Chief financial officer

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The chief financial officer (CFO) is the officer of a company that has primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financial reporting. In some sectors, the CFO is also responsible for analysis of data. Some CFOs have the title CFOO for chief financial and operating officer. [1] In the United Kingdom, the typical term for a CFO is finance director (FD). 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 supervises the finance unit and is the chief financial spokesperson for the organization. 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.

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Qualification

Most CFOs of large companies have finance qualifications such as a Master of Business Administration (MBA), Master of Science (in either Finance or Accounting), CFA or come from an accounting background such as a Certified Public Accountant. A finance department usually consists of qualified accountants such as Certified Public Accountant, Chartered Accountant, Certified Management Accountant, Chartered Certified Accountant.[ citation needed ]

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." [2] 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).

Changing role

The role of the CFO has evolved significantly. Traditionally being viewed as a financial gatekeeper, the role of the CFO has expanded and evolved to an advisor and a strategic partner to the CEO. [3] [4] In fact, in a report released by McKinsey, 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. [5] As a result, the 1990s saw the rise of the strategic CFO, and more recently many companies have created a chief strategy officer (CSO) position. [6] As a result, a 2016 survey of CFOs suggests that their new role has focused on financial reporting, with 52% of CFOs still finding themselves bogged down in the basics of traditional accounting practices such as transaction reporting and unable to make time for business partnering. [7] The rise of digital technologies and a focus on data analytics to support decision making impacting almost every industry and organization will only add more pressure on CFOs to address this tension on finding the time to meet the expectations of their C-Suite colleagues. [8] Many organizations have embarked on the journey to help achieve this by creating a finance function based on four distinct pillars - An Accounting organization structured as a shared service, an FP&A organization responsible for driving financial planning processes as well as driving increased insight into financial and non financial KPIs that drive business performance, a Finance Business Partnering organization that supports the leadership of divisions, regions, functions to drive performance improvement and, last but not least, expertise centers around the areas of 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. [9] The CFO must serve as the financial authority in the organization, [10] 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 [11] 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." [12]

The uneven pace of recovery worldwide has made it more challenging for many companies. CFOs are increasingly playing a more critical role in shaping their company's strategies today, especially in light of the highly uncertain macroeconomic environments, [13] where managing financial volatilities is becoming a centerpiece for many companies' strategies, based on a survey held by Clariden Global. [14] 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. [15] 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, and become increasingly involved (directly via oversight or indirectly through improved collaboration) with the procurement function according to a recent research report that looks at the CFO's relationship with procurement. [16]

See also

Related Research Articles

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

Office of Management and Budget Office within the Executive Office of the President of the United States

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.

Chief executive officer Highest-ranking corporate officer or administrator

A chief executive officer (CEO), chief administrator, or just chief executive (CE), is one of a number of corporate executives in charge of managing an organization – especially an independent legal entity such as a company or nonprofit institution. CEOs find roles in a range of organizations, including public and private corporations, non-profit organizations and even some government organizations. The CEO of a corporation or company typically reports to the board of directors and is charged with maximizing the value of the business, which may include maximizing the share price, market share, revenues or another element. In the non-profit and government sector, CEOs typically aim at achieving outcomes related to the organization's mission, such as reducing poverty, increasing literacy, etc.

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.

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:

The chief risk officer (CRO) or 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.

A chief visionary officer or chief vision officer (CVO) is an executive function in a company like CEO or COO. The title is sometimes used to formalize a high-level advisory position and other times used to define a higher ranking position than that held by the CEO. In some cases, the CVO is added to the CEO title, much in the same way that people with multiple university degrees list them after their names.

Office of Federal Financial Management

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.

Budget and Accounting Act

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". This act meant that for the first time, the president would be required to submit an annual budget for the entire federal government to Congress. The object of the budget bill was to consolidate the spending agencies in both the executive and legislative branches of the government.

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.

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

A development director or director of development is the senior fundraising manager of a non-profit organization, company, or corporation. The position works closely with a chief financial officer (CFO) or treasurer. A director of development is chiefly responsible for bringing in revenue streams to a non-profit, and a CFO is responsible for the fiscal management of the organization. A CFO is rarely assigned to write grant narratives, but may oversee the budget section of a grant application or a fiscal report for a grant. Some larger organizations have a grants manager as well as a grant writer/director of development. A grants manager assists the CFO with grant reports and grant-related accounting. A development director is usually remunerated for his or her work, and in best practices for nonprofit organizations, development directors earn salaries. Commissions are still considered unethical by professional organizations such as the Grant Professionals Association (GPA) and the Association of Fundraising Professionals (AFP), but the practice of commission-based remuneration is growing, particularly in the current economy.

James B. Lockhart III is an American U.S. Navy officer, business executive, and, since September 2009, Vice Chairman of WL Ross & Co. LLC, which manages $9 billion of private equity investments, a hedge fund and a Mortgage Recovery Fund. It is a subsidiary of Invesco, a Fortune 500 investment management firm. He coordinates WL Ross's investments in financial services firms and mortgages. Lockhart serves co-chairs the Bipartisan Policy Center's Commission on Retirement Security and Personal Savings.

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.

The Government Finance Officers Association of Texas is a professional association of state, county, and local government finance officers in Texas. The Government Finance Officers Association of Texas is the statewide organization serving all Texas municipal finance professionals, an affiliate of the nationwide Government Finance Officers Association (GFOA). Membership is open to anyone in the State of Texas actively engaged in government finance in any city, county, or special district. Its stated mission is to enhance the quality of local government finance, to assist and support local government finance professionals in Texas, and to promote the public service profession. GFOAT members are actively involved in the key issues facing cities, counties, and special districts in the State of Texas.

Wallace E. Boston Jr. is an American academic administrator and businessman, currently serving as President Emeritus of the American Public University System. Dr. Boston had previously served as president from 2004 to 2016, and from September 2017 through August 2020.

Virtual CFO stands for virtual chief financial officer. A virtual CFO is an outsourced service provider offering high skill assistance in financial requirements of an organization, just like a chief financial officer does for large organizations. A virtual CFO may be a single person or an entity.

Thomas I. Barkin is an American central banker, who became the eighth president and CEO of the Federal Reserve Bank of Richmond on January 1, 2018. He worked at global management consulting firm McKinsey & Company for 30 years in increasingly senior positions, including as global chief financial officer (CFO) and chief risk officer, with oversight of finance, legal and information technology functions, among others. He also served on the executive committee of the Metro Atlanta Chamber of Commerce, Emory University Board of Trustees member, and former board member and chairman of the Federal Reserve Bank of Atlanta.

References

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