Survey: Businesses Say SOX Beneficial but Challenging

The annual Sarbanes-Oxley (SOX) Compliance Survey released by global consulting firm Protiviti reveals a new set of challenges facing public companies amid their compliance efforts.

PCAOB audit requirements, new revenue recognition standards and cybersecurity concerns were cited by survey respondents as factors that will influence SOX compliance efforts in 2017. However, companies are seeing the benefits of their SOX compliance work, with 70% reporting that their internal control over financial reporting structure has improved and 50% realizing continued improvement of business processes.

The survey report, Fine-Tuning SOX Costs, Hours and Controls, is based on a survey completed by 468 chief audit executives, and internal audit and finance leaders and professionals in U.S.-based public companies in a wide range of industries in the first quarter of 2017.

Of the respondents’ companies, 72% have annual revenues of $1 billion or more and 78% are beyond their second year of SOX compliance. Respondents looked back on their organizations’ SOX compliance efforts for the prior fiscal year – with attention to the factors potentially influencing observed changes in resources spent. The in-depth Protiviti report maps out the dynamic and evolving compliance landscape, 15 years after SOX was signed into legislation.

“SOX requirements and practices have changed with the times, and we’re pleased to see that many companies are reaping the benefits of their compliance efforts, which is also good news for investors,” says Brian Christensen, executive vice president, global internal audit and financial advisory at Protiviti. “By creating streamlined and lean processes, companies can respond to new and emerging business or regulatory challenges with agility. Conversely, those who aren’t following this model and are instead always playing catch-up may struggle to remain competitive over time.”

The Protiviti 2017 survey report identifies three emerging factors affecting SOX compliance:

  • PCAOB Requirements: Increasing inspection report requirements placed on external auditors by the PCAOB have resulted in stricter compliance activities for many organizations.
  • Revenue Recognition: A narrow majority (56%) of public companies started the process of updating controls documentation in 2016, ahead of the new revenue recognition accounting standard going into effect for most companies in the next fiscal year. Those who completed the antecedent work to meet the new standard have already identified gaps and updated critical accounting policies; 26% noted extensive or substantial increases in testing of controls over application of revenue recognition policies.
  • Cybersecurity: With the growing prevalence of cyberattacks and breaches during the last year came increasing scrutiny from external auditors, management and boards of directors. As cybersecurity grows beyond an IT concern into a fundamental business issue across the enterprise, it’s not surprising that survey respondents showed significant growth in the number of cybersecurity disclosures made in 2016. Of those who issued disclosures, 15% (compared to just 5% in 2015) increased their hours spent on SOX compliance by more than 20%. Overall, of those companies that had to issue a cybersecurity disclosure, nearly one out of three experienced an increase of at least 16% in SOX compliance hours.

Professor: Sarbanes-Oxley Has Not Decreased Accounting Misbehavior

In the wake of President Donald Trump’s executive order to roll back the Dodd-Frank Act, another set of financial regulations could face scrutiny in Washington, D.C.

In 2002, Congress passed the Sarbanes-Oxley Act in response to a number of high-profile accounting scandals at Enron and Worldcom, which left thousands of employees and investors with gutted retirement funds.

Since the implementation Sarbanes-Oxley nearly 15 years ago, however, the continuously increasing rates of accounting class action litigation in recent years indicates that accounting misbehavior does not seem to have decreased, writes Maya Thevenot, an associate professor at Florida Atlantic University’s School of Business, in a press release.

Thevenot, who is the Stone Fellow in the School of Accounting at the university, says that despite the apparent decrease in the number of restatements since the Sarbanes-Oxley Act, the SEC took a major step in fighting fraud with the formation of the Financial Reporting and Audit Task Force in 2013. The task force takes proactive steps to identify companies to investigate for potential accounting violations. As a result, the number of SEC enforcement actions involving accounting issues rose.

SEC Chair Mary Jo White, in a speech last year, reinforced the commission’s focus on accounting fraud. She cited continued “instances of public companies and their senior executives manipulating their accounting to meet various expectations and projections” and indicated that the focus on fraud would likely expand. As a result, recent years have been marked by record-breaking numbers of SEC enforcement actions alleging financial violations, Thevenot writes.

Overall, it appears that managers’ accounting manipulations have persisted over the years but discovery rates have likely increased due to the SEC’s sustained focus and proactive actions to unveil fraud. The increase in SEC actions has had significant implications for private litigation, which also have increased in recent years, according to Cornerstone Research.

Business groups would like to relax the Sarbanes-Oxley rule mandating public firms to hire outside accounting firms to attest that their internal controls are effective in preventing fraud. “All eyes are on Washington, D.C. to see if they get their wish,” says Thevenot.

MACPA, BLI Usher in New Era of Learning for Accounting and Finance Pros

Bill Sheridan

Guest Blogger Bill Sheridan

By Bill Sheridan
Maryland Association of CPAs

Nano learning and blended learning are now accepted forms of continuing professional education, thanks to newly revised standards from the National Association of State Boards of Accountancy and the AICPA.

That means a new offering from the Maryland Association of CPAs and its learning subsidiary, the Business Learning Institute, is the first nano learning program for finance professionals in North America to qualify under the new standards.

The revised standards will provide “for one-fifth (0.2) of a CPE credit for nano learning, and the ability to award one-fifth (0.2) of a CPE credit for programs using other delivery methods after a minimum amount of credit has been awarded,” according to the AICPA. “Additionally, (the standards) revise the definitions of group live and group Internet-based programs to focus the definitions from how the content is delivered by the instructor to how the content is received by the participants.”

“Boards of Accountancy, CPAs, and CPE providers have recognized the need for CPE to continue to evolve to keep pace with current learning models,” said Maria Caldwell, Esq., NASBA’s chief legal officer and director of compliance services. “The addition of nano learning and blended learning delivery methods is representative of that effort.”

The MACPA’s Anticipatory Organization™: Accounting and Finance Edition, or AOAF, is the first nano learning program for CPAs that meets these innovative new learning standards. The program combines three- to four-minute, single-concept videos with rapid application exercises to accelerate learning of complex competencies in less time than traditional CPE programs. It was developed by international futurist and best-selling author Daniel Burrus and recognized by Accounting Today magazine as one of the 2016 Products of the Year in the learning category.

The effectiveness of the AOAF model — short videos followed by exercises that teach you to apply what you’ve learned to what you do — is backed by science.

“In 1885, a German psychologist named Hermann Ebbinghaus conducted a study about memory called ‘Memory: A Contribution to Experimental Psychology,’” writes Jacob Shriar, director of content for Officevibe. “What he found was pretty shocking to anyone involved in training and development: Ninety percent of information or knowledge learned will be forgotten within three days. … Because of how quickly we forget, it’s important to review the information you just learned within 24 hours of learning it. The research shows that if you do that, you’ll be able to retain 80 percent of the information. If you review again 48 hours later, that number goes up to 85 percent. If you review again 72 hours later, you’ll retain pretty much all of the information.”

Beyond that, Shriar writes, nano learning helps increase employee engagement, helps create a culture of continuous learning, and is easy to update with the latest information.

A track record of innovation

The MACPA and the BLI have pioneered new methods of learning for more than a decade, starting in 1999 with the association’s “Management by Sticky Notes” collaboration process and continuing in 2008 with the groundbreaking CPA Island in the virtual world of Second Life. In 2012, the MACPA also pioneered technology for remote collaboration and audience participation / engagement. These continue to elevate and accelerate learning for our participants.

The MACPA and the BLI continue to work to transform learning in five key ways:

  1. Social: We have been using Twitter hashtags for several years to supplement learning at conferences. We are now exploring more formal ways of capturing and documenting this learning. (See MACPA CEO Tom Hood’s report from the 2016 AICPA EDGE Conference.)
  2. Mobile / nano, or “Just When You Need It” learning: The MACPA and the BLI are working on a innovative learning platform called “Wise,” which uses social media to track and report nano or micro learning from Twitter and LinkedIn.
  3. The cloud: The AICPA Navigator learning management system allows us to offer what we call “the four Cs of talent development” — competencies, career path, and a curriculum on a cloud-based learning platform. The LMS allows firms and companies to move their talent development to a strategic and systematic approach. The MACPA and the BLI can bring that expertise to your LMS.
  4. Collaboration: The MACPA’s “Management By Sticky Notes” process, the io audience participation tool, and the ThinkTank Collaboration platform are highly engaging ways of increasing learning through involvement. (See Hood’s article, “The Year of the Sticky Note.”)
  5. Competency-based learning: With our Bounce framework (which maps BLI programs to the new CGMA Competency framework), we can now create strategic learning plans for organizations. Our new program to build a competency around anticipation and strategic thinking is both a nano learning program and a way to develop competencies, with its rapid application exercises and collaboration guides for teams. Our competency focus is part of our DNA, from the initial research from the AICPA Vision Project and the updated CPA Horizons 2025 Project that identified the top five future competencies for CPAs.

Advances in technology and learning are coming together to truly transform what and how we learn. As Hood says, “In a world of rapid change and increasing complexity, the winners will be those who can keep their L>C. That is, their rate of learning greater must be greater than the rate of change and greater than the rate of their competition.”

How are you keeping your L>C?

Bill Sheridan is the chief communications officer / new and social media specialist for the Maryland Association of CPAs.

Nano Learning and Blended Learning Get OK from NASBA and AICPA

NASBA and the AICPA have proposed revisions to the Statement on Standards for Continuing Professional Education (CPE) Programs (Standards) as well as the NASBA Fields of Study document, during their respective July and August 2016 board of directors meetings.

Published jointly by NASBA and the AICPA, the CPE Standards provide a foundation for the development, presentation, measurement and reporting of CPE programs. The Standards reference the NASBA Fields of Study document, which was also reviewed and evaluated for currency and relevancy.

“These newly approved revisions to the Standards represent the collective efforts of the CPE committee, the CPE standards working group and the various individuals and organizations that participated in the exposure draft process,” says Maria Caldwell, NASBA’s chief legal officer and director of compliance services. “Boards of Accountancy, CPAs and CPE providers have recognized the need for CPE to continue to evolve to keep pace with current learning models and the addition of nano learning and blended learning delivery methods is representative of that effort.”

Among the most significant changes to the Standards is the addition of two new instructional delivery methods: nano learning and blended learning. The 2016 Standards now require that an element of participant engagement be included in group live programs for each CPE credit. The updated Standards will provide for one-fifth (0.2) of CPE credit for nano learning, and the ability to award one-fifth (0.2) CPE credit for programs using other delivery methods after a minimum amount of credit has been awarded. Additionally, the 2016 Standards revise the definitions of group live and group Internet-based programs to focus the definitions from how the content is delivered by the instructor to how the content is received by the participants.

“The addition of blended learning and nano learning meets the marketplace demand for greater flexibility and increased CPE options. These modernizations to the Standards are in line with what we heard from our Future of Learning Task Force and reflect the current dynamic business environment CPAs operate in,” says Clar Rosso, AICPA vice president of member learning and competency.

The changes to the Fields of Study document focus on providing categories and descriptions that are more current and relevant than the previous version.

The Standards are effective Sept. 1, and CPE sponsors will have until Dec. 31 to comply with the Standards for programs currently under development. The Standards must be implemented at the next CPE program review or revision date for all other programs. For the NASBA Fields of Study document, the effective date is also Sept. 1, but sponsors have another year, until Dec. 31, 2017, to fully implement the revisions.

Interested parties can download the Standards and the Fields of Study documents, which can be found on this page.

For more information about the Standards, visit:

AICPA Looking For Feedback on Accounting Standards

The AICPA’s Financial Reporting Executive Committee (FinREC) has issued several working drafts of accounting issues related to the implementation of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, and is requesting feedback.

The working drafts discuss considerations and illustrative examples of industry-specific transactions for telecommunication entities implementing ASU No. 2014-09. Final revenue recognition implementation issues will be included in a new revenue recognition guide that the AICPA is developing.

The AICPA is looking for informal feedback on:

Issue #15-1 – Portfolio Accounting

Issue #15-4 – Accounting for Contract Costs

Email comments to Desiré Carroll at dcarroll@aicpa.orgby Oct. 1.

Read more about the Telecommunications Entities Revenue Recognition Task Force.

AICPA Urges Senators to Maintain Availability of Cash Method for Accounting Firms and Others

The AICPA encouraged members of the Senate Finance Committee to preserve the use of the cash method of accounting for tax purposes as they ponder business tax reform.

In a letter submitted for the record of the committee’s hearing on “Navigating Business Tax Reform,” AICPA president and CEO Barry Melancon wrote, “As the committee drafts its proposals, we urge maintaining the current availability to use the cash method of accounting for pass-through entities and personal service corporations, such as accounting firms. Determining taxable income under the cash basis is simple in application, is a method of accounting which the service industry has used for decades, and must remain an option for these businesses.”

The letter explained that under the accrual method, many accounting and other service-type firms would need to accelerate a significant amount of income into the current taxable year despite not receiving the actual payment from their clients. This increase in tax liability could have a significant negative impact on a new owner’s ability to finance entrance into a partnership. Additionally, limiting the use of the cash method may result in the requirement of a CPA to take out a personal bank loan for the sole purpose of paying his/her increased tax liability. In addition to income tax consequences, some partners would also pay more self-employment taxes under the accrual method. Further, the AICPA believes a gross receipts restriction on the use of the cash method would unfairly impact accounting firms and could threaten their ability to expand.

“The AICPA has consistently supported tax reform efforts that promote simplicity and economic growth and do not create unnecessary administrative and financial burdens on taxpayers,” Melancon wrote. “An accrual method mandate falls short in that regard. We strongly urge retaining use of the cash method of accounting.”

NASBA CPT Launches Ethics Certification for Business Professionals

The NASBA Center for the Public Trust (CPT) announced the launch of its Ethical Leadership Training and Certification for business professionals. This online, self-paced and interactive program consists of three training modules that discuss ethical culture, leadership and strategy. Each of the three modules is interspersed with dynamic videos, real world ethical dilemmas discussed by subject matter experts, as well as quizzes to gauge the participant’s understanding. Participants can take the modules individually, or as whole, to earn the ethical leadership certification.

Since 2005, the CPT has encouraged leaders to support ethical business practices, by conducting a variety of collegiate and professional programs including the Student Ethical Leadership Certification, launched in 2014. The success of the student certification led the CPT to pursue the development of a certification for business professionals.

“Ethical decision-making is one of the most important components of sustained business success,” says CPT president Alfonzo Alexander. “This training and certification program is designed to help employees recognize ethical issues, resolve ethical dilemmas and create an atmosphere that promotes positive ethical behavior in organizations. At the end of the program, users will have a clear understanding of why ethical leadership is important to both business and career success,” he added.

Based on best practices from successful organizations as well as common corporate weaknesses, culture, leadership and strategy serve as the overarching themes discussed throughout the certification. The three sections are, Culture Matters, Leadership and Strategy Matters.

Learn more about the NASBA Center for the Public Trust (CPT).

NASBA Launches CPA Experience Verification Service

NASBA announced the launch of a new service – CPA Experience Verification. This service was created in response to the accounting profession’s increasing need for a more coherent and standardized experience validation and verification process for international and domestic CPA licensure applicants.

Through this efficient experience verification process, applicants seeking licensure as CPAs in the United States will be paired with a NASBA client manager to guide them through the application process, followed by verification of work experience by the DataFlow Group – a global provider of specialized Primary Source Verification (PSV) solutions – and an interview with a licensed CPA to further validate the applicant’s requisite experience and determine if the applicant is qualified for licensure.

To apply for the service, applicants must meet the following requirements:

  • Pass the Uniform CPA Examination, and
  • Meet the educational and experience requirements for licensure (as outlined by the specific U.S. Board of Accountancy).

At the completion of the application process, a final report will be sent to the specific Board of Accountancy for licensure consideration and approval.

Ken Bishop, president and CEO of NASBA, says, “The launch of the experience verification service directly aligns with our mission of enhancing the effectiveness of the Boards of Accountancy. It is a much-needed service for international and domestic CPA candidates.”

The service is available in the following U.S. jurisdictions: Illinois, Kentucky, Minnesota, Montana, Ohio, Oklahoma, Virginia, Washington, Washington, D.C. and Wisconsin. Individuals interested in the service are asked to submit an electronic Interest Form and visit the Frequently Asked Questions page to learn more about the service.

From Billable Hours to Value Pricing

Richard Goldstein

Richard Goldstein

By Richard Goldstein, partner at Buchbinder Tunick & Company

Many industry consultants are urging PR firms to dump billable hours and replace it with a fixed-pricing model, or even value pricing. For some reason, billable hours seem to be set in stone in many service organizations, including PR agencies.

The beginning of billable hours begins with the initial proposal. By this I mean a price is determined, usually based on hours to complete the project. Staff is given budgets to complete a project and record their time in a time-keeping system. At the end of the project, management has a profit or loss based on billable hours. More frequently than not, the question asked is, “How can this have taken that much time?” The question translates into a realization write-off and overall dissatisfaction from the account supervisor and the team members!

Some history

So what is wrong with the billable hour? The billable hour was never meant to be a pricing method. It was originally intended to be a tool to allow a service organization to measure the profitability of an engagement, not a means to price it. It is a cost accounting tool!

Ask a professional of any profession to eliminate his or her time sheet. Staff will chuck it in an instant. Management would be concerned that they would not know whether or not they made money on an individual engagement. This is a valid point but wrong! The concept of using a standard billing rate is not cost accounting but profit forecasting. By this I mean knowing the desired net income of the firm using a cost plus formula. By the way, a cost plus formula is only as good as the determination of the cost plus formula input. The U.S. Postal Service uses cost plus to determine price. We know how well it does!

Lessons from the accounting professionGrowth Dollar Sign

Many CPA firms are still using billable hours internally to help calculate a fixed monthly rate for some of its clients. However, other firms are completely discarding the notion of an hourly metric and instead use “value pricing” to determine prices based on the value of the service to the client. It is interesting that based on accounting firm surveys, the majority of CPA firms still use the billable hour. Those that say they use value pricing are really just using another form of the billable hour according to Ron Baker, a well-known value pricing consultant.

What’s wrong with using billable hours?

According to Baker, the billable hour relies on practitioner’s input, namely time, rather than the output, results. The value of the results should determine the cost of the service, not the time it takes to achieve them. Otherwise, firms can find their revenue stream severely limited. (There are only so many hours a person can work in a day.) Also, think about this — how much time and energy does it take to track time, analyze the result and labor over what went wrong! The time is better spent on results for clients!


Firms are hesitant to move away from the billable hour, because firm management still needs to track time to determine their costs and gauge which services produce the best margin. (In my view even this is not done properly.) Baker disagrees with this notion, arguing instead that other methods such as price-led costing, project management, key predicative indicators and after-action reviews are better suited to determining and managing costs than time sheets.

If your client demands hourly billing

There are many clients that want to see all the detail behind the bill, including how you determined the billable rate, etc. According to Baker, some buyers of your expertise are so used to buying services based on time and rate, they demand to know this. I have been asked many times to provide the firm’s billing rates in the proposal. It is also true that sometimes a client/customer just wants to buy your time (perhaps to ask a numerous questions according to Baker), and the only benchmark of value in that instance is the time spent. This is not the type of client you want to deal with, since the client has no idea of the value you bring, or if he/she does, is not willing to pay for it. After all, you spent a lifetime learning your craft, why should you give $10,000 of value to a customer in a one-hour meeting? Better yet, why should you provide this value in the proposal?

Determining profitability

If you eliminate time sheets, how will you know if you are profitable? It is simple: income statement management. Look at the cost of labor as a percentage of gross revenue. This is a different mindset from poring over hourly reports. Not comfortable with this? Keep your time sheets and make it a true cost accounting system, rather than a pricing model.

I would be remiss if I did not offer the advantages and disadvantages of hourly billing so here are just a few:

Some advantages: It’s easy and efficient; it can be a cost accounting tool; and it transfers risk to the client if the engagement goes over budget.

Disadvantages: Focuses on hours not value; places risk on the client; fosters a production line, not an entrepreneurial spirit; creates a subsidy system where some clients are overcharged and others are undercharged in order to meet hourly quotas; transmits no useful information other than identifying rainmakers, managers and technicians, and useful information is found in client service, attitude, client retention ability, profitability and collection, ability to delegate, monitoring skills, etc.; focuses on efforts not results; encourages the hoarding of hours to fulfill quotas; penalizes technological advances; rates are set by reverse completion (where you look at the rates of your competition in your market and see where you fit in); creates bureaucracy; does not differentiate a firm; and limits income potential.

Get the picture?

Richard Goldstein is a partner at New York-based Buchbinder Tunick & Company LLP.

Congressman Leaves Behind Legacy of Corporate Reform Legislation

Michael Oxley

Michael Oxley

Michael Oxley, the former Ohio Republican congressman who was instrumental in the landmark corporate reform bill that bore his name, died of lung cancer Jan. 1 at the age of 71.

Oxley served 12 terms in the House of Representatives, retiring in 2007. As chairman of the Committee on Financial Services, Oxley pushed legislation, along with Democratic Sen. Paul Sarbanes of Maryland, that aimed to curb abuses that led to the implosion of former energy giant Enron Corp. and telecom provider WorldCom Inc., among others, in the early 2000s.

The Sarbanes-Oxley Act established the Public Company Oversight Board (PCAOB), subjecting auditors of public companies to independent oversight for the first time, and sought to protect investors from further governance abuses.

The law requires officials to certify that financial statements are true and fair, report on the adequacy of internal controls, and give timely disclosure on material changes. The legislation also provides for whistle-blower protection and clawbacks of executive pay in cases of wrongdoing. It bans auditors from doing consulting work for a public company for which it serves as an auditor and imposes criminal penalties for destroying, concealing or falsifying records, Bloomberg reported.

Some critics said that complying with the law was too costly. Oxley told Fortune magazine years later that he wished the law had treated smaller companies differently from larger ones, but continued to defend the overall impact of the law. “No law is perfect,” he said.