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Americas Assurance
An update for Partners/Principals,
Executive Directors and Directors
April 15, 2015
Page 2 Americas Assurance I Spring 2015 update
Today’s contributors
Shirley Edwards
Deputy Americas
Vice Chair – Assurance
Chuck Seets
Americas Assurance
Markets Leader
Sandra Oliver
Americas Assurance
Talent Leader
David Kane
Americas Vice Chair
Professional Practice
Ken Marshall
Americas FAAS Leader Don Zimmerman
Americas Senior Client
Service Partner – Assurance
Brian Loughman
Americas FIDS Leader
Steve Starbuck
Americas CCaSS Leader
Stephen Howe, Jr.
Americas Managing Partner
Frank Mahoney
Americas Vice Chair –
Assurance
Page 3 Americas Assurance I Spring 2015 update
Agenda
► Welcome and introductions
► State of the practice
► Financial overview
► Market highlights
► Talent perspective
► Quality
► Revenue recognition (C1 and C2)
► Cybersecurity (C1)
► Conflict minerals
► Closing comments
► Q&A
Page 4 Americas Assurance I Spring 2015 update
State of the practice Americas & Assurance perspectives
Frank Mahoney
Americas Vice Chair – Assurance
Stephen Howe, Jr.
Americas Managing Partner
Page 5 Americas Assurance I Spring 2015 update
► Audit quality
► Regulatory relationship
► Headcount
► FIDS/FAAS/CCaSS growth
► Audit Transformation
Something to be proud of…
Page 6 Americas Assurance I Spring 2015 update
► Scalable to engagement with modern user interface
► Integrated workflow management system providing real-time status
of audit processes and issues
► Enhanced group audit co-ordination
► Integrated client requests
► Applications for mobile devices
Audit Transformation at a glance
Your quality EY audit
EY Canvas
PMM Audit experience
EY Helix
Au
dit
Tra
ns
form
ati
on
EY Atlas
► Streamlined repeatable data capture process and use of analytics
throughout audit
► Enhanced ability to identify transactions with higher risk from the total
population
► Ability to deliver richer and more relevant business insights
► Enhanced search of technical accounting and auditing content for
both EY and our clients
► Content updates in more timely fashion
► Ability to search from a mobile device
► Tailored audit approach for private middle market clients
► Scaled benchmarking and data analytics tools
► Management recommendations toolkit to enhance client
recommendations
► Tailored EY Growth Navigator for use with audit clients
► New non-audit services for PMM clients
Page 7 Americas Assurance I Spring 2015 update
Shirley Edwards Deputy Vice Chair – Assurance
Financial overview with
focus on margin
Page 8 Americas Assurance I Spring 2015 update
Americas Assurance Financial results – FYTD March 2015
Actual vs. plan vs. PY
TNR ($ millions) $3,392 (0.6)% 5.2%
Chg hrs incl GTH (000s) 26,374 2.2% 7.6%
TNR rate per hour $128.59 (2.7)% (2.2)%
GM before PNC 69.2% (0.3 pts) (1.7 pts)
Client serving FTEs 19,640 1.3% 8.6%
Full utilization 80.3% (0.4 pts) (1.6 pts)
$ amts in US dollars; variances ($ and %) computed in constant US dollars
Page 9 Americas Assurance I Spring 2015 update
Americas Assurance TNR FYTD March 2015
Actual vs. plan vs. PY
Audit $3,019 (0.6)% 3.1%
FIDS 214 3.7% 17.1%
FAAS 159 (1.7)% 40.3%
Assurance $3,392 (0.6)% 5.2%
US $2,800 (1.0)% 4.6%
Canada 229 0.9% 5.0%
SAR 232 (2.6)% 13.9%
MeCAR 67 (0.5)% 7.4%
Israel 64 6.5% 4.9%
Americas $3,392 (0.6)% 5.2%
$ amts in US dollars; variances ($ and %) computed in constant US dollars
Page 10 Americas Assurance I Spring 2015 update
Americas Assurance TNR FYTD March 2015
Actual Inc (Dec) vs. plan Inc (Dec) vs. prior Yr
TNR TNR Hours Rate TNR Hours Rate
Audit $3,019 (0.6)% 2.2% (2.8)% 3.1% 5.6% (2.4)%
FIDS 214 3.7% 3.5% 0.2% 17.1% 27.9% (8.5)%
FAAS 159 (1.7)% (1.1)% (0.6)% 40.3% 68.7% (16.9)%
Assurance $3,392 (0.6)% 2.2% (2.7)% 5.2% 7.6% (2.2)%
$ amts in US dollars; variances ($ and %) computed in constant US dollars
Page 11 Americas Assurance I Spring 2015 update
Americas Assurance TNR
Forecast Plan Chng
TNR ($ millions) $4,459 $4,463 (0.1)%
Chg hrs incl GTH (000s) 34,096 33,578 1.5%
TNR rate per hour 131 133 (1.6)%
GM before PNC $3,020 $3,050 (1.0)%
GM % 67.7% 68.3% (0.6 pts)
Page 12 Americas Assurance I Spring 2015 update
Americas Assurance FYTD and Forecast vs. PY
FYTD vs. PY Forecast To Go vs. PY
TNR Hours Rate TNR Hours Rate
US 4.6% 8.4% (3.5)% 7.5% 8.3% (0.8)%
Canada 5.0% 6.8% (1.7)% 5.9% 3.5% 2.3%
SAR 13.9% 8.0% 5.4% 8.2% (7.7)% 17.3%
MeCAR 7.4% 0.7% 6.6% (2.5)% (3.2)% 0.7%
Israel 4.9% 6.5% (1.4)% (2.0)% (10.8)% 10.0%
Americas 5.2% 7.6% (2.2)% 6.6% 3.9% 2.5%
Note: Forecast adjusted to an estimated 52 week amount for to go calculations versus prior year
Page 13 Americas Assurance I Spring 2015 update
Americas Assurance FYTD and Forecast vs. PY
FYTD vs. PY Forecast To Go vs. PY
TNR Hours Rate TNR Hours Rate
Audit 3.1% 5.6% (2.4)% 2.8% 2.3% 0.5%
FIDS 17.1% 27.9% (8.5)% 11.9% (9.0)% 23.0%
FAAS 40.3% 68.7% (16.9)% 57.4% 93.8% (18.8)%
Assurance 5.2% 7.6% (2.2)% 6.6% 3.9% 2.5%
Note: Forecast adjusted to an estimated 52 week amount for to go calculations versus prior year
Page 14 Americas Assurance I Spring 2015 update
Chuck Seets Americas Assurance Markets Leader
Market highlights
Page 15 Americas Assurance I Spring 2015 update
Americas Assurance top wins
SAR FIDS ($20.0m)
West Audit ($30.0m)
Canada CCaSS ($0.7m)
West FAAS ($2.3m)
Central CCaSS ($1.0m)
Northeast FIDS ($25.0m)
Southeast Audit ($7.0m)
West Audit win ($4.5m)
Central Audit ($2.2m)
Northeast FAAS ($1.7m)
Northeast FIDS ($17.0m)
Page 16 Americas Assurance I Spring 2015 update
Americas Assurance pipeline $1.5b of opportunities
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
All Assurance Audit
Th
ou
san
ds
FY14 FY15
Assurance pipeline FY14 vs. FY15
(first year fees)
44%
15%
$0
$50
$100
$150
$200
$250
$300
$350
FIDS FAAS CCaSS
Th
ou
san
ds
Assurance sub-service line pipeline FY14 vs. FY15 (first year fees)
FY14 FY15
98%
63%
22%
► Assurance pipeline overall increased from $515.0m to $740.0m (44% increase)
► Audit pipeline increased from $259.5m to $299.3m (15% increase)
► FIDS pursuits increased from $103.0m to $168.3m (63% increase)
► FAAS pursuits increased from $117.2m to $232.0m (98% increase)
► CCaSS pursuits increased from $13.4m to $22.6m (22% increase)
Note: From InterAction as of 4/2/15
Page 17 Americas Assurance I Spring 2015 update
► Approximately 60% of companies have filed their 2014 proxy fees, excluding
auditor changes, foreign companies, funds/trusts and subsidiaries
2014 US proxy fee results Summary through April 9, 2015
2014 auditor #
2014 revenue
(in millions)
2014 fee total
(in millions)
2014 audit fees
(in millions)
2014 average audit
fees (in millions)
2013-2014
audit fee % change
EY 429 $3,589,435 $1,753 $1,367 $3.19 2.8%
Deloitte 330 $2,377,704 $1,774 $1,326 $4.02 4.6%
KPMG 326 $1,779,338 $1,208 $974 $2.99 3.7%
PwC 354 $2,809,918 $2,232 $1,733 $4.90 3.9%
Total 1,439 $10,556,396 $6,967 $5,400 $3.75 3.8%
► Adjusting for two large audit fee reductions due to prior year
restatements/investigations in 2013, EY audit fee % change would be +5.3%
► Early data does not support the notion that we are uniquely “fee aggressive”
Page 18 Americas Assurance I Spring 2015 update
2014 US proxy fee results Region summary, increases vs. decreases
Number of companies reporting fee increases
(and % of total companies those increases represent) by region (by firm)
EY DT KPMG PwC
Region # % # % # % # %
Central 70 74.5% 57 63.3% 26 55.3% 63 73.3%
FSO (US) 27 65.9% 40 74.1% 46 65.7% 37 74.0%
Northeast 58 67.4% 39 62.9% 42 55.3% 45 53.6%
Southeast 33 57.9% 19 67.9% 11 64.7% 20 57.1%
Southwest 46 60.5% 32 71.1% 37 60.7% 22 61.1%
West 54 72.0% 38 74.5% 42 76.4% 37 58.7%
Total 288 67.1% 225 68.2% 204 62.6% 224 63.3%
Number of companies reporting fee decreases
(and % of total companies those decreases represent) by region (by firm)
EY DT KPMG PwC
Region # % # % # % # %
Central 24 25.5% 32 35.6% 20 42.6% 23 26.7%
FSO (US) 14 34.1% 12 22.2% 24 34.3% 12 24.0%
Northeast 27 31.4% 21 33.9% 30 39.5% 38 45.2%
Southeast 22 38.6% 8 28.6% 6 35.3% 13 37.1%
Southwest 29 38.2% 12 26.7% 20 32.8% 11 30.6%
West 21 28.0% 13 25.5% 13 23.6% 25 39.7%
Total 137 31.9% 98 29.7% 113 34.7% 122 34.5%
Page 19 Americas Assurance I Spring 2015 update
Audit Pricing Transformation Conjoint and peer surveys
Derive weights for selected margin drivers and values
Goals
Timing
Target
Format
Lead
Component ‘‘multi-dimension’’
survey = Conjoint survey A
Component “peers”
survey = Fee increase survey B
Collect information on selected margin drivers of all running engagements
10–15 minutes 5–10 minutes
All US partners All US partners
Web-based Excel-based
Simon-Kucher EY
Simon-Kucher facilitates
Page 20 Americas Assurance I Spring 2015 update
Private middle market Work-shops and work-streams
44%
6%15%
6%2%
20%
7%
Current Situation
Application - Prevent IT-dependent Manual - Prevent
Manual Prevent Manual Detect
Application - Detect IT-Dependent Manual - Detect
Operational control
0.9
1.0
0.4
1.8
0.2
0.0
4.3
0.8
0.9
1.3
3.0
AR -Professionalisedebt collection
AR - Optimiseterms
AP - Alignshareholder
suppliers withNon-group
AR - Optimiseterms
AP - Advancepayments
AP - Paymentsby cheque(1)
0
1
2
3
4
5
6
7
8
m€
Total Min. impact Max. impact
PMM benchmarking FSCP improvements
Internal controls benchmarking Working capital improvements
Page 21 Americas Assurance I Spring 2015 update
Sandra Oliver Americas Assurance Talent Leader
Talent perspective
Page 22 Americas Assurance I Spring 2015 update
Americas headcount Staff through partners – as of March 31, 2015
19,640
(up 8.6% from last year)
4,974
(up 11%)
Total
headcount
Total
hires/starts
Voluntary
turnover
19.4%
(up 0.8 points)
Page 23 Americas Assurance I Spring 2015 update
► Performance evaluations and quality
career discussions
► Promote open and honest, constructive feedback
► Create opportunities for career reflection and engage
in career planning discussions
► Understand and lead EY Career Value conversation
► Express our gratitude
► Distribute RAC awards
► Encourage convening opportunities
► End of busy season parties, Town Halls – link their
contributions to our results
► GPS launches April 21
Improving retention
Our joint efforts to promote engagement
and retention Now is the
time to engage
with our
people
Voluntary
turnover spikes in
April and July
Page 24 Americas Assurance I Spring 2015 update
► Focus on selection process of high
quality trainers
► Ensure trainers receive credit for their quality
contributions to training
► RAC awards focused on recognizing high
performing trainers that keep three week
training commitment
Learning
Our efforts to improve learning – This
year’s focus on high quality trainers Encourage
trainers to
keep their
training
commitments
Page 25 Americas Assurance I Spring 2015 update
► Removed the US Audit partner self
assessment survey
► Created a reviewing partner/reviewee partner
discussion guide to focus your annual
conversations
► Contributed to a collaborative effort across
service lines to develop a FAQ document to
drive greater transparency of the GPPM
process and assessment
GPPM
What changes have we made? Prepare for
your
discussions
Focus on all
aspects of
performance
Page 26 Americas Assurance I Spring 2015 update
David Kane Americas Vice Chair Professional Practice
Quality
Page 27 Americas Assurance I Spring 2015 update
Inspection results and looking ahead to 2015
► PCAOB inspections
► Results of 2014 inspections
► 2011 PCAOB inspection report response accepted
► 2015 inspections underway
► Key areas of focus for 2015 audits
► ICFR – precision of review controls
► IT – electronic audit evidence and ineffective ITGCs
► Engagement quality reviews
► Execution of multilocation audits
► Implementation of Canvas and EY Atlas
► Adoption of PCAOB Auditing Standard No. 18
► Private company audits
► Communications to field and new tools, enablers and guidance
Page 28 Americas Assurance I Spring 2015 update
Engagement quality reviews and root cause process
► EQR Task Force formed and a number of actions have been taken
► Enhancements to our EQR selection and assignment process
► Development of EQR Foundation training program
► New/updated tools and enablers
► Enhancements to our EQR evaluation and recognition process
► Root cause process redesigned
► Focus on contributing factors as to why quality occurrences happen
► Create better linkages with root causes and actions
► Positive quality occurrences also will be evaluated
► Importance of transparency, tone and helping the firm to improve
Page 29 Americas Assurance I Spring 2015 update
Milestones and Coaching Kit programs
► Early executive involvement and focus on meeting milestones has a
clear positive effect on audit quality
► Changes to 2015 program
► Encourage greater ownership of target completion dates by engagement
teams and provide more flexibility in establishing target dates based on
engagement specific circumstances
► Facilitate the development of specific plans by engagement teams
focused on completing the four milestones phases more timely
► Allow teams to more efficiently monitor their progress against team goals
► 2015 Milestones and Coaching Kit programs described more fully in
March 17 communication
► We encourage you to energize your teams to fully embrace these
programs
Page 30 Americas Assurance I Spring 2015 update
Revenue recognition Channel 1 and Channel 2
Ken Marshall Americas FAAS Leader
Don Zimmerman Americas Senior Client Service Partner – Assurance
Page 31 Americas Assurance I Spring 2015 update
► Preparer activity continues to increase even with the delay
► Channel 1 (C1)
► C1 account team leads the pursuit and delivery
► Four permissible services diagnostic wins to date (signed SOWs)
► Additional work in the form of accounting consultations under existing audit
engagement agreement
► Separate engagement codes used; nature of activities and billing being evaluated
► Reporting process to be refined to better capture this as well as audit fee uplift as we get
closer to implementation date
► Channel 2 (C2)
► Coordinating Partner leads cross-service line teams
► Twenty-seven wins with expected fees exceeding $30m
► Industry leaders including Bank of NY Mellon, Cisco, Honeywell, Microsoft, Nike,
Northrop Grumman and Pfizer
► Early lessons learned suggest complexity of technical accounting interpretations
and overall implementation effort should not be underestimated
RevRec Overview of current market place
Page 32 Americas Assurance I Spring 2015 update
► Strong knowledge of businesses and commercial arrangements
► Quick upstart – no need to educate a new advisor
► Existing relationships may lessen disruptions to the businesses
► Specialist differentiation – deep accounting change and industry
experience
► Top-down diagnostic approach
► Gap analyses prior to detailed contract reviews
► Agreement earlier in process on areas of change/no change will help
make the implementation and related auditor testing more efficient
► Audit effectiveness and efficiencies
► Scoping can occur during ongoing auditor activities
► Better knowledge transfer and sustainability after project is complete
► Avoids duplication of work/potential rework
EY value proposition to C1 accounts Benefits of using your auditor
Page 33 Americas Assurance I Spring 2015 update
► Regional C1 Champions Network
► C1 February 18 RevRec communication highlights
► Materials to support client discussions (available on the Revenue
recognition CHS)
► Revenue recognition audit series publication and enablers
► Audit Committee (updated)
► Scope of services
► C1 meeting deck (updated with “Benefits of using your auditor”)
► SOW template
► FAAS support for G360 and Focus Core
► Enabling technology – requires non-audit services SOW
► C1 client version of RRR tool currently available for G360 and Focus Core
► Enhanced C1 client version available for broader distribution in mid-2015
► Audit team version of RRR tool being planned
RevRec Available resources to support you
Page 34 Americas Assurance I Spring 2015 update
RevRec Tools and enablers
Planned tools and enablers
► Near term (i.e., 2015)
► Short, on-demand webcasts on
implementation matters
► Additional publications in revenue
recognition audit series
► Longer term (i.e., 2016 or 2017)
► Updated audit guidance and forms
► Sector considerations (including
PSPs), risk and control matrices
Released tools and enablers
► Revenue recognition CHS
► Information release on scope of services
► Accounting publications
► General technical line
► Industry technical lines
► Updates on standard setting and
TRG activities
► Presentation materials
► Auditing publications
► Revenue recognition audit series on
engaging with management
► Reference cards
► Audit FAQs on transition
Page 35 Americas Assurance I Spring 2015 update
Cybersecurity services
for Channel 1
Brian Loughman Americas FIDS Leader
Page 36 Americas Assurance I Spring 2015 update
FIDS services to C1 – Cybersecurity
► Cyber talent in FIDS
► Senior level specialists
► FBI – Director Cybercrime Division
► Air Force OSI/Cyber Ops
► Former regulators/industry
► 350 professionals with relevant skills
► IT forensics
► Incident response
► Cyber investigations
► Work closely with ITRA and Advisory teams
Page 37 Americas Assurance I Spring 2015 update
FIDS services to C1 – Cybersecurity
► Reactive services
► Cyber shadow investigations
► Assist audit team evaluate the issue and client response
► Identify indications of compromised data
► Evaluate the investigation scope and work performed
► Proactive services
► Insider threat assessment
► Cyber crime diagnostic
► Thought leadership client briefings
► Who to call
► Assurance Regional MPs
► Local FIDS PPED
Page 38 Americas Assurance I Spring 2015 update
Steve Starbuck Americas CCaSS Leader
Conflict minerals
Page 39 Americas Assurance I Spring 2015 update
► A company must file a Conflict Minerals Report (CMR) if it
knows or has reason to believe the conflict minerals may have
originated in the Democratic Republic of the Congo or adjoining
countries and are not from recycled or scrap sources
► All CMRs need an Independent Private Sector Audit (IPSA)
starting in calendar year 2015 and completed by May 31, 2016
► SEC has issued a stay order on the audit requirement due to
pending litigation
► Once the court rules, we expect the SEC will issue guidance on
the audit requirement
► The advice that we are giving is to proceed with the expectation
that an audit will be required
► IPSA must follow Government Auditing Standards (GAGAS)
► We anticipate first year IPSA fees will be around $100k–$125k
Conflict minerals rule update
In 2012, the SEC issued a conflict minerals rule that requires all SEC filers (including foreign issuers) to
file an annual form SD if they determine conflict minerals – tin, tantalum, tungsten and gold (3TG) – are
“necessary to the functionality or production” of their products manufactured or contracted to be
manufactured.
EY245
PwC229
KPMG 169
DT 158
Other211
Page 40 Americas Assurance I Spring 2015 update
Conflict minerals IPSA market potential $24.5m based on 245* EY C1 CMR filers
$6,400
$5,500$5,100
$2,300 $2,200$1,800
$1,000$200
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Central West Northeast Southwest Southeast Non-AmericasHQ region**
Israel Canada
*At time of initial filing period, 259 of CMR filers were EY audit clients. Due to auditor changes the number has decreased.
**Non-Americas HQ region includes companies HQ in countries outside the Americas (some inbound accounts to the US)
64 filers
55 filers
51 filers
23 filers 22 filers
18 filers
10 filers
2 filers
Total estimated revenue potential for all EY C1 CMR filers $24.5m
Page 41 Americas Assurance I Spring 2015 update
► EY can assist with a client’s conflict minerals program through
► Conflict minerals program gap assessments and assurance readiness in preparation of IPSA
(permissible for C1 and C2)
► Conflict minerals IPSA (C 1 independence required)
► Check to see if your clients (C1/2) filed a CMR. All CMRs are posted on the
internet. You can download a copy of the EY C1 CMR filers (Excel file) using the
Downloads option.
► Contact your regional CCaSS conflict minerals leader for additional info
► Northeast: Rich Goode, [email protected]
► Central: Craig Coulter, [email protected]
► Southeast: Chris Hagler, [email protected]
► Southwest: John DeRose, [email protected]
► West: Chris Doherty, [email protected]
► Leverage latest thought leadership for client discussions
Conflict minerals What you can do
Let’s talk: Governance conflict minerals
To the Point: SEC moves ahead with modified conflict minerals reporting
Page 42 Americas Assurance I Spring 2015 update
Frank Mahoney Closing comments
Short-term imperatives
Page 43 Americas Assurance I Spring 2015 update
► Finish FY15 strong!
► Billing and collecting on inventory
► Aggressive 2015 base audit fee estimates
► Improving margin, leveraging GTH and other tools/resources
► Embrace audit transformation
► Keep our momentum going
► Market and people
► Dive into the private middle market
► Get moving on milestones!
Short-term imperatives
Page 44 Americas Assurance I Spring 2015 update
Questions
Page 45 Americas Assurance I Spring 2015 update
Thank you
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