Today, finance and accounting leaders face extraordinary challenges—navigating through macro-economic headwinds, rising geopolitical tensions, shifting ESG expectations, and much more. But the volatility and uncertainties of these moments also bring unique opportunities for leaders to rise to the challenge and find new ways to grow their roles, re-shape strategies, and drive transformation.
The recent Global Financial Reporting and Valuation Conference (GFRVC) brought together hundreds of business leaders and subject-matter specialists to explore today’s economic, geopolitical, and regulatory landscape. The keynote speaker, Shane Battier, shared his insights about how “dedication, resilience, and tenacity render me an invaluable member of championship-winning teams and how we work together to rise to greatness.” Below are some of the key insights raised at the conference to help leaders weather challenges and gain an advantage in today’s environment.
U.S. Economic Update
Federal Reserve rate hikes and weaker global growth will likely trigger a shallow recession in 2023 . As KPMG Senior Economist, Tim Mahedy explained, potentially a mild recession could be on the horizon next year. Key economic trends include the following:
- The Fed has raised rates rapidly to address persistent inflation, and it will likely take more than a year for inflation to decline to the Fed’s 2% target.
- Demand for labor remains high, but labor supply is still below pre-pandemic levels. This gap could dampen job losses in a recession as companies seek to hold onto employees.
- Labor shortages have intensified due to the pandemic: between 500,000 to 4 million people are out of work due to long-COVID. Moreover, the number of people out of work due to childcare needs has reached a record high.
- Consumer spending is sputtering. With high inflation, real wages have fallen at the fastest rate in 40 years1 while savings from the pandemic have dwindled.
During this session, audience members were particularly interested in the transitory nature of inflation and supply chain disruptions that industries face. Now is the time for finance and accounting leaders to accelerate planning for a possible recession. KPMG research has developed tested strategies to not only weather a recession but even gain advantage, such as pursuing strategic acquisitions and divestitures2.
For more information and insights, please visit the KPMG Office of the Chief Economist website.
Today’s fiercely competitive labor market requires new talent strategies. A gap has opened between what employees value and what employers expect. For example, employees heavily value professional development to facilitate career advancement, while employers focus on training for business needs.
KPMG Human Capital and HR Strategy leaders, Kristine Coogan and Brianne Lumley explored how companies can strengthen their employee value proposition and audience members were eager to learn how leaders can facilitate the continued development of talent in a remote working environment. The recommendation: companies should think about talent strategy holistically across the organizational lifecycle. In response to today’s talent challenges, leading practices are emerging.
- A KPMG survey of CEOs3 found that 64% plan to increase resources on managing employee mental health and well-being.
- Most top performing firms are working to embed a clear sense of purpose in everything they do.
- Nearly half of CAO teams are prioritizing talent-related data and analytics to refine their talent strategy.
In advancing these and other goals, finance and accounting leaders are well positioned to be strategic partners with HR. For example, finance and accounting leaders can help better integrate workforce planning through budget planning and identifying what performance incentives drive financial results4.
For more information and insights, please visit the KPMG Workforce Transformation website.
Cybercrime trends and regulatory compliance
Last year, the U.S. experienced an unprecedented increase in cybercrime, causing nearly $7 billion in damages5. The threat from cybercrime—such as data breaches from ransomware and phishing attacks—shows no sign of slowing. Firms must develop robust cyber security strategies to minimize risks and enable regulatory compliance, such as meeting FINRA and SEC rules governing the protection of customer records and information.
KPMG Principal Jonathan Fairtlough spoke to, the best practices seen to date to address both compliance with new data privacy rules and technical actions being taken to protect against cyber risk and the immediate steps necessary when a breach occurs. For example, one of the easiest ways that finance and accounting leaders can protect themselves and their company from cyber risk is to reduce data hoarding in their inboxes. Jonathan went on to speak to how executive’s emails are the number one target for hackers to infiltrate because it is full of valuable information (on average $135 per email), and very few take the time to clean it up.
For more information and insights, please visit the KPMG Cyber Security website.
2022 Tax Policy Outlook: Tax Legislation in a post-IRA world
The Inflation Reduction Act brought significant changes to tax policy—and new compliance challenges. As Jen Acuna, a Principal with KPMG Federal Legislative and Regulatory Services, touched on a myriad of topics in consideration of the 2022 election, the democratic and republican tax agenda. Further, some of the key provisions discussed and questions raised during the session include but are not limited to the following:
- Corporate Alternative Minimum Tax
- Stock buyback excise tax
- IRS Funding
Diving into the evolving ESG landscape
New sustainability-related regulations that are emerging both domestically and internationally are creating seismic shifts in corporate reporting for US companies. These changes will significantly affect everything from financial reporting to tax compliance, to valuations during M&A deals. A panel of KPMG ESG leaders shared their knowledge and insights on key issues ahead.
- SEC climate proposal: One of the key topics discussed were in regard to the proposed financial statement footnote and the complexities involved in measuring and recognizing climate-related risks (and opportunities) within the financial statements. Further, trends in the comment letters that the SEC has received to date were discussed. For example, respondents have urged expanding safe harbor provisions for certain forward-looking and third-party information used for Scope 3 GHG reporting. Finance and accounting leaders should monitor how the SEC responds to track the likely provisions of the final rule.
- Corporate Sustainability Reporting Directive (CSRD): The EU finalized the CSRD—of which will amend the existing Non-Financial Reporting Directive and substantially increase the reporting requirements on companies falling within the scope in its efforts to expand sustainability information to its stakeholders. The key message for this topic, is for US companies with a European footprint to understand how the scoping requirements apply to them and the respective companies disclosures.
- Other ESG challenges: Finance and accounting leaders have an essential role in educating their organizations on the impact of the evolving ESG regulatory landscape —and driving plans for how strategies, valuations, data collection and other efforts will need to evolve. During this session, audience members were particularly interested in how the SEC Climate Proposal can impact private companies.
Sign up on our KPMG ESG webpage to stay up to date and receive ESG insights, information, and event invitations.
Deal Done, Booked and Integrated
A successful M&A transaction requires navigating significant accounting challenges. However, in practice, there is often a disconnect between accounting leaders and deal teams during transactions. For example, a fast-moving deal team may pursue strategic decisions early in the deal-lifecycle before the accounting function is deeply involved—causing reporting complexities down the road.
KPMG Valuation Principal Brian Smith, and KPMG Business Modeling Services Principal Matt Jones talked with a panel about how the current economy is impacting deal valuations and how accounting functions can serve a strategic role during deals and integrate more effectively with deal teams.
- Get the right people involved—early: During the diligence phase, deal teams should include c-suite leaders with the right level of experience and seniority (e.g., a CFO) to think wholistically and build internal alignment. Deal teams should also engage with liaisons from accounting and other functional groups early enough in the process, often during the LOI phase so they can raise strategic issues.
- Assess the deal structure: The accounting function is vital for informing strategic decisions around the deal structure. For example, deal teams appreciate the economic benefits of earnouts or similar structures, but these bring significant accounting complexity. Ensuring the accounting function is involved throughout the deal lifecycle can help avoid costly adjustments later.
- Develop a clear Day 1 strategy: The accounting function can help clarify the Day 1 strategy, such as determining what accounting-related TSAs are necessary. Moreover, by engaging the accounting function early in the deal process, they can accelerate the purchase accounting and valuation process to reduce the risk of any reporting delays after close.
For more information and insights, please visit the KPMG M&A website.