existing framework considered missing, unclear, or out-of-date

• Provide a coherent basis for developing future standards

• Help entities interpret Standards and develop appropriate accounting policies

IASB project updateConceptual Framework

Next step: Publish new framework


IASB project updatePrimary financial statements


Potential targeted improvements to structure and content of primary financial statements - focus on statement(s) of financial performance (I/S) and statement of cash flows:

• Use of specific subtotals

• Removal of some presentation options

• Guidance on use of performance measures

• Communicating info re: OCI

Next step: DP or ED


IASB project updateBusiness combinations under common control

• Regulator concern over divergence in views and practice when parent transfers a business into a newly formed entity in preparation for sale through IPO

• Key issue - use of previous carrying amounts of transferred business versus applying business combination accounting

• Do existing models need to be modified for these combinations?

• Related issue of “push-down” accounting

Next step: Discussion paper



IASB project updateDynamic risk management


• DRM strategies introduce complexity that make application of current hedge accounting requirements difficult

• Aims to enhance usefulness of related financial information to help users better understand these activities

• Full title is Accounting for Dynamic Risk Management: A Portfolio Revaluation Approach to Macro Hedging

Next step: Discussion paper #2


Regulatory deferral account debit balances

represent deferred 'allowable' costs (rate regulation gives the entity the right to

increase future rates)

Regulatory deferral account credit balances

generally represent deferred 'excess' profits (rate regulation requires the entity

to reduce future rates)

Some national GAAPs permit or require regulatory balances to be recognized in the financial statements

IASB project updateRate regulated activities

Next step: Discussion paper #2


Two separate rate-regulation projects

long-term comprehensive project

short-term interim solution

DP published September 2014

(Comment period ended January 2015)

IFRS 14(issued January 2014)

Do the 'regulatory deferral account balances meet the definitions of 'assets' and

'liabilities'?

IASB project updateRate regulated activities


IASB project updateFinancial instruments with characteristics of equity

What is project about?

• Potential improvements to classification of liabilities and equity in IAS 32

• Presentation and disclosure requirements for FI’s with characteristics of equity

• Potential to impact definitions of liability and equity in the Conceptual Framework

Next step: Discussion paper

© 2017 Grant Thornton LLP All rights reserved.© 2017 Grant Thornton LLP All rights reserved.

Questions

5/12/2017

1

Digital innovation: Harnessing cognitive technology to transform the auditUSF Accounting Circle Conference

May 19, 2017

Quality + Insight = Value

KPMG audit

2© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 659974

1

2

3

4

Section Page

Presentation summary 4

The digitization of business 5

Automation in action 13

Extraordinary people 22

5 Q&A 25

Presentation agenda

5/12/2017

2


This presentation looks at the digitization of business and how artificial intelligence is

redefining financial reporting and auditing. Artificial intelligence is not just science fiction

anymore. Increasingly, AI – also referred to as cognitive technology – is being used in

business to improve operational processes and support management decision making.

This session will explore some of the technological advancements, obtainable insights and

key concerns that are part of an organization’s digital journey.

Presentation summary

The digitizationof business

5/12/2017

3


An explosion of dataHow do we obtain decision-relevant information from this explosion of data?

More than

Apps downloadedon Android

95,000

3,125,000243,055

More than

Submissionson Reddit

140

More than

Searcheson Google

2,315,000

More than

Items are sharedon Facebook

3,000,000

More than

Matches made18,000

Daily swipeson Tinder

972,000

More than

E-mails are sent150,000,000

More than

Tweets sent on Twitter430,000

More than

Video views and

hours of videowatched on YouTube

2,700,000

139,000

More than

Hours of videoare uploaded

300More than

hours of musicListened

39,300 songs addedon Spotify

14 New

More than

New DomainsRegistered

100More than

Snaps senton Snapchat

280,000

Articles Pinnedon Pinterest

9,800Around

photosuploaded onInstagram

56,000

More than

Apps downloadedon iPhone

48,000

More than

hours of Videowatched on Netflix

69,500

More than

messages sent21,000,000

More than

minutes of Audio Chattingon WeChat

195,000

messages processedon WhatsApp

44,000,000

Photos onWhatsApp

486,000

Video messagesshared onWhatsApp

70,000

New reviews posted on Yelp

26

New accounts opened on LinkedIn

120

60SecondsIn

The Answer

Digital tools

Automation

Robotics

Data analytics

Cognitive computing

* Source: Go-Global, website, 2016

This all happens every 60 seconds!


Changing the way business is done

$

1.7billion

$

— The global market for robots and artificial intelligence is expected to reach $152.7 billion by 2020.

— The adoption of these technologies could improve productivity by 39 percent.1

— Research suggests that smart robots will replace more than 100 million knowledge workers – or one-third of the world’s jobs –by 2025.3

billion152.7

— Research indicates a return on investment in robotic technologies of between 600% and 800% for specific tasks.2

ROI800%to

600%

$

The explosion of data in business has fostered unprecedented advances in digital processing power and the capacity to support decision making across multiple activities and operations.

1. “Robot Revolution – Global Robot & AI Primer” – Bank of America Merrill Lynch 20152. “LSE – The IT function and Robotic Process Automation” – The London School of Economics and Political Science 20153. “McKinsey Global Institute: Disruptive technologies: Advances that will transform life, business and the global economy” – McKinsey & Company May 2013

5/12/2017

4


Source: US CEO Outlook 2016 survey: Now or never offers insights into the greatest concerns of CEO’s and how they plan to mobilize for the fourth industrial revolution. Findings based on a study of the 3-year outlook of nearly 400 US CEOs, with annual revenues greater than US $500 million; 32% have greater than US $10bn in revenues.

CEO views on disruptive technologies

65%of CEOs believe that the next three years will be more critical for their industry than

the previous 50 years

Other Top Concerns:

39%of CEOs feel they will be running

significantly transformed companies in the next three years

76%

66%

59%

say new entrants are disrupting their business model

say their organization is not disrupting business models in the industry

say they need to develop an effective strategy tocounter convergence in the market

81%of CEOs believe that their organizations are not keeping up with the emergence of new

technologies


Enabling the workforce with digital toolsCognitive Technology and Robotic Automation are key components in the continuum of technologies that augment human judgment and automate physical tasks.

Research suggests that these types of technologies will drive exponential and unparalleled transformation of business models.

Digital labor is enabled by machine learning, data and analytics, visual recognition and natural language processing

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5


The classes of digital labor

Class 1Basic Process

Automation

Class 2Enhanced Process

Automation

Class 3Cognitive

Automation


Benefits of cognitive technology 1. Extract key attributes from unstructured data

2. Train the cognitive system to perform judgmental activities

3. Engage machine learning to enhance items 1 and 2 above

4. Generate richer, more detailed audit evidence for evaluation and provide insights on systems, risks, processes and controls

Cognitive technology

Analyze data

Generate hypothesis

Evaluate evidence

Judgment based decisions

Business insights

Transformed sampling techniques

Inputs Outcomes

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Why now?— Human experience and knowledge shared freely on

the internet along with billions of connected devices are creating explosive, exponential growth of digital data

— Exponential improvement in technology accelerates at more meaningful baselines, beyond Moore’s Law

— Frictionless access to technology (mobile, cloud)

— Advancements in machine learning, analytics and cognitive technology

— Global demographic shifts – reduction in working age population and need for talent

Automation in action

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Cognitive technology in action

Today, KPMG is exploring the application of IBM Watson’s capabilities to demonstrate the impact and benefits of cognitive technology on audit

processes, decision support and engagement deliverables.

.

KPMG’s Alliance with IBM Watson

— Integrates machine learning and other artificial intelligence technologies with KPMG’s audit methodology

— Makes it possible for auditors to analyze larger volumes of both structured and unstructured data

— Enhances the ability to identify data outliers and anomalies and provides deeper insights into risks, processes and controls


— Audit quality

— Financial performance

— Controllership

— Operations/Data/Business Intelligence

— Regulation

— Tax

— Reporting

— Financial risk management

— Capital and liquidity

Future reporting environmentDigitally-enabled reporting

(think an APP)

Innovation drives powerful insights

Outcomes— Identification of outliers, anomalies, and patterns

— Analytics-enabled specialist judgment

— Earlier indicators of control risk

— Deep industry insights and peer insights

— Scenario analysis

— Stress testing

— Client trends and aberrations

Audit innovation ecosystem Financial executive agenda

KPMG IPIndustry data

Digital automationCognitive

technologies

Data &analytics

Predictive analytics

Client data

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Commercial Mortgage Loan Audit prototype

— Credit file information (e.g. loan application, appraisal, loan notes, etc.)

— KPMG intellectual property

— External information

— Extract key attributes

— Learn loan grading

— Interpret regulation and guidance

— Assess academic literature

— Incorporate third party credit information (e.g. credit agencies)

— KPMG IP

— Confidence-based

— Linked to client grading system

— Address anomalies

— Supporting audit documentation

— Client reporting

— Digitally-enabled dashboard reporting

Ingest and read documents

Train Watson Grade loansReporting and documentation

— Future applicability to virtually any risk assessment platform and in any industry, relying on unstructured data and human judgment

— Watson training can be used in other projects and Natural Language Processing (NLP) training moved to other technologies

— Ability to enable straight through processing, after sufficient trainingStrategic

vision


CMLA – Journey to cognitive automationPresent: manual process and therefore limited to a subset of entire loan population.

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CMLA – Journey to cognitive automationFuture: Larger, more complete data sets fromselected loan portfolios and the ability to ultimately process the entire bank loan portfolio.

KPMG and client scales alignedWeighting scalePayment History: Weak

PSOR: Strong

Collateral: Strong

Guarantor: Weak

Loan Amount: $10M

Purpose: re-finance

Collateral: A properties

AppraisedValue:$100M

Third-party information

100

90

80

70

AAA

AA

A

Evidence

Understand facts

Assign weightsto facts

Translate into a loan

rating

Extract facts from credit file and

other sources

Auditor reviews potential exceptions

Loan #KPMGrating

Clientrating

1

2

3

B

C

AAA

B

B

AAA


Reporting Capabilities

— Dashboard reporting

— Drill-down capability

— Geography, LOB, segment, etc.

Example Content

— Audit status

— Audit insight

- Where we agree

- Where we disagree and why

— Insight/perspective

- Trends based on client data

- Industry and peer insights

- Macroeconomic/credit insights

- Sentiment analysis

- Instrument-specific insights

Reporting – Making it consumable

— Audit quality

— Financial performance

— Controllership

— Operations/Data/Business Intelligence

— Regulation

— Tax

— Reporting

— Financial risk management

— Capital and liquidity

Future reporting environment Outcomes

— Identification of outliers, anomalies, and patterns

— Analytics-enabled specialist judgment

— Earlier indicators of control risk

— Deep industry insights and peer insights

— Scenario analysis

— Stress testing

— Client trends and aberrations

KPMG IPIndustrydata

Digital automationCognitive

technologies

Data &analytics

Predictive analytics

Client data

Digitally-enabled reporting (think an App)

Audit innovation ecosystem Financial executive agenda

5/12/2017

10


Insights from our cognitive journey to date

Don’t wait . . . You should consider embarking on your journey now because your customers, your businesses, your people are all making decisions based on their “user” experience.

— Align your technology solution to the business challenge

— Cognitive applications typically have longer investment cycles and higher resource requirements

— Digitizing your organization will help facilitate your digital journey

— Visual data (i.e., charts and graphs) continues to be a challenge for cognitive tools to process

— Digital capabilities can:

– Help drive quality

– Provide an enhanced user experience

– Unleash deeper insights into available data


Other cognitive use casesLeasing

— Objective: process lease documentation, relevant external information and KPMG IP to assess the classification, recognition and measurement of leases in the financial statements

— Ingest lease documentation, external data and KPMG IP

— Classify the documentation

— Extract key attributes from the data

— Apply KPMG IP to assess the classification, recognition and measurement of the lease in the financial information

Revenue, Sales Invoices, Procurement

— Objective: process client documentation, third-party information and KPMG IP to assess revenue or expense information contained in the client ledger.

— Ingest revenue contracts, invoices, trial balances and other data and assess the completeness and accuracy of the client’s ledger.

Commercial Loan Grading

— Objective: process loan documentation, relevant external information and KPMG IP to generate a loan grade for each loan, indicative of the loan’s creditworthiness

— Ingest loan documentation, external data and KPMG IP

— Extract key attributes from the data

— Train system on KPMG loan grading IP

— Generate a loan grade based on KPMG loan grading scale

Financial Statement Disclosures

— Objective: process financial statement information, relevant external information (including the corresponding GAAP being applied in the financial statements) and KPMG IP to assess the financial statements and footnotes for conformity with GAAP/IFRS/other

— Generate a financial disclosure checklist that determines conformity with generally accepted accounting principles and identifies anomalies versus these principles

5/12/2017

11


Learnings to date

Don’t wait . . . You should consider embarking on your journey now because your customers, your businesses, your people are all making decisions based on their “user” experience.

— Data – the biggest constraint today is “digital” data; the procurement, curation and maintenance of digital data to enable digital tools

— Align your technology solution to the business challenge

— Cognitive applications typically have longer investment cycles and higher resource requirements

— Digitizing your organization will help facilitate your digital journey

— Visual data (i.e., charts and graphs) continues to be a challenge for many cognitive tools to process

— Digital capabilities can:

- Help drive quality

- Provide an enhanced user experience

- Unleash deeper insights into available data

Extraordinary people

5/12/2017

12


People and talentExperts are required to train and oversee design, content management, data analytics and technology development and improvement on the platform i.e. Digital Work

Technological unemployment may occur in lower skilled areas but demographic shifts are putting pressure on labor supply and demand…

Talent becomes more critical as a differentiator as many of the routine activities are automated at a low cost and skill, innovation and agility becomes the competitive advantage


Skills for the digital ageBe prepared for how the profession has evolved and will evolve in the future

Be empowered with data and analytics skillsets

Have a firm foundation in accounting, auditing, financial reporting and business acumen

Be innovative

Embrace change

Apply advanced technologies with ease

5/12/2017

13


Questions?


Perspectives on innovation

IBM Watson

For more information visit KPMG’s website: www.kpmg.com/us/audit

5/12/2017

14

Thank you

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 659974

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

kpmg.com/socialmedia

© RSM US LLP. All Rights Reserved.

GAAP UPDATE

May 19, 2017


Agenda

• Recently issued accounting guidance

• Certain standards effective in years ended 12/31/16

• Ongoing FASB projects

• Other items


Which of the following describes your role in the financial reporting process?

• Preparer - public company

• Preparer - private company

• User

• Auditor

• Tax Preparer who needs A&A?

• Other

What is your role?


RECENTLY ISSUED ACCOUNTING GUIDANCE


Final standards recently issued

ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

ASU 2016-19, Technical Corrections and Improvements

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)

ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control

ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory


Final standards recently issued

ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)

ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment

ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business


ASU 2016-18 – Restricted cash

• Requires the statement of cash flows to explain the change in the total cash, cash equivalents, and restricted cash or restricted cash equivalents during the period

− Restricted cash and restricted cash equivalents should be included with cash and cash equivalents in the reconciliation of the beginning-of-period and end-of-period amounts shown on the statement of cash flows

• Disclosure about the nature of restrictions required


ASU 2016-18 – Restricted cash

Permitted

Required

2017 2018

Public business

entities

Otherentities

Effective date for calendar year-ends

Permitted

Required


EXISTING

ASU 2016-17 – Interests held through related parties that are under common control

• Under ASU 2015-02, a reporting entity that is the single decision maker of a VIE treats indirect economic interests in a VIE, held through related parties under common control, as direct interests; include in entirety

In circumstances involving common control, the single decision maker may have to consolidate a VIE even if it has little to no direct economic interests in the VIE


EXISTING


• Under ASU 2015-02, a reporting entity that is the single decision maker of a VIE treats indirect economic interests in a VIE, held through related parties under common control, as direct interests; include in entirety

AMENDED• Under ASU 2016-17, should include interests held through related parties under common control on a proportionate basis, consistent with other indirect interests

• If the reporting entity does not have the characteristics of a primary beneficiary, it would have to evaluate whether it and its related parties under common control, as a group, have the characteristics of a primary beneficiary

- If so, the party within the related party group that is most closely associated with the VIE is considered the primary beneficiary



Permitted

2017


Required

• Entities that have not yet adopted ASU 2015-02 must adopt this Update at the same time and apply the same transition method elected for ASU 2015-02

• Entities that previously adopted ASU 2015-02 must adopt this Update on a retrospective basis for all prior periods beginning with the fiscal year of initial application of ASU 2015-02


Under the new guidance . . .

The characteristics of a primary beneficiary would remain the same

A single decision maker of a VIE is required to consider indirect economic interests in the entity held through related parties under common control on a proportionate basis when determining whether it is the primary beneficiary of that VIE

Summary


EXISTING

ASU 2016-16 – Income taxes (Topic 740): Intra-entity asset transfers other than inventory

• Current GAAP prohibits recognizing current and deferred income taxes for intra-entity asset transfers until the asset is sold to an outside party


EXISTING


• Current GAAP prohibits recognizing current and deferred income taxes for intra-entity asset transfers until the asset is sold to an outside party

AMENDED• The income tax consequences of an intra-entity asset transfer (other than inventory) should be recognized when the transfer occurs

• For intra-entity inventory transfers, current GAAP is retained



Permitted

Required

2018 2019

Public business

entities

Otherentities


Permitted

Required


ASU 2016-15 – Statement of Cash Flows - Classification of certain cash receipts and cash payments

Issue Amendment

Debt prepayment or debtextinguishment costs

Cash payments classified as financing

Settlement of zero-coupon debt instruments (or other debt instruments with coupon rates that are insignificant in relation to the borrowing’s effective interest rate)

- The portion of the cash payment attributable to the accreted interest classified as operating- The portion of the cash payment attributable to the principal classified as financing

Contingent considerationpayments made after a business combination

- Payments not made soon after the acquisitiondate - Cash payments up to the amount of acquisition date contingent consideration liability classified as financing. Excess classified as operating- Payments made soon after theacquisition date classified as investing



Issue Amendment

Proceeds from the settlement of insurance claims

Classified based on the nature of the loss

Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies

- Cash proceeds received fromsettlement classified as investing- Cash payments for premiums may beclassified as investing, operating, or a combination of investingand operating



Issue Amendment

Distributions received fromequity method investees

Accounting policy election to classifydistributions received from all equity method investees using either:1. Cumulative earnings approach2. Nature of the distribution approach

Beneficial interests insecuritization transactions

- Disclose a transferor’s beneficial interest obtained in a securitization of financial assets as a noncash activity- Cash receipts from payments on a transferor’s beneficial interests in securitized trade receivables classified as investing



Issue Amendment

Separately identifiable cashflows and application of thepredominance principle

- In the absence of specific GAAP, each separately identifiable source or use within the cash receipts and payments would be classified on the basis of their nature

- If cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item



Permitted

Required

2018 2019

Public business

entities

Otherentities


Permitted

Required


Today

ASU 2017-04 - Simplifying the accounting for goodwill impairment

ASU 2017-04 Two step goodwill impairment test

• Step 1 – Compare the carrying amount of the reporting unit with its fair value, if greater than its fair value then proceed to Step 2

• Step 2 - Determine the implied fair value of goodwill and compare it with the carrying amount of that goodwill

• Recognize impairment for the excess of the carrying amount of goodwill over its implied fair value

Eliminates Step 2 of the goodwill impairment test

• Compare the carrying amount of the reporting unit with its fair value

• Recognize impairment for the amount by which the carrying amount exceeds the fair value of the reporting unit


Today

ASU 2017-04 - Simplifying the accounting for goodwill impairment

ASU 2017-04 Qualitative assessment when carrying amount of reporting unit is zero or negative

• If the carrying amount of a reporting unit is zero or negative, then an impairment charge is recognized when a qualitative assessment results in an entity concluding it is more likely than not that a goodwill impairment exists (Step 1) and when the carrying amount of goodwill is greater than its implied fair value (Step 2)

Removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment

• The same impairment assessment would apply to all reporting units

• Disclosure of the existence of any reporting units with zero or negative carrying amounts and the goodwill amount allocated to those reporting units would be required


ASU 2017-04 – Simplifying the test for goodwill impairment

Permitted Required

2020 2021

PBE –SEC filer

PBE - Non SEC filers

Other entities


Permitted

2017

Permitted

2022


ASU 2017-01 – Clarifying the definition of a business

• The definition of a business affects many areas of accounting such as acquisitions, disposals, consolidation and goodwill impairment

• Differences between accounting for business combinations and asset acquisitions in certain areas:- Acquisition costs

- Goodwill and bargain purchase gain

- Assembled workforce

- IPR&D

- Measurement period

- Contingent consideration


EXISTING

• Under existing guidance, there must be three elements to be a business:- Inputs

- Processes

- Ability to create outputs

• All inputs and processes are not required if a market participant could replace the missing inputs and processes



AMENDED

• The new guidance provides a screen to determine when a set of assets and activities is not a business - will limit the transactions that need to be further evaluated

• The screen requires that when substantially all the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business- “Substantially all” is not defined

- A single identifiable asset includes:

• Multiple assets measured as a single asset in a business combination

• Certain tangible assets attached to other tangible or intangible assets

• In-place lease intangibles and the related leased assets



AMENDED

• If the screen is not met:

- To be considered a business, a set must include an input and a substantive process that together significantly contribute to the ability to create output

- No longer consider whether a market participant could replace the missing inputs and processes

- The definition of outputs is narrowed

• Provides a framework to assist entities in evaluating whether both an input and a substantive process are present- Different criteria to determine whether an input and a substantive

process exists for a set that has outputs as compared to a set that does not have outputs



Permitted

Required

2018 2019

Public business

entities

Otherentities


Permitted

Required

2017



CERTAIN STANDARDS EFFECTIVE IN YEARS ENDED 12/31/16


ASU 2014-15 – Disclosure of uncertainties about an entity’s ability to continue as a going concern

Management must now evaluate whether conditions or events raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued)

• Must consider relevant conditions and events that are known and reasonably knowable

• Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events indicate it is probable the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued)



• If management identifies conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, management should consider whether its plans to mitigate those conditions or events will alleviate the substantial doubt

• Consideration of the mitigating effect of management’s plans is based on whether it is probable that the plans will:

1. Be effectively implemented and, if so,

2. Mitigate the conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern



• If the substantial doubt is alleviated as a result of management’s plans, the entity should disclose:− The principal conditions or events that raised the substantial

doubt

− Management’s evaluation of the significance of those conditions or events

− Management’s plans that alleviated the substantial doubt



• If the substantial doubt is not alleviated as a result of management’s plans, an entity should:− State in the footnotes that there is substantial doubt about the

entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued)

− Disclose the following information:• The principal conditions or events that raised the substantial doubt

• Management’s evaluation of the significance of those conditions or events

• Management’s plans that were intended to mitigate those conditions or events


Simplifying the presentation of debt issuance costs

• ASU 2015-03 requires entities to present debt issuance costs as a direct deduction from the carrying amount of the related debt liability (same as debt discounts)

• The recognition and measurement guidance for debt issuance costs is not impacted

• ASU 2015-15 notes that an entity may continue classifying debt issuance costs related to line-of-credit arrangements as an asset (rather than as a contra-liability)


ONGOING FASBPROJECTS


Simplifying the classification of debt in a classified balance sheet (current versus noncurrent)

• Introduces an overarching principle for determining debt classification which would replace the current fact-specific guidance

• An entity would classify debt as noncurrent if either of the following criteria is met as of the balance sheet date:

- The liability is contractually due to be settled more than one year after the balance sheet date

- The entity has a contractual right to defer settlement of the liability for at least one year after the balance sheet date

Pro

pose

d

Proposed ASU


• One exception is that the borrower would continue to classify its debt as noncurrent when a debt covenant violation has been waived, subject to certain conditions

- Applies to all waivers except those that result in a troubled debt restructuring or those that are accounted for as a debt extinguishment

- Retains and clarifies the probability assessment related to subsequent covenant violations

- Requires an entity to separately present in the balance sheet liabilities that are classified as noncurrent as a result of this exception P

ropo

sed

Proposed ASU



• May shift classification of certain debt arrangements between noncurrent liabilities and current liabilities:- Short-term debt that is refinanced on a long-term basis

after the balance sheet date, but before the financial statements are issued, would no longer be classified as noncurrent

- A subsequent refinancing of short-term debt with the issuance of equity securities would no longer affect the classification of debt as of the balance sheet date and those debt arrangements would be classified as current liabilities

- Entities with debt that contains subjective acceleration clauses would no longer be required to assess the likelihood of acceleration

Pro

pose

d

Proposed ASU



Pro

pose

d

Proposed ASU

Comments due

May05



Distinguishing Liabilities from Equity (Topic 480)

• Part I - Accounting for certain financial Instruments with down round features

• Part II - Replacement of the indefinite deferral for mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests with a scope exception

Pro

pose

d

Proposed ASU


Accounting for certain financial instruments with down round features

• Currently ongoing fair value measurement is required for warrants and certain conversion options with down round features

• The proposed Update would require that:

− When determining the classification of certain financial instruments as either liabilities or equity, the down round feature would not be considered when assessing whether the instrument is indexed to its own stock

− Instead, when triggered, an entity would recognize the feature’s effect and provide certain disclosures P

ropo

sed

Proposed ASU

A down round feature results in a reduction of the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the current strike price


Replacement of the indefinite deferral

• ASC 480-10 includes an indefinite deferral of the accounting requirements related to mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests

− Currently presented as pending content in the Codification

− Under the proposed ASU, would instead be a scope exception

• The change would have no accounting impact but is expected to improve the readability of the guidance

Pro

pose

d

Proposed ASU


Pro

pose

d

Proposed ASU

Commentswere due

Feb07

Distinguishing Liabilities from Equity (Topic 480)


Stock compensation: Scope of modification accounting

• The proposed Update provides guidance regarding which changes to the terms or conditions of a share-based payment award would require the application of modification accounting under ASC 718

• The effects of a modification would be accounted for by an entity unless all the following are the same for the award immediately before and after the modification:

1. Fair value

2. Vesting conditions

3. Classification as equity or a liability

Final Standard – Estimated Completion Q2 2017 Pro

pose

d

Proposed ASU


OTHER ITEMS


REVENUE RECOGNITION UNDER ASC TOPIC 606


ASU 2016-20 – Technical corrections and improvements to Topic 606, Revenue from contracts with customers

• ASU 2016-20 makes changes to certain areas of the new revenue guidance, including:− Loan guarantee fees

− Impairment testing on deferred costs related to customer contracts

− Loss provisions for construction-type and production-type contracts

− Disclosures about remaining performance obligations and prior-period performance obligations


ASC Topic 606 effective dates

• Public business entity, not-for-profit entity that has issued, or is a conduit bond obligor for, securities traded, listed, or quoted on an exchange or over-the-counter market, and employee benefit plan that files or furnishes financial statements with or to the SEC− Annual reporting periods beginning after Dec. 15, 2017,

including interim periods within that period

• All other entities− Annual reporting periods beginning after Dec. 15, 2018, and

interim periods within annual periods beginning after Dec. 15, 2019


Considerations for ASC Topic 606 implementation

• Gain an understanding of the new standard

• Create a plan for implementation, including both timing and core team

• Obtain and review information required for implementation, including contracts by type of revenue stream

• Assess existing revenue policies and identify expected differences from the new standard for each revenue stream

• Determine method of adoption


Considerations for ASC Topic 606 implementation

• Develop new revenue recognition model/policies

• Consider changes that may need to occur in areas beyond accounting, such as systems, processes and internal controls

• Recast revenue for each revenue stream

• Consider ongoing financial reporting impact and new required disclosures

• Educate the finance team, others within the company and key stakeholders (e.g., audit committee)


What efforts has your company taken to date in regard to implementing the new revenue recognition guidance in ASC Topic 606?

We have just reviewed the standard and some implementation guidance

We have started to determine the impact the standard will have on our significant contracts and revenue streams

We determined the expected impact the standard will have on our significant contracts and revenue streams and started to quantify the expected impact of adoption

We have not done anything to date

Question


SAB 74 disclosures

• SAB 74 requires disclosure in SEC filings about the impact recently issued accounting standards will have on a Company’s financial statements, including:− A brief description of the new guidance, its effective date and

when the entity expects to adopt it

− Discussion of the transition methods allowed and the method the entity expects to use (if determined)

• Discussion of the potential impact of other significant matters that may result from adopting the new guidance− For example, technical violations of debt covenants or

planned/intended changes to business practices


SAB 74 disclosures

• Unless not known or reasonably estimable, discussion of the impact that adoption of the new guidance is expected to have on the financial statements− If full impact is not known or reasonably estimable, state this and

include qualitative disclosures to assist financial statement users in determining:• The effect of new accounting policies that expect to apply

• Comparison with current policies

• Progress in implementing the new standards and significant matters that have yet to be addressed

• Expectation is that disclosures will become more detailed as the adoption date gets closer


Revenue recognition under ASC Topic 606: New thought leadership available

Refer to the updated white paper, “Revenue recognition: a whole new world”• The updates reflect significant changes

made by the FASB including:− Assessing collectibility− Identifying performance obligations− Accounting for noncash

consideration− Recognizing revenue on a gross

vs. net basis− Accounting for licenses and rights

to use− Transitioning to the new guidancewww.rsmus.com Ideas & Insights


Revenue recognition under ASC Topic 606: New thought leadership available

• Recorded webcast, “Revenue recognition under ASC 606”

• CAQ issued, “Preparing for the New Revenue Recognition Standard: A Tool for Audit Committees”

www.rsmus.com Ideas & Insights Revenue Recognition


RSM thought leadership

www.rsmus.com/FRRC


RSM thought leadership

www.rsmus.com/subscribe


This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International.

RSM® and the RSM logo are registered trademarks of RSM International Association. The power of being understood® is a registeredtrademark of RSM US LLP.

© 2017 RSM US LLP. All Rights Reserved.

RSM US LLP

One South Wacker Drive, Suite 800Chicago, IL 60606312.634.3400

+00 (1) 800 274 3978www.rsmus.com

INTERNAL AUDIT: CONSISTENTLY ADDING VALUE

Stefanie Wiseman – Internal Audit Executive VP - CPA, CISA, CFE

Agenda

2

• What is FIS?

• FIS’ Internal Audit

• Adding Value

• How We Add Value

• Risk Assessment/Audit Plan Development

• Methodology

3

What is FIS?

We provide unmatched technology services covering the entire financial industry.

4

DIGITAL/CHANNEL

RISK, INFORMATION SECURITY, COMPLIANCE

OUTSOURCED SERVICES

CONSULTING

BANKING & PAYMENTS

WEALTH & ASSET MANAGEMENT

CAPITAL MARKETS

TECHNOLOGY

BANKING & PAYMENTS

BANKING

PAYMENTS

WEALTH MANAGEMENT

CORPORATE LIQUIDITY

INSTITUTIONAL & WHOLESALE

ASSET MANAGEMENT

CAPITAL MARKETS

INSURANCE

ENERGY

Refining the payments landscape in Australia at eftpos

eftpos, Australia’s largest and most used payments network, wanted to implement new payment innovation but was constrained by decades-old infrastructure, whose network of 27 independent interbank connections required industrywide coordination to implement a change.

FIS worked with eftpos to create a single, high-volume payments hub that enabled eftpos to reduce its time to market and save millions in operating costs. More importantly, it helped eftpos utilize its No. 1 debit card system in Australia to bring innovative payments services to Australia’s 23,000,000 citizens.

Empowering the women of India at Bharatiya Mahila Bank

Women are the economic head of the family in India, but only 25% of India’s 585.3 million women have an economic voice. In 2013, the Indian government launched Bharatiya Mahila Bank (BMB), an initiative with a simple but powerful vision – “Empowering women economically” – by bringing financial services and financial education to India’s women, one of the world’s largest underserved consumer groups.

Selected as BMB’s technology partner, FIS built and deployed the bank’s entire technology platform and launched the bank’s first seven branches simultaneously just 90 days after being tapped as BMB’s strategic technology partner.

Together, FIS and BMB have created a bank that has improved financial freedom for 433,000,000 Indian women. Empowering India’s women empowers all of India’s 1.25 billion people.

Serving the unique needs of financial services organizations

7

MARKET REACH

cards processed 848M

10B

$9T

financial trade records processed per hour

moved globally every year

SOLUTION BREADTH

solutions+400

$300M

BPO, consulting and transformational services

invested annually in next-generation advancements

INDUSTRY EXPERTISE

Dedicated market practices

+40

+3,000

+55,000

210

years FinTech experience

consultants

employees worldwide

operational facilities (81 in the U.S.)

CLIENT RELATIONSHIPS

top global banks

+20,000clients

9/10

top U.S. retailers

~75%U.S. credit unions

18/25

Federal government and 40 state governments

Combination of organic and external growth has positioned FIS as the world’s leading technology provider for the financial services industry.

The FIS history through strategic acquisitions

8

1968

SystematicsInc.

1991Horizon

1999ACquire

2001DFS

2002DASH

2003

WebTone;H&S

2004

Kordoba;AurumTechnology;NYCE;BankWare;Sanchez

2005InterCept

2006Certegy

2007 AFFN;AssetExchange;eFunds;MSI

2009Metavante

2010VCMG;Capco;ComplianceCoach

2011GIFTS

2012PRONETSolutions;Memento;ICS RiskAdvisors

2013mFoundry;Platform Securities

2014Reliance TrustCompany;CMSI; Clear2Pay

2015SunGard

Our Regulators

9

The Federal Banking Agencies (FBA), our regulators and the regulators of banks, are made up of five banking regulators:

• Federal Reserve Board of Governors (FRB)

• Federal Deposit Insurance Corporate (FDIC)

• National Credit Union Administration (NCAU)

• Office of the Comptroller of the Currency (OCC)

• Consumer Financial Protection Bureau (CFPB)

10

FIS’ Internal Audit

Independence in our Role

11

First Line of DefenseBusiness unit and all FIS

employees own risk management

First Line of DefenseBusiness unit and all FIS

employees own risk management

Third Line of DefenseAudit independently tests

control and risk management effectiveness

Third Line of DefenseAudit independently tests

control and risk management effectiveness

Second Line of DefenseEnterprise Risk

Management, Information Security and Compliance are independent control functions

Second Line of DefenseEnterprise Risk

Management, Information Security and Compliance are independent control functions

Internal Audit Organization

12

• The FIS Internal Audit team reports directly to the Audit Committee of the Board of Directors, both administratively and functionally– The CAE meets with the Audit Committee Chair at least monthly – The CAE communicates Internal Audit reports to the Audit Committee at the

same time they are issued to management

• Highly qualified personnel– Significant experience at the VP/Director/Manager level– Team is expected to have one or more professional certifications

• Key audit team locations:– U.S. - Jacksonville FL; St. Petersburg FL; Milwaukee WI; Collegeville PA;

Atlanta GA – Non U.S. - UK, India

13

Adding Value

Products of Our Process

14

Validating your data is secure

Our regulators rely on our work

Gary Norcross, CEO of FIS, “I love Internal Audit!”

We are trusted advisors to management

We “build bridges”

Management leverages our observations

Internal Audit team members move into the business

Observation themes drive real change in both policy and culture

Our Process

15

In accordance with IIA Standards

Robust risk assessment with coverage models

Integrated audit methodology

Effective reporting and communications

Strong remediation reporting and communications

Effective Quality Assurance Review program

16

Risk Assessment /Audit Plan Development

Audit Plan Development Highlights

17

• FIS Audit Universe consists of auditable Enterprise Processes (Technology/Information Security, Finance and Accounting, Corporate Programs and Administrative) and Products / Services.

• Risk assessments evaluate inherent risk in relation to the Top Five Company risk categories.

• Historical audit coverage and maturity is assessed and documented.

• Audits prioritized based on risk.

• Consider first and second line risk reporting.

• Obtain Feedback from Audit Committee, Executives, and Management.

Our audit plan development process is supported by a comprehensive and formally documented risk assessment.

Our audit plan development process is supported by a comprehensive and formally documented risk assessment.

Inputs to our Audit Coverage

18

Top Five Enterprise Risks

• Strategic Risk

• Data Security Risk

• Regulatory Risk

• Financial Loss and Fraud Risk

• Process and Execution Risk

Audit Allocation (Audit Type)

19

54%

14%

21%

10%

1%

Product: Operational, Finance, Compliance and/or Technology

Process: Finance, Accounting, and Settlement

Process: Technology

Process: Risk Mgt and Operational

Technology Data Center Controls

2016 Recap – Observation Reporting Statistics

20

Average number of IA observations per report: 2016: 2.92015: 4.22014: 4.1

312 observations generated from 106 reports – 7.3% were self-reported by management prior to audit inception.

Percentage by Risk Rating19% Critical/High 45% Medium 36% Low

Internal Audit closed out 357 observations in 2016.

Average number of IA observations per report: 2016: 2.92015: 4.22014: 4.1

312 observations generated from 106 reports – 7.3% were self-reported by management prior to audit inception.

Percentage by Risk Rating19% Critical/High 45% Medium 36% Low

Internal Audit closed out 357 observations in 2016.

21

Methodology

FIS Internal Audit Methodology Objectives

22

1 Designed to demonstrate a risk-based approach.

3Teammate’s Electronic Working Papers are designed to effectively and efficiently guide the audit team through the audit process.

4Pre-approved Excel and Word templates are utilized to drive consistency and efficiency in audit documentation.

2Designed to be formal, yet flexible, to facilitate efficiency for the various types of audits executed.

5Use of standard scripts to automatically pull configuration information from platforms, increasing consistency, efficiency and coverage of technical controls.

Methodology Governance

23

The audit process is formally documented and supported by the following policies and procedures documents.

• FIS Internal Audit Department Charter

• FIS Internal Audit Policy Document

• FIS Internal Audit Procedures

• FIS Internal Audit Risk Based Audit Plan Development Procedures

• FIS Quality Assurance Program

Standard Audit Process - Overview

24

A break is planned between phases to allow time for management to

gather requested items.

Pre-PlanningPlanning and

Risk Assessment

generally 4 week break

Fieldwork (Testing)

generally 1 week break

Wrap Up and Reporting

Follow Up and

Remediation

This represents an average audit.

>30 days prior to kick-off

Remote

Day 1 plus ~ 1-3 weeks

Preference is onsite for 1-2

weeks

~ 1-3 weeks


weeks

4 weeks duration*

Remote

Ongoing until closure

Remote

Audit Timeline *Measured from observation validation meeting to report issuance.

Remote Remote RemotePreference is onsite for 1-2

weeks


weeks

Observation Ratings

25

Measurements Low Medium High Critical

Pro

bab

ilit

y Likelihood of Occurrence

Financial exposure or reputational harm unlikely due to relatively sound control design and operating effectiveness, although some testing exceptions did occur.

Financial exposure or reputational harm possible, but unexpected due to partial effectiveness in control design and operation.

Financial exposure or reputational harm likely and would not be surprising, due to visible weaknesses, or combinations of weaknesses in internal control design and operating effectiveness.

Financial exposure or reputational harm is imminent due to visible weaknesses and combinations of weaknesses in internal control design and operating effectiveness.

Imp

ac

t

Financial < $3MMinimal impact: impacts at this level can be sustained without serious detrimental effect to the business’ finances or the business’ operations.

$3M - $6MModerate loss of net income due to increases in operating costs, increase in fines, loss of new business, impacts on the operations of the business, etc.

$6M - $10MHigh loss of net income due to increase in operating costs, increase in fines, loss of new business, degradation of operations, etc.

> $10MMaterial loss of net income due to increase in operating costs, increase in fines, loss of new business, degradation of operations, etc. Unsustainable for any period of time and may result in business failure due to cash flow or operation’s crisis.

Client Reputational Regulatory

•No exposure of client NPI data.•Minimal impact to client service levels, client provided data or other commitments to FIS’ clients.

•Press coverage or impact to FIS brand not likely.

•Minimal regulatory effects.

•Minimal exposure of client NPI data.

•Moderate impact to client SLAs or other commitments.

•Regional press coverage to likely.•Moderate impact of fines, limited sanctions or limited reputational harm. Impact is serious but would not inhibit operations.

• Moderate exposure of client NPI data.

• Loss of FIS clients is likely.• National press coverage is likely.• Regulatory concerns may impact FIS’ ongoing operations and may result in sanctions or closure of business.

• Significant exposure of client NPI data.

• Loss of multiple FIS clients is likely.• Global press coverage is likely.• Regulatory concerns may impact FIS’ ongoing operations and may result in sanctions or closure of business.

Note: At auditor’s discretion, “informational” observations not meeting the above criteria can be included in the report to highlight control considerations where the impact is less than $1M, or for recommendations on operational efficiency.

Report Review and Issuance Process

26

Satisfactory Needs Improvement Unsatisfactory

Issue Quantification

Limited to no audit areas within scope had high and/or medium risk control failures. There were no high or medium risk items that were repeated from prior internal audits.

Certain audit areas within scope had a high percentage of high and/or medium risk control failures; however, controls in other areas were operating effectively and had limited exceptions. Or, medium risk repeat observations from prior internal audits were noted.

Most of the audit areas within scope identified high or medium risk observations; and/or high risk repeat observations from prior internal audits were noted.

Issue Impact

Identified observations are isolated to one area and have nominal enterprise impact.

Certain identified high risk observations, or the combination of medium risk observations, could have moderate enterprise impact from the standpoint of financial OR reputational risk.

Identified observations are critical in nature and/or individually or cumulatively could have significant/material impact to the enterprise from the standpoint of financial OR reputational risk.

Risk Culture

•Strong understanding of FIS policies and standards.

•Strong demonstration of ownership of business risk.

•Strong transparency of issues considering both formal self-reported and ongoing continuous improvement initiatives.

•Timely reaction to observations identified by audit.

• Moderate understanding of FIS policies and standards in some areas.

• Some but not complete demonstration of ownership of business risk.

• Moderate transparency of issues considering both formal self-reported and ongoing continuous improvement.

• Some instances of timely reaction to observations identified by audit.

• Minimal understanding of FIS polices and standards.

• Minimal demonstration of ownership of business risks.

• Minimal transparency of issues considering both formal self-reported and ongoing continuous improvement initiatives.

• Untimely reaction to observations identified during the audit.

27

IA Quality Program

Quality Assurance and Improvement Program

28

Ongoing Quality Assessments

Annual Self Assessment

External Quality Assessment (every 5 years)

29

Thank you!

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Accounting in the Clouds

USF Accounting Circle

Agenda

Cloud Trends

Why Cloud?

Different Flavors of Cloud

Accounting Implications Buying Cloud

Selling Cloud

Other Considerations

State of Cloud

• Enterprise cloud spending is predicted to grow at a 16% CAGR from 2016 to 2026

• Cloud computing spend is growing at 4.5x the rate of IT spending since 2009

Cloud Trends

• 74% of Technology CFO’s say cloud computing will have the most measurable impact on their business this year

• Worldwide public cloud services will grow 18% in 2017 to $247B

• Platform as a Services adoption is predicted to be fastest growing sector of cloud platforms

• API’s growth is explosive and a key component of software infrastructure

• Hybrid cloud architecture will continue to dominate enterprise cloud strategies

Why Cloud?

Greater Flexibility- Shorter reaction time to changes- Scalability … Flexible Costs- Work from Anywhere

Lower upfront investment and IT support

Disaster Recovery

Security & Compliance

Different Flavors of Cloud

Software as a Service

- Cloud provider controls and owns the hardware, operating system, application, and network delivery

- Customer accesses application via the internet

Platform as a Service

- Customer controls and owns the applications

- Cloud provider controls and owns the hardware, operating systems and network delivery

Infrastructure as a Services

- Customer controls and owns the applications and any required operating systems

- Cloud provider controls and owns the hardware and network delivery

Accounting Implications

Buying or Selling, the accounting is slightly different than traditional IT and Software

Different Cloud types can result in different treatment

Key factors- Ownership

- Types of Services

Buying Cloud

Software

Key Accounting Considerations

- Can you take possession of software?

- Can you run the software on other hardware?

Type of Cloud can sometimes help clarify treatment

Software as a Service (SaaS)

• Key Considerations

– Can you take possession of software? No

– Can you run the software on other hardware? No

• Centrally hosted subscription license

• Operating Expense … cost recognized ratably over the term of the arrangement (can vary with usage)

Perpetual License

• Key Considerations

– Can you take possession of software? Yes

– Can you run the software on other hardware? Yes

• Indefinite use of software … portable

• Can be hosted or on internal infrastructure

• Capital Expense … cost amortized over useful life

Implementation

Implementation & Service costs are similar to non‐cloud- Consulting & Configuration Services

- Data Conversion

- Report Development

- Training

- Upgrades/Renewals

- Support & Maintenance

Capitalize or Expense?- Ownership

- Configuration or Modifications/Enhancements

Selling Cloud

Revenue Recognition

License vs SaaS

Services

- Setup

- Implementation Services

PaaS or Iaas?

- Usage Fees

Cost Treatment

Development and Maintenance of underlying Software

- How do we treat SaaS and why?

• Internal Use vs Software for Sale

- Implications

- The Future

Direct costs related to specific customer contract or project

- Initial Costs

• Set‐up

• Commissions

- Implementation costs

- Consistency

Other Consideration

R&D Tax Credit

- If buyer of SaaS pays for new and original coding to implement the system in their business, they may qualify for the R&D tax credit

• Custom Reports

• Complex Integrations

• Business Specific Customizations

The Standards are Going to Continue to Evolve

Leverage Experts as your Business Evolves

Keep up to date with current guidance

Next Steps

References• ASC 350‐40 – Internal Use Software

• ASC 720‐45 – Business & Technology Reengineering

• ASC 985‐605 – Revenue Recognition ‐ Software

• ASC 605‐25 – Revenue Recognition – Multiple Element

Reimagine the Possible: Innovation through Process Improvement, Automation & Learning

Cindy S. Cruz, CPA, CIAIdea2Innovation Senior Manager

Agenda

2

• Who is Idea2Innovation (i2i)?

• Reimagining the Possible with Innovation

• Success Factors

• Questions

Who is Idea2Innovation?

3

The PwC Idea2Innovation (i2i) team was

established to help PwC’s Controller Operations

Finance group capture ideas, innovation,

automation and improvement opportunities

and help facilitate change around what we do and

how we do it – to reimagine the possible

Reimagine the Possible Through Innovation:Our Focus

4

Why this tri-focus?

5

Innovation Starts with an Idea

6

Journey of an Idea

7

Dive Guidelines

All levels and all

knowledge owners

Titles are left at the

door

Clear schedule & manage

distractions

Be ok with discomfort

Stay true to scope

8

Dive Principles

9

i2i Dives In Action

Dive Toolkit

Step 1: Identify pain

Step 2: Root cause analysis

Step 3: SIPOC

Step 4: Current state

Step 5: Ideal & future state

Step 6: Execution & action items

11

Step 1: Identify Pain

What pain do you and your customers experience in this process?

12

7 Wastes - TIM WOOD

Waste description Definition

Transportation Any information or material movement that does not directly add value to a product or service

Inventory Any supply of materials or electronic information in excess of customer requirements necessary to produce services

Motion Any movement of people that do not add value to the product or services

Waiting Idle time that is produced when two processes are not synchronized

Overproduction Producing more than needed or producing sooner than needed

Overprocessing/ Complexity

Effort which adds no value to a product or service beyond what is required

Defects (Rework) Reworking a product or service to meet customer requirements

13

Step 2: Analyze Root Cause

Find the root cause and eliminate or minimize it!

“The Weed”

- Symptom of the problem

- Above the surface (obvious)

When trying to understand the root cause, ask “why” at least 5 times to identify the true underlying cause.

“The Root”

- The underlying causes

- Below the surface (not obvious)

14

Step 3: Complete SIPOC

SIPOC is a high level view of a process

Suppliers Inputs Process steps Outputs Customersprovide inputs for the process

are used in the process

transform the inputs into

outputs

are what the customers/

stakeholders get

receive the output from the process or are

impacted

Always START with the CUSTOMER!

15

Step 4: Map Current State

Process step

Pain point

Solution step

Legend

16

Step 5: Ideal State and Map Future State

Process step

Solution step

Legend

ROI potential

17

Step 6: Execution & Action Items

18

Reimagine the Possible: Automation

19

Automation: Alteryx

Alteryx provides users with the unique ability to easily prep, blend and analyze all of their data using a repeatable workflow, then deploy and share analytics at scale for deeper insights in minutes versus days.

What types of processes can Alteryx automate?

Other capabilities of Alteryx● Predictive analysis● Data cleansing/blending● Easy plug into reporting tools (e.g., Qlikview and Tableau)

● Reconciliations● Journal entries● Data analysis

● Consolidations/allocations● Calculations● Data collection

20

Automation: Alteryx

What is the Self-service Automation (SSA) Framework?

21

● A guiding model that defines automation standards and requirements in a step by step framework

● Establishes a consistent approach and maintains focus from the early stages of automation through to completion and monitoring

● The framework provides opportunities for:

● Control and governance around the method of automating

● Learn and leverage an industry standard tool to create automated workflows

● Utilize best practices with diverse data sources

● Support from OneFinance Champions and the i2i team

22

Reimagine the Possible: Learning

23

Reimagine the Possible: Learning

24

What is Mediaspace?

25

Bringing It All Together

Excerpt of “Current State” Inclusive of Solutions & Opportunities

Excerpt of “Future State”

Automation Learning

Streamlined

26

Success Factors

Innovation Can Be

Everyday

Agility Is Key

Leadership Leads

Innovation

Start Saying

“Yes”

Innovation Must Have Purpose &

Accountability

Fail Fast

27

Recommended Reading

Turn the Ship Around!: A True Story of Turning Followers Into LeadersBy: David Marquet

Sprint: How to Solve Big Problems and Test New Ideas in Just Five DaysBy: Jake Knapp

Raving Fans: A Revolutionary Approach to Customer ServiceBy: Ken Blanchard

28

Questions?

COSTING THE CUSTOMER:IT’S ALL IN THE DETAILS

Key Question

How much does it cost us to provide a product/service to a customer?

Every Customer is Different

• Production order sizes

• Special requirements

• AR collections

• Warehouse fees

• Distance to customer location

• Multiple follow ups over PBCs

Example Scenario

12 Pack FP 24 Pack 8 Pack 6 Pack

Non-Carb

Kosher Customer Specific Requests

Carbonated

Longer cleaning times

12 Pack

Example Scenario


Non-Carb


Carbonated


12 Pack

Non-Carb CarbonatedNon-Carb Carbonated Non-Carb Carbonated Non-Carb Carbonated

Kosher Customer Specific Requests Longer cleaning times

30 different possible methods in the above example alone!

Example Scenario


Non-Carb


Carbonated


12 Pack

All of the below options have a related activity

ABC Costing Application

Activity Time Labor rate per hour Other Expenses Total Activity Cost

Packaging Configuration Setup 2 hours 200.00$ 400.00$

Non‐Carb Setup 1 hour 200.00$ ‐ 200.00

Carbonated Setup 1 hour 200.00$ ‐ 200.00

Kosher Cleaning 1 hour 200.00$ 50.00 250.00

Customer Spec. Cleaning 2 hours 200.00$ ‐ 400.00

Long Run Cleaning 30 mins 200.00$ ‐ 100.00

Calculation of cost per case

• Customer A purchases 5,000 cases of kosher 12 pack carbonated soda.

• Customer B purchases 2,000 cases of non-kosher 12 pack carbonated soda.




Kosher Cleaning 1 hour 200.00$ 50.00 250.00

Total Setup Cost: 850.00$

Number of Cases: 5,000.00$

CPC: 0.17$




Total Setup Cost: 600.00$

Number of Cases: 2,000$

CPC: 0.30$

Service Business Application

• Loan

– Confirmation

– Debt covenant testing

– Interest expense recalculation

– Roll forward of loan

– Footnote tie-out

– Manager review

Service Business Application

Activity Time Staff lvl 1 rate per hour Other Expenses Total Cost

Confirmation 15 min 25.00$ 20.00$ 26.25$

Debt Covenant 30 min 25.00 ‐ 12.50

Interest Exp Rx 15 min 25.00 ‐ 6.25

Loan Rollforward 30 min 25.00 ‐ 12.50

Footnote tie‐out 1 hour 25.00 ‐ 25.00

Manager Review 15 min 100.00 ‐ 25.00

Total 2.75 hours 107.50$

Costs for performing test work over a loan:

SG&A Fees

• AR Department

– Invoicing

– Issue credit memos

– Review credit holds

– Answer customer inquiries

Key Points

• Start in areas where you think there is the most value

• Work to understand the process and possible variations in the process.

• Build a team with diverse roles

• Determine the activities that drive your costs and how extract the activity data.

• Work to automate the calculations as much as possible.

Bridging the GAAP

Audits & Due Diligence in the Lower Middle Market

Chris Nix, Managing Director, Transaction Advisory ServicesChris Nix, Managing Director, Transaction Advisory Services

between

LCG Advisors- Firm Overview

Founded in 2003, LCG is a leading corporate advisory firm specializing in transaction advisory services, investmentbanking, and wealth management.

Team of nearly 60 seasoned professionals in 15 states allowing our clients to efficiently and effectively execute on avariety of corporate transactions.

Field personnel in Baltimore, Boston, Buffalo, Charleston, Charlotte, Chicago, Dallas, Houston, Indianapolis, Jacksonville,Los Angeles, Memphis, Nashville, Orlando, NY/NJ, Phoenix, Raleigh, and Tampa.

Experience advising on transactions ranging from $1 million to over $2 billion. Services include Transaction Advisory,Mergers & Acquisitions, and Capital Formation.

Unique knowledge of the private capital markets – we provide advisory services to over 120 different financialinstitutions.

Completed over 1,000 advisory engagements per year.

Maximizing Value. Exceeding Expectations.

The Lower Middle Market and How It’s Different

Size (with Varying Definitions)Revenues: $10 million to $150 millionEarnings (EBITDA): $2 million to $15 million

Ownership StructureFounder‐ownedFamily‐owned

Level of SophisticationSimple organizational structureLack of controlsSmall or non‐existent accounting/finance function

What are Quality of Earning Adjustments?

Cash to Accrual (GAAP) Adjustments

Non‐GAAP MeasuresExcess or deficient owner compensation (including benefits)Non‐operating income and expensesChanges in the business (recent or pending)Elimination of non‐recurring income or expenses

Why Financials Matter and What’s Behind Them(Linking Operations to Financials)

How do companies generate their earnings?

How do (or don’t) companies implement operational and financial controls?

How do companies manage their cash flows?

Where, how, and when do real‐world processes show up in financial data?

How a company’s financials actually tie to fundamental economics (i.e. cash)?

Horror Stories

Where Transactions Fall Apart

Crazy Accounting Methodologies

Unrealistic/Ungrounded Seller‐Proposed Earnings Adjustments

Improper Accounting and Auditing

Questions

We All Have Them!!!!!!!!!!!!!

Contact Information

LCG Headquarters

Fifth Third Financial Center201 E. Kennedy Blvd, Suite 325Tampa, FL 33602

Phone:(813) 226‐2800

Email:[email protected]

Web:www.lcgadvisors.com

LCG is a trade name for LCG Capital Holdings, LLC and its subsidiaries and affiliates which include: LCG Capital Group, LLC, a Florida limited liability company, which provides debt placement, commercial real estatefinancing, loan portfolio divestitures, and certain other financial advisory services; LCG Advisory Services, Inc., a Florida corporation, which provides strategic advisory, light turnaround and distressed consulting,restructuring advisory, accounting support, interim CFO/controller services, and other corporate consulting services; and LCG Capital Advisors, LLC, a Florida limited liability company and a FINRA registered broker‐dealer and SIPC member firm, which provides investment banking, private placement and merger, acquisition and divestiture advisory services.

Securities offered through LCG Capital Advisors (member FINRA/ SIPC). The information contained herein is privileged and confidential and is intended only for the person(s) and/or entity to which it is addressed. Anyreview, retransmission, dissemination or other use of this information (including attachments) by persons or entities other than the intended recipient is strictly prohibited. If you are not the intended recipient, pleasedelete the information from your system and contact the sender.

Unless otherwise indicated or obvious from the nature of the transmittal, the information contained in this message is privileged and/or confidential information intended solely for the use of the addressee. If thereader of this message is not the intended recipient, or the employee or agent responsible to deliver it to the intended recipient, you are hereby notified that any dissemination, distribution or copying of thiscommunication or any of the information in it is strictly prohibited. If you have received this communication in error, please advise the sender by reply e‐mail and then delete the message. Thank you.

Documents

IFRS Update USF Accounting Circle Conferencesoa.forest.usf.edu/USF2017CPEDay2.pdf · 2017. 5. 16. · © 2017 Grant Thornton LLP All rights reserved. © 2017 Grant Thornton LLP All