Assurance in a Real Time Economy

1. Assurance in a Real Time Economy Alan Anderson, CPA Chair – AICPA Assurance Services Executive Committee Managing Principal – Assurance Services At LarsonAllen, LLP.

2. AGENDA • Our Instant Gratification Culture • The Current Reporting Model • Conceptual Framework • Assurance Services Executive Committee (ASEC) • How Do We Move This Forward?

3. Our Instant Gratification Culture Consider the following: • Does anyone talk “face to face” anymore? • Do you sit and relax and enjoy a meal? • Who in the room doesn’t have a cell phone? • When was the last time you read a historical financial statement to make a decision?

4. Is Real Time Economy Already Here? Consider the following: • How do you make decisions on investment performance? • Do CFOs wait for month end financial statements to inform their CEO what is going in the business? • What information is used by stock analysts to make “buy” or “sell” decisions? • What happens to a stock price when a company misses the “consensus earning estimate?” • Why does the SEC place so much emphasis on “forward looking information?”

5. I The Real Time Economy? IT’S ALREADY HERE!!!

6. Assurance In a Real Time Economy? • Current Assurance model is: • Not timely -- it’s after-the-fact information • Not informative enough • Ignores many factors of performance “Houston we’ve got a problem”

7. Past Present Future Current Reporting Model Historical Financial Statements Continuous Reporting • Lagging indicators… • One size fits all (GAAP) • Ignores non-financial measures • Reports results of past decisions • Leading indicators… • Tied to mission, vision and values • Tied to factors critical to success • Moves decision criteria to forefront

8. Past Present Future Current Reporting Model Historical Financial Statements Continuous Reporting • Lagging indicators… • Periodic • Historical • Cost-basis • Financial only • Statements • Looking backward • Leading indicators… • On-demand • Real-time/future • Value-basis • Comprehensive • Custom reports • Looking forward

9. Common View of Real Time Assurance • Exclusive Focus on What should get reported and assured • Currently Assurance over reporting of performance measures along with their Historical Financial statement has been slow to develop • Regulators talk about changes as if management should just “do it” and auditors can assure it. • Readiness is a big issue • XBRL is an Enabler

10. Real Time AssuranceRequires….. • A Broader View than “WHAT” gets reported. • Need to Also Focus on • When to Report (Real Time) • How will the Information get reported (print or electronic)

11. Real Time AssuranceRequires….. • Greater Emphasis on Assurance on the Reliability of Systems, Processes and People(rather than a focus on the numbers)And Finally • Movement away from a “one size fits all reporting concept” • Needs Industry Specific information

12. Information Dissemination Technology • XBRL Financial & Non-Financial Measures .Business use • Standards Setters Business Information • SEC Plain English • FASB Projects Understandable Disclosures Foundational Concepts System Reliability • Continuous Audit • Trust Services Corporate Accountability • COSO ERM • OCEG • GRI REAL TIME REPORTING - A CONCEPTUAL FRAMEWORK Deployment 5 Elements (HOW) (WHAT) (WHEN)

13. ELEMENTS OF REAL TIME REPORTING CONVERGENCE TO “ REAL-TIME” SCALABLE System Reliability Financial and Non-Financial Measures Corporate Accountability Understandable Disclosures Information Dissemination

14. HOW WHAT Migration Toward Real Time Assurance CONVERGENCE TO “Continuous Assurance” Deployment System Reliability Information Dissemination Corporate Accountability Understandable Disclosures Financial and Non-Financial Measures and Information

15. AICPA – Assurance Services Executive Committee (ASEC) Mission: To enhance the quality, relevance and usefulness of information or its context for decision makers and other users by • Identifying and prioritizing emerging trends and market needs for assurance, and • Developing related assurance methodology guidance and tools as needed.

16. ASEC OBJECTIVES • Identify significant trends giving rise to assurance needs, determine the potential assurance guidance that would best meet those needs. • Develop assurance guidance by creating suitable criteria when necessary, and/or performance guidance as appropriate • Communicate new assurance methodologies, guidance and opportunities to our members. • Provide leadership in identifying and prioritizing emerging assurance trends and market needs while engaging and collaborating with users, preparers and influencers.

17. ASEC - Risk in a Real Time Economy • Risk – Real Time Economy Risk Model • Early indicators of risk- how to identify, weigh and manage • Report on effectiveness of controls against COSO ERM framework assess risk not just against controls over financial reporting (may or may not need to be a 3rd party opinion) • Change the model so the opinion goes more to observations around risk to start to close the expectation gap, formalize feedback to clients around risk, consider getting input from other professionals as well such as rating agencies, analysts, etc.

18. ASEC Real Time Assurance • Guidance on continuous auditing (continuous control monitoring + data monitoring) • Data level assurance • Control monitoring • Data selection and validation • Data quality • Relevance • Customized business reports • Real time customizable business reports

19. Continuous monitoring of transactions and processes Detection and corrective action Continuous monitoring of controls System controls will supplant manual controls Measurement and assurance across enterprise processes Most assurance costs are justifiable by increased data quality Data level assurance increases the efficiency Enhances accuracy of reporting REAL TIME ASSURANCE EXAMPLES:

20. WHAT DO WE NEED TO DO? • ASEC will work together along industry lines to create thoughtful proposals for greater transparency involving both simplification and enhancement • ASEC will Lead positive change, through collaborative solutions

21. WHY DOES OUR GLOBAL PROFESSION NEED TO BE INVOLVED? • Everyone has a “stake” in this… • Management needs real time information to run the business • Owners need real time information to provide the level of oversight • Creditors need real time information to make lending decisions • Auditors need to pay attention to the needs of the users of real time information • Continuous reporting and assurance is evolving in the business community through independent efforts

22. THE FUTURE OF ASSURANCE IN A REAL TIME ECONOMY - SOME FINAL THOUGHTS • The need for change in reporting impacts both public and private companies • Change will be evolutionary, not revolutionary • New models will be developed for providing assurance for on-line, real time, historical and forward looking financial information, as well as for performance measures

23. Questions and open discussion