Up to one-third of companies may not be implementing the new COSO framework for their 2014 financial reporting, and one-fourth don’t know when they will implement the framework.
That’s the word from KPMG after its poll of 450 financial reporting executives with public and private companies at the firm’s annual year-end financial reporting symposium to assess their year-end areas of focus. One-fifth of respondents said implementing the 2013 COSO Internal Control -- Integrated Framework was at the top of their year-end reporting worries, and nearly 43 percent said they were adopting the framework at the end of 2014.
Public companies that are required by the Securities and Exchange Commission to use a “suitable” framework are widely expected to update their internal controls over financial reporting to the new COSO framework after COSO officials put its old framework to pasture in December 2014. Private companies are not subject to the same requirement to report on the effectiveness of their internal controls. The SEC has said the longer a public company waits to adopt the new framework, the more likely it will face questions from regulators.
In addition to the new COSO framework, executives also had concerns regarding a host of regulatory compliance issues, with half in KPMG’s poll saying they ranked future regulatory mandates as their top compliance concern. Another 16 percent said they were more concern about current regulatory compliance issues than future requirements, while 22 percent pointed to tax compliance, and 11 percent cited data infiltration and IT security as their top worries.
KPMG said revenue recognition and other accounting changes on the horizon were also a concern for financial reporting executives. Almost 64 percent of executives said the companies the represent had not yet determined the method by which the company would adopt the massive new standard that applies to both public and private companies for how to account for revenue.
The Financial Accounting Standards Board adopted the new standard for U.S. GAAP in May 2014 to take effect in 2017, but depending on the method of transition a company elects, companies may need to begin collecting information according to the new requirements with the opening of their 2015 books. FASB is studying whether to extend the effective date to give companies more time to work out an implementation plan.
"Between revenue recognition and COSO, it's a significant year for changes in financial reporting, both in the framework and the standards," Thomas Duffy, national managing partner for KPMG. "This requires adequate planning and resources to ensure a smooth transition in the year ahead."