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Americas Assurance

An update for Partners/Principals,

Executive Directors and Directors

April 15, 2015

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


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


State of the practice Americas & Assurance perspectives

Frank Mahoney

Americas Vice Chair – Assurance

Stephen Howe, Jr.

Americas Managing Partner


► Audit quality

► Regulatory relationship

► Headcount

► FIDS/FAAS/CCaSS growth

► Audit Transformation

Something to be proud of…


► 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


Shirley Edwards Deputy Vice Chair – Assurance

Financial overview with

focus on margin


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


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%



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)%



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)


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


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


Chuck Seets Americas Assurance Markets Leader

Market highlights


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)


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


► 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”


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%


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


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


Sandra Oliver Americas Assurance Talent Leader

Talent perspective


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)


► 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


► 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


► 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


David Kane Americas Vice Chair Professional Practice

Quality


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


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


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


Revenue recognition Channel 1 and Channel 2

Ken Marshall Americas FAAS Leader

Don Zimmerman Americas Senior Client Service Partner – Assurance


► 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


► 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


► 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

http://chs.ey.net/servlet/CHSRenderingServlet?chsReplicaID=852573E80067FF50&contentID=CT-0C622C233932168E85257D2B005E9081




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




Cybersecurity services

for Channel 1

Brian Loughman Americas FIDS Leader


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


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


Steve Starbuck Americas CCaSS Leader

Conflict minerals


► 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


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


► 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

http://chas.ey.net/CHS/US/AABS/ASSURANCE/GASSURCKR.NSF/4a7e59182b0cc2b38525710800779431/59c2ffb4fd5ab42348257d040020b83e?OpenDocument



http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0394_ConflictMineral_5May2014/$FILE/TothePoint_CC0394_ConflictMineral_5May2014.pdf

http://www.ey.com/Publication/vwLUAssetsAL/TothePoint_CC0394_ConflictMineral_5May2014/$FILE/TothePoint_CC0394_ConflictMineral_5May2014.pdf


Frank Mahoney Closing comments

Short-term imperatives


► 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


Questions


Thank you

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All Rights Reserved.

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