Assurance in a Real Time Economy

Alan Anderson, CPA

Chair – AICPA Assurance Services Executive Committee

Managing Principal – Assurance Services At LarsonAllen, LLP.

• Our Instant Gratification Culture• The Current Reporting Model• Conceptual Framework• Assurance Services Executive Committee

(ASEC) • How Do We Move This Forward?

AGENDA

Consider the following:

• Does anyone talk “face to face” anymore?

• Do you sit and relax and enjoy a meal?

• Who in the room doesn’t have a cell phone?

• When was the last time you read a historical financial statement to make a decision?

Our Instant Gratification Culture

Consider the following:

• How do you make decisions on investment performance?

• Do CFOs wait for month end financial statements to inform their CEO what is going in the business?

• What information is used by stock analysts to make “buy” or “sell” decisions?

• What happens to a stock price when a company misses the “consensus earning estimate?”

• Why does the SEC place so much emphasis on “forward looking information?”

Is Real Time Economy Already Here?

The Real Time Economy?

I

IT’S ALREADY HERE!!!

• Current Assurance model is: Not timely -- it’s after-the-fact

informationNot informative enoughIgnores many factors of

performance

Assurance In a Real Time Economy?

“Houston we’ve got a problem”

Historical Financial Statements

Continuous Reporting

Lagging indicators… One size fits all

(GAAP) Ignores non-

financial measures Reports results of

past decisions

Leading indicators… Tied to mission,

vision and values Tied to factors

critical to success Moves decision

criteria to forefront

Past FuturePresent

Current Reporting Model

Historical Financial Statements

Continuous Reporting

Lagging indicators… Periodic Historical Cost-basis Financial only Statements Looking backward

Leading indicators… On-demand Real-time/future Value-basis Comprehensive Custom reports Looking forward

Past FuturePresent

Current Reporting Model

Common View of Real Time Assurance

• Exclusive Focus on What should get reported and assured

• Currently Assurance over reporting of performance measures along with their Historical Financial statement has been slow to develop

• Regulators talk about changes as if management should just “do it” and auditors can assure it.

– Readiness is a big issue

– XBRL is an Enabler

Real Time AssuranceRequires…..

• A Broader View than “WHAT” gets reported.

• Need to Also Focus on

– When to Report (Real Time)

– How will the Information get reported (print or electronic)

Real Time AssuranceRequires…..

• Greater Emphasis on Assurance on the Reliability of Systems, Processes and People

(rather than a focus on the numbers)

And Finally

• Movement away from a “one size fits all reporting concept”– Needs Industry Specific information

5 Elements Deployment

Information Dissemination

Technology•XBRL

Business Information

Financial &Non-Financial

Measures

.Business use•Standards Setters

Foundational Concepts System

Reliability

CorporateAccountability

UnderstandableDisclosures •SEC Plain English

•FASB Projects

•Continuous Audit•Trust Services

•COSO ERM•OCEG•GRI

REAL TIME REPORTING - A CONCEPTUAL FRAMEWORK

(WHEN)

(HOW)

(WHAT)

System Reliability

Financial and Non-Financial Measures

Information Dissemination

Understandable Disclosures

Corporate Accountability

CONVERGENCE TO “ REAL-

TIME”SCALABLE

ELEMENTS OF REAL TIME REPORTING

System Reliability

Information Dissemination

Financial and Non-Financial Measures and Information

Understandable Disclosures

Corporate Accountability

CONVERGENCE TO “Continuous

Assurance”

Deployment

Migration Toward Real Time Assurance

WHAT

HOW

AICPA – Assurance Services Executive Committee (ASEC) Mission:To enhance the quality, relevance and usefulness

of information or its context for decision makers and other users by

• Identifying and prioritizing emerging trends and market needs for assurance, and

• Developing related assurance methodology guidance and tools as needed.

ASEC OBJECTIVES• Identify significant trends giving rise to assurance needs,

determine the potential assurance guidance that would best meet those needs.

• Develop assurance guidance by creating suitable criteria when necessary, and/or performance guidance as appropriate

• Communicate new assurance methodologies, guidance and opportunities to our members.

• Provide leadership in identifying and prioritizing emerging assurance trends and market needs while engaging and collaborating with users, preparers and influencers.

ASEC - Risk in a Real Time Economy

• Risk – Real Time Economy Risk Model– Early indicators of risk- how to identify, weigh and

manage– Report on effectiveness of controls against COSO ERM

framework assess risk not just against controls over financial reporting (may or may not need to be a 3rd party opinion)

– Change the model so the opinion goes more to observations around risk to start to close the expectation gap, formalize feedback to clients around risk, consider getting input from other professionals as well such as rating agencies, analysts, etc.

ASEC Real Time Assurance

• Guidance on continuous auditing (continuous control monitoring + data monitoring)

• Data level assurance• Control monitoring• Data selection and validation

– Data quality– Relevance– Customized business reports– Real time customizable business reports

• Continuous monitoring of transactions and processes

– Detection and corrective action

• Continuous monitoring of controls

– System controls will supplant manual controls

• Measurement and assurance across enterprise processes

• Most assurance costs are justifiable by increased data quality

• Data level assurance

– increases the efficiency

– Enhances accuracy of reporting

REAL TIME ASSURANCE EXAMPLES:

WHAT DO WE NEED TO DO?

• ASEC will work together along industry lines to create thoughtful proposals for greater transparency involving both simplification and enhancement

• ASEC will Lead positive change, through collaborative solutions

WHY DOES OUR GLOBAL PROFESSION NEED TO BE INVOLVED?

• Everyone has a “stake” in this…– Management needs real time information to run the

business – Owners need real time information to provide the level

of oversight– Creditors need real time information to make lending

decisions

– Auditors need to pay attention to the needs of the users of real time information

• Continuous reporting and assurance is evolving in the business community through independent efforts

THE FUTURE OF ASSURANCE IN A REAL TIME ECONOMY - SOME FINAL THOUGHTS

• The need for change in reporting impacts both public and private companies

• Change will be evolutionary, not revolutionary

• New models will be developed for providing assurance for on-line, real time, historical and forward looking financial information, as well as for performance measures

Questions and open discussion