Chief financial officer

The chief financial officer (CFO) is an officer of a company or organization that 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.

"CFO" redirects here. For other uses, see CFO (disambiguation).

The CFO typically reports to the chief executive officer (CEO) and the board of directors and may additionally have a seat on the board. (In India, the CFO is by default one of the Key Managerial Personnel (KMPs) in case of listed entities, to be mentioned in the Annual Reports.) 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.

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.[2][3] 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.[4] 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.[5] 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.[6] 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.[7] 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.[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, and become increasingly involved (directly via oversight or indirectly through improved collaboration) with the procurement function according to a 2011 research report which looked at the CFO's relationship with the procurement function and the Chief Procurement Officer.[15]

Qualification
See also: Financial analyst § Qualification

CFOs and FDs will often (typically) hold a professional accounting certification - the CPA, CA, CMA, or CIMA - along with its requisite bachelors and/or masters in accounting. This qualification is specified given that responsibilities extend to tax and financial reporting.[16]

In large companies, CFOs and FDs may hold additional postgraduate qualifications, [17] usually the Master of Business Administration[18] or Master of Science in Finance[19] (the CFA is common also [17]). These complement the accounting perspective with more general strategic, leadership, and financial market considerations.[17] See Outline of finance § Education.

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."[20] 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 shall also serve as a 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.[21]

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

References
  1. "Job openings/CFOO - Wikimedia Foundation". wikimediafoundation.org. Archived from the original on 12 June 2018. Retrieved 11 June 2018.
  2. "CFO Role Shifts From Number Cruncher To Business Leader – TechCrunch". techcrunch.com. Retrieved 1 May 2018.
  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. 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. "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.
  16. Top Executives, collegegrad.com
  17. Hugh Arnold and Ross Woledge (ND). Want to be CFO one day? You need to take control of your career
  18. Careers in Finance. §1.4 in Dahlquist, Julie; Knight, Rainford; Adams, Alan S. (2022). Principles of Finance. ISBN 9781951693541.
  19. Determine If a Master's in Finance Is the Right Move, usnews.com, Feb. 9, 2015.
  20. "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.
  21. © 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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