The changing role of the CFO

It seems to me that our profession continues to evolve at a fairly rapid rate.

One role that’s changed dramatically over the years is that of the CFO. Once, the CFO was someone who primarily focused on the financial position of an organisation.

Today’s CFO, I’m delighted to say, is a dynamic member of the management team. Part visionary, part strategist. And only part accountant, in a conventional sense.

There’s no doubt the broader role a good CFO does play in today’s organisations. As money and financial instruments become more and more complex, effecting the wellbeing of the business, so too has an understanding of the numbers. It’s not surprising that the accounting professional is being invited to share their leadership, vision, and general management skills.

Of course, with increased responsibility comes increased risk. While the average CFO salary is 30-60% higher than controller salaries, according to Robert Hall International, their longevity in the role can be short-lived. According to a report in Fortune Magazine in 2009, almost 25% of CFO positions in the Fortune 1000 changed over in one 12 month period. For small businesses, the position turns over every 2-3 years.

So, today’s CFOs must be well prepared. There’s no time to settle in or learn on the job - they really do have to hit the ground running.

As well as a solid understanding of the accounting principles, strong technical and operational skills, a CFO must demonstrate leadership skills and a passion for the business. In fact, what makes a really good CFO may not even be in the job description.

It really is fascinating to see how the role has developed over the years. I must say, I’m looking forward to chairing a lunch in a few weeks time, where several CFOs will be asked to share their success stories. What were their journeys to the top? What challenges face them today? Where else do they think the role of a CFO will go in the future?

I’d be interested to hear from other CFOs, or budding CFOs, on the challenges facing them. Is the broader role and recognition worth it for the likelihood of a short stay at the top? Add your comments, and let me know.

I’ve no doubt that the role of the CFO will continue to change. As they say, ‘watch this space’!

Real time assurance for today's economy

Recently, the Institute has worked with leading academics on a thought leadership paper which aims to raise the profile of an emerging form of assurance practice - called 'Continuous assurance'.

The paper entitled, Continuous Assurance for the Now Economy is intended to stimulate thinking about the issues that need to be addressed in a world where Continuous assurance has become, or aims to become, the standard for both internal and external auditing. The paper examines how the profession must respond so that the vision on IT-enabled real-time auditing is to become a reality.

Continuous assurance - what is it?
Continuous assurance is a concept developed as a result of the 'now economy' which is characterised by 24/7/365 globalised operations, customer interaction and management decision making. Continuous assurance will form an intrinsic component of the now economy by providing key stakeholders with timely and more relevant access to business data, which has a level of assurance placed on it.

Why is it important?
The International standard setter, the International Auditing and Assurance Standards Board (IAASB) has recognised continuous assurance as an emerging methodology which needs to be explored.

Likewise the Institute presented the paper to the Australian Auditing and Assurance Standards Board (AUASB) who recognise the important impact that continuous assurance could potentially have on the profession as a whole, particularly around accounting education, technology, business reporting and the existing skill-set of professional auditors.

What does the paper say?
The paper recommends six practical steps that go some way to delivering the practical application of continuous assurance, including:

• Establish priority areas
• Identify monitoring and continuous audit rules
• Determine the process' frequency
• Configure continuous audit parameters
• Follow up
• Communicate results

I believe that traditional auditing will give way to more progressive and close to the event assurance. It is because of this that we have kick started the continuous assurance debate to create and open up dialogue with key stakeholders.

I would be interested in your thoughts?

Essential guidance for 2010 financial year end

As part of the Institute's ongoing analysis of themes impacting preparers, auditors and audit committee's as they perform their financial year end roles and professional responsibilities, we have uncovered three new issues as well as confirmed the continued presence of three existing themes in our latest Essential guidance for the 2009-10 financial year end

Despite improvement in Australia's business conditions, and the country avoiding Europe's sovereign debt risks, the challenges for the June 2010 financial year end reporting period continue to be - determining fair value, impairment of assets and going concern.

Looking forward the Institute anticipates increased fair value movement in financial instruments to continue as well as some reversals of impairments from prior years. An increase in the cost of capital, exchange rate fluctuations and more mergers and acquisitions are expected throughout the rest of 2010.

The continued volatility of the Australian dollar and some commodities place great pressure on corporate risk management and hedging strategies. Liquidity remains tight for businesses, therefore, careful forecasting of short to medium term finance needs is critical, as is clearly understanding the terms and conditions with bankers and financers.

It will be extremely interesting to witness how the Australian economy continues its path out of the global economic downturn and whether it can capitalise on its unique position.

International financial regulation – changes are afoot

The global economic downturn clearly showed that macroeconomic policy and prudential supervision were not sufficient to ward off systemic crisis in the international financial system. So the momentum of change has begun – but the $64,000 question remains – What does this mean for Australia, especially when it moved through the economic downturn with greater success than most Westernised countries? Indeed Australia has been praised for its resilience, so what’s next?

Recently, Professor Ian Harper from Access Economics remarked that Australia was at risk of unnecessary change since it appears that the ‘whole class was being punished because two students were caught smoking’! It is with this thought that the Institute engaged with Prof Harper and Access Economics to identify the main global reforms under consideration and how Australian authorities should respond.

The analysis, entitled Reforming international financial regulation identifies three broad responses which Australia could make to the international reform agenda. These range from fully signing up to the reforms, through redefining Australia’s regulatory responsibilities to better reflect global developments, to explicitly repudiating some of the more interventionist proposals.

I am interested to find out about your opinion and whether you agree. For mine I believe we have an opportunity to re-think Australia’s regulatory framework following the findings of the Wallis Committee in 1996-97. New rules may require a new assignment of functions among Australia’s financial regulators. Through this process we must not lose sight of the overall goal which is to keep the financial system more stable and less prone to crisis.

Fit for the future: Challenges for the next generation of Australians

To date the Institute’s thought leadership papers have rightly focussed on forward looking, thought provoking topics that are traditional to the accounting profession (for example, audit, reporting and taxation).

In 2009, the Board of the Institute of Chartered Accountants identified the need to become a greater initiator and contributor into public policy debate on broad business and economic issues which have implications integral to the future success of Australia.

In this regard the Institute sought the expertise of Saul Eslake, one of Australia's leading economists. Saul facilitated a workshop involving the Institute's Leadership and Quality team who were asked to develop six issues believed to represent the key challenges and issues impacting the youth and future generation of leaders in Australia.

The topics were restricted to those collectively agreed to have the most amount of impact on the future financial and global success of Australia and especially relevant to young accountants.

The six issues identified at the workshop included:

• The ongoing resources boom
• An appropriate level of debt
• Home ownership and affordability
• Australia’s infrastructure requirements
• Making the most of Australia’s human resources
• Australia’s role in international governance structures.

These six issues have been presented in a thought leadership paper just released entitled, Fit for the future: Challenges for the next generation of Australians

The paper is designed to start a conversation with today’s and tomorrow’s leaders to work through these issues. I welcome debate on this forum on all or any of the issues presented in the paper.

Audit quality - what is the current status?

On 5 March 2010, the Chairman of the Financial Reporting Council, Mr Jeffrey Lucy AM, released a Treasury consultation paper Audit Quality in Australia: A Strategic Review.

The Treasury paper identifies the key drivers of audit quality in Australia and assesses whether any measures should be taken to address any real or perceived threats to these drivers of audit quality. The paper itself is an extensive piece of work (26 findings in total) and is drawn from a range of sources, in particular the UK Financial Reporting Council's paper on Promoting Audit Quality.

The key findings of the Treasury paper include

• Australia's audit regulation is robust and in line with international best practice
• Australia's audit regulation framework appears to be functioning effectively during the current economic conditions
• ASIC's investigations into recent corporate failures may highlight areas where audits can be generally improved.

These findings align with the views and public messages the Institute has expressed regarding the auditing profession, in particular they mirror those expressed in our thought leadership paper, The benefit of audit - A guide to audit quality.

I'm interested to hear what you think of Treasury's paper and the 26 findings. You can contact us at techsubmissions@charteredaccountants.com.au

When is the ‘early part of the year’?

Reading a recent transcript of a Senate Estimates hearing involving various Government and Coalition Senators as well as Officials from the Department of Treasury makes for quite important, and often outrageously funny, reading. A rather lengthy debate took place about precisely when the ‘early part of the year’ turns into the ‘middle of the year’.

The semantics of the phrases are important because both the Treasurer and Assistant Treasurer have repeatedly said over the last few months that they will release the Henry Tax Review, along with the Government’s initial response to it, in the ‘early part of 2010’.

Senator Barnaby Joyce took charge of this particular point of discussion in the estimate hearing, initiating a rather comical interchange with Assistant Treasurer Senator Nick Sherry about precisely when the public can expect to see the content of the much-anticipated Henry Tax Review.

I encourage you to read the transcript here

What we can conclude from this, other than it would have been difficult to be in the room watching this without breaking out in fits of laughter, is it looks like the Government will release the Henry Tax Review sometime before June 2010.

And how do we know that?

Well, thanks to Senator Joyce’s interrogation, we now know that if the Government releases the Henry Tax Review in June it would be the ‘middle’ of the year and not the ‘early’ part of the year. And of course the Government wouldn’t want to be seen to be contradicting what the Treasurer and Assistant Treasurer have been saying...

We wait with baited breath!