2020 bdo audit quality report continuing to build trust

2020 BDO AUDIT QUALITY REPORT

CONTINUING TO BUILD TRUST

A Message to Our

Stakeholders

Events of 2020 have forever changed our society and global economy.

Capital markets continue to be significantly impacted by the pandemic and resulting economic downturn. The extreme measures taken by governments, markets, industries and corporations to protect and preserve human life during a global pandemic have had significant impact. A further driver of transformation has been the rising demand for meaningful social and ethical change to achieve real equality.

Throughout this truly momentous time in our history, we have witnessed a growing need for resilience and underlying trust—within our firm, among our clients and within the broader ecosystem in which we all operate.

The agility to respond and adapt to change has been a distinguishing factor within the capital markets. This, combined with timely information and communication, has for many months been the lifeblood that has allowed our firm and the companies we serve to navigate the impacts of crisis and make informed decisions about near-term and longer-term next steps.

For BDO USA, LLP1, our core values and reliance on a strong system of quality management have strategically and tactically allowed our over 8,0002 professionals to aptly respond in real-time to unanticipated stressors posed by significant changes in regulations, physical working conditions and pressing needs of our clients. At the same time, these values and underlying quality controls have allowed our professionals to remain focused on our alignment with professional standards and innovations for the audit of the future.

As both organizations and individuals continue on the road to recovery—economically, financially, culturally and personally—trust in the financial reporting on the health of organizations has taken on greater significance. Uncertainty, along with increasingly complex judgment in forecasting and analyzing corporate risk and liquidity, underscore the need for continued high-quality audits.

We take our auditor responsibilities and the reliance that is placed on them by our stakeholders very seriously.

WE BELIEVE AUDIT QUALITY INCLUDES...

1 BDO USA, LLP is the U.S. member firm of BDO International Limited, a U.K. Company limited by guarantee, and forms part of the international BDO network of independent member firms. Throughout the report, we refer to the U.S. member firm as “BDO” or “we” or “our.”

2 Note: Metrics included in this report are based on data as of April 30, 2020 unless otherwise indicated.

effective, efficient, technology-enabled

and technically compliant audits

that are

performed by

highly valued and relied upon by

intended users of financial statements

skilled professionals doing evaluative,

insightful and impactful work.

2020 BDO AUDIT QUALITY REPORT / CONTINUING TO BUILD TRUST 2

In our 2019 report, we publicly defined our view of audit quality. We have aligned that view with investments and activities in our delivery of independent audits to emphasize ethical behavior and excellence from our people, quality in engagement execution and precision in our monitoring activities.

In 2020, we have taken the time to reflect upon the global events impacting our firm’s culture and audit work. We are proud to share our continued efforts in excellence in service, expansion of technology, honed methodologies and enhancements in monitoring and quality management.

Even in a time of great uncertainty, our audit quality framework3 and seven underlying commitments position us to acutely address emerging complexities of our clients’ businesses, ensure compliance with rapidly evolving regulatory rules and requirements and satisfy the expectations of all of our stakeholders for the delivery of high-quality audits and exceptional client experience.

We invite you to learn more from this report about our resilience and the trust it fosters as we continue to focus on high-quality audits.

3 BDO’s audit quality framework referenced in this report aligns with the Center for Audit Quality’s (CAQ) Audit Quality Disclosure Framework developed by the audit profession and released in 2019.

CHRISTOPHER TOWER National Assurance Managing Partner, Audit Quality & Professional Practice

BILL EISIG National Assurance Managing Partner and Practice Leader

WAYNE BERSON Chief Executive Officer

The Resilience Agenda: BDO’s Recovery Framework

Given the vast economic and business impacts from the global pandemic, BDO developed a four-stage recovery framework to help organizations plan with precision even amidst uncertainty.

This framework also guides our approach to resilience and continuity of service. We are proud of how our professionals and clients are persevering to complete audits on time in unprecedented circumstances. BDO’s prior investments in technology and continuing commitment to technical insight, quality management and oversight are being tested throughout the pandemic response and have proven strong, agile and secure. This has given clients continued confidence in their audits in a volatile climate allowing them to focus on moving their business more quickly and effectively through the recovery process.


https://www.bdo.com/insights/assurance/corporate-governance/2019-delivering-sustained-audit-quality/delivering-sustained-audit-quality

https://www.thecaq.org/wp-content/uploads/2019/03/caq_audit_quality_disclosure_framework_2019-01.pdf

https://www.bdo.com/resources/the-resilience-agenda/a-framework-for-recovery-in-the-covid-19-economy

OUR AUDIT PRACTICE

CLIENT-FACING STAFFING LEVERAGE RATIOS

1 to 8.3 Partner to Staff

1 to 1.9 Partner to Manager

1 to 2.8 Manager to Staff

98% Annual percentage of partners retained

~9 out of 10 Engagement leaders below partner who choose to remain with BDO

2020 BDO Audit Quality Highlights

19% Partners & Directors

55% our Assurance practice

composed of women and Black, Indigenous and Other People of Color

21% Senior Managers & Managers

31% Seniors

29% Staff

46% Assurance professionals

as a percentage of BDO’s client serving professionals

OUR ASSURANCE PRACTICE COMPOSITION

SUSTAINING AUDIT QUALITY

96% Assurance professionals believe they are personally responsible for audit quality

46% Assurance remains the greatest percentage of firm revenues

30% Public company audit revenues as a percentage of Assurance

practice revenues


TECHNICAL AND SUBJECT MATTER SUPPORT

1 to 23

Ratio of National Assurance professionals to Assurance Practice professionals

1 to 7

Ratio of Audit Quality Network professionals to Assurance professionals

Partner / 63 hours

Directors / 63 hours

Senior Manager / 57 hours

Manager / 59 hours

Senior / 53 hours

Staff / 66 hours

ANNUAL AVERAGE NUMBER OF CPE HOURS EARNED BY LEVEL:

MONITORING OUR QUALITY

136 Number of engagements

internally inspected in FY2093% Percentage of current

inspection cycle private company inspections conforming without a material defect

9 out of 10 Aggregate current

year inspection cycle inspections (private and public) considered conforming

240,000+ National Assurance hours contributed to enhancing audit quality

INNOVATING OUR AUDITS AND PROFESSIONAL ENGAGEMENT

100%New client engagements that leverage our Next Gen Global Audit Process Tool

100,000+Clients worldwide who use the BDO Global Portal

250+

Opportunities for continuing education provided to those charged with governance and financial reporting

33%

Percentage of our National Assurance leaders who actively contribute to audit quality initiatives of significant professional organizations

15%Percentage of experienced BDO professionals serving as directors or officers of charitable and nonprofit organizations


Governing the Tone of Our Culture and Leadership

Leveraging the Audit Quality Disclosure Framework 3

Addressing need for resilience 3

Living our Core Values 10-11, 22

Ensuring national resources in support of our Assurance Practice 12-15

Achieving positive trends in Assurance Audit Quality and Operational Excellence Survey

16-18

Fully deploying our Professional Judgment Framework 17

Achieving positive trends in firmwide Pulse Survey 19

Forward investing by our Board in technology and technical specialization to enhance audit quality

20

Aligning audit quality with strategic priorities of the Board 20

Cultivating diversity, inclusion and equality 21-23

Being recognized as a top destination for talent 23

Leading in and leveraging our global network 24

OUR SEVEN UNDERLYING COMMITMENTS

Assume individual and collective responsibility for every audit

Lead in field: Make appropriate judgments in real time and support our people in pursuit of audit quality

Pursue continuing education—our own and our clients: Explain, guide and explore with curiosity what we need to achieve

Know and apply professional standards and all firm guidance effectively in delivering our work

Approach with the mindset of an evaluator: Seek out facts, consider applicable literature, evaluate alternatives and present persuasive judgments

Seek and implement change and not become attached to the status quo or old orthodoxies: Transform what we do every day, in every way

Involve others—when required and when not: Collaborate and strengthen judgment, find and seek the right answers and be better professionals

Audit Quality Commitment and Indicators


Developing and Managing High Caliber People and Teams

Enhancing recruitment of Assurance professionals 38-39

Supporting and holding professionals accountable to goals and performance metrics

38

Focusing on retaining exceptional talent 38-39

Maintaining staff levels during pandemic and honoring internship commitment

38-39

Expanding capacity through use of BDO Service Centers 40

Providing a robust, modern and continuous curriculum designed to inform, demonstrate and apply

41-43

Leveraging investment in digital learning platforms to immediately adapt to learning in a virtual environment

41-42

Responding to evolving accounting and auditing standards as well as the increased regulatory requirements due to COVID-19

41-43

Offering secondee opportunities domestically and internationally

42-43

Emphasizing relationship and project management education for exceptional client experience

44-45

Promoting Ethics and Independence

Promoting ethical actions 26

Advancing independence priorities and education 26-27

Enhancing real-time access to independence information 26-27

Encouraging independence consultations - globally and domestically

26-27

Focusing on the prevention and detection of independence issues

27

Ensuring the Right Fit – Client Acceptance and Continuance

Formalizing and expanding firmwide risk management team 29

Providing careful consideration to emerging risk management issues impacting client acceptance and continuance decisions

30-31

Increasing focus on risk in acceptance related to emerging industry engagements

30

Leveraging proprietary technologies, data mining and analytic capabilities to aid in evaluating client risk profiles

31, 32

Enhancing working relationships with and providing continuing education to those charged with governance

33-34

Recognizing the distinct challenges of small- and mid-cap company boards

35

Serving a rich tapestry of private and public entities, domestically and globally, across broad industry sectors

36

“I strongly agree with the underlying commitments and find great personal drive to deliver on them.”

ASSURANCE MANAGER Respondent to 2020 BDO Audit Quality and Operational Excellence Survey


Ensuring High Quality Engagement Performance

Engaging securely and in real time with clients via our Global Portal

47-49

Deploying a robust digital suite of audit tools 48

Executing full rollout of APT Next Generation as a key audit quality driver

50

Working smarter, not harder via engagement integration of Audit Data Analytics (ADA) solutions

51

Driving audit quality from the top down through supervision and review

52-55

Accrediting for specialized roles 56

Centrally assigning engagement team composition and monitoring of workloads

57

Establishing risk-based formal and informal consultation policies 58

Engaging in external collaboration with stakeholder communities 59

Leading in the community 59

Providing timely resources and insights 60

Approaching private company audits efficiently and effectively 61

Monitoring Audit Quality

Enhancing our firm system of quality controls 63-64

Designing a continuous quality improvement framework 65

Performing focused internal inspections 66-67

Achieving compliance with internal Quality Assurance Reviews and contributing resources internationally

67

Receiving positive external AICPA Peer Review results 68

Factoring in external PCAOB inspection findings 68-70

Encouraging behaviors that drive audit quality 71

Performing ongoing monitoring and remediation activities 72-74

Planning ahead for the future of audit 76

“I think these seven commitments are well summarized and imperative to strive for audit quality and for us all to grow as professionals.”

ASSURANCE SENIOR MANAGER Respondent to 2020 BDO Audit Quality and Operational Excellence Survey


Governing the Tone of Our Culture and Leadership


Putting People First and Remaining Committed

People are the core of everything we do. From our leadership to our staff and the clients we serve across the world—our core purpose is helping people thrive every day. Furthermore, our culture has been built upon shared values that drive us to:

PUT PEOPLE FIRST

BE EXCEPTIONAL EVERY DAY, EVERY WAY

EMBRACE CHANGE

EMPOWER THROUGH KNOWLEDGE

CHOOSE ACCOUNTABILITY

“I believe culture plays a large part in defining an organization. With over one year at BDO, I have found a very positive culture. I appreciate the fact that PEOPLE FIRST is not just a phrase that is printed out on paper or painted on the walls…My leadership always demonstrates Audit Quality principles.”



These values, combined with well-defined and aligned audit quality commitments, guide our professionals in doing the right thing.

In times of crisis, commitments to quality are even more critical. Making our immediate priorities clear at the onset of the pandemic provided our professionals the support and confidence to best serve our clients:

Safety

Continuity

Integrity

Flexibility

X Immediately shifting our professionals to remote work

X Discontinuing client visits and travel for the health of our clients and our staff

X Leveraging our existing tools and technology, including our global client portal, to ensure continuation of service

X Transparently and promptly communicating on evolving risks and responses to GAAP, GAAS and business issues

X Making executive decisions to avoid furloughing staff and stressing engagement teams

X Keeping a strong focus on independence and quality control

X Centering around our Professional Judgment Framework

X Taking a long-term view to planning and risk management

X Consistently emphasizing “doing the right thing”

X Developing innovative ways to communicate timely with clients and provide uninterrupted service

X Embracing change while providing resources and training to clients and teams to aid in change management and technical support for remote work

X Promoting BDO Flex and communication programs to better support individual and engagement team needs

++

+

“Resilience doesn’t build character; it defines it. Our commitment to achieving quality without compromise during crisis, coupled with a central focus on audit quality, have positioned BDO and our professionals to emerge stronger and more unified in mission and method.”

CHRIS ORELLA Assurance Managing Partner, Operations


Quality must be built, directed and overseen by a committed team of leaders guided by the right governance structure.

Our executive, business and technical Assurance leaders are aligned around a common set of goals and priorities to drive audit excellence. In 2019, we redefined our organizational structure to better support high-quality audit outcomes. This has involved building a true partnership between our executive team and our operational, technical and quality management leaders. As a result, a regular cadence of meetings and defined actions has provided a clear path to executing on our audit priorities. This has been cascaded through the organization from the CEO through the Executive Team. Our Executive Team, which consists of the leaders of each of the firm’s business lines, is responsible for the firm’s strategic plan and setting direction for its execution. The Regional and Office Managing Partners along with the National Assurance technical, quality management, independence, risk management and monitoring functions provide oversight of operations and a focus on audit quality in the execution of our firm’s strategy.

As an example, all Assurance regional leaders meet regularly with National Assurance leaders to discuss issues and opportunities to drive consistent processes and protocols. We believe that it requires thorough collaboration and consistent adoption to produce high quality results. As such, we set an appropriate tone throughout the top and the middle management layers to exhibit and direct the behaviors we expect from all professionals through consistent examples and clear practice communications.

Structured for Success

“Strong collaboration between operational and technical leadership around identified audit quality priorities is informing the nature and scale our continued investment in cultivating high performing professionals, providing them with increased capacity to do meaningful work and timely serve a wide variety of clients, across multiple industries in the private, public and nonprofit sectors. The result is a consistent and exceptional client experience.”


OPERATIONAL/TECHNICAL LEADERS

CEO

QUALITY MANAGEMENT

EXECUTIVE TEAM


EXECUTIVE TEAM

CHRISTOPHER TOWER National Assurance Managing Partner, Audit Quality and Professional Practice

STEVE FERRARA Chief Operating Officer

CATHY MOY Chief People Officer

JAY DUKE National Advisory Managing Partner

BILL EISIG National Assurance Managing Partner

and Practice Leader

MATT BECKER National Tax Managing Partner



ASSURANCE PRACTICE LEADERSHIP TEAM

JEFF WARD Third Party Attestation/SOC National Managing Partner

MICHAEL STEVENSON Accounting & Reporting Advisory Services National Assurance Partner

CHRISTOPHER ORELLA Assurance Operations National Managing Partner


DEMETRIOS FRANGISKATOS Northeast Assurance Regional Managing Partner

TONY LAWRENCE Central Assurance Regional Managing Partner

MARK ELLENBOGEN Atlantic Assurance Regional Managing Partner

KEVIN KARO West Assurance Regional Managing Partner

MIKE MUSICK Southeast Assurance Regional Managing Partner

STEVE ALBERT Southwest Assurance Regional Managing Partner

BETH GARNER Employee Benefit Plan National Practice Leader



NATIONAL ASSURANCE LEADERSHIP TEAM BDO’s National Assurance department is led by Christopher Tower, National Assurance Managing Partner – Audit Quality & Professional Practice, and Phillip Austin, National Assurance Managing Partner – Auditing. National Assurance is responsible for a broad variety of activities outlined in our Assurance Quality Control Manual designed to support and promote audit quality throughout the audit practice. The firm has invested heavily in recruiting experienced talent into this department and believes our team members strike the right balance between oversight of technical application and risk management, consultation and collaboration on tools, templates, guidance and engagement with our professionals and our clients.

CHRISTOPHER TOWER National Assurance Managing Partner, Audit Quality and Professional Practice

PHILLIP AUSTIN Auditing

ADAM BROWN Accounting

TIM KVIZ SEC Services

NANDA GOPAL Regional Technical & Industry Technical Group Partner

BLAKE WILSON Quality Control

MIKE FAWLEY Inspections

LISA SNYDER Independence

JENNIFER PUTERMAN Assurance Risk Management

AMY ROJIK Governance & External

Communications

1:23FY 2020

1:23FY 2019

1:26FY 2018

Ratio of National Assurance Professional to Assurance Practice Professionals

National Assurance Contributed over

240,000 hours in activities to enhance audit quality in FY2020, up from 200,000 hours in FY2019.

“We have excellent resources available in National Assurance, and they are very helpful in assisting our teams in providing quality audits.”

ASSURANCE PARTNER Respondent to the BDO 2020 Audit Quality and

Operational Excellence Survey


HOW OUR ASSURANCE PROFESSIONALS VIEW ACCOUNTABILITY AND COMMITMENT TO AUDIT QUALITY

We recently completed our fourth annual survey of Assurance professionals, capturing their views on delivering exceptional client service and high-quality audits as reflected in their daily work. We are pleased with the trendlines and underlying themes conveyed in more than 800 written comments that reflect a thoughtful perspective on where we are as a firm and valuable suggestions for continual improvements and innovations to enhance our audit methodology, policies, tools, templates and guidance.

Perspectives on Audit Quality

“It is clear to me that audit quality is a significant priority for the firm from my experience with National Assurance.”

ASSURANCE SENIOR MANAGER Respondent to the BDO 2020 Audit Quality and Operational Excellence Survey


2018

4.7

2020

4.8

4.6

4.64.64.54.44.4

4.6

4.7

4.6–

4.54.44.4

4.5

2019

4.7

4.5

4.54.44.54.44.4

––

4.44.34.3

2017

PROFESSIONALJUDGMENT

ITERATIVE ACTIONS

1

2

6

3

5

4COACH COMMUNICATE

CONSULT

AVOID TRAPS AND BIASES

DOCUMENT

TECHNICAL KNOWLEDGE APPROPRIATE MINDSET

B

USINESS ACUM

EN

Definethe Matter

SpecifyObjectives

IdentifyPossibilities

Gather and Analyze Info

ReachConclusion

Reflect

BASELINE ATTRIBUTES

I believe I am personally responsible for our delivery of audit quality.

I believe my most direct supervisor demonstrates an effective commitment to audit quality.

I believe I personally can have impact on executing on our audit quality commitments.

I am familiar with the Professional Judgment Framework.*

I understand what is expected of me with respect to audit quality.

I am well-versed with auditing standards.

I believe the teams I supervise demonstrate an effective commitment to audit quality.

OUR PROFESSIONALS RATE BDO AS “VERY GOOD” TO “EXCELLENT” ON THE FOLLOWING:

“I exercise the Professional Judgment Framework throughout all my audits and with all my audit/tax/valuation team members.”

ASSURANCE PARTNER

“The firm has done a great job making its methodology and audit quality initiatives well known in the practice.”

ASSURANCE SENIOR MANAGER

Respondents to 2020 BDO Audit Quality and Operational Excellence Survey

*In 2018, we fully deployed our BDO proprietary Professional Judgment Framework used to help guide our behaviors as we evaluate complex matters and make well-reasoned judgments. The framework is based on interconnected elements, which when effectively in place, maximize our likelihood of consistently exercising high-quality professional judgment.

Results are based on a 5.0 scale.


https://www.bdo.com/insights/assurance/corporate-governance/bdo-professional-judgment-framework

4.3

4.6

4.5

4.5

4.6

4.3

4.5

4.4

4.4

–

4.3

4.5

4.4

4.4

–

4.1

4.3

4.4

4.3

–

20182020 2019 2017

4.3 4.34.3 4.1

**In 2018, we re-aligned our leadership structure to drive better support and collaboration around audit quality. In this spirit, we have recently added questions to our survey to gauge the impact of these critical actions.

“Regional and national quality support has been timely, responsive and sensitive to specific client situations.”

ASSURANCE PARTNERRespondent to 2020 BDO Audit Quality and Operational Excellence Survey

I have clarity of the firm’s audit policies.

I am supportive of the direction we are heading with respect to audit quality and effective audits.

Our CEO is aligned with audit quality being a significant priority of our firm.

My Office Managing Partner is aligned with my executing audits with audit quality being a significant priority of the firm.

My Regional Managing Partner is aligned with my executive audits with audit quality being a significant priority of the firm.

Our National Practice Operational Leaders are aligned with Audit Quality being a significant priority of our firm.**

OUR PROFESSIONALS RATE BDO AS “VERY GOOD” TO “EXCELLENT” ON THE FOLLOWING:



HOW OUR PROFESSIONALS SEE FIRMWIDE ALIGNMENT WITH QUALITY

Annually, we conduct a pulse survey of our professionals firmwide to recognize their views on areas that drive audit quality: leadership, communication, development, empowerment and team engagement:

*The 2020 pulse survey is expected to occur in later Fall 2020.

I understand how my role contributes to the firm’s success.

At least one of the leaders in my practice or department cares about my development.

With rare exception, my coworkers perform their jobs at a high level.

Engagement teams and leaders clearly communicate their expectations and commitment to executing high quality work for our clients.

I am empowered to use my own judgment to make decisions.

Firm and office leadership communicate clearly and often to our staff about BDO’s commitment to quality.

2017

4.8

4.7

4.7

4.6

4.6

4.5

2018

4.8

4.7

4.7

4.6

4.6

4.6

2019*

4.8

4.7

4.7

4.7

4.7

4.6

“My Office Managing Partner does an excellent job with being transparent with where the firm is going and puts a lot of emphasis on audit quality, which is in line with what the firm as a whole has been working towards. Therefore, I feel very in-line with our CEO/ Regional Managing Partner and the message of the importance of audit quality.”

ASSURANCE SENIOR MANAGER Respondent to 2020 BDO Audit Quality and

Operational Excellence Survey



BDO’s Board of Directors provides oversight of the firm’s strategic growth, innovation, risk management and culture. The Board and the Assurance practice are aligned in their audit priorities. Over the past several years, the Board has supported significant investment to build out the National Assurance practice and capabilities—from recruitment of top talent with diverse skillsets to up-scaling technology, innovation, training, tools and templates. The Board believes that these substantial investments yield a strong foundation for continued growth and serve as risk mitigation against audit failure that help protect the firm and its stakeholders.

Over the past several years, the Board’s support of investment in technology and the digital deployment of audit, tax and advisory services, coupled with expansion of our BDO Digital services and Crisis Management & Business Continuity practices, have proved both prescient and essential to our firm’s resilience and ability to serve all of our clients effectively. While remaining true to our audit practice, the investments made in continuing to build out specialization gives our auditors direct access to skilled technicians who provide consultation on time-sensitive, complex issues that arise during our audit engagements allowing us to provide well-informed responses to our clients.

Future-Focused BoardOverlapping Strategic Priorities of BDO Board of Directors & Assurance Practice

BDO Board Composition

“Further unity of purpose and deeper collaboration has been a silver lining of recent events. At the Board and leadership level, values continue to drive our decisions and help us make principled judgments in executing on our priorities even in uncertain times.”

MARIA KARALIS Assurance Office Managing Partner and BDO Board Director

Background

64% 18% 18%Assurance Tax Advisory

Gender

36% 64%Women Men

Location

18%27%N

orth

east

Wes

t

Atla

ntic

Sout

heas

t &

Sout

hwes

t

9%

Audit Quality

World Class Talent

Development

Regulatory Guidance

Sustainability

Risk Management

Industry Insight

Technology Innovation

Growth18% 18%

Cent

ral


At every level of our profession, progress requires diversity of thought, experience and perspective. Quality and excellence are promoted by diversity, equity and inclusion.

Our inclusion strategy focuses on building the workforce we need to serve a changing market and capture emerging opportunities. Diversity of all kinds supports and ensures effective judgment and the incorporation of broad and evolving skillsets required to deliver the audit of the future. As such, we are putting significant time and thought into developing a more impactful and sustainable strategy for our long-term culture of inclusion that incorporates input from BDO professionals and involves leadership at the firm’s highest levels.

2020 Data

Generation Combined Assurance %

Baby Boomers (Born: 1946-1964) 4%

Gen X (Born: 1965-1981) 21%

Millennials (Born: 1982-1996) 72%

Gen Z (Born: 1997-2002) 3%

Assurance Client-Facing Women:

41% FY 2020 41%

FY 2019

Assurance Client-Facing Black, Indigenous and Other People of Color:

29% FY 2020 32%

FY 2019

Focus on Diversity of Perspective

Taking Action on Advancing Racial Equity and Inclusion

OUR OBJECTIVES…

Enhancing a culture of candid dialogue and inclusive people and leaders

Building a more diverse pipeline of accounting and professional service talent from our staff to our partners

Promoting a more diverse and inclusive culture in the local communities where BDO has a presence

WHAT WE ARE DOING IN THE NEAR-TERM…

“Day to Recharge & Reflect” as a firm closure day intended to recognize the systemic history of injustices facing the Black community and provide our professionals with a “pause” to learn and reflect on how they may contribute to lasting positive change

Unconscious bias/inclusive leader training for all professionals

Educational resources and tools that can be used by individuals, teams and offices

Peer mentoring for employees of color by race (Black, Latinx, Asian-American)

Mentoring and sponsorship to support the advancement of employees of color

Diversity recruiting plan, including expanded efforts at historically black colleges and universities

Diversity partnership enhancement, including active engagement with the Center for Audit Quality Diversity Steering Committee, Howard Center for Accounting Education Advisory Board, National Association of Black Accountants, Association of Latino Professionals for America, Ascend and the CEO Action for Diversity & Inclusion


https://www.bdo.com/about/people-values/inclusion


https://www.bdo.com/about/diversity-inclusion

Reaffirming Our Purpose and our Corporate Culture

BDO stands with the Black community and is committed to do our part to end racial injustice.

As our CEO, Wayne Berson, wrote in a June letter to employees, “The issues we face as a nation are deep and profound, but we must work together to make a difference. At BDO, we have always been a community with zero tolerance for discrimination and racism. We are anchored in our core purpose — helping people thrive every day. It is this foundation, along with our core values, that we must turn to in order to help us address the ongoing challenges we face. They are particularly poignant in times of uncertainty and unrest…

We are a firm, a culture and a community that is not content to sit still — when we see things are broken, we want to fix them. Change starts in our own offices, in our own homes and in our communities. Small changes can lead to sweeping change that transforms our world. We must do this together. Living our purpose demands we choose humanity over hatred and empathy over apathy.”



Top Entry Level Employers CollegeGrad.com

Working Mother 2020’s 100 Best Companies, Best Places to Work for Dads Working Mother Media

2020 NAFE Top Companies for Executive Women National Association for Female Executives

Vault Accounting 50, Best Internships Vault.com

Best Places to Work For, Best and Brightest in Wellness National Association for Business Resources

Tax Adviser of the Year International Accounting Bulletin

BDO’S BOARD CHAIR

In November 2019, BDO announced the unanimous appointment of Kelly Johnson as BDO’s board chair. Kelly leads the firm’s Business Service & Outsourcing practice, has served on the board since 2017 and was re-elected in 2020 for a second term. Women represent 40% of the elected members of BDO’s FY 21 Board of Directors.

“BDO is a firm that provides opportunity for all professionals to rise. As board chair, I look forward to continuing to support our firm’s growth, including the advancement and support of our diversity and inclusion programs.” – Kelly Johnson, National Leader Business Services & Outsourcing and Chair of BDO Board of Directors

“As the first elected woman board chair, Kelly’s appointment marks an important milestone for our firm. This is something I’m particularly proud of, as I strongly believe inclusive leadership leads to better business outcomes.” – Wayne Berson, Chief Executive Officer

BDO NATIONAL INDUSTRY LEADER

In July 2020, BDO appointed Assurance Partner and Retail & Consumer Products national leader Natalie Kotlyar to assume the role of National Managing Partner - Industry Groups in the coming year. This is a testament to her deep client experience and vast industry knowledge. Natalie will succeed Joe Johnson, senior leader and former BDO Board Member upon his anticipated retirement in 2021. Natalie was also elected to the BDO Board of Directors with her term to begin in fall 2020.

“Industry knowledge and awareness of the client’s operating environment is critical to delivering audit quality. Natalie’s business acumen will serve her well in overseeing a continued firmwide focus on industry-specific insight and alignment of industry considerations in the execution of our audits.” – Joe Johnson, National Managing Partner - Industry Groups

We are proud to continue to be recognized as a top destination for talent. As the workforce evolves, BDO is committed to building an inclusive, flexible, welcoming culture where all can find equal opportunity and come to work as their true and best self.

BDO’s Workplace Awards


As the largest member firm of BDO’s extensive global organization, we view global collaboration and leadership as an imperative to excellence in client service.

Our U.S. firm has invested significant resources and talent to help lead the creation and deployment of mission critical technology and enablement tools used across our global organization. These include the BDO Global Portal for Clients along with our shared Audit Process Tool (APT) and audit methodology. Our contributions help ensure a more consistent experience for clients—anywhere in the world they work with us—and prioritize compliance with U.S. authoritative standards and rules.

In collaboration with our global counterparts, we continue to learn from each other and use global board and leadership meetings to share best practices, insights on emerging issues and opportunities for further development and enhancements in our audit approach.

In addition, BDO USA leads or participates meaningfully in global initiatives related to all significant industry sectors.

X Wayne Berson serves as the Chairman of the Global Board of Directors of BDO International Ltd.

X Bill Eisig and Christopher Tower serve on the Global Audit Leadership Committee, raising and discussing audit issues throughout the network

X Cathy Moy serves on the Global People and Culture Committee

X Phillip Austin leads the Global Audit Steering Committee, which recommends audit requirements and policy changes to the global board

X Patricia Bottomly and Bryan Martin participate in development of the next generation of our Global Audit Methodology

X Albert Lopez serves as the Chief Executive Officer of the Americas of BDO International

X Brian Miller leads strategy and technical development of the BDO Global Client Portal

X Mike Poulos, our General Counsel, participates on the Global Risk Management Committee

X Steve Ferrara, our COO, serves on the Global Board Advisory Group and the BDO Americas Board

X Lisa Snyder serves on the Global Independence Steering Committee

X Julie Valpey serves on the Global Cross-Border Gatekeeping Services Working Group and leads a team of reviewers who perform these reviews

Global Importance

U.S. financial statistics for the 12 months ended April 30, 2020 to align with fiscal year, and International statistics for year ended September 30, 2019.

BDO USA, LLPBDO

Alliance, USABDO Global

Network2020 STATISTICS

OFFICE LOCATIONS

65+ (U.S.)

740+ (U.S.)

1,600+ in 167 countries and territories

TOTAL PERSONNEL 8,063 17,524 88,000+PARTNERS/OWNERS 670 2,328 6,738

REVENUE $1.80b $2.77b $9.6b

Our Global Leadership Audit Contributions


Promoting Independence and Ethics


Ethics in ActionAccounting is not always clear-cut and often is filled with judgment areas that test systems, controls and decision-making. This is why the capital markets and business stakeholders rely so significantly on a high-quality audit, conducted by professionals with the highest standards for ethics and independence. We recognize the integrity and credibility of the financial reporting process depends on our firm and the rest of the public accounting profession complying with all ethics and independence rules and regulations.

At BDO, our ethics and independence programs start with our core values and mission. We provide trusted solutions, powered by professionals who choose accountability and integrity, seek empowerment through knowledge and target nothing less than delivering exceptional service. These values provide a baseline for compliant and appropriate decision-making, consultation and actions.

Chief Compliance & Ethics Officer Blake Wilson and National Assurance Managing Partner – Independence Lisa Snyder oversee dedicated teams who provide effective oversight and monitoring, as part of our system of quality management. These teams establish and monitor the robust policies and procedures that hold BDO professionals accountable in understanding their independence and ethical obligations and performing their duties in full compliance with firm policies, procedures and applicable laws, regulations and professional standards.

Ethics and independence compliance training remains a top priority, and we ensure accountability and continuous monitoring through our professional review processes.

Maintaining a robust Code of Ethics & Business Conduct

and Compliance Policy

Demonstrating tone at the top and zero tolerance policy

for misdeeds

Providing continual communication on importance of closely monitoring

client relationships

Ensuring our monitoring and compliance systems are designed and

operating effectively

Providing continuing ethics and independence learning

for firm professionals

Maintaining professional licensure

Providing an anonymous Ethics & Compliance Hotline

Encouraging a culture of consultation


Objectivity and skepticism are the bedrock of a quality audit that can be relied on by the capital markets.

As auditors, BDO must remain free of relationships and actions that could appear to compromise our ability to exercise professional, objective judgment. Independence and the avoidance of conflicts of interest remain the focus of regulators. Our firm has taken proactive steps to further build resources, bolster our independence and compliance teams, and enhance related processes and systems.

Our mature compliance and independence functions also position BDO to effectively manage existing and emerging risks. This includes the timely identification of services that may violate our independence or services that would require heightened controls or safeguards to counter external pressures or short timelines for critical decisions. It also includes consideration of emerging industry or market events that require additional experience or knowledge capabilities.

Independence Imperative Independence is fundamental to the profession and standards of the AICPA, the PCAOB, the SEC, the International

Ethics Standards Board for Accountants (IESBA) and other independence standard-setting organizations.

Domestically, we are closely monitoring emerging and expected rules on independence impacting our issuer clients and meeting regularly with the SEC to consult on issues, proposals and requested feedback. Additionally, Lisa Snyder serves on the AICPA’s Professional Ethics Executive Committee, where she is involved in helping to advance independence standards contemplated for the private sector. Internationally, BDO’s independence professionals assist with independence resources, policies and monitoring for BDO’s global organization as well as enhancing our own firm policies and practices related to our U.S.-based clients who have global operations.

Independence & Ethical Practice Priorities and Sample Activities

INDEPENDENCE PRIORITIES SAMPLE ACTIVITIES ADVANCED IN FY2020

Firm Compliance with Professional Independence & Ethics Standards

Updates to policies and controls responsive to evolving regulations

Personal Independence Compliance

Enhancements to the online BDO Investment Tracking System (BITS) and automatic Broker Feeds to track personal investments and ensure independence of our clients

Independence Conflict Checks

Expansion of real-time access to information on restricted entities prior to client acceptance

ConsultationsGuidance and support to domestic and international engagement teams for existing or potential client engagements

Private Equity Reviews

Enhanced monitoring and controls for private equity clients and for reviewing evolving portfolios of the firm’s private equity fund clients

Firm Expansion Reviews

Enhanced due diligence processes for clients of firms joining BDO USA through expansion for independence, restricted entities and risk

Continuous Education

Updated annual firmwide independence training for current and new professionals, inclusive of practical examples of emerging risks and evolving technical standards, rules and regulations

Communications and Resources

Periodic dialogue, guidance and publications for BDO professionals highlighting independence matters as top of mind issues

New Standards, New Initiatives


Ensuring the Right Fit – Client Acceptance and Continuance


“Our risk management oversight function, whose members have a deep understanding of not only our audit practice but our full business line capabilities, allows us to continually evaluate and make informed decisions about our clients and businesses—both existing and emerging—we choose to serve and support.”

JENNIFER PUTERMAN National Assurance Partner, Assurance Risk Management

Our Risk Management OversightAt BDO, we are guided by responsibilities to our stakeholders and the community at large. We are considerate of who we work with and how we work with them to ensure independence, efficacy and achievement of goals that support sustainability and security within our organization and the markets that depend on us.

These goals inform our risk management strategy as well as our holistic approach for client acceptance, review and continuance. In 2020, we formalized and expanded our risk management team, identifying dedicated leaders to oversee the risk exposure and activities across our Assurance, Tax and Advisory services.

Each of the firm’s business lines has a designated Risk Management Partner and function who oversee risk management activities. Our Assurance Risk Management function reports to the National Managing Partner, Professional Practice and Audit Quality. Duties, respective of the business line, include:

X Identify and assess the material risks of existing and new service renderings

X Oversee client acceptance and continuance processes

X Review and approve policies and procedures designed to mitigate risk

X Discuss matters of risk with the business line National Managing Partner and/or General Counsel (or their designees)

X Recommend enhancements to existing risk-related programs and practices

X Monitor the functioning of the risk management programs

X Manage active risk management matters

X Elevate to the Risk Management Committee matters for consideration that are highly material in nature and have cross business-line impact to the firm

X Bring unresolved disagreements with respect to client acceptance and continuance matters to the CEO or the Risk Management Committee, as established by firm policy

At the firm level, we have a Risk Management Committee, chaired by our General Counsel, composed of the Risk Management partners and operational leaders from each business line, the National Managing Partner of Professional Practice & Audit Quality and the Chief Operating Officer. The primary duties of the Committee are to:

X Perform a firm-wide risk assessment to identify, assess and respond to material risks, such as strategic, operational, financial, regulatory, legal, IT, brand, reputational and other risks that may be identified

X Evaluate matters identified at the business line level which may have a broader, firmwide impact

X Evaluate and provide recommended courses of action to the CEO

X Monitor compliance with the BDO Global Risk Management Policy


Note: Not an all-inclusive list

Evolving Industries

As new industries and services emerge and business continues to evolve (e.g., cannabis and cryptocurrency), the ability for companies to assess related risks and uncertainties and demonstrate capabilities for mitigating those risks take on greater significance.

BDO Considerations:

X Experience and knowledge requirements for the engagement team

X Maturity and experience of management team

X Adjustments to auditing approach and procedures

X Quality control matters and related laws and regulations

Non-GAAP Metrics

Many companies believe that GAAP metrics may not provide a full picture of their opportunities or valuation. However, non-GAAP metrics need appropriate clarity and context to add real value to stakeholders.

BDO Considerations:

X Evaluation as to whether non-GAAP information may be misleading to investors

X Comparability and reconciliation to GAAP within financial statement presentation

X Consistency in measurement and avoidance of “cherry picking” of more favorable metrics

COVID-19 Impact

While nearly every industry has been impacted by COVID-19, the negative financial realities and long-term risks and challenges for certain industries, particularly retail, hospitality and energy, are considerable.

BDO Considerations:

X Recognition of emerging risk factors

X Access to capital and liquidity

X Long-term viability of the business

X Risk of going concern

X Restructuring needs

X M&A opportunities under consideration

X Strength of management estimates

Changing Workplace

The rapid evolution to a virtual work environment has redefined the who, where and how work is done, and there is unlikely to be a widespread snap back to previous norms.

BDO Considerations:

X Data governance and security protocols

X Access to secure platforms for information transfer

X Changing skillset needs and training requirements of employees

X Supervision and oversight risks

X Ability to communicate and engage

Emerging IssuesEach year brings change to current and prospective clients’ risk management profiles and subsequent acceptance policies. Here are several emerging risk management issues on our radar for 2020 and beyond:


Technology Evolution

From robotic process automation (RPA), to artificial intelligence (AI), to the rise of 5G technology, accelerated digital transformation is enabling digital business and enhancing the speed of communication and delivery.

BDO Considerations:

X Data governance and security protocols

X Oversight and controls over automation and AI, including risks of potential bias

X Emerging laws and regulations

X Evolving audit procedures and approaches

Cybersecurity & Data Privacy

Data privacy regulations continue to be issued world-wide, making information governance a priority area. Cyber-attacks continue to rise, while the threats and vulnerabilities are constantly evolving and may significantly impact both corporate financial and reputational risks.

BDO Considerations:

X Allocation of adequate resources and management’s understanding of the nature of cybersecurity risk

X Robustness of cybersecurity strategy to prevent, detect and mitigate risk

X Information governance and data ethics policies

X Responsiveness to breaches

Total Tax Liability

Almost every business risk or opportunity has added implications from a tax liability standpoint. Taxation is an area that can have significant impacts on financial reporting across a broad variety of transactions and activities.

BDO Considerations:

X Quality of taxation expertise within an organization

X Proliferation of tax laws and regulations at the state and local, federal and international levels

X Complexity of business transactions and ability to scenario plan to estimate tax ramifications

ESG & Investor Priorities

Institutional investors have thrown down the gauntlet on issues like climate change and diversity, and management teams and boards need guidance on how to respond and change.

BDO Considerations:

X Strength of corporate governance

X Significance of ESG and sustainability within a client’s value proposition

X Level of knowledge related to sustainability frameworks and reporting

Note: Not an all-inclusive list


BDO leverages proprietary technologies in evaluating risk profiles to aid in acceptance and continuance decisions for our existing client base. We use data mining and analytics to assess economic, quality and viability risk to help us evaluate potential issues so that they can be quickly addressed. Features are continually being added, providing real-time views of workload and assignments to help determine and manage audit engagement capacity.

BDO’S CLIENT ACCEPTANCE AND CONTINUANCE PROCESS

Acceptance / Re-Evaluation of Clients for Continuance

Client Background Investigation

Formal Acceptance

Approvals

Ability to Serve the Client

Independence & Other Financial Reporting Considerations


CENTER FOR CORPORATE GOVERNANCE AND

FINANCIAL REPORTING

From issues ranging from corporate purpose to composition, the importance of board governance has taken center stage, and stakeholders have significant expectations for both management teams and boards. While key oversight issues like risk management remain a priority, board committees, along with financial management, are facing never-before-seen challenges. In the wake of the recent issuances of significant accounting and auditing standards, coupled with the complexities in accounting and reporting related COVID-19 impacts and regulatory and government relief efforts, there is a very real and powerful need by the capital markets for reliance on sound financial reporting and disclosure.

In times of change, we remain committed to ensuring the continuing education of our clients and providing timely resources for boards to navigate and plan with greater precision. We are particularly proud of the guidance and resources we were able to provide through the first three quarters of 2020. We have stayed highly connected to our client management teams and those charged with governance and continue to reach out to take the pulse of public company board directors through virtual forums, programming and survey opportunities. This engagement will provide a benchmark on perspectives and actions to be taken on the issues ahead.

2019 Financial Times Outstanding Director Exchange (ODX) Event

“From diversity of perspective to broad and emerging issues of sustainability and risk, corporate governance is an essential function. We are proud to engage with and support our clients’ critical areas of oversight with customized insights, resources and programming throughout the year.”

AMY ROJIK National Assurance Partner, Governance & External Communications

Enhancing Working Relationships with Those Charged With Governance


Sampling of Corporate Governance Achievements in FY 2020

Two BDO partners are among the first individuals to become National Association of Corporate Directors Directorship Certified

Launched the first 20 episodes of the BDO in the Boardroom Podcast Series

Participation and sponsorship in various national governance events, including:

X NACD Global Board Leaders’ Summit

X Corporate Board Member Annual Summit

X Financial Times Outstanding Director Exchange

X Association of Audit Committee Members Inc. Annual Meeting

X AICPA Conference on SEC and PCAOB Developments

Hosted 25+ webinars focused on a variety of corporate governance and financial reporting topics

Maintained robust on-demand learning:

X Nearly 30 Corporate Governance Primers

X Over 25 Emerging Governance Issues

X Over 50 Accounting and Reporting Hot Topics

Have over 70 available alerts and thought papers related to financial accounting and reporting issues and developments

Issued 12 publications related to evolving governance issues and developments

Surveyed over 280 public company directors to get their pulse on top-of-mind boardroom issues

Presented national office custom educational sessions to over 40 client boards and audit committees

Hosted ten local board forums designed to promote learning, mentoring and networking among corporate directors

Appeared in two Center for Audit Quality Profession in Focus video segments

LEARN MORE ABOUT

THE BDO CENTER FOR CORPORATE GOVERNANCE X


https://www.bdo.com/insights/assurance/corporate-governance/bdo-in-the-boardroom-podcast-series

https://www.bdo.com/insights/assurance/corporate-governance/bdo-in-the-boardroom-podcast-series

https://www.bdo.com/resource-centers/governance

SPOTLIGHT ON

The Needs of Smaller Cap Companies At BDO, we recognize that companies vary greatly in complexity and access to resources. This is particularly true for smaller issuers with market capitalization ranging from $200M to $2B and even smaller micro- and nano-cap issuers. These companies face real challenges in accessibility to capital as well as experienced resources needed to navigate a myriad of operational, financial and reporting complexities. Annually, BDO participates in the National Association of Corporate Directors (NACD) Global Board Leaders’ Summit by hosting the Small Cap Symposium designed to engage directors of smaller public companies on a variety of governance and reporting topics specific to the risks and opportunities these companies, who make up the majority of publicly listed exchanges, must confront.

“As a panelist/attendee in the BDO-led NACD Small Cap Symposiums and participant in BDO’s Director Roundtable series, you are able to hear from today’s thought leaders and network and learn from your peers with real practical experiences that contribute to being a great board member focused on delivering value to all stakeholders. I always walk away with new questions to ask management, internal audit and our external auditors that make me a better Committee Chair of Audit, Governance and HR Compensation.”

EVELYN DILSAVERIndependent Board Director Tempur Sealy, Health Equity, Blue Shield of CA, Bailard Real Estate Fund


BDO Assurance Client Concentrations

Our client base forms a rich tapestry of private and public entities, from development stage companies to accelerated filers with multi-national operations, across both broad-based and concentrated industries:

Our public company Assurance client engagements represent approximately 30% of the Assurance practice revenues, which has remained consistent over the past three fiscal years.

Asset Management

Financial Institutions & Specialty Finance

Government Contracting

Healthcare

Insurance Life Sciences ManufacturingNatural Resources

Nonprofit & Education

Private EquityProfessional Services

Public Sector

Real Estate & Construction

Restaurants, Hospitality & Leisure

Retail & Consumer Products

Technology

FY19 Revenues

17%

34%

49%

FY20 Revenues

31%

46%

23%

TaxAssuranceAdvisory

Domestic Corporation Joint Venture Pre-IPO

Multi-NationalPartnership / Proprietorship

Non-Accelerated Filer

Privatization

Start-Up / Entrepreneurial

Venture Capital- Backed

Accelerated Filer

Family OwnedPrivate Equity-Backed

Large Accelerated Filer


Developing and Managing High Caliber People and Teams


Investing in the recruitment, development and retention of highly engaged and technically proficient people is one of our highest priorities as a firm. Goals for our over 3,000 Assurance professionals include:

RETAIN: Focus on professional development and training rooted in collaboration, flexibility, professional judgment and problem solving

X Avoid undue stress on system of quality management by maintaining staffing levels during a pandemic

X Transition to digital continuous learning to optimize resources and minimize disruption

X Expand training and curriculum to address emerging issues and up-skilling needs including accounting, analytics, impairment and estimates, income taxes and best practices for communication

X Intensify focus on workplace flexibility strategies and programs to ensure professionals have the support they need to continue to deliver high quality work

X Leverage use of shared business service centers to add capacity and allow professionals to focus on analytical work

X Promote incorporation of the firm’s Professional Judgment Framework

RECRUIT: Bolster access to talent across broad skillsets

X Expand access to talent through digital recruitment strategy

X Keep commitments to our interns as a key component of our talent pipeline

X Expand schools we recruit from, with a focus on ensuring diverse candidates

X Increase focus on recruiting experienced professionals with needed skills—from data analytics, technology, cybersecurity and crisis management experience to leadership ability and industry knowledge

“In response to the pandemic, our intentional and strategic decision to preserve our capacity of talented professionals and not put undue stress on our system of quality management allowed BDO to honor our client obligations while ensuring support of an agile and high caliber workforce.”

CATHERINE MOY Chief People Officer and Executive Team Member

REVIEW: Stay connected and supportive while holding professionals accountable to goals and performance metrics

X Establish more touchpoints with supervisors, including regular strategic “one-on-one” meetings to ensure professionals understand how they contribute to audit quality and are working toward personal development goals

X Ensure goal setting is meaningful and is directly supportive of audit quality

X Align performance with total compensation

X Continue to enhance annual partner assessments based on our partner competencies and goals aligned with our strategic priorities


78%

82%

92%

73%

79%

86%

91%91%

98%

86%

85%

83%

Assurance Recruitment

Interns

New Staff Hires

Experienced Hires

Partner Hires

Partner Promotions

Partner

Director

Manager

Staff

2019 2018 2017Assurance Retention

11201834 336

388

348

442

423

410

1526 2019

Creating a productive and proficient workforce is an important driver of quality. The investments we make in our human capital are designed to attract and retain top talent. This is accomplished through a diverse and collaborative working environment that provides work-life flexibility, access to advanced technology and tools, and a broad variety of experiential challenges to hone valued skillsets.

“I am very grateful that BDO chose to honor their commitment in offering audit internships during the pandemic. The time that BDO put into this virtual program was extremely beneficial and showed me how much they care about their current and future employees.”

CHRISTINE CUTTING Incoming BDO Assurance Class of 2021


SPOTLIGHT ON

Building Capacity: BDO RISEAs we continue to support growing client needs and deliver on the audit of the future, we are creative about our service delivery model, while maintaining the highest standard for quality. Increasing complexities of our clients’ operations and evolving technical standards and regulations require increased capacity to effectively exercise professional judgment. As one way to create that capacity, we have continued to invest in our business service centers, both domestically in our Columbus, OH center as well as our more recent BDO RISE center launched in India. These service centers have been staffed and designed around standardization of process for the execution of higher volume, routine audit processes and procedures as a bolster to efficiencies in serving our private client practice. When we create such capacity, it allows more time for our audit professionals to focus on emerging risks, critical matters and areas that require professional judgment and skepticism. Over the next three years, we plan to add more than 3,500 highly qualified accountants, auditors and valuation professionals in our shared service centers to support our client engagements in the delivery of high-quality audits.


Large Scale Webinars

Smaller Virtual Classrooms

Functional Break-Out Sessions

Interactive On-Demand Courses

Job Aids Guided Materials Learning Bytes Messaging

Learning Transformation Our dedicated National Assurance Learning Team works directly with operational and technical leaders along with the firm’s Learning & Development team to create level-specific learning pathways and coursework aimed at optimizing broad skillsets for our staff through partners across core and emerging issues and identified accounting and auditing practice matters.

Creating a dedicated and highly skilled workforce requires continuous learning to inform, demonstrate and allow our people to apply learning enabling:

TECHNICAL PROFICIENCY

X honing accounting, auditing and business acumen

X effective project management capabilities

X deepening industry acumen

X transactional experience

PROFESSIONAL PROFICIENCY

X exercising skepticism, reasoning and judgment

X building and maintaining relationships

X strong leadership and accountability

X teaming and collaboration

In 2020, we are focusing significant time and attention on the adaptability of our continuous learning platform in response to and in anticipation of a continued virtual workplace and leveraging technology to simulate in-person and practical examples for our professionals. By focusing on intended learning objectives rather than method of delivery, we were able to reimagine scheduled in-person trainings in a variety of formats to positively affect time-sensitive audit decisions:

The platforms and technologies that we have been investing in for the past decade are providing us with seamless solutions to meet all of our current and future learning needs.

The emerging issues portion of this year’s curriculum has included a variety of planned learning related to evolving auditing standards – e.g., estimates and use of specialists4 - as well as accounting standards – e.g., reference rate reform, credit losses, derivatives and hedging. Additionally, our National Assurance practice and learning teams were called on to pivot and produce timely education for both our professionals and our clients to address the complexities around accounting and reporting for COVID-19 developments related to government assistance programs, significant industry impacts and the continual stream of regulatory guidance from the SEC, PCAOB and FASB. We are extremely proud of our responsiveness to the market during this time and our Assurance practice contributions to our internal and external Crisis Response Resource Center.

4 PCAOB Auditing Standards: Auditing Accounting Estimates, Including Fair Value Measurements and Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists are effective for audits of financial statements for fiscal years ending on or after December 15, 2020.

“We have transformed over 50,000 hours of in person learning to immersive virtual instructed programming. This transformation preserves small group professional development and supports the in-depth knowledge transfer that live learning achieves.”

MICHAEL BECKER National Assurance Partner - Assurance Learning


https://www.bdo.com/resource-centers/crisis-response-resource-center

https://pcaobus.org/Rulemaking/Docket043/2018-005-estimates-final-rule.pdf

https://pcaobus.org/Rulemaking/Docket044/2018-006-specialists-final-rule.pdf

https://pcaobus.org/Rulemaking/Docket044/2018-006-specialists-final-rule.pdf

ROBUST FIRM DEVELOPED CURRICULUM Consists of accounting, auditing, reporting, industry-specific and independence courses

ASSURANCE LEARNING PROCESS RESPONSE Thoughtful adaptation of learning curriculum to achieve learning objectives while transitioning to virtual platforms

DEGREED Learning platform for skills from audit data analytics, to industry trends, to engagement management tips

APT NEXT GEN LEARNING Planned modules to introduce the next generation of our enhanced global Audit Process Tool

PROFESSIONAL CERTIFICATION PROGRAMS Specified blend of required learnings along with satisfaction of minimum experience requirements for: Issuer Engagements, Engagement Quality Review Control, Information Systems Assurance as well as ASC 740 Income Tax.

AUDIT METHODOLOGY CHANGES Suite of learning and messaging intentionally aligned with the sequencing of our audit fieldwork and the availability of enabling tools and resources to guide the planning and execution of our audits

DESIGN-THINKING WORKSHOPS Firm-sponsored innovation workshops and listening programs designed to create state-of-the art audit methods, processes and tools

FIRM COVID-19 POLICIES Firm policy changes to introduce increased levels of supervision and review of client-related disclosures for COVID-19 impacts as well as intentional adjustments to performing audit procedures in a virtual environment

FORMAL MENTOR / COACHING PROGRAMS Career advice and strategic leadership coaching workshops throughout a professional’s tenure with the firm, further enabled through visibility to readily accessible online Learning Paths

ENGAGEMENT WITH ACADEMIA Hosted by the University of Alabama and Brigham Young University to present BDO’s Professional Judgment Framework in learning programs as part of practical curricula being delivered to the next generation of auditors

ENGAGEMENT WITH THE PROFESSION AICPA, FASB and CAQ Task Force participation and leadership by numerous professionals, helping shape the future of the audit and our profession

NATIONAL OFFICE AND INTERNATIONAL SECONDMENTS We have well over 100 BDO practice professionals working in short-term and long-term technical roles within the BDO National Assurance Office (25%) or as International Secondees across 24 countries (75%) subsequently returning to practice offices to share knowledge gained

Continued Learning and Engagement

BDO professionals treat every day and every interaction as a learning opportunity. We leverage each other, as well as internal and external resources, to satisfy both required and recommended training and explore new areas of interest. Examples include:


“Rotations with National Assurance and other secondment roles across the BDO organization provide our professionals with ample opportunities for developing and enhancing critical audit skills—from professional judgment to project management. With this additional exposure comes more experience that I am able to apply to audit engagements and share with my colleagues in our practice office and across the firm.”

PATRICK AHR Assurance Senior Manager

The averages above reflect learning subject to continuing professional education (CPE) requirements and do not include numerous non-CPE learning that our professionals participate in throughout the year, nor any firm onboarding training for newly hired professionals. Non-A&A fields of study include specialized knowledge (e.g., industry, technology, etc.) and other business skills.

*The American Institute of Certified Public Accountants (ACIPA) requires CPAs to complete a minimum of 20 hours or its equivalent of continuing professional education (CPE) per year or 120 CPE hours over a three year reporting period.

Learning by the Numbers: Assurance Professionals Average Annual CPE Hours*

Average CPE Hours Field of study: Accounting & Auditing Field of study: Non A&A

2018

Partners Directors Senior Managers

Managers Seniors Staff

24

68

44

23

65

42

21

65

44

20 hour minimum

15

61

4610

50

40

9

59

50

2019

Partners Directors Senior Managers

Managers Seniors Staff

38

25

42

1158

826

63 63

38

19

57

42

17

59 5366

20 hour minimum

37


EXCELLENCE THROUGH RELATIONSHIP & PROJECT MANAGEMENT

Exceptional Client Experience is one of the pillars of BDO’s strategic plan being championed by Executive Team member Christopher Tower. We believe that to be exceptional requires the right talent empowered to build strong relationships with clients and manage those client engagements by providing rigorous project management, technology and insight, as well as commitment to continuous improvement. Our focus in 2020 is on creating a common BDO approach for both relationship and project management.

With respect to relationship management, we have established guiding principles for developing and maintaining relationships with our clients, our peers and the business community. With respect to project management, we have focused on identifying principles and behaviors that are essential to managing the process and workflows to deliver high quality work products to our clients. Both initiatives are being supported by enhanced training and resources with the goal of building upon our professional skillsets and making them adaptable across each of our firm’s business lines and our core business services teams.

Communicate effectively to build relationships and achieve results

Lead and empower teams (do not simply manage teams)

Deliver sustained quality

Demonstrate and deliver maximum value to the client

Embrace change

Use tools selectively and effectively

Mind the bottom line

Approach to Project Management

Identify key internal and external influencers

Invest in and develop strategic relationships

Demonstrate behaviors that create trust

Leverage relationships to drive value and quality

Enhance market presence and prominence

Utilize effective personal and digital networking and communication strategies

Model, lead and coach to create long-term relationships

Approach to Relationship Management

GUIDING PRINCIPLES AND RELATED BEHAVIORS


Expected Benefits of BDO’s Approach to Project and Relationship Management “At BDO, delivering an exceptional client experience

is a cornerstone of our firm’s strategic plan. Building relationships, establishing open communications with those who are influential to the work we perform, and focusing on how effectively and efficiently we conduct our work through sound engagement management are keys to performing and delivering high-quality audits. While seemingly fundamental, executing on both of these skillsets has proven extremely impactful on the trust our clients and colleagues continue to place in us.”

CHRISTOPHER TOWER National Assurance Managing Partner, Audit Quality & Professional Practice

Consistency Across the Firm

Risk Management

Profitability & Efficiency

Scalable

Improved Client Experience

Higher Quality

Foundation for Training

Deeper Strategic Relationships

Market Prominence


Ensuring High Quality Engagement Performance


Fast Facts

100% of new BDO USA audit engagements leverage our

Next Gen global audit process tool

BDO supports more than 100,000 customized client portals throughout the world

Our platform is supporting increased demand and security needs brought on by the pandemic

Clients indicate BDO’s digital suite of audit tools helps save time

BDO professionals report high satisfaction with our technology as an enabler of their job

A high-quality audit demands excellence in professional judgment coupled with effective tools and technology to ensure an efficient and insightful process. We are proud of the continuing investment in our globally adapted audit methodology and digital enablers that not only ensure a consistent approach to delivering quality but also allow our clients and our professionals secure means to share critical and timely information specific to industries and across geographies.


BDO EXCHANGE

Secure document exchange &

project readiness

BDO ORGANISE

Robust project management, aligned

with our Audit Process Tool

BDO HARMONY

Advanced data analytics

BDO INSIGHTS

Insights and publications tailored

to client

“We are tremendously proud of the way our global portal and supporting technology passed the stress test of additional capacity and demand, nearly overnight. We remain focused on iterative innovation and enhanced features to further improve the client experience and access to timely insight.”

BRIAN MILLER National Assurance Partner, Audit Transformation & Innovation

Digital Audit SuiteBDO GLOBAL PORTAL

Our Global Portal is a customizable, secure, cloud-based view into our clients’ business and scope of work with BDO. It is a gateway to essential insight—from client company data and emerging risks to project status and timelines—and a seamless, personal platform for communication and collaboration.

KEY PORTAL TOOLS & FEATURES


“The Skechers audit engagement team has seen greatly increased efficiency throughout the execution of the audit since implementing the BDO Global Portal as it allows us to manage requests from various client professionals, including in Europe and Asia, all in one place. With the ability to assign users and due dates to each request and view progress in the dashboard, there is a clear line of accountability, which is helpful to both the team and the client in managing the engagement.”

MAGGIE SEIBERT Assurance Senior, BDO USA

“BDO’s forward leaning embrace of technology, including the practical and relevant implementation of the BDO Global Portal, has greatly improved our audit experience by making the document request process—which is often one of the most time-consuming components of an audit—more transparent, less cumbersome and more efficient than in past audits. This has allowed us to better collaborate and focus beyond traditional compliance to improving our processes to take them to the next level.”

DAVID BISHOP Chief Information Security Officer, Trustwave


APT NEXT GEN

Our phased rollout of APT Next Gen, the next generation of our global, integrated audit process tool, is now fully operational in 2020, with immediate implementation for all new clients and rapid transition for our existing client base with the assistance of innovative BOT technology and our Columbus Business Service Center. The overall goal: auditing smarter. By deploying common approaches, data analytics and industry specificity to identify risk for each of our clients, our teams can better focus work and judgment where it matters most. In the coming year, we will continue to refresh our related global audit methodology to align with forthcoming auditing and quality control standards and continue the transformation of our digital audit suite.

KEY FEATURES OF APT NEXT GEN THAT DRIVE

AUDIT QUALITY

Global

Scalable

Secure

CompliantIntegrated

Automated

Efficient

Insightful

“Our thoughtful process considers key audit milestones and directs the intentional sequencing of risk assessment and audit procedures to be completed throughout the year. This ensures the right work is done at the right time, by the right professionals and helps teams avoid constrained timelines. As part of the refreshed platform, we have built in significant industry knowledge within our audit libraries while further enhancing cross-border collaboration capabilities within our internal and global network.”

BRYAN MARTIN National Assurance Partner, Audit Tools, Technology, Templates & Approaches


DATA ANALYTICS – WORKING SMARTER, NOT HARDER

Over the past several years, BDO has continued to embed audit data analytics (ADA) into all aspects of our audits.

Benefits to clients include:

X Performing audits with supported ADA methodology, rooted in AICPA and PCAOB guidance

X Delivering enhanced risk assessment enabled by focus on unusual activity

X Beginning audits with highly relevant operational insights driving meaningful dialogue with management and the board

X Reducing documentation requests to the client

X Shifting from traditional audit procedures to ADA procedures to increase efficiency and effectiveness

Traditional Audit Procedures

X Extensive sampling and manual vouching to supporting documentation

X Inherent elements of randomness

X Traditional analytics often present low levels of assurance with difficult-to-investigate differences

X Often time intensive and require extensive manual data manipulation

X Less emphasis on data reliability and integrity

Audit Data Analytic Procedures

X Allows for testing of 100% of a population

X Biases approach to those items that matter most

X Automates calculations and audit procedures

X Visualizes data to simplify the identification of unusual items

X Allows for a disaggregated and visual review of unusual items, simplifying the investigation process


SPOTLIGHT ON

Accounting, Reporting and Auditing Resources in Action

ACCOUNTING

The National Accounting department oversees the technical accounting consultations and development of the firm’s positions with respect to accounting matters.

Specific activities include:

X Developing and communicating accounting guidance to our audit practice

X Implementing new accounting standards within the firm

X Providing timely and insightful educational materials for our clients

X Aligning National Accounting consultations by identified subject matter leads and facilitating information sharing and trend analysis for both the practice and our clients

X Staffing the department with seasoned professionals who share a commitment to excellence and quality

REPORTING

The National SEC department has the responsibility of coordinating and reviewing the firm’s SEC practice with a view toward providing effective service to our offices and liaising with the SEC.

Specific activities include:

X Considering the formal requirements of the SEC’s rules, regulations and administrative practices for each issuer audit

X Performing pre-filing/release reviews of certain SEC filings

X Consulting on SEC disclosure and reporting matters

X Maintaining professional relations with the SEC through a cooperative approach with the Commission and its staff

X Developing continuing education and communications pertaining to SEC practice matters

AUDITING RESOURCES

The National Audit department is responsible for developing how BDO performs audit and attestation services. Our professionals oversee the continual refreshment of our audit strategy, leading transformation of our approach, enhancing consultations with the practice and developing the reach and depth of global and IFRS services.

Specific activities revolve around:

X Developing and providing auditing training programs

X Providing technical support for auditing matters

X Providing review and approval of certain auditing and reporting matters

X Acting as an audit technical consultant to complex audit engagements, including active support of the engagement team and providing proactive guidance with respect to emerging technical audit and accounting issues

X Providing on-the-job training to engagement teams related to research and analysis on technical audit questions

X Developing and maintaining a high overall level of awareness and knowledge on a broad range of technical audit topics

X Assessing and developing responses to emerging matters identified by the quality control function, and other sources

X Developing a state-of-the-art audit methodology for both the U.S. and the Global organization


Layers of Audit Supervision and Review

National Assurance has established various mechanisms and dedicated resources to drive audit quality from the top down that includes BDO’s Audit Quality Committee and Audit Quality Network, our Regional Technical Partners (RTPs), Engagement Quality Control Reviewers (EQCRs) and SEC Reviewers. These groups are represented by professionals from across the country and help review, recommend and execute measures that contribute to quality in real-time throughout the audit process. They are further complemented by subject matter leads in support of our engagement teams. We remain dedicated to ensuring the right people with the required skillsets are deployed appropriately to address emerging issues and topics in their identified specialty areas of focus.

ENGAGEMENT TEAMS

ENGAGEMENT PARTNERS

REGIONAL TECHNICAL PARTNERS

AUDIT QUALITY NETWORK

EQC

REVIE

W

ERS, FOCUSED CONSULTANTS AND SEC REVIEWERS

I ND

UST

RY, SUBJECT MATTER AND TAX SPECIALISTS

NAT

ION

AL A

SSURANCE Q

UALITY CONTROL CONSULTATION RESOURCES .

AUDIT QUALITY COMMITTEE


EQCR and RTP Contributions to Audit Quality

The EQCR and RTP functions are distinct yet complementary to helping teams deliver on audit quality:

EQCRs – The RTP and RMP approve the assignment of the EQCR and subsequent changes therein to ensure the individual has the appropriate capabilities, competence, authority and time to perform the role.

RTPs – RTPs are selected by National Assurance leadership, with input from operational leadership, based on consideration of specific competencies, knowledge, experience and leadership skillsets

EQCR

Independent objective oversight to the audit

Requisite industry, accounting, auditing and

reporting knowledge

Required by professional standards

RTP

Review and propose EQCR

Consultative to audit team

Issues identification

Perform certain risk management oversight

procedures

OVERSIGHT

QUALITY

RESPONSIVE

COMMUNICATION

RISK MITIGATION

ISSUES MANAGEMENT

INSIGHT


SPOTLIGHT ON

The Audit Quality Committee

The Audit Quality Committee (“AQC”) was established for the purpose of evaluating and concluding as to:

An individual audit partner’s annual audit quality rating

Firm internal inspection ratings and related audit quality ratings

Audit quality ratings for all other positive and negative events that occur

Other matters that the National Assurance Managing Partner, Audit Quality and Professional Practice deems appropriate to bring to the AQC to address.

AUDIT QUALITY NETWORK

We have assembled an Audit Quality Network comprised of National Assurance technical leaders who work together with local office audit professionals, at the senior through partner levels, and with local and regional Audit Quality Directors to clearly and efficiently share best practices, address questions and cascade enhancements and changes in our audit approach across our client engagements firmwide.

1 to 7 Ratio of AQN Professionals to Assurance

Practice Professionals has remained consistent

“My office has a high level of communication with the AQN and routinely involves national advisors for complex areas.”


“Our AQN members do a great job of ensuring we are distributing information and actively bringing up trainings or tools teams should be using.”



Accreditation and Qualifications of Specialized Roles

To ensure that we are appropriately addressing risk on our audit engagements, we are heavily focused on assigning experienced professionals to not only staff our engagements, but perform critical review functions based on specified areas of risk. As part of BDO’s system of quality management, we are establishing several different accreditation or designation requirements for certain professionals serving audit engagements that include:

ISSUER AUDIT ENGAGEMENTS

Issuer Accreditation: Implemented in 2017, this accreditation is earned by completing a specific blend of initial and annual required learning geared toward public company audits along with the satisfaction of minimum experience requirements for professionals at the senior manager level and above.

ENGAGEMENT QUALITY CONTROL REVIEWER FOR AUDIT ENGAGEMENTS

EQCR Accreditation: Planned implementation in 2021, this accreditation is earned by completing initial and annually designated learning, satisfying certain minimum experience requirements (including, for Issuer EQCR assignments, being Issuer Certified) and meeting certain quality criteria.

ASC 740 TAX SPECIALISTS FOR AUDIT ENGAGEMENTS

ASC 740 Accreditation: Planned implementation in 2021, this accreditation is earned by completing initial and annual designated learning, satisfying certain minimum experience requirements and meeting certain quality criteria.

QUALIFIED INFORMATION SYSTEMS AUDIT (ISA) REVIEWER FOR AUDIT ENGAGEMENTS

Qualified ISA Reviewers: BDO maintains a group of dedicated IS Assurance specialists who focus on evaluating and/or relying on general IT controls, as well as automated application controls. These professionals are required to be a Certified Information Systems Auditor (CISA) or hold another applicable certification.

For each of the above accreditations, there are established measurable criteria for maintaining an ability to serve clients which are regularly monitored by the National Assurance Quality Management Group.


Technical ability, industry knowledge, experience and capacity are keys to assembling the right engagement team to serve our clients. Executing high-quality audits is enabled by the building blocks of tools, processes and training along with proper staffing and supervision.

Centrally assigning engagements and monitoring of workloads is critical to ensure adequate bandwidth and due care in our audits.

Client-Facing Staffing Leverage Ratios

FY2020 FY2019 FY2018

Partner to Manager 1 : 1.9 1 : 1.8 1 : 1.7

Partner to Staff 1 : 8.3 1 : 7.6 1 : 7.6

Manager to Staff 1 : 2.8 1 : 2.8 1 : 3.2

Audit Team Composition


Empowerment through knowledge is one of our core values, and collaboration with our colleagues and peers inside and outside the firm is one way we improve and deliver quality insight. Sharing insights is a sign of strength and testament to auditors’ due professional care. We believe in embedding needed subject matter, technology and technical knowledge within engagement teams on the front end and complementing that with identified consultative resources external to the audit team. This gives our professionals direct access to on-demand, responsive insight and also allows for quick resolution to questions or issues to share with clients. We have clear guidelines for when informal consultations of matters are appropriate and when, due to a variety of factors, matters may require a more rigorous, formal consultation process.

Consultation is one of the key elements within our Professional Judgment Framework. Our engagement teams are encouraged and expected to collaborate and consult on accounting, auditing, reporting and independence matters with our RTPs, SEC Reviewers and EQCRs and/or our diverse group of national subject matter leaders to ensure emphasis on quality and compliance. As part of our on-going dialogue within our practice, National Assurance monitors our formal consultation log and also considers informal consultations to ensure that expected dialogue around complex auditing and accounting issues are being brought up by the practice and to raise emerging issues where we see trends for consideration for National Assurance and operational leaders to provide additional guidance, policies, communications and training.

In 2020, our most frequent areas of noted formal and informal consultations were:

X Independence

X Distinguishing liabilities from equity

X Consolidation

X Income taxes

X Going concern

X Debt classification

To better manage risk and disclosure expectations related to COVID-19, we established certain consultation policies whereby our engagement teams informally consult with National Assurance on various matters that require specific consideration with regard to management’s estimates and judgments. Such review processes were enacted immediately and expeditiously beginning in April 2020 to promote high quality financial reporting and disclosure during this period of significant uncertainty.

Since inception of a formal consultation log in 2017 and adjustments to consultation policies, formal consultations continue to increase annually:

FY19

30% increaseFY20

15% increase

Consultation Survey Responses*:

*Based on a five-point scale

Consultative and Collaborative Nature

I have confidence that the consultation process achieved a well-considered and technically sound outcome.

Based on your experience of the consultation process, how likely are you to recommend this process to a colleague?

The consultation improved my personal knowledge and understanding of the issue.

The consultation improved my personal knowledge of how the judgments were reached.

FY20

4.7

4.7

4.7

4.4

FY19

4.7

4.7

4.4

4.4

FY18

4.4

4.1

4.1

4.1


We continue to believe it is essential to collaborate with external associations and regulatory bodies to work together toward a common goal of increased quality. Meeting regularly with standard-setters and regulators to solicit and provide feedback on current and future standard-setting impactful to the profession and to our clients is critical to driving audit quality and informing our overall audit planning and considerations. Equally as important is encouraging our professionals to take on responsibilities within our global working groups as well as in organizations external to our firm involving leadership and task force member contributions. These contributions help formulate the profession’s response to emerging areas of risk, complexity, disruption and opportunity. A third prong of our collaborative spirit involves encouraging our people to assume service roles within their communities in the form of board of director and advisory roles, to industry and professional association participation and other thought leadership roles to help our people draw on and deepen their professional experiences and strengths in the service of others .

Regularly scheduled engagement by National Assurance leadership with the leaders and staff of the SEC, PCAOB, AICPA, FASB and CAQ includes biweekly, monthly, quarterly, semi-annual and annual meetings. Additionally, BDO professionals participate throughout the year in a broad variety of professional organization technical committees and working groups to further audit quality within the profession.

SPOTLIGHT ON

BDO Leaders Guiding the Future of Auditing and Accounting

PATRICIA BOTTOMLYMember of Auditing Standards Board

PAULA HAMRICChair of the 2020 AICPA Conference on Current

SEC and PCAOB Developments and Member of the SEC Regulations Committee

15% of experienced BDO professionals serve as directors or officers for charitable or nonprofit organizations in their communities.

35+ Assurance partners and professionals participate in significant activities championed by external professional organizations that have a direct impact

on advancing audit quality.

BRYAN MARTINMember of the Anti-Fraud Collaboration and

the AICPA’s Assurance Services Executive Committee (ASEC)

ANGELA NEWELLChair of the AICPA’s Financial Reporting Executive

Committee (FinREC)


BDO KNOWS

COVID-19 – Accounting, Reporting and Other Related Considerations

MARCH 2020

CONTENTS

Recent Regulatory Guidance Covered in This Alert 1

PCAOB COVID-19: Audit Reminders 2

SEC COVID-19 Relief and Reporting Guidance 3

Corporation Finance COVID-19 Disclosure Guidance 4

Questions for Audit Committees in Contemplating COVID-19 Impacts 6

Next Steps 8 8

AUDIT COMMITTEE CONSIDERATIONS: COVID-19 GUIDANCE FROM SEC AND PCAOB

BDO’S CORPORATE GOVERNANCE ALERT

APRIL 2020 / www.bdo.com

As audit committees, management and auditors continue to wrestle with practical challenges of accounting, reporting and disclosing impacts of COVID-19, the SEC staff and PCAOB have issued recent guidance based on their observations and engagement. We have summarized some of the significant takeaways and provided such guidance and our insights as a series of questions for audit committees to consider in executing financial reporting responsibilities and ensure audit quality.

The SEC and PCAOB are both closely monitoring the issues raised by COVID-19 as they relate to on-going audits of financial statements and timely reporting by public companies and impacts on investors and global capital markets. In response, they have each begun to issue various guidance and, in certain circumstances, relief to both public companies and auditors with the goal of continuing to provide high quality financial statements that investors and capital markets can rely on. Much of this guidance has been captured by recent BDO publications and programming, including but not limited to BDO’s COVID-19 – Accounting, Reporting and Other Related Considerations publication along with our April 2020 webinar COVID-19: Accounting, Reporting and Other Considerations for Boards. Below we highlight the significant takeaways for consideration as companies and their auditors address uncertain and unique challenges to annual and interim financial accounting and reporting. These are further complemented by specific questions we suggest audit committees give consideration to in their oversight roles. For evolving information and insights, we encourage you to check in often to BDO’s COVID-19 Resource Center.

RECENT REGULATORY GUIDANCE COVERED IN THIS ALERT

X 4/3/2020 – SEC Chief Accountant Statement on the Importance of High-Quality Financial Reporting in Light of Significant Impacts of COVID-19

X 4/2/2020 – PCAOB COVID-19: Reminders for Audits Nearing Completion Spotlight

X 4/2/2020 – SEC Chair Clayton’s Statement – Investors Remain Front of Mind at the SEC…

X 3/31/2020 – SEC CD&Is on COVID-19 Filing Relief

X 3/25/2020 – SEC Extension of Conditional Exemptions from Reporting and Proxy Delivery Requirements

X 3/25/2020 – SEC Corporation Finance Disclosure Guidance: Topic No. 9

BORROWER ACCOUNTING

FOR PAYCHECK PROTECTION

PROGRAM LOANS

MAY 2020

ESSENTIAL INSIGHT, IMMEDIATELY

From new accounting and reporting standard updates to evolving tax guidance and areas of emerging risk, BDO continues to commit to providing timely resources and insight to help our clients navigate both opportunities and challenges.

This speed to support was never more evident than in the wake of the significant financial and operational impacts of the COVID-19 pandemic and opportunities to apply for time-sensitive government assistance programs. BDO professionals—from our technical resources and client service teams to our core business services teams—immediately took action to prioritize informational guidance needs while still ensuring audits were completed on time.

Leaders across our Assurance, Tax and Advisory practices continue to provide the market with timely guidance on crisis response, accounting and reporting considerations, CARES Act opportunities and application assistance, as well as expected disclosures related to accounting, auditing and income tax impacts.

“National Assurance’s response to COVID-19, and the associated resources that were produced in a very short period of time, really impressed me. This level of reactiveness to the practice was great and is critical.”



https://www.bdo.com/resource-centers/crisis-response-resource-center

“Audits of private companies require a distinctive focus on what’s important to the primary users of their financial statements. The audit approach needs to be tailored to reduce efforts in areas of low risk so that the more important financial statement areas receive the highest level of audit quality by our most experienced professionals.”

JIM GERACE National Assurance Partner, Private Company Approach

PRIVATE COMPANY AUDIT INNOVATIONS

Our private company clients make up the largest segment of our Assurance practice – representing entrepreneurial, middle market and large global enterprises across multiple industries. As such, BDO continues to focus on our priority of making private company audits more efficient and effective, while ensuring appropriate levels of rigor and precision in our work. This includes re-examining our global audit methodology and approaches to address existing and evolving auditing and accounting standards.

National Assurance has a dedicated team that deploys enhanced Private Company Audit Innovation (PCAI) technology, tools, practical use training and templates to our professionals with the goal of delivering a more meaningful, higher quality audit distinct from the differing regulatory requirements and considerations of a public company audit. We intentionally build in accountability in driving to PCAI adoption by tracking usage across offices and audit teams to help ensure a more consistent experience for our teams and our private company clients.

Examples of how we are modifying our approach to private company engagements which allows for more concentrated time to be spent on critical thinking and decision-making include:

X Incorporating methodology changes related to risk assessment, scoping, materiality and substantive procedure considerations

X Enhancing use of our data analytics tools

X Incorporating milestones throughout the audit cycle for larger private engagements for proper sequencing of work and streamlining use of resources

X Updating our sampling guidance

X Increasing use of BDO Service Centers for more routine auditing procedures

X Re-designing our suite of audit tools for simplicity and consistency in execution

X Developing training modules tailored to private company engagements

“I think rolling out milestones on private engagements is a good step…The idea of executing our audits in a way to pull work out of busy season and to keep important decisions from being made right at the end of the audit is the most important factor to improving audit quality in a way that is not overly stressful and burdensome”

ASSURANCE PARTNER Respondent to 2020 BDO Audit Quality and Operational Excellence Survey


Monitoring Audit Quality


The purpose of our firm’s system of quality management is to provide reasonable assurance that (a) the firm and our personnel comply with professional standard responsibilities and applicable legal and regulatory requirements and (b) reports issued by the firm are appropriate in the circumstances.

To achieve its intended purpose, a system of quality management cannot be static. Controls must be reviewed, tested and continually improved. Quality management must consider a broad variety of factors including evolving complexities brought on by enhanced use of technology, changing regulatory standards and the engagement of global network professionals, business services centers and others within the audit. As a firm, we engage in a concerted effort to evaluate the strength of our integrated system of quality management in relation to an evolving environment and make meaningful changes and improvements to honor our commitment to delivering consistent and high audit quality.

Invest in quality management leadership, professional practice resources and systems

Define quality and audit quality indicators, and measure those

Identify the core elements of quality and execute relentlessly

Quality is a Consequence of Deliberate Action


Enhancing Our System of Quality ManagementNew International and U.S. standards for quality management are close to being finalized5, and our goal is to be thoroughly prepared in advance of the effective date. Over the past 18 months, we conducted a comprehensive review of our system of quality management resulting in a specific mapping of the overall system for a clearer identification of risk and our related control response. This has enabled a more precise refinement and documentation of risks, controls, mapping controls to risk, assessment of the severity level and likelihood of occurrence for each risk and evaluating our approach to testing and monitoring of these controls.

5 The International Auditing and Accounting Standards Board (IAASB) has issued a Proposed International Standard on Quality Management 1 (ISQM1) while the PCAOB has issued a Potential Approach to Revisions to PCAOB Quality Control Standards, largely based on ISQM1, with certain differences as appropriate for firms that are subject to U.S. federal securities law, SEC rules and other PCAOB standards and rules. Refer to respective sites for further information on finalization of standard setting.

QUALITY OUTCOMES OF OUR REVIEW AND MONITORING PROGRAMS

X Documented and refined systems of quality controls, policies and procedures

X Addition of new full-time professionals to our Quality Management team

X Formalized and bolstered monitoring program to review effectiveness of policies and procedures, incorporating lessons learned from remediation of inspection findings

X Enhanced engagement-level monitoring

X Launched EQCR Accreditation Program defined by specific engagement quality review criteria and requirements

X Enhanced office and regional quality accountability program

X Continued partner audit quality reviews and annual quality assessments

X Continued adoption of BDO enhanced data mining and analytic capabilities

X Increased communication and collaboration with regulators, including the PCAOB Board and the SEC Office of the Chief Accountant and Corporation Finance

X Increased inbound inquiries from regulators for BDO’s views

X Enhanced U.S.-led Foreign Private Issuer training and gatekeeping

X Adjusted human capital workload assignments, performance management and compensation

X Enhanced Regional Technical Partner office visits and one-on-one meetings with engagement partners and EQCRs

X Delivered enhanced, timely messaging on audit quality imperatives

Elements of Our System of Quality Management

QUALITY CONTROL

SYSTEM

Governance & Leadership

Risk Assessment

Ethical Requirements

Acceptance & Continuation of Clients

Engagement Performance

Human, Technological & Intellectual

Resources

Information & Communication

Monitoring and Remediation


https://www.ifac.org/system/files/publications/files/IAASB-Proposed-ISQM-1-Explanatory-Memorandum.pdf

https://pcaobus.org/Rulemaking/Docket046/2019-003-Quality-Control-Concept-Release.pdf

https://pcaobus.org/Rulemaking/Docket046/2019-003-Quality-Control-Concept-Release.pdf

CONTINUOUS IMPROVEMENT FRAMEWORK

We have designed a set of activities and iterative processes for constant quality improvement within our system of quality management to be applied at any level – engagement, office, regional, component element or firm:

“Our strong focus on a high-functioning system of quality management starts with the right leadership team and continues with advancing the critical building blocks of our people, process and technology. Our goals of excellence and exceptional client service depend on these systems functioning properly, and we will continue to invest our time, resources and attention to achieve further improvement.”

BLAKE WILSON National Assurance Managing Partner, Quality Management

Identify Areas for Improvement

X Monitoring source: inflight, post-implementation or ongoing assessment

X Context: standards, industry, recurring audit failures

X Causal factor to address

Inflight Monitoring

X Focused coaching

X Data mining

X Inflight reviews

X Interviews

X Consultation records

X Surveys

X Focused consultant reviews

X Leadership interactions (Regional Technical Partner meetings)

Post Implementation Assessment

X Internal inspection results

X Thematic reviews

X Causal factor analysis

Assess Responsive Actions

X Why is it going to work? (relevance and adequacy)

X Intended impact (define what would be effective)

X Test and prove (identify adjustments needed):

• Pilot team/retrospective use

• Subject Matter Team outreach

• Desktop reviews/interviews

Ongoing Assessment / Improvement

X Routine reviews

X Surveys

X Focus groups

X Interviews

X Data mining

X Leadership interactions (Regional Technical Partner meetings, office visits)

X Audit quality indicators


Inspection InsightsInspections – both internal and external – to which our firm is subject are viewed as an essential part of our process to gather insights and inform our continuous improvement efforts with respect to our Quality Management system.

INTERNAL INSPECTION

Annually, our dedicated National Quality Management inspection team led by Mike Fawley, National Assurance Partner - Inspections, performs a risk-based selection process of partners and engagements. Annual quality control reviews consist of engagement reviews and functional reviews. Our engagement reviews are designed to allow the inspection teams to conclude whether:

X The engagement was performed in accordance with applicable auditing and regulatory (where applicable) standards.

X The financial statements were presented, in all material respects, in conformity with generally accepted accounting principles (GAAP) or when applicable, a comprehensive basis of accounting other than GAAP.

X The report was appropriate in the circumstances.

X The partner in charge of the engagement had the knowledge, skills and competency to perform the engagement in accordance with professional standards.

X The engagement was performed in accordance with the firm’s policies and procedures.

Engagement inspections are bifurcated between issuers and non-issuers and designed to address specific associated risks.

Functional area reviews examine certain key areas of the Assurance practice that pertain to and can influence audit quality including ethical requirements, human resources, client acceptance and continuance and other matters. This type of testing is performed for approximately one-third of the practice offices each year on a rotating basis. Focus groups are conducted to gain insight on the office’s attitude and emphasis on audit quality as well as understanding of the firm’s policies and procedures. Testing is also performed on a national level for certain areas.

All Assurance partners have the potential to be subject to inspection each year based on a risk-based selection process and generally will be inspected at least once within a three-year period.

Our Audit Quality Committee evaluates and concludes on both the engagement partner and EQCR quality event rating related to the inspection findings and the overall engagement performance rating. Audit Quality Event (AQE) ratings are assessed using a seven-point scale from a “high-positive” to a “high-negative” quality finding. The Audit Quality Committee reviews the inspection findings and engages in robust discussion with the lead inspector to conclude on an appropriate AQE rating for each partner.

With respect to engagement performance ratings for issuer audits, inspected engagements are given a scaled quality rating along a continuum of nonconforming to conforming based on the significance of audit deficiencies identified, if any. For non-issuer audits, inspected engagements are rated: (1) unsatisfactory, (2) areas for improvement needed or (3) satisfactory based on the significance of audit deficiencies identified, if any.

SPOTLIGHT ON

Audit Quality EventsAQEs focus on appropriate demonstration/consideration of:

X Exhibition of appropriate tone

X Technical knowledge and focus

X Engagement of appropriate resources throughout the audit

X Execution of audits in line with professional standards

X Audit restatements

X Adherence to independence, risk management and other firm policies

X Adherence to audit engagement milestones

X Internal and external inspection findings


Quality Assurance and Gatekeeping Reviews

As a member of BDO International, each member firm undergoes Quality Assurance Reviews (QARs) performed by a BDO International member firm inspection team to provide assurance that the BDO member firm adheres to, and complies with, applicable professional standards, as well as BDO International’s standards. Our latest report reflects an acceptable level of performance in all functional areas. BDO USA further contributes to the global QAR system by providing seven members of National Assurance who perform QARs of BDO International member firms.

Our international quality assurance also includes “gatekeeper” reviews of our BDO member firm audit engagements where the related financial statements are filed with the SEC. We are currently involved in nearly 70 of these reviews. In addition, during the past year, we have enhanced the quality of our foreign private issuer practice through additional training, accreditation and consultation policies, guidance for client acceptance and thorough gatekeeping reviews performed by BDO USA professionals with in-depth knowledge of SEC and PCAOB rules, along with relevant specialized industry experience. Notable areas identified by internal inspection

teams are used, in conjunction with findings and experience with external inspections, to inform not only remediation actions for individual engagements but also to further enhance our system of quality management, including our messaging, continuous education, tools, processes and guidance.

This represented approximately 4.2% of all Assurance hours for the year ended March 31, 2020.

Reviews of functional areas were conducted in 15 offices.

covering

67% of our Assurance practice officesOver 16 industry groups

During 2019, we inspected of partners across all six regions 42%

including

20 employee benefit plan audits

15 SSAR engagements

2 Third Party Assurance engagements

136 engagements

109 non-issuer clients

27 issuer clients

representing


EXTERNAL INSPECTIONS

6 This includes approximately 60 Form 11-K benefit plan audits as of 12/31/2019.

7 Refer to the Guide to Reading the PCAOB’s New Inspection Report.

AICPA Peer Review

As a member of the AICPA, we participate in a triennial external peer review of our accounting and auditing practice. Our last review report was issued in 2018 and included an examination of 68 audits by a peer firm. The report concluded the system of quality for our firm was suitably designed, and we had complied with our own quality guidelines. The peer reviewer also concluded the system provided our firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The peer review report and the related AICPA Acceptance Letter can be found here.

PCAOB Review

As a firm who audits well over 300 issuer clients6, BDO USA is subject to annual inspection by the PCAOB. In light of disruptions related to the COVID-19 pandemic, the PCAOB shifted to a completely virtual inspection process. Additionally, in late March the PCAOB granted a brief 45-day relief period from inspections to audit firms. BDO had opted to take this deferral for five engagements under inspection in 2020 based on careful consideration of resources available within the engagement team and the client as well as other client-specific factors. However, with regard to both of these changes to the inspection cycle as of the publication of this report, we note that all of our engagements selected by the PCAOB for the current inspection cycle are current and progressing along the expected timeline. Similar to how we approached the shift virtually for our internal inspections, our enabling response to the PCAOB’s shift was in providing more structured communications between our National Assurance resources and engagement teams under inspection and rigorous project management to both prepare for and respond to PCAOB requests for information. We believe strongly that the virtual nature of the inspection process has not impacted the quality of communication and engagement among the PCAOB inspectors and our professionals, and the resulting inspection observations and dialogue continues to lead to informed discussion and appropriate firm actions to drive high audit quality.

In April 2020, the PCAOB issued the six largest U.S. firm inspection reports, including BDO’s report, in a new user-friendly format that covered the 2018 inspections of 2017 audits.

The redesigned report7 streamlines content and provides an easy to digest executive summary and three-year comparative graphics while removing certain boilerplate language. The report provides content related to deficiencies that were of such significance to indicate an audit firm had not obtained sufficient appropriate audit evidence to support its opinion(s) on the issuer’s financial statement and/or ICFR (“Part I.A”) and newer content relate to instances of non-compliance with PCAOB standards or rules (“Part I.B”). The PCAOB continues to provide Part II criticisms of, and potential defects in, the firm’s system of quality management. These observations are not made public unless the PCAOB concludes that they have not been satisfactorily addressed by the firm within 12 months after issuance of the PCAOB’s related Part 1 report.

We value the PCAOB inspection process as an independent assessment of our performance and effectiveness of our approach to enhancing audit quality. Each year our leadership team reviews comments promptly and then collaborates with appropriate Assurance leaders to improve, enhance and iterate our processes, tools and communication to make further progress. We are confident that our efforts are working, as the scope of PCAOB comments in key areas have narrowed.

PCAOB inspection reports consist of two parts:

Part 1: Public Portion

This section reports findings relating to specific audit engagements in which audit deficiencies may affect a firm’s ability to support its audit opinion. In addressing these findings, a firm takes appropriate corrective actions, including possible additional documentation or audit procedures (known as engagement remediation), and/or in rare cases, revises its report.

The focus of the majority of the audit execution findings relate to testing of internal controls over financial reporting and/or substantive testing of revenue and related accounts, income taxes, allowance for loan losses and deposit liabilities.

In connection with the 2018 PCAOB inspections, there were no related restatements of issuer financial statements, or re-issuances of or modifications to our firm’s audit opinions on the financial statements and ICFR.


https://pcaobus.org/Inspections/Documents/Inspections-Report-Guide.pdf

https://peerreview.aicpa.org/public_file_search.html

Most frequently identified deficiencies noted by the PCAOB related to:

Audit areas most frequently reviewed included:

X Revenue and related accounts

X Inventory

X Income taxes

X Investment securities

X Long-lived assets

Deficiencies identified in Part 1.B that do not relate directly to the sufficiency or appropriateness of evidence the firm obtained to support its opinion related to retention of audit documentation and the documentation of certain discussions with the audit committee.

The nature of our PCAOB inspection findings are consistent with the audit profession findings as a whole. Our most recent inspection report, which covers the 2018 inspection of 2017 audits, and our response can be found here.

The 2019 audit inspection findings are currently under review and the PCAOB is anticipated to release this report in early 2021.

Part II: Observations Related to Quality Control

This portion of the report includes the PCAOB’s observations relating to a firm’s audit quality controls where improvements are recommended. In evaluating a firm’s quality control, the PCAOB assesses the following areas as part of that inspection:

X Management structure and processes, including tone at the top

X Practices for partner management, including allocation of partner resources and partner evaluation, compensation, admission, and disciplinary actions

X Policies and procedures for considering and addressing the risks involved in accepting and retaining clients

X Processes related to the firm’s use of audit work that the firm’s foreign affiliates perform on the foreign operations of the firm’s U.S. issuer audit clients

X The firm’s processes for monitoring audit performance, including processes for identifying and assessing indicators of deficiencies in audit performance, independence policies and procedures, and processes for responding to weaknesses in quality control

The PCAOB has completed their assessments of the 2015 inspection of 2014 audits and all prior inspections. The one-year open period for the 2016 and 2017 inspections have passed, but the PCAOB has not issued their final determinations on the firm’s remedial activities related to those inspection reports.

We diligently review, consider and act on all inspection comments as well as listen and engage in proactive dialogue with the PCAOB during our regularly scheduled discussions throughout the year done outside of the inspection process. These are factored into both normal audit quality considerations as well as remediation and monitoring activities and priorities that are set and measured by our leadership team.

FINANCIAL STATEMENTS

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Sufficient testing to address identified risk

Identification and testing of the design and/or operating effectiveness

of certain controls

Performing substantive procedures to obtain sufficient evidence

Identification and testing controls related to a significant account or

relevant assertion

Sufficient evaluation of significant assumptions or data used in

developing estimates

Identification and/or sufficient testing of controls over the accuracy and completeness of data and reports

Testing sufficient sample of transactions


https://pcaobus.org/Inspections/Reports/Documents/104-2020-007-BDO-USA-LLP.pdf

COMMUNICATION OF INSPECTION FINDINGS

As part of our continuous learning and communication plans, our 2019 inspection findings were included in each of the following programs during the period August 2019 through February 2020:

One-Day Issuer Training – 12+ sessions held across all six regions for managers and above serving issuer clients to reinforce frequent inspection findings through examples and interactive discussion

2019 Audit Quality Imperatives Webinar Series – Three mandatory programs for managers and above featuring National Assurance and Operational leadership conveying audit quality messaging in the execution of our audits, including inspection findings, themes, causal factors and audit execution response

Audit Quality Matters Publication – National Quality Management team publication release to the audit practice highlighting areas of frequent deficiency from inspections of non-issuer audits including paths for success and resources

Regional Inspection Communications – Calls held in Fall 2019 to discuss final inspection reporting among national, regional and office managing partners, RTPs and the National Managing Partner – Audit Quality & Professional Practice

Office Inspection Closing Meetings – In person meetings conducted with the OMP and RMP and National Quality Management lead to discuss findings related to engagement inspections, functional areas and focus group sessions


Audit Quality Behaviors and Monitoring ActivitiesWe continue to learn from our Continuous Improvement Framework, client engagement, internal and external inspection findings, our review of our own system of quality management and emerging regulatory priorities. Based on those learnings, our National Assurance leadership team, in collaboration with our Executive Leadership team, continue to reinforce the following identified behaviors that drive audit quality.

ENCOURAGING BEHAVIORS THAT DRIVE AUDIT QUALITY

Appropriate level of audit knowledge and experience

Appropriate level of supervision and

review in alignment with perceived risk

Appropriate exercise of professional skepticism and

application of our Professional

Judgment Framework

Obtaining good understanding of

processes, including identifying what

could go wrong and related controls

Appropriate partner mindset

Sufficient time allocation for

project management and appropriate work sequencing

and timing

Reliance on use of firm guidance and applicable

professional standards

Performance of robust risk assessment

and understanding of significant

risk of material misstatements and flow of transactions

Appropriate re-evaluation/challenge

of certain legacy assumptions

and conclusions

Thorough completion of firm templates and application of required practice

aids & tools

Evidence appropriate review controls and

control design

Appropriate focus on workload management

Adequate integration and review/

supervision of information system

and tax professionals

Focus on emerging areas of risk – e.g.,

revenue recognition, liquidity, going

concern, taxation, etc.


In consideration of expected audit quality behaviors and desired performance outcomes, our National Quality Management team determines the nature, timing and extent of our monitoring activities.

Our ongoing monitoring activities include*:

X Milestone Monitoring – applicable to issuers as a systemic approach to audit cycle sequencing of work requiring completion of certain activities and distribution of hours throughout the audit process

X Issuer Certification Monitoring – ensuring individuals working on issuer audit engagements have the required training and experience specific to issuer audits

X Regional Technical Partner Practice Office Visits – regional visits to assess engagement team competence; monitor personnel assignments and mandatory rotation plans; assess progress on quality matters or inspection remediation plans; assess training needs and ensure consistency in application of firm policy and methodology; facilitate and approve client continuance decisions; and encourage consultation

X Regional Technical Partner One-On-Ones – RTPs conduct two deep interactions with each issuer engagement partner and EQCR to address areas related to client acceptance and continuance; milestones; significant risks; client-specific accounting, auditing and reporting matters; use of firm tools, compliance with firm policies, remedial activities; engagement partner workload, and EQCR availability

X Monitoring of BDO Member Firms, BDO Alliance and Other Non-BDO Firms When Utilized for Component Audit Work – Review of adherence to firm policies including how U.S. engagement teams gained comfort on the qualifications of other auditors and nature and extent of audit work performed and whether it was performed in compliance with U.S. generally accepted auditing standards (GAAS) and BDO firm policy

X Performance Management Monitoring – Includes cyclical goal-setting and review of performance for all employees and partners on an annual basis

*Refer elsewhere in this report for additional ongoing-monitoring activities related to consultations, independence, CPE and licensing as well as periodic monitoring activities including inspections and reviews of SEC filings by foreign BDO firms.


CURRENT AREAS OF FOCUS FOR ENGAGEMENT MONITORING IMPACTING ALL AUDITS

Monitoring activities are conducted on a representative sample of our issuer practice to evaluate engagement team application of firm guidance for areas of critical remediation action for the current year.

We are currently monitoring the effectiveness of over 40 action items related to usage of audit tools, adherence to guidance and observations of audit execution along anticipated milestones. Following are examples of primary actions taken related to key audit areas, based on monitoring and other quality management activities including on-going considerations related to COVID-19:

MONITORING ACTIVITY EXAMPLE OF PRIMARY AUDIT QUALITY ACTIONS TAKEN FIRMWIDE

Risk Assessment

X Audit Quality Imperatives webinars focused on performance of robust risk assessment procedures, including assessment of inherent risk and evaluation of risk

X Issuance of timely reminders

X 2020 design enhancements to ICFR forms

X Topically addressed in Regional Techinical Partners one-on-one discussions

X Planned module for inclusion in Mandatory Issuer Training

Use of EstimatesX Audit Quality Imperatives webinars focused on key inputs

and critical judgments relative to material client estimates


Management Review Controls (MRCs)


Evaluation of Control DeficienciesX Design enhancements to templates to encourage better

linkage between evaluation of deficiencies and impact on the audit


ASC 842 Lease Accounting Adoption – Substantive Procedures

X Audit Quality Imperatives webinars focused on both substantive procedures and ICFR considerations

X Topically addressed in Regional Technical Partner one-on-one discussions

Information Systems Assurance Integration

X While no specific actions required, monitors noted effective use of ISA tools by engagement teams

Business Process WalkthroughsX Issuance of timely reminders

X Design enhancements to ICFR forms and templatesX Planned module for inclusion in Mandatory Issuer Training

Revenue Recognition X Issuance of timely reminders


MONITORING ACTIVITY EXAMPLE OF PRIMARY AUDIT QUALITY ACTIONS TAKEN FIRMWIDE

Income TaxesX Monitors noted effective use of Income Tax MRC practice aid and integration of tax professionals within the testing of income

tax controls

Required Communications with Audit Committees

X Monitors noted effective use of the Audit Committee Required Communications Checklist

Allowance for Loan Losses, Goodwill Impairments and Journal Entry Testing

X Monitors noted effective use of various, topical guidance and practice aids by engagement teams

Application of the Professional Judgment Framework (PJF )

X Monitors noted effective adoption and use of BDO’s proprietary Professional Judgment Framework by engagement teams

Note: As secondary actions, learning modules will incorporate targeted interactions with engagement teams to allow application to specific client circumstances.

The firm monitors key topical areas through the informal and formal consultation process discussed elsewhere in this publication. Based on the consultations performed, National Assurance observes certain patterns regarding the nature, frequency and significance of the matters consulted on. These patterns often result in actionable steps taken by National Assurance in developing training, guidance and tools to assist the practice in responding to these issues.


What’s Next for BDO Audit


BDO is focused on continuous innovation and improvement to meet the changing needs of our clients and optimize our purpose-driven professionals and processes to provide the highest quality audit and service. In pursuit of that, the actions we have taken in building resilience and capacity while remaining agile and adaptable have set us up for success in the future.

TECHNOLOGY AND RESOURCES:

X Professional and resource optimization

X Enhanced digital-enabled audit

X AI and robotics integration within process automation, optimization and data analytics

X Full deployment of a re-envisioned audit suite of tools and planned enhancements

RISK

X Remaining vigilant to changing industry, domestic and global risk factors

X Enhanced system of quality management

X Increased focus on financial reporting fraud and data governance

OPPORTUNITIES

X Focus on strategic relationships and project management

X Investment in complementary services and capabilities

X Increased focus on sustainability and non-financial reporting

X Continuing accounting, auditing, reporting and governance education for all stakeholders

“The rules of business have been reinvented again. At the same time, it’s essential to provide accurate, relevant and timely information so that the users of financial statements can act with confidence, and so that businesses can plan with precision.”

PHILLIP AUSTIN National Assurance Partner, Audit


People who know, know BDO.SM


BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 65 offices and over 740 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of more than 88,000 people working out of more than 1,600 offices across 167 countries and territories.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your needs.

© 2020 BDO USA, LLP. All rights reserved.

CONTACT

PHILLIP AUSTIN National Assurance Managing Partner, Auditing 312-730-1273 / [email protected]

WAYNE BERSON CEO 301-354-2519 / [email protected]

ADAM BROWN National Assurance Managing Partner, Accounting 214-665-0673 / [email protected]

BILL EISIG National Assurance Managing Partner and Practice Leader 301-354-2532 / [email protected]

MIKE FAWLEY National Assurance Partner, Inspections 404-979-7194 / [email protected]

NANDA GOPAL National Assurance Partner, Regional & Industry Technical Partner Leader 714-668-7332 / [email protected]

TIM KVIZ National Assurance Managing Partner, SEC Services 703-245-8685 / [email protected]

CHRIS ORELLA National Assurance Managing Partner, Operations 212-885-8310 / [email protected]

JENNIFER PUTERMAN National Assurance Partner, Assurance Risk Management 301-354-2561 / [email protected]

AMY ROJIK National Assurance Partner, Governance & External Communications 617-239-7005 / [email protected]

LISA SNYDER National Assurance Partner, Independence 732-734-3052 / [email protected]

CHRISTOPHER TOWER National Assurance Managing Partner, Audit Quality and Professional Practice 714-668-7320 / [email protected]

BLAKE WILSON Chief Compliance & Ethics Officer 214-259-1497 / [email protected]