Braddon Group

Did you know one in five women say they’re the only woman in the room at work? If you’re like me, unfortunately, you’re not too surprised by this information. Industries like the finance, accounting and tech spaces have been known to have a harder time attracting and retaining female talent.  Yet, companies that have a higher percentage of female leadership have been proven to excel. A report released by Credit Suisse states that companies that have women making up at least 15% of senior management are 50% more profitable than those where less than 10% of senior managers are female. So, here are four strategies that will help you attract top female talent to your firm and retain them, too.

Promote gender equality and offer influence

Most organizations have a diversity statement, but some don’t share it. Make your statement visible and promote it regularly. To attract top female talent, you must be willing to take a clear stance and let the public know how serious you are about endorsing gender equality and implementing programs that let women influence the workplace culture. For example, peer-to-peer support initiatives and mentorship programs provide a direct opportunity for women’s voices to be heard and for their decisions to shape company behavior.

Also keep in mind that creating an environment that supports the growth and prosperity of female talent means letting women have a say in designing the company culture – a leading voice. Are you promoting women fairly and putting them in positions where they can make impactful decisions? It’s important that women themselves are granted the agency to implement procedures and processes that suit their needs.

Gender-neutral parental leave

Sure, maternity leave is a thing. However, restricting parental leave to maternity leave alone can still leave women with the short end of the stick. Encouraging paternity leave — or better — a gender-neutral parental leave policy, can even the playing grounds. With gender-neutral parental leave, women don’t have to deal with the stress of worrying whether they will be singled out and blocked from advancement opportunities for taking time off to parent because, after all, their partners will be doing it too. This is a sound way to prove your organization supports women and working families.

Flexible schedules

It’s one thing to recognize the importance of a healthy work-life balance, it’s another thing to create a system that allows it. Flexible work schedules benefit everyone, not just women or people with children. Allowing flexible work schedules is another way to show your employees you trust them and are giving them autonomy over their work. They’re also another way to support working families because they allow for school visits, after-school program attendance, doctor’s visits etc. Consider formalizing flexibility to prove your overall investment in your employees’ personal happiness.

Fighting sexism

Another priority when trying to attract and retain top female talent is denouncing sexism and taking actions to eradicate it altogether. Start by examining your pay and promotion practices. Are they fair and equal? Many women leave or switch jobs because they feel stalled in their careers. Prove your commitment to retaining female talent by getting external auditors to examine and approve the fairness of your practices.

Another step to take towards fighting sexism in an organization is to engage and educate male allies. Introduce the concept of unconscious bias and teach your staff how to identify it in order to minimize its negative impacts in the workplace.

Over the years, women have walked a difficult road in hopes of attaining gender equality. So, retaining women in your firm means taking on their burden as yours. It means creating an environment where they’re heard, and where they don’t have to fight harder than anyone else for what they deserve. It means rewarding their talent and their successes in the same way as their male counterparts and creating a culture where everyone is on the same page about the importance of women’s contributions.

 

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Mballa Mendouga, Manager – Social Responsibility & Campaigns, Association of International Certified Professional Accountants

     

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Last month, we issued a new statement on auditing standards (SAS) for employee benefit plan audits, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA. The SAS is designed to make the auditor’s report easier to understand and more relevant, leading to improved EBP audit quality.

If you perform financial statement audits of EBPs subject to ERISA, you’ll want to carefully review the changes and start planning for implementation well before the effective date

Here’s some advice to get you started.

Step 1: Become familiar with the top 5 key changes.

1. A new AU-C section 703, Forming an Opinion and Reporting on ERISA Plan Financial Statements, replacing AU-C section 700 for ERISA plans.

Keep in mind that the standard is not all-inclusive. When performing an ERISA audit, all the AU-C sections apply, except when specifically noted in the standard.

2.The standard addresses requirements specific to:

• ERISA plans for engagement acceptance
• Audit risk assessment and response (including the auditor’s consideration of relevant plan provisions)
• Communications of reportable findings with those charged with governance
• The auditor’s responsibilities relating to the ERISA-required supplemental schedules and the Form 5500

3. The form and content of the auditor’s report for ERISA plans have changed.

4. For ERISA plan audits (formerly called full-scope reports), the auditor’s report is aligned with SAS No. 134, requiring the opinion section to be placed first, followed by the basis for opinion section.

This new report also includes an enhanced management responsibilities section specific to ERISA plans. It requires the auditor to include a statement about whether, in the auditor’s opinion, the form and content of the information in ERISA-required supplemental schedules conform with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under ERISA.

5. There’s a new form of report called the ERISA Section 103(a)(3)(C) report (previously called the limited-scope report). In it, the scope and nature section is required to be placed first, followed by a new two-part opinion and a new basis for opinion section, along with enhanced management and auditor’s responsibilities sections.

The ERISA Section 103(a)(3)(C) report also includes specific reporting on the ERISA-required supplemental schedules.

For more information on these and other changes, check out our at-a-glance summary [PDF].

Step 2: Know when the standard must be implemented.

The standard is effective for audits of ERISA plan financial statements for periods ending on or after Dec. 15, 2020.

Early adoption is not permitted, but you’ll want to connect with your clients well before the effective date.

Step 3: Consider how the standard will affect what you do.

It’s not too early to start planning for implementation. You’ll want to review your firm’s methodologies and guidance and update them accordingly. Consider the training needs of your engagement teams and start educating identified users about the new form and content of the auditor’s report.

Don’t forget to also look into the effects of the amendments on other AU-C sections, not only in this standard but also those included in the auditor reporting standard (SAS No. 134) and omnibus standard (SAS No. 135).

We’re here to help you along the way. Visit our auditing standards hub for the latest information and helpful resources.

Linda Delahanty, CPA, Senior Manager — Audit & Attest Standards, Association of International Certified Professional Accountants

     

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Suffice to say, it’s not been a good week for the 5^th largest U.S. credit card issuer. This week, Capital One was hacked in what’s being called one of the largest data breaches in history. A lone hacker gained access to more than 100 million American and Canadian customer accounts and credit card applications. The data theft exposed 140,000 social security numbers, 1 million Canadian Social Insurance numbers and 80,000 bank account numbers, among customers’ other personal data. Capital One estimates the breach will cost them between $100M and $150M in 2019 on customer notifications, credit monitoring, technology costs and legal support.  And this does not include potential reputational damage or political and regulatory actions, including possible penalties. Capital One’s stock also plummeted 6% overnight.

This breach is yet another painful reminder that no organization is immune when it comes to potential cyber attacks. At the same time, it also reminds us of the great opportunity the accounting and finance profession has to own the cybersecurity risk management space.

CPAs are recognized as trusted advisers and experts in risk management. That trust and expertise enables the profession to take a leadership role on oversight on systems, controls and policies that could expose their clients or organizations to cyber threats. Whether you already have a deep knowledge in cybersecurity and just need a refresher or are exploring how to provide cybersecurity advisory or assurance services, we have a vast range of resources to support you.

If you’re looking to build your knowledge

We have the foundational information you need to understand the risks and opportunities available in the cybersecurity space. Here are a few on-demand resources to get you started:

• Finding the opportunity in breaches: Watch this LinkedIn Live interview to learn how your firm can expand into cybersecurity advisory and assurance services and how you can influence your company’s cybersecurity program
• Cybersecurity: What The C-Suite Needs to Know: Hear from a cyber expert about the practical steps you can take to protect your organization from vulnerabilities in this Go Beyond Disruption podcast
• Our cybersecurity certificate programs: Learn what you can do to help protect your clients or organization from cyber threats

If you’re looking for tools to protect your clients or organization

These resources will help you put a strong framework into place, and you can use the knowledge you gain through that process to demonstrate your expertise and advise your clients.

• Cybersecurity Risk Management Reporting Framework and CGMA Cybersecurity Risk Management Tool: Leverage these tools to help safeguard your company from the next breach

If you’re looking to expand your services and promote your value

These resources will guide your firm as it moves into the cybersecurity advisory and assurance space. And once you’re offering these services, we can help you promote your expertise and value in this area.

• PCPS Exploring Cybersecurity Toolkit (PCPS members): Access the kit to unlock everything you need to help your firm build a robust cybersecurity practice
• Cyberattack: It’s just a matter of time: Use these talking points to explain to your clients why CPAs should be involved in their organization’s cybersecurity plans
• SOC for Cybersecurity: Helping you build trust and transparency: Educate your clients on the services your firm can provide

For our full collection of cybersecurity resources, visit aicpa.org/cybersecurity.

Colette Sharbaugh, Senior Manager, Communications and Public Relations, Association of International Certified Professional Accountants

     

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The coming of summer means longer, lazier days filled with outdoor fun. But once we’ve packed away the thick wool and sleek leather jackets that defined our winter existence, we’re often faced with an unpleasant truth: months of indoor living have left us feeling unprepared for outdoor activities like beach volleyball and surfing. And many times, a long winter may have left your firm a little out of shape, too.

Whether the barely managed chaos of tax season forced you to put off the exercises that would have helped keep your firm… well, firm, or the rapid approach of October has you procrastinating in getting to your firm’s self-care, summer is a perfect chance to get everything in shape and ready to show off.

Here are four ways to get your firm beach ready this summer.

1. Get some inspiration by seeing how good your peers look

Ever wonder how you measure up to other firms? Are you billing enough for your area? What about compensation: are you paying enough to attract and retain top talent? The AICPA National Management of an Accounting Practice (MAP) Survey allows firms of all sizes to see how they’re doing on a wide range of measurements compared with their peers, or even with firms of larger or smaller sizes.

The AICPA National MAP survey offers dozens of ways to see how your firm stacks up to others in your town, state or across the country. Curious how it could help you strengthen your bottom line? This short podcast explains some ways firms can use the survey’s results to grow, or just look and feel better.

2. Offer an alternative framework

You probably have clients whose small- or medium-sized businesses are privately held. If they are not required to provided GAAP-based financial statements, an alternative financial reporting framework may be best to keep their organizations in shape.  That’s where the Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs) may come in handy.

By understanding the framework and adding FRF for SMEs reporting to your firm’s repertoire, you’ll be stretching and providing an additional cost-effective and simplified reporting option that creates a comprehensive, yet concise financial picture to qualified clients. It’s a great way to give your efficiency some tone and definition.

3. Add some muscle

Technology is creating new opportunities for clients and adding a new level of complexity to their financial lives. As a result, their expectations are higher than ever. According to a recent AICPA survey, a majority of clients want a single place to go to manage or coordinate the many pieces of their financial lives.

If you already offer financial planning services, then you’re well on your way. Make sure you’re identifying yourself to your clients as a CPA financial planner. If you aren’t offering these services, it’s time to beef up.

Developing a business that offers tax and financial planning services is a high-impact way to build strength in your core. This roadmap will help you make it a reality. If you aren’t sure where to start with your clients, this checklist will help you find financial planning opportunities from the information in their 1040.

4. Be ready to chase off the bully

The amount of personal and financial data that flows through an accounting practice is staggering. And thieves know it. Operating a firm of any size requires vigilance. Want to avoid getting sand kicked in your face? You can put on an impressive display that will have the bad guys running for the hills.

A CPA’s Introduction to Cybersecurity will teach you the moves you need to help keep your firm and your clients safe. Learn what practices and policies you should have in place, what cybersecurity insurance considerations you need to take under advisement and why your firm can even help others defend themselves.

Before you know it, the leaves will be turning and you’ll be pulling those warm sweaters back out of moth balls (does anyone use moth balls anymore?). Take the opportunity to get your firm feeling strong, so you can slide into fall with confidence.

If you make it through these exercises and still find yourself addicted to wellness, here are even more great resources to help your firm get fit.

Enjoy your summer!

Adam Junkroski, Lead Manager – Communications, Tax & PFP, Association of International Certified Professional Accountants

     

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What does the CPA of the future look like? Does that person need the same skills and competencies CPA licensure requires today—or should changes be made to expand the pipeline of talent the profession needs for the future?

As technology continues to change the services we perform and the way we deliver them, the National Association of State Boards of Accountancy (NASBA) and the AICPA are exploring whether initial CPA licensure requirements need to change to be more inclusive of those who have expertise in technology and analytics. You may have read about our CPA Evolution initiative in a blog post I wrote in January or a follow-up post I wrote in May sharing what CPAs had to say about evolving licensure.

NASBA and the AICPA developed five guiding principles to help inform a new CPA licensure model. Our two organizations believe these principles will put the profession in a continued position of strength and relevance while enhancing public protection—and we want to hear if you agree or have suggestions for how to improve them. Keep reading to learn why each principle was developed. You can also learn more about the principles, read specific concepts supporting them and share your thoughts at EvolutionOfCPA.org.

Principle #1: The CPA profession must adapt quickly due to the technological disruptions in areas such as data analytics, robotics, artificial intelligence and more. As such, the competencies, services and attitudes of CPAs need to continually evolve in order to protect the public interest.

As organizations demand more services and insights that require skills in technology and analytics, we have to rethink the competencies our profession needs to continue to support our clients and employers and protect the public.

The key words in this principle are “adapt quickly.” The market won’t wait for us to adapt to technological disruption—these changes are already impacting our practices.

Increasingly, CPA firms are hiring non-CPA technologists and analysts who don’t have our business and financial background and aren’t subject to our same Code of Ethics and regulatory oversight. These professionals have a significant role in financial statement audits and attestation engagements such as System and Organization Controls (SOC) engagements, including SOC 1, SOC 2 and SOC for Cybersecurity. Since 2011, the number of CPAs being hired in the top 100 firms has grown by about five percent per year, while the number of non-CPA client service professionals in those firms has grown over 10 percent per year.

If we don’t adapt our licensure approach to produce a pipeline of talent with these needed skills, will the CPA’s value lose relevance? Does this serve the public interest?

Principle #2: The CPA profession and state boards of accountancy recognize that technological and analytical expertise are essential to performing assurance work, as well as the other services that are currently, or will be in the future, core to professional accounting.

We can’t minimize the impact technology is having on our work. Clients are demanding deeper insights that require techniques we haven’t historically used and are asking for assurance on non-financial subject matters that are critical to their businesses, like cybersecurity risk management programs. It’s essential that we understand IT risks and controls as well as how to provide assurance on them.

CPAs working in business and industry are also being expected to provide more meaningful insights, which requires an understanding of analytics. Technologies and business intelligence tools can help us decrease the risk of error and analyze large data sets to add value to our organizations. Half of finance leaders believe the competencies of their teams will need to “change significantly” over the next three years as technology takes over routine tasks, but only 10 percent of finance teams have the skills to support the organization’s digital ambitions.

Principle #3: The CPA profession and state boards of accountancy acknowledge that sustaining the profession and continued public protection require rethinking initial licensure requirements.

One question NASBA and the AICPA have heard is, “Why change initial licensure? Why not just reskill existing CPAs through continuing professional education?”

Reskilling existing CPAs is a top goal of the AICPA, but it’s not enough on its own. We need to work on this from both ends.

The AICPA, state CPA societies and others have developed (and will continue to develop) resources that support the profession post-licensure, including certificate and credentialing programs, continuing professional education and toolkits to help existing CPAs reskill on emerging technologies and services. But we also need a pipeline of talent coming into the profession that has the skills and competencies necessary to perform core services now and in the future. If these future CPAs have outdated skills and competencies, we aren’t setting them—or the profession—up for success.

We also need to uphold our mandate to protect the public interest. CPAs have an important role as the guardians of the capital markets. NASBA and the AICPA believe core CPA services should be performed by licensed CPAs, but CPAs need the skills and competencies necessary to perform them effectively.

Principle #4: The profession, and therefore entry into the profession, must be redesigned to attract individuals with technological and analytical expertise. This includes non-CPA professionals whose technology and analytics skills are critical to the performance of assurance and other core services, as well as non-accounting major students. All must demonstrate minimum required competencies necessary to perform professional accounting services as a CPA.

This has been by far the most controversial principle. Some CPAs I’ve spoken with have expressed discomfort with a licensure model that includes a way for non-accounting majors and those with expertise in business intelligence, IT audit and other emerging areas to obtain a CPA license, even if they are required to demonstrate certain competencies in business, accounting and auditing.

I asked these questions in my last blog post: Who are the CPA candidates of the future? What skills and competencies will they need to be successful in tomorrow’s business environment and fulfill their public protection mandate?

I see the CPA candidates of the future needing a different skillset than the one I needed to become licensed. They may be different types of people with completely different mindsets and interests, focused more (but not exclusively) on technology and analytics. They could be candidates who major in Management Information Systems or other technology-related fields who are also interested—but maybe not primarily—in business and finance. Given the direction in which our profession is already heading, these types of candidates may be exactly what our profession needs to thrive, effectively serve our clients or employers and continue to protect the public.

I want to emphasize that every CPA candidate has to have core knowledge and skills in accounting. We all agree on that. We are not proposing that we license CPAs who don’t understand GAAP and GAAS at some defined level. But as we’re expanding our view of CPAs’ roles and the value the profession provides, we should expand our view of who a CPA candidate is as well. And we shouldn’t discount what we need to eliminate as well as add.

Principle #5: The changes must be rapid, transformational and substantive without negatively impacting candidates currently in the pipeline.

Technological innovation and new client demands are already impacting the profession, so we need to evolve quickly. But we also don’t want to lose a generation of talent that’s already in the pipeline. Although the timeline for evolving initial CPA licensure hasn’t been determined yet, no matter how we move forward, we will work to avoid disrupting candidates currently in the pipeline.

I should also point out that rapid change can still be deliberate change. As NASBA and the AICPA explore evolving initial CPA licensure, we’re considering and including many different perspectives from across the profession. We’ve gathered feedback from stakeholders such as state CPA societies, state boards of accountancy, academia, firms of all sizes and CPAs in all areas of practice from across the country. Their insights have been crucial as we consider possible licensure changes and determine a path forward. You can learn more about this collaboration and the steps NASBA and the AICPA have taken thus far at EvolutionOfCPA.org.

Tell us what you think

I value and welcome diverse opinions and would love to hear your perspective! Now that you’ve read the principles, tell me what you think of them. Are they directionally correct? Will they help put the profession in a continued position of strength and relevance while protecting the public interest? Are they completely off base?

Please visit EvolutionOfCPA.org to share your thoughts on the principles, read specific concepts supporting the principles and learn more about CPA Evolution. Your insights (requested by August 9) are so important to us as we move forward to uphold the strength and relevance of our profession.

Susan S. Coffey, CPA, CGMA, EVP — Public Practice, Association of International Certified Professional Accountants

     

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In May 2019, Bill Reeb, CPA/CITP, CGMA, assumed the role of Chair of the American Institute of CPAs (AICPA). He also serves as the Vice Chair of the Association of International Certified Professional Accountants (the Association). We asked him a few questions to help you get to know him and his vision for the future of the profession.

You can also watch the video of his AICPA inaugural address.

1. Congratulations on becoming the 106th chair of the AICPA! As you look ahead, what do you see as the biggest opportunity for the accounting profession?

The digital era has swept in a blistering pace of change that’s transforming the world around us. The change is not incremental — it’s exponential. And in these rapidly changing times, we find our greatest opportunity.

Our clients and employers need us more than ever to help them navigate increasing uncertainty and complexity. To seize the potential, we must take leaps, not steps. We must race to the horizon of possibility. Go where there has been no footpath before us to follow. Become comfortable with being uncomfortable.

This is our moment to push past conventions — reimagining what we do and how we do it — to remain indispensable to those we serve.

2. Speaking of pushing past conventions, the path that led you here wasn’t really conventional either, was it?

My path definitely exemplifies “unconventional.” My degree from Southwest Texas State University was in marketing with a minor in computer science. The one accounting course I took as a freshman was enough to convince me that accounting wasn’t for me. Of course, I only saw accounting for what was taught in that one class — I certainly didn’t see it for what it really is. That came later.

My first job out of college was in sales. But it didn’t take long to realize my true passion was solving problems and helping organizations implement change. So, I left to start a technology consulting company. It was there that I began to see the power of CPAs. I watched my clients’ accountants not only perform accounting-related work but also advise on ways their organizations could evolve to become more successful. 

It was a revelation: The CPA license gives you carte blanche to enter any service area, any job function, in any company. So, I went back to school to get the education and experience I needed to earn my CPA license. It was undoubtedly one of the best decisions I ever made.

3. How has the profession changed since then?

Through my work consulting with firms and state societies and volunteering with the AICPA and the Texas Society of CPAs over the years, I’ve had a front row seat to how the profession has continued to adapt to meet changing market demands. The biggest change, and one of the most important changes we can make, is that we’ve begun to move toward becoming true trusted advisers to our clients and employers. But we can’t be content with just “moving toward.” We must make sure that we live up to that expectation every day in every service we deliver.

There’s no end to the rapid innovation and change our employers and clients are facing. They need us by their sides helping them continuously adapt and evolve in a world where disruption is the new norm.

4. Looking to the year ahead, what must the profession do to help drive continuous evolution?

I see three primary shifts we must make as a profession to maintain our success and relevancy into the future.

First, we must let go of what we think we know (a mantra in the martial arts school I attend).

As soon as we think we know something, we put up barriers to learning, usually without realizing it. By letting go of what we think we know – essentially, adopting a beginner’s mindset – we open ourselves to new ways of thinking and doing that will propel us to even greater levels of success.

Second, we must accept that our technical aptitude alone won’t be enough.

It’s true that our skill and expertise in accounting, assurance and tax currently sets us apart as a profession. But as AI, robotics and blockchain dramatically transform the world around us, our ongoing success depends on our ability to also embrace technology and improve our human skills —critical thinking, judgment, leadership and emotional intelligence. This powerful combination of technical, technological and human skills will position us for an even brighter future.

Finally, we must challenge our own ideas of what it means to be an “accountant.”

Fortunately, we’ve long shaken the public perception of the green-eyeshade accountant. Yet our profession is still fighting our own biases of what it should mean to be an accountant. These biases will limit our ability to keep pace with this fast-changing world. As we’ve done for more than a century, we must continue to evolve. We must look dramatically different ten years from now for us to have something of value to pass on to younger generations of CPAs.

We must move forward together — not in steps, but in leaps. I am humbled to be part of such an exciting evolution.

Bill and his wife, Michaelle Cameron, currently reside in Austin, Texas. He is the CEO of Succession Institute LLC, has been an active volunteer with the AICPA and member of the Texas and Colorado State CPA Societies. Bill is a senior black belt and instructor in Tao Wu Hsian Hua in Austin, enjoys playing golf and skiing, and has a passion for teaching, learning and trying to get better every day.

     

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You may have heard that we issued a new auditor reporting standard effective for audits of financial statements for periods ending on or after December 15, 2020. The standard was designed to enhance the relevance and transparency of the auditor’s report. One key change is that with the new standard, the auditor’s opinion comes first. It’s like opening a box of Cracker Jack at a ball game and seeing the prize right on top. No need to fish through the rest of the good stuff in the box to find it.

The new Statement on Auditing Standards Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, known as SAS No. 134, contains four sections that replace AU-C Sections 700, 705 and 706. There’s also a new section: 701 in the AICPA’s Professional Standards.

Here are the top five things you should know about the new auditor reporting standard:

1. Batting first, there’s a specific order. For the first time, Generally Accepted Auditing Standards (GAAS) requires the Opinion section to be placed first, followed by the Basis for Opinion.
2. The Basis for Opinion section is new. This section provides financial statement users with heightened clarity of the auditor’s obligations relating to independence and provides transparency that there are ethical requirements relating to the particular audit engagement.
3. Going concern is highlighted. SAS No. 134 requires enhanced reporting on going concern. This includes information about management’s responsibilities to evaluate whether conditions or events raise substantial doubt about an entity’s ability to continue as a going concern (when required by the financial reporting framework). It also includes information about the auditor’s responsibilities to conclude whether, in the auditor’s judgment, there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time. This standard amends AU-C Section 570 to include a separate section in the auditor’s report when substantial doubt exists.
4. The auditor’s responsibilities section is revamped. This revised section of the auditor’s report explains what the auditor’s responsibilities are for the audit, including the auditor’s communications with those charged with governance.
5. There is a framework for determining, communicating and documenting key audit matters (KAM). Section 701 of SAS No. 134 is new. The standard does not require auditors to communicate KAM, but should be followed when the auditor is engaged to communicate KAM in the auditor’s report.

Now that the standard has been finalized, you should take the time to review it and start considering how it will affect you and your work. This standard also amends various AU-C sections in the AICPA Professional Standards that you’ll want to become familiar with. You’ll also want to update your firm’s methodologies and guidance, consider the training needs for engagement teams and start educating identified users about the new form and content of the auditor’s report. I’d also recommend that you check out our two-page “At a Glance” document highlighting key information on the standard.

The ASB’s goal was to enhance the relevance of the auditor’s report. Similarly, Frito-Lay, the maker of Cracker Jack, adapted to the changing times by getting rid of the physical prizes in Cracker Jack boxes and replacing them with QR codes.

Linda Delahanty, Senior Manager, Audit & Attest Standards, Association of International Certified Professional Accountants 

     

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Near daily headlines tout the massive valuations of startup companies and their potential public offerings. Some of these entities are valued well into the tens of billions of dollars. Private market investors continue to pump money into technology-based companies with the hope of cashing in on the next unicorn—rare startups valued at more than $1 billion.

At the same time, many of these companies have yet to produce positive net income, with some reporting growing quarterly losses in the millions of dollars. What’s more, some of these organizations are lacking clearly defined plans for how to pull a profit from their operations.

For many casual observers, these two facts seem quite contradictory. How can a company be worth billions of dollars when it is losing hundreds of millions each quarter? The answer often isn’t found in the income statement.

Intangible assets are largely driving many of these valuations, and putting a dollar figure on those assets is both an art and a science. The AICPA and its partners have created the Certified in Entity and Intangible Valuation (CEIV) credential and an associated framework to build consistency and transparency around those valuations.

To get a better sense of what early investors see in these companies, we recently spoke with Antonella Puca, CPA, ABV, CEIV, managing director of BlueVal Group LLC, a New York-based valuation firm, about how intangibles impact the valuation of companies that are aren’t yet publicly traded.

James Gallagher: What are intangible assets, and how can they impact the value of a private enterprise?

Antonella Puca: Intangible assets are non-physical assets, like copyrights, goodwill, patents, an assembled workforce or customer or client lists. Patents and customer lists are probably the two most notable intangible assets among many of the recent startups we’ve seen go public.

The companies reaching major unicorn status, those with valuations in the tens of billions of dollars, are doing so by creating new technologies to disrupt traditional companies and markets. Under current accounting rules, these assets are often not included on financial statements, but they’re something a valuation professional needs to consider.

On top of that, these assets bring growth potential. When valuing a company, one must consider how to generate future revenue from them.

JG: How can some companies have massive valuations while still posting regular losses?

AG: There are several things going on here. First, many of these companies are still developing. That means they’re spending a lot of money to grow—­investing in their assets, hiring employees, developing new technologies, enhancing existing software system, and building their brand through advertising and marketing. They’re are bringing in revenue, but they’re spending more than they bring in because they’re scaling up.

Many investors in these pre-IPO startups are looking at the potential of the intangible assets being created rather than their current value. And the billion-dollar question here is to what extent are they going to capitalize on the new technologies they are creating or the customer list they are building going forward?

At the same time, investors are often valuing a company on a multiple of the revenue it’s generating. When you focus on the revenue and not just the intangible assets individually, you may give you a better sense of what the organization as a complex entity can do. This is important at this stage in the game.

Investors usually expect that as the company develops, it will continue to grow revenue while keeping expenses level and ultimately become profitable.

JG: How does the Certified in Entity and Intangible Valuations (CEIV) credential and framework improve the understanding of how startup companies are valued?

AP: For a public company, the market sets a price, and there is clear guidance that tells us what we need to use to determine and document the fair value of the company going forward.

When a company is still private, the requirements to document and disclose the key assumptions that go into a valuation are different than what is required in the public markets, but no less important. Investors need to understand the company’s potential to generate revenue from its intangible assets, how it will scale and how these factors will support its growth and overall strategy. That is where a CEIV credential holder comes in.

An analyst that has a CEIV background is well aware of the role intangibles play in determining the value of a high-growth company and the importance of documenting all of the unobservable inputs and assumptions that go into a valuation. They understand the variety of methods that can be employed to evaluate the worth of intangible assets and to determine how those assets can drive revenue and scalability.

The CEIV gives us a framework to document how we assess intangible assets and calibrate an approximate value, within the context of fair value standards. And by using a standardized framework, investors can be more confident that the valuations are well documented, supportable and ultimately more reliable.  

JG: As you look at the current startup market, what thoughts or concerns do you have about the current valuations?

AP: Even with our best valuation efforts, these are frequently risky investments. Some of these companies are going to be very successful, but many are not. But with the size of some of these companies, once they go public, it is likely they are going to end up in a variety of large-cap indexes and investment portfolios, including pension funds, 401(k) funds, and mutual funds, particularly those targeting high-growth companies.

The average investor doesn’t necessarily know what is in all the funds in which they invest their money. It’s incumbent upon investment professionals to make sure they’re accurately assessing the risk of these companies so that they end up in the right investor portfolios.

A CEIV credential holder can help portfolio managers enhance their valuation process for some of these companies, especially ones operating in niche areas. They ensure that valuations provide a comprehensive overview of key relevant factors and are thoroughly documented and supported, paying attention to inputs that rely on information that is not available to the general public, such as management forecasts. That will lead to a better understanding of some of the risk involved and if that level of risk is appropriate for the portfolio they are managing.

More information on the CEIV credential is available on the AICPA website.

James Gallagher, Manager – Media Relations, Association of International Certified Professional Accountants

     

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You strive to perform top-notch audits of your clients’ financial statements. You research the company and their industry, meet with the client, gather necessary information and develop and execute a plan. Having resources on hand can streamline the process.

Five years ago, the AICPA formed its Enhancing Audit Quality (EAQ) initiative and changed how we develop resources to help auditors. The EAQ team, working with the Audit and Attest Standards, Peer Review, Engagement and Learning Innovation, Center for Plain English Accounting, and Assurance and Advisory Innovation teams, analyzes data from peer reviews and other sources, identifies where noncompliance with professional standards occurs and develops resources to help firms in those areas.  So far, we’ve focused on: risk assessment, internal control, audit documentation, employee benefit plan audits, peer review, quality control, single audits, SOC engagements and auditing accounting estimates.

To celebrate the fifth anniversary of the EAQ program, we’ve compiled five free resources you can use to improve the quality of your audits.

1. Audit risk assessment tool — Risk assessment is a core component of every audit. However, a recent survey of peer reviewers found over half of 400 audits they reviewed were non-conforming because of non-compliance with the risk assessment standards (AU-C Sections 315 and 330). This comprehensive template will help you identify, assess and document your planned response to risks of material misstatement and make your audit more effective and more efficient. It is designed to be used alongside your firm’s existing planning programs.
2. Risk assessment staff training — Educate your firm’s professionals on proper risk assessment and response as well as common misconceptions to avoid. Use this PowerPoint presentation with speaker notes and this staff training case study.
3. Internal control over financial reporting tool — A recent Peer Review Program survey found over 40% of audits didn’t comply with AU-C Section 315 and/or AU-C Section 330 because auditors didn’t properly address their clients’ controls. This tool helps auditors map out controls relevant to an audit and the associated risks.
4. Internal inspection aids — We’ve developed internal inspection aids focused on risk assessment, documentation and internal control. These tools will help you identify non-compliance during your firm’s internal inspection. They also provide guidance on how those findings should be addressed.
5. Dual purpose working paper for single audits — Members performing single audits will want to check out this working paper. It’s intended to support compliance with AU-C section 230 by illustrating auditor documentation for a dual-purpose test of compliance and internal control over compliance for several compliance requirements.

Audit quality is a continued area of emphasis for the profession. Use our free resources throughout the audit process. We’re sure you’ll find them valuable.

Sue Coffey, CPA, CGMA, Executive Vice President – Public Practice, Association of International Certified Professional Accountants

Carl Mayes, CPA, Associate Director – CPA Quality & Evolution, Association of International Certified Professional Accountants

     

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So, you’ve made it through the first round of interviews for your dream job — or maybe you’ve made an initial pitch to a prospective new client and now it’s time to close the deal. You want the job, and are more than qualified for it. But is that enough?

Think about the Ivy League college application process where most applicants are qualified but only a fraction are selected. In this case, even though you’ve already proven you have experience and the knowledge to knock the job duties out of the park, closing the deal can come as a challenge.

Fortunately, the very skills that will keep finance and accounting professionals relevant in the digital age can win over your potential employer or client who may be on the fence about selecting you. Beating out the competition isn’t just about your ability to outdo them with the technical aspects of the job. Are your human skills up to par?

Here are 4 human intelligence skills that can help you close any deal.

Leadership and self-confidence

People trust those that know what they’re doing – those who are confident. You know what to do because you’ve trained for it, but do you believe that you’re good at it? When you walk into any meeting it’s important to trust in your own ability to deliver. This sense of self-trust is one that any business partner will pick up on. On paper you look great, but if you don’t believe in your ability to deliver, the client/employer will sense it.

Also, remember there’s a fine line between arrogance and confidence. Your ability to stay on the right side of that line is crucial to demonstrating good leadership qualities. Be a confident leader. Even if servant leadership is more your lane, stand tall in that identity. Confidence is attractive and leaves room for human error and growth, while arrogance can breed disdain and potentially unrealistic expectations.

Critical Thinking/Observation

Once upon a time, you worked in a profession where number crunching was the number one desired skillset. Now, the future of accounting is in financial advising and various other kinds of decision-making. Your client or employer can’t predict everything that you’ll encounter on the job, so demonstrating that you’re a professional with the ability to problem-solve and think layers deeper than what’s at the surface makes you stand out. Not only does it show you’re competent and agile, but it will also illustrate your style – your personality.

Critical thinking is the ability and desire to question everything. Show you’re willing to think before answering questions, and to provide options, alternatives, pros and cons where relevant, and in doing so you’ll not only develop trust, but you’ll be revealing your unique way of doing things.  

Emotional Intelligence

Sure, we’re talking business here, but business is conducted by people — human beings with emotions. You become an asset if you can understand the emotions and moods of the people around you and can adjust your communication style to support them. If you walk into an interview and the interviewer is clearly distracted or distraught over a personal situation, evaluate whether it’s appropriate to acknowledge those feelings. Often, the answer will be, “yes.”

It’s equally important to be aware of your own emotions and manage them in a way that supports the work environment or meeting. Remember, in the digital age, humanity wins.

Communication

Adjust your communication style to suit your audience. Ask yourself if you’re speaking in a manner that the audience can receive clearly. Are you relating? Are you enthusiastic about the position you’re applying to? It should be obvious. Are you too long-winded or on the contrary are you lacking detail in your responses? The way you communicate should give off anticipation and excitement to complete the job duties, while respecting the professional’s time.

Also, don’t overlook the importance of your body language. Body language is the way we send messages without saying a word, so this is not the time to send any mixed signals. Sit straight, use positive facial expressions, make eye-contact and talk with your hands. In short, act like you like them. Being that there’s truth to the mirror effect, they should reciprocate.

The ABC’s of being a professional in any respect are crucial. You must know the craft. But as time passes and we maneuver the fourth industrial revolution, the technical skills are no longer enough. Those technical skills will get you in the door, but your ability to lead, think critically, navigate emotions and communicate will close the door behind you and make sure you get invited to stay.

Mballa Mendouga, Communications – Manager, Corporation Social Responsibility & Campaigns, Association of International Certified Professional Accountants 

     

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