Many observers regard the role of CFO as being of equal seniority as that of the CEO since both have strategic responsibility for the entity they manage; however, the CFO is responsible for complying with the various accounting and financial legislation that governs the running of a business or public agency.
The legislative and regulatory framework in the United States is complex and is geared primarily towards protecting the public, investors, customers, and business partners from harm due to financial mismanagement. Penalties for non-compliance can be extremely severe, including personal liability upon the CFO as well as the threat of criminal prosecution and even jail for serious failures. Financial regulation is onerous in the United States and understanding the impact of laws such as Sarbanes-Oxley (particularly in today’s global economy) is vital.
A CFO has a great deal of responsibility in ensuring the entity complies with the law and also is financially managed well in order to maximize business performance or financial prudence if it is a public body.
A CFO will assume responsibility for all financial aspects of the entity, including the financial reporting systems and controls that govern how money is spent, how budgets are set and controlled, what happens to revenues earned, and how all of this is recorded and reported. Financial reporting will be adapted to reflect the needs of the different users of this information; management will require a different standard of information reporting (than say the shareholders) while the CFO acts as a conduit and interpreter of financial performance and the environment within which the business is operating to other directors, including the CEO.
While a CFO needs to have a firm grasp of financial language and accounting disciplines, many CFO’s have no formal qualifications as accountants or finance experts. Notwithstanding the lack of formal qualifications, CFO’s usually have a great deal of experience in handling financial matters as well as in dealing with senior management.
It is not unusual for a CFO to be a qualified accountant, usually a Certified Public Accountant (CPA); however, the trend over the last 10 years has been for non-CPA’s to hold the post which has led to a great deal of criticism in the wake of financial scandals such as the one that brought down Enron. It is true that the preference is for a CFO to be a qualified accountant, whether a CPA or for global companies, or the holder of an equivalent qualification from overseas. Pressure upon business and public agencies to improve the prevalence of financial qualifications amongst CFO’s comes from the highest levels of government, regulators, and business stakeholders as this is seen as a direct method of avoiding financial irregularities, whether due to fraud or simple mismanagement.
The ability to interpret and communicate financial information to other involved users is a crucial skill set for a CFO. Frequently, financial information needs to be interpreted and explained to non-financially literate stakeholders. The CFO acts as the conduit through which the information is presented and explained. It should come as no surprise that CFO’s perform a pivotal role in decision making at the highest levels of an organization.
The federal government has been moving strongly towards the introduction of private sector financial management and accountability practices in the public sector. President Bush signed into law an act, (The CFO Act), which created the position of CFO for each of the 23 federal agencies. The principal aim is to improve the financial management of taxpayers money by the federal government; the impact of this recognition to improve financial practices in government has had far reaching impact on the lower levels of government as well as with public agencies across the country.
CFO’s in public life focus upon the internal controls in place to ensure public money is spent and managed appropriately. This will involve formulating and managing the budgeting and allocation of money for projects as well as ensuring that expenditures are creating monetary value.
Demand for CFO’s in public agencies is unlikely to diminish in the near future with the Government Accountability Office (GAO) reporting inadequacies in financial reporting by the U.S. government and calling for greater control and accountability.
Chief Financial Officers hold a position of great responsibility within a company or public body and must bring to the role maturity, experience, and a wide range of skills. The ability to manage large financial undertakings as well as to understand the impact of financial legislation and regulatory reporting requirements is key to the role.
It can be argued that the ability to communicate and interpret the financial information gathered for stakeholders and partners is even more essential, which may explain why so many CFO’s do not hold a formal financial or accounting qualification. This appears to have been reversed in the wake of major financial scandals and once more, candidates who do not hold a CPA or equivalent qualification are finding it increasingly difficult to move in to the CFO role.
CFO’s operate in a strategic partnership with the CEO of major companies and organizations, providing direction and management of large entities with the specific responsibility of handling financial risk and reporting requirements.