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

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

7. Historical Financial Statements
Current Reporting Model
Historical Financial Statements
Continuous Reporting
Past
Future
Present
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
The current model does serve as an effective foundation from which business reporting should start. However “real time” decisions are made by looking at BOTH the lagging indicators ( the historical Financial statement) and leading indicators which enhances business reporting as the information is much closer to the event. Not always “real time” but certainly “near real time.” The one size fits all concept to financial reporting is over 20 years out of date, and the loss of relevance or at least the need for more information can easily be identified.

8. Historical Financial Statements
Current Reporting Model
Historical Financial Statements
Continuous Reporting
Past
Future
Present
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 Assurance Requires…..
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 Assurance Requires…..
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. REAL TIME REPORTING - A CONCEPTUAL FRAMEWORK
5 Elements
Deployment
Information
Dissemination
Technology
XBRL
(HOW)
Business Information
Financial &
Non-Financial
Measures
.Business use
Standards Setters
(WHAT)
Foundational Concepts
System
Reliability
Corporate
Accountability
Understandable
Disclosures
SEC Plain English
FASB Projects
Continuous Audit
Trust Services
COSO ERM
OCEG
GRI
(WHEN)

13. CONVERGENCE TO “ REAL-TIME”
ELEMENTS OF REAL TIME REPORTING
CONVERGENCE TO “ REAL-TIME”
SCALABLE
System Reliability
Corporate Accountability
Financial and Non-Financial Measures
Enhanced business reporting should provide a comprehensive, understandable picture of a company's priorities, challenges, accomplishments, risks and financial position. It should also be customizable to meet the unique needs of diverse user groups, and it should help users of information see the organization more through the eyes of management.
The conceptual framework for enhanced business reporting is based on five fundamental elements:
1) System Reliability. Successful entities are proactive in their assessment and management of information technology related risks. These organizations understand the competitive advantage in protecting the completeness and accuracy of data, guarding against the inappropriate access to systems and data, and ensuring the availability of systems to users. Enhanced business reporting envisions providing assurance (potentially on a continuous basis) on systems reliability and data integrity to enhance the level of stakeholder trust in information provided.
2) Financial and Non-Financial Measures. The core of any reporting model will continue to be financial information based on generally accepted accounting principles (GAAP) and Securities and Exchange Commission (SEC) reporting requirements. However, most, if not all, business entities have identified critical internal financial and non-financial measures to more completely monitor performance. The inclusion of a wide range of financial and non-financial performance measures in business reporting will enable stakeholders to see an entity more through the eyes of management. This more transparent disclosure will lead to better understanding of management’s objectives as well as the risks and opportunities associated with providing both equity and debt.
3) Information Dissemination. Technology opens an array of opportunities to provide stakeholders with an almost infinite number of alternative displays of business information. The information needs of large and small equity investors, creditors, those interested in non-financial performance measures, and people interested in environmental issues vary widely. EXtensible Business Reporting Language (XBRL), a standard for disseminating information, now provides a technology that enables entities to provide online, globally accessible information that can be customized to meet the special needs of disparate stakeholder groups.
4) Understandable Disclosures. Disclosure documents need to be written in plain English so that investors can fully understand information being provided.
5) Corporate Accountability. The catastrophic financial reporting failures of 2001 and the enactment of the Sarbanes-Oxley Act have increased public focus on the adherence of corporations to the highest standards of ethical behavior. The Special Committee will promote the reporting of corporate accountability data, including information on environmental, health, safety, and social responsibilities; corporate governance; privacy requirements; and enterprise risk management.
Understandable Disclosures
Information Dissemination

14. CONVERGENCE TO “Continuous Assurance”
Migration Toward Real Time Assurance
CONVERGENCE TO “Continuous Assurance”
Deployment
System Reliability
HOW
Corporate Accountability
Information Dissemination
WHAT
The conceptual framework for enhanced business reporting is based on five fundamental, scalable elements (define scalable, then define elements):
1) System Reliability. Enhanced business reporting envisions providing assurance (ideally on a continuous basis) on systems reliability and data integrity to enhance the level of stakeholder trust in information provided. SR essentially makes the convergence to real or near real time reporting possible.
2) Financial and Non-Financial Measures. The core of any reporting model will continue to be financial information based on generally accepted accounting principles (GAAP) and Securities and Exchange Commission (SEC) reporting requirements. However, the inclusion of a wide range of financial and non-financial performance measures in business reporting will enable stakeholders to see an entity more through the eyes of management, leading to better understanding of management’s objectives and more efficient allocation of capital.
3) Information Dissemination. Technology makes it possible to provide stakeholders with an almost infinite number of alternative displays of business information. Extensible Business Reporting Language (XBRL), a standard for disseminating information, now provides a technology that enables entities to provide online, globally accessible information that can be customized to meet the special needs of disparate stakeholder groups.
4) Understandable Disclosures. Disclosure documents need to be written in plain English so that investors can fully understand information being provided.
5) Corporate Accountability. The catastrophic financial reporting failures of 2001 and the enactment of the Sarbanes-Oxley Act have increased public focus on the adherence of corporations to the highest standards of ethical behavior. The Special Committee will promote the reporting of corporate accountability data, including information on environmental, health, safety, and social responsibilities; corporate governance; privacy requirements; and enterprise risk management.
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. REAL TIME ASSURANCE EXAMPLES:
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
Continuous monitoring of controls (and their reporting on EBR) allows for control effectiveness measurement and detection:
Continuous Controls, placed by computer systems have a profile of activity. Computer programs, or test data, can be inserted in the data stream to test whether these controls are active. Systems can be “pinged” to understand certain types of control activity.
Continuous monitoring processes are meta-controls (controls of controls) and require assertions and review under Sarbanes-Oxley:
If you apply an audit test on a close to continuous basis and act on fallacious outcomes you are de-facto a control of the system. For example a continuous audit procedure that checks for duplicate payments at HCA is now part of the day to day processing activity of the company. Continuous auditors reprocess it just to check if it is being used.
Continuous auditing is a process that will serve to check the controls that are in place, and this is consistent with the requirements of Sarbanes Oxley 404 which requires auditors to report on controls.

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
Tom Hood to wrap-up/summarize

23. Questions and open discussion