INTRODUCTION TO COST AND MANAGERIAL ACCOUTING

TERM ASSIGNMENT ON ROLE OF CFO

SUBMITTED TO: MR ABDUL RAHIM SURIYA SUBMITTED BY: SALMAN HUMAYUN

ID: 10433

ROLE OF CFO (Chief Financial Officer)

TRADITIONAL ROLE OF CHIEF ACCOUNTANT

The Chief Accountants used to perform several tasks which were preparing accounts, preparing budgets, operational reporting and interpreting, evaluating operating results, preparing income tax returns, establishing internal control procedures to safe-guard the companys assets.

TRANSITION FROM CHIEF ACCOUNTANT TO CHIEF FINANCIAL OFFICER

Due to increased governance requirement there arises a need to empower the chief accountant and to make him responsible by requiring him to sign the accounts. There comes the code of corporate governance, which makes the chief accountant powerful and more responsible. With the new role, Chief Accountant becomes Chief Financial Officer (CFO).

Appointment and Approval Requirement

The appointment, removal and remuneration terms and conditions of employment of the chief financial officer of a listed company shell be determined by the Chief Executive Officer with the approval of the Board of Directors.

Qualification Requirement
The qualification requirement is defined under the code of corporate governance that is the person appointed as the Chief Financial Officer must be Member of recognized body of professional accountants or A graduate from a recognized university or equivalent, having at least 5 years experience in handling financial and corporate affairs of a listed company.

Role of CFO
The combination of a global financial crisis, increased uncertainty and greater regulation has expanded dramatically the role of the chief financial officer (CFO) around the world. CFOs take a prominent role in enterprise improve the way financial and non-financial data is captured, stored and used across the enterprise, as this problem cannot be solved without the collaboration of the entire leadership team. CFOs need to invest in new capabilities, including developing their staffs analytical skills as well as fixing data, technology and process barriers to providing better insight. CFOs have shifted more focus to analysis and decision support, acting as an advisor or decision maker, rather than just as an information provider, especially within the areas of enterprise decision-making, such as business model innovation/reshaping.

THE CFO AS STRATEGIST AND CATALYST IN BUILDING A HIGH PERFORMANCE CULTURE

Most leaders today agree that building and nurturing a high-performance culture is critical to the success of their organization. Few of their organizations, however, are able to make their vision and business objectives come to life by connecting their front- line operators to the executive team and the board. Meeting and exceeding shareholders sustainable performance expectations is a challenge shared by the executive team. From financial analytics to decision support, experience shows that the CFOs office must be a catalyst in a high-performance culture. Information is power and todays finance team has the responsibility and the mandate to rapidly generate and analyze financial information to help the business be more competitive.

THE HIGH-PERFORMANCE CHALLENGE

Business leaders are asking the finance professionals that support their business decisions to go behind the numbers and spend more time on analytical processes, while simultaneously reducing the effort they spend on transactional processes. However poor quality of information limits decision-making effectiveness. Decision makers are struggling with multiple versions of the truth and demanding timely, accurate and transparent management information.

On the process-efficiency side, organizations are achieving, on average, head-count reduction of 20 per cent with shared services; financial processes top the list of most popular processes in shared services centres. Eighty per cent of multi-function shared-services centre leaders are CFOs. So, while shared-service efficiencies reduce the cost structure, line-of-business leaders are demanding more analysis and decision support, enabling the CFO to become a key leader in a high-performance culture. The CFO has the opportunity to be a management innovator, ensuring that the management of the performance of the business and its key performers, the people in the business, gets as much attention as the business itself. Why is developing a high-performance culture so difficult? What can the CFO do to enable a high-performance culture? To answer these questions Lets examine role of CFOs.

FOUR FACES OF TODAYS CFO: A NEW VIEW OF THE CFOS ROLE

The Four Faces of the CFO is a new view of the CFOs role, one which connects traditional financial accounting to the opportunity for the finance organization to be a key driver of a highperformance culture. Each of the faces is a different role, tasked with solving very unique challenges. In many cases, the CFO has a Finance Leadership Team (FLT) that divides the four roles into discrete responsibilities, but in all cases, the FLT needs to work as an integrated whole, or one CFO.

Figure 1 The Four Faces of the CFO

While the Human Resources department is expected to focus on culture initiatives, organizations ability to create and sustain a high-performing culture relies on value-added financial and non-financial data. That means all four of these CFO roles need to firing on all cylinders. As a catalyst, CFO is concerned about execution at all levels in order to achieve the strategic objectives set out in your business plan. As a strategist, CFO provides leadership team with the financial acumen to help set strategic direction. Both of these roles rely on the CFO being both an efficient financial operator, who gets financial transactions processing efficiently, and a controls-focused steward, proving accurate information with appropriate controls to manage risk throughout the business.

FIVE STEPS CFOs CAN TAKE TO DRIVE A HIGH-PERFORMANCE CULTURE

The five steps below present a series of activities that the CFO can and should lead to drive an overall culture of high-performance in the business.

1. Define performance accountability and decision support framework

Being clear about who is accountable for key business decisions is not easy, but it is essential to clarify decision-making roles in achieving a high-performance culture. The CFO should be the catalyst.

2. Get customers point of view

The business is CFOs primary internal customer. High-performing finance functions provide the business with value added analysis based on financial and non-financial information and that analysis needs to be demand-driven. Understanding customers expectations and needs is an important step.

3. Measure the economic performance that matters

Getting a baseline for performance and establishing targets is only the beginning of this journey. Beyond generating timely financial information, the CFO should measure the economic, cash-based performance that matters to overall value creation of the business.

4. Partner with HR to develop a capabilities plan.

The Human Resources (HR) group is an important partner for the CFO in building any highperformance organization. The HR function brings expertise to establishing the organizational structure, role profiles and skills-based training programs to bridge gaps in current skill levels. HR also helps to manage change and deliver communications plans to ensure that senior managements performance expectations are reinforced in day-to- day coaching and mentoring opportunities.

5. Celebrate high-performance moments

Celebrating high-performance is an important element in reinforcing the behaviours that are desired. The CFO should proactively identify opportunities to communicate that the transformation to high performance is moving in the right direction.

CHALLENGES FOR CFOs

In such a challenging environment, financial institutions must now devise a sustainable growth strategy and be better protected against new or emerging risks. To do so, many finance departments are recasting their business processes in an effort to provide better access to information for internal decision-making, risk management, financial reporting and regulatory compliance. One of the essential tasks for financial institutions is to improve how their finance functions understand and use risk considerations and information.

Alignment between the risk and finance functions is now essential to banking:
As David Craig, CFO at Commonwealth Bank of Australia, puts it, risk and finance are inextricably linked. Outside stakeholders now expect risk and finance to work together and certain activities, from capital planning to the conduct of stress tests, cannot take place efficiently without close co-operation between the two functions.

Financial institutions can boost profitability by a better alignment of risk and finance. Financial Institutions that benchmark themselves well on aligning their risk and finance functions also say they are doing better financially. Global CFOs and senior finance executives believe the already intense pressure on three fronts reducing the enterprise cost base, making faster, more accurate decisions and providing more transparency to external stakeholders will increase over the next three years. Their number one external challenge for the next three years, as opposed to pressure to reduce the cost base. As part of the impetus for change, CFOs rank the most important thing as providing inputs into enterprise strategy . Surprisingly, cost reduction is not at the top of the CFOs agenda. Mid-Market CFOs struggle just as much as their peers in larger enterprises in the areas of finance efficiency and business insight. (Mid-Market enterprises are defined as those with annual turnover of less than US$500 million.) Despite being smaller, Mid-Market enterprises find it just as hard to maintain common data definitions and processes, common reporting and planning platforms, They are no more satisfied than other CFOs with their operational planning and forecasting analytical capability or their ability to anticipate external forces.

Banking CFOs expect "demand for external transparency (e.g., Board, shareholders, taxpayers, regulators)" to increase in the next three years. This is not surprising given the role of banks in the global economic crises. The challenge for banking CFOs is to decide how to respond to demands for greater transparency improved business insight and risk management.

Their finance operations reflect a pervasive corporate philosophy that encourages integration across functions to make smarter decisions that lead to better overall performance. focus on compliance with rules and regulations or proactively provide stakeholders with more information. Banking CFOs do not play a role as advisor or decision maker in risk management. This is probably due to the fact that many banks have separate risk functions with their own chief risk officer, This means that many banking CFOs play no role beyond that of information provider. CFOs, dubbed value integrators, drive two key qualities across their organization: Finance efficiency The degree of common process and data standards across the organization

Business insight The maturity level of Finance talent, technology and analytical capabilities dedicated to providing business optimization, planning and strategic insights.

Value integrators have found a way to excel and navigate an uncertain economic climate. Enforcing process and data standards, integrating information and applying business analytics are key capabilities.

Predictive Insight
Many CFOs with the appropriate analytical capabilities spanning process, technology and talent, can turn this wealth of financial and operational information into business insights, where decisions are no longer made on intuition, but are fact based. These capabilities can help finance uncover correlations among seemingly unrelated pieces of information and find patterns nearly impossible to detect manually. In many ways, finances persuasiveness as strategic advisor hinges on having superior business insight capabilities. Businesses and governments need more advanced data analyses, scenario planning and even predictive capabilities to contend with rising complexity, uncertainty and volatility and, in certain regions, sustained lower growth.

Becoming a Value Integrator

CFOs are increasingly playing a significant role on strategic and operational matters to help the business make better decisions faster. Value integrators, at their core, integrate both efficiency and insight. "Value conveys finances contribution to helping manage the enterprise, while integrator conveys the importance they place on standardizing and integrating information and processes, necessary enablers to partner effectively with the business. Value integrators are more than just information clearinghouses. Finances mission should be helping the company think as an overall business instead of individual areas. Not surprisingly, Value integrators indicate a top priority should be attracting and retaining the right talent and developing people in finance in support of these increased demands.

Value integrators are equipped to advise at an enterprise level. They are positioned to evaluate business opportunity and risk in an end-to-end context and recommend difficult trade-offs among units, markets and business functions.

INNOVATING PERFORMANCE MANAGEMENT: A ROAD MAP FOR THE HIGH-PERFORMING CFO

CFOs need to establish systems and processes that enable a culture of high performance a road map is needed to help guide the development of a high-performing finance function that acts as a catalyst in the organizations value creation.. This model has four stages, and these four stages build upon the performance of each previous stage. It is difficult to skip a stage and that transforming from a premature state to a highly mature state can take years of effort. The four stages of a high-performing Finance Function are defined as being: laggard, follower, competitor, and innovator. The laggard CFOs finance function focuses on performance management through historical results. The followers finance function supplements historical orientation with short term future views. The competitors approach is more proactive than the follower and includes forward-looking decision support. Finally, the innovator CFO is an integrator, delivering both historical assessments of performance and future-oriented business modeling and planning.
Table 2: Four Stages of a High-Performing Finance Function

Laggard Objectives o
o

Follower Effective steward o Efficient operator o Reactive financial o advisor o Limited future focus
o

Competitor Effective steward o Efficient operator o Influential strategist o Frequent o performance o communications Forward-looking

Innovator Effective steward Efficient operator Influential strategist catalyst Facilitator of deep business model understanding

o o

Become o an effective steward o Focus on the o financial operations o Producing inward facing financials Limited communications of performance
o

Time Horizon Historic o Focus

Short-term future o

Mid-term future o

Long-term future

Business o Invisible o o Partner Role Low influence o and Influence

Reactive o Limited influence o

Highly influential o Invaluable leader of Proactive HR partner executive management team o Strong cultural orientation Multi-year historic o financial performance analysis o Forward looking planning based on operational value drivers Financial Accounting o measures Economic (casho based) measures o Deep performance management expertise Value measurement in economic (cash) terms Economic (cashbased) measures Risk measures Intangibles and Intellectual capital

Capabilities o

Routine single Financial accounting o o year financial supplemented with accounting limited operational knowledge
o

Measures

Tangible financial Financial accounting o o measures measures o Semi-financial o performance measures

It can be many months and years before the full benefits of a transformation to a highperformance culture are realized. However tangible benefits of the CFOs leadership are building stronger relationships through more effective performance management and clearer performance expectations. In true transformations, the finance function is an informationdriven catalyst and strategist that delivers the highest value decision support and drives business unit performance. The CFO, who is at the heart of financial and non-financial performance management, can and should be a leading agent of change and that the finance function can be a leading group in stimulating high-performance throughout the business.