Bernard Cooke
The Russian business environment is currently passing rapidly through of a sea of change, one which it has taken western market economies fifty years to pass through. Today business is highly competitive and the global business environment fast moving. The body of knowledge that forms the basis of accountants’ professional work is constantly changing. In Russia, the knowledge and expertise with which an accountant began his professional life is likely to be outdated in many respects. However, this is not a situation peculiar to Russian accountants. In the west, the knowledge gained at the qualification stage is also regarded as having a limited shelf life. Research in the United Kingdom has shown that the useful life span of knowledge gained on a university degree course is four years, and the estimated life span of a professional qualification is rarely much longer.
The challenge facing the accountancy profession everywhere is how quickly and effectively it can evolve skills to respond to changes in the business environment in order to avoid being left behind.
Highly topical within the international financial community at the moment, is the realisation that the role of the Chief Financial Officer and his department is changing. The traditional focus of their role as running departments that prepare the monthly and annual accounts is threatened by fast, cheap and accurate alternatives provided by the computer industry, which are now sweeping through America.
So what are the roles of the modern Financial Officer?
The Traditional Role As Score Keeper For The Public
Companies are required to produce accounts for both public consumption and as a vehicle for the collection of taxes or the payment of grants – negative taxes or incentives. However, the decision processes in modern business have become so fast that the annual accounts are increasingly becoming an anachronism. Even the tax man is getting wise to the game and collecting on a monthly basis rather than waiting until the score has been ceremonially counted.
The advent of the Application Service Provider (ASP), who works through the Internet to provide the whole bookkeeping service to SMEs, will make the accountants’ traditional role of preparing financial statements redundant. Larger organisations can install similar systems of their own. This procedure is currently sweeping America.
The next stage is the paperless transaction. The advent of e-commerce has in many circumstances resulted in a truly paperless office. Deliveries can be recorded by connection of a hand held computer to the receiving company computer and the international standardisation of product codes makes this feasible. Invoices can now be sent as accounting software readable documents which can be coded and posted on screen. Payments can be authorised on screen and the ASP will action these direct with the bank.
Next we come to the forecast. Again the Americans lead by forcing directors to produce forecasts for the year ahead and explaining in public why the targets were not met a year later. Keeping the score has thus developed into estimating the future.
The Financial Officer As The Source Of Information For Management
Today’s businessman needs information quickly to see that the business is working properly. The financial officer provides the data. Information in the form of columns of numbers was not helpful to the businessman, and the concept of analysing the figures to produce helpful reports which explained why, was born. We are still discussing history at this stage and we still see the Financial Officer as the score keeper who investigates and explains the results quickly, providing estimates in cases where facts were not at hand.
Today’s sophistication presents management with reports which are concise, using visual techniques and explaining only the good news and the problems – the exceptions.
The Financial Officer As The Planner And Developer
The businessman now wants information about the future.
The production of the business plan requires the financial officer to have an intimate knowledge of the business – not just the monetary results, but the work being done by each unit, and the marketplace in which it operates. The plan will not be confined to financial figures, this is a budget – but will set out the goals and activities required to reach them which are to be undertaken by each department within the organisation. Consequently, the whole future health and development of the company is planned out by the Financial Officer.
The Financial Officer As The Provider
The role of managing the cash funds of the business has traditionally been the Financial Officer’s. In this role, he ensures that the company is able to meet its liabilities on time. This is the simple part. With the globalisation of markets, the Financial Officer will find himself working in several different currencies which may be volatile. He may also be dealing in commodities such as coffee or cocoa, which will be used by his organisation. He needs to understand the risks of forward dealing or failing to deal in these markets.
A poor financial officer is one who restricts the growth of a business by vetoing development and other projects on the grounds that funds are not available. The duties of the Financial Officer encompass the provision of funds to enable a project to go ahead. This may involve negotiation with lenders from banks, to the stock market. He has to sell the prospects to the lender in just the same way as the traditional salesman sells a company’s product. Naturally the costs of borrowing will need to be incorporated into the business plan, and any adverse effects shown. However, the concept of providing a service is a fundamental one.
The Financial Officer As The Guardian Of The Soul Of The Company
The fundamental training of the Financial Officer in the market economy has included the ethical approach to business. The new businessman may be too embroiled in the day to day «wheeling and dealing» to be over interested in a small point of law or normal business behaviour. The activity may range from misrepresentation of a figure on the annual accounts, to defrauding the company. The role of the Financial Officer is to discover and oppose poor business practice, whether it be fraudulent or merely detrimental to the business. This part of the Financial Officer’s duties has been codified under the heading of Corporate Governance. This embraces the whole methodology employed by the Directors to ensure that the corporation deals in an ethical manner
In practical terms, the CFO will set up controls to ensure that activities are properly conducted, both in a monetary sense, and in compliance with the stated aims of the company, which will be published and will comply with international norms. The former has been a traditional activity culminating in an audit. The latter is a new concept.
The CFO In The Real World
In the past, Financial Officers have been accused of wasting the company’s funds by always insisting on the cheapest being bought even if it was not good value for money. The old Russian proverb which cautions that the cheapest may turn out to be the most expensive is very appropriate here. The new Financial Officer is interested in value for money. He will be responsible for seeing that this happens. Following this concept, is the maintenance control over the whole processes of the company. The product should be to the planned standard – neither higher nor lower. Similarly, the working environment of staff must be such as to produce good results. Poor working conditions and low pay rarely produce value for money.
Acquiring New Skills
The rapidly changing business environment we have outlined, and the changed characteristics of the role described, are what today’s CFO has to face. Adapting to change is the key to successfully taking on the role and this process can be helped with the right sort of training. A life-long education process, dictated by the demands of the market place, one might say.
The International Federation of Accountants (IFAC) recommends a wide programme of study, both at the pre and post qualification stages. In Europe, institutes such as The Institute of Chartered Accountants of Scotland (ICAS), are providing training that is far more business orientated. Technical accountancy competence is still at the core of the student training programme but this is enhanced with a series of modules looking at the factors driving a business, of which finance is just one. Examples from the course programme include courses on Strategic Planning, Risk Management, Treasury Management, Marketing and Human Resources Management Lifelong education is the maintenance and enhancement of an accountant’s expertise and professional competence. So far we have looked at how the demands of the market place can have an enormous influence on the career path of an accountant undertaking the role of CFO. However, one should not lose sight of one other important factor that can have considerable bearing on the type of training an accountant might undertake throughout their working life. Professional Associations, such as ICAS, have come to realise that Lifelong Education is a partnership between the accountant, the employer and the professional association, a partnership which is informed by, and takes into account, the demands of the market place.
Responding to change is all very well, provided the right direction is taken, and some accountants may be unsure about the direction they should take and how to develop clear and flexible goals. This is an area where the Russian accounting associations must take a proactive approach by providing their members with guidance and support in making their career choices. Members should be encouraged to develop a more strategic approach to the development of their careers.
Conclusion
The Financial Officer is an integral part of the management team. His remit is well beyond that of keeping the score as the layman might think. A good Chief Financial Officer, supported by an able team, can mean the difference between success and failure.
The world is a fast changing place. Technology is driving our ability to carry out tasks ever more quickly and sometimes more cheaply. The role of the Financial Officer is pivotal in ensuring that his organisation grasps the correct aspects of the development, and capitalises on it.
Bernard Cooke is a Director of CA International Services at the Institute of Chartered Accountants of Scotland. He can be contacted by tel. +44 (131) 247 4816 or by e-mail bcooke@icas.org.uk.