Hey! What’s New?

A random collection of news items I hope you will find interesting.

by Gundi Jeffrey, Managing Editor

New CSA Staff Review Feb 2021

On February 25, 2021, the Canadian Securities Administrators (CSA) published key findings of recently completed reviews of issuers’ COVID-19 disclosure. CSA Notice 51-362 Staff Review of COVID-19 Disclosures and Guide for Disclosure Improvements offers guidance and disclosure examples to assist issuers with reporting on the impacts of COVID-19 to their business and operations.

“We are encouraged by the overall quality of disclosures issuers provided,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “However, there were some instances where issuers did not provide sufficient detail related to the current and expected impact of COVID-19 on their operations and financial condition, including liquidity and capital resources. It is important that issuers review this guidance closely so that they provide transparent and balanced disclosure.”

According to CSA Notice 51-362, the majority of issuers reviewed provided detailed, quality disclosure. This included affected issuers significantly expanding their Management Discussion and Analysis section (MD&A) to explain the impact of COVID-19 to their industry, operations, customers and suppliers. Most issuers also adequately disclosed impairments of non-financial assets in light of deterioration in their business since the onset of the COVID-19 pandemic.

CSA staff identified some areas where disclosure could be improved, including issuers needing to provide more discussion of entity-specific measures taken to reduce the COVID-19 impact on their business. The review also revealed instances where issuers provided unbalanced or overly promotional disclosure, as well as isolated instances of non-compliance of non-GAAP measures and forward-looking information.

CSA staff reviewed the continuous disclosure filings of approximately 90 issuers across a broad spectrum of industries and size of operations, focusing on the disclosures of the most recent reporting period ending September 30, 2020. As a result of the reviews, some issuers required no action, while other issuers were asked to make prospective disclosure enhancements. The CSA will continue to closely monitor issuers’ continuous disclosure filings in relation to the impact of the COVID-19 pandemic, as part of the CSA’s ongoing continuous disclosure review program.

For more on the findings and guidance, please go to CSA Notice 51-362 Staff Review of COVID-19 Disclosures and Guide for Disclosure Improvements.

How CFOs are fine-tuning their approach to remote work

With many organizations settling into fully remote or hybrid modes of working, finance leaders may have to reconsider not only their leadership approach — but also the tools and methods that underpin team performance. So says Jessica Hubbard in her March2, 2021 article in FM Financial Management online.

“Given that the finance function is inherently outcomes-based in most businesses, many CFOs are finding that leveraging cloud-based technology and software enables them to track business metrics and KPIs with enhanced accuracy, insight, and detail. If positively incorporated, these tools allow them to provide resources and support in a more impactful and personalized way,” Hubbard says.

Since GetSmarter, a South Africa-based global education company switched to remote working in March 2020, it has placed a greater emphasis on ensuring that the technologies it uses support a people-centric approach.

According to Mark Midgley, GetSmarter’s senior vice president, Finance & Accounting, “we have a very strong emphasis on data and a strong emphasis on people (both our own people and the students taking our courses), and we strive to keep those two things in balance. As a finance team, performance has always been measured in terms of output, but remote working has made us become even more conscious that the tools we are using have to be a reliable and accurate representation of what’s really going on.”

Midgley’s team uses the analytics platform Tableau to draw on multiple sources of organizational data, including information from Salesforce, to gain a real-time view of key aspects of the business. These tools were in place before the pandemic, says Midgley, “but there is now a heightened focus on the accuracy and frequency of data-sharing between teams.”

Using data visualizations from Tableau, Midgley’s team creates a daily finance dashboard that provides live metrics and key indicators that allow them to prioritize tasks accordingly. This daily dashboard captures all the cash inflows across geographies; predicted cash outflows and inflows for the weeks ahead; student registrations for every course; registrations by course by geography for the last 24 hours; and other data.

“An extract of that daily finance dashboard lands in my inbox each morning, so it’s the first thing I look at to gain a view of our cash flow position, as well as to monitor live numbers and metrics such as student registrations that are leading indicators as to how the business is going to be doing in the days and weeks ahead,” Midgley says. In addition to using these indicators to monitor business performance and provide accurate and digestible feedback to the leadership team, Midgley can also keep track of the finance team’s KPIs, such as how quickly they are resolving customer account queries.

Meanwhile, Travelstart, an online travel agency with offices across Africa and the Middle East, has had to contend with ongoing uncertainty as the pandemic has severely disrupted global travel. “We are placing major emphasis on tracking cash flows at the moment, and it is the management of this cash flow reporting that is most important right now,” said Robbie Taylor, the CFO at Travelstart. The company has largely been working remotely for the past year.

“Apart from cash flow, the finance team requirements are very fluid, and we monitor output instead of time, which allows for more flexibility and helps team members to balance their work, family, and home responsibilities.”

Taylor says that the entire Travelstart Group uses Sage Evolution for monthly management accounts and reporting, and Google Sheets to link daily and weekly forecasts, and to forecast cash positions for the different entities within the group. Taylor highlighted the Automatic “Currency Conversion functionality in Google Sheets as being particularly valuable, allowing his team to generate forecasts and reports without needing to manually convert currencies according to current rates.”

“More recently, cost control has become the most critical function within the business, and we’ve put new measures in place across all of our global entities to more closely track and limit our spend, which has yielded huge benefits.” To this end, Taylor has implemented the use of Fraxion, a cloud-based procurement software that specializes in spend management and provides enhanced visibility around costs.

“Having goals and strategies in place is one thing, but implementing the actual processes to execute on these is the silver bullet,” Midgley said. “We’ve found that establishing really strong daily rhythms around data, and around communications, has served us extremely well.”

For more examples of what financial leaders are doing, see How CFOs are fine-tuning their approach to remote work - FM (fm-magazine.com).

CMAs Worldwide Suffered Fewer Salary Cuts Due to Covid-19

Certified management accountants weren’t as hurt salary-wise by the economic downturn caused by the COVID-19 pandemic as non-CMAs, according to a survey released March 2, 2021 by the international Institute of Management Accountants (IMA). According to IMA’s 2021 Global Salary Survey, 64% of respondents said there was either an increase or no change in their compensation during the pandemic. The remaining 36% said they had their salary decreased, received a lower bonus or none at all, or were placed on unpaid leave.

The survey found that CMAs were more confident in their job performance in comparison to non-CMAs and CPAs. Certified management accountants earned 58% more than non-CMAs and were less likely to experience a salary cut than non-CMAs (35% compared to 38%) across all regions.

In October 2020, survey invitations were sent to 70,133 IMA members around the world. IMA received a total of 3,313 complete responses, a 4.7% response rate.

The results suggest that respondents who have strategic impact on their companies receive commensurate pay and love their job were better off compensation-wise during the pandemic than those without those skills or influence. There was little, if any, difference in impact on compensation between males and females, management levels, company sizes, or education levels. Respondents’ industries least affected by COVID-19 were government (12% with a salary decrease) and medical (28%). Respondents’ industries most affected were public accounting and wholesale and retail trade (both with 41% experiencing a salary decrease), and other services (43%).

Besides compensation, COVID-19 had an impact on respondents’ jobs in other ways. Seventy-nine percent of all respondents said they have worked on their job-related skills during the pandemic. Asia/Pacific had the highest percentage of respondents working on their job-related skills (91%), followed by MEAI (84%), Europe (77%), and the Americas (69%). This order roughly corresponds to the order in which the percentage of respondents in these regions experienced decreased compensation during the pandemic.

According to the survey, holding the CMA certification signals to current or prospective employers that a person has mastery of a skill set designed to help a company continue to succeed and improve. This skill set is valued by employers. The median base salary and total compensation for those holding the CMA is significantly higher compared to those who do not hold the certification. Overall, the difference in median total compensation between CMAs and non-CMAs is $29,000. This means that a CMA earns 58% higher median total compensation compared to a non-CMA.

“We have always known the CMA certification has a positive impact on compensation and job security,” said IMA director of research Kip Krumwiede in a statement. “This year is especially encouraging as CMA holders have been generally better off in maintaining both their jobs and compensation levels during the pandemic than those without the CMA.”

For more on the survey and its finding, please see IMA 2021 Global Salary Survey (3).pdf.

Accounting for Sustainability Launches First-Of-Its-Kind Framework for Incorporating the Impact of Climate Change into Business Valuations

CPA Canada sent out a press release February 25, 2021, saying that a new publication – The A4S Essential Guide to Valuations and Climate Change – has been developed to help business valuators price climate change risks and opportunities for organizations. “The impact of climate change and business valuations are inextricably linked but quantifying the actual effects remains a challenge,” says CPA Canada.

This first-of-its-kind guide offers a five-step framework that enables investment and valuation communities to apply climate change risks and opportunities consistently to their valuations and decision making. “The goal of the guide is for the integration of climate change into valuations to become accepted practice, resulting in better decision making, shifting investment towards sustainable outcomes, and more consistent and transparent disclosures in corporate reporting.”

According to Charles-Antoine St-Jean, President, CEO CPA Canada, “until now, the general approach to considering climate change in valuations has been primarily qualitative in nature. The Essential Guide to Valuations and Climate Change, on the other hand, enables valuators to quantify the impact of climate change on business valuations, providing a more robust, accurate and holistic indication of the true impact of climate change risks and opportunities.”

The guide was developed as part of The Prince of Wales’s Accounting for Sustainability Project (A4S), in partnership with CPA Canada, finance teams from its CFO Leadership Network, global institutional investors and industry experts. Contributing members to this guide include Ontario Teachers’ Pension Plan (OTPP), New Zealand Superannuation Fund, OMERS, Brookfield Asset Management, Caisse de dépôt et placement du Québec (CDPQ), Chartered Business Valuators Institute (CBV Institute) and CPA Canada.

Globally, investors and businesses are implementing changes to their strategies and investment practices to mitigate and adapt to climate change. Organizations that exhibit strong environmental, social and governance (ESG) traits can experience significant benefits, from outperforming their peers and experiencing a lower cost of capital, to minimizing share price volatility, as well as attracting and retaining talent more easily. “For these organizations,” says the press release, “having the ability to price climate change impacts explicitly into their valuations could further benefit their long-term performance and reputation.”

Jessica Fries, Executive Chairman of A4S added that, “at A4S, our ultimate goal is to make sustainable business, business as usual. Calculating the value of businesses and assets is one of the most important factors determining where investors put their money. By embedding these considerations into the valuation process – using guidance developed by industry professionals and the valuation community – there is potential to make the integration of climate risk become the norm rapidly. We hope that the launch of this guide will spur action from finance and investment teams globally and help accelerate the transition to a net zero, sustainable economy.”

The full guide and framework, which includes a practical guide and workbook demonstrating the five-step framework in practice, can be viewed at this link.

Finance Leaders Rethink Roles and Responsibilities as New Operating Reality Sets In

Disruption caused by the COVID-19 pandemic and the resulting geopolitical and macroeconomic uncertainties are providing an opportunity for leading finance executives to rethink the role of their function and how corporate reporting can be structured and delivered. This is according to the results of the sixth annual EY Financial Accounting Advisory Services (FAAS) survey, How Can Corporate Reporting Connect Your Business to its True Value?, released February 24, 2021.

The survey of more than 1,000 CFOs and financial controllers across 26 countries shows that finance leaders anticipate their function to look very different in the future, with a major shift to a smarter operating model. “Fifty-three per cent of respondents think it is likely that more than half of the finance and reporting tasks currently performed by people will be executed by artificial intelligence (AI) over the next three years. Similarly, 54% think it is likely that blockchain-based systems will underpin finance.”

To make the most of smart technologies in corporate reporting, however, respondents identify building trust as a key prerequisite. As such, more than two thirds (68%) of responding finance leaders say that governance, controls and ethical frameworks still need to be developed and refined for AI.

Without those frameworks, notes the survey, finance leaders (63%) are concerned about the risk implications of using AI in finance and reporting, from security threats to regulatory risk. “At the same time, many respondents do not have complete trust in the output of these systems, with 47% saying that the quality of the finance data produced by AI cannot be trusted in the same way as data from traditional finance systems.”

Tim Gordon, EY Global Financial Accounting Advisory Services Leader, explains that “the COVID-19 pandemic has accelerated the transformation of finance functions and made the use of smart technologies increasingly the norm. The challenge for finance leaders now is to map out how finance and reporting are to be delivered in this new reality. Building trust into smart technologies can unleash a tech-powered future for finance functions, where digitally savvy people work seamlessly with smart machines to provide the forward-looking insights that stakeholders require.”

As investors and other stakeholders are looking to organizations to adopt a longer-term perspective and focus on long-term value creation, the survey shows that the majority of responding CFOs and financial controllers (72%) are embracing this shift. More than two thirds (69%) of respondents say that CFOs and senior finance leaders are increasingly seen by key stakeholders as the stewards of long-term value in their organization.

Two thirds (66%) of finance leaders also say that demand for forward-looking financial analyses and forecasts has increased over the last 12-months. Respondents to the survey report that stakeholders are also looking for new insights on nonfinancial factors of corporate reporting, such as environmental, social and governance (ESG) data (55%). This increasing focus on high-quality nonfinancial information is reinforced by 65% of respondents, who believe there is significant value for their organization that is not measured or communicated using traditional financial KPIs, such as brand value and human capital.

According to Gordon, “finance leaders should rethink the role that reporting is expected to play in helping to tell the story of the value that the enterprise creates. If finance fails to play a central role in meeting these changing expectations, reporting could become increasingly irrelevant.”

The full report can be viewed at Corporate reporting connect business to its true value | EY - Global.

How to Work with Narcissistic Leaders

A mid-February article in Entrepreneur, written by Malachi Thompson, points out that, over the last 20 years, narcissistic traits have been increasingly recognized and documented as prevalent personality characteristics of executive leaders. “Working with a narcissistic boss or colleague can/will be emotionally and psychologically taxing, he says, “however, it can be done.

According to the article, there are four narcissistic types:
1. Grandiose. Narcissist bosses and/or colleagues are likely to demean others and speak of them as inferior, while speaking of themselves as unique and misunderstood by the masses.
2. Malignant. Cheating, lying, stealing and covering up unethical behavior and decisions can be expected. A Journal of Business Ethics study tracking the behavior of 1,126 CEOs between 1992 and 2012 reported highly narcissistic individuals engaging in accrual-based earnings management. Participants strived to influence company stakeholders’ perception of current and future performance, indicating accounting choices were driven by self-serving behavior.
3. Covert. You’ll hear expressions your bosses or colleagues feel put upon by the world. Notice if the language reflects a perception that the world is wrong and they're right. Mistakes will be blamed on their perceived incompetence of others.
4. Communal. At face value, your boss’ or colleague’s virtue signaling seems commendable, but be mindful of noticing their seeking and creating opportunities to receive a lot of recognition and validation. Beneath the surface of seemingly visionary, charitable ideas can lie reward avenues that are self-serving and primarily gratify them before anyone else.

At face value, recognizing the signs can be challenging and highly confusing. More overt signs you may be working alongside/for an individual with narcissistic traits:
• Aggressive (angry, screaming), abusive and berating communication which leaves you feeling emotionally and mentally destroyed.
• Very charming, charismatic and treat you as special until they get what they need, at which point, they then move on quickly to a new target.
• Inner circles of team members are anointed as "The Special Few."
• Employees develop a cult-like admiration for such leaders.
• Employees’ loyalty might be rewarded financially, making it harder for them to leave a toxic workplace.
• They create excitement through drama, chaotic inner circles and in-fighting. They love chaos because it can give them more power.
• The things which should matter in business, such as quality output, competence, productivity and effectiveness, don’t matter.
• No matter how much you work, it will not be enough. Mishaps will be labeled as "your fault" and over time, you may start to feel you are overreacting.
• You can be asked to do things that make you feel uncomfortable and incongruent with your personal and professional ethics.

According to the article, narcissists’ pursuits are purely and primarily for their own, sole enrichment. Only later might they talk about the benefits to others. They appear as humble, but then take on a victimized stance. This behavior helps followers get them more on board.
As difficult as it may seem, working with narcissistic types can be done. It does, however, involve exercising strong awareness and outside support. Don’t expect to successfully navigate such relationships alone.

For more, and how to deal with such situations, read How to Recognize and Work With Narcissistic Leaders (entrepreneur.com).

KPMG Unveils Our Impact Plan

KPMG International recently released its first-ever environmental, social and governance (ESG) commitments under one umbrella, in what it calls Our Impact Plan, focusing on four important categories: Planet, People, Prosperity and Governance.

Highlights of Our Impact Plan include:
• Planet: We have pledged to become a net-zero carbon organization by 2030 through reducing greenhouse gas emissions by 50 percent, achieving 100 percent renewable electricity, and offsetting our residual emissions.
• People: In 2020, we created a Collective Action Plan, drafted with input and participation from thousands of our colleagues, which will set ambitious goals for workplace diversity and equality.
• Prosperity: KPMG’s relationships with UNESCO and other organizations helped us to support people severely impacted by the learning crisis, and through our recently launched KPMG IMPACT network, KPMG firms are supporting clients on their journeys towards sustainability and shaping the future ESG agenda.
• Governance: In 2020, we updated our global Code of Conduct and refreshed our Values. KPMG firms are also using our position and expertise to help harmonize ESG metrics, which includes our work with the WEF IBC to create the Stakeholder Capitalism Metrics, in addition to having accepted positions at the IIRC, TCFD, Corporate Reporting Dialogue and SASB, among others.

According to KPMG International’s chair, Bill Thomas, “by harnessing our convening power, digital capabilities and expertise, KPMG has an opportunity and responsibility to help shape and lead on some of the critical issues the world faces – doing so is core to our purpose to ‘Inspire Confidence and Empower Change.’ Now is the time to improve how we do what we do for the better, and we can jumpstart that momentum by measuring our actions, learning from each other, and holding each other accountable. Our Impact Plan is only a start, and we know we need to do more, but it is a step that will help KPMG become an even better organization.”

Read all about it at Our Impact Plan - KPMG Global (home.kpmg).

How to Apply ‘Sticky Costs’ in Advisory Services

For many CPA firms, advisory and consulting operations have become their fastest-growing segments due to high client demand – and high margins – for these services, writes Qianhua Ling, CPA, in the December 2020/January 2021 edition of the CPA Journal online. IBISWorld, a business research company, predicts that advisory services will be the focus of CPA firms over the next five years. According to Ling, “clients of these services frequently request support in profitability analyses, earnings estimates, and firm value assessments. The key to satisfying these requests is to calculate profitability, which requires a thorough understanding of the relationship between sales and costs.”

The standard analysis of that relationship separates fixed and variable costs; it suggests that costs increase or decrease by a constant rate when activity level changes. The relationship is generally true when there is no change in production capacity. But, under certain conditions, capacity must change – then what is the relationship of costs relative to sales revenue? This is where the concept of “sticky cost” comes into play.

“Sticky cost” describes the phenomenon that costs respond asymmetrically to changes in activity. More specifically, costs decrease to a lesser extent when activity level declines than they increase when activity level rises by an equivalent amount. In practice, activity level is measured by sales. A simple numeric example of cost stickiness is that costs increase by 7% for a 10% increase in sales, but drop only 3% (as opposed to 7%) for a 10% decrease in sales.

Academic research finds that selling, general, and administrative expenses (SG&A) and cost of goods sold (COGS) can both exhibit cost stickiness. Consequently, an organization’s total costs could also show this asymmetric pattern. This observed phenomenon challenges the analysis based on the fixed cost and variable cost model, which suggests that changes in costs will be proportionate to changes in activity level. The phenomenon of sticky cost suggests that profits will be asymmetric when the activity level changes.

Costs are sticky because adjusting capacity down is more challenging than adjusting it up. First, entities with high committed resources are more likely to be affected significantly by sticky costs. For example, when demand goes down, businesses that are capital intensive (e.g., airlines) or labor intensive (e.g., healthcare organizations) have a difficult time cutting costs. The same is true for companies that have high investment in intangible assets (e.g., R&D, patents) and company culture (e.g., pharmaceutical companies).

Because of cost stickiness, profits decrease to a larger extent when sales fall than they increase when sales rise. The rationale behind management decisions must be investigated to determine whether the impact of sticky cost on profit is temporary or enduring.

To learn all about how do that, go to How to Apply ‘Sticky Costs’ in Advisory Services - The CPA Journal.

COVID-19 Increases Financial Sector Vulnerability to Cyberattack

Yet another interesting article about increasing cyberattacks, this one in the February issue of FEI Canada’s Finance and Accounting Review, says that one of the pandemic’s disturbing consequences has been to increase vulnerabilities to entirely different type of virus – the type that infects computers, especially in the financial sector.

A recent report from the Bank of International Settlement (BIS) says the financial sector has been hit by hackers more often than most other sectors during the COVID-19 pandemic. “While this has not yet led to significant disruptions or a systemic impact, there are substantial risks from cyberattacks for financial institutions, their staff and their customers going forward,” it says.

One of the key reasons for that is that financial institutions – like many other organizations – have temporarily shifted to working from home (WFH) to protect their workers. “Moving the majority of activities to the digital world could increase the risk of cyberattacks,” the BIS says.

“For instance, the use of remote access technologies such as the remote desktop protocol (RDP) and virtual private network (VPN) increased by 41% and 33%, respectively, in the first two months of the COVID-19 outbreak,” the report says. “Unless well managed, this may allow new opportunities for threat actors to penetrate IT systems and carry out cyberattacks, along with other types of financial crime.”

“COVID-19-related attacks grew with the spread of the pandemic, from fewer than 5,000 per week in February to more than 200,000 per week in late April. They rose further by around one third in May and June compared with March and April,” the BIS adds. Payment firms, insurance companies and credit unions have seen the strongest increase in hacks.

Working from home through firm-issued and private devices and networks can create new cybersecurity risks. “In a household, multiple family members could be logging on to the same network, potentially exposing devices to malware that could then enter a firm’s enterprise environment,” the BIS report says. Some videoconferencing facilities have been discovered to have suboptimal security standards, it adds.

Among other possible cyberattacks cited by the BIS is “cross-site” scripting, a web security vulnerability that allows attackers to compromise the interactions a victim has with a vulnerable application, and “phishing,” which is stealing sensitive data or installing malware with fraudulent emails that appear to be from a trustworthy source.

Remote work is likely to remain higher at higher levels than before COVID-19, the BIS says. “Business continuity plans designed for short-term disruptions may need to adapt to WFH over longer periods, and business processes may need to adapt to the ‘new normal’,” it says.

For more on this disturbing phenomenon, see E-Newsletters | FEI Canada.

MNP to Acquire Subset of Deloitte’s Business to Expand Footprint

Deloitte and MNP, two of Canada’s largest professional services firms, announced February 12, 2021 that MNP will acquire a subset of Deloitte’s Canadian business, which includes offices, partners and team members, on or about March 1, 2021. In total, approximately 70 Deloitte partners and senior leaders, nearly 900 team members and close to 25 offices will join MNP. The transition will take place in selected locations in BC, Alberta, Saskatchewan, Manitoba, Ontario and Quebec; all provinces where both firms have offices.

“MNP is a homegrown Canadian firm that was established in 1958, says Jason Tuffs, Chief Executive Officer, MNP, in a press release. “With the addition of the new offices we will have 126 offices from coast to coast, including in the largest urban centres, mid-sized cities and the smaller rural cities and towns we find across all provinces.”

“This is a very strategic addition for MNP,” he adds, “and reflects our commitment and focus to helping clients in the private, not-for-profit and public sectors across Canada. Our specialized services, expertise and experience will be enhanced by the Deloitte partners and team members who are joining us. We are thrilled to welcome these professionals to our firm.”

The deal will see MNP substantially increase its presence in Quebec, adding approximately 20 offices across the province, building on the firm’s existing presence in Montreal and Laval. MNP will also add new locations in Ontario, in Windsor and Hawkesbury.

Anthony Viel, Chief Executive Officer, Deloitte Canada says that “we continuously evaluate opportunities to adjust our market focus and find innovative ways to help growing organizations, dealing with complex issues, with our wide scope of services and global footprint, in all regions of Canada. MNP’s commitment to this subset of our clients – who require a specific type of service and support – is an ideal fit for those organizations and our people who will be transitioning over. We truly believe MNP is best suited to fulfil this ‘win-win-win’ philosophy.”

He noted that MNP’s business model is designed to support its clients, team members and communities with a locally focused approach. The firm operates under an integrated national and local model where team members across Canada take advantage of national resources to deliver whatever professional services clients may need.

Financial details of the transaction will not be disclosed. The deal is subject to approval by The Canadian Competition Bureau.

Audit Chairs Give 2020 Audits Mixed Reviews

In its recently released 2020 Conversations with Audit Committee Chairs, the US Public Company Accounting Oversight Board (PCAOB) noted that audit committee chairs said that their auditors performed well in areas such as assigning resources with expertise on complex accounting issues, consulting their national offices as appropriate, offering practical approaches to problem-solving (as opposed to being highly theoretical), and providing continuity on audit teams. Innovation and partner rotation were areas where some audit committee chairs praised their auditors, but others flagged them as areas needing improvement.

Other potential areas of improvement that were identified included: managing global audit operations; helping more junior audit team members learn the company’s business; independence communications; guidance around auditing of certain controls for third-party vendors; “over-auditing” and/or “overdocumentation”; and increased visibility into and discussion around fee changes.

Another area of PCAOB focus in its conversations was the implementation of new auditing and accounting standards. “Audit committee chairs oversaw implementation of a variety of new accounting standards during the period covered by our 2020 inspections. New accounting standards for revenue recognition, lease accounting and, where applicable, preparing for implementation of current expected credit losses (CECL), stood out as particularly challenging and time consuming for many audit committee chairs. Implementation of the critical audit matter (CAM) requirements by auditors, by contrast, was generally viewed as smooth, with audit committee chairs noting that dry runs and other early preparation with their auditors led to few surprises. These views were consistent with what we have heard elsewhere from audit committees and others.”

The final area The PCAOB addressed in its conversations was emerging technologies and their use in the audit. “Many audit committee chairs cited the potential benefits from the use of emerging technologies, notably to improve both the audit and overall financial reporting quality. Specifically, they shared their belief that the use of data analytics, workflow automation, cloud computing, and other tools will allow auditors to reduce manual work, obtain better evidence, and become more efficient.”

Other audit committee chairs noted that technology, if deployed properly, can (1) cut down on opportunities to manipulate or falsify financial information and (2) provide auditors with the ability to more easily identify anomalies.

Yet audit committee chairs also discussed numerous challenges associated with emerging technologies. For example, several audit committee chairs highlighted the gap between the technological capabilities of the company and those of the audit firm. “Audit committee chairs largely agreed that companies and auditors need similar levels of technological capabilities for the benefits of using emerging technologies to be fully realized.”

For all the important details, please see 2020-conversations-with-audit-committee-chairs.pdf (azureedge.net).

Hosting A Zoom Happy Hour That Truly Connects People

A blog posted on the FastCompany webpage February 12m2 2021, and written by sociologist Tracy Brower, says that one of the challenges of virtual gatherings is that social norms are often unclear. “While most working people know the unwritten rules of an in-person cocktail party, it’s much less clear how to interact effectively in an online gathering. Add in the challenges of delays in technology (who hasn’t cringed hearing coworkers talk over each other?) and the lack of nonverbal cues, and it’s easy to feel unsure and uncomfortable.”

The unlikely solution, says Brower, is to provide structure. “At a wine and cheese event, you would never plan for the topics of discussion, but in an online gathering, planning for how people will interact will make for a better experience for everyone. Establish an activity, like bingo or a word game, or a discussion topic. Assign a discussion leader and notify people beforehand there will be colleagues placed in charge. Find ways to give people a framework for how they’ll spend time together. Far from feeling stilted, it will provide for a much smoother event.”

A critical element for well-being is a feeling of control. During the pandemic this feels especially fleeting, considering our normal activities and engagements are so different. But in all circumstances, humans need autonomy, or the freedom to make their own choices. Brower advises applying this need to virtual gatherings. “You’ll want to have as much participation as possible so people aren’t left out and so you’re not inadvertently creating ‘in’ groups and ‘out’ groups, which can impede camaraderie at work. The best solution is to make your events so engaging that people wouldn’t miss them for the world.”

Brower also advises balancing the voluntary with the mandatory. “Perhaps everyone is encouraged to attend the first 30 minutes of all gatherings in order to connect and spend time with one another. Otherwise, be clear that people don’t have to stay the whole time. You could also consider making some of your gatherings more highly encouraged than others. Perhaps the first gathering of each quarter is an attendance priority, while later meetings offer more flexibility.”

Further, she says, consider doing happy hours at times other than Fridays at 4:30 p.m. “With the exhaustion of the pandemic, many people are eager to be done by the end of the week. Try a Wednesday afternoon happy hour as a midweek pick-me-up or even a Friday morning coffee as an alternative. Also set end times for gatherings so that people don’t feel captive to the event and like they can’t leave for fear of offending the host.”

Pick up more of Brower’s advice at How to improve your tired-out Zoom happy hours (fastcompany.com).

This Valentine’s Day, Talk Money

A blog posted by the AICPA communications team on February 04, 2021, points out that
love and finances are exceedingly complex subjects, so it makes sense that it only gets more complicated when you combine them. “With Valentine’s Day just around the corner, the AICPA® Financial Literacy Commission encourages Americans to give their loved ones the gift of an honest talk about money.”

According to a recent AICPA survey, nearly three in four (73%) married or cohabitating Americans say financial decisions have caused tension in their relationships. Of these, nearly half (47%) admit that this tension has negatively affected intimacy with their partner.

It is important for couples to address financial values, says Neal Stern, CPA, a member of the AICPA’s National CPA Financial Literacy Commission. “It’s concerning that nearly three-quarters of all married or cohabitating couples are seeing potential cracks in the foundation of their commitment to each other from financial tensions — especially when you consider the risk that money conflicts can erode or destroy something as priceless as your closest relationship. Seeing that only 56% of partners in these relationships feel very comfortable talking to their significant other about finances means that many couples are denying themselves the opportunity to strengthen their relationships by working together to manage financial stress.”

It’s hard to overestimate the importance of candid up-front discussions of financial values, he says, before goals and brewing money issues cause irreparable damage that can lead to a breakup. Stern says that financial decisions will be a couple’s constant companion throughout their life together, “and solid financial compatibility is a key to a strong relationship built on trust. A candid discussion about money matters — such as the balance between spending and saving, financial risk tolerance and long-term goals — is a good place to start finding the common ground that will guide you. Setting joint goals and being open about your financial values can help build a stronger bond with your partner as you learn new ways to work together as a team.”

For more, see This Valentine’s Day, talk money - AICPA Insights.

5 Ways to Strengthen Vulnerable Supply Chains in The Pandemic Era

An article by Luke O’Neill, posted February5, 2021 on the FM Financial Management webpage, says that the pandemic highlighted what supply chain experts have been warning companies about for years: A disruption can happen anywhere, and supply and demand can be buffeted thousands of miles away. O’Neill advises companies to follow a few guidelines to make this process easier.

Use automation in warehouses. Automation can be critical in labour-intensive operations when social-distancing rules are tightened.
Get serious with supplier location. An Economist Intelligence Unit (EIU) report on supply chain risks predicts companies and industries will move towards regional — rather than global — supply chains. But companies need to understand a supplier's headquarters is often not its production location, as Richard Wilding, a supply chain strategy expert and professor at Cranfield University in the UK, explains.

"I was talking to a major engineering company recently, who had tri-sourced products," Wilding said. "They found three different suppliers and they thought that was good. It turned out they were all based in one town. When the town got locked down, the whole supply chain got locked down. To procure for resilience, think differently about the information you've traditionally taken for granted."

Explore onshoring and nearshoring. Building better visibility and resilience into supply chains may see companies move from offshoring and cost-saving.

Protect key relationships. Supply chains have long been just-in-time, and a past focus on efficiency has created transactional relationships between companies, suppliers and sub-suppliers.

Many people don't manage relationships, says the article. If you think about managing inventory, they will have performance metrics, they will have even warehouses to store it. They'll have information systems to do it and everything else. When it comes to relationships, it's done in an ad hoc basis, nobody monitors, and then they wonder why everything goes wrong."

Recruit and train good people. Talented people will always be a key piece of the supply chain puzzle, says Hermione Parsons, director for the Centre for Supply Chain and Logistics at Deakin University in Australia. "The most important issue here is talent, capability, and capacity," Parsons said. "In successful supply chain countries — such as Germany, the Netherlands and France — supply chain education receives government scholarships and has for decades. Those countries understand supply chains underpin economic activity in every walk of life."
Doing nothing could be expensive in the long term, says O’Neill. The costs of inaction could come from lost sales or liability claims if supply chains are disrupted and companies do not make sufficient preparations."

For the complete story, see 5 ways to strengthen vulnerable supply chains in the pandemic era (fm-magazine.com).

Can Background Noise Actually Help You Get Work Done?

Art Markman blogged on the FastCompany webpage on February 9, 2021 that, starting last March, remote employees had to adjust to a very different environment. “Plenty found themselves in a more chaotic situation than they were used to, sharing close quarters with roommates, pets, partners, and/or children. But others found themselves working all alone where their surroundings were almost too quiet.”

While stuck working at your kitchen table or home office, you may have asked yourself: Is there an optimal level of background noise to surround yourself with when you’re trying to get stuff done?

First off, not all background noise is created equally. The most distracting noises are high-priority sounds. Loud sirens, for example, are designed to distract you from anything else. In the work-from-home environment, these high-priority noises may include a crying child, a loud barking dog or your roommate calling your name.

Another class of distracting noises involves unexpected sounds. An air conditioner starting up or a truck rumbling by on a street outside are a couple of examples. Halfalogs are more distracting than hearing whole conversations, because your brain cannot predict when the voice you’re hearing will start and stop.

There are big individual differences in how likely people are to be distracted by noises in the environment. Some people have an incredible ability to maintain their focus on the task at hand. Noises going on around them don’t seem to bother them much. Other people find their attention drawn by even the smallest noise in the world around them.

You do have some control over your auditory environment, of course, says Markman. You might choose to wear noise-canceling headphones, or to play some background noise of your own such as white noise, nature sounds or music. Whether and what type of solution will help you to concentrate depends on the kinds of noises already in your environment, the kind of background noise, as well as your tendency to be distracted by things going on in the world around you.

For the details, go to Does background noise help you get work done? (fastcompany.com).

E-signatures: What Will 2021 Bring?

 A February 1, 2021, post on the Tax Advisor webpage, written by Rhonda S. Powell, CPA, and Lindsay A. Ferreira, CPA, points out that the IRS has historically required hand-to-paper signatures ("wet signatures") for tax returns, election statements and other IRS documents unless alternative methods are published. But, with technology advances and a need to modernize interactions with the IRS, there has been a long-standing call from tax professionals for IRS guidelines and procedures to allow e-signatures for all IRS documents.

According to the authors, “the requirement of hand-to-paper signatures is unacceptable in an era in which technology continues to change the tax preparation process at a rapid pace, and physically signing returns limits the ability to file returns accurately and on time.” This holds especially true in the time of Covid-19.

Sec. 6061 of the tax act originally provided that any tax return, statement, or other document "shall be signed in accordance with forms or regulations prescribed by the Secretary." Sec. 6061 was amended in 1998 as part of the Internal Revenue Service Restructuring and Reform Act of 1998 to instruct the secretary of the Treasury to "develop procedures for the acceptance of signatures in digital or other electronic form." 

In 2004, the IRS allowed income tax return preparers to use computer software programs, rubber stamps, or a mechanical device such as a signature pen to sign original returns, amended returns, or requests for filing extensions. Taxpayers themselves, however, were still not authorized to use e-signatures to sign these types of returns and requests.

In March 2014, the IRS first allowed taxpayers to use e-signatures on income tax returns. The IRS provided guidance for individual taxpayers on e-signing a tax return if the return is to be e-filed with the IRS in IRS Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns. 

Under the Taxpayer First Act of 2019, the IRS must establish standards for accepting a taxpayer's e-signature on requests to authorize the IRS to disclose the taxpayer's return or other information to a practitioner, or on powers of attorney granted by a taxpayer to a practitioner. In response, the IRS published guidance in the Internal Revenue Manual, effective Dec. 3, 2019, providing baseline requirements for e-signature programs. 

The IRS has grappled with navigating COVID-19 and how to safely reopen operations. In acknowledgment of the struggles many tax professionals and taxpayers are facing during the pandemic, it has temporarily allowed e-signatures in many circumstances that historically have required physical signatures.

For much more on the changing signature requirements, at least in the US, and how they apply now and might in the future, go to E-signatures: What will 2021 bring? (thetaxadviser.com).

How to Overcome Pandemic-Induced Challenges to Accounting Practices

In a January 29, 2021, blog on AccountantsWorld, Hitendra Pati writes that she has distilled the most common actions that accounting firms have implemented to turn the ongoing shift to the cloud into a multi-pronged opportunity to enhance the value of their practices. “We are confident that these actions can help your firm too.”

Speed. First and foremost, firms that better adapted to the pandemic challenges have recognized that their then-current technology and processes were not adequate to perform optimally in the dramatically changed times. Pati says that “firms took the challenge head-on and proactively and speedily identified the changes required to respond to the threat.  The changes they implemented resulted in faster-to-market new services offerings, moving to the cloud quickly using integrated platform/solutions, and most importantly, providing much quicker critical services to their existing clients. The result? These firms helped more of their existing client businesses survive and even thrive, gained more new clients and, in the process, remained financially robust firms.”

Scalability. Firms which had mostly desktop solutions, or which were using a combination of desktop and cloud solutions, made the decision to embrace the cloud as much as possible. “What was even more impressive was the impact of such a decision on the firms' business models. The intent – and the result – was that firms could handle more clients per staff, get more clients from multiple states, and offer more services without adding resources. The key result? Firms achieved profitable scalability.”

Market expansion. One of the most common pieces of feedback received from accountants, says Pati, “is that they have been acquiring new clients from multiple states at a faster rate than ever before. The key reason firms cited for this was an enhanced ability to offer online services because of their move to the cloud.  Firms also reported that existing clients slowly started buying more services from the firm, because of the acute need for business owners to focus more on their core businesses and let professional accountants do the accounting/payroll work.”

Process and profit transformation. Firms soon recognized the move to the cloud as a silver lining in disguise – first to be able to ensure continuity of services to their clients and then to optimize their internal processes based on cloud solutions. It was an opportunity that delivered two welcome results: process optimization (serving more clients per staff) and the resulting increase in revenue and profit per staff. “It truly felt like transformation for many firms because the new profitability was significantly higher than in the past.” Desktop users discovered an even greater impact on their firms. 

Technology modernization. This is the most easily understood action among accounting firms – the need to modernize their technology stack. The seemingly no-choice constraint became the preferred action among the firms as the benefits far overweighed the time, effort and resources required to implement technology modernization. The sheer growth in self-service by clients, enabled by collaborative cloud solutions, ensured that firms reaped the real benefits of moving to the cloud.

Client experience transformation. At the core of all the key, common changes that accounting firms implemented throughout 2020, none was more critical than meeting clients' changing expectations and providing a transformed experience. Says Pati, “anytime anywhere access to business information is an absolute necessity for clients now. Clients have quickly learned to, and prefer self-consumption of such information – by using client portals and mobile applications. Firms have increasingly reported that more and more client work is moving from after the fact/write-up type of work to more real-time, collaborative work by accountants. Thanks to cloud solutions, the pandemic has only augmented accountants as the most trusted advisors of their clients.”

For more insights, see Seven actions accountants are taking to overcome pandemic-induced challenges to their practices - AccountantsWorld.

Going Digital, Faster: KPMG’s Global Survey into the Impact of COVID-19 on Digital Transformation 

To better understand how COVID-19 has affected companies’ digital transformation strategies, in mid-late summer 2020, KPMG commissioned Forrester Consulting to survey 780 digital transformation strategy leaders in 10 countries across 12 sectors. The responses show that digital transformation has indeed taken on greater urgency: The leaders participating in the survey viewed digital transformation as a requirement for competing today and a strategy for winning in the longer term. And, says the report, they’re investing heavily in technologies to achieve this goal. 

According to Miriam Hernandez-Kakol Global Head of Management Consulting, “the pace and the degree of digital transformation is accelerating in the wake of COVID-19, with ever greater pressure to meet customers wherever they are. This calls for flexible, ‘commerce everywhere’ business models, and a renewed focus on employee experience to drive an enhanced customer experience.”

The report stresses that, to compete in the digital, post-COVID-19 age, organizations must attain the capability to connect digitally with customers, suppliers and employees. This means addressing five key challenges:

Customer behavior. “Create customer-centric business models where customers buy and engage through integrated digital channels — increasingly with little or no physical contact. The customer experience must be relevant, personalized, differentiated and competitive. To understand customer needs and preferences, data and analytics should inform customer strategies and tactics across the converging front office of marketing, sales, service and commerce. This can help achieve the appropriate customer experience economics.”

Supply chain and operations. ‘Supply chain and operations must become more reliable and responsive. By digitally connecting and working more closely with suppliers and service providers, companies improve flexibility to respond to fast-changing customer needs. Suppliers become an extension of the business and are involved in strategy and product development, thus blurring organizational boundaries.”

Digital acceleration. “Rapidly build a digital technology infrastructure, to connect front, middle and back offices, encompassing HR, IT, finance, operations, procurement, marketing, sales and customer service.”

Resilience. “COVID-19 has demonstrated that the ‘digitally enabled’ enterprise is in fact the ‘resilient’ enterprise; digitally enabled organizations have the capabilities to withstand the impact of pandemics (and other shocks) and should be far more agile on their path to recovery. And, because they benefit from enhanced insights, these organizations are less dependent on manual intervention, location and market forces.”

Ways of working. The way in which work gets done has changed and organizations must adapt, to become nimbler, scaling up or down swiftly, entering new markets and exiting old ones. Says the report, “COVID-19 has reinforced the need for efficient remote working, but companies also need to ‘shape’ their workforces, to ensure they can access the skills they need — when they need them. Many enterprises recognize the need to radically change their shape, size, and structure, and to acquire a range of new skills. Through strategic reskilling initiatives, and by embracing the professional ‘gig’ economy, they can benefit both workers and employers. Additionally, shared services, partnerships, alliances and strategic use of retired staff, brings access to vital talent on a short-to-medium term basis. The ‘workforce of the future ecosystem’ is becoming more and more digital, increasingly augmented by automation as well as contingent workers.”

Get the complete report, and a breakdown of all the findings and what they mean, at Going digital, faster (assets.kpmg).

Unintended Consequences of Professional Referrals

A recent article in the online version of the Journal of Accountancy, written by Sarah Beckett Ference, CPA, says that the views of CPAs are held in such high regard that clients often ask them for their recommendations to other professionals, such as attorneys, financial planners, insurance agents, valuation experts and more. A CPA may also be asked for referrals when a client seeks to fill an open position within its organization.

She points out, however, that professional referrals may expose CPAs to potential liability for negligence. Referrals to another professional is perceived as an endorsement of that individual's capabilities. If the recommended professional turns out to be incompetent or a fraudster, the CPA may be blamed for the client's loss or, at the very least, suffer damage to the client relationship.

Of course, while the easiest way to avoid being blamed for the actions of someone else is to decline to provide any referrals, this approach is not particularly practical nor is it in the spirit of good client service. Instead, says Ference, follow these tips to help mitigate the risk of a claim alleging a negligent referral.

Do Some Due Diligence. Conduct a limited investigation of a professional's background, training, experience, reputation, professional credentials and/or licensing before making the referral. In many cases, simply verifying that the other professional has an appropriate license, conducting a simple internet search to identify complaints or negative news, and gaining a high-level understanding of the quality of their work may suffice.

Provide Options. Provide choices from which to select rather than recommending only one option. This protocol helps the firm minimize its potential risk. Providing multiple options, and doing so in alphabetical order, also helps ensure the firm is not implicitly endorsing the qualifications of one professional over all others.

Set Expectations. Include a disclaimer that clarifies the nature of the referral and articulates the responsibilities (or lack thereof) of the client and the CPA. A disclaimer is a valuable tool in communicating to the client both the basis of the referral and that the accountant will not be supervising the work of the recommended party.

Put It in Writing. Even the sharpest of minds can have fuzzy memories when disputes arise. To help avoid differences in recollections, provide referrals to other professionals in writing. In addition to being a handy solution to the fuzzy memory problem, providing documented referrals allows for the inclusion of the disclaimer language.

For this and more, see Unintended consequences of professional referrals - Journal of Accountancy.

How to Keep Internet Trolls Out of Remote Workplaces

An article by Nellie Bowles, published in The New York Times January 24, 2021, points out that, when companies move all employee communications online, they face the same problems as the rest of the internet. But, she says, “they don’t have to let bad behavior seep in.”

The trouble is, she explains, “office conversation at some companies is starting to look as unruly as conversation on the internet. That’s because office conversation now is internet conversation. Many companies have been working online for nearly a year, with plans to continue well into 2021. And just as people are bolder behind keyboards on Twitter, they are bolder behind keyboards on workplace messaging platforms like Microsoft Teams and Slack — with all the good and all the bad, but with a lot more legal liability.”

When message boards, chat rooms and Facebook become work tools, off-color humor is more common. Aggressive political discussions that would be out of place among cubicles now seem fine. The hierarchy of physical space disappears when everyone is a username: confronting senior management does not require a walk and a knock on the door, and confronting colleagues does not require sitting next to them the rest of the day.

According to Bowles, “these new work tools were designed to look and feel like message boards and social media. Workers notice that and adopt similar behaviors, researchers say. The performative nature of Slack, where colleagues fuel discussions in vast chat rooms by adding emojis, for example, means frenzies grow and are hard to contain once they start.”

But work culture experts say there is a way to deal with this. “Money saved in office space is being spent on hiring corporate therapists or consultants who can recommend simple solutions: taking turns to talk or post in meetings, requiring silent time to read something together during a video meeting before discussing, and giving workers 90 seconds to vent about politics before beginning a politics-free workday.”

As with anything that involves workplace communication — particularly workplace conversation in text form — there are legal liabilities. Says Bowles, “there is a big legal difference between a troll with an opinion who is an internet stranger and a troll with an opinion who can contribute to your performance review. People could sue if they believe they are being harassed.”

Lawyers are starting to see more complaints. Some of the risk involves how casually people interact on the platforms, which are built to encourage casual interaction. The norms of internet conversation rely on a unique mix of anonymity, lack of self-awareness, a sense of protection and humor. Behind an avatar and a username, we can be more blunt or cruel, careless and brave and charming. Online communication lends a sense of distance and safety and — easily overlooked in the hand-wringing over virtual workplace culture — fun. It also empowers employees who may not be as willing to speak up in physical settings.”

For a detailed look at this complicated issue, see How to Keep Internet Trolls Out of Remote Workplaces - The New York Times (nytimes.com).

A Few Tips to Keep Client Data Safe During this Work-from-Home Tax Season

While many have settled into the work-from-home norm, others (like tax professionals and accountants) are about to embark on yet another challenge – tax season. According to a January 24, 2021 Practice Advisor post, for most tax professionals and accountants, email remains the tool of choice for sharing information electronically with clients. It is quick, easy and everyone has it, even at home. Unfortunately, using email alone puts confidential information at risk.

Consider, for example, that Phishing attacks are on the rise. Phishing occurs when a perpetrator impersonates a trusted email sender in an attempt to get the recipient to click a bad link. In doing so, the user unknowingly installs malware or ransomware on their computer. While much has been written about phishing attacks disguised to appear as if they are coming from a person’s bank or social media network, the pandemic has created yet another opportunity for hackers – COVID-themed phishing attacks.

The post suggests that, when using email to share important information, “remember you are volunteering that information into a system that is frighteningly easy to compromise. And, while it may be tempting to run socially distanced business activities from your email inbox, think twice before sharing important information.”

Also remember that recipients can’t always be trusted. “The grim reality is people are often careless in how they manage their own privacy. This is especially true when they, like you, are trying to run everything from their own home office. Their internet connection might be public or shared with neighbors. Malware may also be running on their home computer and there’s nothing you can do to stop or prevent it. When sending financial details to someone over email, you not only have to trust the security on your end, but on the recipient’s end as well.”

Another point made in the post is that the cloud is probably safer than your computer. Generally, cloud storage services are much more secure than a laptop. “This is especially true when using the same computer for work that you use at home. A clever password or seemingly unimpeachable security habits are often no match for a talented hacker attempting to steal or hold for ransom the data on your hard drive by hacking your home internet connection.”

As well, more often than not, your internet connection is not as secure as you think. Most people assume that a home Wi-Fi connection is as secure as connecting at the office. “This is seldom true. Passwords are rarely strong enough and too often they are shared with family members and guests. When working from home, it’s critical that access to your internet is restricted. This means using a strong password and changing that password frequently.”

Believe it or not, says the post, “in today’s pandemic environment many accounting practices continue to invite clients into their offices to sign tax documents. There is absolutely no reason to do this when digital signatures can be easily and securely acquired. When you bring someone into your office, even when masks are worn, all parties are at risk. Digital signatures are a safer alternative to in-person transactions.”

For this and more, please go to 7 Tips to Keep Client Data Safe During this Work-from-Home Tax Season | CPA Practice Advisor.

IIRC Revises <IR> Framework to Enable Enhanced Reporting

The International Integrated Reporting Council (IIRC) announced January 19, 2021, that it has revised its International <IR> framework to enable more decision-useful reporting. The revisions, the first since the <IR> Framework was originally published in 2013, are the result of extensive market consultation with 1,470 individuals in 55 jurisdictions.

According to a press release posted on the IIRC webpage January 19, 2021, the consultation showed that the conceptual thinking and principles of the <IR> Framework remain fit for purpose and robust, as evidenced by the 2,500 organizations in the more than 70 countries that use it. But, said the release, “the analysis of the feedback by the IIRC’s <IR> Framework Panel identified opportunities to clarify concepts, simplify guidance for report preparers and underpin better quality integrated reports.”

The revisions focus on a simplification of the required statement of responsibility for the integrated report; improved insight into the quality and integrity of the underlying reporting process; a clearer distinction between outputs and outcomes; and a greater emphasis on the balanced reporting of outcomes and value preservation and erosion scenarios.

According to IIRC CEO Charles Tilley, “Since 2013, the <IR> Framework has progressed the quality of reporting around the world. It has enabled businesses to assess their ability to create value in the short, medium and long term, to improve their communication with investors and key stakeholders, and driven a more cohesive and efficient approach to reporting that enhances accountability and stewardship across financial, natural, manufactured, human, intellectual, and social and relationship capital.

“As business resilience is tested so severely in the wake of the global pandemic, climate change and growing inequality, effective integrated thinking and reporting is more important than ever. We believe these revisions can help businesses deliver more robust, balanced reporting. The revisions are also aligned with our efforts to develop a global, comprehensive corporate reporting system.”

For more, go to IIRC publishes revisions to International <IR> Framework to enable enhanced reporting | Integrated Reporting.

Biden Administration Considers Reversing Trump’s ESG Rule Change

According to an article written by Tim Quinson January 20, 2021, the Biden administration is taking steps to possibly reverse the decision by Donald Trump’s U.S. Department of Labor to make it more difficult for fiduciaries of retirement plans to direct money to ESG-focused funds.

“After the presidential election in November,” writes Quinson, “Trump’s Department of Labor adjusted the Employee Retirement Income Security Act of 1974 to require those overseeing pension and 401(k) plans to always put economic interests ahead of so-called non-pecuniary goals, in a direct attack on environmental, social and governance investing. More than 130 fund management and financial advisory firms wrote letters opposing the plan after it had surfaced in June.”

“We are very pleased that the Biden Administration recognized the ESG rule as flawed and in need of immediate review,” Quinson quotes Bryan McGannon, director of policy and programs at US SIF, a Washington-based group that supports sustainable investment businesses, as saying.

“The Department of Labor should clarify that ESG criteria are considered pecuniary and begin to re-write the rule, including allowing sustainable investments to be included in default plans, known as Qualified Default Investment Alternatives,” McGannon added.

Quinson notes that data compiled by Bloomberg Intelligence show that investors have been increasing their bets on ESG, “in part because they want to avoid polluters such as Big Oil. More than $22 billion flowed into ESG- and values-focused exchange-traded funds last year, easily exceeding the record of $9.2 billion set in 2019.”

See Biden Administration Considers Reversing Trump’s ESG Rule Change - Bloomberg.

How to Work with Someone You Can’t Stand

A January 22, 2021 post on the FastCompany webpage says that he fact that you don’t like colleague at work is not their problem; it’s yours. According to author Stephanie Vozza. “If I find you distasteful in some way, it’s because of judgments I’m making and reactions I’m having,”s he says. “You have to own that they’re your feelings. The foundation begins with personal responsibility.”

Dislike is an unhelpful and vague term, she says, and several reasons can be behind it. “Maybe it’s a behavior they have, it could be something about the way they speak, or how they deal with other people. The idea is to manage your feelings, but first you have to understand them. Getting specific gives you a chance to do something with it.”

To work together successfully, get clear on why the collaboration is important. For example, maybe you’ve been put on a high-profile project together. Or maybe you want to be seen as a team player by your manager. Use the reason to craft a purpose statement. It can help to tie it to a mission statement or big picture idea to give it deeper impact. “A purpose statement helps you build an alliance around a shared purpose,” he says. “It doesn’t mean you have to be friends. It helps you get back to the purpose of the collaboration so you can focus on doing the work.”

Share the purpose statement with the other person, and be clear on your responsibilities as well as what you are doing together. Having a common cause can help you work together more efficiently.

It can help to share some vulnerability, such as admitting where you may be weak in a project. Chances are, the other person may talk about their own shortcomings, too. “The conversation can humanize the other person and help you reframe your feelings.”

Any time you feel the dislike starting to come up, refer to your purpose statement. You may also want to talk to a trusted friend or manager to seek out other perspectives in case you have blind spots. “Give the person the benefit of the doubt. Remember, they are trying to do the right thing, and they were hired for a good reason. Take a moment of self-reflection when you need one. And you may end up with a productive working relationship.”

For a bit more, see How to work with someone you can’t stand (fastcompany.com).

PwC Releases Report Showing Improvements in Audit Quality in 2020

In its recently released its 2020 Audit Quality Report, PwC noted that, “during the COVID-19 crisis, our first priority was to keep our people healthy and give them the flexibility to care for themselves and their loved ones. At the same time, we were also focused on continuing to run our business and serve our clients.” In response to the human, business and financial reporting challenges presented by the COVID-19 crisis, PwC took the following actions:

Prioritized the well-being of its people. “We closed our offices and halted travel for both internal meetings and client matters in advance of local government action, while firm leadership provided frequent, transparent updates about the impact of business decisions on job performance and job security.

Culture and values. Tim Ryan, US Chairman and Senior Partner implemented engagement-level continuity plans. “Leveraging the benefits of our continued investments in tech-enabling the audit,” he said in the report, “we were able to provide our people with the tools and technology needed to deliver quality service to our clients while working safely. …within days we were able to increase our capacity for remote connectivity to meet the needs of our people, before any stay-at-home orders were issued. We identified new capabilities to optimize working effectively in virtual settings, including additional apps and video capabilities. We were also able to rapidly transition and train our technology support functions to continue to provide our people with uninterrupted 24/7 support.”

Managed auditing challenges. ‘We delivered real-time guidance to our audit professionals in the form of written communications, webcasts, and podcasts on conducting an audit in a period of uncertainty, including, but not limited to, considerations related to virtual auditing, auditing asset impairments, physical inventory observations, and assessing going concern.”

Tackled technical accounting issues. PwC’s National Office, through its various communication channels, such as podcasts, webcasts, and publications, provided our clients and audit teams with thought leadership related to the numerous financial reporting implications of COVID-19, including fair value and impairment considerations and addressing liquidity and going concern, and the accounting and auditing considerations for the CARES Act.”

Engaged with regulators and others across the profession. PwC interacted regularly with stakeholders across the regulatory spectrum and the profession, including the SEC, PCAOB, the Center for Audit Quality, standard setters and industry bodies, to share emerging practices and financial reporting issues.

For much more on PwC’s efforts to enhance audit quality, see 2020-Audit-Quality-Report.pdf (http://www.pwc.com).

More Money Will Always Make Your Life Better, But That’s Not All There Is to Happiness

A January 19, 2021 article in SME Science, written by Alexandru Micu, says that a new study found that there isn’t actually any limit past which more money won’t make you happier. That sounds disheartening, says Micu, but the authors also caution that it’s not the only thing that makes us happy by a long shot.

The research was conducted by Matthew Killingsworth, a senior fellow at Penn’s Wharton School who studies human happiness, who collected 1.7 million data points from more than 33,000 participants aged 18 to 65 from the US through an app called Track Your Happiness that he developed. Killingsworth says his findings suggest that there is no dollar value past which more money won’t matter to an individual’s well-being and happiness.

“When I looked across a wide range of income levels, I found that all forms of well-being continued to rise with income. I don’t see any sort of kink in the curve, an inflection point where money stops mattering. Instead, it keeps increasing.”

Killingsworth found that higher earners are happier in part because they feel more in control over their life. More money means more choices, options, and possibilities in regards to how we live life and spend our time, as the pandemic brutally showed. Someone living paycheck to paycheck will have less autonomy over their choices than someone who’s better-off — such as not having to take any job, even if you dislike it, due to financial constraints. Still, in Killingsworth’s eyes, this doesn’t mean we should chase money.

“Although money might be good for happiness, I found that people who equated money and success were less happy than those who didn’t. I also found that people who earned more money worked longer hours and felt more pressed for time,” Killingsworth explains.

“If anything, people probably overemphasize money when they think about how well their life is going. Yes, this is a factor that might matter in a way that we didn’t fully realize before, but it’s just one of many that people can control and ultimately, it’s not one I’m terribly concerned people are undervaluing.”

For more details, see Yes, more money will always make your life better, but that's not all there is to happiness, says new study (http://www.zmescience.com).

Why “Lazy Management” Can Be a Great Workplace Solution

In a January 6 post on the FastCompany webpage, Matt Casey writes about his experience as the managing director of Moonfruit, a U.K.-based website-building service provider. Casey looked at his responsibilities and determined that one easier way to handle some of his tasks would be to put the onus on the employees to carry them out. He calls his approach “lazy management.”

For example, one of the responsibilities Casey took off his plate was evaluating performance and assigning bonuses. Previously, he was tasked with rating employees between one and five and distributing money accordingly. Taking his new lazy approach, Casey assigned everyone a three by default. He told the team, “I’m only going to talk to you if I think you deserve less than that, and I will tell you why. If you think you deserve more, come tell me.”

“Everyone got their score exactly right,” he says. “If they felt they were worth more, they came to me with the number I would have given. The people who were given threes might have griped and been unhappy before making this change. But the onus was on them. They knew they didn’t have a case, and so they didn’t make it.”

Casey also told his team that it was their job to tell him when they wanted a pay raise. By putting employees in charge, Casey removed the invisible barrier that used to exist around asking for more money and eliminated the risk that they silently felt overlooked.

Another management task that took time on Casey’s calendar was approving vacation days, which he admits he’d been handling inconsistently. Employees would put in time-off requests, but he would sometimes forget to review the request. Casey put the responsibility back on the employee, which solved the problem. “I told them, ‘You handle it,'” he says. “‘For me to be counting days became stupid. I’ve hired you to do the job. Make sure not being at work doesn’t have an impact on everyone else. As long as you get your job done, I don’t care how many days you take off.”

Over three years Casey says he removed a good portion of the management structure, rebuilt the business and turned a profit each year. The biggest surprise of taking a lazy manager approach is how few things went wrong, he says. Lazy management also created a social contract, he adds. “Everyone liked having the freedom. No one wanted to be the employee who jeopardized it. It created a level of trust among the employees.”

For a more complete discussion of this novel approach, see Author Matt Casey on his 'lazy management' approach (fastcompany.com).

The Future of Digital Identity

In a recently released report, The Future of Digital Identity, Deloitte explains that, “if an organization gets their digital identity right it leads to more efficiency, revenue and transformational benefits with an enhanced user experience for colleagues, and a differentiating digital journey for customers or citizens. Data-driven organizations outperform their competitors, being 23 times more likely to gain new clients. Digital identity is also foundational for inclusive growth.”

But, according to the report, there is a big obstacle to overcome. “Too many organizations are failing to put digital identity at the center of their business model and operations and, by this omission, are likely to miss out on the full benefits of responsible digitalization.”

Different sources of digital identity create unique personas. An organizational identity is, for example, that of a business or government, or one of its employees. A personal identity is that of a customer of a business, or a citizen of a country. An application or device identity is that of a mobile phone, computer or piece of industrial equipment.

The report lays out how a person’s digital identity, and his or her interactivity with the world, will be multi-faceted and unique to each experience. “For example, when an online banking service requires a password and other information from a customer and receives the correct information, the bank knows it is dealing with that customer and no-one else. The customer, meanwhile, knows it can trust that the bank’s digital identity checks will prevent identity theft and the possible consequences associated with that.”

All well and good. However, the customer’s digital identity may be unique to only that part of the bank, such as retail accounts, and may not work with other parts, such as the credit card or mortgage divisions. Even if the customer has a single identity covering the entire bank, it will probably only work with that bank. When communicating online with other banks, and indeed any other organization, the customer will need a separate identity. In addition, each organization will carry out additional verifications of the customer’s identity to manage access, protect personal data and reduce the risk of fraud. “These extra checks are inefficient, influencing the customer experience negatively, and the lack of process alignment could lead to damaging audit findings.”

What these inefficiencies illustrate is that, says the report, “despite recent developments, the world of digital identities is far from perfect. Further work is needed to streamline the processes involved and reduce the number of identities each organization, person or device needs. As part of that streamlining it needs to be considered that personal data belongs to the person, and that person will increasingly control their ownership, supported by regulation. As such, data governance and privacy need to be part of an organization’s digital identity strategy.”

For much more on how to reap the full benefits of responsible digitalization, please see The Future of Digital Identity | Deloitte Global. 

Key Insights for Successful Hiring in the New Normal

An article produced by Robert Half for the December edition of the FEI Canada Finance and Accounting Review explains that the spread of Covid-19 has caused a wave of disruption for companies across Canada. But also a wave of innovation. From remote hiring and onboarding to socially distanced offices, practices that would have seemed on — or even beyond — the fringes just a few months ago are firmly in the mainstream.

Hiring managers planning to bring in new staff may need to revise their playbooks to account for these developments. So, what are the main trends affecting the current job market? And which skills are likely to be in high demand? 

According to Robert Half, the trend toward remote working predates the pandemic, especially in the creative and tech industries. But when physical distancing restrictions were implemented, telecommuting became a business necessity across a much broader spectrum of the economy, shaking up the more traditional “face time” culture of finance, accounting, corporate law firms and many other businesses.

Nearly three-quarters of workers polled in a survey said they want to work from home more often (74%), with 55% citing a better quality of life due to lack of commuting. For their part, employers have learned that home-based workers can be just as productive and innovative as their in-office counterparts. Firms that want to recruit and retain top talent should consider placing flexible work schedules and telecommuting options at the heart of their employment packages.

The move to virtual teams grants employers access to a deeper talent pool from a broader geographic area, even across time zones. According to a survey of more than 600 senior managers in Canada, 44% say their organization has hired full-time or temporary staff remotely since the pandemic began and, of those who hired, 75% conducted remote interviews and onboarding sessions and 55% expanded their search geographically to access a wider candidate pool.  “Thorough onboarding remains essential for integrating new employees. Savvy managers are arranging video sessions for remote hires to meet the team and assigning mentors to provide guidance and support from a distance.”

Firms that were on the path to digital transformation before 2020 had a competitive advantage. And the pandemic unmasked an even more pressing need for a much wider range of companies to automate their services and streamline their processes. This has put technology professionals with expertise in artificial intelligence (AI), cloud computing and cyber security in high demand, along with full-stack developers and DevOps engineers. Digital transformation and data-driven professionals are also sought, particularly as online retailers look to evolve their presence. 

Get more hiring information and advice at E-Newsletters | FEI Canada.