Integra International Audit & Accounting Alert Issue 6| July 2021
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Integra International - Audit & Accounting Alert
ISSUE 6 | JULY 2021

At-A-Glance

The pandemic provided a new, opportunistic landscape, enticing fraudsters to wreak havoc on unsuspecting organizations. While entities were busy adapting their workplaces to the COVID-19 environment, devious minds were targeting weaknesses in the modified processes. A new report from the Association of Certified Fraud Examiners (ACFE) tracks the increase in fraudulent occurrences during the past year, as well as measures taken to counteract the threats. This issue of the Audit & Accounting Alert highlights the report and related anti-fraud resources available from the ACFE.

Our Worldwide Update is again split into two sections. The first covers COVID-19 news from organizations across the globe, while the second covers other news.
Gerry Herter
Gerald Herter - Editor

Keeping Fraud in Check Beyond the Pandemic

New report follows changes in fraud indicators, detection and prevention

The Association of Certified Fraud Examiners (ACFE) has closely tracked the progression of fraud during the pandemic. Prior to COVID-19, the ACFE produced a biennial Report to the Nations survey measuring developments, of which the 2020 edition summarized results covering the period ending just prior to the pandemic in September 2019. To more closely monitor the coronavirus impact, ACFE began publishing a quarterly Fraud in the Wake of COVID-19: Benchmarking Report last year, with the December 2020 edition reported on in the January 2021 Audit & Accounting alert.

The recent biennial reports have shown that organizations were losing 5% of their revenue to fraud annually. The first quarterly report during the pandemic found that almost all the respondents expected the overall fraud level to increase in the coming year. Now almost a year later, that prediction has been borne out.

Refocusing to look ahead, ACFE, in partnership with Grant Thornton, released a new report on June 21, 2021: The Next Normal: Preparing for a Post-Pandemic Fraud Landscape. From the more than 1,500 responses, 51% had already uncovered more fraud in their organizations since the pandemic began. Moreover, 71% expected the incidence of fraud to continue increasing over the coming year. Consequently, a third of organizations have increased their anti-fraud budget, with anti-fraud technology making up the largest portion of the increase. More than 80% of organizations have already implemented changes to their anti-fraud programs.

While all areas of fraud are expected to increase, the two considered most prominent are cyberfraud (covering business email compromise, hacking, ransomware, and malware) and social engineering (encompassing phishing, brand hijacking, and baiting). The shift of business operations to remote work and the expanded consumer reliance on online transactions are the major factors changing the fraud risk landscape, along with regulatory changes, supply chain disruption, stimulus programs, and others to a lesser degree. The top challenges to anti-fraud programs, therefore, are gaining access, limitations of remote interviews and travel restrictions, along with control and process changes arising from staffing difficulties and the work environment.

Of the changes to anti-fraud programs initiated or planned coming out of the pandemic, the most popular involve conducting or updating fraud awareness training and fraud risk assessment. Another lesson learned was the need to improve coordination and collaboration across the organization for a more effective and comprehensive anti-fraud program.

A benefit of reading the report all the way to the end is the link in the final sentence which leads to a wealth of practical tools and resources on the ACFE and Grant Thornton websites. An especially useful new tool produced in the midst of the pandemic is the The Anti-Fraud Playbook: The Best Defense Is a Good Offense. Using the sports analogy, ten “plays” are offered focusing on the five fraud risk management principles:

Fraud Risk Governance

1. Understand Where You Are and Where You Want to Be

2. Create a Culture

Fraud Risk Assessment

3. Think Like a Fraudster

4. Discover What You Don’t Know

Fraud Control Activities

5. Use Data to Uncover Fraud

6. Knowledge Is Power

Fraud Investigation and Corrective Action

7. Lay the Groundwork for Investigations

8. Conduct Investigations

Fraud Risk Management Monitoring Activities

9. Monitor Your Progress

10. Report on Your Progress

The Playbook is based on the 2016 Fraud Risk Management Guide, jointly published by ACFE and COSO, which in turn was based on COSO’s Internal Control—Integrated Framework.

By starting with the first play, and working through to the tenth, a robust anti-fraud program will be the result, according to the Playbook. Along the way, a roadmap, checklists, templates, and tips are provided, with points of focus and key questions at each juncture to assure that important aspects have been considered and addressed. As the conclusion indicates, the Playbook takes the general principles that are laid out in the Framework and enables the user to put them into practice with the needed specifics that can be tailored to the unique characteristics of each organization.

Further details can be found at The Next Normal: Preparing for a Post-Pandemic Fraud Landscape and The Anti-Fraud Playbook: The Best Defense Is a Good Offense.

Worldwide Update

Periodic roundup of recent and upcoming actions and activities by auditing and accounting organizations throughout the world.

COVID-19 Related

International

IASB – International Accounting Standards Board (www.ifrs.org)

  • Covid-19-Related Rent Concessions beyond 30 June 2021 (amendment to IFRS 16), issued March 31, 2021, extends the relief to cover rent concessions that reduce only lease payments due on or before 30 June 2022. Effective for annual reporting periods beginning on or after April 1, 2021.


IFAC – International Federation of Accountants (www.ifac.org)

  1. COVID-19 Resources from IFAC's Network – link -
    https://www.ifac.org/knowledge-gateway/series/COVID-19-resources-ifacs-network


ACCA – Association of Chartered Certified Accountants (www.accaglobal.com/)

  • Finance Functions: Seizing the Opportunity, survey report with PwC, published June 30, 2021, focuses on “what we can learn from the pandemic, how can finance maintain this renewed relevance and status within the organisation and how does the function need to evolve to capitalise on the opportunities with which it is now presented…Finance teams need to adapt to new ways of working, embrace emerging technologies and broaden their focus from the traditional areas of financial reporting to those that interest a growing group of stakeholders who are interested in Environmental, Social and Governance reporting in such areas as sustainability, inclusion and diversity and social impact…Our report shows that, amongst the undeniable challenges and trials for enterprises and the employees within them, opportunities have emerged from the backdrop of the pandemic. Finance functions now can recognise the lessons and capitalise upon these – and invest, grow and cement their central role in defining the future success of the organisations they serve.”


CIMA – Chartered Institute of Management Accountants (www.cimaglobal.com)

  1. Update on the Coronavirus and Impact for Association Activities – link -
    https://www.cimaglobal.com/Members/Update-on-Coronavirus/


VRF- The Value Reporting Foundation (www.thevrf.org)

  1. The Value Reporting Foundation is the result of the merger of the International Integrated Reporting Council and the Sustainability Accounting Standards Board on June 9, 2021.


World Economic Forum – (www.weforum.org)

  1. The COVID Action Platform – link - https://www.weforum.org/platforms/covid-action-platform - focuses on three priorities: 1. Galvanize the global business community for collective action. 2. Protect people’s livelihoods and facilitate business continuity. 3. Mobilize cooperation and business support for the COVID-19 response.

Africa, Europe, India, and the Middle East (AEIME)


FRC – Financial Reporting Council of the UK (www.frc.org.uk)
  • Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime COVID-19-related rent concessions beyond 30 June 2021, issued June 9,2021, “extend the application of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic by one year. The requirements, originally introduced into FRS 102 and FRS 105 in October 2020, apply to rent concessions that reduce only lease payments originally due on or before 30 June 2022, provided the other conditions for applying the requirements are met. The amendments are effective for accounting periods beginning on or after 1 January 2021, with early application permitted.”

ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)
  1. Coronavirus – updates – link - https://www.icaew.com/insights/coronavirus.

EFRAG – European Financial Reporting Advisory Group (www.efrag.org)
  1. No new developments

Americas, Asia, Australia and New Zealand (AAANZ)

AICPA – American Institute of Certified Public Accountants (www.aicpa.org)
  1. AICPA Coronavirus (COVID-19) Resource Center – link - https://www.aicpa.org/news/aicpa-coronavirus-resource-center.html

FASB – Financial Accounting Standards Board (www.fasb.org)
  1. FASB Response to COVID-19 – link - https://www.fasb.org/COVID19

GASB – Governmental Accounting Standards Board (www.gasb.org)
  1. GASB Response to COVID-19 – link -  https://www.gasb.org/COVID19

COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)
  • No new developments

PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)
  1. PCAOB Response to COVID-19 – link -  https://pcaobus.org/Pages/response-to-COVID-19.aspx

SASB – Sustainability Accounting Standards Board (www.sasb.org)
  1. See The Value Reporting Foundation above.

SEC – Securities and Exchange Commission (www.sec.gov)
  1. SEC Coronavirus (COVID-19) Response – link - https://www.sec.gov/sec-coronavirus-COVID-19-response
CAANZ - Chartered Accountants Australia and New Zealand (https://www.charteredaccountantsanz.com/)
  1. Financial Reporting and Audit Guide: Financial reporting and audit issues stemming from COVID-19 – link - https://www.charteredaccountantsanz.com/tools-and-resources/client-service-essentials/reporting/financial-reporting-and-audit-guide-financial-reporting-and-audit-issues-stemming-from-covid19

Other Updates

International

IASB – International Accounting Standards Board (www.ifrs.org)
  1. No new developments

IFAC – International Federation of Accountants (www.ifac.org)
  • The State of Play in Sustainability Assurance, global benchmarking report published jointly by IFAC, AICPA & CIMA in partnership with Audit analytics, on June 23, 2021, “to better understand the extent to which companies are reporting and obtaining assurance over their sustainability disclosures, which assurance standards are being used, and which companies are providing the assurance service. In short, the data shows a situation that is still evolving, with significant differences in practices across different jurisdictions.”

  • The Next Normal: Preparing for a Post-Pandemic Fraud Landscape, report published June 21, 2021. See article in this issue for details.

ACCA – Association of Chartered Certified Accountants (www.accaglobal.com)
  • The Capitalisation of Intangibles Debate: Software Development Costs (SDCs), research report published June 21, 2021. “The research has collected and summarised evidence on how many companies capitalise SDCs during the year and how many report Research & Development costs in the income statement, but do not capitalise SDCs during the year. These are defined in the report as capitalisers and non-capitalisers. The analysis reveals strong variations between countries. Over 80% of companies in China, Japan, Taiwan and Korea referred to software development in their accounts, compared to less than 20% of companies in Mexico, Malaysia and Singapore. Across the sample, software development was also more likely to be recognised as an asset by more dynamic companies – those that are more international, more acquisitive and more leveraged.” 
CIMA – Chartered Institute of Management Accountants (www.cimaglobal.com)
  • The State of Play in Sustainability Assurance, global benchmarking report published jointly by IFAC, AICPA & CIMA in partnership with Audit analytics, on June 23, 2021, “to better understand the extent to which companies are reporting and obtaining assurance over their sustainability disclosures, which assurance standards are being used, and which companies are providing the assurance service. In short, the data shows a situation that is still evolving, with significant differences in practices across different jurisdictions.”


VRF -  The Value Reporting Foundation (www.thevrf.org)

  • The Value Reporting Foundation is the result of the merger of the International Integrated Reporting Council and the Sustainability Accounting Standards Board on June 9, 2021.
  • Integrated Thinking: A Virtuous Loop, report published June 28, 2021. “The report offers tools to guide businesses at the start of their integrated thinking journey, and provides clarity and guidance for current practitioners on where to focus attention for improved performance. By further examining the close relationship between integrated thinking and integrated reporting, the report underlines that these powerful tools and processes combine into a continuous journey; a virtuous loop for organizations to improve performance.”

 
IIRC - International Integrated Reporting Council (www.theiirc.org)

  1. See The Value Reporting Foundation above.

World Economic Forum – (www.weforum.org)
  1. Digital Culture: The Driving Force of Digital Transformation, interactive guide published June 29, 2021, “created in collaboration with business executives and academia, presents actionable frameworks and tools for executives to improve digital leadership and culture in their organizations.”

Africa, Europe, India, and the Middle East (AEIME)

FRC – Financial Reporting Council of the UK (www.frc.org.uk)
  1. No New Developments
ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)
  1. No New Developments

EC – European Commission (https://ec.europa.eu/)

  1. No New Developments

EFRAG – European Financial Reporting Advisory Group (www.efrag.org)

  1. No New Developments

Americas, Asia, Australia and New Zealand (AAANZ)

AICPA – American Institute of Certified Public Accountants (www.aicpa.org)

  • The State of Play in Sustainability Assurance, global benchmarking report published jointly by IFAC, AICPA & CIMA in partnership with Audit analytics, on June 23, 2021, “to better understand the extent to which companies are reporting and obtaining assurance over their sustainability disclosures, which assurance standards are being used, and which companies are providing the assurance service. In short, the data shows a situation that is still evolving, with significant differences in practices across different jurisdictions.”
  • Auditing Standards Board (ASB) -Statement on Auditing Standards (SAS) No. 144, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources, issued June 8, 2021, “provides guidance in AU-C section 501 [and 601] on applying SAS No. 143 when: management has used the work of a specialist in developing accounting estimates, evaluating management’s estimates related to the fair value of financial instruments, [and] using the work of an auditor’s specialist… AU-C section 540 has been amended to add a new appendix, “Use of Pricing Information From Third Parties as Audit Evidence,” to provide guidance on using such information as audit evidence for estimates related to the fair value of financial instruments.” SAS No. 144 is effective for audits of financial statements for periods ending on or after December 15, 2023. Early implementation is permitted.

FASB – Financial Accounting Standards Board (www.aicpa.org)

  1. Exposure Draft – Leases (Topic 842) - Discount Rate for Lessees That Are Not Public Business Entities, issued June 16, 2021. “The amendments in this proposed Update would allow those lessees to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level. An entity that makes the risk-free rate election would be required to disclose which asset classes it has elected to apply a risk-free rate. The proposed amendments would require that when the rate implicit in the lease is readily determinable for any individual lease, the lessee would use that rate (rather than a risk-free rate or an incremental borrowing rate), regardless of whether it has made the risk-free rate election.” Comment period ends July 16, 2021.

GASB – Governmental Accounting Standards Board (www.gasb.org)
  1. Implementation Guide No. 2021-1, Implementation Guidance Update—2021, issued June 2, 2021,"contains new questions and answers that address application of GASB standards on derivative instruments, fiduciary activities, leases, and nonexchange transactions. The guide also includes amendments to previously issued implementation guidance on the financial reporting model, as well as sales and pledges and intra-entity transfers.”

COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)
  1. No new developments

PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)
  1. No new developments

SASB – Sustainability Accounting Standards Board (www.sasb.org)
  1. No new developments

SEC – Securities and Exchange Commission (www.sec.gov)
  1. No new developments

Additional A&A News
Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession.  The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors forspecific advice.
Editor Gerald E. Herter

 

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