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Division Accounting and Finance, BGSF, Career Tips July 10, 2018 With an estimated 7,500 state and local taxing jurisdictions and the complexity of state and local sales and use tax laws and regulations in these different jurisdictions, ensuring that your company is in compliance with these laws and regulations can be a difficult task. Recent research suggests that there may be as much as $26 billion in uncollected sales & use tax from e-commerce transactions alone. In an attempt to recover some of this uncollected sales & use tax, state and local taxing jurisdictions are increasing compliance activities and attempting to expand what constitutes business presence in their jurisdictions. In this increased compliance environment, companies need to be proactive rather than reactive in the area of sales and use tax compliance. The time to prepare for a sales & use tax audit is before an audit assignment is received. To prepare for a sales and use tax audit, companies need to conduct a thorough assessment of their business activities to determine in which taxing jurisdictions they have a compliance responsibility. Once that has been determined, the company needs to establish policies and procedures to ensure that they are in compliance with all applicable laws and regulations in those jurisdictions where a sales and use tax filing responsibility exists. To ensure compliance and reduce audit exposure, it is important for companies to maintain and leverage sales & use tax domain expertise, whether in-house or through a third-party professional services provider. Following is a list of best practices that can be adopted to ensure adequate sales and use tax compliance and minimize potential adverse audit assessments. Sales & Use Tax Best Practices Be proactive rather than reactive in sales & use tax compliance Perform nexus study to determine in which jurisdictions registration is required Review business activities to determine the taxability of products and services in applicable jurisdictions Register to collect and remit sales & use tax in all applicable jurisdictions Automate workflow from taxability determination to tax remittance to ensure timely and accurate compliance Automate tax rate updates to ensure accurate tax calculations Document exempt sales and maintain exemption certificate documentation Research all tax notices and audit findings to confirm the validity Stay current on laws and regulations

Division Accounting and Finance, Executive Leadership, Information Technology June 21, 2018 Auditing Transition Adjustments Obtaining an understanding of a company’s selection and application of accounting principles is part of the auditor’s procedures to identify and evaluate risks of material misstatement under PCAOB standards. Additionally, the auditor is required to evaluate a change in accounting principle to determine whether the method of accounting for the effect of a change in accounting principle is in conformity with generally accepted accounting principles and whether the disclosures related to the accounting change are adequate. The new revenue standard provides two transition options for applying the new standard (full or modified retrospective application). A full retrospective application requires the recasting of prior year financial statements as if the new standard had been applied in those years. In contrast, a modified retrospective application requires disclosure of the effect on each financial statement line item in the period of application, and explanations of significant changes between the reported results under the new standard and those that would have been reported under current accounting principles. Under either option, the company recognizes the cumulative effect of adopting the new standard against opening equity of the earliest period of application. The new revenue standard also provides optional practical expedients that may be applied during the transition. The standard requires the practical expedients to be consistently applied and disclosed in the financial statements. It is important for auditors to identify and assess the risks of material misstatement associated with the company’s transition adjustments and design and implement audit responses that address those assessed risks. Specific considerations in assessing and responding to the risks of material misstatement of the transition adjustments include, among others, (a) internal control over financial reporting, (b) data that may not have been audited previously, (c) opportunities for committing and concealing fraud, and (d) prior-period misstatements identified in the current period’s audit. Internal controls over the transition adjustments will generally be relevant to the audit, including in selecting controls to test in an audit of financial statements (if the auditor plans to rely on such 1.12 18 controls) or an audit of internal control over financial reporting. As described in Practice Alert No. 11, auditors are cautioned that controls must be tested directly to obtain evidence about its effectiveness; an auditor cannot merely infer that control is effective because no misstatements were detected by substantive procedures. This applies to the evaluation of evidence about the effectiveness of internal controls over the transition adjustments. Auditing transition adjustments involves obtaining company-produced information (e.g., standalone selling prices of the distinct goods or services underlying each performance obligation). As is the case generally with company-produced information, the auditor should perform procedures to evaluate whether the information produced by the company is sufficient and appropriate for purposes of the audit. In situations where management has asserted in the financial statements that the company’s transition adjustments are immaterial, it is important for auditors to perform procedures to test the accuracy of management’s assertions. The transition adjustments could pose new or heightened fraud risks. For example, a company could improperly identify performance obligations or improperly allocate transaction prices to performance obligations to defer revenue in order to recognize that revenue in subsequent periods. Auditors should evaluate whether the information gathered in obtaining an understanding of the company’s transition adjustments indicates that one or more fraud risk factors are present and should be taken into account in identifying and assessing fraud risks. When auditing the company’s transition adjustments, the auditor may identify a misstatement of revenue reported in prior-period financial statements. The auditor should perform procedures described in AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report, to determine whether or not the financial statements and auditor’s report should be revised as a consequence of the misstatement. Considering Internal Control over Financial Reporting PCAOB standards require the auditor to obtain a sufficient understanding of each component of internal control over financial reporting to (a) identify the types of potential misstatements, (b) assess the factors that affect the risks of material misstatement, and (c) design further audit procedures. Changes to company processes for the implementation of the new revenue standard can affect one or more components of internal control. For 19 relating to this principle is management evaluating competence across the organization and in outsourced service providers and acting as necessary to address any shortcomings identified. In addition, new or modified processes and systems to gather contract data, develop new estimates, and support new financial statement disclosures can affect the auditor’s risk assessment. Performing walkthroughs can help the auditor understand the flow of transactions, evaluate the design of controls relevant to the audit, and determine whether those controls have been implemented. In an audit of internal control, walkthroughs can also be an effective way to further understand the likely sources of potential misstatements and select controls to test. Internal Control-Related Considerations The following discussion highlights certain internal control-related considerations that may be relevant to auditing the implementation of the new revenue standard in audits of internal control over financial reporting and audits of financial statements. – Information system and manual controls. The auditor should obtain an understanding of the information system relevant to financial reporting, including, among other things, (a) the related business processes; (b) the related accounting records and supporting information used to initiate, authorize, process, and record transactions; and (c) how the information system captures events and conditions, other than transactions, that are significant to the financial statements. As discussed in Practice Alert No. 11, how a company uses or modifies its information systems (e.g., upon implementation of the new revenue standard) can affect internal controls and, in turn, the auditor’s evaluation of those controls. The auditor should obtain an understanding of, among other things: • The extent of manual controls and automated controls related to revenue used by the company, including the information technology general controls (“ITGCs”) that are important to the effective operation of the automated controls; and • the specific risks to a company’s internal control resulting from information technology. During the transition to the new revenue standard, some companies might utilize spreadsheets and other short-term manual processes until automated processes and controls are implemented. These short-term manual processes may present different or greater risks of material misstatement than automated processes subject to effective ITGCs. – Management review controls. Some companies may design and implement management review controls over revenue as part of their implementation of the new revenue standard. When testing management review controls, PCAOB standards require the auditor to perform procedures to obtain evidence about how those controls are designed and operate to prevent or detect misstatements. Practice Alert No. 11 described considerations for evaluating the precision of management review controls and identifies factors, such as the level of aggregation and the criteria for investigation, that can affect the level of precision of an entity-level control. 1.14 20 When selecting and testing management review controls over revenue, it is important for auditors to consider the impact of the new revenue standard on management review controls that rely on expectations based on historical operations or trends. Further, controls over the accuracy and completeness of the information used to perform the management review control can affect the control’s operating effectiveness. – Reviews of interim financial information. The auditor’s understanding of internal control is also important when performing a review of interim financial information. The auditor should have sufficient knowledge of the company’s business and its internal control as they relate to the preparation of both annual and interim financial information to: Identify the types of potential material misstatements in the interim financial information and consider the likelihood of their occurrence; and Select the inquiries and analytical procedures that will provide the auditor with a basis for communicating whether he or she is aware of any material modifications that should be made to the interim financial information for it to conform with generally accepted accounting principles. The auditor should perform procedures to update his or her knowledge of the company’s business and its internal control during the interim review to (a) aid in the determination of the inquiries to be made and the analytical procedures to be performed and (b) identify particular events, transactions, or assertions to which the inquiries may be directed or analytical procedures applied. Such procedures should include, among other things, inquiries of management about changes to the company’s business activities, and the nature and extent of changes to internal control. Identifying and Assessing Fraud Risks The auditor should presume that there is a fraud risk involving improper revenue recognition and evaluate which types of revenue, revenue transactions, or assertions may give rise to such risks. Auditors should perform substantive procedures, including tests of details that are specifically responsive to the assessed fraud risks. As discussed in Practice Alert No. 12, performing such procedures involves (a) considering the ways management could intentionally misstate revenue and related accounts and how they might conceal such misstatements, and (b) designing audit procedures directed toward detecting intentional misstatements. Identifying specific fraud risks arising from the implementation of the new revenue standard involves having a sufficient understanding of the standard as well as the company’s processes, systems, and controls over its implementation of the standard. Fraud risks may exist at various levels and in different areas of a company. PCAOB standards require auditors to make certain fraud-related inquiries of management, the audit committee (or the equivalent), and others within the company. Key engagement team members, including the engagement partner, should brainstorm about how and where they believe the company’s revenue and related accounts might be susceptible to fraud. They should also discuss how management could perpetrate and conceal fraud, including by omitting or presenting incomplete or inaccurate disclosures. Brainstorming also includes discussing factors that might (a) create incentives or pressures for management and others to commit fraud, (b) provide the opportunity for management to perpetrate fraud, and (c) indicate a culture or environment that enables management to rationalize committing fraud. One potential incentive for fraud arises when new accounting requirements affect a company’s reported financial performance. When combined with excessive pressure to meet expectations of third parties or targets set by the board of directors or management, this could create the motivation to misstate revenue to achieve these expectations. For example, management could establish incorrect accounting policies and practices that achieve revenue targets when the correct application of the new revenue standard would result in revenue below expectations. Opportunities for fraud in implementing the new revenue standard may arise in the development of significant new accounting estimates or due to control deficiencies that might result from changes made to systems, processes, and controls to implement the new standard. For example, companies may be required to develop estimates for variable consideration and standalone selling prices, which might involve subjective judgments or uncertainties that are difficult to corroborate. Risk Factors Certain risk factors may reflect attitudes or rationalizations by board members, management, or employees that lead them to engage in or justify fraudulent financial reporting, and may not be susceptible to observation by the auditor. Nevertheless, an auditor who becomes aware of the existence of such information should consider it in identifying the risks of material misstatement arising from fraudulent financial reporting. Examples of risk factors that might arise in connection with implementation of the new revenue standard are (a) non-financial management’s excessive participation in, or preoccupation with, the selection of accounting principles or the determination of significant estimates, and (b) attempts by management to justify marginal or inappropriate accounting on the basis of materiality. The auditor’s identification of fraud risks should also include the risk of management override of controls. Controls over management override are important to effective internal control over financial reporting for all companies and may be particularly important at smaller companies because of the increased involvement of senior management in performing controls and in the period-end financial reporting process. Furthermore, the auditor should emphasize to all engagement team members the need to maintain a questioning mind throughout the audit and to exercise professional skepticism in gathering and 1.16 22 evaluating evidence. Practice Alert No. 10 identifies a number of threats to professional skepticism inherent in the audit environment. Auditors should be mindful that circumstances related to the implementation of the new revenue standard may increase such threats in some audits. Circumstances, where a company is late in implementing the new revenue standard, might create incentives and pressures on the auditor that could inhibit the exercise of professional skepticism and allow unconscious bias to prevail. Incentives and pressures may arise, for example, to avoid significant conflicts with management or provide an unqualified audit opinion prior to obtaining sufficient appropriate audit evidence. In addition, the implementation of the new revenue standard could heighten scheduling and workload demands, putting pressure on partners and other engagement team members to complete their assignments too quickly. This might lead auditors to seek audit evidence that is easy to obtain but may not be sufficient and appropriate, to obtain less evidence than is necessary, or to give undue weight to confirming evidence without adequately considering contrary evidence. As discussed in Practice Alert No. 12, auditors who merely identify revenue as having a general risk of improper revenue recognition without attempting to assess ways in which revenue could be intentionally misstated may find it difficult to develop meaningful responses to the identified fraud risks. Conclusion Because of the nature and importance of the matters covered in this practice alert, it is particularly important for the engagement partner and senior engagement team members to focus on these areas and for engagement quality reviewers to keep these matters in mind when conducting their engagement quality reviews. Auditing firms may find this practice alert helpful in determining whether additional training of their personnel, revisions to their methodologies or implementation thereof or other steps are needed to assure that PCAOB standards are followed . Auditors and auditing firms might also find certain matters discussed in this practice alert to be relevant to their preparations for auditing the application of new accounting standards on leases and credit losses. The PCAOB will continue to monitor auditing of revenue as part of its ongoing oversight activities.

Division Accounting and Finance, BGSF, Executive Leadership June 21, 2018 Auditing Transition Adjustments Obtaining an understanding of a company’s selection and application of accounting principles is part of the auditor’s procedures to identify and evaluate risks of material misstatement under PCAOB standards. Additionally, the auditor is required to evaluate a change in accounting principle to determine whether the method of accounting for the effect of a change in accounting principle is in conformity with generally accepted accounting principles and whether the disclosures related to the accounting change are adequate. The new revenue standard provides two transition options for applying the new standard (full or modified retrospective application). A full retrospective application requires the recasting of prior year financial statements as if the new standard had been applied in those years. In contrast, a modified retrospective application requires disclosure of the effect on each financial statement line item in the period of application, and explanations of significant changes between the reported results under the new standard and those that would have been reported under current accounting principles. Under either option, the company recognizes the cumulative effect of adopting the new standard against opening equity of the earliest period of application. The new revenue standard also provides optional practical expedients that may be applied during the transition. The standard requires the practical expedients to be consistently applied and disclosed in the financial statements. It is important for auditors to identify and assess the risks of material misstatement associated with the company’s transition adjustments and design and implement audit responses that address those assessed risks. Specific considerations in assessing and responding to the risks of material misstatement of the transition adjustments include, among others, (a) internal control over financial reporting, (b) data that may not have been audited previously, (c) opportunities for committing and concealing fraud, and (d) prior-period misstatements identified in the current period’s audit. Internal controls over the transition adjustments will generally be relevant to the audit, including in selecting controls to test in an audit of financial statements (if the auditor plans to rely on such 1.12 18 controls) or an audit of internal control over financial reporting. As described in Practice Alert No. 11, auditors are cautioned that a control must be tested directly to obtain evidence about its effectiveness; an auditor cannot merely infer that a control is effective because no misstatements were detected by substantive procedures. This applies to evaluating evidence about the effectiveness of internal controls over the transition adjustments. Auditing transition adjustments involves obtaining company-produced information (e.g., standalone selling prices of the distinct goods or services underlying each performance obligation). As is the case generally with company-produced information, the auditor should perform procedures to evaluate whether the information produced by the company is sufficient and appropriate for purposes of the audit. In situations where management has asserted in the financial statements that the company’s transition adjustments are immaterial, it is important for auditors to perform procedures to test the accuracy of management’s assertions. The transition adjustments could pose new or heightened fraud risks. For example, a company could improperly identify performance obligations or improperly allocate transaction prices to performance obligations to defer revenue in order to recognize that revenue in subsequent periods. Auditors should evaluate whether the information gathered in obtaining an understanding of the company’s transition adjustments indicates that one or more fraud risk factors are present and should be taken into account in identifying and assessing fraud risks. When auditing the company’s transition adjustments, the auditor may identify a misstatement of revenue reported in prior-period financial statements. The auditor should perform procedures described in AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report, to determine whether or not the financial statements and auditor’s report should be revised as a consequence of the misstatement. Considering Internal Control over Financial Reporting PCAOB standards require the auditor to obtain a sufficient understanding of each component of internal control over financial reporting to (a) identify the types of potential misstatements, (b) assess the factors that affect the risks of material misstatement, and (c) design further audit procedures. Changes to company processes for the implementation of the new revenue standard can affect one or more components of internal control. For 19 relating to this principle is management evaluating competence across the organization and in outsourced service providers and acting as necessary to address any shortcomings identified. In addition, new or modified processes and systems to gather contract data, develop new estimates, and support new financial statement disclosures can affect the auditor’s risk assessment. Performing walkthroughs can help the auditor understand the flow of transactions, evaluate the design of controls relevant to the audit, and determine whether those controls have been implemented. In an audit of internal control, walkthroughs can also be an effective way to further understand the likely sources of potential misstatements and select controls to test. Internal control-related considerations The following discussion highlights certain internal control-related considerations that may be relevant to auditing the implementation of the new revenue standard in audits of internal control over financial reporting and audits of financial statements. – Information system and manual controls. The auditor should obtain an understanding of the information system relevant to financial reporting, including, among other things, (a) the related business processes; (b) the related accounting records and supporting information used to initiate, authorize, process, and record transactions; and (c) how the information system captures events and conditions, other than transactions, that are significant to the financial statements. As discussed in Practice Alert No. 11, how a company uses or modifies its information systems (e.g., upon implementation of the new revenue standard) can affect internal controls and, in turn, the auditor’s evaluation of those controls. The auditor should obtain an understanding of, among other things: • The extent of manual controls and automated controls related to revenue used by the company, including the information technology general controls (“ITGCs”) that are important to the effective operation of the automated controls; and • The specific risks to a company’s internal control resulting from information technology. During the transition to the new revenue standard, some companies might utilize spreadsheets and other short-term manual processes until automated processes and controls are implemented. These short-term manual processes may present different or greater risks of material misstatement than automated processes subject to effective ITGCs. – Management review controls. Some companies may design and implement management review controls over revenue as part of their implementation of the new revenue standard. When testing management review controls, PCAOB standards require the auditor to perform procedures to obtain evidence about how those controls are designed and operate to prevent or detect misstatements. Practice Alert No. 11 described considerations for evaluating the precision of management review controls and identifies factors, such as the level of aggregation and the criteria for investigation, that can affect the level of precision of an entity-level control. 1.14 20 When selecting and testing management review controls over revenue, it is important for auditors to consider the impact of the new revenue standard on management review controls that rely on expectations based on historical operations or trends. Further, controls over the accuracy and completeness of the information used to perform the management review control can affect the control’s operating effectiveness. – Reviews of interim financial information. The auditor’s understanding of internal control is also important when performing a review of interim financial information. The auditor should have sufficient knowledge of the company’s business and its internal control as they relate to the preparation of both annual and interim financial information to: Identify the types of potential material misstatements in the interim financial information and consider the likelihood of their occurrence; and Select the inquiries and analytical procedures that will provide the auditor with a basis for communicating whether he or she is aware of any material modifications that should be made to the interim financial information for it to conform with generally accepted accounting principles. The auditor should perform procedures to update his or her knowledge of the company’s business and its internal control during the interim review to (a) aid in the determination of the inquiries to be made and the analytical procedures to be performed and (b) identify particular events, transactions, or assertions to which the inquiries may be directed or analytical procedures applied. Such procedures should include, among other things, inquiries of management about changes to the company’s business activities, and the nature and extent of changes to internal control. Identifying and Assessing Fraud Risks The auditor should presume that there is a fraud risk involving improper revenue recognition and evaluate which types of revenue, revenue transactions, or assertions may give rise to such risks. Auditors should perform substantive procedures, including tests of details that are specifically responsive to the assessed fraud risks. As discussed in Practice Alert No. 12, performing such procedures involves (a) considering the ways management could intentionally misstate revenue and related accounts and how they might conceal such misstatements, and (b) designing audit procedures directed toward detecting intentional misstatements. Identifying specific fraud risks arising from the implementation of the new revenue standard involves having a sufficient understanding of the standard as well as the company’s processes, systems, and controls over its implementation of the standard. Fraud risks may exist at various levels and in different areas of a company. PCAOB standards require auditors to make certain fraud-related inquiries of management, the audit committee (or the equivalent), and others within the company. Key engagement team members, including the engagement partner, should brainstorm about how and where they believe the company’s revenue and related accounts might be susceptible to fraud. They should also discuss how management could perpetrate and conceal fraud, including by omitting or presenting incomplete or inaccurate disclosures. Brainstorming also includes discussing factors that might (a) create incentives or pressures for management and others to commit fraud, (b) provide the opportunity for management to perpetrate fraud, and (c) indicate a culture or environment that enables management to rationalize committing fraud. One potential incentive for fraud arises when new accounting requirements affect a company’s reported financial performance. When combined with excessive pressure to meet expectations of third parties or targets set by the board of directors or management, this could create the motivation to misstate revenue to achieve these expectations. For example, management could establish incorrect accounting policies and practices that achieve revenue targets when the correct application of the new revenue standard would result in revenue below expectations. Opportunities for fraud in implementing the new revenue standard may arise in the development of significant new accounting estimates or due to control deficiencies that might result from changes made to systems, processes, and controls to implement the new standard. For example, companies may be required to develop estimates for variable consideration and standalone selling prices, which might involve subjective judgments or uncertainties that are difficult to corroborate. Risk Factors Certain risk factors may reflect attitudes or rationalizations by board members, management, or employees that lead them to engage in or justify fraudulent financial reporting, and may not be susceptible to observation by the auditor. Nevertheless, an auditor who becomes aware of the existence of such information should consider it in identifying the risks of material misstatement arising from fraudulent financial reporting. Examples of risk factors that might arise in connection with implementation of the new revenue standard are (a) non-financial management’s excessive participation in, or preoccupation with, the selection of accounting principles or the determination of significant estimates, and (b) attempts by management to justify marginal or inappropriate accounting on the basis of materiality. The auditor’s identification of fraud risks should also include the risk of management override of controls. Controls over management override are important to effective internal control over financial reporting for all companies and may be particularly important at smaller companies because of the increased involvement of senior management in performing controls and in the period-end financial reporting process. Furthermore, the auditor should emphasize to all engagement team members the need to maintain a questioning mind throughout the audit and to exercise professional skepticism in gathering and 1.16 22 evaluating evidence. Practice Alert No. 10 identifies a number of threats to professional skepticism inherent in the audit environment. Auditors should be mindful that circumstances related to the implementation of the new revenue standard may increase such threats in some audits. Circumstances, where a company is late in implementing the new revenue standard, might create incentives and pressures on the auditor that could inhibit the exercise of professional skepticism and allow unconscious bias to prevail. Incentives and pressures may arise, for example, to avoid significant conflicts with management or provide an unqualified audit opinion prior to obtaining sufficient appropriate audit evidence. In addition, the implementation of the new revenue standard could heighten scheduling and workload demands, putting pressure on partners and other engagement team members to complete their assignments too quickly. This might lead auditors to seek audit evidence that is easy to obtain but may not be sufficient and appropriate, to obtain less evidence than is necessary, or to give undue weight to confirming evidence without adequately considering contrary evidence. As discussed in Practice Alert No. 12, auditors who merely identify revenue as having a general risk of improper revenue recognition without attempting to assess ways in which revenue could be intentionally misstated may find it difficult to develop meaningful responses to the identified fraud risks. Conclusion Because of the nature and importance of the matters covered in this practice alert, it is particularly important for the engagement partner and senior engagement team members to focus on these areas and for engagement quality reviewers to keep these matters in mind when conducting their engagement quality reviews. Auditing firms may find this practice alert helpful in determining whether additional training of their personnel, revisions to their methodologies or implementation thereof or other steps are needed to assure that PCAOB standards are followed. Auditors and auditing firms might also find certain matters discussed in this practice alert to be relevant to their preparations for auditing the application of new accounting standards on leases and credit losses. The PCAOB will continue to monitor auditing of revenue as part of its ongoing oversight activities.

Division Accounting and Finance, BGSF June 2, 2018

Division Accounting and Finance, BG Multifamily, BG Talent, Real Estate Division August 22, 2017 Leasing is widely used to address a variety of business needs, from short-term asset use to long-term asset financing. Sometimes leasing is the only option available to obtain the use of a physical asset, such as office space. Leasing transactions today represent over $1.4 trillion in off-balance-sheet financing. Because of its magnitude, many have argued that the disclosures prior to the new pronouncement were inadequate. The FASB and IASB initiated a joint project on leases in 2006 as part of the global convergence effort. After issuing two exposure drafts, extensive outreach and re-deliberations to address the concerns raised by stakeholders, the FASB and IASB issued separate lease accounting standards that diverged in significant areas. Key Provisions The main difference between previous GAAP and ASC 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The FASB reached the conclusion that the economics of lease transactions may be different between leases and therefore ASC 842 retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee, have not significantly changed from previous GAAP. The principal difference from previous guidance is that the lease assets and lease liabilities arising from operating leases should be recognized in the statement of financial position. The core principle is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For finance leases, a lessee is required to do the following: Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position Recognize interest on the lease liability separately from amortization of the right-of-use asset in the statement of comprehensive income Classify repayments of the principal portion of the lease liability within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases, a lessee is required to do the following: Recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position Recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis Classify all cash payments within operating activities in the statement of cash flows. Effective Dates The new lease accounting pronouncements are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: A public business entity; A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market; and, An employee benefit plans that file financial statements with the U.S. Securities and Exchange Commission (SEC). For all other entities, the amendments to the lease accounting rules are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early application of the amendments in this update is permitted for all entities. Additional Resources Exhibits I and II – an example of the accounting treatment of an operating lease and an example of the accounting treatment for a finance lease. Exhibit III – a series of questions and answers concerning the new pronouncement. FASB video on lease accounting Exhibit IV – next steps slide from the luncheon presentation.

Division Career Tips, Company Culture, Executive Leadership, IT, Light Industrial Division, Professional Division, Real Estate Division June 17, 2017 Quality Assurance: A Necessary Ingredient for Internal Control Management’s ability to fulfill its financial reporting responsibilities often depends on the design and effectiveness of the processes and safeguards it has put in place over accounting. While no control system can absolutely assure that financial reports will never contain material errors or misstatements, companies must discuss how a quality assurance process can substantially reduce the risk of inaccuracies and can lead to an effective system of internal control over financial reporting. An increased focus on the adequacy of internal control systems by a wide variety of regulators is causing organizations to take a more systematic, risk-focused approach to managing their compliance efforts. A well-designed quality assurance program supports the process by which accounting judgments and estimates are made, and in turn the reliability of the financial reports. Considering the new standards on revenue recognition and lease accounting, it will become even more important for companies to have a robust system of controls. Most companies tend to have their upstream processes such as AP, AR, and fixed assets, covered, but it’s the downstream processes such as financial statements, footnotes, and MD&A that are often questioned. Below are general best practices to discuss internally when executing this strategy: A Quality Assurance (QA) program should be considered when an organization wants to minimize the risk/impact to Financial Reporting, Operations, and Reputation A risk based approach should be utilized when designing and implementing controls as well as establishing your QA program. Build effective relationships with Internal and External Auditors – leverage them as a “sounding board” QA Key Points: Be sure the individual(s) performing the QA are knowledgeable enough about the organization to identify when items should be questioned further or if the control was performed correctly As part of the QA review process, it is important to document the following: Key attributes or data points reviewed Items requiring additional follow-up Steps taken to address/resolve items requiring follow-up Timely resolution of items requiring additional follow-up Evidence to support the QA individual(s) review and approve the follow-up items have been resolved Include this information as part of the support to evidence the QA review occurred As part of the QA review process, it is also important the individual(s) performing the review validate the underlying data used to perform the control is complete and accurate. For example, the reviewer can inspect the parameters/filters used to obtain the data from a particular system for accuracy of the data that is included or excluded. Also, it’s worth mentioning that QA processes are needed at various levels of an organization, and if a company does not have resources, they should outsource competent QA resources. A good independent set of eyes can make all the difference with success in this endeavor.

Division Construction and Architecture, Engineering, Light Industrial Division, Professional Division, Real Estate Division, Smart Resources, Transport, Supply and Logistics February 17, 2015 From staffing to streamlining processes, today’s distribution centers face a number of challenges. Fortunately, InStaff is here to help. A leader in full-service recruiting, we pride ourselves on helping distribution centers maximize output. Here are some of our top strategies for distribution center success. Go green. These days, almost every industry is concerned with its carbon footprint, and distribution centers are no exception. To protect the environment, and your pocketbook, consider updating to more eco-friendly MDR conveyors. Along with using 30-60 percent less energy, MDR conveyors offer the added bonus of reducing noise levels in your facility. Measure velocity. Product velocity refers to a measure of mover speed at your distribution center. According to the experts, placing stock-keeping units in easy-to-access areas is essential to a distribution company’s success in the coming years. Additionally, you should keep ergonomics in mind to boost employee satisfaction rates at your business. Try cross-decking. Want to cut costs at your distribution center? Consider cross-decking, or moving goods straight from receiving to shipping. For best results, incorporate a receiving conveyor system into your warehouse. Conduct reporting. Looking for a less time-consuming way of assessing your current systems? At InStaff, we recommend that warehouses implement a software-based system of tracking performance. As a bonus, most of these programs allow you to track both employees and overall system function. Utilize automation. Checkweighers can have a significant impact on your warehouse’s quality control. Not only can you boost productivity by automating these systems, but you can also reduce the amount of time spent dealing with customer complaints about underweight or overweight packages. Consolidate vendors. While the economy is slowly recovering, many businesses are still looking for ways to save. By forming relationships with integrators, distribution companies have the opportunity to score the products they need at a lower price point. Automate wrapping. These days, customers expect to receive their orders in days instead of weeks. Automated pallet building and wrapping allow for speedier service with a reduced risk of product injury. Additionally, distribution centers that adopt this technology can reduce labor costs for their facilities. Automate printing. A long-time burden for distribution centers is printing and affixing labels before packages can be sent. With automated printing and labeling, your facility can enjoy improved accuracy rates on shipping with less manpower. Utilize multiple channels. Integrating your various distribution channels in one sitting is another great way for businesses to save. In addition to allowing for better inventory management, a multichannel approach lets companies cut costs while fulfilling orders more expediently. Look at outsourcing. Sick of handling all your distribution needs in-house? These days, many companies are outsourcing this role to another enterprise. This is a great option for businesses looking to save money while freeing themselves up to focus on other tasks.