Hey! What’s New?

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

by Gundi Jeffrey, Managing Editor

A recent issue of cpab exchange says that the Canadian Public Accountability Bard (CPAB) inspected a total of 42 cannabis audit files over 2019-2020 and found significant findings in 22 of those files. “These findings1 emphasize that immediate action is necessary to improve audit quality and to protect capital markets,” says the article on “Auditing in the Cannabis Sector.”

Since its legalization in Canada in 2018, the cannabis industry has seen unprecedented volatility in the capital markets. At the time of this publication, there are more than 250 Canadian reporting issuers in this sector. Over the past two years, CPAB has reviewed the quality of audits of cannabis companies to better understand how auditors have adapted to the challenges in this emerging industry.

One significant finding, according to the article, is “a significant deficiency in the application of generally accepted auditing standards, related to a material financial balance or transaction stream, where the audit firm must perform additional audit work, to support the audit opinion and/or is required to make significant changes to its audit approach. These are reported to the firm in an engagement findings report (EFR) and referred to as EFR 1s and require a written response from the engagement team.”

Another finding is insufficient understanding of the entity and its environment. “The auditor’s understanding of the company and its environment, including internal controls and its legal environment, is essential to the auditors’ planning and executing of the audit,” says the article. “We identified inconsistencies in the auditor’s risk assessment and audit procedures performed related to compliance with laws and regulations and fraud.”

A third finding was inadequate fraud risk assessment and audit response in companies operating in foreign jurisdictions where banking services are limited. Companies that operate in certain jurisdictions, such as the United States, face challenges that limit access to certain banking services. As a result, a significant portion of the revenues earned and expenses incurred are transacted in cash. “The large volume of cash receipts and disbursements significantly increases the risks of misappropriation and risk of unrecorded cash transactions. In our inspections we identified concerns with the work performed to address the risks of material misstatement due to fraud or error related to the occurrence and completeness of revenue.”

A fourth finding was lack of evidence to support key inputs used in the fair value of biological assets. And another was using inadequate procedures to support biological assets and inventory quantities.

“We encourage auditors to discuss these findings with their engagement teams, the reporting issuer’s audit committee and Chief Financial Officer,” advises the article. “Immediate implementation of changes to the audit approach may be necessary to ensure that the audit is appropriately designed to identify and remediate deficiencies in financial reporting and internal controls.”

For the detailed findings and advice on how to improve, go to 2021-auditing-cannabis-en.pdf (cpab-ccrc.ca).

Keys to Striking an Effective Balance as a Manager

In an April 5, 2021 article in the AICPA’s CPA Insider newsletter, Malia Politzer writes that “now that it has been over a year since many businesses were abruptly forced to migrate to a primarily remote workspace by the need to contain the spread of the coronavirus, managers are taking note of what works and what does not.”

"You need to adapt your style to the needs of your team members — and never has that been more true than now," she quotes Michael Maksymiw, CPA, CGMA, a tax partner who manages a remote team of 15 people for New York-based accounting firm Marcum, as saying.

In particular, Maksymiw noted that expressing empathy has risen to the top of important leadership skills, as many team members continue to struggle to navigate the various personal challenges brought on by the prolonged nature of the pandemic, whether that means helping children learn remotely, caring for sick relatives, or grieving for someone they may have lost.

"Knowing how to express empathy — or, really, having a high emotional IQ — isn't something that accountants are necessarily known for," he said. "But right now, it's become really critical to effective management, and sometimes what my team needs the most."

But, according to Politzer, “balancing empathetic leadership with critical, non-negotiable business goals can be tricky.” Here are some of her tips on what works:
Practice active listening. While being a good listener has always been an important management skill, under pandemic conditions it has become truly essential.
Keep relationships strong with weekly one-to-one and team video check-ins: Due to social-distancing measures, communication via email and online collaboration platforms has become the default for most teams, largely replacing the social aspect of in-office work. While this has some benefits — such as allowing team members flexible schedules — it can also be isolating.
To nurture individual relationships with direct reports and camaraderie between team members, schedule weekly one-to-one video calls with individual team members, as well as regular team calls.
Be clear about deadlines but flexible about how people meet them: Empathetic leadership does not mean sacrificing business goals. However, it does require that managers are deliberate and take a strategic approach to which goals to prioritize. To make sure that essential goals get met and that team members also feel supported, the article recommends combining empathetic, active listening with clear communication around essential goals, and then coaching team members on creating their own strategies on how to reach them.
Create integrated accountability systems: In addition to setting realistic goals, managers should consider building incremental accountability systems into their teams' regular workflow. For example, team members might fill out a regular “value log” — similar to a mini performance self-assessment — in which they reflect on their work over the past two weeks and record how they have added value to the business. "These are really useful for keeping employees aware of the incremental steps they are taking towards short- and long-term goals," the article says.

For more ideas on how to manage your teams, consult Keys to striking an effective balance as a manager (journalofaccountancy.com).

Stranger Than Fiction: Lessons from Odd Tax Facts of Yore

Now for some tax fun. An April 6, 2021 article in Forbes online features an interview on odd tax facts from the past. David Stewart, editor in chief of Tax Notes Today International, talks to Joel Slemrod and Michael Keen, authors of Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages, as well as Tax Notes chief correspondent Stephanie Johnston. The idea was to explore the fun side of tax, some of the more unusual stories from history, and perhaps some lessons that can be learned from them.

For example, Keen shared the story from Argentina around 1900, when the country had a tax on bachelors, which apparently wasn't uncommon at the time. But there was some lovable romantic worried about what to do about men who make proposals but are turned down.
Well, clearly what we need to do is give them a tax exemption. They should be able to, if their marriage offer is refused, get the rejected woman to sign a tax exemption certificate for them. We have pictures of men all around Argentina saying, "Well, if you won't marry me, at least will you give me a tax break?"

And of course, said Keen, “as all of us would expect, one of the consequences was there emerged a small professional class of women who, for a small sum of money, would in fact guarantee to reject your offer of marriage. There's even a novel about this. That's a kind of a timeless classic for me.”

Johnston noted that she had come across a one random tax fact during her work as a reporter. “In 2014 ABBA admitted that they had dressed so crazily as a band in the 1970s because, under Swedish tax law at the time, they could deduct the costs of their costumes as long as they were outrageous enough that they couldn't be possibly worn out in public.”

Stewart’s tale combined two of his interests: tax and whiskey. “Irish whiskey tastes fundamentally different from Scottish whiskey in large part because of a tax. In 1785, the Irish were the first recorded whiskey makers in the world and the Scots followed shortly thereafter. “At the time they were basically using malted barley. It's the same fundamental ingredient as beer, but the tax man was looking for his cut of this industry. They'd already taxed the output and the stills, so all that was left was to tax the inputs. And so, they instituted the malt tax.

In response to that, Irish distillers switched to a different spirit style where they used both malted and unmalted barley in the mash. “Over time, this became the style that was preferred. It's called single pot still. Even after the malt tax disappeared, they continued producing this single pot still whiskey. It is the fundamental flavor note that we think of when we think of Irish whiskey today.”

For more fun tax facts and the reasons behind them, check out Stranger Than Fiction: Lessons From Odd Tax Facts Of Yore (forbes.com).

How Covid Changed the Accounting Profession for Good

A March 28, 2021 article in the CPA Practice Advisor says that, as we reach the one-year anniversary of stay-at-home mandates, it’s important to reflect on how COVID-19 has changed the accounting and tax industry as we knew it. “For the past year, many of us have been waiting to return to ‘normal,’ and to how our work was conducted before COVID-19. The reality is: we will likely never return to the old ‘normal’.”

Authors Tom Hood and Jasen Stine say that, for example, the increased adoption of technology within the tax and accounting industry was already a trend pre-pandemic, “but COVID-19 forced this process to be significantly accelerated. From the use of the cloud to virtual client and staff engagements and more, accounting professionals and firms – whether well-versed in technology or not – were quickly catapulted into full-remote practices.”

There’s an important distinction here between “doing digital” – using technology available – to “being digital,” they say. “It’s critical that the industry isn’t just implementing the technology and folding it into current practices, but that we are using technology to reevaluate our processes. We need to invest in how to use technology as a way to transform our business to be more effective, efficient and to scale better.”

Another important lesson we’ve learned in 2020, they note, is that flexibility can be an asset. “From more permanent work-from-home opportunities to shifting away from the typical nine-to-five, companies have found benefit in giving employees more leeway with their schedules. Flexible work will continue well after the pandemic. Many firms are actively working on a permanent flex-work policy by giving employees 2-3 day work-from-anywhere options.”

This work style can also solve one of the industry’s most pressing issues: retention. According to the AICPA, finding qualified staff and retaining qualified staff are two of the top concerns for firms. According to Hood and Stine, “with remote work and continued flexibility for staff, we have the opportunity to reach beyond our backyards to hire talent across the nation and the globe.”

There’s also change because businesses that are struggling financially are seeking ways they could perform better. “Because of this, our expertise is needed more than ever,” say the authors. “From questions about adjusting business models to needing general insights on financial health and resilience, we can help current and new clients find the way through the fog. COVID-19 has propelled many professionals and firms further into advisory services, and this need will continue – offering a great opportunity for the industry.”

For more on their thoughts, see How Covid Changed the Accounting Profession for Good | CPA Practice Advisor.

PwC UK Tells Staff They Can Start and Finish Their Working Day When They Like

On March 31, 2021, PwC in the UK announced that, following extensive consultation with its 22,000 employees, it will allow greater flexibility for post-pandemic working. Called the ‘Deal,’ this decision reflects the firm’s commitment to supporting its people and responding to changing working patterns accelerated by Covid. “The changes will help embed a hybrid working model and align with PwC’s Net Zero commitment,” said Kevin Ellis, chairman and senior partner at PwC, in a statement.

The Deal is part of a workforce framework, Ellis said, that “covers everything from learning and development to how our people can make a positive societal difference. It’s built on two-way flexibility and trust to meet the needs of teams, clients and the firm.”

The three key elements announced March 31 are:
• An “Empowered day,” which gives PwC’s workforce more freedom to decide the most effective working pattern on any given day – for example, an earlier start and finish time.
• Flexibility to continue working from home as part of blended working, with an expectation that people will spend an average of 40-60% of their time co-located with colleagues, either in PwC’s offices or at client sites.
• A reduced working day on a Friday during July and August, with the assumption the majority of employees will finish at lunchtime having condensed their working week

According to Ellis, “we’ve long promoted flexible working, and we hope today’s announcements make it much more the norm rather than the exception. We want our people to feel trusted and empowered. These changes are in direct response to soundings from our people, who’ve said they value a mix of working from home and in the office. We want to help enshrine new working patterns so they outlast the pandemic. Without conscious planning now there’s a risk we lose the best bits of these new ways of working when the economy opens up again. The future of work is changing at such a pace we have to evolve continually how we do things to meet the needs of our people and our clients.”

For a bit more, see PwC announces new flexible work deal for employees.

CPAB Audit Quality Insights Report: 2020 Annual Audit Quality Assessments

On March 30, 2021, he Canadian Public Accountability Board (CPAB) released its 2020 Audit Quality Insights Report, which features common findings and highlights several audit quality matters that have an impact on audit committees, regulators and investors.

During 2020, says the report, “we inspected 119 audit files and identified significant findings in 35 files. This 29 per cent finding rate compares to 33 per cent across 142 files in 2019. The pandemic caused us to initially delay some inspections as we adjusted to a remote working environment. As a result we deferred inspections of smaller audit firms to early 2021.”

Three of the four largest firms had inspection results that improved or were consistent with the prior year, meeting the target of no more than 10 per cent of files inspected with significant findings. One large firm did not meet the target and continued to have finding levels in excess of 10 per cent. “While we saw some strengthening of quality management systems, there is still more work to be done to achieve the target of 90 per cent of criteria rated as either acceptable or acceptable with opportunities for enhancement by 2021. We continue to be concerned about the elevated finding rates at one of the large firms and a decision regarding additional regulatory intervention will be made in 2021.

“Of significant concern is the increase in findings at many of the other annually inspected firms, where the aggregate significant finding rate was 63 per cent (22 of 35 engagement files), compared to 54 per cent (20 of 37 engagement files) in the prior year.”

CPAB says it has increased its monitoring of firms with unacceptable levels of significant findings, including action taken on its recommendations. Coming into the year, two firms were operating under restrictions, requirements or sanctions; two non-annually inspected firms increased this number to four in 2020. Two investigations were commenced and are ongoing. Further details of enforcement action undertaken in 2020 and the escalation of CPAB’s regulatory intervention is outlined in the Enforcement Overview on Page 9 of this report.

Two restatements have been required since the 2019 annual report, one at an annually inspected firm and one at a non-annually inspected firm. Where a restatement is required the firm must work with the reporting issuer and its legal counsel to make the restatement as soon as possible — usually within the next quarterly reporting cycle.

CPAB says that the move to remote work and the economic upheaval have “created a number of new audit risks. We have interacted extensively with the audit firms this year on their approach to addressing these risks. While we have inspected some audit files that were completed during the pandemic, including 14 engagement files with March 31, 2020 or later year ends, files where both the reporting issuer financial reporting process and the audit were performed remotely will not be available to inspect until 2021.”

For a copy of the report and its detailed findings go to 2020-annual-audit-quality-assessments-en.pdf (cpab-ccrc.ca).

LinkedIn Tips for Accountants and Finance Professionals

In a March 19, 2021 post on the Journal of Accountancy webpage, Hannah Pitstick writes that networking has been unusually difficult over the past year, and most professionals have leaned on virtual platforms to form and maintain professional relationships. “Many of the best practices for navigating LinkedIn have remained unchanged by the pandemic, but experts contend that accountants should approach the platform in a more mindful and deliberate way because of the shifting attitudes and behaviors of a beleaguered nation.”

If you’re hoping to get the most out of LinkedIn during and after the pandemic, says Pitstick, aim to follow these new dos and don’ts recommended by experts such as Karen Yankovich, founder of Uplevel Media LLC, a LinkedIn marketing and consulting company based in New York.

Don’t spam your network. Spammy messages have always been bad practice for professional networking, but during the pandemic, LinkedIn inboxes have been filling up with more junk than ever, and many people have lost their patience.

Instead of sending out 100 cold messages to strangers, Yankovich recommends doing some research and sending out about five warm messages a day to people with whom you have the potential to create genuine professional relationships. “Warm messages are much more likely to get a response and avoiding a sales tone can help bolster your authenticity and credibility.”

Create a profile for the person you strive to be. If you’re hoping to advance, evolve or make a shift in your career, your profile should project the version of yourself you’re working toward becoming. Yankovich adds that you should also focus on what you can do for others. For example, instead of saying, “I’m a financial consultant,” you might say, “I'm a financial consultant, and I help women over 50 create enough wealth to retire at 60.”

Do dive into your existing network. Before you send out hundreds of new connection requests, Yankovich suggests combing through your existing network and reaching out to those you haven’t spoken to in a while. Say something along the lines of, “Hey, we've been connected here for two years. We're not meeting for coffee anytime soon, so I thought I would dig into my LinkedIn network and see who I haven't talked to in a while, and you stood out — I would love to hear about what you're up to.”

“Whatever it is you're looking to build relationships for, whether it's getting a new job, creating a new business, getting more clients, or generating publicity, you probably have people already in your network who could help you with that,” Yankovich says.

Don’t forget to engage with others. Yankovich recommends engaging anytime LinkedIn asks you to engage, whether that’s congratulating someone on a new job or work anniversary, and then spending around 15 minutes a day liking and commenting on posts and sharing a few articles. “Your goal is to be on the wall, and you don't have to create content to make that happen,” she said. “It is just as valuable, if not more valuable, for you to be engaging with other people's conversations as it is to start your own.”

For more detailed advice, go to LinkedIn tips for accountants and finance professionals - Journal of Accountancy.

Financial Stability Implications of Climate Change

In a speech presented at the March 23, 2021 "Transform Tomorrow Today" Ceres 2021 Conference in Boston, Lael Brainard, a governor of the US Federal Reserve, said that the Federal Reserve has created a new Supervision Climate Committee (SCC) “to strengthen our capacity to identify and assess financial risks from climate change and to develop an appropriate program to ensure the resilience of our supervised firms to those risks.”

Climate change and the transition to a sustainable economy also pose risks to the stability of the broader financial system, Brainard added. “To complement the work of the SCC, the Federal Reserve Board is establishing a Financial Stability Climate Committee (FSCC) to identify, assess, and address climate-related risks to financial stability. The FSCC will approach this work from a macroprudential perspective, that is, one that considers the potential for complex interactions across the financial system.”

He went on to say that consistent disclosures are important not only to enable individual financial firms to measure and manage their exposure to climate-related financial risks, but also to support financial stability more broadly by helping the market to accurately price that risk. “Given the importance of consistent, comparable, and reliable disclosures to financial stability and prudential objectives, mandatory disclosures are ultimately likely to be important. “

Brainard pointed out that “our macroprudential work program is focused on assessing not only potential climate shocks, but also whether climate change might make the financial system more vulnerable in ways that could amplify these shocks and cause broader knock-on effects that could harm households, businesses, and communities. In some respects, climate change can be seen as similar to other financial stability shocks emanating from outside the financial system, such as COVID-19, which are difficult to predict with precision and can lead to an abrupt reassessment of a broad array of economic and financial outcomes, prices, and incentives. However, climate change shocks differ in a few important ways.”

Unlike episodic or transitory shocks, climate change is an ongoing, cumulative process, which is expected to produce a series of shocks. “Over time, these shocks can change the statistical time-series properties of economic variables, making forecasting based on historical experience more difficult and less reliable,” Brainard said. “The physical properties of the earth's atmosphere shown by scientific climate records and climatological forecasts include the risk of irreversible climate ‘tipping points,’ which can cause as yet unseen disruptions in weather systems, regional water supplies, and the habitability of large land masses – at large magnitudes. Quantifying the risks and implications of potentially catastrophic climate-related tipping points for the economy and financial system is extremely difficult.”

The Reserve is building the requisite institutional capacity and knowledge to deepen its understanding of these risks and vulnerabilities, Brainard said. “The new FSCC is a Systemwide committee charged with developing and implementing a program to assess and address climate-related risks to financial stability. The broad goals of the FSCC are to promote the resilience of the financial system to climate-related financial risks, to ensure coordination with the Financial Stability Oversight Council (FSOC) and its member agencies, and to increase the Federal Reserve's international engagement and influence on this issue. The FSCC will work in close coordination with the SCC—as well as with our community development, payments, international coordination, and economic research and data areas—to build a coordinated approach to integrating climate-related risks where they affect our responsibilities.”

For all the important details, check out Speech by Governor Brainard on financial stability implications of climate change - Federal Reserve Board.

Progress on Diversity, Equity and Inclusion Is an Imperative

While economic uncertainty persists, most U.S. CEOs remain confident in the growth prospects of the domestic economy and their businesses, says Paul Knopp, Chair and CEO of KPMG US in the introduction to the 2021 KPMG CEO Outlook survey. “In response to the pandemic, they will shift their organizations’ focus to the social component of their Environmental, Social and Governance (ESG) programs. CEOs recognize that achieving meaningful progress on diversity, equity and inclusion is an imperative.”

The 2021 KPMG CEO Outlook survey features insights from 500 CEOs at large companies globally on the key challenges and opportunities in driving business growth over the next three years and the CEOs' responses to the ongoing pandemic.

The survey found that the pandemic has altered customer expectations for the long term, notes Knopp, adding that, as result, “CEOs are focused on sharply accelerating their efforts to create a seamless digital customer experience. Moving quickly in this area put their organizations years in advance of where they expected to be, and many CEOs plan to continue to invest in technologies that will help bolster the customer experience.”

Knopp points out that CEOs also continue to lean into their values and purpose as they look to address the needs of their stakeholders. “They are taking a range of steps to support their people and strengthen their organizations – with a big focus on employee well-being and mental health and sustaining corporate culture.”

While the pandemic continues, he concludes, “CEOs are leading with courage, conviction and purpose and making critical investments that will position their organizations for future growth.”

Download the report at 2021 KPMG U.S. CEO Outlook.

New Year's Resolution Fails: Cut Yourself Some Slack and Get on Track

A blog posted on the AICPA webpage by AICPA Communications on March 9, 2021, says that if
you made a New Year’s resolution, say, you want to earn that data analytics certificate since data analytics is changing the profession and now it’s March and you feel like a failure. Don’t, says the blog. Just get back on track with the following advice.

Accept that you failed. By February 1, 80% of us have abandoned our New Year’s resolution. Psychology Today says that, when you make your resolution on January 1, you’re basing it on a calendar date even though you really aren’t prepared to change. This sounds so much better than a lack of self-discipline. So, you failed. Allow yourself grace and try again. But only when you’re ready.

Break it down. One of the most common and biggest mistakes people make when trying to accomplish an important goal is to take large steps rather than baby steps. Map out a plan but start small. Let’s say you’re ready for the next step in your career. It’s OK to set the bold goal of finding a dream job by the end of the year. But break it down by quarter, then by month and then by week. It’s called micro-planning, and a Harvard Business Review’s article suggests that even daily check-ins are beneficial.

Once you have your plan, stay focused. Easy to say, hard to do. When you accomplish a small weekly goal, reward yourself. It could be a walk in the middle of the day or a phone call to a friend at lunch.

Do things your way. Again, break it down into baby steps but consider the way you do things. What if your goal was to learn new skills that will make you more valuable to your employer and future employers? Think about how you learn best to make your resolution more achievable. Do you prefer to spend a concentrated amount of time, mostly unplugged from work interruptions? Then conferences could be your best choice.
Do you prefer to learn in small chunks? Both CPA Canada and the AICPA, for example, offer hundreds of interactive webcasts on a large variety of topics specific to your current work or exploring topics outside your specialty area.

Tailoring the system for you is the key to helping you stick with a goal. After all, it seemed important enough in January to say you’d make a change.

For more advice, see New Year's resolution fails: Cut yourself some slack and get on track - AICPA Insights.

EY Finds People More Concerned One Year into the Pandemic

The sixth EY Future Consumer Index, a survey of 14,500 consumers across 20 countries fielded in January-February 2021, finds that consumers are more worried than four months ago about their health, their families and their futures. One year into the pandemic, the Index finds that consumers will still prioritize affordability (32%) and health (25%) over the planet (17%), society (14%) and experience (12%) in the future. Meanwhile, the share of people who think they will live in fear of the COVID-19 pandemic for at least another year has risen from 37% (October 2020) to 40% (February 2021), despite vaccines being rolled out.

The Index also finds that, because of the pandemic, people are increasingly concerned about the health of their family, access to necessities, personal finances and basic freedoms. The level of concern differs around the world. Respondents in India and Brazil have consistently been the most concerned overall (more than 90% of consumers) throughout the pandemic, while people across other countries are now more worried about their family’s health than they were four months ago (up 4% in the US and 5% in Japan). Respondents in China and Germany said they are increasingly worried about their finances (4% increase) and freedom to enjoy life (more than 10% increase) since October 2020.

According to Kristina Rogers, EY Global Consumer Leader, “one year into the pandemic, almost half of consumers believe post-vaccine life will be better than before the pandemic. In fact, the COVID-19 pandemic may have accelerated changes that were already underway: moving out of cities, shopping online more and prioritizing health, affordability and sustainability. Companies now need to understand where consumers are going next and be bolder in accelerating their transformation, by redesigning their business around how people live, not what they buy.”

Most (91%) global respondents do intend to take the vaccine, but 25% said they have “reservations” and 9% don’t intend to take it at all. The latter goes up to 15% in the US and 19% in France but down to 3% in China, 5% in Brazil and 6% in the UK. Top reasons influencing global sentiment include being worried about potential side-effects (29%) and not trusting its safety (19%).

Feelings about the vaccine are also polarized between high- and low-income consumers, which correlates with institutional trust. According to the global survey, only 43% of low-income respondents plan to get the vaccine as soon as it is available to them (compared to 54% of high-income respondents). This may relate to 37% of low-income respondents having little or no trust in government compared to 28% of high-income respondents.

Despite concerns, a majority of respondents (56%) would be more likely to shop with retailers that require employees to take the vaccine, while 48% of respondents think that those who refuse to take the vaccine are acting selfishly.

The COVID-19 pandemic has changed consumer behavior and has not just driven “consumption at home” through e-commerce. Consumers are now building their whole lifestyles around their homes as centers of gravity where they work, play and stay healthy. More than half of respondents (56%) plan to stay fit at home beyond the pandemic, while a third (33%) plan to upgrade appliances and furniture and 30% hope to work more from their home in the future.

For much more see ey.com/futureconsumerindex6.

IMA and CalCPA Diversity Survey Finds Profession Not all That Equitable

The Institute of Management Accountants (IMA®) and the California Society of Certified Public Accountants (CalCPA) in February released groundbreaking research findings in their joint study, Diversifying U.S. Accounting Talent: A Critical Imperative to Achieve Transformational Outcomes. This diversity, equity and inclusion (DE&I) research study examines three demographic focus areas: race and ethnicity, gender and LGBTQIA (lesbian, gay, bisexual, transgender, queer, intersex and asexual) orientation in the U.S. accounting profession, encompassing public accounting and management accounting. The study also examines the role of ethics in the profession’s overall progress around DE&I and presents solutions to drive expansive change.

The first in a multi-part global series, this report is informed by results from an online survey of over 3,000 current and former U.S. accounting and finance professionals and interviews of nearly 60 accounting, human resources and DE&I practitioners and academics. The study found that there is a significant diversity gap between those in executive leadership ranks and the broader accounting profession as well as the U.S. population. For example, African Americans make up 8.5% of the profession but only 1% of partners at U.S. CPA firms and 1.5% of CFOs of Fortune 500 and S&P 500 companies. The survey revealed that these diverse talents believe they aren’t advancing in the profession because of a lack of equity and inclusion.

The study found that 43% to 55% of respondents from groups underrepresented at senior levels left their employers due to a perceived lack of equitable treatment, and at least 30% have left because of a lack of inclusion. The lack of DE&I poses risks to the success of the profession’s transformation currently underway. As many as 18% of the respondents from diverse demographic groups left the profession altogether due to these factors.

“The diversity gap between senior leadership and the broader accounting profession is a huge wake-up call that this needs to be fixed through real solutions,” said Anthony Pugliese, CPA, CGMA, CITP, CalCPA President and CEO. “More diverse leaders are needed to connect people of all backgrounds to the profession and to serve as role models so we can retain and develop the next generation of talent.”
The study concluded that for the profession to continue to grow and succeed with a robust talent pipeline, actions to address DE&I issues need to be taken now. This includes bringing in and promoting talented people based on relevant and unbiased factors rather than demographics.

The report acknowledges DE&I improvement efforts that are already underway and suggests action in four areas: awareness, attraction, promotion, and accountability.

“If we collaboratively work to close the diversity gap, it will not only have a positive impact on the front-end pipeline of candidates coming into the profession, it will work to curb the loss of talent that we are seeing,” said Brad Monterio, CalCPA Chief Learning Officer and CalCPA research lead on this project.
For more information, visit imanet.org/diversifying-accounting-talent.

IFRS Foundation Trustees Announce Strategic Direction for Sustainability Reporting

March 8, 2021 the IFRS Foundation announced, in a press release that feedback on its Consultation Paper on Sustainability Reporting “confirmed an urgent need for global sustainability reporting standards and support for the Foundation to play a role in their development. The Trustees are therefore continuing their work on the establishment of an international sustainability reporting standards board within the existing governance structure of the IFRS Foundation, as set out in the Trustees' February announcement.”

The Trustees welcomed the February 2021 public statement by the IOSCO Board, announcing IOSCO's intention to work with the IFRS Foundation in developing a plan to establish a new board for setting sustainability reporting standards that meet the needs of the capital markets. This will include consideration of future endorsement of the new board and its standards. “The Trustees recognize the importance for the public interest of reporting standards that address enterprise value, which captures expected value creation for investors in the short, medium and long term and is interdependent with value creation for society and the environment.”

Based on the feedback to the 2020 Consultation, and encouraged by the IOSCO Board statement, the Trustees have reached the following views about the strategic direction of a new board:

• Investor focus for enterprise value: The new board would focus on information that is material to the decisions of investors, lenders and other creditors.
• Sustainability scope, prioritizing climate: Due to the urgent need for better information about climate-related matters, the new board would initially focus its efforts on climate-related reporting, while also working toward meeting the information needs of investors on other ESG (environmental, social and governance) matters.
• Build on existing frameworks: The new board would build upon the well-established work of the Financial Stability Board's Task Force on Climate related Financial Disclosures (TCFD), as well as work by the alliance of leading standard-setters in sustainability reporting focused on enterprise value. The Trustees will consider the prototype proposed by the alliance for an approach to climate-related disclosures as a potential basis for the new board to develop climate-related reporting standards.
• Building blocks approach: By working with standard setters from key jurisdictions, standards issued by the new board would provide a globally consistent and comparable sustainability reporting baseline, while also providing flexibility for coordination on reporting requirements that capture wider sustainability impacts.

The Trustees intend to publish a feedback statement that summarizes the responses received to their 2020 Consultation, and how that feedback informed the above decisions. Together with the feedback statement, the Trustees will publish for public comment the proposed changes to the Foundation's Constitution necessary to formalize the establishment of a new board, including its composition.

The Trustees said they “remain on track to make a final determination about a new board in advance of the November 2021 United Nations COP26 conference, including the detailed analysis of feedback on the requirements for success outlined in the 2020 Consultation and other conditions to be satisfied prior to that consideration.”

Women in Senior Leadership Positions Pass Critical 30% Mark Despite Global Pandemic

In the good-news-for-a-change department – especially on International Women’s Day yesterday, March 8 – Grant Thornton International notes that the number of women holding senior leadership positions in mid-market businesses globally has hit 31% despite the COVID-19 pandemic affecting economies around the world.

In Grant Thornton’s annual Women in Business report, GT’s global leader Francesca Lagerberg says: “Passing the 30% of women in senior roles globally is an important milestone for businesses, but not the end goal. Those businesses that want to reap the benefits of a better gender balance, must continue to take action to enable women to realize their ambitions.”

Seeing the proportion of women leaders rise to 31% is encouraging, given the global figure had remained stubbornly stuck at 29% for the previous two years (2019 and 2020). It also passes the important 30% threshold, which research shows is the minimum representation needed to change decision-making processes. All regions surveyed except for the Asia-Pacific area (28%) have now surpassed the crucial 30% milestone.

Another encouraging finding, the report points out, “is the types of leadership roles women are occupying. Grant Thornton’s research reveals higher numbers of women across operational C-suite roles compared to last year, with the proportion of female CEOs up 6pp to 26%, female CFOs also up 6pp to 36%, and female COOs up 4pp to 22%. The proportion of women in the more traditional senior HR roles was down slightly at 38% (-2pp on 2020), and has trended downwards since 2019.”

Additionally, over two-thirds (69%) of respondents agree that, in their organizations, new working practices as a result of COVID-19 will benefit women’s career trajectories long term, despite potentially hindering factors which may be down to the flexibility that remote working offers.

But, says the report, “while the number of women in leadership roles has grown, questions remain over the impact of the COVID-19 pandemic on women, particularly working mothers. UN data shows that, before the pandemic, women did three times as much unpaid housework as men, and mounting evidence indicates that COVID-19 is only increasing this disparity – as well as adding the extra responsibilities of childcare and home schooling while schools are closed.

According to Lagerberg, “breaking the 30% barrier certainly does represent progress – having grown from 19% 17 years ago when we first started tracking this – but these gains can easily be lost. Reassuringly, 92% of businesses globally say they are taking action to ensure the engagement and inclusion of their employees against the negative backdrop of the pandemic and with the normalization of remote working, employers are becoming ever more flexible about how, where and when employees do their jobs.

“Now more than ever, businesses need to stay focused on what is enabling women to progress to leadership positions, so that women move forward rather than back as a result of the global pandemic.” 

What You Need to Know Before Accepting Bitcoin Payments

A recent article by Amrita Khali in Inc. says that digital currency may not be quite mainstream yet, but a growing number of companies are now are accepting Bitcoin as payment. But, says Khali, using it comes with a number of risks and it certainly isn’t right for everyone.

For example, Ali Hamam, vice president of Ontario-based restaurant chain Tahini's Mediterranean Cuisine, converted all of his business's cash reserves into Bitcoin as an inflation hedge last year, but he's less enthusiastic about the currency as a payment method.

"For us, there are a lot of cons with accepting Bitcoin payments right now," he says. The many expenses restaurants have, including employee salaries, supplier fees, and rent, all need to be paid in traditional, non-digital money. And, at least for now, he says, there's the issue of public awareness: "Ninety-five percent of our customers haven't even heard of Bitcoin."

Another major issue around accepting Bitcoin is the tax implications. Back in 2014, the IRS made a key decision on virtual currency to essentially treat Bitcoin as property for tax purposes. Businesses that choose to accept Bitcoin or any other cryptocurrency must report it as gross income based on its fair market value when it was received. In other words, each time you sell, buy, or use Bitcoin, you're subject to a capital gains tax. For small businesses dealing with several transactions a day, that can get very complicated

And of course, since every transaction is anonymous, crypto is the currency of choice for many bad actors, including drug lords and black hat hackers. In the U.S., treasury secretary Janet Yellen called the misuse of cryptocurrency a "growing problem" and signaled a need for further regulation. If you want to accept it as payment, advises Khali, you'll need to stay current on the rules.

Finally, Bitcoin's staggering volatility dissuades many people who hold it from touching it. If you purchased $100 worth of Bitcoin in 2014, it would be worth more than $12,000 today. This is why consumers tend to steer clear of spending their Bitcoin on small purchases – and why you may have trouble finding enough customers to warrant setting up crypto payments to begin with. And, if you do decide to go for it, remember that the volatility is a double-edged sword: Unless you cash Bitcoin payments immediately, there's always the chance of the currency's value taking a dive and damaging your bottom line.

For the whole story, go to What You Need to Know Before Accepting Bitcoin Payments | Inc.com.

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.