Hey! What’s New?

A random collection of news items I hope you will find interesting.
By Gundi Jeffrey, Managing Editor 

Covid-19 and Zoom Fatigue

It’s not that people can’t handle computers, smartphones, and other technologies intended to make their jobs easier’ says Joseph Radigan in a July 24, 2020 article in the Journal of Accountancy online. “The sticking point is their inability to use the computer in a healthy manner that properly balances their professional and personal responsibilities.

The stress has been greatly aggravated in the months since COVID-19 lockdowns and remote-work requirements imposed a new way of life and work on most white-collar workers. The abrupt change demonstrated to many people that technology setups that were adequate for evening and weekend workloads weren’t suited for 50-hour or 60-hour workweeks with no backup.

The shelter-in-place restrictions also prompted some academics and other researchers to examine a challenge that has affected workers during the pandemic — Zoom fatigue. According to the article, “it is actually exhausting, more exhausting, to be watching what we call the Brady Bunch view, or all the different squares on a videoconference, than it is to actually be interacting with the same number of people in person. You are trying to focus on each and every one of those boxes. So, if there are 16 people on a videoconference, and you can see all of their faces at the same time, your brain is trying to read their body language, all at the same time, and it is exhausting.”

There are ways to manage this stress. Managers need to start with an awareness that technology burnout is real and wreaks havoc on employees; employees can only handle so much change at one time. The article also advises accounting firms to make sure they update their workplace policies and processes to accommodate the new technology. As far as employee training is concerned, firms should recognize that not all employees learn in the same manner or at the same speed. Employees also need to be trained on new systems at a pace that matches their ability to absorb the information. On top of that, firms need to be prudent in how they schedule the training on new systems. The last step requires firms and managers to set boundaries that clearly divide work and home. This is especially important at a time when work and home are the same place.

For more useful tips, go to https://www.journalofaccountancy.com/news/2020/jul/why-zoom-meetings-leave-you-exhausted-coronavirus-remote-work.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=27Jul2020.

The Business of Healthy Employees

This past June marked the 5th annual National Employee Wellness Month, an annual initiative that helps business leaders learn how companies are successfully engaging employees in healthy lifestyles. To mark the occasion and help shine a spotlight on the importance of a healthy workforce, Virgin HealthMiles released findings from a of nearly 10,000 employees across 1,300 businesses, providing insight into workplace health priorities.

Of the employees surveyed in our workforce survey, 51.4% feel they have a good understanding of how they can participate in the programs being offered by their employers, where 57.3% of employers feel that their programs are well communicated. The use of emails for communication about health and wellness benefits continues to dominate, with 81.8% of employers sending emails, up 8.2% from last year.

There has also been an increase in the number of organizations that communicate wellness benefits. Direct manager communication rose 11% from last year, with 26.3% of the organizations reporting that communication about employee benefits is direct. This is extremely important as direct person-to-person communication has the greatest potential to reduce confusion and increase awareness of health and wellness programs.

As was previously noted, peer motivation accounts for a large percentage of encouragement for employees (56.1%). Considering how peers affect and support participation, and how much of an influence participation has on colleagues, it suggests more use of social media and social communication tools to raise awareness for health and wellness programs. But employers continue to use very few social media applications, reporting only 10% adoption, up 1% from 2012. Social media could also provide an important platform to keep employees informed about health and wellness programs.

About 57% of employers think employees have a good understanding of health and wellness programs, whereas 43.2% of employees feel their employer does a good job of keeping them informed about programs offered, up 2% from 2012. Additionally, 51.6% of employees feel they are unsure about or need to know more about health and wellness programs being offered.

Awareness of wellness programs remains virtually unchanged from 2012, possibly because communication about programs has shown very little change. This is further evidence that employers need to consider more significant changes in communication strategies to comprehensively inform employees about health and wellness programs.

For the complete survey results, see: https://www.virginpulse.com/blog-post/the-business-of-healthy-employees-a-survey-of-workplace-health-part-6-communication/.

EY survey finds board-business dynamic is contributing to cyber risk

A disconnect between cybersecurity efforts and business functions is putting more Canadian organizations at risk as information gaps leave leaders with a limited understanding of potential threats and how to mitigate exposure. The 2020 EY Global Information Security Survey found that 34% of Canadian organizations have yet to fully articulate their cybersecurity risk, compared to 16% of their global peers.

“With more businesses moving — and potentially staying — online or working remotely, organizations are increasingly vulnerable to cyberattacks,” says Yogen Appalraju, EY Canada’s Cybersecurity Leader. “Amid the immense pressure felt from Covid-19, a cyberattack — and its ramifications on brand, reputation and financials — is the last thing an organization wants to happen while they’re already navigating significant disruption. Bridging the divide between the security function, lines of business and the board can be an enabler to proactively address heightened risks and help advance digital transformation.”

The EY survey learned that just 21% of Canadian boards understand how to fully evaluate their organization’s cybersecurity risks, compared to 48% globally. Meanwhile, 43% are unable to quantify cybersecurity effectiveness in financial terms, compared to 24% of global respondents. 

“Cybersecurity teams must learn to speak the board’s language to better communicate the severity and business impact of different risks,” says Appalraju. “Increased education and engagement among this group should trickle down into the business to drive awareness, while helping to secure the buy-in for funding and resources needed to address growing threats.” 

The survey found that cybersecurity teams need to develop better alliances across all business functions of the organization. Right now, only 10% of Canadian survey respondents say there’s a high level of trust and consultation between cybersecurity teams and the broader business. 

“Cybersecurity needs to be present at the development stage of any product, service or initiative as businesses look to make greater digital investments to support an online transition in this new environment,” advises Appalraju. “This is what we call a security by design approach — a strategy that improves engagement between the cybersecurity team and the rest of the business to create a mutual understanding of potential threats, the impact to assets and how to proactively mitigate cyber risk exposure early in the creation or acquisition of assets.” 

Access the full Canadian highlights of the EY survey at: https://www.ey.com/en_ca/cybersecurity/is-your-cybersecurity-plan-radical-enough-to-thrive-in-todays-environment.

PCAOB Conversations with Audit Committee Chairs: COVID-19 and the Audit 

As part of the Public Company Accounting Oversight Board’s (PCAOB) strategic goal of enhancing transparency and accessibility through proactive stakeholder engagement, the Board has committed to engaging more directly and more often with audit committees. In 2019, the board reached out to nearly 400 audit committee chairs of U.S. issuers, offering them the opportunity to speak with the PCAOB. The board continued this outreach to audit committee chairs during its 2020 inspections. 

“Given the unprecedented challenges for auditors, audit committees and issuers created by the COVID-19 pandemic, we asked audit committee chairs how they are thinking about the effect of COVID-19 on financial reporting and the audit as they perform their oversight duties,” says the PCAOB in PCAOB Conversations with Audit Committee Chairs: COVID-19 and the Audit,  published July 31, 2020. “While some audit committee chairs said the effect of COVID-19 on the audit had not been significant to date, others shared that the magnitude of the impact of COVID-19 quickly surpassed their expectations.” 

Most audit committee chairs indicated that they are contending with new or increased risks associated with the effects of COVID-19. Audit committee chairs from across industries identified a wide range of topics that present increased risk, both related to financial reporting and the audit as well as other issues. For many, these include cybersecurity, employee safety and mental health, going concern, accounting estimates, impairments, international operations, and accounting implications of the Coronavirus Aid, Relief and Economic Security (CARES) Act. 

Risks Associated with Remote Work

Addressing risks related to remote work was the most prevalent theme that the PCAOB heard about the impact of COVID-19. “The transition to an almost entirely remote workforce for both issuer personnel and the external auditors was rapid, but most audit committee chairs stated that the transition was effective. Specifically, many noted that internal control over financial reporting (ICFR) was managed, maintained, or adjusted as necessary. Multiple audit committee chairs identified cyber-related risks – such as increased phishing attempts and email security – as also being top-of-mind with the move to remote work.”

Increased Communications with the Auditor 

The majority of audit committee chairs mentioned that there was more frequent communication with their auditors as a result of the pandemic. “Audit committee chairs were generally satisfied with the amount, type and frequency of communication with their auditors. Several also noted that, as the pandemic continues, new risks and uncertainties may arise and that they expect to stay engaged with both management and auditors to understand how they are addressing emerging issues.”

For more, see: https://pcaobus.org/Documents/Conversations-with-Audit-Committee-Chairs-Covid.pdf?.

The High Cost of Discounting Your Services

Offering a discount to clients might seem like a great idea, but it actually comes with a high cost. Expert Loren Fogelman of Business Success Solution explains why you should avoid the discount model and offers some terrific alternate strategies you can use.

In a late July blog on accountingWEB, Fogelman says that discounts spotlight prices rather than expertise. “Competing on price prioritizes volume instead of exceptional service.” Furthermore, discounting lowers your profit margin. Your will have to work with more clients to hit your revenue goals. “It's like a dog chasing its tail – you expend a lot of energy while going around in circles. What's the impact of lowered profits in your business?”

Instead, suggests Fogelman, follow these five strategies to create your new response to discounts:

1. Prepay Option: Offer clients an incentive to prepay in full. With this pricing option, you get paid before starting to work. Cash flow and efficiencies improved with this price strategy.

2. Introductory offer. Next, develop an introductory offer for new clients. All clients start with this low-risk offer. A systematized on-boarding process is an advanced move.

3. Packages: No more a la carte services where you track time and bills at month's end. Instead, offer package options that bundle your services together. “This pricing strategy separates your fees from time and increases your profit margin.”

4. Time-Sensitive Offerings: Most accounting firms have seasonal ups and downs. So, try offering clients a limited time special for a select service.

5. Negotiate Value: Some clients can’t yet afford your regular packages. For those circumstances, you can remove some services to adjust the price.

Identify the reasons you offer a discount, advises Fogelman, then consider the impact – it’s an immediate solution with long-term consequences. “You may unknowingly be attracting non-ideal clients. If you feel resentment or frustration, reconsider your discount policy. Gain clarity about what you offer, price the value of your offer, define your ideal client and the benefits your clients receive from working with you. You then end up working with clients who value and respect you. Your confidence grows. And, so does your bank account.”  

For more advice, go to: https://www.accountingweb.com/practice/clients/the-high-cost-of-discounting-your-services.

Life After Lockdown: The View from North America

According to some reports, last week America recorded more than 75,000 new cases daily – five times the rate of all Europe. One thing is clear, explains Fred Kostecki, managing partner of Baker Tilly in St. Louis and the network’s North American Regional Chair, economic recovery, within the United States and the wider North American region, is totally dependent on the region’s ability to control the virus.

In a news release dated July 29, 2020, Kostecki notes that, "until we can get control of infections and illness, we're really not going to see a return to consumer engagement. And it's that lack of consumer engagement that has really devastated industries, particularly the service sector.”

Even before COVID-19 struck, he explains, “we had seen a number of protectionist measures being introduced around the world and supply chains shortening – not just from heavy weights like the US and China, but globally. And this is a trend that will likely continue in the region.

The virus has taught us that we cannot be overly dependent on other countries for our own supply chain. But with isolationist mentality, I think that it will certainly limit growth in the long-run. There has to be a balance. We're definitely seeing more on-shoring with clients and more near-shoring as well within the supply chain."

There are clear cut winners and losers in this pandemic from a business perspective. "The M&A market has been virtually shut down for the last three months. Just within the last two weeks we've started to see some markets come back to life," says Kostecki. "There is a lot of money, particularly in private equity, that has to be put to use or it's going to be returned to its investors – so I'm hopeful that the M&A market will see a reprieve during the second half of the year.”

Meanwhile, although the hospitality, travel and leisure industries have all been dealt a deathblow, on the flip side, you have industries that support the new normal of working from home that have been doing really well. And sales of technology products that support our lives now have gone through the roof. "The communications industry has been doing well, as have online businesses, home improvements, etc."

"I am confident our firms are going to come out of this stronger, says Kostecki. "COVID-19 brought us together. And we're seeing some really smart things operationally – things that probably we should have been doing all along! And these things aren't going to stop once we are through this pandemic. They'll continue and they’ll make us stronger."

Great Conversations: Life after lockdown, the view from North America

Female Executives in the UK’s FTSE 350 Perform Better than Their Male Peers

The Pipeline’s Women Count 2020, the fifth in its series of annual tracking reports on the number of women on executive committees and main boards in FTSE 350 companies, reveals that the British economy and shareholders have missed out on a gender dividend of £47 billion in pre-tax profits, enough money to keep the National Health Service running for a full five months. Using independent research, the data show how little progress has been made over the last five years in hiring women for top executive positions and proves conclusively how, more than ever, companies with diverse leaderships perform better and have higher profit margins, indicating that they are making better commercial decisions than companies without diverse leadership. 

Yet, as this report lays out, across the 350 biggest British PLCs, fewer than two in 10 Chief Financial Officers are women, only 4% of investment managers are women, and just 5% of firms are led by a female CEO. “In the FTSE 100, there are more CEOs called Peter than there are women in the top job,” notes the report. “Depressingly, that is one fewer female CEO than last year. In any age, let alone in the third decade of the 21st century, and during a Covid-19 economic crisis, this position is scandalous.”

The report stresses that, as businesses grapple with the severe economic challenges caused by Covid-19, “it is essential that every company leaves no stone unturned in the fight for survival and the search for maximum returns. However, it seems that for many businesses, the calls for action over decades from government, external organizations and female leaders and executives, have been ignored.”

This census should be a huge wake-up call for corporate Britain and the rest of the world, especially as emerging evidence is showing that organizations and governments headed by women are faring better during the Covid-19 crisis. In business, we see noteworthy examples in the world of Hedge Funds, with female-led organizations outperforming their male-led competitors.

Covid-19 is testing most companies to the limit, but it truly exposes those that lack resilience. Women Count 2020 shows that businesses which make the most of all the talent at their disposal, both female and male, without discrimination, will be best placed to win in the post Covid-19 world.

For more fascinating results, please read: https://www.execpipeline.com/wp-content/uploads/2020/07/The-Pipeline-Women-Count-2020-FINAL-VERSION.pdf.

Cybersecurity for CPAs: How to protect your firm

Since existing threats are continuously evolving and new threats are appearing almost daily, accounting firm must take a proactive approach to maintaining strong cybersecurity protections, advises Callie Hinman, Content Strategist for CPACharge, a provider of online payment technology for CPAs. In a July blog in macpaorg, she notes that CPA firms are becoming increasingly popular targets for cybercriminals. “Since these firms have the sensitive (and valuable) information of several companies or entities accessible via a single database and often lack sophisticated IT security measures, CPA offices become one-stop shops for digital thieves.”

The effects of a cybersecurity incident can be far-reaching and expensive, says Hinman. According to the 2019 Cost of a Data Breach Report, the average cost of a data breach is $3.92 million. This figure would include the costs associated with the discovery and subsequent investigation of the incident, as well as executing a response plan. Then there are the expenses incurred to minimize the impact of the breach, such as the cost of applying temporary fixes until a permanent solution can be found.

Of course, there are the costs associated with the incident itself as well as restoring business operations to their baseline, including legal expenditures and regulatory fines, productivity loss – the value of lost time from employees who are unable to perform their job while the breach is being resolved; expenditures related to the use of contractors, consultants and other specialists assisting with the resolution of the issue, etc.

To enhance your cybersecurity, counsels Hinman, you need to do three things. First, draft an acceptable use policy (AUP) that explicitly outlines the rules employees must follow regarding use of the firm’s software, computers and network. Second, adopt cloud-based technology. Hinman says that that cloud-based solutions are considerably more secure than hosted or on-premise software. And, third, develop an incident response plan that includes an incident response planning team, provides for initial reporting, notifies affected individuals and companies, investigates and collects evidence and makes provisions to mitigate further risks.

For the full plan, read Hinman’s recommendations at https://www.macpa.org/cybersecurity-for-cpas-how-to-protect-your-firm/.

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R&D and technology investment a beacon of hope 

As lockdown eases in many parts of the world, business leaders are focused on reengineering their businesses through investments in R&D and technology, says research conducted by Grant Thornton and released July 8, 2020. Uncertainty remains the biggest challenge they face, say the latest figures from the firm’s research into the global mid-market, which also revealed plummeting optimism and expectations for trading conditions.

The research, which biannually gathers responses from 10,000 business leaders in 29 economies, including the G20, found that despite falling investment in other areas, 78% of firms intend to maintain or increase their levels of investment in technology and R&D (69%). This is despite more than 65% of mid-market firms expecting COVID-19 to have a negative impact on revenues. On average, firms are expecting takings to fall by 9.7% in 2020.

Many mid-market businesses are focused on building organizational flexibility, digital transformation and refined business processes to better manage the uncertainty they face. Francesca Lagerberg global leader, Grant Thornton International Ltd says that “investment in R&D and tech is an investment in the future and, for many businesses, the only way out. These findings demonstrate mid-market businesses are looking to build sustained resilience into their operating models to survive the economic fallout of the pandemic, and to ensure their viability over the long-term.”

Actions taken or planned to deal with the COVID-19 outbreak:

  • Implemented home/remote working and or flexible working: 52.9% of global mid-market businesses.
  • Adjusted business strategy: 46.7%.
  • Changed working patterns within operations: 45.3%.

Future areas of business strategy to change after the COVID-19 crisis:

  • Improvement in organizational flexibility: 46.2% of global mid-market businesses.
  • More use of technology and digital transformation: 45.6%.
  • Improvement in crisis management process: 42.2%

For more details, please go to: https://www.grantthornton.global/en/press/press-releases-2020/.

CPAB Continues to Focus on Strengthening Audit Quality

Strong systems of quality control at audit firms is important to achieving consistent execution of high-quality audits, says a new guide released by the Canadian Public Accountability Board (CPAB). According to that guide, Quality Management Systems assessments: Strengthening audit quality, “Our mandate and inspection process go beyond the inspection of the audits of selected reporting issuers to include an assessment of the firm’s system of quality control in accordance with professional standards and against CPAB’s QMS evaluation criteria. Quality management systems support firms as they manage risk, emphasize governance and accountability, and deploy well trained professionals with skillsets appropriate for the circumstances.”

The guide explains that CPAB’s audit quality assessment program is at the heart of what it does. Fundamental to its regulatory effectiveness, the progrram combines risk-based individual audit engagement file inspections with broader, more holistic evaluations of firmwide quality management systems (QMS). CPAB’s current assessments of these systems at select audit firms is intended to accelerate improvements needed to achieve the consistent execution of high-quality audits. Based on learnings from these assessments to date at the country’s four largest audit firms, CPAB has evolved its assessment criteria and key concepts and the new guide explains what it has done and will continue to do in this area.

CPAB’s updated QMS assessment criteria take into consideration knowledge gained through its evaluation from the past two inspection cycles of the four largest audit firms’ QMS responses. The revision of CPAB’s QMS assessment criteria and related key concepts achieves these key objectives: 

Streamline the QMS assessment criteria and related key concepts   

  • We combined talent management and resource management into a single criterion whichis more aligned with ISQM 1 and more reflective of how the firms manage their operations.
  • We combined key concepts that addressed similar quality objectives.
  • We removed key concepts that did not fully align to the objectives of ISQM 1.

 Provide clear, consistent and understandable language  

  • We clarified that evaluation, escalation, intervention and resolution must be demonstratedto address the quality objectives of the QMS assessment criteria.
  • We used generic language to acknowledge the difference in the firms’ organizationalstructures.

 Retain the core quality objectives of the QMS assessment criteria, without incorporating    incremental requirements of ISQM 1  

  • We will continue to assess the firms’ compliance with CSQC 1, the standard that currentlyrequires firms to maintain a system of quality control and the foundation that supports the QMS quality objectives.
  • We will continue to monitor developments in the finalization of ISQM 1 and ISQM 2 and thefirms’ ISQM 1 and ISQM 2 readiness through understanding both global and local initiatives.

CPAB’s QMS model is aligned with the expected future components of ISQM 1 in several key areas. In addition, the risk assessment process under the proposed standard requires the firms to identify and respond to quality risks, similar to the process required by the firms to address the QMS criteria. The four ISQM 1 components (engagement performance, information and communication, relevant ethical requirements, and monitoring and remediation processes) not specifically addressed in the CPAB QMS model will continue to be evaluated under the existing CSQC 1 standard where relevant. All firms are required to fully comply with ISQM 1 and CPAB will evaluate the firms’ compliance with the proposed standard when it becomes effective.  

For more important information on CPAB’s QMS evolution and where it is heading, see https://cpab-ccrc.ca/docs/default-source/general/2020-quality-management-systems-assessments-en.pdf.

In Pursuit of Better Analytics

The American Productivity & Quality Center APQC, which conducted research into the current state and success drivers of finance analytics just before the true impact of the pandemic was evident, found that, for some companies finance analytics may play a prominent role in outlasting the accompanying recession but, for others, it will be a conspicuous Achilles heel.

As recently reported in an article in CFO, COVID-19 has brought about “one of the strangest business environments in memory, and more than ever leaders need data to determine how to survive it. It has pushed finance professionals, particularly those engaged in finance analytics, into the limelight. They are being asked to build forecasts and models for situations they have never encountered (and never anticipated). So, is finance ready to play a starring role during a crisis once again?”

The article acknowledges that strong finance analytics can have a positive impact on a range of business outcomes: risk mitigation, customer satisfaction, and bottom-line results among them. Moreover, analytics is the lever by which finance can distinguish itself as a valued business partner to the organization. “When finance has data-based insights at the ready, senior leaders come knocking,” the article says.

Overall, the APQC research showed that finance analytics is maturing at an accelerated pace. At this point, those organizations new to the game are in the minority: half of the 200 finance executives surveyed have been conducting analytics in finance for more than 10 years, and 68% have been doing analytics since at least 2014. A majority of the organizations have also increased investment in finance analytics over the past three years.

The research showed that finance analytics programs are growing stronger, but many are struggling to make the leap from “good” to “great.” Overall, 70% of the finance executives surveyed rated their finance analytics approach “effective” or “average,” but only 24% rated it “very effective.” APQC identified key practices in three areas — around data, talent, and technology — that survey participants indicated drive the success of very effective finance analytics programs. 

While finance may have been late to the game in leveraging and taking ownership of analytics, more and more organizations are making progress. They are adding the talent and tools necessary to generate analytical insights that drive decision-making in and well beyond the function.

For more details on what the APQC research found – and their implications for today’s business leaders – please go to: https://www.cfo.com/analytics/2020/06/in-pursuit-of-better-analytics/.

How You Can Keep Your Firm’s Culture Intact Despite Working Remotely

It’s easy to overlook the human element when your firm is pivoting on a weekly basis to stay safe and productive, as well as adhere to new regulations and altered deadlines. According to a July 15,2020 article in accountingWEB by Christopher Stark, CEO, Cetrom, the human element, team togetherness and, most importantly, the culture that makes a CPA firm unique and special need to be addressed in new ways due to the pandemic.

Having the cloud technology, processes and cybersecurity protocols to keep getting accounting work done safely is nonnegotiable at this time. But what about maintaining and protecting the culture you and your team have worked so hard to build?

In his article, Stark shares a number of tips for maintaining and growing your CPA firm’s culture during the coronavirus pandemic:

  • It’s okay and, in fact, healthy and beneficial to designate a segment of standing staff meetings for virtual “water cooler” talk. This time can be used to talk about current events, the latest Netflix shows to binge watch or a variety of other topics of interest that are fun and can relieve stress.
  • Every Friday, every other Friday or once a month hold a virtual happy hour on Zoom or whatever virtual meeting software you use at your firm. Encourage staff to attend, promote it via internal communications and encourage your team to bring their favorite adult beverage or non-alcoholic drink to the virtual get-together.
  • Software like Slack and other similar tools can be tremendous for keeping your team connected to the company and to one another. These tools allow administrators to create specific communication channels for say, client-related items, or for posting funny GIFS or sharing new music.
  • One of the most important lessons that people who worked from home prior to COVID-19 learned is to let go of the guilt. This is true even under normal circumstances: If you hit your deadlines, do great work and are responsive to emails, texts and phone calls it’s okay if you walk your dog at 2 p.m. or take your kid for ice cream when they get off of school.

Less stressed, better connected staff members that are given the flexibility they need will, to a very large degree, remain productive during the COVID-19 crisis. It’s up to CPA firm leadership to pivot from a pure client work focus to an approach that creates opportunities for stress relief, camaraderie, celebration and laughter.

For more advice, visit: https://www.accountingweb.com/practice/growth/how-you-can-keep-your-firms-culture-intact-despite-working-remotely.

Data Breaches Decline 33% in the First Half of 2020

The Identity Theft Resource Center (ITRC) projects that 2020 is on pace to see the lowest number of data breaches and exposures since 2015. According to research the organization released July 14, 2020, publicly reported US identity compromises dropped 33% in the first half of 2020 compared to the first half of 2019.

Breaches affecting individuals have also dropped 66%, according to the ITRC's data breach analysis, which showed 540 public reported data breaches affecting 163,551,023 individuals as of June 30, 2020. In contrast, there were 811 breaches in 2019 affecting 493,011,910 individuals.

While the ITRC noted that attacks by external threat actors are still the most common cause of a data breach (404 so far in 2020), compromises caused by internal threat actors are at a three-year low (83 so far in 2020) as more people work from home and have less access to internal systems and data. Data breaches involving third-party contractors and vendors are also down (53 so far in 2020).

"The decrease in the number of data breaches and individuals impacted is good news for consumers and businesses overall," said Eva Velasquez, president and CEO of the ITRC, in a statement. "However, the emotional and financial impacts on individuals and organizations are still significant."

For more on the research, please see: https://www.idtheftcenter.org/identity-theft-resource-center-sees-a-data-breach-decrease-in-first-quarter-of-2020 

FASB Proposes Concepts for Defining Elements in a Financial Statement

On July 16, 202o, the Financial Accounting Standards Board (FASB) issued a proposed new chapter of its Conceptual Framework that defines 10 elements of financial statements.  

The proposed new chapter of the Conceptual Framework will provide a useful reference in the board’s future standard-setting process, says FASB Chair Richard Jones. “An updated Conceptual Framework can help us set standards that improve the understandability of information companies and organizations provide to existing and potential investors, lenders, donors, and other resource providers.”

“Concepts Statement No. 8, Conceptual Framework for Financial Reporting—Chapter 4, Elements of Financial Statements” defines 10 elements of financial statements to be applied in developing standards for public and private companies as well as not-for-profit organizations: assets, liabilities, equity (net assets), revenues, expenses, gains, losses, investments by owners, distributions to owners and comprehensive income.

The proposed new chapter would replace “Concepts Statement No. 6, Elements of Financial Statements,” clarifying and improving on its elements. Specifically, the new chapter would: 

  • Clearly identify the right or obligation that gives rise to an asset or a liability.
  • Eliminate terminology that makes the definitions of assets and liabilities difficult to understand and apply.
  • Clarify the distinction between liabilities and equity and between revenues and gains and expenses and losses.
  • Modify the distinctions in equity for not-for-profit entities.

The proposal is part of the FASB’s ongoing conceptual framework project, which also includes current projects that address measurement and disclosure concepts.

More information on the Exposure Draft is available on the FASB website at: https://www.fasb.org/cs/Satellite?c=Document_C&cid=1176174887777&pagename=FASB%2FDocument_C%2FDocumentPage.

How CFOs Can Push Past Fear to Resilience and Resurgence

As COVID-19 took hold of the global economy, most CFOs went straight into crisis management mode, says Dayton Kellenberger, CFO for Vendavo, a provider of B2B pricing and commercial excellence solutions, writing in CFO July 10, 2020. “The focus was vigilant monitoring of cash balances and running multiple scenario plans to ensure adequate liquidity in the short term.” But now, a few months into the pandemic and resulting economic uncertainty, he believes that it’s time “to start shifting our focus past fear and reactive cash-conservation tactics to resilience and, eventually, to resurgence.”

To achieve this, Kellenberger suggests seven steps to help you and your organization make the transition: 

  • Maintain your gross margins. Although it can be tempting to cut prices to achieve volume, protecting your gross margins will be critical for the long-term prospects of your enterprise.
  • Embrace zero-based budget opportunities. When was the last time you actually did a zero-based budget in practice? As travel expenses have now gone to zero, we have a unique opportunity to redefine how we approach corporate travel.
  • Find ways to reinvest savings into high-impact areas of the business.While it can be tempting to take all savings to the bottom line, try to find strategic investments that will help accelerate your rebound. 
  • Engage all members of the organization. Create an internal “call to action” taskforce with cross-company representatives to identify creative new ways to maximize efficiencies across the organization.
  • Take practices from disruption and morph them into best practices. Chances are, the weekly cash forecast process you put into place has turned out to be pretty useful. Take the best of the new processes you have inserted, optimize them and then operationalize them.
  • Assess your office footprint; don’t run straight to a pure mobile workforce if you can help it. As the initial move to a full work from home staff has started to wear, you might see productivity start to dip. Generally, we will be a more remote workforce than ever before, but there are steps you can take to encourage collaboration and innovation while we all remain remote workers.
  • Advance your digital transformation plans. While it may seem counter-intuitive, the time to make progress on your digital transformation plans is now. For the sake of getting work done, and done well, cloud technology can deliver many more opportunities than traditional, on-premises systems that now few people can access. 

For details on the specific steps, visit Kellenberger at: https://www.cfo.com/covid-19/2020/07/how-cfos-can-push-past-fear-to-resilience-and-resurgence/.

The Pandemic is Disrupting Consumer Behaviours, But Are Retailers Ready to Disrupt Their Strategies?

The recently released EY Future Consumer Index shows how consumer behaviours are quickly shifting as the world navigates new territory amid COVID-19. The pandemic is changing what people buy and consume, and how they do it.

The EY Future Consumer Index surveyed Canadians across the country to uncover how current concerns are manifesting themselves in different ways. Unsurprisingly, 28% of Canadians have already begun to reassess the long-term impact of their day-to-day decisions as they prepare for a new norm. But that’s just the tip of the iceberg — and retailers need to pay attention.

The Index revealed four segments of consumer behaviour that have emerged in Canada and around the world as a result of the global pandemic:

  • Save and stockpile
  • Cut deep
  • Stay calm and carry on
  • Hibernate and spend

Over a third of the save and stockpile segment are Canadians aged 55+. This group is showing the most concern over the health of their families and the long-term impact of the pandemic — leading feelings of pessimism about the future, especially when it comes to travel, accessing health care, socializing and shopping. As a result, they’ve changed their lifestyle, spending more on groceries and less on clothing, footwear and leisure now and in the foreseeable future.

Meanwhile, 27% of Canadian consumers fall into the cut deep segment. These individuals have been hardest hit by the outbreak and anticipate a recession, pushing them to make drastic changes to their financial habits. In some cases, this has meant a decrease in spending on clothing and leisure by nearly 90% and spending more on groceries to meet their basic needs.

On the flip side, a quarter of consumers fall into the stay calm and carry on segment. They don’t feel as threated by the pandemic and have continued shopping as normal. What’s changed for these consumers is a shift from shopping in store to online.

That’s opened doors to more options and suppliers. Customers are considering a wider variety of retailers, and this is having an especially big impact on small-to-medium-sized businesses that traditionally lean on local support. To meet consumers’ rapidly evolving needs and invest in the future, retailers will need to build out their online capabilities.

For more EY survey details and what they may mean to you, go to: https://www.ey.com/en_ca/consumer-products-retail/pandemic-is-disrupting-consumer-behaviours-are-retailers-ready-to-disrupt-their-strategies.

The Future of the Mall: Deloitte Sees A New Kind of Shopping Experience for the Post-Pandemic World

According to an article posted on Deloitte Canada’s webpage July 13, 2020, as retailers and mall owners grapple with the repercussions of the COVID-19 pandemic, many are accelerating their business plans, rapidly experimenting with new business models and expanding innovative thinking to find ways to keep malls relevant in the new normal and into the future. According to Deloitte’s The future of the mall: Building a new kind of destination for the post-pandemic world, there are five critical changes that mall landlords, retailers and the entire industry must embrace to protect the sector and keep Canadians coming back into stores:

1. Focus on safety and convenience: The new mall will need to carefully balance consumers’ desire for social interaction with their need for a safe, easy shopping experience. The key to getting people back into malls will be for owners and retailers to work together to invest in customer safety and to provide tools and applications that make for a smoother, more convenient shopping experience.

2. Rethink the role of the store: Retailers need to reconsider the size and number of stores that will meet their customers’ needs, eliminating poorer-performing stores and focusing on showroom, pop-up locations and other innovative formats. The growth of online shopping (with 78% of consumers expecting online shopping to increase in popularity post-pandemic) calls into question the need for an extensive network of stores. 

3. Make way for the food revolution: As less relevant fashion retailers move out of mall locations, their departure will make room for landlords to bring in an exciting new breed of restaurant offerings. This will feed the consumer’s desire for social experience and will likely become the new anchor bringing visitors to the mall.

4. Embrace technology: Retailers need to take a page from digital-first companies. It’s never been more important to build a seamless and integrated physical and digital brand presence. Customers are increasingly looking for a digitized experience both online and off, enabled by technological innovation at every turn. 

5. Become a new destination: Most of all, the mall must become the new meeting place for the community, a multi-purpose destination that offers extensive leisure activities as well as other functions, like office, residential and cultural amenities. Shops should be mixed in with other complementary uses, giving visitors an interactive experience in which the entire environment comes into play. 

Deloitte says that the COVID-19 pandemic has served to accelerate changes that were already underway and accelerate innovation among mall owners and retailers alike. “Canadian consumers were already starting to change how they shopped, and now they are looking for a significantly better experience that connects the online world to an elevated in-person experience for the long term.”

What will your mall look like? Check out https://www2.deloitte.com/ca/en/pages/press-releases/articles/the-future-of-mall.html.

Banking in a post-COVID world

In a June blog on KPMG Canada’s webpage, John Armstrong, the firm’s National Industry Lead for Financial Services, says that, while the COVID-19 crisis is far from over, “there is no question that the banking industry will be forever changed.” Now, he adds, it’s time to begin identifying some of the features of a post-COVID banking landscape:

  • COVID-19 is catalyzing an even faster move to digital channels, paperless approaches and automation.It has also catalyzed a new mindset around new, more agile approaches to risk management and client interaction. Armstrong says that “there is little doubt that these developments will accelerate. To facilitate them, regulations in the areas of anti-money laundering, digital signatures and privacy will need to continue to foster innovation.”
  • Banks will need to revisit their branch networks. With 20 branches per 100,000 people (as of 2018), Canada isn’t the most heavily branched country in the world, but we are slightly above the average. And with many branches in Canada now temporarily closed or on modified hours, now is a good time to start scaling back these very expensive networks. 
  • Canada’s massive “Payments Modernization” program must continue. This initiative, funded largely by the banks, will update our payments infrastructure and develop “real-time” payments capabilities, providing Canadians with a more efficient and safer way to pay bills, transfer money to friends, etc. 
  • The need for a Canadian digital ID solution and the banks’ key role in this seems now clearer than ever.The Digital ID and Authentication Council of Canada recently estimated that a digital ID could add $4.5 billion in value, with most accruing to small and medium-sized businesses. According to Armstrong, “now is a good time for various levels of government to help drive a pan-Canadian solution with the development of clear standards that ensure interoperability of systems, security and reliability.”
  • New respect for operating risk and new ways to assess credit risk.COVID-19 has sorely tested our standard approaches to managing and accounting for all dimensions of risk. “To put it bluntly, the ‘risk playbook’ needs to be revised and rewritten.”
  • Cash usage is dramatically down. While cash use was already declining, fears of coronavirus-contaminated bills have pushed people to electronic payments, leading to an estimated additional decline in cash usage of 62%, according to Payments Canada. While we can expect this rate to bounce back to some extent, it will not return to pre-COVID levels. 

For more on how our banks will serve us in the future, check out: https://home.kpmg/ca/en/blogs/home/posts/2020/06/banking-in-a-post-covid-world-new-trends-and-expectations.html.

EY survey finds board-business dynamic is contributing to cyber risk

According to the recent 2020 EY Global Information Security Survey, 34% of Canadian organizations have yet to fully articulate their cyber risks, compared to 16% of global peers.

As well, 43% of Canadian boards are unable to quantify cybersecurity in financial terms.

Clearly, a disconnect between cybersecurity efforts and business functions is putting more Canadian organizations at risk as information gaps leave leaders with a limited understanding of potential threats and how to mitigate exposure. 

Yogen Appalraju, EY Canada Cybersecurity Leader, notes that, “amid the immense pressure felt from COVID-19, a cyberattack — and its ramifications on brand, reputation and financials — is the last thing an organization wants to happen while they’re already navigating significant disruption. Bridging the divide between the security function, lines of business and the board can be an enabler to proactively address heightened risks and help advance digital transformation.” 

The EY survey finds that just 21% of Canadian boards understand how to fully evaluate their organization’s cybersecurity risks, compared to 48% globally. Meanwhile, 43% are unable to quantify cybersecurity effectiveness in financial terms, compared to 24% of global respondents. 

“Cybersecurity teams must learn to speak the board’s language to better communicate the severity and business impact of different risks,” says Appalraju. “Increased education and engagement among this group should trickle down into the business to drive awareness, while helping to secure the buy-in for funding and resources needed to address growing threats.” 

The survey finds that cybersecurity teams need to develop better alliances across all business functions of the organization. Right now, only 10% of Canadian survey respondents say there’s a high level of trust and consultation between cybersecurity teams and the broader business. 

“Cybersecurity needs to be present at the development stage of any product, service or initiative as businesses look to make greater digital investments to support an online transition in this new environment,” says Appalraju. “This is what we call a security by design approach — a strategy that improves engagement between the cybersecurity team and the rest of the business to create a mutual understanding of potential threats, the impact to assets and how to proactively mitigate cyber risk exposure early in the creation or acquisition of assets.” 

Access the full Canadian highlights of the EY Global Information Security Survey at: https://www.ey.com/en_ca/cybersecurity/is-your-cybersecurity-plan-radical-enough-to-thrive-in-todays-environment.

SEC Statement on the Proposal to Substantially Reduce 13F Reporting

On July 10, 2020, SEC Commissioner Allison Herren Lee released a public statement taking issue with new SEC proposal to increase the reporting threshold by 35 times for institutional investment managers that must report equity holdings on Form 13F, thus eliminating visibility into portfolios controlling $2.3 trillion in assets. This proposal, she said, “joins a long list of recent actions that decrease transparency and reduce both the Commission’s and the public’s access to information about our markets.”

She said she was unable to assess the wisdom of the proposal because it lacks a sufficient analysis of the costs and benefits. “The costs of losing transparency are glossed over in brief narrative form and largely discounted. And to the extent the proposal purports to capture benefits in the form of cost savings, those cost savings rest largely on new Paperwork Reduction Act (PRA) estimates of the costs of compliance. The Commission’s legal obligation to do a thorough economic analysis under the National Securities Markets Improvement Act, however, cannot be satisfied by simply substituting PRA estimates. What’s more, the asserted cost savings derived from the PRA estimates in the final draft of this proposal reflect a quadrupling of our current estimate using assumptions that depart substantially from those used by the Commission for over a decade.”

Lee was also concerned that the projected cost savings in the proposal “are greatly overstated and wholly inconsistent with the Commission’s past analysis – and, importantly, that the actual cost savings do not justify the loss of visibility into portfolios controlling $2.3 trillion in assets. Additionally, the Commission’s assertion of authority to raise the threshold conflicts with the plain text in the Exchange Act that requires us to collect the information. Specifically, section 13(f)(1) withholds authority from the Commission to raise the threshold, and the proposal fails to address that conflict.”

For specific details on Lee’s concerns, please have a look at: https://www.sec.gov/news/public-statement/lee-13f-reporting-2020-07-10.