Chief financial officer

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A chief financial officer (CFO), also known as a treasurer, is an officer of a company or organization who is assigned the primary responsibility for making decisions for the company for projects and its finances (financial planning, management of financial risks, record-keeping, and financial reporting, and often the analysis of data). The CFO thus has ultimate authority over the finance unit and is the chief financial spokesperson for the organization.

Contents

The CFO typically reports to the chief executive officer (CEO) and the board of directors and may additionally have a seat on the board. The CFO directly assists the chief operating officer (COO) on all business matters relating to budget management, cost–benefit analysis, forecasting needs, and securing of new funding. Some CFOs have the title CFOO for chief financial and operating officer. [1] In the majority of countries, finance directors (FD) typically report into the CFO, and FD is the level before reaching CFO.

History

The chief financial officer was traditionally viewed as a financial gatekeeper. Over time, the position has become one of an advisor and strategic partner to the CEO. [2] [3] In a 2016 report released by McKinsey & Company, 88 percent of 164 CFOs surveyed reported that CEOs expect them to be more active participants in shaping the strategy of their organizations. Half of them also indicated that CEOs counted on them to challenge the company's strategy. [4] The 1990s saw the rise of the strategic CFO, and many companies have created a chief strategy officer (CSO) position. [5] CFOs have become more focused on financial reporting, although 52% still spend much of their time in traditional accounting tasks such as transaction reporting. [6]

The rise of digital technologies and focus on data analytics to support decision-making places more pressure on CFOs to meet the expectations of their C-Suite colleagues. [7] Many organizations have created a finance function based on four pillars: the accounting organization as a shared service; an FP&A organization responsible for driving financial planning processes as well as increased insight into financial and non financial KPIs to boost business performance; a finance business partnering organization based on leadership of divisions, regions and performance improvement; and expertise centers specializing in Tax, Treasury, Internal Audit, Investor Relations, etc.

According to one source, "The CFO of tomorrow should be a big-picture thinker, rather than detail-oriented, outspoken rather than reserved, prefer to delegate rather than be hands-on, emphasize what gets done rather than how things are done, and make collaborative rather than unilateral decisions. [8] The CFO must serve as the financial authority in the organization, [9] ensuring the integrity of fiscal data and modeling transparency and accountability. The CFO is as much a part of governance and oversight as the Chief Executive Officer (CEO), playing a fundamental role in the development and critique of strategic choices. The CFO is now expected to be a key player in stockholder education [10] and communication and is clearly seen as a leader and team builder who sets the financial agenda for the organization, supports the CEO directly and provides timely advice to the board of directors." [11]

The uneven pace of recovery worldwide has made it more challenging for many companies. CFOs play a more critical role in shaping their company's strategies today, especially in light of the highly uncertain macroeconomic environments, [12] where managing financial volatilities is a centerpiece for many companies' strategies, based on a survey held by Clariden Global. [13] CFOs are increasingly being relied upon as the owners of business information, reporting and financial data within organizations and assisting in decision support operations to enable the company to operate more effectively and efficiently.

The duties of a modern CFO now straddle the traditional areas of financial stewardship and the more progressive areas of strategic and business leadership with direct responsibility and oversight of operations (which often includes procurement) expanding exponentially. [14] This significant role-based transformation, which is well underway, is best-evidenced by the "CEO-in-Waiting" status that many CFOs now hold. Additionally, many CFOs have made the realization that an operating environment that values cash, profit margins, and risk mitigation is one that plays to the primary skills and capabilities of a procurement organization; CFO's have been encouraged to appoint a chief procurement officer (CPO) where this post does not exist, ensure the post-holder is accountable for procurement success, and to become increasingly involved (directly via oversight or indirectly through improved collaboration) with the procurement function according to several research reports which have looked at the CFO's relationship with the procurement function and the CPO. [15] [16] [17]

Qualifications

CFOs and FDs often hold a professional accounting qualification - the CPA, CA, CMA, or CIMA - along with its requisite bachelors and/or masters in accounting. The certification is specified given that responsibilities extend to tax and financial reporting. [18] Similarly, financial managers are often qualified accountants.[ citation needed ]

In large companies,[ citation needed ] CFOs and FDs may hold additional postgraduate qualifications, [19] such as a Master of Business Administration, [20] or Master of Science in Finance; [21] the Chartered Financial Analyst is also common. [19] These complement the accounting perspective with more general strategic, leadership, and other financial and operational areas and issues. [19]

Region specific

Federal government of the United States

The federal government of the United States has incorporated more elements of business-sector practices in its management approaches, including the use of the CFO position alongside, for example, an increased use of the chief information officer post, within public agencies.

The Chief Financial Officers Act, enacted in 1990, created a chief financial officer in each of 23 federal agencies. This was intended to improve the government's financial management and develop standards of financial performance and disclosure. The Office of Management and Budget (OMB) holds primary responsibility for financial management standardization and improvement. Within OMB, the Deputy Director for Management, a position established by the CFO Act, is the chief official responsible for financial management.

The Office of Federal Financial Management (OFFM) is specifically charged with overseeing financial management matters, establishing financial management policies and requirements, and monitoring the establishment and operation of federal financial management systems. OFFM is led by a controller.

The CFO Act also established the CFO Council, chair by the OMB Deputy Director for Management and including the CFOs and Deputy CFOs of 23 federal agencies, the OFFM controller, and the Fiscal Assistant Secretary, the head of the Office of Fiscal Service of the Department of the Treasury. Its mandate is to work collaboratively to improve financial management in the U.S. government and "advise and coordinate the activities of the agencies of its members" in the areas of financial management and accountability.

OMB Circular A-123 (issued 21 December 2004) defines the management responsibilities for internal financial controls in federal agencies and addressed to all federal CFOs, CIOs and Program Managers. The circular is a re-examination of the existing internal control requirements for federal agencies and was initiated in light of the new internal control requirements for publicly traded companies contained in the Sarbanes–Oxley Act of 2002.

While significant progress in improving federal financial management has been made since the federal government began preparing consolidated financial statements, the Government Accountability Office (GAO) reported that "major impediments continue to prevent [GAO] from rendering an opinion." [22] In December 2006, the GAO announced that for the 10th consecutive year, the GAO was prevented from expressing an opinion on the consolidated financial statements of the government due to a number of material weaknesses related to financial systems, fundamental recordkeeping, and financial reporting.

At the same time, in calendar year 2007, the CFOC announced that for the second consecutive year, every major federal agency completed its Performance and Accountability Report just 25 days after the end of the fiscal year (2006).

India

As per the provisions of Section 203 of Companies Act 2013 every publicly listed firm having a paid up share capital of Rs. 10 Crores or more is mandated to have a whole time chief financial officer, who must also serve as one of the Key Managerial Personnel (KMP).

The Act does not impose any specific regulations regarding the compensation of a Chief Financial Officer (CFO), unless they serve on the Board of Directors or hold additional managerial responsibilities alongside their role as CFO. Additionally, the Act does not outline any specific qualifications required for the appointment of a CFO. However, according to Section 134(1) of the Act, the CFO, regardless of their status as a Key Management Personnel (KMP), is required to sign the financial statements as they are responsible for overseeing the financial operations of the entire company. [23]

Their responsibilities include financial planning and monitoring cash flow. In some companies, the CFO and Finance Director positions may be held by the same individual interchangeably. As an internal member of the organization, the CFO is accountable for presenting accurate and fair financial statements, which are subsequently audited by the company's statutory auditors.

See also

Related Research Articles

Corporate titles or business titles are given to corporate officers to show what duties and responsibilities they have in the organization. Such titles are used by publicly and privately held for-profit corporations, cooperatives, non-profit organizations, educational institutions, partnerships, and sole proprietorships that also confer corporate titles.

<span class="mw-page-title-main">Office of Management and Budget</span> Office within the Executive Office of the President of the US

The Office of Management and Budget (OMB) is the largest office within the Executive Office of the President of the United States (EOP). OMB's most prominent function is to produce the president's budget, but it also examines agency programs, policies, and procedures to see whether they comply with the president's policies and coordinates inter-agency policy initiatives.

<span class="mw-page-title-main">Chief executive officer</span> Highest-ranking officer of an organization

A chief executive officer (CEO), also known as a chief executive or managing director, is the top-ranking corporate executive charged with the management of an organization, usually a company or a nonprofit organization.

Chief information officer (CIO), chief digital information officer (CDIO) or information technology (IT) director, is a job title commonly given to the most senior executive in an enterprise who works with information technology and computer systems, in order to support enterprise goals.

Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.

A comptroller is a management-level position responsible for supervising the quality of accounting and financial reporting of an organization. A financial comptroller is a senior-level executive who acts as the head of accounting, and oversees the preparation of financial reports, such as balance sheets and income statements.

The Chief Financial Officers (CFO) Act of 1990 signed into law by President George H. W. Bush on November 15, 1990, is a United States federal law intended to improve the government's financial management, outlining standards of financial performance and disclosure. Among other measures, the Office of Management and Budget (OMB) was given greater authority over federal financial management. For each of 24 federal departments and agencies, the position of chief financial officer was created. In accordance with the CFO Act, each agency or department vests its financial management functions in its chief financial officer. The following is a list of the 24 affected agencies, which includes all 15 federal executive departments whose heads are included in the Cabinet of the United States, as well as other large agencies:

The chief risk officer (CRO), chief risk management officer (CRMO), or chief risk and compliance officer (CRCO) of a firm or corporation is the executive accountable for enabling the efficient and effective governance of significant risks, and related opportunities, to a business and its various segments. Risks are commonly categorized as strategic, reputational, operational, financial, or compliance-related. CROs are accountable to the Executive Committee and The Board for enabling the business to balance risk and reward. In more complex organizations, they are generally responsible for coordinating the organization's Enterprise Risk Management (ERM) approach. The CRO is responsible for assessing and mitigating significant competitive, regulatory, and technological threats to a firm's capital and earnings. The CRO roles and responsibilities vary depending on the size of the organization and industry. The CRO works to ensure that the firm is compliant with government regulations, such as Sarbanes–Oxley, and reviews factors that could negatively affect investments. Typically, the CRO is responsible for the firm's risk management operations, including managing, identifying, evaluating, reporting and overseeing the firm's risks externally and internally to the organization and works diligently with senior management such as chief executive officer and chief financial officer.

<span class="mw-page-title-main">Office of Federal Financial Management</span> Component of the United States Office of Management and Budget

The Office of Federal Financial Management (OFFM) is a component of the United States Office of Management and Budget (OMB), which is part of the Executive Office of the President of the United States (EOP).

The Information Technology Management Reform Act of 1996 is a United States federal law, designed to improve the way the federal government acquires, uses and disposes information technology (IT). It was passed as Division E of the National Defense Authorization Act for Fiscal Year 1996. Together with the Federal Acquisition Reform Act of 1996, it is known as the Clinger–Cohen Act.

A chief procurement officer (CPO) undertakes an executive role within an enterprise, focusing on sourcing, procurement, and supply management.

<span class="mw-page-title-main">Budget and Accounting Act</span>

The Budget and Accounting Act of 1921 was landmark legislation that established the framework for the modern federal budget. The act was approved by President Warren G. Harding to provide a national budget system and an independent audit of government accounts. The official title of this act is "The General Accounting Act of 1921", but is frequently referred to as "the budget act", or "the Budget and Accounting Act".

A Certified Government Financial Manager (CGFM) is a professional certification issued by the Association of Government Accountants (AGA) in the United States. It was created in 1994 to provide a professional standard of financial expertise and ethics in government and a standard by which government financial management professionals are measured. Its education, experience and ethics requirements have served to elevate the most seasoned financial professionals.

A chief strategy officer (CSO) is an executive that usually reports to the CEO and has primary responsibility for strategy formulation and management, including developing the corporate vision and strategy, overseeing strategic planning, and leading strategic initiatives, including M&A, transformation, partnerships, and cost reduction. Some companies give the title of chief strategist or chief business officer to its senior executives who are holding the top strategy role.

Chief business officer (CBO) is the position of the top operating executive of growing commercial companies or an academic/research institution. In the commercial space, CBO shows leadership in deal-making experience with a clear record of results and ultimate transactional responsibility. In higher education, the titles of vice president, associate dean, assistant dean, and director are also used for the role of the chief business officer.

The California Society of Municipal Finance Officers is a professional association of state, county, and local government finance officers in California. The California Society of Municipal Finance Officers is the statewide organization serving all California municipal finance professionals, an affiliate of the nationwide Government Finance Officers Association (GFOA). Membership is open to anyone in the State of California actively engaged in government finance in any city, county, or special district.

<span class="mw-page-title-main">Digital Accountability and Transparency Act of 2013</span>

The Digital Accountability and Transparency Act of 2013 aims to make information on federal expenditures more easily available, accessible, and transparent. The bill would change reporting requirements about financial data and start a pilot program to research best practices. The bill was introduced in the House during the 113th United States Congress.

<span class="mw-page-title-main">Federal Information Technology Acquisition Reform Act</span>

The Federal Information Technology Acquisition Reform Act made changes to the ways the U.S. federal government buys and manages computer technology. It became law as a part of the National Defense Authorization Act for Fiscal Year 2015 (Title VIII, Subtitle D, H.R. 3979.

<span class="mw-page-title-main">Assistant Secretary of the Treasury for Management</span> American civil service post

The Assistant Secretary of the Treasury for Management, Chief Financial Officer, and Chief Performance Officer (ASM/CFO/CPO) is the principal policy advisor to the Secretary and Deputy Secretary on the development and execution of the budget for the Department of the Treasury and the internal management of the Department and its bureaus. The ASM/CFO/CPO also oversees Department-wide management programs including human resources, information and technology management, financial management and accounting, strategic planning, performance budgeting/metrics, acquisition/procurement, training, human capital and workforce management, equal employment opportunity (EEO), environmental health and safety, emergency preparedness, small business programs, and administrative services for Treasury's headquarters, the Departmental Offices.

References

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  3. ↑ Harris, Aaron. "With AI, CFOs Are Poised To Evolve Their Role Within Organizations". Forbes. Retrieved 1 May 2018.
  4. ↑ "McKinsey on Finance. No. 27, Spring 2008". McKinsey.com. Retrieved 1 June 2016.
  5. ↑ "Who's Better at Strategy: CFOs or CSOs?". Harvard Business Review. 11 January 2016. ISSN   0017-8012 . Retrieved 9 May 2021.
  6. ↑ "Future of the Finance Function Survey 2016". FSN Research. Archived from the original on 29 May 2016. Retrieved 25 May 2016.
  7. ↑ "6 Technology Trends for CFOs in 2018: We asked the experts". The Management Blog by BeeBole Timesheet. 8 January 2018. Retrieved 1 May 2018.
  8. ↑ Zwilling, Martin (18 March 2016). "Good Chief Financial Officers Focus on Much More Than Finance". Entrepreneur. Retrieved 1 May 2018.
  9. ↑ "What Does a Finance Director Do?". FD Capital Recruitment. 6 May 2021. Retrieved 17 June 2021.
  10. ↑ Maureen O'Connell, Scholastic Inc. (28 October 2014). "How CFO's Can Turn Stakeholders Into Allies - By Maureen O'Connell". Slideshare.net. Retrieved 21 November 2017.
  11. ↑ "What Board expects from CFO". TopFinanceProfessionals.com. Archived from the original on 13 December 2013. Retrieved 7 December 2013.
  12. ↑ "When Should Startups Hire A CFO? – TechCrunch". techcrunch.com. 22 October 2014. Retrieved 1 May 2018.
  13. ↑ "Clariden Global". Claridenglobal.com. Retrieved 21 November 2017.
  14. ↑ Thomson, Jeff. "Why CFOs Need To Be Chief Future Officers". Forbes.com. Retrieved 21 November 2017.
  15. ↑ Aberdeen Group, The CFO’s View of Procurement: Getting More to the Bottom Line, published September 2005, accessed 23 January 2024
  16. ↑ Aberdeen Group, The CFO’s View of Procurement: Work in Progress, published November 2009
  17. ↑ "The CFO and the CPO: One World, Two Worldviews Chief Financial Officer (CFO) and Chief Procurement Officer (CPO)". Ardentpartners.com. Archived from the original on 24 September 2011. Retrieved 21 November 2017.
  18. ↑ CollegeGrad LLC, Top Executives
  19. 1 2 3 Hugh Arnold and Ross Woledge (ND). Want to be CFO one day? You need to take control of your career
  20. ↑ Careers in Finance. §1.4 in Dahlquist, Julie; Knight, Rainford; Adams, Alan S. (2022). Principles of Finance. OpenStax, Rice University. ISBN   9781951693541.
  21. ↑ Determine If a Master's in Finance Is the Right Move, usnews.com, Feb. 9, 2015.
  22. ↑ "GAO: U.S. Financial Statements Receive Disclaimer of Opinion For 10th Straight Year" (PDF). Gao.gov. Archived from the original (PDF) on 18 February 2017. Retrieved 21 November 2017.
  23. ↑ © ICSI -Reproduction of any material / contents shall be only with prior permission of ICSI Chief Executive Officer [Sec. 2(18)] and Chief Financial Officer [Sec. 2(19)]. (n.d.). https://www.icsi.edu/media/portals/86/Geeta_Saar_43_CEO_and_CFO.pdf
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