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THE FINANCE FUNCTION: A FRAMEWORK FOR ANALySIS

FINANCE DIRECTION INITIATIvE

bUSINESS WITH CONFIDENCE icaew.com/fmfac

The Finance Function: A Framework for Analysis forms part of the FinanceDirection thought leadership programme of the ICAEW Finance and Management Faculty.

building effective finance functions is a key concern of organisations and finance professionals. This report provides a foundation for considering the key challenges involved and a reference source for those analysing or researching the role of the finance function.

ICAEW’s Finance and Management Faculty provides its members with up-to-date business ideas; the latest management tools; unbiased and independent information and helps them to become an effective part of the management team. Membership is open to finance professionals with an interest in financial management. Further details are available at icaew.com/fmfac.

We welcome comments and enquiries on this report. To contact us please email [email protected].

Additional copies of this report can be downloaded from icaew.com/financedirection, where further information on our work is also available.

September 2011

© ICAEW 2011

Dissemination of the contents of this report is encouraged. Please give full acknowledgement of source when reproducing extracts in other published works.

No responsibility for any persons acting or refraining from acting as a result of any material in this paper can be accepted by ICAEW or the authors.

ISbN 978-0-85760-285-5

THE FINANCE FUNCTION FRAMEWORK – FIGURE 1

USING THE FOLD-OUT DIAGRAM

Section 1 of this report provides an overview of the

framework shown in Figure 1, overleaf. The references

in Figure 1 correspond to the numbering structure

of the report in Sections 2,3,4 and 6. They can be used to

navigate to greater detail for each element of the framework.

p

p

FIGURE 1. A FRAMEWORK OF FINANCE ACTIvITIES AND THE DRIvERS WHICH SHApE THEIR IMpLEMENTATION

Inform

Influence/direct

Strategy and Risk 2.4 and 4.4

Management and Control 2.3 and 4.3

Funding 2.5 and 4.5

Compliance 2.2 and 4.2

Accounting 2.1 and 4.1

Organisational Activities

ACCOUNTING DRIvERS

• Representation 6.2.1

• Techniques 6.2.2

• Regulation 6.2.3

• professionalisation 6.2.4

ENvIRONMENTAL DRIvERS

• political and social 6.1.1

• Market 6.1.2

• Location 6.1.3

• IT 6.1.4

• Sector 6.1.5

FINANCE ACTIvITIES

3.9 3.8

3.3

3.6

3.1 3.2

3.5

3.4

3.7

3.10

ORGANISATIONAL DRIvERS

• Ownership 6.3.1

• Size 6.3.2

• Strategy 6.3.3

• Structure 6.3.4

• people 6.3.5

• Culture 6.3.6

• Routines 6.3.7

the finance function: a framework for analysis

finance Direction initiative

TECPLN8522_FinanceFunction_text.indd 9 08/09/2011 09:49

iContents

1. overview 1

1.1 introduction 2

1.2 uses of the framework 2

1.3 the framework 3

1.4 structure of the report 3

1.5 finance activities 3 1.5.1 Purposes 3 1.5.2 Interactionsbetweenfinanceactivities 4 1.5.3 Informationcontent 4 1.5.4 Operationaldynamicsoftheactivities 4 1.5.5 Inherenttensionsandchallenges–whytheyarise 4 1.5.6 Inherenttensionsandchallenges–summarised 5

1.6 the role of the finance department 6 1.6.1 Financedepartmentresponsibilities 6 1.6.2 Financeactivitiesconsideredtobeofhighimportance 6 1.6.3 Timeallocationoffinancedepartments 7 1.6.4 Financedepartmentadaptability 7

1.7 the drivers that shape how finance activities are implemented 7 1.7.1 Environmentaldrivers 7 1.7.2 Accountingenvironmentdrivers 8 1.7.3 Organisationaldrivers 8

1.8 Practical implications 8 1.8.1 Regularlyrevisitthebigpicture 9 1.8.2 Becarefulaboutbuying‘bestpractices’ 9 1.8.3 Planningversesadaptability–managethetrade-offs 9 1.8.4 Berealistic–financedepartmentscan’tdoeverything 10 1.8.5 Respondtotheinevitabletestsofindividualethicsandresilience 10

1.9 next steps 11 1.9.1 Engageinconstructivediscussions 11 1.9.2 Organiseknowledge 11 1.9.3 Developtheframeworkfurther 11 1.9.4 Committofurtherresearch 11

1.10 Benefits 13

2. the nature anD content of finance activities 15

2.1 accounting 16 2.1.1 Transactionprocessing 16 2.1.2 Accountingandreporting 16 2.1.3 Financialcontrol 16

2.2 compliance 18 2.2.1 Regulatory 18 2.2.2 Tax 18

2.3 management and control 20 2.3.1 Processes 20 2.3.2 Applications 20 2.3.3 Internalauditing 21 2.3.4 Managementaccounting 21

contents


ii Contents

2.4 strategy and risk 24 2.4.1 Strategy 24 2.4.2 Riskmanagement 24 2.4.3 Mergersandacquisitions 24

2.5 funding 28 2.5.1 Investorrelations 28 2.5.2 Debtfinancing 28

2.6 management and resourcing of activities 30 2.6.1 Financesystems 30 2.6.2 Peoplemanagement 30 2.6.3 Outsourcingandsharedservices 30

2.7 other activities 30

3. the interactions Between finance activities 33

3.1 organisational activities with accounting 33

3.2 accounting with compliance 33

3.3 accounting with management and control 33

3.4 compliance with management and control 34

3.5 compliance with funding 34

3.6 organisational activities with management and control 34

3.7 management and control with funding 34

3.8 management and control with strategy and risk 35

3.9 organisational activities with strategy and risk 35

3.10 strategy and risk with funding 35

4. inherent tensions anD challenges 37

4.1 accounting 37 4.1.1 Validityofinformationandfinancialcontrol 37 4.1.2 Weighingthecostsandbenefitsoffinancialcontrols 37 4.1.3 DifferinginformationrequiredforComplianceandManagementandControl 37

4.2 compliance 38 4.2.1 Differencesbetweenpublicinformationandinternalreporting 38 4.2.2 Compulsoryexternalrequirementshavetobemet 38 4.2.3 Highreportedprofitsattractinvestorsbutincreasetaxliabilities 38

4.3 management and control 38 4.3.1 Differencesbetweenoperationalandaccountinginformation 38 4.3.2 Decidingwhichinformationtouseastheprimaryperformancemeasure 39 4.3.3 Interpretationofvariances 39 4.3.4 Ensuringplansandtargetsareownedbyoperationalmanagers 40 4.3.5 Gaming 40

4.4 strategy and risk 40 4.4.1 Financialversusnon-financialorientation 40 4.4.2 Shorttermversuslongterm 40 4.4.3 Involvementversusobjectivity 40 4.4.4 Mismatchoffundingavailabilityversusstrategicrequirements 40

4.5 funding 41 4.5.1 Consistencyandcoherenceofinformation 41 4.5.2 Pressureofuncertainty 41 4.5.3 Changestofunders’termsandlendingcovenants 41 4.5.4 Conflictinginterestsbetweeninvestors,fundersandmanagers 41

4.6 resourcing – key challenge 41

4.7 other activities – key challenge 42


iiiContents

5. the role of the finance DePartment 43

5.1 finance department responsibilities 44

5.2 finance activities considered to be of high importance 45

5.3 time spent on activities 45

5.4 interpreting the results 46

5.5 how finance activities are implemented is idiosyncratic 46

6. Drivers shaPing the imPlementation of finance activities 47

6.1 environmental drivers influencing the finance function 47 6.1.1 Politicalandsocial 47 6.1.2 Market 48 6.1.3 Location 48 6.1.4 InformationTechnology 48 6.1.5 Sector 49

6.2 accounting environment drivers 49 6.2.1 Accountingrepresentation 49 6.2.2 Managementandcontroltechniques 50 6.2.3 Regulation 50 6.2.4 Professionalisationofaccounting 51

6.3 organisational drivers 51 6.3.1 Ownership 51 6.3.2 Size 52 6.3.3 Strategy 52 6.3.4 Organisationalstructure 52 6.3.5 People 53 6.3.6 Culture 53 6.3.7 Routines 53

aPPenDix 1 – suPPorting eviDence for the Drivers 55

aPPenDix 2 – DeveloPment of the finDings 77

2.1 summary 77

2.2 literature review 77

2.3 Proposal development 77

2.4 consultation 78

2.5 limitations 78

acknowleDgements 79

BiBliograPhy 80


1. overview in this section we summarise the framework of finance activities and the drivers that shape their implementation (figure 1). we also cover the issues and practical implications that arise from its development.


2 Overview

1.1 introductionBusinesspartnering,businessintelligence,benchmarking,outsourcing,talentmanagement–justsomeofthesolutionsputforwardtodevelopeffectivefinancefunctions.Sometimestheyhelpandsometimestheydon’t.Webelievethatgreaterconfidenceinselectingthebestcourseofactioncanonlybeachievedbycarefullyanalysingfinancefunctionsandtheuniquecontextswithinwhichtheyoperate.Inthisreportweproposeaframeworkwhichhelpsmanagerscarryoutthisanalysis.

Theframeworkoffinanceactivitiesandthedriversthatshapetheirimplementation(‘theframework’)isshowninFigure1asapulloutflapfromthebackpage.TheframeworkissummarisedanddiscussedinSection1,whichalsocoversthepracticalimplicationsofourworkandproposessomenextsteps.ForthoseinterestedinmoredetailandthesupportingevidenceforthereportSections2to6provideaguidetotheframework.ThesesectionscanbenavigatedusingthereferencesonFigure1.

Thereportisbasedondiscussionswithseniorfinanceprofessionals,awide-rangingreviewoftherelevantliteratureandourownexperience.

Ourworkaimstosupportfinancestaffandtheiradvisorsintheirroleofcontributingtoorganisationalsuccess.Inordertoachievethisaimabroadunderstandingoffinancefunctionsandthecontextstheyoperateinisvital.Thisunderstandingwillhelpmanagersanticipateandadapttochangeastheyattempttobuildeffectivefinancedepartments.Indoingsoitisimportantthatwearerealisticaboutthelimitsofthecontributionthatfinancedepartmentscanmaketoperformance,andalsothatweacknowledgethatfinanceactivitiescanbecarriedoutsuccessfullyoutsideofthefinancedepartment.Thisreportalsoservestohighlighttherelationshipsbetweenfinanceactivitiesandtheinherenttensionsandchallengesfacedbyfinancestaff.Developingourunderstandingoffinancefunctionsisanongoingprocesswhichtheframeworkhelpstofacilitate.

1.2 uses of the frameworkTheframeworksummarisesacomplexsetofinterrelationships,whichplayoutdifferentlydependingoncontextandchangeinnatureovertime.Asaresultitishighlyunlikelythatwewilleverhaveadefinitiveunderstandingofthefinancefunctionandhowitcontributestoorganisationalsuccess.Thereforeinthisreportweaimtoprovideapracticaltoolandreferencematerialwhichcanbeusedanddevelopedovertime.Itprovidesachecklistandaguidetoensurethatrelevantactivities,issuesandcontextualfactorsaretakenintoaccountwhenmanagersmakejudgementsabouthowtobuildeffectivefinancefunctions.Basedonthisfoundationmanagersandtheiradvisorscandeveloptailoredsolutionswhichsuittheirownuniquecircumstances.Furthermoretheframeworkcanbeusedtoassesstheappropriatenessofadvicefromothers.

Wealsothinktheframeworkcanbeusedto:

• profilefinancefunctionsinordertocomparethem;

• analysefinancefunctionsfromdifferentperspectives;

• organisewhatweknowaboutfinancefunctionsandmakethatknowledgemoreaccessibleandusable;and,

• facilitateconstructivediscussions-discussionswhichcandeepenourunderstandingoffinancefunctionsandprovidethebasisforfurtherresearch.

Weseerealbenefitsiftheuseanddevelopmentoftheframeworkcanprovideacommonlanguageandacomprehensiveagendafordiscussingthefinancefunctionandfinancedepartments.

1. overview


ICAEWintendtodevelopandimprovetheframeworkandthereforeweaskthatyoureviewthereportandsendusyourfeedback.1

1.3 the frameworkThefiveinterrelatedactivitiesatthecentreoftheframework,theredboxesinFigure1,makeupthefinancefunctionofanorganisation.Thelinkbetweentheactivitiesisthattheyallrelatetotheproduction,flow,interpretation,communicationanduseoffinancialinformation,aswellasrelated,explanatorynon-financialinformation.

Theterm‘financefunction’canbeusedintwoways–asasetofactivities,whichishowweusetheterminthisreport,andtoidentifythegroupofpeoplegenerallyresponsiblefor,andspecialisingin,financeactivities.Weusetheterm‘financedepartment’todescribethelatter.

Theoutercircleoftheframeworkhighlightstheinterrelateddriversthatshapetheimplementationoffinanceactivities–whodoeswhatandhow.Althoughallorganisationsneedtocarryoutthefinanceactivitiesidentifiedinordertooperateeffectively,thedriversmeanthatthearrangementsfordoingsoinanyparticularorganisationareidiosyncratic.Whiletheevidencesuggeststhattheactivitiesareoftencarriedoutbyfinancedepartmentsthisisbynomeansalwaysthecase.

1.4 structure of the reportSection1ofthereportprovidesanoverviewoftheframeworkwithbriefdescriptionsoftheactivitiesandthenatureoftheinteractionsbetweenthem.Thisisfollowedbyasummaryoftheinherenttensionsandchallengesarisingfromfinanceactivitiesandtheirinterrelationships.Thedriversthatshapetheimplementationoffinanceactivitiesarethensummarised.Basedonthisdiscussionwehighlightsomepracticalimplicationsforthoselookingtoimplementeffectivefinancefunctions.Section1concludeswithsomesuggestionsforfurtherdevelopingtheframework.

Sections2–6ofthereportprovidemoredetailoneachelementoftheframeworkandcanbenavigatedbyusingthereferencesonFigure1.

• Section2–describesthecontentofeachfinanceactivityandprovidessupportingtableswhichanalysethesurveysusedtoinformtheirdevelopment.

• Section3–describestheinteractionsbetweenfinanceactivitiesingreaterdepth(theredandblackarrows).

• Section4–providesamorecomprehensivediscussionoftheinherenttensionsandchallengessummarisedbelowinsubsection1.5.6.

• Section5–analysestheroleofthefinancedepartmentbypullingtogethertheresultsofthevarioussurveysusedinthisreport.

• Section6–discussesthedriversshownontheoutercircleoftheframeworkwhichshapehowfinanceactivitiesareimplemented.Thesefindingsaresupportedbyover250reportsandpaperswhicharesummarisedinAppendix1.

Appendix2describeshowthefindingsofthereportweredeveloped.

1.5 finance activities

1.5.1 Purposes

ThefinanceactivitiesshowninFigure1arederivedfromananalysisandinterpretationof20surveysofwhatCFOsandfinancedepartmentsdo.Anactivityisanaction,taskorprocess.

Eachofthefinanceactivitiesoriginatefromorganisationalactivitiesandfocusontheproductionanduseofinformationtomeetthefollowingpurposes:

1. accounting: torecordthefinancialconsequencesoforganisationalactivities.

2. compliance: tomeettherequirementsofgovernmentalandotherregulatorybodies.

3. management and control:toproduceandusefinancialandrelatedinformationtoinform,monitorandinstigateoperationalactionstomeetorganisationalobjectives.

3Overview

1 [email protected]


2 TextiscapitalisedwhereitreferstospecificfinanceactivitiesordriversshowninFigure1.

4 Overview

4. strategy and risk:toinformandinfluencefromafinancialperspectivethedevelopmentandimplementationofstrategy,andtomanagerisk.

5. funding:toinformandengagewithinvestorsandfunders,bothcurrentandpotential,toobtainandmaintainthenecessaryfinancialresourcesfortheorganisation.

ThesubcategoriesofeachoftheaboveactivitiesaredescribedinSection2.

Asmentionedabovethefiveinterlinkedfinanceactivitiesmakeupthefinancefunctionofanorganisation.Theorganisationalactivitiesshownonthediagramareeffectivelyalltheotheractivitiesthatanorganisationcarriesout.Importantlytheseincludetheleadership,managementandresourcingactivitiesnecessarytoimplementthefinanceactivities(see2.6).

1.5.2 interactions between finance activities

Theframeworkshowsthedirectinteractionsbetweenthefinanceactivities.Theseconsistoftwotypes:

• inform: Theflowofinformation–bothfinancialandsupportinformation–fromoneactivityforusebyanother(blackarrowsonFigure1).Forexamplebasicaccountinginformationisusedintheproductionofmanagementaccounts.

• influence and direct: Theuseoftheinformationbyoneactivitytoinfluenceanddirectwhichactivitiesarecarriedoutandhowtheyareimplemented(redarrowsonFigure1).ForexampletheneedforComplianceactivitiestoreportinaccordancewithInternationalFinancialReportingStandards(IFRS)meanstheywillinfluencewhatisrecordedbyAccounting2activitiesintheledgersystem.

Theframeworkshowwhatwebelievearethemain,ongoinginteractionsbetweenfinanceactivities.Otherinteractionsmayoccurbutitisusefultoeliminatethoseinteractionswhichcurrentlydonotseemtobeprevalent.ThedetailsoftheinteractionsaredescribedinSection3.

1.5.3 information content

Informationisinterpretedinabroadsensetoincludetheformalandtheinformal,documentedandoral.Forourpurposesitconsistsoftwotypes:

• financial information: Thisconsistsoftransactions,records,aggregationsandanalysisrelatingtothefinancialconsequencesoforganisationalactions-pastandprospective.Itconsistsofbothnumbersanddescriptions.Thiswouldincludeforexampletrialbalances,statutoryaccountsanddiscountedcashflowcalculations.

• support information: Thisprovidescontextandunderstandingwhichenablesfinancialinformationtobelinkedtounderlyingorganisationalactivities.Itisrequiredtointerpretandassessthesignificanceofthefinancialinformation.Forexampleheadcountrecordsandcommentaryinthemanagementaccounts.

1.5.4 operational dynamics of the activities

Theinterlinkedactivitiesoperateinadynamicmannerwiththefollowingkeyaspects:

• open:Allactivitiesareopenie,theirimplementationwillbeimpactedbothbytheinteractionwithotheractivitiesandthedrivers,asdiscussedinSection6.

• adapting and changing:Giventheopenenvironmentandcomplexrangeofdrivers,theactivitieswilladaptandchangeinresponse.

• continual interactive feedback:AsFigure1showstherearecontinual,interactivebackandforwardflowsofinformationandinfluenceintheframework.

• multiple timescales:Thetimingoffinanceactivitiesandinformationflowsvarydependingonthenatureandtimingoforganisationalandenvironmentalactivities,environmentalnormsandorganisationalchoice.Past,presentandfutureareallrelevantasaredifferentperiodicitieseg,realtime,daily,weekly,monthlyandannually.

1.5.5 inherent tensions and challenges – why they arise

Thenatureoffinanceactivitiesandtheirinterrelationshipsresultinsomeinherenttensionsandchallengeswhichhavetobemanaged.Thetensionsarisebecause:

• theinformationflowsandinterrelationshipsbetweenfinanceactivitiesmeanthatproblemswithoneactivityfeedthroughtootheractivities;


5Overview

• thefinanceactivitiesservedifferentandsometimesconflictingpurposesandusedifferentinformationwhichmayormaynotbereconcilable;

• conflictsofinterestmayresultinfinanceactivitiesbeingunderminedorusedtosupportpersonalratherthanorganisationalobjectives;

• financeactivitieshavetocontendwithuncertaintiesovercauseandeffectrelationships;

• thereareprosandconsofdifferentapproachestofinanceactivitiesandtrade-offshavetobemade;and

• financeactivitieshavetobecarriedoutwithlimitedresources.

1.5.6 inherent tensions and challenges – summarised

TheinherenttensionsandchallengesincarryingoutthefinanceactivitieswehaveidentifiedaresummarisedinTable1.5belowwithamoredetaileddiscussioninSection4.

table 1.5: summary tensions and challenges

accounting

FinancialinformationproducedbyAccountingflowsthroughthewholeframeworksoanyproblemsheremeanthatthevalidityofinformationthroughouttheorganisationiscompromised.

Financialcontrolshavecostsandbenefitsthatneedtobeweighedagainsteachother.

InformationrequiredforCompliancediffersfromthatrequiredforManagementandControlmakingitdifficultforAccountingactivitiestomeetbothneeds.

compliance

Informationrequiredforexternalpublicationdiffersfrominternalreporting.Thesedifferencescanbedifficulttoexplainandmayleadtoquestioningofthevalidityofboth.

Compulsoryexternalrequirementshavetobemetleadingtouncertainanduncontrollableresourcerequirements.Moreovermeetingtherequirementscanbeperceivedasbeingexpensiveandoflimitedvalueresultinginpressurestocutcorners.

Highreportedprofitsattractinvestorsbutincreasetaxliabilities.Thismeansthereareconflictingpressuresonthelevelofprofitstoreport.

management and control

TheinformationproduceddirectlybyorganisationalactivitiesandtheaccountinginformationusedbyManagementandControlmaydiffer.Thisgivesrisetodifferentinterpretationsoforganisationalperformanceandtimespentondiscussingdifferences–sometimesproductivelybutoftendysfunctionally.

ManagementandControlincludinggeneralmanagementandcontrol,cashmanagement,investmentappraisalandtax(see2.3)requiredifferentinformationandsometimeshaveconflictingpurposes.Thismakesitdifficulttodecidewhichinformationtouseastheprimaryperformancemeasure.

Variancesbetween‘actuals’andplanscanbedifficulttointerpret.Dotheysuggesttheneedforchangestobehavioursandprocessesinordertoachievetheoriginalplanordoplansneedtobereassessed?

Whereplansareproducedbyfinancialspecialiststhereisariskthatoperationalmanagersdonotunderstand/takeownershipofthoseplans.

ManagementandControlprocessesaresubjecttogaming.

strategy and risk

Abalancehastobestruckbetweenconcentratingoneasilymeasurablefinancialtargetsandequallyvaluable,butmoreintangible,non-financialtargets.

Short-termneedsmayconflictwithlongertermstrategicobjectives.

Wherethoseresponsibleforfinanceactivitiesbecomemoreactivelyinvolvedindecisionmakingtheirobjectivitymaybecompromised.

Strategicobjectivesrequirefunding,whichmaybedifficulttoobtain.Thismayleadtopressurestooverpromiseontheprobabilityofimplementationsuccessandpredictedfinancialoutcomes.


1.5.6 inherent tensions and challenges – summarised continued

table 1.5: summary tensions and challenges continued

funding

Investorsandfundersusepubliclyavailableinformationandmayhaveaccesstoinformationproducedforinternaluse.Differencesbetweenthemmayundermineorganisationalcredibilitywithfundersandinvestors.

Investorsandfundersrequireprospectiveinformationonfinancialperformanceandprefercertainty.Thismayleadtopressuresonorganisationstodownplaytheuncertaintiesinherentinprospectiveinformation.

Renewaloffundingissubjecttouncertaintyandmaybewithdrawnduetochangesinafunder’sinternalpoliciesaswellasperceivedfinancialdifficultiesinanorganisation.

Theconflictinginterestsofmanagers,equityinvestorsanddebtfundershavetobemanaged.

resourcing

Financeactivitieshavetobemanagedbutfinancespecialistsmaylackleadershipandmanagementskills.

Howorganisationsrespondtothesetensionsandchallengeswillhaveasignificantimpactonorganisationalperformance.ThereforeanyoneconcernedwithmanagingtherisksfacedbyfinancefunctionsshouldbenefitfromreadingthemoredetaileddiscussionofthetensionsandchallengesinSection4.

1.6 the role of the finance departmentTheconsolidatedsurveydataonfinancedepartmentresponsibilities,timeallocationandtheimportanceattachedtofinanceactivitiesisdiscussedbrieflybelowwithsomefurtherdetailsinSection5.GiventhedifferentapproachestakeninthesurveysweurgecautionininterpretingthesummarisedresultsandrecommendthatreadersalsoreviewthedetailedtablesinSection2.However,somepatternsdoemerge.

1.6.1 finance department responsibilities

Highlevelsoffinancedepartmentresponsibilityareapparentforcoreprocesstypeactivities–accounting,transactionprocessing,financialinformation,tax,cashmanagementandfinancialcontrols.

MediumlevelsoffinancedepartmentresponsibilityareseenintheapplicationtypeareassuchasgeneralmanagementandcontrolandStrategyandRisk.TheseareasofactivityarethosewhereCFOsandfinancedepartmentsoftenaspiretoachievemoreinfluence.Someachievesuchaspirationsandsomedonot.Moreoverthereseemstobenorigorousevidenceofgrowingstrategicinfluenceinrecentyears.InouropinionmanyCFOsachievedsuchinfluencemanyyearsagoandreportsofgrowinginfluencehavebeenmaderegularlysinceatleast19763.

1.6.2 finance activities considered to be of high importance

WithinManagementandControl,theproductionandanalysisoffinancialinformation,whichincludesmanagementreporting,financialanalysis,budgetingandforecasting,showsthehighestaverage‘highimportance’score.Theexplanationmaybethattheseareactivitieswherefinancedepartmentshavehighresponsibilityandthepotentialtosignificantlyimpactonorganisationalperformance.Therearelikelytobehighexpectationsthatfinancedepartmentswillperformtheseactivitiestoahighstandardandproblemswillneedtobeaddressedurgently.Asimilarargumentcanbemadeforthehighimportanceattachedtogeneralmanagementandcontrol,withinwhichweincludetermssuchasbusinesssupport,decisionsupportandbusinesspartnering.

HighimportanceisalsoattachedtobothStrategyandCompliance.Assessingtherelativeprioritytogivetothesetwoareasisoftenakeychallengeforfinancedepartments.

Althoughimportanttreasuryandcashmanagementarenotratedashighlyastheabove.Thismaybebecausethesurveysconcernedwerecarriedoutbeforethe2008financialcrisis.

6 Overview

3 GerstnerJr.,L.V.,andAndersonM.H.,‘Thechieffinancialofficerasactivist’,Harvard Business Review,vol54,no5(September1976),pp100-106.


Peoplemanagement,financesystemsandorganisation-wideITarealsoseenashighlyimportant.Thisistobeexpectedastheyarekeyenablersoffinancedepartmentandorganisationalperformance.

Accountingandreporting,transactionprocessingandfinancialcontrolsreceivelower‘highimportance’ratings.Theseactivitiesareoftenperceivedas‘hygiene’factors–theexpectationisthattheywillbecarriedouteffectivelyandefficientlybuttheyarenotseenasaddingvaluetoanorganisation.Theywillonlyreceivesignificantmanagementattentionwhenmajorproblemsoccurorthereisscopeforsignificantcostsavings.

1.6.3 time allocation of finance departments

Time-basedresponsibilitieshavenotbeenconsolidatedbecausethevariationinsurveyapproachesmeansthattheresultsarepotentiallymisleading.GreaterinsightsaregainedbylookingatthedetailedtablesinSection2.

ThemosttellingtrendishighlightedbytheIBMsurveysof2003and2010,oneofthefewsurveystousesimilarterminologyovertime.Thesesurveysshowthattheproportionoftimespentbyfinancedepartmentsontransactionalactivities,controlactivitiesanddecisionsupporthashardlychangedovertheperiodcovered.

1.6.4 finance department adaptability

Giventhesurveysshowdifferencesinfinancedepartmentresponsibilities,weinferthathowtheseactivitiesareundertaken,andindeedwhethertheyarecarriedoutbyfinancedepartmentsatall,willvaryacrossorganisations.Thearrangementsforcarryingoutfinanceactivitiesareshapedbytheimpactofthedriversdescribedbelow.

Furthermoretheinherenttensionswehavediscussedpreviouslymakeforongoinginstabilitiesinthefinancefunctionmeaningthatfinancedepartmentsneedtoconstantlymonitortheeffectivenessoftheiractivitiesandrespondtoanyproblemsidentified.

Thecombinationofthedriversandtheinherenttensionsandchallengespointstotheneedforfinancedepartmentstoconstantlyadapttotheiruniquecircumstances,whichmayincludetakingonadditionalresponsibilitiesorrelinquishingexistingones.

1.7 the drivers that shape how finance activities are implemented Thedriverswhichshapehowfinanceactivitiesareimplementedareshownontheframework(Figure1)undertheheadingsofenvironmentaldrivers,accountingenvironmentdriversandorganisationaldrivers.Theenvironmentalandaccountingdrivershavebothadirectimpactonfinanceactivitiesandanindirectimpactviatheirimpactontheorganisationaldrivers.ItisalsoimportanttonotethatfinanceactivitieshaveanimpactontheorganisationaldriversasshownonFigure1bytheangledbaseofthefinanceactivitiesbox.

Managerscanusethelistsofdriversasachecklisttoensuretheyconsidertheiruniquecircumstanceswhenpositioningthefinancefunctionwithinorganisationsandmanagingfinanceactivities.

Thewiderangeofdriversandtheinteractionsbetweenthemsuggestahighlevelofcomplexityanduncertainty.Knowledgeoftheimpactofthesecomplexitiesanduncertaintiesonfinancefunctionsisextremelylimited.However,wediscussarangeofevidencerelevanttoeachdriverinSection6andprovidefurtherdetailsinAppendix1.Keypointsinclude:

1.7.1 environmental drivers

• Political and social factors arefundamentaltothecontextwithinwhichfinanceactivitiesareundertaken.Forexamplepoliticswillinfluencefinancialregulationandthesocialcontextwillimpactonattitudestoshareholdervalue.

• Financeactivitiesneedtorespondto market forces,broadlyinterpretedtoincludetheeconomicandfinancialenvironment,andcustomerandsupplierrelationships.Theimpactoffinancialcrisescanbesignificant.Competitivepressuresmayleadtothecloserinvolvementoffinancestaffwithotherfunctionsinanorganisationsuchasoperationsandmarketing.

• location–nationaldifferences,globalisationandtheinterplaybetweenthemprovidestrong,oftenconflicting,influencesonhowfinanceactivitiesareimplemented.

7Overview


8 Overview

• information technology(IT)developmentsmayhaveatransformativeimpactontheimplementationanddeliveryoffinanceactivitiesandthepaceofITdevelopmentprovidesanongoingchallenge.

• Differencesinindustrysector,andinparticularrelateddifferencesinlevelsofuncertainty,impactfinanceactivities,especiallyManagementandControlandStrategyandRisk.

1.7.2 accounting environment drivers

Theaccountingenvironmentdriversareasubsetoftheenvironmentaldriversbutarediscussedseparatelybecauseoftheirspecificrelevancetotheroleofthefinancefunction.

• Accounting representation:Financialinformationcanonlyprovideapartialrepresentationoforganisationalrealityandisbasedonconventions,estimatesandassumptions.Asaresultfinancedepartmentscantakedifferentapproachestohowaccountinginformationisproduced,presented,interpretedandused.Clearlyifsubsequenteventsshowtheseapproachesandassociatedassumptionstobemistakenthecredibilityoftheproducersandusersoftheinformationcanbecalledintoquestion.

• Awiderangeoftechniques canbeusedforManagementandControlpurposes.Therearenoclearguidelinesonwhatisappropriateinanygivensituation.However,thereissomeevidenceofthedesirabilityofintegratingfinancialandnon-financialmeasures.

• regulationdirectlyimpactsallfinanceactivities.Financialscandalsincreasethefocusonthisarea.Thereissomepressureforfinanceprofessionalstoworkonbroaderregulatoryissuesincludingsustainability.

• Professionalisation ofaccountinghasinfluencedfinanceactivitiesinmanypartsoftheworld.Thisinfluencemaybeincreasingasmembershipofprofessionalbodiescontinuestogrow.However,thismaybeoffsetbythereductionintheirregulatoryrolewhichisbeingsupersededbyrulesprescribedandenforcedbygovernmentalandglobalinstitutions.

1.7.3 organisational drivers

• ownership:Theinfluencefromownersorinstitutionstowhichanorganisationisaccountable(eg,governments)willbesignificantinshapingthefocusoffinanceactivities,althoughthelevelofinterventionwillvary.Changesinownershiporaccountabilitiescanresultinsignificantchangestofinanceactivities.

• size playsamajorroleininfluencingfinanceactivitiesparticularlywithrespecttolevelsofsophisticationandformalityofmanagementandcontrolsystems,andthebreadthoffinancedepartmentresponsibilities.

• AligningManagementandControlactivitieswithorganisationalstrategyisgenerallybelievedtobebeneficialbutcanbedifficulttoachieve.

• Organisationalstructureisintertwinedwithhowfinanceactivitiesareundertaken.Considerationneedstobegiventocollaborationbetweenfinanceandotherfunctions,financialincentivesandtheuseofoutsourcingandsharedservicecentres.

• Theskillsof Peopleinthefinancedepartmentpartlydeterminethenatureandeffectivenessoffinanceactivities.However,attractingappropriatelyskilledstaffcanbedifficult.Whilefinancedepartmentscanplayamajorpartinshapingtheirownroletheywillalsobedirectedandinfluencedbytopmanagementteams,especiallytheCEO.

• Financeactivitiesareintertwinedwithorganisationalculture,politicalprocessesandbroaderoperational routines.

AnyoneinterestedincarefullyconsideringthefactorswhichimpactonthedesignandoperationoffinancefunctionsshouldbenefitfromreadingthemoredetaileddiscussionofeachdriverinSection6andthesupportingevidenceinAppendix1.

1.8 Practical implicationsWhentakentogethertheinterrelatedactivities,drivers,andtensionsandchallengessuggestthatfinancefunctionshavetodealwithahighdegreeofcomplexityanduncertainty.Forexamplethechallengeofmeetingtheinformationrequirementsofmultiplestakeholderswillbemademorecomplexbyacquisitionsandsubjecttogreateruncertaintywhenmarketsareturbulent.


9Overview

Theframeworkandthesupportingevidencegivesomeindicationofhowthesecomplexitiesanduncertaintiesplayoutforthefinancefunctionandorganisations.However,giventhecomplexitiesanduncertaintiesandtheimportanceofcontextourunderstandingisinherentlylimitedandthereforeitisnotfeasibletoofferdetailed,prescriptiveadvice.Neverthelessitispossibletodrawoutsomeinsightsandpracticalimplicationsthatprovidesomeguidancetomanagers.Thesearesummarisedunderthefiveheadingsbelow(1.8.1to1.8.5).Insubsection1.9wehaveidentifiedsomenextstepsthatcouldfruitfullybefollowedtofurtherenhanceourunderstanding.

1.8.1 regularly revisit the big picture

Basedontheirexperienceandexpertisemanyfinanceprofessionalsmanagethefinancefunctionandadapttotheenvironmentveryeffectivelydespitethecomplexity.Theyachievethisthroughacombinationofintuition,carefulthought,teamworkandtheuseofrelevanttoolsandtechniques.Inadditiontheyregularlyrevisitthebigpicture–consideringthefinancefunctionasawholeandhowitfitswithorganisationalneedsandcontext.Takingaholisticviewimprovesamanager’sabilitytospotproblemsearly,avoidunintendedconsequencesandadaptquickly.However,theimportanttacitelementofthisknowledgeisbydefinitiondifficulttocommunicatetoothers.

Theframeworkprovidesastartpointformakingthistacitknowledgemoreaccessible.Itprovidesahigh-levelchecklistofactivities,driversandtensionstoconsider,albeitwithoutclear,unambiguousguidesforaction.Evenexperiencedmanagerscangainfromreviewingtheframework,especiallywhencircumstanceschange.Itfacilitatestheprocessofassessingwhetherpreviouslysuccessfulapproachesstillapply.Forexampletheframeworkmakesclearthatwhenafinanceprofessionalmovesfromoneorganisationtoanotherthefocusoffinanceactivities,themostrelevantchallengesandthenatureandrelevanceofthedriversmaychangeandthereforeneedtobereconsidered.

1.8.2 Be careful about buying ‘best practices’

Ifweaccepttheneedforfinanceactivitiestorespondtowidevariationsincontextthenitisdifficulttoseehowspecificanddetailedbestpracticescanbeadvocateduniversally.Indeeditisclearthatmany,perhapsmost,financeactivitiescanbecarriedoutveryeffectivelyoutsideofthefinancedepartment.

Practiceswillneedtobetailoredtotheuniquecircumstancesoftheorganisationconcerned.Thisisnottosayorganisationscannotlearnfromthepracticesofothersandtheproposedsolutionsofadvisors.However,agreatdealofcareisrequiredtoensurethatpracticesthatworkinonecontextdotranslatetoanothercontext.Forexample,failuresinintroducingActivityBasedCostingor‘businesspartnering’maybemoretodowithnotfittingthecontextthanpoorimplementation.

Theframeworkprovidesonewayofensuringthatcontextualdifferencesareconsideredwhenassessingtheappropriatenessofnewpracticeswhichhaveworkedelsewhere.

1.8.3 Planning verses adaptability – manage the trade-offs

Ourdiscussionalsosuggeststhatoperatingandimprovingfinanceactivitieswillneedtobebasedonjudgementsofwhatwillremainthesame,atleastinthenearterm,andwhatislikelytochange.Thedriversidentifiedallhavethepotentialtochange,sometimesquickly,significantlyandunpredictably.

Thismakesitdifficulttoseehowrigid,standardisedprocesseswillhavealongshelflifeforallbutthemostbasicoffinanceactivities.

Inadditiondetailedlong-termplansforchanginghowfinanceactivitiesarecarriedoutarelikelytobecomeoutdatedveryquickly.Thisisahugechallenge,givenforexamplethattheintroductionofmajorfinancesystemchangesacrosslargeorganisationsmaytakeyearstoimplement.

Analternativeapproachistofocusonadaptability,bothintermsofongoingprocessesandchangeprojects.Forexampleprogrammesto‘transform’thefinancefunctioncanbeestablishedwithhigh-levelprinciplesandlong-termobjectivesbutwithshorterterm,smallerprojectsusedtomovefinancetowardstheendgoal.Thiswouldenablerelativelyquickchangestotactics.

However,adaptabilitycomesatacost.Buildingredundancyintosystemsandprocesses,collectingbusinessdatathatmaynotbeessentialincurrentcircumstancesandemployingmorehighlyskilledstaffthanstrictlynecessaryforcurrentworkloadsarenoteasytojustify.


10 Overview

Alsowedoneedtobecarefulnottooveremphasisechange.Changeismorenoticeablethanthingsthatstaythesame.Financefunctionshavebeenusingdouble-entrybookkeepingforcenturiesandtheaspirationoffinanceprofessionalstobemorecloselyinvolvedwiththebusinessandstrategyhavebeendiscussedformanydecades.Inadditionthetensionsandchallengeshighlightedareinherenttotheactivitiesframeworkandrepresentongoingchallengesforthefinancefunction.Whilethewaysinwhichthesetensionsandchallengesbecomemanifestmaydiffer,theunderlyingissuescanbeanticipated.

1.8.4 Be realistic – finance departments can’t do everything

Whenreadingsomeofthecommentarywhichgoeswiththesurveydataanalysedinthisreport,itispossibletogettheimpressionthatsuperhumanCFOs,withhighlytalentedteams,usingintegratedsystemsandsophisticatedanalyticaltechniquesarethemaindeterminantoforganisationalsuccess.Whilewedobelievethateffectivefinancefunctionscanbeanimportantpartofsuchsuccessitisimportantthatwearemorerealisticinourexpectations.

Thereareinherentlimitationstothecapabilitiesofthefinancefunction.Wehavementionedtheproblemsofaccountingrepresentation(discussedfurtherinsubsection6.2.1),whichapplywhoevertakesresponsibilityforfinanceactivities.CFOsandfinanceteamshavecognitivelimitationsandblindspotsasdoallorganisationalmembers.Financedepartmentshavetoworkwithinresourceconstraints.ITsystemsdesignusuallyinvolvescompromisebecauseoftheseconstraintsandthelimitedfunctionalityofsystemsavailable.

Playingdownsuchlimitationsmaybeseenasadvantageous,forexampletospeedupdecisionmaking,inspireconfidenceininvestorsandindeedgarnerresourcesforthefinancedepartment.However,overpromisingandunderdeliveringwilltarnishafinancedepartment’sreputation.Moreoveriffinancedepartmentsaretoliveuptotherhetoricofbeingthevoiceofreasoninorganisationsandtheprovidersof‘objective’informationforevidencebaseddecisionmaking,thensurelythismustbebasedonanhonestassessmentofthedepartment’scapabilitiesanditsoutputs.

Communicatingsuchlimitationsisnoteasy.Forexamplebusinessmanagershavelimitedtimeandoverloadingthemwithprovisosandcaveatscanbecounterproductive.Theirexistingknowledgeoflimitationsandassumptionsmaybedifficulttoassessandthelimitationsthatneedtobecommunicatedwillvarydependingontheparticularsituation.

Thereforefinanceprofessionalshavetostrikeadifficultbalanceindecidingwhattocommunicateindifferentsituations.Toomuchinformationwithmultiplescenarios,longlistsofassumptionsandnorecommendationsmaymeanthatvaluableinformationgetsignored.Toolittleinformationwithnocontextorprovisosandadecisiverecommendationmayresultininsufficientconsiderationoftheissuesandineffectivedecisions–orarequestformoreinformation!

Afurtherconsiderationisthatthefailuretomarketandpromotewhatcanbeachievedbyfinancedepartmentswillleadtothembeinglessinfluentialthanotherdepartments.Againabalancehastobestruckbetweentheongoingstrivingoffinancedepartmentstocontributemoretoorganisations,whichamongotherthingsishighlymotivationalforstaff,andanacceptanceoftheappropriatepositioningofthefinancedepartment’sroleinaparticularorganisation.

1.8.5 respond to the inevitable tests of individual ethics and resilience

Theframeworkandthetensionsandchallengesidentified,helpusunderstandwhytheethicsandresilienceoffinanceprofessionalsareoftenseverelytested.Anindividual’sresponsetothesetestswillvarydependingontheircharacterandability.Thereforeorganisationsneedtoconsiderhowtheyreducetherisksofinappropriateresponsesofthosecarryingoutfinanceactivities.Organisationalleaders,managersofotherfunctions,professionalbodies,academicsandconsultantsallhavearoletoplayinprovidingsupport.Theframeworkhelpsarticulatetheissuestotheseinterestedpartiesfromwhichappropriateactionscanbedeveloped.Thesemayinclude,interalia:

• monitoringandrespondingtoconflictsofinterest;

• establishingthenecessarychecksandbalancesonfinancefunctionactivities;

• developingandcommunicatingethicalguidelines;

• thecarefulrecruitmentandselectionoffinancestaff;and

• providingappropriatetraining,developmentandmentoring4.

4 ForfurtherinformationseeICAEW,Instilling Integrity in Organisations,London:ICAEW,2011.


11Overview

1.9 next stepsInthissectionwesuggestsomenextstepsfordevelopingtheframeworkandfurtherresearchwhichwouldaddtoourunderstandingoffinancefunctionsandhowtheycanbecomemoreeffective.

1.9.1 engage in constructive discussions

Webelievetheframeworkprovidesabasisforusefuldebatesaroundtheroleofthefinancefunctionandhowfinanceactivitiescanbemademoreeffective.Presentationsofearlierversionsoftheframeworkgeneratedsignificantdiscussionbetweenfinanceprofessionals,consultantsandacademicsonawiderangeofissues.

Discussionofthefollowingquestionsmaygeneratefurtherprogress:

• Doestheframeworkadequatelycapturefinanceactivities,theirinterrelationshipsandthedriversthatshapethefinancedepartment’srole?

• Dotheinherenttensionsdiscussedrepresentacomprehensivelistofthepotentialconflicts?Howcanthetensionsandchallengesbedealtwith?

• Howdotheinterrelationshipsbetweeneachfinanceactivityandbetweenfinanceactivitiesandorganisationalactivitiesoperate?Cantheinterrelationshipsbeimproved?

• Whenthedriversshapingfinanceactivitieschangewhatmightbetheconsequencesforthefinancefunction?Whatresponsesmightbeappropriate?

• Basedonexistingknowledgeandevidence,whatguidance,ifany,canbeconfidentlyprovidedtohelpfinancedepartmentsbecomemoreeffectiveindealingwiththecircumstancestheyface?

1.9.2 organise knowledge

Theframeworkandthisreportareanattempttomapsomeofourexistingknowledgeofthefinancefunctionandtomakeitmoreaccessible.Additionalstudies,pastandfuture,couldbeincorporatedintoourworktomakeitmorecomprehensiveandfurtherdevelopthearguments.

However,anywayofseeingisalsoawayofnotseeing.Whilewehavetriedtoallowformultipleperspectiveswearecognizantofthefactthattheframeworkisinevitablylimiting.Itmayobscuretherichdiversityofworkthathasbeencarriedout.Inadditiontherearerisksincombiningdifferenttheoreticalperspectivesinthewaythatwehave.ThefewlineswehaveusedtosummarisestudiesinAppendix1clearlysimplifythefindingsandmaysuggestacoherencethatisnotjustified.Wehopehoweverthatreadersofthisreportwilldelvefurtherintotheliteraturetobuildtheirownmorenuancedunderstanding.

Itwasnotaneasyprocesstryingtobringtogetherthestudieswehaveincluded.Clearlyotherapproachesarepossible.Wewouldbeinterestedinfeedbackontheusefulnessofourapproachinsupportingtheaccumulationofknowledgeaboutthefinancefunctionanddiscussingalternatives.

1.9.3 Develop the framework further

Wedonotseetheframeworkascastinstoneandwouldliketodevelopitfurther.Suchdevelopmentswillbebasedondiscussingtheframeworkmorewidely,obtainingfeedbackfromthosewhousetheframeworkandsuggestionsforfurtherliteraturetoincorporate.

Inparticular,wehavetriedtotrackdownthemainEnglishlanguagesurveysofCFOsandthefinancefunctionwhichcovertheiractivitiesfromaresponsibility,timeorpriorityperspective.However,wemayhavemissedsome,particularlythosecarriedoutbefore2000.Itwouldalsobeinterestingtoconsidersurveyscarriedoutinotherlanguages.Ifyoucanprovideaccesstosurveysnotcoveredinthisreportpleasedoletusknow.Thedevelopmentofnewsurveysisdiscussedbelow.

1.9.4 commit to further research

Despitethewiderangeofworkcarriedoutwhichhelpsustounderstandtheroleofthefinancefunction,clearlythereisstillmuchmorethatcanbedone.Inthissectionweofferfoursuggestionsofparticularresearchareasthatwebelievewarrantfurtherattention.


12 Overview

1. survey development to analyse trends and compare finance functions

AscanbeseeninthetablessupportingtheactivitiesframeworkinSection2,alargenumberofdifferenttermsareusedtodescribewhatfinancedepartmentsdoinorganisations.Theremaybesomeadvantagesinworkingtowardstheuseofmorestandardisedtermsinfuturesurveys.Thiswouldallowtheidentificationoftrendsovertimeandgreatercomparabilitybetweensurveys.Inadditionacademicworkwhichfactoranalysesfinanceactivitieswouldalsobeuseful.

CurrentlyclaimsforchangesintheroleoftheCFOandthefinancedepartmentarebasedonone-offsurveysandsubjectiveviewsaboutthefuture.Interestinglythenotableexceptiontellsadifferentstory.AspreviouslymentionedtheseriesofIBMCFOSurveysbetween2003and2010indicatethattheproportionoftimespentbyfinancedepartmentsondecisionsupportisalmostunchangedovertheperiodandremainsalongwayshortofCFOaspirations.Somestandardisationoffinanceactivitycategorieswouldenablemorerigorousanalysisoftrendsovertime.

OurknowledgeofhowCFOrolesandfinancedepartmentsvaryinrelationtodriverssuchassize,nationalityandindustrysectorwouldalsobeenhancedifsurveysusedsimilarterminology.Fromthisbasismoredetailedassessmentsoftherelationshipbetweenthenatureoffinancedepartments,thecontextstheyoperateinandorganisationalperformancecouldbederived.

Therewillalwaysbedebatesabouthowbesttodisaggregatetheactivitiesofthefinancefunction.However,theuseofthe‘bigfive’modelofpersonalityisalsocontentiousbuthasprovedusefulinadvancingknowledgeinthefieldofpsychology.Acollaborativeeffortofthosecarryingoutsurveysinordertodevelopsomeguidelinesandcategoriesofactivitiesmaybesimilarlyhelpfulinunderstandingfinancefunctions.

2. studying finance departments as a whole

Agreatdealofacademicworkhasbeencarriedoutontheroleofindividualmanagementaccountants,performancemanagementsystemsandparticularfinancialmanagementtechniques.Casestudieslookingacrossorganisationsarealsoplentiful.However,studiesatthefinancedepartmentlevelofanalysisappeartobelimited.

Thetensionsandchallengeswehaveidentifiedsuggestthattherewouldbevalueinlookingmoredeeplyathowdifferentpartsoffinancefunctionsinteract.ForexamplehowdoteamsresponsibleforManagementandControlactivitiesworkwiththoseresponsibleforComplianceandInvestorRelations?Whatissuesariseandhowaretheydealtwith?

ItisalsoworthnotingthatacademicworkstudyingCFOsisquitelimited,perhapsasaresultofdifficultiesinobtainingaccesstothem.

Commercialbenchmarkingfirmshavecarriedoutsignificantworkonthecostsofcarryingoutfinanceactivitiesandthetimelinessofreportproduction.Itwouldbeusefultoextendthistomeasuringtherelativeinfluenceoffinancefunctions.Possiblemeasuresincludelookingatfinancedepartmentrepresentationonkeycommittees,discretionaryexpenditurelimitsoffinancestaffandthedegreeofdecisionmakingauthoritywithrespecttoinvestmentdecisions.

Wealsothinktheframeworkcouldbeusedtobothprofilefinancedepartmentsinordertocomparethemandtoanalysefinancedepartmentsfromdifferentperspectives.Forexamplethosewithaninterestinpromotingsustainabilitycouldconsiderhowthefinanceactivitiesandtheirinterrelationshipswouldneedtochangetosupportthisagenda.Theimpactofsuchchangesontheinherenttensionsintheframeworkcouldalsobeanalysed.

3. studying finance department relationships with other departments

AsdiscussedinrelationtotheorganisationalStructuredriver,howfinancedepartmentsworkwiththerestoftheorganisationisanimportantareaofstudyifwewanttounderstandhowtheyimpactonorganisationalperformance.Thedesignoffinancedepartmentsandallocatingtheirresponsibilitiescannotbeundertakeninisolationfromanunderstandingoftheirrelationshipswithotherdepartments.

Itisimportanttonotethattheinteractionsbetweenfinancedepartmentsandoperationaldepartmentsarenotbasedpurelyontheuseofmanagementaccountinginformation.Rathertherearemultiple,interrelatedinteractionswhichincludediscussionsspanningmanagementinformation,financialcontrols,tax,statutoryaccounting,investorrelationsandsoon.Thisviewisreinforcedbythetensionsandchallengesidentifiedwhichsuggestthatdecisionmakingwillbeinfluencedbyabroadrangeoffinancialconsiderations.Inaddition,whilewehaveidentifiedafewstudieswhichlookatthelevelsofcollaborationandconflictbetweenfinanceandotherdepartmentsinorganisationsthereisscopeformorework.


13Overview

4. the development of more interdisciplinary work

Thebenefitsofinterdisciplinaryworkhavebeenhighlightedbyanumberofscholarseg,Merchant,VanderStedeandZheng5.Theseincludethecrossfertilisationofideasandtheoriesfromonefieldtoanotherandtheinsightsgeneratedthroughcollaboration.Forexample,giventhecomplexinterrelationshipsshownintheframeworkitwouldseemhelpfultoexaminetheroleofthefinancefunctionusingcomplexitytheory.

Thebenefitsextendbeyondacademicworktothatcarriedoutbyprofessionalfirmsandbodies.Alargeamountofthisworkisfinancestafftalkingaboutfinancestaff.However,muchcanbelearnedfromanalysinghowstaffinotherdepartmentsworkwiththefinancedepartmentandtheirperceptionsofthefinancedepartment.

Thebarrierstocarryingoutworkacrossdisciplinesaresignificantandthecostbenefittrade-offsarenotclearcut.However,webelievethatsignificantprogresscouldbemadeinbetteradvisingorganisationsifthereweregreatercrossdisciplinarycollaboration.Forinstanceunderstandingtherelationshipsbetweenthemarketingdepartmentandthefinancedepartmentwouldbenefitfromcollaborationbetweentherelevantmarketingandaccountingexpertsincommercialentities,universities,professionalbodiesandconsultingfirms.

1.10 BenefitsWebelievethatdiscussingandutilisingtheframeworkandcarryingouttheresearchhighlightedabovewillgreatlyenhanceourunderstandingofthefinancefunctionandthereforesupportfinancefunctioneffectiveness.Byacknowledgingthatfinanceactivitiescanbeconductedsuccessfullyoutsideofthefinancedepartmentwerecognisetheneedtofocusonorganisationalperformance,howeverthatisdefined,ratherthansimplypromotingtheinterestsofthefinancedepartment.Neverthelesswebelievetheframeworkcanbeusedtoanalysefinancefunctionsconstructively.ThisanalysiswillprovideCFOsandotherseniormanagerswithabasisfordevelopingthecapabilityofthefinancedepartmentandpositioningittosupportorganisationalsuccess.

5 Merchant,K.A.,VanderStede,W.A.,andZheng,L.,‘Disciplinaryconstraintsontheadvancementofknowledge:thecaseoforganizationalincentivesystems’,Accounting, Organizations and Society,vol28,no2-3(2003),pp251-286.


14


2 – 6. the finance function: a guiDesections 2 to 6 provide more detail on each element of the framework and can be navigated by using the references on figure 1.

• section 2 – describes the content of each finance activity and provides supporting tables which analyse the surveys used to inform their development.

• section 3 – describes the interactions between finance activities in greater depth (the red and black arrows).

• section 4 – provides a more comprehensive discussion of the inherent tensions and challenges summarised in subsection 1.5.6.

• section 5 – analyses the role of the finance department by pulling together the results of the various surveys used in this report.

• section 6 – discusses the drivers shown on the outer circle of the framework which shape how finance activities are implemented. these findings are supported by over 250 reports and papers which are summarised in appendix 1.


Inthissectionweprovideamoredetaileddescriptionofeachfinanceactivityanditssubcategories.Wealsoprovideatableforeachactivityshowingthesupportingevidencefromthesurveysusedtoinformtheactivitycategories.SurveyrespondentsweregenerallyCFOsandfinanceprofessionals.ThereferencesbelowcorrespondtothoseonFigure1–thefirstreferenceineachredfinanceactivitiesbox.

2.1 accountingThepurposeofAccountingistorecordthefinancialconsequencesoforganisationalactivities.Thiscoversanyactivityundertakenbyoronbehalfofanorganisationthatresultsinafinancialobligationorbenefit.ThesupportingevidenceisshowninTable2.1,fromwhichthreeelementsofAccountingareidentified:

2.1.1 transaction processing

Transactionprocessinginvolvestherecordingandsettlementoffinancialtransactionsarisingfromorganisationalactivities.Cashobligations,paymentsandreceiptsarecodedandrecorded,usuallythroughadouble-entrybookkeepingsystemincludingstandardledgersofdebtors,creditors,cashbookandgeneral.

2.1.2 accounting and reporting

Theaggregationsoffinancialtransactionsingeneralledgerstogetherwithanyrequiredaccountingadjustmentsenabletheproductionoftrialbalancesbasedonchartsofaccounts.Thetrialbalancesinturnenabletheproductionofbasicaccountsintheformofprofitandlossstatementsandbalancesheets.

Thedouble-entrysystemprovidesacentralunifyingprocessandglobalstandardforaccounting.

2.1.3 financial control

Financialcontrolsarerequiredtoensuretheprotectionofassetsandtoensurethatallfinancialtransactionsareaccuratelyrecordedandreported.Activitiesincludeinteraliasettinginternalcontrolpolicies,reconcilingexternalstatementsandmonitoringpaymentofinvoices.

2. the nature anD content of finance activities

16 Thenatureandcontentoffinanceactivities


17Thenatureandcontentoffinanceactivities

table 2.1: accounting

Author Date Measure Aboutwhatactivity Measure Aboutwhom

Result

accounting

Transactionprocessing

Mckinsey 2009 R Accountspayable Withinscopeof Fin.Dept. 79%

Mckinsey 2009 R Accountsreceivable Withinscopeof Fin.Dept. 75%

Mckinsey 2009 R Payroll Withinscopeof Fin.Dept. 56%

Accenture 2008 I Transactionprocessing Criticalperformancefactorfor Fin.Dept. 24%

Ernst&Young 2008 I Administeringaccountspayable/receivable

Mostimportantfor CFO 17%

Weston 1954 T Creditsandcollection %timeallocationfor Fin.Dept. 7%

Weston 1954 T Supervisecashiers %timeallocationfor Fin.Dept. 3%

IBM 2003 T Transactionalactivities %Financeworkloaddistribution Fin.Dept. 50%

IBM 2010 T Transactionalactivities %Financeworkloaddistribution Fin.Dept. 49%

Accountingandreporting

IBM 2005 R Accounting Functionreportsto CFO 93%

EIU 2006 R Collectingandreportingfinancialinformation

Leadershipresidesin Fin.Dept. 89%

CFOResearch 2007 R Financialinformation Responsibilityof CFO 91%

IBM 2008 R Accounting Functionreportsto CFO 93%

Mckinsey 2009 R Generalaccounting Withinscopeof Fin.Dept. 84%

Ernst&Young 2008 I Generalaccounting Mostimportantfor CFO 20%

ICAEW 2010 I Accounting,bookkeeping,transactions

Greatestskill/roleneededby

Fin.Dept. 32%

ICAEW 2010 I Financialreporting Greatestskill/roleneededby

Fin.Dept. 35%

Weston 1954 T Accounting %timeallocationfor Fin.Dept. 13%

ICAEW 1993 T Internalfinancialreportingandcontrol

%timeallocationfor CFO 36%

CIMA 2010 T Provisionofaccountingadvice %timeallocationfor Fin.Exs. 4%

CIMA 2010 T Accountinginamultinationalcontext

%timeallocationfor Fin.Exs. 3%

CIMA 2010(a)

T Accountingoperations %timeallocationfor Fin.Exs. 20%

Financialcontrol

IBM 2005 R Controls Functionreportsto CFO 65%

IBM 2008 R Controls Functionreportsto CFO 68%

Mckinsey 2009 R Travelandexpenseprocessing Withinscopeof Fin.Dept. 65%

Ernst&Young 2006 I Internalfinancialcontrols Intopsixforincreasedfocus CFO 67%

Accenture 2008 I Internalcontrols Criticalperformancefactorfor Fin.Dept. 38%

Ernst&Young 2008 I Travelandexpensesmanagement


ICAEW 2010 I Internalfinancialcontrols Greatestskill/roleneededby Fin.Dept. 16%

IBM 2003 T Controlactivities %Financeworkloaddistribution Fin.Dept. 26%

IBM 2010 T Controlactivities %Financeworkloaddistribution Fin.Dept. 25%

key:MeasureR=Responsibility,I=Importance,T=Time;Respondent:Fin.Exs.=FinancialExecutives,Fin.Dept.=FinanceDepartment



2.2 complianceThepurposeofComplianceistomeettherequirementsofgovernmentalandotherregulatorybodies.Theevidencehasbeenclassifiedtodistinguishtwoelements–regulatoryandtax–withthedetailsshowninTable2.2.

2.2.1 regulatory

Regulatorycompliancecoverstherangeofactivitiesnecessarytoproduce,communicateandverifyfinancialinformationtomeetlegalandregulatoryrequirements(excludingtaxwhichiscoveredseparatelybelow).Thiswouldincludethecompletionofstatutoryaccounts.Alsoincludedareactivitieswhichdemonstratetoexternalpartiesthatgovernanceandcontrolproceduresmeetexternallysetstandardseg,fromtheUKCorporateGovernanceCodeandSarbanes-Oxley.

2.2.2 tax

Taxrelatestobothcomplyingwiththetaxrequirementsoftherelevantnationalauthorityandtaxplanning.Thesurveysdonotgenerallyidentifythesetwoaspectsoftaxseparatelyinwhichcasetheyareincludedhere.WheretaxmanagementisshownseparatelywehaveincludeditasasubcategoryofManagementandControl.

Taxreportingandcomplianceinvolvestheanalysisandaggregationoffinancialtransactionsinordertocomputetaxliabilities.Negotiationwithtaxauthoritiesmayalsoberequired.



table 2.2: compliance


Result

comPliance

Regulatory

FEICanada 2005 R Governmentliaison Directlyaccountableto CFO 24%

IBM 2005 R Compliance Functionreportsto CFO 53%

IBM 2008 R Compliance Functionreportsto CFO 50%

Deloitte 2000 I Corporategovernance Ranked:1=veryimportantto5=notimportant

CFO 1.94

CFOResearch 2002 I Externalfinancialreportingtransparency

High/highestpriorityfor Fin.Dept. 58%

IBM 2003 I Managinggovernance/controls/risk

Intopfiveareasoffocusfor CFO 54%

IBM 2005 I Financecomplianceprograms/internalcontrols

Topimportancefor Fin.Exs. 59%

IBM 2005 I Meetingfiduciaryandstatutoryrequirements


Ernst&Young 2006 I Regulatorycompliance Intopsixforincreasedfocus CFO 60%

Accenture 2008 I Financialandregulatoryreporting

Criticalperformancefactorfor Fin.Dept. 30%

Ernst&Young 2008 I Regulatoryandexternalreporting


ICAEW 2010 I Corporategovernance,compliance

Greatestskill/roleneededby Fin.Dept. 8%

DeutscheBank 2006 T Externalfinancialreporting/accounting


DeutscheBank 2006 T Regulatorycompliance %timeallocationfor CFO 4%

DeutscheBank 2006 T Accountingpolicies %timeallocationfor CFO 3%

CIMA 2010 T Preparationofstatutory/regulatoryreports


CIMA 2010 T Analysisandapplicationofaccountingstandards


CIMA 2010 T Corporategovernance,compliance


CIMA 2010 T Ethicalissues %timeallocationfor Fin.Exs. 2%

CIMA 2010 T Sarbanes-Oxleyissues %timeallocationfor Fin.Exs. 2%

CIMA 2010(a)

T Externalreporting %timeallocationfor Fin.Exs. 12%

Tax

ICAEW 1993 R Taxation Responsibilityof Fin.Dept. 87%

IBM 2005 R Tax Functionreportsto CFO 70%

IBM 2008 R Tax Functionreportsto CFO 72%

Mckinsey 2009 R Tax Withinscopeof Fin.Dept. 77%

ICAEW 1993 I Taxation Highimportancefor Fin.Dept. 39%

Deloitte 2000 I Taxation Ranked:1=veryimportantto5=notimportant

CFO 2.05

Accenture 2008 I Taxmanagementandoperations Criticalperformancefactorfor Fin.Dept. 20%

ICAEW 2010 I Tax Greatestskill/roleneededby Fin.Dept. 8%




2.3 management and control ThepurposeofManagementandControlactivitiesistoproduceandusefinancialandsupportinformationtoinform,monitorandinstigateoperationalactionstomeetorganisationalobjectives.Theseactivitieswillalsoplayapartindefiningandrefiningthoseobjectives.

AwiderangeofoverlappingtermsareusedinrelationtoManagementandControlactivitiesasdemonstratedbystudyfindingsshowninTable2.3.Thismakesitdifficulttoanalysetheactivitiesinvolved.However,inordertoorganisethefindingsthefollowingtypologyisused:

• Processestoproduceandanalysetheinformationformanagementandcontrolpurposes;

• Applicationsoftheinformationproduced;

• Internalauditing;and

• Managementaccounting–asacatch-allterm.

Eachoftheseclassificationsisdiscussedfurtherbelow.

2.3.1 Processes

‘Processes’coveredhereincludethedevelopment,productionandanalysisoftheinformationusedformanagementandcontrolpurposes.Somesurveysdistinguishbetweenfinancialandnon-financialinformation.

financial information–themaintermsusedinthesurveyswereplanning,forecasting,budgeting,targetsetting,analysisandreporting.Clearlytheseprocessesoverlapandinteracttoagreatextentandarealsoiterative.Forexamplethereportingandanalysisofactualdataagainstforward-lookinginformationprovidethebasisforactionandthenextcycleofforwardplanning.Theircontentandscopedependonorganisationallydefinedaggregationsandanalysisoffinancialdataandtransactions,coveringboththepastandthefuture.Financialinformationmayalsobedrawnfromexternalsourcesforexampleusingtheaccountsofotherorganisationswhencarryingoutcompetitoranalysis.Supportinginformationprovidesalinkbetweenthefinancialinformationandunderlyingorganisationalactivities.

non-financial informationrelatestoinformationsuchascarbonemissions,customerfeedbackandelementsofthebalancedbusinessscorecard.Asitisnotfinancialinformationitdoesnotstrictlyfitintotheframeworkofactivities.However,somestudiesincludetheterminlookingatfinancedepartmentactivitiesanditislikelythatnon-financialinformationisbeingcombinedwithfinancialinformation.

2.3.2 applications

‘Applications’relatetohowinformationisusedforManagementandControl.Thecontextwilldeterminehowtheinformationisaggregatedandanalysed(eg,profit-basedorcashflow-based).Thefollowingfourprincipalapplicationswereidentified:

• Generalmanagementandcontrolofoperationalactivities,generallywithanimplicitfocusonprofitabilityorvalueformoneygoals.Thenatureoffinancedepartmentinvolvementcanvarysignificantly,asevidencedbythewiderangeoftermsshownbyTable2.3.

• Cashmanagementandtreasuryhastwoaspects.First,asakeyperformancedimension,forexample,throughcompanyvaluationsbasedonthenetpresentvalueofprojectedfuturecashflow.Second,asanassetclasstobemanagedthroughtreasuryactivities.Thesecanincluderaisingfinance,leasing,workingcapitalmanagement,interestrateandcurrencyriskmanagement.Clearlytherewillbesomeoverlapwithfundingactivitiessee2.5below.

• Investmentappraisalseekstoassessthemeritsofinvestmentoptions,potentiallyusingbothcashapproaches(eg,netpresentvalueandinternalrateofreturn)andprofit-basedappraisals(eg,returnoninvestment).

• Taxmanagementinvolvestheconsiderationofarangeoffactorssuchasdecisionsontransferpricing,legalentitystructures,operatinglocationsandfinancingstructures.Generallythefocuswillbeonminimisingtaxliabilities,althoughreputationalissuesmaycomeintoplay,eg,withaggressivetaxavoidanceschemes.AspreviouslymentionedsurveyswhichdonotdistinguishbetweentaxcomplianceandtaxmanagementarediscussedaboveasasubcategoryofCompliance(2.2.2).



2.3.3 internal auditing

Internalauditingmayinvolvearangeofactivitiesbutakeyelementwillbeensuringthatcontrolsoperateasdesigned.Clearlyallfinanceandorganisationalactivitiesmaybesubjecttointernalaudit.

2.3.4 management accounting

Managementaccountingisacatch-allterm,particularlywhenusedbyacademicsandprofessionalbodies,whichmayextendbeyondManagementandControlandisthereforehighlightedseparately.

table 2.3: management and control


Result

management anD control

Process–financialinformation

FEICanada 2005 R Forecastingandprojections Directlyaccountableto CFO 87%

IBM 2005 R Business/financialanalysis Functionreportsto CFO 84%

IBM 2008 R Business/financialanalysis Functionreportsto CFO 81%

Mckinsey 2009 R Financialplanningandanalysis Withinscopeof Fin.Dept. 86%

CFOResearch 2002 I Accuracyofearningsandrevenueforecasts


CFOResearch 2002 I Profitabilitymeasurement High/highestpriorityfor Fin.Dept. 56%

IBM 2003 I Measuring/monitoringbusinessperformance


IBM 2005 I Measuring/monitoringbusinessperformance


Ernst&Young 2006 I Financialanalysisandreporting Intopsixforincreasedfocus CFO 58%

Accenture 2008 I Budgetandforecasting Criticalperformancefactorfor Fin.Dept. 45%

Accenture 2008 I Targetsetting Criticalperformancefactorfor Fin.Dept. 29%

Ernst&Young 2008 I Businessmanagementreporting Mostimportantfor CFO 51%

Ernst&Young 2008 I Annualbudgetingandoutlookforecasting


ICAEW 2010 I Planning,forecasting,budgeting Greatestskill/roleneededby Fin.Dept. 28%

DeutscheBank 2006 T Financialplanningandanalysis %timeallocationfor CFO 9%

DeutscheBank 2006 T Managementreporting/accounting %timeallocationfor CFO 9%

CIMA 2010 T Communicationoffinancialinformation


CIMA 2010 T Prepare/interpretmanagementaccountinginformation


Process–non-financialinformation

EIU 2006 R Collectandreportnon-financialinformation


CFOResearch 2007 R Non-financialinformation Responsibilityof CFO 27%

ICAEW 2010 I Non-financialmeasuresreporting Greatestskill/roleneededby Fin.Dept. 7%

CIMA 2010 T Socialaccountingissues %timeallocationfor Fin.Exs. 1%

CIMA 2010 T Green(environmental)issues %timeallocationfor Fin.Exs. 1%

Application–generalmanagementandcontrol

IBM 2005 R Businesssupport/performancemanagement

Functionreportsto CFO 54%

EIU 2006 R Controllingcosts Leadershipresidesin Fin.Dept. 69%

EIU 2006 R Advisingbusinessunitsonoperatingdecisions


IBM 2008 R Businesssupport/performancemanagement




table 2.3: management and control continued


Result

management anD control

Application–generalmanagementandcontrol

CFOResearch 2002 I Operationaldecisionsupport High/highestpriorityfor Fin.Dept. 60%

CFOResearch 2002 I Flexiblecoststructure High/highestpriorityfor Fin.Dept. 34%

IBM 2003 I Drivingcostreduction/continuousimprovement


IBM 2005 I Continuousprocess/businessimprovement


IBM 2005 I Drivingcostreduction Topimportancefor Fin.Exs 55%

IBM 2005 I Aligningfinancewithbusiness Topimportancefor Fin.Exs. 55%

Accenture 2008 I Performancemanagementandreporting


ICAEW 2010 I Decisionsupport,performancemanagement


BIC 1992 T AssistingCEOandotherexecutives


BIC 1992 T Adhocadvice %timeallocationfor CFO 13%

IBM 2003 T Decisionsupport %Financeworkloaddistribution Fin.Dept. 24%

Accenture 2008 T Managingperformanceofoverallenterprise

%timeallocationof CFO 18%

IBM 2010 T Decisionsupport %Financeworkloaddistribution Fin.Dept. 26%

CIMA 2010 T Provisionofbusinessadvice %timeallocationfor Fin.Exs. 5%

CIMA 2010 T Businesspartnering %timeallocationfor Fin.Exs. 3%

CIMA 2010(a)

T Managementsupport %timeallocationfor Fin.Exs. 18%

Application–cashmanagementandtreasury

ICAEW 1993 R Treasury Responsibilityof Fin.Dept. 83%

IBM 2005 R Treasury Functionreportsto CFO 74%

EIU 2006 R Advisingontreasury Leadershipresidesin Fin.Dept. 70%

IBM 2008 R Treasury Functionreportsto CFO 72%

Mckinsey 2009 R Treasury Withinscopeof Fin.Dept. 81%

Mckinsey 2009 R Creditdecisions Withinscopeof Fin.Dept. 60%

ICAEW 1993 I Treasury Highimportancefor Fin.Dept. 50%

Deloitte 2000 I Treasurymanagement Ranked:1=veryimportantto5=notimportant

CFO 1.95

IBM 2003 I ManagingbalanceSheet Intopfiveareasoffocusfor CFO 39%

Ernst&Young 2008 I Treasurymanagement Mostimportantfor CFO 34%

Accenture 2008 I Treasurymanagementandoperations


ICAEW 2010 I Treasury,financingcashmanagement


Weston 1954 T Preparationofcashbudgets %timeallocationfor Fin.Dept. 5%

DeutscheBank 2006 T Cashmanagement %timeallocationfor CFO 6%

DeutscheBank 2006 T Workingcapitalmanagement %timeallocationfor CFO 6%

CIMA 2010 T Treasury/financialriskmanagement





Result

Application–investmentappraisal

CFOResearch 2002 I Managementoffixedassetinvestments


Ernst&Young 2008 I Fixedassetsmanagement Mostimportantfor CFO 19%

Ernst&Young 2008 I Marketinginvestmentappraisal Mostimportantfor CFO 13%

Weston 1954 T Adviseonexpendituresforcapitalassets

%timeallocationfor Fin.Dept. 7%

DeutscheBank 2006 T Makinginvestmentdecisions %timeallocationfor CFO 7%

CIMA 2010 T Capitalinvestmentappraisal %timeallocationfor Fin.Exs. 3%

Application–taxmanagement

EIU 2006 R Advisingontax Leadershipresidesin Fin.Dept. 70%

DeutscheBank 2006 T Taxmanagement %timeallocationfor CFO 4%

CIMA 2010 T Taxplanning/compliance %timeallocationfor Fin.Exs. 3%

Internalauditing

ICAEW 1993 R Internalaudit Responsibilityof Fin.Dept. 60%

IBM 2005 R Internalaudit Functionreportsto CFO 48%

IBM 2008 R Internalaudit Functionreportsto CFO 38%

Mckinsey 2009 R Internalaudit Withinscopeof Fin.Dept. 49%

ICAEW 1993 I Internalaudit Highimportancefor Fin.Dept. 16%

Deloitte 2000 I Internalaudit Ranked:1=veryimportantto5=notimportant

CFO 2.77

DeutscheBank 2006 T Internalaudit %timeallocationfor CFO 3%

CIMA 2010 T Internalaudit %timeallocationfor Fin.Exs. 3%

Managementaccounting

ICAEW 1993 R Managementaccounting Responsibilityof Fin.Dept. 97%

ICAEW 1993 I Managementaccounting Highimportancefor Fin.Dept. 81%

Deloitte 2000 I Managementaccounting Ranked:1=veryimportantto5=notimportant

CFO 2.16

CIMA 2010(a)

T Managementaccounting %timeallocationfor Fin.Exs. 22%




2.4 strategy and riskThepurposeofStrategyandRiskactivitiesistoinformandinfluencefromafinancialperspectivethedevelopmentandimplementationofstrategy,andtomanagerisk.DetailedresultsoftherelevantactivitystudiesareshowninTable2.4.Whilemergersandacquisitionsareshownseparatelyinthetable,theyaretreatedasanaspectofstrategy.

2.4.1 strategy

Financeisfirmlyimplicatedinthestrategyprocessforthreemainreasons:

• Financialresources:theeffectiveimplementationofstrategiesrequiressufficientfinancialresources.

• Successmeasure:forcommercialentitiesinparticularakeymeasureoforganisationalsuccessisfinancialperformance.

• Cross-organisationalvisibility:financialinformationprovidesauniformmeasureofperformanceacrosstheorganisationandisakeymeansofmakingorganisationalactivitiesvisibleandthusunderstandingthebusiness.

However,thewiderangeoftermsusedtodescribestrategicactivitiessuggestssignificantvariationinhowfinanceactivitiesareimplicatedinthestrategyprocess.AgainseeTable2.4.

2.4.2 risk management

Definitionsofriskmanagementvarywidelyandareoftenambiguous,althoughforthispaperthereisthelinkingthemeoffinance.Oneapproachistofocussolelyondownsiderisksandtheharmorlossesthatmayarisefromorganisationalactionorinaction.Examplesmightincludetheriskthatcostreductionprogrammesleadtohealthandsafetyshortcomings.Analternativeapproachinvolveslookingattherelationshipbetweenriskandupsidepotential.Forexamplediversifyingintoanewbusinessmaybehighriskbuthavethepotentialforgreaterreturnsthandevelopingexistingbusinesses.Forthisreasonwehaveincludedriskmanagementalongsidestrategy.

Therangeofactivitiesispotentiallyverybroadincludinginteraliathesettingofhigh-levelriskpolicies,theidentificationofrisksacrosstheorganisationandthemonitoringofactionplansdesignedtomanagesuchrisks.

2.4.3 mergers and acquisitions

Aspecificelementofthestrategyprocessismergers,acquisitionsanddivestments.Financialconsiderationsarecentralhereincludingfinancialduediligenceandthenegotiationofprice.



table 2.4: strategy and risk management


Result

strategy anD risk management

Strategy

ICAEW 1993 R Strategicplanning Responsibilityof Fin.Dept. 71%

FEICanada 2005 R Boardand/orcommitteesupport Directlyaccountableto CFO 54%

FEICanada 2005 R Strategicandbusinessplanning Directlyaccountableto CFO 39%

FEICanada 2005 R Writingall/partofstrategicplan Directlyaccountableto CFO 30%

IBM 2005 R Strategicplanning/businessdevelopment


EIU 2006 R Developinglong-termbusinessstrategy


IBM 2008 R Strategicplanning/businessdevelopment


Mckinsey 2009 R Strategicplanning Withinscopeof Fin.Dept. 51%

Mckinsey 2009 R Businessdevelopment Withinscopeof Fin.Dept. 23%

ICAEW 1993 I Strategicplanning Highimportancefor Fin.Dept. 46%

Deloitte 2000 I Strategicplanning Ranked:1=veryimportantto5=notimportant

CFO 1.47

CFOResearch 2002 I Formulationofcorporatestrategy High/highestpriorityfor Fin.Dept. 60%

CFOResearch 2002 I Modellingthedriversofshareholdervalue


IBM 2003 I SupportingCEOincreatingshareholdervalue


IBM 2005 I Partneringtoidentify/executegrowthstrategies


IBM 2005 I Supportingenterprisetransformationactivities


Ernst&Young 2006 I Corporatestrategydevelopment Intopsixforincreasedfocus CFO 52%

Accenture 2008 I Value-centredcultureorientation Criticalperformancefactorfor Fin.Dept. 31%

Accenture 2008 I Strategydevelopment Criticalperformancefactorfor Fin.Dept. 27%

Ernst&Young 2008 I Strategicpartnertotheboard Mostimportantfor CFO 65%

ICAEW 2010 I Strategyformulation Greatestskill/roleneededby Fin.Dept. 5%

Weston 1954 T Participateinlong-rangefirmplanning


Weston 1954 T Advisetheboardofdirectors %timeallocationfor Fin.Dept. 6%

Weston 1954 T Preparationoflong-termbudgets %timeallocationfor Fin.Dept. 5%

BIC 1992 T Assistingstrategicdevelopment %timeallocationfor CFO 20%

ICAEW 1993 T Participatinginstrategyformulation


Accenture 2008 T Planninganddevelopingenterprisestrategy


CIMA 2010 T Strategicfinancialplanning %timeallocationfor Fin.Exs. 4%

CIMA 2010 T Strategicmanagementaccounting


CIMA 2010 T Business/thoughtleadership %timeallocationfor Fin.Exs. 3%

CIMA 2010 T Valuebasedmanagement %timeallocationfor Fin.Exs. 2%

CIMA 2010 T Strategicnetworksandalliances %timeallocationfor Fin.Exs. 2%




Result

Riskmanagement

IBM 2005 R Riskmanagement Functionreportsto CFO 53%

EIU 2006 R Managingrisk Leadershipresidesin Fin.Dept. 49%

IBM 2008 R Riskmanagement Functionreportsto CFO 48%

Mckinsey 2009 R Financialriskmanagement Withinscopeof Fin.Dept. 75%

Mckinsey 2009 R Operationalriskmanagement Withinscopeof Fin.Dept. 46%

CFOResearch 2002 I Riskmanagement High/highestpriorityfor Fin.Dept. 51%

IBM 2005 I Supporting/managingenterpriserisk


Ernst&Young 2006 I Riskmanagement Intop6forincreasedfocus CFO 65%

Accenture 2008 I Financialriskmanagement Criticalperformancefactorfor Fin.Dept. 30%

Accenture 2008 I Businessriskandoperationalrisk Criticalperformancefactorfor Fin.Dept. 18%

Ernst&Young 2008 I Riskmanagement Mostimportantfor CFO 57%

ICAEW 2010 I Riskmanagement Greatestskill/roleneededby Fin.Dept. 13%

DeutscheBank 2006 T Riskmanagement %timeallocationfor CFO 6%

Accenture 2008 T Overseeingenterpriseriskmanagement


Mergersandacquisitions

ICAEW 1993 R Acquisitions Responsibilityof Fin.Dept. 75%

FEICanada 2005 R Divestiture Directlyaccountableto CFO 78%

FEICanada 2005 R Mergersandacquisitions Directlyaccountableto CFO 33%

ICAEW 1993 I Acquisitions Highimportancefor Fin.Dept. 23%

Deloitte 2000 I Mergersandacquisitions Ranked:1=veryimportantto5=notimportant

CFO 1.68

CFOResearch 2002 I Mergersandacquisitions/alliancemanagement


Ernst&Young 2008 I Acquisitionsanddisposals Mostimportantfor CFO 36%

ICAEW 2010 I Mergersandacquisitions,divestments


Weston 1954 T Contactswithinvestmentbankers


Weston 1954 T Approvetermsforcapitalacquisitions


ICAEW 1993 T Involvementinacquisitionsanddivestments


DeutscheBank 2006 T Merger,acquisition&disposalsdecisions


CIMA 2010 T Mergers/acquisitions/divestments %timeallocationfor Fin.Exs. 1%




Blank



2.5 fundingThepurposeofFundingactivitiesistoinformandengagewithinvestorsandfunders,bothcurrentandpotential,toobtainandmaintainthenecessaryfinancialresourcesfortheorganisation.Engagementincludestheprovisionofinformation,relationshipbuilding,andnegotiation.Theprovisionofinformationenablesinvestorsandfunderstoappraiseorganisationalperformance,actualandprojected,inrelationtotheirfinancialinterestintheorganisation.Thisinformationisinadditiontothatwhichispubliclyavailablethroughregulatorydisclosures.

TheactivitystudiesshowasplitbetweeninvestorrelationsanddebtfinancingasdetailedinTable2.5,whichsummarisestheevidence.Fundersincludethoseprovidingloans,assetfinance,grantsetc.Someinstitutionsmaypossessmixedstakeholdingsand/orholdhybridfinancialinstruments.Thisaddsalayerofcomplexitybutdoesnotimpactthecoreissues.

2.5.1 investor relations

Investorrelationsislargelyconcernedwithequityinvestorsincludingindividuals,fundmanagementinstitutions,hedgefundsandprivateequityorganisations.Theirobjectiveisgenerallytoachieveafinancialreturn.Criterionforguidingtheirinvestmentdecisionsincludethepotentialforgrowthinshareholdervaluerelativetotheriskinessoftheinvestment;thelevelofrunningreturnsachievablethroughdividends,andgainsachievedthroughanexit.Accordingly,theirinterestsaremetbyprovidingguidanceonthefinancialprospectsoftheorganisation,howplanswillbeachievedandtherisksinvolved.Thelevelofinformationequityinvestorscanobtainwillbedeterminedbytheextentandnatureoftheirequityholdingandtheirrelationshipwiththeorganisationandothershareholders.Forexample,amajorityshareholderofaprivatecompanyislikelytohavefullaccesstoallavailableinternalinformation;theinformationaccessofashareholderinaquotedcompanywillbedeterminedbylistingsrequirements.

2.5.2 Debt financing

Thoseprovidingdebtfinancecoveredbythepractitionerstudiesareinbroadtermscommerciallenders(eg,banks).Theirfocusistoensurethattheirloansplusinterestandfeesarerepaid,eitherfromoperatingcashfloworfromtheliquidationofcollateral.Thus,theirrequirementsaremetifanorganisationremainssolvent,generatessufficientcashtomeetrepaymentrequirementsandensuresthatanysecurityprovidedretainsitsvalueandremainsunencumbered.Financeactivitiesincludenegotiatingwithdebtfunderswhoareaimingtoprotecttheirpositionbynegotiatingtermsandlendingcovenantsthatsetminimumperformancecriteria,which,ifmet,areintendedtoensurerepayment.Typically,aflowofinformationwillbeagreed(eg,monthlyaccounts,covenantresults)whichwillallowthefundertoconfirmcomplianceonanongoingbasisandtotakeactiontorecoverfundsintheeventoftheagreedtermsandcriterianotbeingmet.

Othertypesoffunder,notexplicitlycoveredbythepractitionerstudies,includedonorstocharitiesorgrantproviders(eg,developmentagencies).Theirfocusisonensuringthatthefundingprovidedhasbeenspentinaccordancewiththeintendedobjectives;thiswillincludeaninterestinthesolvencyoftheorganisationtoensureitscontinuity.



table 2.5: funding


Result

funDing

Investorrelations

ICAEW 1993 R Investorrelations Responsibilityof Fin.Dept. 50%

FEICanada 2005 R Investorrelations Directlyaccountableto CFO 46%

FEICanada 2005 R Stakeholderrelations Directlyaccountableto CFO 29%

IBM 2005 R Shareholderrelations Functionreportsto CFO 41%

EIU 2006 R Guidinginvestorsonbusinessperformance


IBM 2008 R Shareholderrelations Functionreportsto CFO 36%

ICAEW 1993 I Investorrelations Highimportancefor Fin.Dept. 30%

Deloitte 2000 I Investorrelations Ranked:1=veryimportantto5=notimportant

CFO 1.44

Accenture 2008 I Investorrelations Criticalperformancefactorfor Fin.Dept. 10%

Weston 1954 T Adviseondividendpolicy %timeallocationfor Fin.Dept. 3%

BIC 1992 T Cultivatingexternalrelations %timeallocationfor CFO 11%

ICAEW 1993 T Dealingwithbrokersandanalysts


DeutscheBank 2006 T Investorrelations %timeallocationfor CFO 8%

DeutscheBank 2006 T Dividendandsharebuybackpolicy


DeutscheBank 2006 T Equityissuance %timeallocationfor CFO 1%

Accenture 2008 T Interfacewithboardofdirectors/investorrelations


CIMA 2010 T Corporatefinance %timeallocationfor Fin.Exs. 3%

Debtfinancing

FEICanada 2005 R Finance/capitalstructurechange Directlyaccountableto CFO 80%

Deloitte 2000 I Finance/funding Ranked:1=veryimportantto5=notimportant

CFO 1.34

Accenture 2008 I Capitalmanagement Criticalperformancefactorfor Fin.Dept. 26%

Weston 1954 T Contactswithbanks/shorttermfunders


Weston 1954 T Planningsecurityissues %timeallocationfor Fin.Dept. 2%

DeutscheBank 2006 T Debtissuanceandmanagement %timeallocationfor CFO 5%

DeutscheBank 2006 T Bankrelations %timeallocationfor CFO 8%

DeutscheBank 2006 T Capitalstructure %timeallocationfor CFO 3%




2.6 management and resourcing of activitiesAspartoftheorganisationalactivitiesthefinanceactivitiescoveredintheframeworkhavetobemanaged,organisedandresourced.Thesurveyscoverthreemaincategories:peoplemanagement,financesystemsandoutsourcingandsharedservices.ThedetailedresultsoftheactivitystudiesareshowninTable2.6.

2.6.1 finance systems

Thefinanceactivitiesshownintheframeworkrequirethedevelopment,implementationandmanagementoffinancesystems.Wehaveincludedquiteawiderangeofrelatedsurveyitemsunderthisheadingbuthavetriedtoexcludeitemswhichrelatetomanaginganorganisation’sITfunctionasawhole(SeeTable2.7–Otheractivities).

2.6.2 People management

Themanagementanddevelopmentofthepeoplecarryingoutfinanceactivitieswillgenerallybetheresponsibilityoftherelevantlinemanagers.Thereforethequestionsaskedinsurveysrelatetoimportanceandtimeallocationratherthanresponsibility.

2.6.3 outsourcing and shared services

Outsourcingandsharedservicecentresrepresentaparticularwayofresourcingfinanceactivities.Inthecaseofoutsourcing,responsibilitieswillrelatetomanagingtherelationshipandcontractwiththeprovideroftheoutsourcedservices,whereassharedservicesresponsibilitieswillrelatetomanagingthepeopleandsystemswhichprovidetheservices.

2.7 other activitiesInordertoensurecompletenessitisimportanttoconsiderotheractivitiesthatthesurveysindicatemaybetheresponsibilityoftheCFOorthefinancedepartment.ThesearesummarisedinTable2.7.Whileitcouldbearguedthatsomearebasedinfinancialinformationeg,pensionsandinsurance,othersarequiteseparateeg,humanresourcesandlegal.Theviewtakenhereisthatthereisnocoherentinterlinkingwiththefinanceactivitiesintheframeworkwhicharebasedintheproductionanduseoffinancialinformation.


table 2.6: management and resourcing of activities


Result

management anD resourcing

Financesystems

CFOResearch 2002 I Overcomingbarrierstotransformingfinance


IBM 2005 I Drivingintegrationofinformation


Ernst&Young 2006 I Performancemeasurementsystems

Intopsixforincreasedfocus CFO 49%

ICAEW 2010 I Newfinancialprocesses,technology


CIMA 2010 T Maintenanceoffinancialsystems %timeallocationfor Fin.Exs. 4%

CIMA 2010 T Developmanagementaccountingsystems


CIMA 2010(a)

T Managementinformationsystems


Peoplemanagement

IBM 2005 I Developingyourpeople Topimportancefor Fin.Exs. 55%

Accenture 2008 I Workforcemanagement Criticalperformancefactorfor Fin.Dept. 30%

Accenture 2008 I Financeorganisationstrategyandstructure


ICAEW 2010 I Managementofteam Greatestskill/roleneededby Fin.Dept. 8%

BIC 1992 T Supervisingfinancefunction %timeallocationfor CFO 27%

Accenture 2008 T Managingfinanceandoperations


Accenture 2008 T Addressingworkforceeffectiveness


CIMA 2010 T Managingstaff %timeallocationfor Fin.Exs. 6%

CIMA 2010 T Managementofprojects %timeallocationfor Fin.Exs. 5%

Outsourcingandsharedservices

IBM 2005 R Sharedservices–financeandaccounting


IBM 2005 R Outsourcing–financeandaccounting


IBM 2008 R Sharedservices–financeandaccounting


IBM 2008 R Outsourcing–financeandaccounting






table 2.7: other activities


Result

other activities

OrganisationwideIT

ICAEW 1993 R IT Responsibilityof Fin.Dept. 68%

IBM 2005 R IT Functionreportsto CFO 33%

IBM 2008 R IT Functionreportsto CFO 27%

ICAEW 1993 I IT Highimportancefor Fin.Dept. 40%

Deloitte 2000 I IT Ranked:1=veryimportantto5=notimportant

CFO 1.98

CIMA 2010 T E-businesstechnologies %timeallocationfor Fin.Exs. 2%

CIMA 2010 T Implementation/managementofITsystems


Legal

ICAEW 1993 R Legalaffairs Responsibilityof Fin.Dept. 58%

FEICanada 2005 R Primarycontactwithexternallegalcouncil

Directlyaccountableto CFO 33%

FEICanada 2005 R Inhouselegalcouncil Directlyaccountableto CFO 23%

ICAEW 1993 I Legalaffairs Highimportancefor Fin.Dept. 15%

Deloitte 2000 I Legal/regulatorymatters Ranked:1=veryimportantto5=notimportant

CFO 2.71

HR

IBM 2005 R Humanresources/administration Functionreportsto CFO 11%

IBM 2008 R Humanresources/administration Functionreportsto CFO 10%

Deloitte 2000 I Personnelmatters Ranked:1=veryimportantto5=notimportant

CFO 3.02

Pensions

ICAEW 1993 R Pensions Responsibilityof Fin.Dept. 65%

ICAEW 1993 I Pensions Highimportancefor Fin.Dept. 19%

DeutscheBank 2006 T Pensionsmanagement %timeallocationfor CFO 2%

Property

ICAEW 1993 R Propertymanagement Responsibilityof Fin.Dept. 47%

ICAEW 1993 I Propertymanagement Highimportancefor Fin.Dept. 6%

Insurance

ICAEW 1993 R Insurance Responsibilityof Fin.Dept. 71%

ICAEW 1993 I Insurance Highimportancefor Fin.Dept. 12%

Other

IBM 2005 R Procurement Functionreportsto CFO 29%

IBM 2005 R Alliancemanagement Functionreportsto CFO 10%

IBM 2005 R Other Functionreportsto CFO 10%

IBM 2008 R Procurement Functionreportsto CFO 24%

IBM 2008 R Alliancemanagement Functionreportsto CFO 10%

Deloitte 2000 I Overseasoperations Ranked:1=veryimportantto5=notimportant

CFO 2.80

Deloitte 2000 I Administration Ranked:1=veryimportantto5=notimportant

CFO 2.97

ICAEW 2010 I Othermanagementroles Greatestskill/roleneededby Fin.Dept 8%

ICAEW 1993 T Other %timeallocationfor CFO 32%



Inthissectionwedescribethemain,directinteractionsbetweenfinanceactivities.EachreferencebelowmatchestheinteractionreferencenexttothearrowsonFigure1.

Aspreviouslydiscussedtheinteractionsconsistoftwotypes:

• inform: Theflowofinformation–bothfinancialandsupportinformation–fromoneactivityforusebyanother(blackarrowsonFigure1).

• influence and direct: Theuseoftheinformationbyoneactivitytoinfluenceanddirectwhichactivitiesarecarriedoutandhowtheyareimplemented(redarrowsonFigure1).

Wheretheseinteractionsfailtotakeplaceeffectively,organisationsarelikelytofaceanumberofissues.Thesearediscussedforeachactivityastensionsandchallenges.

Itshouldbenotedthatotherinteractionsbetweenactivitiesmayoccur–thereisnologicthatexcludesthemtakingplace.However,itisusefultoeliminatethoseinteractionswhichcurrentlydonotseemtobeprevalent.

3.1 organisational activities with accountingorganisational activities inform accounting: OrganisationalactivitiestriggerfinancialtransactionsandobligationswhichareprocessedbyAccounting.Thesefinancialtransactionscanbecommunicatedinnumerousways,withvaryingdegreesofformality–frompaper-basedpurchaseorderstooralrequestsforaccruals.Itshouldbenotedthatsomefinancialtransactionsaregeneratedbyfinanceactivitiesthemselves,suchasfundingtransactions.

accounting informs organisational activitiesthroughtheprovisionofbasictransactionalinformationsuchasunpaidinvoicesthatrequirelinemanagementattention.

organisational activities influence and direct accountingforexamplethroughinputtodecisionsonpaymenttermsanddiscountarrangementsforcustomersandsuppliers.

accounting influences and directs organisational activitiesthroughinternalcontrolprocessestobeimplementedatthepointoforganisationalactions(eg,purchaseorders,authorisations,stocksystems,transactionalcodingrules).Thesearerequiredtoensurethevalidity,completenessandaccuracyoffinancialobligations.

3.2 accounting with complianceaccounting informs compliance activities byprovidingtherequiredinformation,intheformofdatafiles,financialreportsandsupportinginformation.

compliance influences and directs accounting activitiesbyspecifyingtheaggregations,analysesandcontrolsneededforCompliance.ExamplesincludeaccountingstandardsandBaselbankingregulations.

ItshouldbenotedthatAccountinginteractsindirectlywithotherfinanceactivitiesastheinformationproducedprovidesacoreinputtoallfinanceactivitiesandfinancialcontrolsinfluenceallactivities.

3.3 accounting with management and controlaccounting informs management and controlbyprovidingfinancialinformation–‘theactuals’–whichformthebasisforfurtheranalysis,suchascomparisontotargetsandplans,andreconciliationtoinformationgeneratedelsewhere.

3. the interactions Between finance activities

Theinteractionsbetweenfinanceactivities 33


34 Theinteractionsbetweenfinanceactivities

management and control informs accountingbygeneratinginformationtoberecordedinaccountingsystems.Thiscanbeeitherasamatterofcourse,forexamplefundingentriesgeneratedbytreasuryactivities,oroptionally,suchastherecordingofbudgetsinledgersystems.

accounting influences and directs management and control and is influenced by management and control inatwo-way,iterativeprocess.Thisinvolvesthenegotiationoftheformatsofthefinancialinformationwhichcanbeprovidedbyaccountingsystemsgivenvariousneeds.

3.4 compliance with management and controlcompliance informs management and controlwherefinancialperformancemaybemeasuredbasedoncompliancerequirements,forexamplereturnonriskassetsorregulatorycapitalasdeterminedbybankingregulation.

management and control informs compliance throughtheprovisionofinformationtomeetregulatoryrequirementssuchasnarrativedisclosuresonbusinessperformanceandrisk.

compliance influences and directs management and controlwhereregulatoryrequirementsactasconstraintsontheorganisationforexampleminimumcapitalrequirementsinthefinancialservicessector.

ItshouldbenotedthatCompliancealsoimpactsonorganisationalactivitiesandStrategyandRiskviaManagementandControlbyimposingconstraintsonorganisationalactionsandstrategies.

3.5 compliance with fundingcompliance informs funding throughtheprovisionofinformationthatwillbemadepubliclyavailable,suchasaccountfilingsorstatementsmadeinlinewithlistingrequirements.Thisinformationprovidesawayofvalidatingotherinformationproducedbytheorganisation,particularlywhenitissubjecttoexternalassuranceprocesses.

funding informs compliancethroughtheprovisionofinformationtomeetregulatoryrequirementssuchasdetailsofmajorshareholders.

3.6 organisational activities with management and controlmanagement and control informs organisational activitiesbyprovidingfinancialandsupportinformationandanalysiswhichsupportscontrol,decisionmakingandorganisationalactions.

organisational activities inform management and controlbyprovidingfinancialdataandinformationsourcedfromoperationalsystemsandprocesses.ThisisanadditionalinformationflowtothatprovidedbyAccounting.

management and control directs and influences organisational activities and is directed and influenced by organisational activities. Thisisthefulfilmentoftheprincipalpurposeoftheactivity-tousefinancialandsupportinformationtoinfluence,manageandcontrolorganisationalactivitiestomeetorganisationalobjectives.Itisatwo-wayiterativeprocess,asinformationissubjecttocontinualreinterpretationandreassessment,inresponsetobothunfoldingeventsanddifferingmanagementopinions.

3.7 management and control with fundingmanagement and control informs fundingbyprovidinginformationintheformatsagreed,eg,cashflowforecasts.

funding informs management and control byprovidinginformationonprojectedfundingcosts,investmenthurdleratesandminimumperformancerequirements,suchasthoseimposedbybankcovenants.

management and control influences and directs fundingandisdirectedandinfluencedbyFunding.Thisisatwo-wayprocessinwhichthecontentandformatoftheflowofinformationtoinvestorsandfunderswillbeagreed.

ItshouldbenotedthatFundingalsoimpactsonorganisationalactivitiesviaManagementandControlandStrategyandRiskbecausetheavailabilityoffundingconstrainsorfacilitatesorganisationalactions.


35Theinteractionsbetweenfinanceactivities

3.8 management and control with strategy and riskmanagement and control informs strategy and riskbyprovidinginformationoncurrentandprospectivefinancialperformance,includingevidenceandassessmentoftheincome,costandbalancesheetdynamicsdrivingperformance.

management and control influences and directs strategy and risk asemergingoperationaloutcomesanddevelopments,togetherwiththeirassociatedfinancialconsequences,influencestrategyformulationandriskassessment.

strategy and risk influences and directs management and controlbyprovidingthestrategicagendaandcontextfortheproductionanduseofinformation.Riskmanagementactivitieswillalsobeimportantfactorsinfluencingthenatureofinformationproduced.

3.9 organisational activities with strategy and riskstrategy and risk informs organisational activitiesbycommunicatingthefinancialstrategyandperformanceagainstit,togetherwiththerisksthattheorganisationneedstomanage.

organisational activities inform strategy and risk byprovidinginformationonopportunities,threats,strengthsandweaknesses.GiventheflowisdirecttoStrategyandRiskandnotviaManagementandControlthentheinformationprovidedwillnotbeprimarilyfinancebased,althoughitislikelytoincludefinancialcontent.

strategy and risk influence and direct organisational activities byprovidingthestrategicdirectiontoguidethedevelopmentoforganisationalactionsandapproachtorisks.

organisational activities influence and direct strategy and riskasemergingoperationaloutcomesanddevelopments,togetherwiththeirassociatedfinancialconsequences,influencestrategyformulationandriskassessment.

3.10 strategy and risk with fundingstrategy and risk informs fundingbycommunicatingthe(financial)strategyandrisksoftheorganisationtofacilitatethenegotiationsforfundingprovisionorinvestment.Akeyconsiderationwillbethedegreetowhichsuchcommunicationisintegratedwithmanagementandcontrolinformationtoanchormedium/long-termstrategyinhistoric,currentandprospectiveperformance.

funding informs strategy and riskbyfeedingbackinvestorandfunderviewsoftheorganisationgleanedfrommeetings,presentationsandroadshows.

strategy and risk influences and directs funding and is influenced and directed by funding.Thisinvolvesthenegotiationofthefitbetweentheorganisationalstrategy,theprovisionoffundingandanticipatedreturnsforinvestorsandfunders.Itcanbeofspecificimportancewherethereisarequirementtofundnewstrategicinitiatives,suchasmergersandacquisitions,growthprogrammesorwhendealingwithfinancialcrises.


36


Thenatureoffinanceactivitiesandtheinteractionsbetweenthemresultinanumberofinherenttensionsandchallenges.ThesearediscussedbelowforeachFinanceactivity.ThetoplevelreferencescorrespondwiththesecondreferenceineachredactivityboxonFigure1.

4.1 accounting

4.1.1 validity of information and financial control

ThefinancialinformationproducedbyAccountingflowsviaComplianceandManagementandControlthroughthewholeframework.IfAccountingactivitiesdonotoperateeffectivelythevalidityofinformationusedthroughouttheorganisationiscompromised.Thismayleadtoseriousorganisationalproblemssuchaslossofassets,impaireddecisionmakingorthebreakdownofinvestorconfidence.

4.1.2 weighing the costs and benefits of financial controls

Wehavealreadynotedtheimportanceoffinancialcontrols.However,assessingthecostsandbenefitsofsuchcontrolsisnotalwayseasy.Organisationshavetodecideonthedegreetowhichtheycantrustpeopletodotherightthingandtherisksthatmightariseiftheydonot.Forexamplefiddlingexpensesmaybesignificantlymorelikelyanddamaging,bothfinanciallyandreputationally,incertainindustrysectorscomparedtoothers.

Therearetwofurthercomplications.Firstly,thebenefitsoffinancialcontrolsaredifficulttoassessasitisdifficulttoknowwhatlosseshavebeenpreventedwhencontrolsoperateeffectively.Secondly,ill-designedfinancialcontrolscanrestrictanorganisation’sabilitytoadaptandinnovatewhichmaybenecessarytomaintainprofitabilityormeetotherorganisationalobjectives.Forexamplerequiringmultiplesign-offsforrelativelylowlevelsofexpenditureatseniormanagementlevelcanleadtoslowdecisionmakingandimplementation.

Theupshotisthatdifficultjudgementsarerequiredindecidinghowdetailedandrigorousfinancialcontrolsshouldbe.

4.1.3 Differing information required for compliance and management and control

ThefinancialinformationrequiredforComplianceandthatrequiredforManagementandControlisbasedontheaggregationandanalysisofthesameunderlyingfinancialconsequencesoforganisationalactivities.However,theinformationcontent,themethodsofclassificationandanalysis,theperiodlengthsandthetimelinessdeemedappropriatearelikelytobedifferent.Thiscanbeproblematic.IndeedJohnsonandKaplan(1987)intheirseminalbook‘RelevanceLost:TheRiseandFallofManagementAccounting’arguedthatmanagementaccountinglostitsusefulnesswhenitstartedtofocusonusinginformationrequiredforcompliancewhichwasirrelevantformanagingandcontrollingperformance.

ParticularproblemsariseinhowtodesignandimplementaccountingandoperationalsystemswhichcanmeetbothComplianceandManagementandControlneeds.Thedegreetowhichsuchinformationcanandshouldbeconsistent/reconciledisalsocontested(seealsorelatedtensions4.2.1and4.3.1).

4. inherent tensions anD challenges

37Inherenttensionsandchallenges


4.2 compliance

4.2.1 Differences between public information and internal reporting

Theinformationcontainedinpubliclyavailablereportsislikelytodifferfromthatproducedforinternalmanagementpurposes.Organisationalmanagementmaythereforequestiontherelevanceofexternalaccounts.However,giventhatinvestorsandfunderswillusesuchinformationasthebasisforassessingorganisationalperformance,managementcannotaffordtoignorethepicturethatexternalaccountsportray.Externalaccounts,beingstandardisedandsometimessubjecttoexternalassurance,enableinvestorstocomparetheperformanceofcompetingorganisations.

Fullreconciliationsbetweeninternalandexternalreportingcanbedifficulttoachieve,especiallywhentheinformationisproducedtodifferingtimescales.Furthermoreinvestorsmaymakeadjustmentstoexternalaccountsfortheirownpurposesincludingthetreatmentofone-offcosts,goodwill,fairvalueaccounting,costallocations,stockvaluationandleases.Eventotheextentthatreconciliationsareachieved,explainingthedifferencestonon-financialmanagersisnoteasy.Thethreatisthattheapparentinconsistenciescanleadtothequestioningofthevalidityofbothinternalandexternalreportingbybothorganisationalmanagementandinvestorsandfunders.

4.2.2 compulsory external requirements have to be met

ThelevelandnatureofworkrequiredforComplianceisdependentonfactorslargelyoutsideofthecontroloftheorganisation.Thishastwosignificantconsequences:

• uncertain and uncontrollable resource requirements: Theworkcommitmentnecessarytomeetregulatoryrequirementscanbeincreasedandalteredwithlimitedpotentialtomitigatetheimpact.Sarbanes-Oxley,forexample,meantsomeorganisationshadtotransferskilledstafffromotheractivities,suchasManagementandControl,tomeetthisnon-negotiablerequirement.

• Danger of non-compliance: Meetingregulatoryrequirementscannotbeguaranteed.Clearancebytherelevantregulatoryauthoritiesmaytakeplacesometimeafterthereportingperiodinquestion,therebyincreasingtheriskthatregulatoryrequirementsarenotproactivelyidentifiedandmet.

Further,monitoringandmeetingfinancialcomplianceandregulatoryrequirementscanbeperceivedasbeingexpensiveandoflimitedvalue.Thisleadstopressurefortheseactivitiestobecarriedoutatthelowestcostpossible,and,perhaps,tolimitthecaretaken.However,thisisadangerousapproachasthecostsandreputationaldamageofregulatoryfailurecanbehighand,attheextreme,leadtobusinesscollapse.

4.2.3 high reported profits attract investors but increase tax liabilities

Injurisdictionswheretaxliabilitiesareassessedbasedonadjustedstatutoryaccountstherewillbeconflictingpressuresonthelevelofprofittoreport.Thisisbecausewhileaccountingjudgementswhichleadtoreporting‘higher’profitswillprovideapositivemessagetofunderstheymayalsoresultinahighertaxliability.

4.3 management and control

4.3.1 Differences between operational and accounting information

WhilebothoperationalandaccountinginformationusedbyManagementandControlaredrawnfromthesameunderlyingorganisationalactivities,theirnaturewilldiffersignificantly,assummarisedinTable4.3.Bothsourceshavecomparativeadvantagesanddisadvantages.

Themainadvantageofoperationallysourcedinformationisthatitcanhaveadirectconnectiontoorganisationalactivities.Itcanberealtimeandbecollectedandanalysedtoreflectorganisationalstructures(eg,bybranch,product,customer,salesperson)andcycles(eg,daily,weekly)asappropriate.Itcanalsobebothformalandinformalandquicklyadaptedtorespondtochangedrequirements.Itsdisadvantageisthatitisdifficulttobuildincontrolstoensurevalidityandreliability(eg,toensurethatallcostsincurredhavebeencaptured).

Accounting-sourcedinformationhastheoppositedisadvantagesandadvantages.Itdoesnothavethesamecloselinktoorganisationalactivities-beingmoreformal,time-lagged,producedtoaccountingtimescales(oftenmonthly)andanalysedinlinewithachartofaccounts,whicharegenerallyrigidandstandardised.Ontheotherhandsuchstandardisationandtheinherentcontrolsofthedouble-entrysystemcanprovideaccountinginformationwithgreatervalidityandreliability.

38 Inherenttensionsandchallenges


Arangeofpotentialconsequencesfollowfromthis,principallyrelatingtotheextenttowhichoperationalandaccountinginformationarereconcilableorconsistent:

• Thedifferentsourcesofinformationmaygiverisetodifferinginterpretationsoforganisationalperformanceresultinginuncertaintyandconflict.

• Timecanbewasteddiscussingtheaccuracyoftheinformationratherthanfocusingonanalysisandtheimplicationsoftheinformationfordecisionmaking.

• Ontheotherhandthedifferencecanbeconstructivewhenconsiderationofinformationfromdifferentperspectivesgivesrisetonewinsights.Blindlyacceptingonesourceofinformationortheotherbecauseitsupportsaparticularinterestmaybedysfunctional.

• MoresophisticatedledgerandEnterpriseResourcePlanning(ERP)systemsmayincreasetheintegrationofaccountingandoperationalinformationandreducethedifferenceshighlighted.

table 4.3: operational-sourced information compared to accounting-sourced information

Characteristics Operationalsource Accountingsource

overall

Informationstatus Operationaldata Accountingsystemoutput

Corereasontoproduce Managementinformation Cashcontrol/compliance

Users Management Compliance,investors,management

Operationalconnection Direct Indirect

link to operations

Timeperiods Tofitorganisationalcycles Monthly/Annual

Collectionspeed Realtime Lagged

Classificationstandard Tofitanalysisrequired Chartofaccounts

Production

Recordingmedium Internalsystems Accountingrecords

Validitycontrols Organisationallydesigned Financialcontrols/double-entry

Reportingbasis Managementtechniques Accountingpolicies

Linktocash Indirect Direct

Linktotax Indirect Direct

4.3.2 Deciding which information to use as the primary performance measure

ThefourdifferentManagementandControlapplicationsidentified–generalmanagementandcontrol,cashmanagementandtreasury,investmentappraisalandtax-requiredifferentinformationanddifferentformats,albeittheyareallbasedonfinancialdata.Theskillsetsrequiredtoproduceandanalysesuchinformationwillalsodiffer.Moreovertheinterestsofdifferentstakeholderswillcomeintoplay.Forexamplebanksmayfocusoncash,shareholdersonprofit,individualproprietorsonminimisingtaxliabilitiesandseniormanagersongrowth.Theupshotisthatconflictscanariseindeterminingwhichformatandinterpretationtoprovideastheprimaryperformancemeasureandfocusformanagementactions.

4.3.3 interpretation of variances

Inbroadtermsvariancesbetween‘actuals’andplans/targetsoccurfortwomainreasons:

1. Afailureintheexecutionoforganisationalactivitydesignedtomeetplannedoutcomes.Inthisinstanceunderstandingvariancesfacilitatestheassessment,investigationandmodificationofbehavioursandprocesses.

and/or

2. Theassumptionswhichunderpinnedplans/targetswere,orhavebecome,unrealistic.Inthisinstanceunderstandingvariancesfacilitatesthereassessmentofstrategies,plansandprojections.

Differentiatingbetweenthetwocanbedifficult,especiallyifthecauseisamixtureofboth.Clearly,failuretoidentifythecausesofvariances,ormisinterpretingtheircause,canleadtodifficultyanduncertaintyindevelopingappropriateresponses.



4.3.4 ensuring plans and targets are owned by operational managers

Aspreviouslyhighlighted,thefinanceactivitiesframeworkdoesnotidentifyorrecommendwhoshouldcarryoutsuchactivities.However,theproductionoffinancialplansandtargetsmaybecarriedoutbyspecialiststaff.Whileoperationalstaffresponsibleforimplementationcanbecloselyinvolvedwiththisprocess,thisisnotnecessarilythecase.Problemsarisewhereoperationalstaffarenotsufficientlyinvolvedinunderstanding,settingandagreeingplans/targetsagainstwhichperformancewillbeassessed.Thiscanleadtotheplansandtargetsbeingdisownedbythoseresponsibleforimplementation.Negativeconsequencescanincludeoperationalactionswhichconflictwithfinancialtargets,lackofaccountabilityandtargetsandplansdetachedfromorganisationalrealities.

4.3.5 gaming

ManagementandControlprocessesmaybesubjecttogamingbyoperationalmanagers.Budgetingprocessesinparticulararewellknownforbeingsubjecttogamingbythoseresponsiblefordeliveringfinancialoutcomes.Themostcommondistortionisforbudgetstobepadded,incomeunderstatedandcostsoverstated,inordertoensurebudgetsareachievedorexceededandtheassociatedrewardsobtained.Althoughsuchgamingisusuallyviewedasdysfunctional,somebenefitsmayaccruebyenablingorganisationaladaptability.

4.4 strategy and risk

4.4.1 financial versus non-financial orientation

Acentraladvantageoffinancialappraisalsisthattheycanprovideaclearperformancemeasure.However,theirdisadvantageisnotbeingabletoassesscontributorstoorganisationalperformancewhichcannotbeeasilyquantified,forexamplethecapacitytoinnovate,internallydevelopedintellectualpropertyandservicequality.

Thereisariskthatinitiativeswithmoreeasilymeasurableandapparentfinancialoutcomescrowdoutoptionswithmoresubjective,intangiblebenefitswhichnonethelessmayproducesignificantreturns.Difficultjudgementshavetobemade,perhapssupportedbytheuseofmorenon-financialinformationintegratedwithfinancialinformation.

4.4.2 short term versus long term

Similartotheabovepointistheoftendiscussedissueoftoomuchfocusontheshortterm.GenerallyManagementandControlactivitiesfocusontheachievementofshort-termtargets,usingshort-termperformancemeasures.Atensionarisesifactionstoachieveshort-termperformanceareatvariancewithactionsrequiredtomeetlonger-termstrategicobjectives.Acommoncaseinpointisreducingmaintenancecostsandinvestmentinnewmachineryintheshorttermandthuspotentiallyharminglong-termprospects.Thetrade-offrequiresbalancingthebenefitsofoptimisingshort-termperformance,includingcashflow,againstuncertainlong-termbenefits.Inpracticethiscanbedifficulttoachieve.

4.4.3 involvement versus objectivity

Financialactivitiesmaybeseenasstoppingwiththeprovisionandanalysisofinformationtosupportstrategicdecisionsmadebyothers.However,thereisthepotentialforthoseresponsibleforfinanceactivitiestobeimplicatedmoredirectlyindecisionmaking–frommakingrecommendationsthroughtoactuallymakingdecisionsandbeingaccountableforthem.Thereistrade-offbetweenthelossofobjectivitythatmayresultagainstthebenefitstodecisionmakingthatdeepfinancialknowledgeandinsightcanbring.

4.4.4 mismatch of funding availability versus strategic requirements

Strategicinitiativesrequiresufficientfunding.Wherefundingneedstoberaisedexternally,fundingproviderstendtorequiresomeformofcollateral,evidenceofsuccessfulimplementationofpreviousstrategiesand/orassuranceoverthecertaintyoffutureoutcomes.Issuescanariseintwoways:

1. Givingintopressurestoprovideassurancestofundersandinvestorsofimplementationsuccessbeyondthatwhichcanreasonablybegiven;or

2. Beingoverlyacceptingthatstrategyimplementationwillbedeterminedbytheeaseofobtainingfundingratherthanthepotentialattractivenessofthestrategy.



Inbothcasesfinanceactivitiesmovecentrestageindetermininganorganisation’sstrategicdevelopment.Thelevelofresilienceandcapabilityamongthoseresponsibleforfinanceactivitieswillbeakeyfactorinhowthesetensionsplayout.

4.5 funding

4.5.1 consistency and coherence of information

Theinformationprovidedtofundersandinvestorsisdrawnfromtwosources:

1. Publiclyavailableinformation(eg,publishedaccounts)tomeetregulatoryrequirements;and

2. Internallyfocusedinformationtomeetmanagementandcontrolandstrategyrequirements,whichinitselfcanbedrawnfrommixedsources-accountingand/oroperational.

Internalinformationcanbereconfiguredtomeetinvestorandfunderrequirementsandtosupportmanagerialinterpretationandexternalcommunicationofperformance.However,publiclyavailableinformationmustmeetfixedstandards.Thiscanresultindifferencesbetweenthetwoinformationsourcesforexampleduetodifferentaccountingtreatments,modesofanalysisortimehorizons.Apressurepointarisesbecausesuchdifferencesmayunderminecredibilitywithfundersandinvestorswhorequiretheinformationtobevalid,plausible,coherentandconsistent.

4.5.2 Pressure of uncertainty

Therelationshipswithinvestors/fundersgenerallyrequiretheprovisionofprospectiveinformationonfuturefinancialperformance,togetherwithmanagement’sassurancesabouttheirvalidity.Thesecanrelatetobothcommercialprospectsandtheconfirmationofcontinuingsolvency.Thevalidityofprospectiveinformationisdependentontheaccuracyoftheassumptionsmadeaboutthefutureandmaybesubjecttosignificantuncertainty.However,inordertoobtainfinancialresourcesandmeetinvestorandfunderexpectationstheremaybepressuretodownplaysuchuncertaintiesandcommittoagreaterlevelofcertaintyontheachievabilityoffuturecashflowsthaniswarranted.Failuretomeetcommittedfuturecashflowperformancecanleadtoabreakdownincredibilitywithfunders,withpotentiallyharmfulconsequences.

4.5.3 changes to funders’ terms and lending covenants

Sufficientfundingisessentialforthecontinuedviabilityofanorganisation.However,fundingisgenerallyprovidedonaconditionalbasisforlimitedtimeperiods,whicharesubjecttorenewalnegotiations.Challengesariseinhavingtodealwithsuchuncertainty.Thelevelofuncertaintyisincreasedbecausefundingfacilitiesmaybewithdrawnduetocircumstancesbeyondanorganisation’scontroleg,achangeinthefunder’sinternalstrategiesorpolicies.Moreover,funderssuchasbanksareoftenlargerandmorepowerfulthantheorganisationstheyfund.

4.5.4 conflicting interests between investors, funders and managers

Investorsandfundershavedifferentcoreinterests–investorsinincreasedshareholdervalueandfundersinthereturnoftheirfinancialcommitmenttogetherwithfeesandinterest.Furtherwheretherearemultiplefundersorinvestors,therecanbeconflictinginterestsandrightswithineachcategory;forexampledifferinglevelsofsecurityforfundersanddifferinglevelsofmanagementcontrolforshareholders.Theymayalsodifferintheirviewsoncommercialprospects.Managers’objectivescanalsodivergefromthoseofotherstakeholdersforexamplebyfocussingonincreasingthesizeoftheorganisation.Thesedifferentinterestscanresultinconflictinrelationtostrategy,dividendpolicy,borrowinglevels,approachestowindingupetc.Suchconflictswillplaceadditionalpressuresonfinanceactivities.

4.6 resourcing – key challengeThekeyinherentchallengeisthattheeffectivedevelopmentandmanagementofbothpeopleandsystemsisessentialtotheeffectiveimplementationoftheinterlinkedactivitiesintheframework.However,thoseinvolvedinfinanceactivitiesmaynothavedevelopedleadership,managementandITskillstothesamelevelastheirfinancetechnicalskills.



4.7 other activities – key challengeGiventhedecisiontoexcludetheseotheractivitiesfromthefinanceactivitiesframeworkclearlytherearenoinherenttensions.However,theadditionofsuchresponsibilitiestothoseresponsibleforfinanceactivitieswillleadtotheneedtodevelopunrelatedspecialistskillsets.Thelossofbenefitsassociatedwithspecialisationwillneedtobeweighedagainstthebenefitsofallocatingresponsibilitiesinthisway.



Inthissectionwesummarisethedetailedtablesofsurveydatainordertoconsidertheroleofthefinancedepartment.Asdiscussedfurtherattheendofthissectiontheconsolidatedanalysisneedstobetreatedwithcautionbecauseofthenatureofthesurveysandthewiderangeofterminologyused.However,byinterpretingtheaverageddatainrelationtothedetailedresponsessomepatternsdoemerge.

Graph5.1belowshowstheaveragesofsurveyresponsesshowingthelevelsofresponsibilityandimportanceforeachfinanceactivitydiscussedabove.Graph5.2showsthesamedataforthesubcategoriesofactivities,excludingitemsonlycoveredbyonesurvey.Theresultsaresortedbyaveragesoffinancedepartmentresponsibility.

graph 5.1: average responsibility and ‘high importance’ results for finance activities

5. the role of the finance DePartment

43Thefinancefunction:aguide

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graph 5.2: average responsibility and ‘high importance’ results for finance activity subcategories excluding single responses

5.1 finance department responsibilitiesNotsurprisinglytheevidenceshowsageneralpatternofhighfinancedepartmentresponsibilityforfinancialprocesses,withlowerlevelsofresponsibilityforlessdirectapplications.Thus:

• high levels of finance department responsibility (60% to 90%).Thisprincipallycoversthecoreprocesstypeactivities–accounting,transactionprocessing,financialinformation,tax,cashmanagementandfinancialcontrols.Thetransactionprocessingresponsibilityresultof70%wouldhavebeenhigherifpayrollat56%hadbeenexcluded.Itisinterestingtonotethatresponsibilityforaccountingisnot100%whichmaybebecausethoseusingsharedservicecentresoroutsourcingservicesnolongerregardaccountingastheirresponsibility.Theonlynon-coreprocesstypeactivityinthisbandismergersandacquisitions.

• medium levels of finance department responsibility (40% to 59%).Thisbandprincipallycoversapplicationtypeactivitiessuchasgeneralmanagementandcontrolandstrategyandriskmanagement.TheseareasofactivityareoftenthosewhereCFOsandfinancedepartmentshavelongaspiredtoachievemoreinfluence.Furtherresearchisrequiredtobetterunderstandwhysuchaspirationsareinmanycasesnotbeingachievedandindeedtoconsiderwhethergreaterinfluencewouldbebeneficialtoorganisations.

Responsibilityforinternalauditandorganisation-wideITalsofallintothisband.However,thesurveysshowthatfinancedepartmentresponsibilityfortheseareasmaybedecliningovertime.Withrespecttointernalauditthisispossiblyduetotheincreasedfocusontheneedforinternalaudittomaintainitsindependencefromthefinancedepartment.InthecaseofITthismayreflectthefactthathistoricallythefinancedepartmentwasoneofthemajorusersofIT,butnowmostpartsoforganisationsareITdependentandITcapabilityisoftenamajorcontributortocompetitiveadvantage.ThisisalsoreflectedinthedevelopmentoftheroleoftheChiefInformationOfficerwithareportinglinetotheCEO.

• lower levels of finance department responsibility (20% to 39% and not covered). Unsurprisinglylowerlevelsofresponsibilityarereportedforoutsourcingandsharedservicesasmanyorganisationswillnothavepursuedthisapproachtodeliveringfinanceactivities.

44 Thefinancefunction:aguide

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45Thefinancefunction:aguide

Investmentappraisal,debtfinancing,financesystemsandpeoplemanagementwerenotcoveredbyenoughsurveysfromaresponsibilitypointofviewtobeincluded.Thismaybebecausetheyaresubsumedbybroadercategoriesinsomesurveys.Inthecaseoffinancesystemsandpeoplemanagement,responsibilityfortheactivitiesmaybetakenforgrantedasameansofdeliveringtheotheractivities.

Thecollatingandreportingofnon-financialinformationalsoshowsalowleveloffinanceresponsibilitybasedontwosurveysin2007and2008.Itwillbeinterestingtoseewhetherfinancedepartmentswillrespondtothecallsmadebysomecommentatorstotakegreaterresponsibilityfornon-financialmeasuresthroughtoolssuchasthebalancedbusinessscorecard.

5.2 finance activities considered to be of high importance‘Highimportance’resultswillvarysignificantlyacrosstimeandbetweenorganisationsbecauseprioritiesareinfluencedbythedriversshownintheframeworkandtheparticularsituationofanorganisation.Thereforeaveragesmustbetreatedwithcaution.

Financialinformation,whichincludesmanagementreporting,financialanalysis,budgetingandforecasting,showsthehighestaverage‘highimportance’score.Theexplanationmaybethattheseareactivitieswherefinancedepartmentshavehighresponsibilityandthepotentialtosignificantlyimpactonorganisationalperformance.Therearelikelytobehighexpectationsthatfinancedepartmentswillperformtheseactivitiestoahighstandardandproblemswillneedtobeaddressedurgently.Asimilarargumentcanbemadeforthehighimportanceattachedtogeneralmanagementandcontrol.

HighimportanceisalsoattachedtobothStrategyandCompliance.Assessingtherelativeprioritytogivetothesetwoareasisoftenakeychallengeforfinancedepartments.Developingandimplementinganappropriatestrategyisessentialinachievingorganisationalsuccessandisperceivedasaninterestingareatobeinvolvedin.However,tosomeextentfinancedepartmentinvolvementisdiscretionary–particularlyinrespectofstrategyformulation.Clearlycompliancewithregulationiscompulsoryandmustreceivesomefocus.Thisfocusoftenincreasesinresponsetofinancialscandals.

Althoughimportanttreasuryandcashmanagementarenotratedashighlyastheaboveprobablybecausethesurveysconcernedwerecarriedoutbeforethe2008financialcrisis.

Peoplemanagement,financesystemsandorganisation-wideITarealsoseenashighlyimportant.Thisistobeexpectedastheyarekeyenablersoffinancedepartmentandorganisationalperformance.

Accountingandreporting,transactionprocessingandfinancialcontrolsreceivelower‘highimportance’ratings.Theseactivitiesareoftenperceivedas‘hygiene’factors–theexpectationisthattheywillbecarriedouteffectivelyandefficientlybuttheyarenotseenasaddingvaluetoanorganisation.Theywillonlyreceivesignificantmanagementattentionwhenmajorproblemsoccurorthereisscopeforsignificantcostsavings.

5.3 time spent on activitiesTime-basedresponsibilitieshavenotbeenconsolidatedbecausethevariationinsurveyapproachesmeansthattheresultsarepotentiallymisleading.GreaterinsightsaregainedbylookingatthedetailedtablesinSection2.

ThemosttellingtrendishighlightedbytheIBMsurveysof2003and2010,oneofthefewsurveystousesimilarterminologyovertime.Thesesurveysshowthattheproportionoftimespentbyfinancedepartmentsontransactionalactivities,controlactivitiesanddecisionsupporthashardlychanged.Despiteaspirationstospendmoretimeondecisionsupportandtheincreasedavailabilityoftechnologytofacilitatethis,financedepartmentsspent24%oftheirtimeondecisionsupportin2003and26%in2010.Thereareanumberofpossiblereasonsforthis.Maybetechnologyadvancesarelargelyusedtocutstaffnumbersratherthanfreeuppeopletoworkondecisionsupport.Itisalsopossiblethereissomesortoflimittotheproportionoftimeitmakessenseforfinancedepartmentstospendondecisionsupport.Itshouldalsobenotedthatthestatisticsdonotindicatewhetherthequalityofthetimespentondecisionsupporthasimproved.


5.4 interpreting the resultsCautionmustbeplacedoninterpretingtheseresultstooprecisely,astheyarebasedonaveragesofsurveys,withrelativelysmallnumbersofsurveysusingeachdetailedcategory(onetoeightsurveys).Terminologyvariessignificantly.Theyalsocoveralongtimeperiod,althoughthemajoritywerecarriedoutbetween2002and2010,withdifferingspecificquestionsandqualitylevels.Ontheotherhandthetotalnumberofpeoplesurveyed,thenumberofsurveyquestionsandthenumberofsurveysishigh,providingsomebasisforthediscussionabove.

ThebenefitsofdevelopingmoreconsistentterminologyandconductingsurveyswhichenabletheprofilingoffinancedepartmentsandcomparisonsovertimearediscussedinSection5.

5.5 how finance activities are implemented is idiosyncraticWehavearguedthatthereisacoherentsetofinterlinkedactivitiesthatmakeupthefinancefunctionofanorganisation.Theprocessaspectsofproducinginformation,includingfinancialcontrolsaregenerallytheresponsibilityofafinancedepartment.Theapplicationoftheinformationismorevariablytheresponsibilityofthefinancedepartmentandsomefinancedepartmentstakealeadroleinstrategyandrisk.WeinferfromthisisthathowtheseactivitiesareundertakeninanyparticularorganisationwillbeidiosyncraticandshapedbytheimpactofthedriversdescribedinSection6.

46


6. Drivers shaPing the imPlementation of finance activities

Thissectiondiscussesanumberofinterrelateddriverswhichshapehowfinanceactivitiesareimplementedinanorganisation.Thesefitthreegroupings,asshownintheoutercircleoftheframework(Figure1):

• the environmental drivers providethecontextwithinwhichorganisations,andthustheirfinanceactivities,operate.Theseimpactfinanceactivitiesbothdirectlyandindirectly.

• the accounting environment driversareasubsetoftheEnvironmentaldriverswhichhavespecificrelevancetotheroleofthefinancefunction.TheirnatureandcontentisprincipallydrivenbytheEnvironmentaldriversalthoughtheyalsoplayaroleinshapingtheenvironment.TheAccountingenvironmentdriversalsoimpactdirectlyandindirectlyonfinanceactivities.

• the organisational drivers arisefromtheeconomic,operationalandbehaviouralprofileofanorganisation.TheirnatureandimpactisinfluencedbyinteractionswithboththeEnvironmentalandAccountingenvironmentdrivers.ThereisacomplexinteractionbetweentheOrganisationaldriversandfinanceactivitiesbecausefinanceactivitiesbothrespondtotheOrganisationaldriversandplayapartinshapingthem.

Thenumberofinfluencingdriversidentifiedandthefactthattheyinteractmakesforcomplexrelationshipsbetweenthedriversandfinanceactivities.Thiscomplexityisamplifiedbythefactthatthedriversidentifiedaresubjecttoongoingchangewhichmaybegradualorabrupt.

Theprecisecontent,natureandinteractionoftheinfluencingdriverswillbedifferentforeachorganisation,giventhateachoperatesinauniquecontext.Consequentlytheircollectiveimpactonhowfinanceactivitiesareimplementedwillalsobedifferentforeachorganisation.However,therearelikelytobesomecommontendenciesandtrends.Thisisbecausethesamerangeofdriversimpacteachorganisation,certaindriversatanyonetimemaybeparticularlypowerfulandorganisationsoftencopyoneanother.

Anumberofpapersandreportshaveidentifiedarangeofdriverswhichimpactonfinanceactivities.TheirfocustendstobeontheroleoftheCFOandManagementandControlactivities.Thisliteraturehasbeenusedtobuilduptherangeofdriversdiscussedbelow.DetailsofthepapersusedareshowninAppendix1,TableA.1.

WenowgoontodiscusseachdriverindetailwhichcanbenavigatedusingthereferencesshownagainsteachdriverinFigure1.

6.1 environmental drivers influencing the finance functionTheEnvironmentaldriversshapehowfinanceactivitiesareimplemented,bothbytheirdirectimpactontheactivitiesthemselves,andindirectlyviatheirimpactontheAccountingenvironmentandOrganisationaldrivers.FiveEnvironmentaldrivershavebeenidentified:

6.1.1 Political and social

Political and social drivers are fundamental to the context within which financial activities are undertaken. Forexamplepoliticswillinfluenceregulatorysystemsincludingtax,company,contract,propertyandemploymentslaws.Thesocialcontextwillimpactonmanyareasincludingattitudestoshareholdervalue,sustainabilityandbusinessethics.Clearywhereorganisationsoperatetransnationallyorglobally,financeactivitieswillneedtorespondtosocialandpoliticaldifferencesbetweencountries.

47Driversshapingtheimplementationoffinanceactivities


48 Driversshapingtheimplementationoffinanceactivities

TheimpactofpoliticalandsocialdriversisimpliedinanumberofstudiesbutthosediscussingthemmostdirectlyarecoveredinAppendix1,TableA.1.1.

6.1.2 market

TheMarketdriverisdefinedwidelytoincludetheeconomicandfinancialenvironment,andcustomerandsupplierrelationships.

the nature of, and changes to, the competitive environment and capital markets drive how finance activities are organised and which activities are prioritised, in particular:

• management and control activities respond to market changes.Managementandcontrolpracticesaimtosupportorganisationalsurvivalandgoalachievement.Thereforetobeeffectivethesepracticesneedtoreflect,adaptandrespondtotheongoingimpactofmarketforcesontheorganisation.

• strategy and risk activities respond to market changes. Inthesamewaystrategyandriskmanagementpracticesneedtoreflect,adaptandrespondtotheongoingimpactofmarketforces.Competitivemarketsandinstabilitymakelong-termvaluecreationextremelydifficultandfinancedepartmentshavearoletoplayinanalysingandexplainingthestrategicimpactofmarketconditionsandtherelatedrisks.

• financial staff may become more closely involved in operational activities. Alsorelatedtotheabove,increasingmarketpressuresleadtoagreaterfocusonfinancialperformancewhichcanprovidetheopportunityforcloserinvolvementoffinancestaffinsupportingoperationalactivities.Thisisreflectedbythegrowinguseofsuchtermsasbusinesspartner,businesssupportandhybridaccountanttodescribetherolesoffinancestaff.

• financial crises can have pronounced effects on how finance activities are undertaken. Financialcrisesmeanfinanceactivitiesareplacedcentrestagewithsignificantmanagementfocus.Financedepartmentsareusedtobothidentifywhatneedstobedone(eg,costreduction,retrenchment,assetmanagementand/orcapacityutilisation)andprovideinstitutionalsanctionforitbeingdone.Despiteincreasedrequirementsfromthefinancedepartment,theythemselvescancomeunderpressuretoreducetheirowncostsandheadcount.UnsurprisinglypoororganisationalperformanceisassociatedwithanincreasedlikelihoodoftheCFObeingreplaced.

SeeAppendix1,TableA.1.2forfurtherdetails.

6.1.3 location

national differences, globalisation and the interplay between them provide strong, often conflicting, influences on how finance activities are implemented. the main impacts are on:

• compliance. Organisationsoperatinginsinglejurisdictionshavetomeetlocalregulatoryrequirements,althoughtheymayhavetorespondtochangeswhicharisefromglobalisation,forexampletheintroductionofIFRS.Whereorganisationsoperateinmultiplejurisdictions,therewillbeaneedtocontendwiththecomplexbalancingofglobal,headofficeandlocalrequirements.

• management and control systems design and implementation. Thereisacomplexinterplaybetweendivergentnationalinfluencesandconvergentglobalinfluences.Localtraditionsinfluencetheroleoffinancestaff,howaccountingismobilisedandthechoiceofperformancemanagementtechniquesandprocesses.Againstthisglobalisationleadstogreaterinternationalconsistencyforexamplethroughtheglobalconsultingindustry.Globalorganisationsandglobalsupplychainsalsoseektostandardiseprocessesandpoliciestoimprovecommunicationandautomation.

• the relative importance of financial information and finance departments.Differingnationalculturescanascribedifferinglevelsofimportancetofinancialinformationandhowitisinterpreted.Thisinturnimpactsontheinfluencethatfinancedepartmentshaveinorganisations.


6.1.4 information technology

relentless it development may have a transformative impact on the implementation of finance activities and also provides an ongoing challenge. Impactsinclude:

• reduction in resources required for transaction processingasITenablestheautomationandstandardisationofprocesses.



• Potential to improve information collection and analysis for management and control activities.ITimprovesthecapacityforcollection,integrationandanalysisoffinancialinformationandindeedaccesstonewtypesofrelevantinformation.Thisinturnprovidesthepotentialforfinancedepartmentstomakeagreatercontributiontobusinesssupport,performancemanagementanddecisionmaking.

• changes to the role of finance staff through diffusion of information.ITenablesfinancialinformationtobecomemoreeasilyaccessibleandusablethroughoutorganisations.Thiscanleadtoeitheracontractionorexpansionintherolesoffinancestaff.Expansionthroughfinancestaffbecomingmorecloselyinvolvedinoperationaldecisions;contractioniftheavailabilityoffinancialinformationmeanslinemanagerscanusetheinformation,withouttheneedtoinvolvefinancestaff.

• Problems resulting from the introduction of new systems or it shortcomings. InadditiontothepotentialbenefitsandorganisationalchangesresultingfromITdevelopmentsidentifiedabove,thethreatoffragmentationisequallyimportant.

Informationsourcescanbecomefragmentedwherenewsystemsareintroducedalongsideexistingsystems.Thiscanariseforanumberofreasonsincludingtheobsolescenceofearliersystems;mergersandacquisitionsandtheintroductionofnewproductsandservices.Thedifficultiesincombiningandreconcilingthevarioussourcesofinformationmayleadtosignificanterrorsandmisunderstandings.Inmanyorganisationsfinancestaffspendlargeamountsoftimetryingtoaddresstherootcausesandsymptomsofsuchissues.

Inadditionproblemscanoccurthroughinformationoverload.ITenablescheaperaccesstonew,broaderinformationsourceswithincreaseddetail.Thedownsideisthatthismayleadtoinformationoverloadmakingthemostrelevantandusefulinformationdifficulttodiscern.


6.1.5 sector

Differences in industry sector impact on how finance activities are implemented, especially management and control and strategy and risk. Muchoftheevidencefocusesonvariationsassociatedwithdifferinglevelsofuncertaintyindifferentsectors.ForexampleutilitycompaniesmayfacelessuncertaintythanITsoftwarecompanies.Inadditioncertainfinanceactivitiesintheserviceindustrieswillbedifferentfromthoseinmanufacturingbecauseitismoredifficulttostandardiseprocessesandmeasureoutputsintheservicesector.Itshouldalsobenotedthatorganisationsinparticularsectorswilloftenmimictheorganisationalstructuresoftheirpeers.Asyetnoclearevidencebasehasbeenestablishedtoassistinaligningthedesignofperformancemanagementsystemswithsectorcharacteristics.


6.2 accounting environment drivers TheAccountingenvironmentdriversareasubsetoftheEnvironmentaldrivers,whichhavespecificrelevancetotheroleofthefinancefunction.Fourdriversareidentified:

6.2.1 accounting representation

financial information and accounting reports can only ever provide a partial representation of organisational reality. Accountingrepresentationsarebasedoninterpretationsbythosewhoproducethemandinturnhavetobeinterpretedbytheirusers.Althoughtheinformationgeneratedthroughaccountingiscentraltodecisionmakingandrunninganorganisation,financedepartmentsandotherusersofaccountinginformationshouldnotlosesightofaccounting’sinherentlimitations.

• accounting reports are based on uncertain assumptions about both future outcomes and the appropriateness of income and cost allocations. Muchoftheinformationcontainedinaccountingreportsisbasedonassumptionsaboutanuncertainfuture.Uncertaintiesrelatedtoaccountingfordaytodayactivitiesincludewhetheraccruedrevenueswillbecollected,depreciationratesmatchtheactuallivesoffixedassetsandprovisionsforwarrantiesaresufficient.Accountingforone-offeventsmayalsorequirejudgementsaboutthefuturesuchaswhetherlegalclaimswillbesuccessfullydefendedornot.Theseissuescontributetothecontinualreworkingofaccountingstandardsresultinginchangestowhichfinancefunctionshavetorespond.Thereforefinancialreportsaresubjecttoongoingrestatementsasoutcomesdifferfrompriorassumptionsandaccountingstandardschange.



Inadditiondecisionsabouthowrevenuesandcostsareallocatedtodifferentlinesofbusinessandtodifferentperiodsmayhavesignificantimplicationsforhowabusinessunit’sperformanceisperceived.Ongoingdebatesaboutwhetherandhowoverheadsandcentralcostsshouldbeallocatedandthenumberofdifferentcostingtechniquesadvocatedareindicativeoftheproblem.

• finance functions differ in the ways that they apply accounting standards and make organisationally specific assumptions to create a working certainty. Formanypurposesthisistotallyadequateinpractice.However,ifsubsequenteventsshowtheseassumptionstobemistaken,theprioraccountingreportscanbechallengedasunreliable.Iftheresultingadjustmentsarematerial,thecredibilityofthosewhoproducedtheinformationanduseditasthebasisofdecisionmakingandactioncanbecalledintoquestion.


6.2.2 management and control techniques

how management and control activities are implemented is strongly impacted by the type of technique used to analyse, project and report financial information. two key themes emerge:

• the type of technique used impacts on how management and control activities operate. However,noclearguidelineshaveevolvedtoappraisewhichismostappropriate.Awidearrayofmanagementaccountingtechniqueshavebeendevelopedovertime,generallyinresponsetospecifichistoric,organisationaland/orenvironmentalcontexts.Despiteawiderangeofresearchontheiruse,nocoherentpatternshavebeenidentifiedtohelpguidethechoiceoftechniquewhichismostappropriateinagivensituation.Rather,theevidencesuggeststhatthetechniquesinusearedeterminedbysuchfactorsassubjectiveappraisal,historicalusageorpressurefrommanagersoradvisorstousethelatesttechnique(orfad).

• some organisations have developed greater integration of financial and non-financial measures with the aim of improving performance.However,theevidencealsosuggeststhatwhilethismaybedesirable,itcanbedifficulttoimplementinpractice.

SeeAppendix1,TableA.1.7forfurtherdetails.Itshouldbenotedthatthetableonlyshowsasmallsampleoftheverywiderangeofresearchavailable.

6.2.3 regulation

compliance activities are directly driven by external requirements, with a knock-on impact to other, interconnected finance activities.

• the weight of regulation determines the significance, complexity and technical requirements of compliance activities. Overanumberofyearsregulatoryrequirementshavebeenincreasingandhaveledtosignificantchangesinfinancedepartments.Astheyarelargelynon-negotiable,thishasincreasedtheamountoftimeandfocusrequiredfromfinanceexecutives.IthasalsoraisedthestrategicimportanceofCompliancegiventheincreasingrisksfromnon-compliance.Theincreasedregulatoryburdencanalsohavetheknock-oneffectofcrowdingoutotherfinanceactivities,suchasManagementandControl.

• moreover financial scandals increase the focus on its importance.AclearexampleofthiswastheimplementationofSarbanes-OxleyinresponsetoEnron,Worldcometc.

• regulation feeds through to impact on management and control and accounting activities. ClearlytheinformationandfinancialcontrolsrequiredtocomplywithfinancialregulationimpactsonAccountingactivitieswhichmustrespondtoexternalaswellasinternalrequirements.ThereisalsoanimpactonManagementandControlwhereregulationsplaceconstraintsonorganisationalactivitiesandalsowherethereisapreferencetomaintainconsistencybetweenmanagementinformationandexternalreporting.

• there is some pressure for finance professional to work on broader regulatory issues including sustainability. Theprominenceofnaturalenvironment,ethicalandgovernanceissuesisleadingtothefinancefunctionextendingitsscopebeyondthenarrowfinancial.




6.2.4 Professionalisation of accounting

the accounting profession can play an influential role on finance activities, specifically:

• In some parts of the world the implementation of finance activities is strongly influenced by the training standards and ethics required by professional bodies to which a large proportion of finance executives belong. Thisprofessionalisationofaccountancygrewoutoftherequirementforprofessionalobjectivityinmeetingearlyregulatorystandards,especiallyinrelationtoinsolvencyandaudit.

• the accounting profession has consolidated and continues to expand its influence and impact. Forexamplethemembershipofprofessionalaccountingbodieshascontinuedtoexpandandtheyhavehelpeddrivetheconvergenceofinternationalaccountingpractices.

• conversely there are challenges from rules-based regulation and greater attachment to employers rather than the accounting profession.Inrecentyearsregulatoryrequirementshaveincreasinglybeenprescribedbygovernmentalandglobalinstitutions,reducingtheimpactoftheprofessions.Inadditionthereisanintrinsictensionbetweenprofessionalandemployerallegiances.


6.3 organisational drivers Organisationaldriversrelatetothenatureoftheorganisationwithinwhichfinanceactivitiesarecarriedout.TheOrganisationaldriversareinfluencedbytheEnvironmentalandAccountingenvironmentdriversasorganisationsadapttotheircircumstances.Itisimportanttonotethatasfinanceactivitiesareanintegralpartofanorganisation,theorganisationaldriversbothinfluenceandareinfluencedbythefunctioningoffinanceactivities.Sevendriversareidentified:

6.3.1 ownership

owners and those who hold an organisation accountable have a significant impact on how all finance activities are undertaken. specific aspects include:

• Pressure to meet and manage financial expectations. Thelevelandnatureofthepressuretomeetfinancialexpectationsforcommercialorganisationswillvarydependingonthenatureoforganisationalownership.Forexamplemanyprivateequityownersfocusonhighfinancialreturnswhichsupporttheirexitstrategieswhereasinstitutionalinvestorssuchaspensionfundsoftentakealonger-termview.WhereorganisationsdofocusonthefinancialexpectationsofinvestorsitcanenhancetheinfluenceoftheCFO.OntheotherhandtheCFOandthefinancedepartmentwillalsobeunderpressuretoreducecostsandheadcount.

• the degree of owner intervention on finance activities varies.Ownermanagers,suchasfamilyownersorpartnerships,bydefinitionhavewideauthorityindetermininghowfinanceactivitiesarecarriedout.Whenoutsideinvestorsbecomeinvolvedthismaybringpressuretochangefinanceprocessesandoutputs.Inparticularinterventionist,privateequityfirmsmayimposespecificrequirementsconcerningfinancialreportingandcontrol.Organisationsestablishedasjointventuresmayfacecomplexandpossiblyconflictingrequirementsfromtheowningpartners.Forpubliclistedcompanieswithbroadbasedshareholderstherewillbelessdirectownerinfluenceonhowfinanceactivitiesareundertaken.

• the impact of a change in ownership. Thiscantriggerchangesinallaspectsoffinanceactivitieseithertomeetthechangedrequirementofthenewownersortointegratetheprocessesofmergedoracquiredorganisations.Dealingwithachangeofownershipcanbeextremelydifficultwithcompatibilityissuesinrelationtoallfinanceprocesses,includingbehaviouralandorganisationalaspects,ITsystemsandfinancialpolicies.

• the impact of public ownership or charitable status. Withpublicownership/accountabilityorcharitablestatuscomeorganisationalgoalswhicharedifferenttocommercialorganisations.Financialgoalsdonotformacentralpartoforganisationalobjectivesastheespousedoutcomeistheprovisionofservicelevels.Financialprioritiesareexpressedasprovidingvalueformoneyservicesandsafeguardingpublicmoneyorcharitableresources.




6.3.2 size

an organisation’s size has a significant impact on how finance activities are implemented, specifically:

• larger organisations tend to have more sophisticated and formalised management and control systems, with the greater use of specialists.Indeedithasbeenarguedthatthedevelopmentofaccountingsystemshaveplayedakeyroleinenablinglarge,multi-divisionalfirmstoexist.

• in smaller organisations finance staff may have broader responsibilities and finance activities will tend to be less complex. Suchbroaderactivitiesresultfromlimitedmanagementresources.Managementandcontrolprocessesarelikelytobesimplerandgapsmaybecomeapparentwhennewcircumstancesdevelop.

• however, the specific impact of size is not always clear because of its interaction with other drivers.Thiscanbeparticularlysoinlargermultidivisionalorganisations,wherefinanceactivitiescanbespreadwidely,withvaryingdegreesofresponsibilityandsophisticationdependingonthestructureoftheorganisation.


6.3.3 strategy

strategic focus drives how finance activities are implemented especially management and control. more specifically:

• the compatibility of strategy with management and control practices is generally believed to be beneficial to organisational performance. AsaconsequencetheeffectiveimplementationofnewstrategiesmayrequirechangestoManagementandControlactivities.

• however, aligning management and control practices and strategy can be challenging. Managementandcontrolprocessestendtofocusonshort-termperformance,whereasstrategytendstohaveamedium/long-termtimehorizon.Ensuringalignmentcanbedifficult,especiallywhereactionsthatenhanceshort-termperformancecandamagelong-termprospects(eg,reductionsinexpenditureonmarketingorresearchanddevelopment).

• management and control feedback can become embedded in strategy development.ThefeedbackfromManagementandControlactivitiescanbeaprimaryinputtothedevelopmentofstrategy.WherethisisthecasetherewillbeanongoingfeedbackloopbetweenstrategydevelopmentandtheimplementationofManagementandControlactivities.Itisalsoworthnotingthattheimportanceofthefinancedepartmentrelativetootherdepartmentsmaybehigherinfirmspursuingacquisitivegrowthorretrenchmentratherthanorganicgrowth.


6.3.4 organisational structure

organisational structure is intertwined with how finance activities are undertaken, specifically:

• organisational structure influences and is influenced by finance activities. Theorganisationalstructurewillhaveacentralimpactonthewayinwhichfinancialinformationisaggregatedandanalysed(eg,profitcentrecategorisation),howitisproduced(eg,centralisedordecentralised),whoproducesit(eg,inthefinancedepartmentorelsewhere)andtowhomitisdisseminated.Converselyfinancialconsiderationswillimpactontheorganisationalstructure,forexamplethroughtheneedforappropriatelegalentitystructuresfortaxandregulatorypurposes.

• Departmental structures influence the degree and nature of collaboration and conflict between finance and other functions. Departmentsinorganisationsrelyoneachothertomeettheirobjectivesbuttheseobjectivesmayconflict.Relationshipsbetweenthemdependonanumberoffactorsincludinglevelsofinterdependence,overlapsinresponsibilitiesandconflictresolutionmechanisms.

• one possible tendency is a closer involvement of finance staff with operational activities. However,thisaspirationhasbeentalkedaboutformanyyearsandthedegreetowhichtheaspirationhasbeenachievedvariessignificantlybetweenorganisations.

• financial incentives influence the behaviour of those carrying out finance activities. Theimpactcanbefunctionalordysfunctional.Akeyquestioniswhetherrewardingfinancestaffbasedonthefinancialperformanceoforganisationsjeopardisestheirobjectivityandleadstounethicalbehaviour.



• outsourcing and shared service centres have a specific impact on how finance activities are implemented. Thesechangesincludewherefinanceactivitiesareundertaken,howtheyareundertakenandthemanagementresponsibilityfortheireffectiveimplementation.


6.3.5 People

the knowledge, skills, interests and attitudes of finance staff and their relationship with staff in other functions impact on how finance activities are implemented. the following themes emerged:

• the skills of staff play a major part in determining the effectiveness of finance departments. Alargenumberofstudiessuggestthatthedegreetowhichfinancedepartmentsrecruit,trainandretainstaffwithappropriateskillsandpersonalcharacteristicswillinfluencethenatureandtheeffectivenessofactivitiescarriedoutinthedepartment.Thedegreeofdiversityinthefinancedepartmentwillalsohaveanimpact.

• however, attracting appropriately skilled staff can be difficult. Studiesidentifyskillshortagesasamajorissuealthoughitshouldbenotedthesestudieswerecarriedoutbeforethe2008financialcrisis.Partofthedifficultymaybethatthesheernumberofskillsandpersonalcharacteristicssometimeslistedasnecessaryforeffectivefinancepersonnelmayresultinunrealisticexpectations.Moreoversomerequiredpersonalcharacteristicsmaybeseenasatoddswithoneanother,forexampleattentiontodetailandstrategicthinking.

• finance departments can play a major part in shaping their own role.Financedepartmentstaffcaninfluencewhichactivitiestheytakeresponsibilityfor,howtasksareprioritisedandtheresourcesandprocessesusedtocarryoutthetasks.Inaddition,commentatorshavearguedthatfinancedepartmentswhowanttotakeonbroaderbusinessroleswillneedtoproactivelypursuethisgoalratherthanwaitfortheorganisationtogivethemsuchopportunities.

• however, top management teams also play a key role in how finance activities are carried out. TherelationshipbetweentheCFOandtheCEOisparticularlyimportantindeterminingtheinfluenceofthefinancedepartment.Studiesalsosuggestthatthefunctionalbackgroundsoftopmanagementteammemberswillplayaroleininfluencingstrategyandtheinformationthatisattendedto.Forexamplethereissomeevidencetopmanagementteamswithmoreexecutivesfromafinancebackgroundaremorelikelytofocusonacquisitionsthanorganicgrowth.

SeeAppendix1,Table1.14forfurtherdetails.

6.3.6 culture

finance activities are intertwined with organisational culture and politics.Organisationalculture,powerrelationshipsandpoliticswillhaveasignificantimpactonhowfinanceactivitiesareimplementedandhowinformationisinterpretedandused.Inaddition,changestofinanceactivitiesandtheintroductionofnewaccountingtechniqueswillimpactonthecultureofanorganisationandmaychangethedistributionofpower.Asaresultsuchchangesarelikelytofaceresistanceandbedifficulttoimplement.Proactiveattentiontosuchfactorswillberequiredforfinanceactivities,andchangestothem,tobeeffective.Toplevelsupportforproposedchangesisarguedtobeanessentialprerequisitetosuccess.


6.3.7 routines

finance activities are intertwined with organisational routines. Broaderorganisationalroutinesandprocesseswilltendtoshape,andbeshapedby,howfinanceactivitiesareimplemented.Financeactivitiesarepartofoverallorganisationalroutinesandmayreflectorconflictwithsuchroutines.Moreoverfinanceactivitiesmaychangeorbechangedbyinstitutionalforceswhichinturnadapttotheirexternalenvironmentalandmanagementinterventions.



54


55Appendix1–Supportingevidenceforthedrivers

table a.1: Papers covering a range of drivers

Author Date Findings

a number of papers and reports have identified a range of drivers which impact on finance activities

KPMG/TheInstituteofCharteredAccountantsinAustralia

1998 Competitivepressures,technologicalinnovation,globalisation,newbusinessstructures,theneedtofocusonvalue,thedemandfornewskillsandchangingattitudestoworkwillimpactthefinancefunction.

Sheridan 1998 Themaindriversofchangeforfinancialmanagementincludenewattitudestoqualityandservice,socialpressuresfromstakeholderactivism,aswellasintensecompetition,newopportunitiesandrisks,andregulatoryandenvironmentalpressures.

Waggoneretal. 1999 Performancemanagementsystemschangeinresponsetoawiderangeoffactors.Theseincludeinternalinfluencessuchaspowerrelationships,peerpressureandthesearchforlegitimacy;externalinfluencessuchaslegislation,marketvolatility,informationtechnology;processissuesincludingthemannerofimplementationandsystemdesignandtransformationalissuessuchasthedegreeoftoplevelsupportandtheimpactoforganisationalculture.

Chenhall 2003 Discussestheimpactoftheexternalenvironment,technology,organisationalsize,organisationalstructure,strategyandnationalcultureonthedesignofmanagementcontrolsystems.Moredetailedpropositionsaresummarisedintherelevantsections.

BurnsandBaldvinsdottir 2005 Keydriversofrolechangeformanagementaccountantsincludeglobalisationandinternationalisation,newmanagementphilosophiesandstrategicgoals,organisationalrestructuringandtheactionsofinfluentialgroupsandindividuals.

FEICanada 2005 ThetopchallengesfacedbyChiefFinancialOfficers(CFOs)arecompliance,financeavailability,strategicplanning,humanresource(HR)issues,personalpressuresandmarketconditions.

Ernst&Young 2006 TheCFO’srolehasbeenaffectedmostbyincreasingcorporategovernanceobligationsbutalsoincreasingdemandsfrominvestors,increasingpenaltiesformistakes,changesintechnologyandabroadersetofdemandsfromboardcolleagues.

ByrneandPierce 2007 Theroleofmanagementaccountantsisinfluencedbyawiderangeoffactors.Theseincludeexternalfactors(ownership,environmentandregulation),internalfactors(size,structure,culture,technology,management,businessnatureandcircumstances,location,performancesystems)andindividualfactors(orientation,background,skillsandpersonalcharacteristics).

Ernst&Young 2008 FactorsmostcontributingtothechangingroleoftheCFOareincreasingregulatoryrequirements,expectationsfromboardandauditcommittees,corporategovernanceobligationsandriskmanagement.

Ernst&Young 2008(a) Thechallengesandopportunitiesforthefinancialcontrollerareincreasingbecausebusinessesarebecomingmoreglobalandcomplex;financeisbecomingabusinesspartnerattheheartoftheorganisation;increasedpressuretodeliverhigh-qualitymanagementinformation;therearepressurestomovefromefficiencytoeffectivenessincludingdealingwithsharedservices,outsourcingandmaturetechnicalsystems;theCFOispassingmoreworktothefinancialcontroller(FC)asheorshespendsmoretimeoninvestorrelations.

KPMG 2008 Thefinancefunctionisshapedbymarketinfluencesincludingglobalisation,investordemands,theriseofregulation,thepoweroftechnologyandanincreasedfocusonthesocialresponsibilitiesoforganisations.

aPPenDix 1 – suPPorting eviDence for the Drivers


table a.1: Papers covering a range of drivers continued


FerreiraandOtley 2009 Performancemanagementsystems(PMS)needtobeviewedinaholisticmannerandtakeintoaccountanumberofareas.Theseincludeanorganisation’svisionandmission,keysuccessfactors,structure,strategiesandplans,keyperformancemeasures,targetsetting,performanceevaluationandrewardsystems.AlsoimportantarethewaysPMSareused;thefeedbackandfeedforwardinformationflowsandassociatedsystemsandnetworksandhowPMSchangeandrespondtotheenvironmentandthestrengthofthelinksbetweenthecomponentsofPMS.Contextualandculturalfactorsalsoneedtobeconsidered.

BhimaniandBromwich 2010 Managementaccountingandmanagementaccountantsareimpactedbytheincreasinglyglobal,digitalandvolatileenvironmentfacedbyenterprises;theadoptionofflexiblesupplychains;newmanagementtechniquesandgrowingregulatoryrequirements.

CIMA 2010 Financefunctionchangescanbeseenaseithermotivatedbytheneedforcost-efficiencyortheneedforvaluecreation.Therangeandextentofchangeisaffectedbyorganisationalsize,sector,location,increasedcompetition,increasedriskanduncertainty,advancesininformationtechnology(IT),theimpactofregulation,newmarkets,changesintopmanagementandincreasedservicedemands.

table a.1.1: Political and social


Political and social drivers are key to the context within which financial activities are undertaken

DiMaggioandPowell 1983 Organisationscometoresembleoneanotherthroughsocialandpoliticalpressures,copyingotherorganisationsinordertoachievelegitimacyandtheinfluenceofprofessionalnetworksthatspanorganisations.

BIC 1992 The1990ssawthecollapseofcommunism,thegulfwar,thereturntoeconomichealthofLatinAmericaandaprolongedrecession,sothatcopingwithrapidandunpredictablechangebecomesatoppriorityforbusiness.Thisinturnrequiresthefinancefunctiontobecomemorestrategicinoutlookandmoreoutspokenandopenintheirviews.

Sheridan 1998 Themaindriversofchangeforfinancialmanagementincludenewattitudestoqualityandservice,socialpressuresfromstakeholderactivism,aswellasintensecompetition,newopportunitiesandrisks,andregulatoryandenvironmentalpressures.

ZambonandZan 2000 Itiswellknownthataccountingisrelativetoandcontingentuponorganisationalandsocialcontexts.

Fligstein 2004 Socialandpoliticalforcesmeanthattheroleofshareholdervalueasapredominantdriveroforganisationalactivitieshasended.Inadditioncompaniescannolongerachieveprofitabilitythroughfinancialengineering.

Napier 2006 Thenatureofaccountingchangeisstronglyintertwinedinthesocial.Accountingisseentobeimplicatedinwiderarenas,withnetworksofpractices,principlesandpeopleconstitutingavarietyof‘accountingconstellations’.

IBM 2008 Theworldisundeniablyrisky–62%ofbusinesseswithrevenuesoverUS$5billionhaveencounteredmaterialriskeventsinthelastthreeyears-87%ofwhichwerestrategic,geopolitical,environmental,operationalorlegal.

table a.1.2: market


the nature of, and changes to, the competitive environment and capital markets drive how finance activities are organised and which activities are prioritised, in particular:

ManagementandControlactivitiesrespondtomarketchanges

TurneyandAnderson 1989 CompetitionfromJapanprecipitatedsignificantorganisationalchanges.Accountingchangewasanessentialpartofthesuccessinsupportingtheneedformodernmanufacturingtechniquesandcontinuousimprovement.

Cooper 1996 Thegrowingimportanceofcostmanagementischangingthepracticeofmanagementaccounting.Whilemanagementaccountingismoreimportant,managementaccountantsandthemanagementaccountingfunctionislessimportant.Theyneedtotakeasupportiveandmonitoringrolewithmoreindividualsactivelyinvolvedinthecostmanagementprocess.

Chapman 1997 Underconditionsofrapidchangeaccountingsystemsareunabletojustoptimisefaster.Thereforeoperationalconsiderationsmustbeinvolvedinthedecisionprocess,notcodedbutintheiroriginalform.

56 Appendix1–Supportingevidenceforthedrivers



ManagementandControlactivitiesrespondtomarketchanges

Ezzameletal. 1997 Emphasisonimprovingbottomlineresultsentailsmoreuseofaccountingandotherquantitativecontrols.

Heldenetal. 2001 Competitivepressuresledtotheintroductionofbusinessunitsresponsiblefortheirownresultsandthequestioningofperformancemanagementandtransferpricingpractices.

Ezzameletal. 2004 Commercialpressuresfromachangedtradingenvironmentcanleadtothereconstitutionofaccountingmeasurestofacilitatethechangesnecessaryforcommercialsalvation.

Buscoetal. 2006(a)

Performancemeasurementsystemsasacommonorganisationallanguagearecentraltoadaptingtochangedmarketconditionswhichrequirecollaborationacrosstheorganisation.

Smith 2007 Managementaccountingsystemsmustbeabletorespondflexiblytounanticipatedmarketchanges.

Abdel-KaderandLuther 2008 Differencesinmanagementaccountingsophisticationaresignificantlyexplainedbyarangeoffactorsincludingenvironmentaluncertaintyandcustomerpower.

StrategyandRiskactivitiesrespondtomarketchanges

Simons 1995 Competitiveenvironmentsrequireresponses.Thisleadstotherequirementforinteractivecontrolsystems,whichfocusorganisationalattentiononstrategicuncertaintiesandprovoketheemergenceofnewinitiativesandstrategies(eg,profitplanningsystems).

Froudetal. 2000 Theeffectiveuseoffinancialmetricstoidentifyandimplementactionsthatleadtoincreasedlong-termshareholdervalueislimitedbytheinherentcompetitivenessofthemarket.

BoozAllenHamilton 2006 TheCFO’srolehasevolvedsignificantlyoverthelastdecade,andnowneedstodriveanorganisation’soverallriskmanagementprogramme,whichmustbedefinedbroadly,andconsiderchangingmarketconditions.

Widener 2007 Strategicriskanduncertaintydrivehowleversofcontrolareused.

CFOResearchServices/ACCA 2009 TheturbulenteconomicenvironmenthasmeantgreaterCFOinvolvementandfocusonstrategyandriskmanagement.

Mckinsey 2009 CFOsbelievetheglobaleconomicturmoilwillleadtothefollowingpermanentreactionsbythefinancefunction:1)acontinuousefforttoreducecosts(52%respondents);2)tightermanagementofworkingcapital(48%);and3)anincreasedfocusonoperationalandfinancialriskmanagement(43%).

Financialstaffmaybecomemorecloselyinvolvedinoperationalactivities

GerstnerandAnderson 1976 FinancialresourceshavebecomethecriticaldeterminantofcorporateplansandstrategiesandthereforetheCFO’sinvolvementinoperationaldecisionsismuchgreaterthanitwasinthelate1960s.

PhillipsandRoss 1996 ThetwomaindriversofchangeinthefinancefunctionarethebusinessenvironmentandIT,leadingtotheneedtoadoptamorebusiness-orientatedapproach.Thisleadstoashiftawayfromproducingnumbers,towardsworkingwithotherdepartments,becomingmoreinvolvedinnon-financialmattersandadoptingastrategicviewpoint.

EIU 1997 GlobalmarketchangesdemandaresponsefromtheCFOandthefinancefunction.

BurnsandScapens 2000(a) Competitivemarketconditionsmeanaccountantstakeonhybridroleswhichencompassaccountingknowledgeandanin-depthunderstandingoftheoperatingfunctionsorcommercialprocessesofthebusiness.

Kulmalaetal. 2002 Inpursuingcompetitiveadvantage,organisationshaveadoptednetworkstructuresandcomplexsupplychains.Thesechangesdemandnewmanagementaccountingtechniqueseg,openbookaccountingandproactive,managerialrolesformanagementaccountants,includingworkingincross-disciplinaryteams.

CFOResearchServices/SAP 2007 Financeispulledintwodirections–regulationononesideandcompetitionandinvestorexpectationsontheother.Thepressureisforthefinancefunctiontorespondbymovingbeyondthenarrowfinancerole.

Sorenson 2009 Globalcompetitiondrivesmanagementaccountingchangewithfinanceprofessionalsincreasinglytakingonbusinesssupportroles.



table a.1.2: market continued


Financialcrisescanhavepronouncedeffectsonhowfinanceactivitiesareundertaken

Hopwood 1987 Difficultmarketconditionsleadtoaccountingchangesbutitisverydifficulttogeneraliseonthechangesrequired.

Euskeetal. 1993 Whentherewasacrisis,organisationsabandonedboththeirformalandinformalcontrolmechanisms,andimplementedhigh-intensityformsofcontrolincludingrealtime,high-involvementmanagement.

Mian 2001 PoororganisationalperformancetendstoleadtobothCFOreplacementandhighChiefExecutiveOffice(CEO)turnover.

Radcliffeetal. 2001 Tradingcrisescanleadtodownsizing,whereaccountingisusedtobothidentifywhatneedstobedone(eg,costreduction,retrenchment,assetmanagement,capacityutilisation),andprovideinstitutionalsanctionforitbeingdone.

Gurdetal. 2002 Financialdifficultiesprovidedastrongpressuretointroducechangeandreducedthetimerequiredtointroduceaccountingchanges.

Arthaud-Dayetal. 2006 HighCFOandCEOturnoverhasbeenobservedinUSfirmsfilingmaterialmisstatements.

IBM 2010 TheglobaleconomicdownturnhasputCFOsunderthespotlightandtheirfinanceorganisationshavehadtodealwithurgentfinancialissues.Uncertaintyandvolatilityhasdrawnthemintoboardroomconversationsaboutforecasts,profitability,riskmanagementandstrategicdecisions.AsaresultCFOsareemergingwithfarmoreinfluenceattheenterpriselevel.

table a.1.3: location


location – national differences, globalisation and the interplay between them provide strong, often conflicting influences on how finance activities are implemented. the main impacts are on:

Compliance

FligsteinandFreeland 1995 Thereisnoevidenceofconvergenceacrosssocietiestowardasingleformofgovernance.Thisismainlyafunctionofthreefactors-timingofentryintoindustrialisation,theroleofstatesinpropertyrightsandregulations,andthesocialorganisationofnationalelites.

ICAEW 2006 Differentnationalcompliancepressuresleadtodifferingrequirements.

Lindsay 2007 Globalisationisassociatedwithanumberofreportingcomplexitiesforfinanceactivities,includingdifferentgenerallyacceptedaccountingprinciples(GAAP)regimesandtransitionalperiodswhenmovingtoInternationalFinancialReportingStandards(IFRS).

ACCA 2008 GlobalimplementationofIFRSwillleadtoglobalharmonisationofregulationsandauditingstandards.

ManagementandControlsystemsdesignandimplementation

Demirag 1994 IngeneralJapanesecompaniesoperatinginBritainpaidlessattentiontofinancialcontrolsystemsthantoachievingsmoothproductionandgoodqualityproducts.

Cooper 1996 InJapanesefirms,jobrotationexposesengineerstoaccountingandotheraspectsofthebusiness.Thisenablesthemtoundertakemanagementaccountingtaskswithouttheneedformanagementaccountants,whocarryoutsuchtasksinwesternfirms.

Ahrens 1997 InGermany,accountantsandaccountingservedtolegitimisecompletedoperationalproposals.IntheUK,accountantsmobilisedaccountingtoinfluenceemergingproposalsassoonaspossible.

Brewer 1998 Atop-downapproachtoimplementingABCforHarrisSemiconductor’sworkedbetterfortheirMalaysianplantsthantheirUSplants.

CarrandTomkins 1998 Anglo-Americanshorttermism,ascomparedtoGermanyandJapan,isseenintheover-relianceonhigh‘comfortfactor’financialhurdleratesinmakingstrategicinvestmentdecisions.InadditionsomeGermanCEOsdidnotseetheirseniorfinanceexecutivesassufficientlyinvolvedinthesedecisionstowarrantinterviewing.

GranlundandLukka 1998 Globalisationofmarketsandtheglobalconsultingindustrydrivesconvergenceofmanagementaccountingpractices.Ontheotherhandnationallegislation,regulation,institutions,culturesandcompaniesdrivedivergence.

Whitley 1999 Thenatureoflabourmarketsimpactonwhatcontrolsystemswork;forexampleatop-downcentralisedapproachworksbetterinhigh-authoritysocieties,butnotsowellinsocietieswherethereisahighdegreeoflabourskillandautonomy.





ManagementandControlsystemsdesignandimplementation

Chowetal. 1999 Nationalculturesaffectthedesign,andemployeepreferencesfor,differenttypesofmanagementcontrolsbutthestudyalsofoundthattherelationshipbetweenthetworemainsambiguous.

AhrensandChapman 2000 TheunderlyingoccupationalidentityofmanagementaccountantsinBritainandGermanyinvolvedacommonconcerntodriveeconomicpressureintotheirorganisations.However,thiswasexpresseddifferently-theBritishhighlightedtheirmarketableexperience;theGermanstheirabilitytoprovideadistancedanalysisofeconomicflows.

Kulmalaetal. 2002 Globalisationpressurescanpushacompanytomovetoanetworkmodeofoperation,especiallyascompaniesoutsource.Thishighlightstheimportanceofcostmanagementand,wherethereisoutsourcing,costtransparencyacrossthenetwork.Thiscanbedifficulttoachieve.

Chenall 2003 Nationalcultureisassociatedwithhowmanagementcontrolsystemsaredesignedbutnospecificconclusionscanbedrawn.

EwertandWagenhofer 2007 AdistinctivefeatureofGermanmanagementaccountingisitsseparationfromfinancialaccounting.Theadvantageofthisisthatitallowedindependentdevelopmentofsophisticatedsystems.Thedisadvantageisthatitcanleadtotheemergenceofdifferingearningsfigures.Thereisnowpressureforgreaterconvergenceoffinancialaccountingandmanagementaccounting.

Chowetal. 2007 Chinesemanagementaccountingpracticeshavebecomeincreasinglyreceptivetomodernmanagementaccountingapplicationssincetheopendoorpolicybeganin1978.Thepaceofadoptionhasacceleratedsince1997becauseofincreasedmarketisationandprivatisation.

Accenture 2008 Increasingglobalisationresultsinpressuretodealwithheightenedcomplexity,competitionandcostcontrol.

Buscoetal. 2008 Thereisatensionbetweenglobalperformancemanagementsystemsaimedatachievingaglobalunityofeffort,versusthecontradictoryforcesemanatingfrommultiplecentresofdecisionmaking.

Chanegrih 2008 Nationalculturesandmacroeconomiccontextsimpactonhowmanagementaccountingchangeisimplementedanditssuccess.

Deloitte 2008 Complexnetworksofproduction,distribution,suppliersandcustomersmakecommonmeasurementandtrackingoffinancialperformancedifficult.

DossiandPatelli 2008 Culturaltoleranceforuncertainty,pressurestoglobalise,subsidiaryparticipationandsubsidiarysizegiveperformancemanagementsystemsagreaterinfluenceondecisions.

IBM 2008 Theresponsetogloballyinterdependentmarketplaceshasusuallybeentoallowfinanceactivitiestooperateaccordingtospecialisedstandardsandlocalpreferences,althoughthisisusuallynotthebestapproach.

Hoffjanetal. 2009 Differencesinmanagementaccountingariseduetoculture.Forexampleprofitsmaybecalculateddifferently,withAnglophonecountriesrelyingonthegeneralledgerandGermaniccountriesusingseparatecostingsystems.Further,accountingistaughtasadisciplineinGermany,butisaprofessioninAnglophonecountries.

Therelativeimportanceoffinancialinformationandfinancedepartments

Buddeetal. 1982 HighprofitabilityandgrowthwerethedominantgoalsforbothBritishandWestGermancompanies.Wheredifferencesemergeditwasnotclearwhetherthisarosefromculturalfactorsratherthan,forexample,thegenerallygreatersuccessofGermanorganisations.

Bhimani 1994 Culturaldifferencesimpactonhowaccountinginformationisvaluedandinterpreted.

Ezzameletal. 1997 AccountingispresentedasbeingmuchlesscentralintheUSAthanintheUK.

Froudetal. 2000 Thespreadoffinancialisationislimitedbystructuralbarriersandbyinstitutionaldifferencesbetweennationaleconomies.

Vámosi 2000 Therewerebothdifferencesandsimilaritiesbetweenmanagementaccountingincommunistandwesterncapitalistregimes.Forexample,theroleofcostingwasthesame,butcashflowwasanewdisciplinefororganisationsinpreviouslycommunistcountries.

Lascuetal. 2006 TherelativeimpactoffinanceandaccountingisstrongerthanmarketinginPolandcomparedtotheUSAasaconsequenceoftheformerplannedeconomy.

VasilouandDaskalakis 2009 Generally,whiletherearedifferencesininstitutionalcharacteristicsbetweenGreekandotherUSandEuropeancompanies,thisdoesnotseemtoaffectthewayofthinkingoffinancialmanagerswhentheydecideoncapitalstructureissues.



table a.1.3: location continued


Therelativeimportanceoffinancialinformationandfinancedepartments

Accenture 2008(a) Globalisationprovidesanopportunitytoenhancethecapabilityofthefinancefunctionthroughtakingadvantageofmultiplesourcingoptions,accesstomoreskilledanddiversestaff/leadership,andexpandedopportunitiesforoutsourcing.

CIMA 2010(a) TheWestismovingaheadoftheEastintermsofthetrendforfinanceprofessionalstomovetowardsrolesthataddvaluebeyondtraditionalfinancialrecordingandreporting.Thismaybeduetodifferentstartingpositions,organisationalstructures,themixofmanufacturingandserviceindustries,andculturalclimates.

table a.1.4: it


relentless it development may have a transformative impact on the implementation of finance activities and also provides an ongoing challenge. impacts include:

Reductioninresourcesrequiredfortransactionprocessing

Harding 1963 Theuseofcomputerscanachieveagreatdealofproductivityimprovementinfinance.

IMA 1997 ThereisaneedtoredesignthefinancefunctioninordertoeffectivelyuseITtosavetransactionprocessingcostsandtoenablemanagementtobemoreinvolvedindecisionsupportandstrategy.

Ernst&Young 2003 World-classfinancefunctionsspendmuchlessontransactionprocessingbystandardisingtechnology,simplifyingprocessesandconsolidatingandeliminatingredundantresources.

KPMG 2008 Overthepast20years,technologyhasbeenthesinglebiggestchangeagentinthetransformationofbusinessandthefinancefunction.Itreducesthemanhoursrequiredtoprocesstransactions,enablingboththeworkplacetoexistanywhere,andthereal-timeexchangeofinformation.

PotentialtoimproveinformationcollectionandanalysisforManagementandControlactivities

Drucker 1990 Thefrustrationofmanufacturingautomatorswithtraditionalaccountingmethods,whichdidnotcapturethebenefitsofreducednon-productiontimeandimprovedquality,ledtothedevelopmentofnewcostaccountingtechniques.

DavisandAlbright 2000 ThiscaseshowsthatnewITbothdrivesorganisationalchangeandfacilitatesorganisationalchoices.Theimpactonaccountingwastoreduceheadcountandmanualprocesseswithsomeevidenceofremainingaccountingstafftakingonmoreanalyticalroles.

Scapensetal. 2003 ITdevelopments,particularlydatabaseswhichenablethestorageofinformationtomeetdifferentuserneedsandtechnologiesthatenableeaseofaccesstoinformationaroundtheorganisation,leadtosignificantchangesintheroleofmanagementaccountants.Someevidencethatmanagementaccountantsarebecomingintegralmembersofmanagementteams.

ScapensandJazayeri 2003 TheintroductionofanEnterpriseResourcePlanning(ERP)systemfacilitatedchangesalreadyintrainincludingformanagementaccountingtheremovalofroutinejobs,thedevelopmentoflinemanagersaccountingknowledge,moreforward-lookinginformationandawiderroleformanagementaccountants.

Mercer 2006 Technologicalchangeandglobalisationhavereducedthelivesofbusinessmodelsmeaningthattheroleoffinanceisexpandingbeyondassessingnewopportunitiesandthreatstomanagingcomplexoperationsandnewbusinessrisks.

Capgemini 2008 IntegratedITandhighlycapableemployeesarekeycomponentsinestablishinganoverarchingperformancemanagementframework.Globalised,standardisedandintegratedfinanceandcontrolprocesses,emphasisingglobalmasterdataandregulationdocuments,shouldsupportflexiblecompanyperformancemanagement.Thiswillresultinthereplacementofasilomentalityinthefinanceandcontrollingorganisationandenableintegratedworkingmethods.

Grabskietal. 2008 ERPsystemimplementationshavemajorbutvariableimpactsontheroleofmanagementaccountants.Theseincludelesstimeondatacollection,moreondataanalysis,moreinvolvementindecisionmaking,increasedfocusoninternalreportingandanincreasedfocusonbenchmarking.




Changestotheroleoffinancestaffthroughdiffusionofinformation

Hopwood 1987 Differentinformationtechnologiesarecreatingthepotentialforcontinuedshiftsinthelocusandorganisationalsignificanceoftheaccountingcraft.

BIC 1992 CFOshaverealisedinordertosucceedintheirrole,thefinanceorganisationneedstoberestructuredwithnewtechnologyandworkmethodsintroducedtoensurefinancecanmeetitsnewcommitments.

Coombsetal. 1992 ITsystemstransformculture,controlandcompetition.

PhillipsandRoss 1996 ITisoneofthemajordriversofchangeforthefinancefunction.However,manyfinancefunctionsintheUKarenottakingadvantageoftheresultingpotentialtobecomefurtherintegratedintothebusiness.

EIU 1997 RelentlessinnovationininformationmanagementtechnologygivesCFOstheopportunitytorearrangethehumanresources,processesandtechnologytheycontrol.

Ezzameletal. 1997 TheITcapacityforlargedatabaseshasgiventhefinancestaffthepotentialbothtowidentheirscopeformonitoringactivitiesand,astimeonaccountspreparationreduces,spendmoretimeonnewcalculations,includingthenon-financial.Thereisalsothescopetosignificantlyreduceaccountingpersonnel.ITdevelopmentsraisethequestionofhowfarmanagementaccounting,asadistinctivepractice,cansurvivethepossibledemiseofthemanagementaccountant,asadistinctiveandubiquitouspractitioner.

GranlundandLukka 1998 AdvancedITandproductiontechnologies(eg,ERP)driveconvergenceofmanagementaccountingpractices.

JazayeriandHopper 1999 Theintroductionofworldclassmanufacturingprocessesandassociatedfinancesystemschangeshadacompleximpactonthefinancefunction.Ontheonehandfinancialaccountingandbudgetarycontrolsystemsrunbyaccountingremainedintactandproductcostingsystemswerenotchangedtoincorporateactivity-baseddrivers.Ontheotherhandtherewasamarkeddeclineontheinfluenceoftheaccountingdepartmentwithproductionstafftakingresponsibilityforcostmanagement.

BurnsandScapens 2000(a) TheadvancesinIT,andinparticulartheriseindatabasesystemsdecentresaccountingknowledge,leadingaccountantstobecomemoreinvolvedinoperationsandtheprovisionofacommercialorientationleadingtohybridaccountants.

Burrowsetal. 2001 ITsystemsenableoperationalstaff,inthiscasepilots,toengageinrealtimecostmanagementofaircraftoperations.Itisdoubtfulwhethermanagementaccountantsthemselveshavebeenprominentinthisinnovation.

Caglio 2003 TheadoptionofERPsystemshaveambiguousandinconsistentconsequencesforaccountants.Inthiscasetheresultwashybridrolesforaccountants(encompassingbusinessmanagement,strategicthinkingandIT)andimprovedrecognitionfortheirexpertise.

QuattroneandHopper 2005 ERPsystemshavethepotentialtochangetherelationshipbetweenheadofficeandscatteredsubsidiaries.InonecasetheERPsystemleftorganisationalstructuresunchangedandincrementallyimprovedprevailingpracticesofcentralcontrol.IntheothercasetheERPsystembrokedownfunctionalbarriersanddistances,withinformationaccessedandinputfromdifferentlocations-‘everyoneisanaccountantnow’.

O’Donnelletal. 2004 Emerginge-businesstechnologieswillimpactontherolesofCFOs.QuestionsremainastowhethertheywillgainpowerorloseouttoChiefInformationOfficers.

Nevriesetal. 2008 ManagementaccountingdepartmentsareunderthreatfromsophisticatedITsystemsandothersuppliers,butthisstudyprovidesevidencethattheypositivelyimpactonperformance,enablingresistancetothisthreat.

ProblemsresultingfromtheintroductionofnewsystemsorITshortcomings


2001 AlthoughERPsystemsarecommon,manyhavenotbeenimplementedsoastodeliverasmuchbusinessvalueastheycould.

CFOResearchServices/CapgeminiErnst&Young

2002 InadequateITsystemsblockfinancetransformationsandfinanceremainsboggeddownbytransactionprocessing.

GranlundandMalmi 2002 ERPsystemshavenot,asyet,hadanimpactonmanagementaccounting,whichcontinuestooperateasaseparatesystem.Thereasonsseemtobefunctional/economicsuchasintegrationproblems,complexity,modestfunctionalityandinterfaceproblems.

CFOResearchService/BoozAllenHamilton

2004 CFOswhoare‘GrowthNavigators’or‘ExecutionMaestros’seeoutmodedbusinessintelligence,alackofforward-planningcapabilitiesandfragmentedtechnologyasbarrierstoachievingtheirfinancegoals.



table a.1.4: it continued


ProblemsresultingfromtheintroductionofnewsystemsorITshortcomings

DechowandMouritsen 2005 TheimpactofERPsystemsoncontrolsystemscancreateblindspotswheretheydonotprovidecoverage.ERPsystemsareacollectiveaffair,notthepropertyoftheaccountingfunction.

IBM 2005 Structuralcomplexity,fragmentedinformationsystemsandlackofstandardisationresultsin‘variousversionsofthetruth’,withmanualdatareconciliationsandineffectiveuseoftechnologyinhibitingfinance’sabilitytoinfluencedecisionsanddeliverinsight.

Deloitte 2008 Lackofup-to-dateinformationforstrategicandoperationalpurposesandinadequateprocessanddatastandardsarekeybarrierstoimprovingbusinessperformance.Financehasakeyroleinovercomingthesebarriers.

CFOResearchServices 2008 Manyorganisationsstillwrestlewithhowtotakedisparatesourcesandlegacysystems-sometimesbuiltwith20-yearoldobscurecomputerlanguages,orrelyingonmanualfeedsintoacomprehensivedatabase-andimproveprocessestomakethemfaster,smoother,andmorestreamlined.

CIMA 2008 ERPsystemshaveleftaccountantsbusyusingspreadsheetstoformatreportsandconductadhocanalysis.However,vendorsarenowovercomingtheselimitationswhichreleasecapacityforaccountantstobecomefinance/businesspartners.

CIMA 2009 Softwareissuessuchasout-dated,inflexibleandpoorlyintegratedsystems(requiringmanualreconciliations)orlackofstrategicvisionforITareoneofthemainissuesconfrontingthemanagementaccountingfunction.

table a.1.5: sector


Differences in industry sector impact on how finance activities are implemented, especially management and control and strategy and risk

Burchelletal. 1980 Thelevelofcertaintyovercauseandeffectarisingfromsectorcharacteristicswillimpactontheroleofaccountingpractice.

Hambrick 1981 Executiveshadhighpowerif,byvirtueeitheroftheirfunctionalareaorscanningbehaviour,theycopedwiththedominantrequirementimposedbytheirindustry’senvironment.Accountingexecutiveshadgreaterpowerwherecostcontrolwasthedominantneed.

GooldandQuinn 1990 Managersinbusinessesthatfaceturbulentandrapidlychangingenvironmentsmaygainlessbenefitfromstrategiccontrols,thanmanagersinmorestableormaturebusinesses.

Lowry 1993 Managementaccountingpracticesdifferbetweenthemanufacturingandservicesectors.Inmanufacturingoutputscanbequantifiedwhereasservicesarecharacterisedbynon-standardoutputs,non-routinetechnologyandhavefewerrepetitiveprocedures.Thereforeservicesarelesssusceptibletocontrolthroughmanagementaccounting.

Chong 1996 Underhightaskcertainty,theuseofbroadscopemanagementaccountingsystemsledtoeffectivedecisions;underlowtaskcertaintyitledtoinformationoverload.

Brignall 1997 Thenatureanduseofcostingandperformancemanagementsystemsshouldbecontingentontheinteractionofcompetitiveenvironment,chosenmissionandstrategyandserviceprocesstype.

Whitley 1999 Diversityofactivitiesandrateofchangeimpactonhowcontrolsystemsdevelop.

Spekle 2001 Thetypeofcontroldevicethatisappropriatedependsonthenatureoftheactivitiestobecontrolled.Activitiescanbedefinedinthreedimensions–extentofprogrammability,degreeofassetspecificityandintensityofexpostinformationimpact.

Chenall 2003 Threepropositionsaremade,drawnfromareviewofpriorstudies,onwhatmanagementcontrolsystemdesignsarebestsuitedtoparticularoperatingenvironmentcharacteristics.Theseare:1)standardprocessesleadtostandardcontrols;2)taskuncertaintyleadstomoreinformalcontrols;and3)interdependenciesleadtomoreinformalsystems.

CFOResearchServices/BoozAllenHamilton

2005 SectorconditionsareamajordriveroftheCFO/financeteamapproachrequired.Mature/highfixedcostsectorsneed‘ExecutionMaestros’;disruptedsectorsrequire‘TurnaroundSurgeons’;high-growth,high-marginsectorsrequire‘GrowthNavigators’;andsectorssubjecttomajormarketchangesrequire‘BusinessTransformers’.

DeutscheBank 2006 Thefinancefunctionaddsmostvalueinhighgrowth,non-investmentgradecompanies.

ZoniandMerchant 2007 Controllerinvolvementindecisionmakingispositivelyrelatedtosomesituationalvariables,includingcapitalintensity,operatinginterdependency,linemanagers’financialcompetenceandformalisationofstrategicplanningandbudgetingprocesses.




Differences in industry sector impact on how finance activities are implemented, especially management and control and strategy and risk

Abdel-KaderandLuther 2008 Greatersophisticationinmanagementaccountingissignificantlyrelatedtogreaterenvironmentaluncertainty,customerpower,decentralisationandsizeandtheuseofAdvancedManufacturingTechnology,TotalQualityManagementandJust-In-Time.

Yang 2008 Organisationsmimictheirpeersintheiradoptionofdifferentworksystems.

Mckinsey 2009 CFOsinmanufacturingaresignificantlymorelikelytobe‘valuemanagers’thanthoseinthefinancialservicesindustry,wherefinancestafffocusmoreontransactions.

CIMA 2009 Onaveragethemanufacturingandfinancialservicessectorsusemoremanagementaccountingtoolsthanotherservicesectorsandthepublicsector.

BhimaniandBromwich 2010 Forinternetbusinessesbasedongeneratingadvertisingrevenues,incomeandcostdynamicswillbesignificantlydifferentfrommoretraditionalbusinesses.Managementaccountantswillhavearoletoplayinanalysingplausiblerevenueopportunitiesthataredissociatedfromtheunderlyingproduct.

table a.1.6: accounting representation


financial information and accounting reports can only ever provide a partial representation of organisational reality

Accountingreportsarebasedonuncertainassumptionsaboutbothfutureoutcomesandtheappropriatenessofincomeandcostallocations

Morgan 1988 Accountantstypicallyconstructrealityinone-sidedways.Theideaofobjectivityinaccountingislargelyamythandstandsinthewayoffutureinterestingdevelopmentsinthediscipline.

Phelan 1997 Financialtechniquesbasedonassumptionsaboutthefutureareunreliableasthefutureisuncertain.Theyneedtobesupplementedbymanagementjudgementandstrategicthinking.

McSweeney 2000 Accountingreportsaredependentonassumptionastothefuture.

Mattessich 2003 Accountingstatementscannotbeinherentlytrueinapositivisticsense,astheyareirredeemablydependentonsubjectiveallocationstoperiods.

Lindsay 2007 Morecomplexfinancialinstrumentsmakeitdifficulttogiveanaccuratepictureoftheorganisationandestablishperformanceindicators.

Smith 2007 Validityofreportingisinherentlyuncertainduetoperiodallocation,costcentreallocationandrecognitionissues.

Moore 2009 Theinherentparadoxesandlimitationsofaccountingmeanthatitisnotpossibletoexpressaneconomicrealityviabottomlinebasedmeasurements-theinterdependentnatureofphenomenaprecludesperfectmeasurement.

Priddy 2010 Eventhemostrudimentarysetoffinancialstatementsisshotthroughwithassumptionsabouttheunknowablefuture.Companies’accountsarepreparedonagoingconcernbasis.Thisfeedsintoassumptionsaboutprovisionsandimpairments,usefuleconomiclives,thevalueoflong-termcontractsandworkinprogress,andmostcontroversiallyintopost-retirementbenefits.Alltheseassumptionsarebasedonthecentralityandthedangeroussimplicityofacompoundedanddiscountedfuture.

Financefunctionsdifferinthewaysthattheyapplyaccountingstandardsandmakeorganisationallyspecificassumptionstocreateaworkingcertainty

Hines 1988 Bycommunicatingfinancialaccountingreportsasareality,realityiscreated.

Macintoshetal. 2000 Accountinghasbecomehyperrealandself-referential.Howeveritdoesimpartsomeelementofexogeneityandpredictability,andcanthereforebereliedonforrealconsequences.

WoutersandVerdaasdonk 2002 Accountingprovidesacommonquantificationmeasureofinformationfordecisionmakingalthoughitlosestherichnessofoperationalknowledge.

Mouck 2004 Accountingstandardsareakintotherulesofagame–thereforebyimplicationaccountantsmustknowhowtoplaythegame.Accountscanonlygivefuzzyindicatorsofwealthandchangesinwealth.Thestandard-setterhasthereforetobeconstantlyamendingrulestokeepaccountingreportingwithintheboundsofacceptableperceptionsofreality.



table a.1.6: accounting representation continued


Financefunctionsdifferinthewaysthattheyapplyaccountingstandardsandmakeorganisationallyspecificassumptionstocreateaworkingcertainty

Andonetal. 2007 Accountinginscriptionsarefabricatedthroughsituatedandexperimentalmeans.Accountingasa‘knowledgeobject’isinherentlyunsettled,reflectingpartialandchanging‘ontologies’,reshapedbythevariegatedandshiftingcollectivesofelementstiedtoit.

McKernan 2007 Accountinginquirycanandoughttobemaintainedasaformoftruthseeking;butthepursuitofobjectivetruthinaccountingneedstobegroundedinintersubjectivity,incommunicationbetweensubjectsrelatingtoasharedworld,itcannotbedivorcedfromthepolitical,fromhumaninterestsandneeds.

Smith 2007 Theprofitgoalcanprovideaunifiedcorporateobjectiveandperformancemeasure.

Oracle 2008(a) Theconceptof‘oneversionofthetruth’isamyth,asthe‘truth’isdependantoncontext.Generally,informationisaggregatedvertically,uptheorganisationalstructure,thusmovingthrougharangeofcontexts,leadingtoinformationthatcannotbereconciledorcompared.Thesolutionistolookatinformationhorizontally,thusmakingitsusecontextspecific.

Hall 2010 Managersprimarilyuseaccountinginformationtodevelopknowledgeoftheirworkenvironmentanditisjustoneofmanyinformationsources.Itisprimarilythroughtalkratherthanwrittenreportsthataccountinginformationbecomesimplicatedinmanagerialwork.

table a.1.7: management and control techniques


how management and control activities are implemented is strongly impacted by the type of technique used to analyse, project and report financial information. two key themes emerge:

ThetypeoftechniqueusedimpactsonhowManagementandControlactivitiesoperate

RobinsandFoster 1957 Useofmanagementaccountingtechniques(eg,break-even)canhelpprofitplanning.

JohnsonandKaplan 1987 Managementaccountingtechniqueshavedevelopedovertimeinresponsetospecificindustryfactorsandhistoricaldevelopments.ProducingmanagementaccountsbasedonFinancialReportingrequirementscanleadtothembeinginappropriate.Accountingsystemsarerequiredtosupportthreefunctions:1)externalfinancialreporting;2)short-termoperationalcontrol;and3)long-termproductcosting.

MillerandO’Leary 1987 Budgetingandstandardcostsemergedintheearly20thcenturyastheaccountingrepresentationofthescientificmanagementphilosophy,whichtreatedtheindividualasagovernableperson.

FleischmanandParker 1990 Costaccountingdevelopedasadisciplineinearlycapitalismcoveringexpenditurecontrol,departmentcostmanagement,overheadallocation,costcomparison,costsfordecisionmaking,budgeting,forecastingandinventorycontrol.

DruryandTayles 1995 Therockofmanagementaccountingpracticeisfinancialaccountingbasedmonthlyaccounts.Fullabsorptioncostingiswidelyusedfordecisionmaking–butitsvalidityforthispurposeisoftennotchecked.

Horngren 1995 Therehavebeenthreenoteworthydevelopmentsinmanagementaccountinginthelast30years–contributionreporting,zero-basedbudgetingandActivityBasedCosting(ABC).Butthesearchforcostsystemsthatlinkcauseandeffectisnever-ending.Therearealsotrade-offsbetweendesiresforsimplicityandtheneedtodealwithcomplexity.

DruryandTayles 1997 Surveyevidencesuggeststhatmanycompaniesusethesameinventoryvaluationmethodsforfinancialandmanagementaccounts,eventhoughthisdoesnotprovidethemostappropriateinternalanalysismeasure.Akeyreasonforthisisthatcompanieswantinternalaccountstobecongruentwithexternalreporting.

FreidmanandLyne 1997 Theadventofactivity-basedtechniqueshasthepotentialtoimprovetheoperationalusefulnessofinformationprovidedbymanagementaccounting.Thiscouldleadtoeithermanagementaccountantsbecomingmorebusinessorientedor,ifthetechniquesareassimilatedbyotherdisciplines,beingdisplacedbynon-accountants.




ThetypeoftechniqueusedimpactsonhowManagementandControlactivitiesoperate

ChenhallandLangfield-Smith 1998(a) Therearealargearrayofmanagementaccountingtechniquesavailablewithvariationsintheiruseandperceivedbenefits.

Miller 1998 Accountingisanassemblageofcalculativepracticesandrationalesthatwereinventedinothercontextsandforotherpurposes.Practicesthatarenowregardedascentraltoaccountingwereatthemarginspreviouslyandpracticesthatareatthemarginstodaymaybeatthecoreofaccountinginthefuture.

Zimmerman 2001 Theempiricalmanagementaccountingliteraturehasfailedtoproduceasubstantivecumulativebodyofknowledge.

ColwynJonesandDugdale 2002 ABCisanexampleofhownewmanagementaccountingideasaredevelopedbymanagementknowledgeentrepreneurs.Theseideasmaynotbeintellectuallycoherentandthereforedissolveintoamelangeofcompetingandcontradictorypractices.

Meyer 2002 Activity-basedprofitabilityanalysisisthebestmeasureoforganisationalperformance,asitovercomestheproblemsofmultiple,oftencontradictorynon-financialmeasures.

EzzamelandBurns 2005 Evidenceofhowtensionsarosebetweenfinancemanagersandbuyers/merchandisers,asaconsequenceoftheattemptedintroductionofEconomicValueAddedinamajorretailer.

BoynsandEdwards 2007 Calculativetechniqueshavebeenusedforcenturiesforplanning,decisionmakingandcontrol.However,theprecisenatureoftheaccountingtoolsandtechniqueshaschangeddramaticallyovertheyears.

CFOEuropeResearch 2007 Onefactorhinderingtheprogressoffinanceprofessionalstowardsabusinesspartneringrolemaybethediversityofmanagementinformationrequiredbydecisionmakers.

Sorenson 2009 TheuseofABC,strategicmanagementaccountingandbalancedbusinessscorecardshavefacilitatedtheinvolvementofaccountantsinmultipleperspectivesofperformancemanagement.

Someorganisationshavedevelopedgreaterintegrationoffinancialandnon-financialmeasureswiththeaimofimprovingperformance

Johnson 1992 Non-financialperformanceindicatorsneedtoreplaceaccountingasthemaininformationsourceandneedtobeprovidedrealtimetopeoplewhocarryoutoperationalactions.

Agrawaletal. 1998 Costmanagementsystemsmustmeettwoobjectives–beatglobalcompetitionandcontinuouslyimprove.AcomprehensivesystemwillincludeABC,TotalQualityManagement,Just-In-Timeandprocessimprovement.

NilssonandRapp 1999 Introductionofflow-orientedproductionreducedtheneedforplanningandcoordination.Greatemphasiswasplacedonsimplifyingthecontrolsystemandonusingnon-monetaryinformationinstead.Thiswaspartlybecausecontrolsystems,structuredexclusivelyaroundmonetarydata,arelessreliableinanenvironmentcharacterisedbyuncertainty.

Ambler 2000 Marketingmetricsareamixoffinancialandnon-financialinformation.Theonlydepartmentthatcanrealisticallyintegratethetwoisfinance,exceptforlargecompanieswithspecialiseddepartments.

Lillis 2002 Thedifficultyindesigningcompletelyintegratedfinancialandnon-financialperformancemeasuresinhibitstheeffectivenessofaPMSasafacilitatorofstrategyimplementation.

Buscoetal. 2006(a) Implementationofnon-financialperformancemeasures(sixsigma)waslinkedtobusinessfinancialsandreinforcedorganisationalalignment.

FullertonandKennedy 2008 Theuseofleanaccountingtechniquesledtochangesinthecontentandimpactoffinanceactivities.Thisincludedusingagreaternumberofleantools,havingmorecross-trainedworkteams,usingmorevisualpresentationsofperformanceontheshopfloor,streamlinedaccountingprocessesandlesstrackingoflabourandoverheadallocations.

DeGeuseretal. 2009 Evidencethatthebalancedscorecardhasapositiveimpactonorganisationalperformance.Thisisachievedthroughabettertranslationofstrategyintooperationalterms;thefactthatstrategisingbecomesacontinuousprocessandthegreateralignmentofvariousprocesses,services,competenciesandunitsofanorganisation.



table a.1.8: regulation


compliance activities are directly driven by external regulation, with a knock-on impact to other, interconnected finance activities.

Theweightofregulationdeterminesthesignificance,complexityandtechnicalrequirementsofComplianceactivities

Sathe 1983 Thefinancefunctionhasresponsibilityforensuringcompliancewithdesignatedpolicies,proceduresandstandardsdictatedbytherequirementsofgovernmentalagenciesandregulatorybodies,inadditiontothebusinesssupportrole.

ICAEW 1993 Theweightofcorporategovernanceaddstocomplexity.

Sheridan 1998 Regulationisoneofthemajordriversofchangeinthefinancefunction.

Ernst&Young 2003 Increasingdemandsfromshareholders,non-executives,regulatorsandgovernments,includingtheintroductionofSarbanesOxley(SOX)andHiggsandSmith,arecriticalchallengesforthefinancefunction.

FEICanada 2005 In2005compliancewasregardedasthetopchallengebysurveyrespondentsalthoughitwasnotexpectedtobesointhreeyearstime.

Ernst&Young 2006 CorporategovernancehasbeenthemaindriverofchangeintheCFO’sroleoverthepastfiveyears.

Mercer 2006 SOXhasincreasedregulatorydemands.RegulatorychangeshavemadetheCFO’srelationshipwithauditorsmoredifficultandtheinteractionwithboardsmoreintense.

CFOResearchServices/SAP 2007 Financeispulledintwodirections-regulationononesideandcompetitionandinvestorexpectationsontheother.Ithastorespondtobothpressures.

Deloitte 2007 Therisingnumberoffinancialrestatementsmeansfinancedepartmentsbecomeheavilyfocusedonaccounting,reportingandregulatorycompliance.

Capgemini 2008 Corporategovernancecontinuestobeofkeyimportance.

Ernst&Young 2008 FactorsmostcontributingtothechangingroleoftheCFOareincreasingregulatoryrequirements,expectationsfromboardandauditcommittees,corporategovernanceobligationsandriskmanagement.

Moreoverfinancialscandalsincreasethefocusonitsimportance

BIC 1992 Theimportanceofcorporategovernancehasbeenheightenedduetoriseofshareholderactivism(especiallyintheUS),furoreoverexecutivecompensation,thecosyrelationshipbetweenmanagementandbankers,poorprofitperformanceinmanycompaniesandthedesiretoovercomeshort-termismamongmanymanagers.Responsesincludestrengtheningtheinvestorrelationsdepartmentandauditcommittees,andengagingwithkeyshareholders.


2002 Accountingscandalsandrecessiondrivefocusonreportingaccuracy.

EIU 2006 Complianceisalong-termchallengeandverytime-consuming.CorporatescandalshaveledtoinvestorsrequiringmoreCFOtime.


2007 TheCFOsincreasingfocusonstrategywasinterruptedbytheimpactofEnron,whichforcedCFOstofocusonstewardship.2007sawamorebalancedpositiondevelopingwithanequalfocusonstewardshipandstrategydevelopment/valueaddingfunctions.

KPMG 2008 Enroncausedgreateremphasisoncontrolsandriskmanagement.

RegulationfeedsthroughtoimpactonManagementandControlandAccountingactivities

JohnsonandKaplan 1987 Theneedtoproduceexternalreportingthatmeetsfinancialaccountingrequirementsisamajordriverofmanagementreportingpractices.

CFOResearchServices/SAP 2007 Regulatorypressures,especiallySOX,pushthefinancedepartmenttowardsmorerigourincontrollershipandfinancialreporting.

Thereissomepressureforfinanceprofessionaltoworkonbroaderregulatoryissuesincludingsustainability

Ezzameletal. 1997 Accounting’sincreasinginvolvementinnon-financialinformationflows,coupledwithincreasingfinancialawarenessinotherspecialisms,willbegintothreatenaccountingasadistinctivefunction.Yetparadoxically,itssuccesswithinthenewgamedependsonitsabilitytomaintainsuchanidentitywhich,ofcourse,remainsfoundedonitsexternalreportingrole.


2001 Financeprofessionalsneedtomonitorandrespondtogrowingconcernoverthenaturalenvironmentwhichmayleadtochangedinvestmentcriteria,newreportingcontent(triplebottomline)andnewgreentaxes.

ACCA 2007 GreaterstakeholderscrutinyexpandstheroleofCFOfurtherintoethicalandgovernanceissues.


table a.1.9: Professionalisation of accounting


the accounting profession can play an influential role on finance activities. specifically:

Insomepartsoftheworldtheimplementationoffinanceactivitiesisstronglyinfluencedbythetrainingstandardsandethicsrequiredbyprofessionalbodiestowhichalargeproportionoffinanceexecutivesbelong

Armstrong 1985 Accountancy,asabroadrangeofsubjectsandtechnologies,hasaheavyrepresentationatkeydecisionmakinglevels.Thisispartlytheresultofeffortsbytheaccountingprofessiontoachievemanagerialascendencyincompetitionwithotherprofessions.However,inGermanyandJapanaccountantsarelessnumerousandlessseniorinmanagementhierarchies.

Loft 1986 AccountingdevelopedasaprofessionwithICAEWestablishingitselftowardsthesecondhalfofthe19thcentury.ProfessionalisationwastransferredintointernalmanagementaccountingwiththefoundationofCIMAafterWorldWarI.IntheUKaccountingiscarriedoutbyprofessionalaccountantswithallegiancestotheirprofessionalassociationsaswellastotheiremployers.Theprofessionalbodiesarecloselyinvolvedwiththecreationofmanagementaccountingasitis.

WhittingtonandWhipp 1990 Thefinanceprofessionwassuccessful,relativetomarketingandengineers,indevelopingaprofessionalapparatuscapableofconferringbothtechnologicalcompetenceandideologicalcredibility.

Matthewsetal. 1998 IntheUKaccountingqualificationshavebeenthedominantprofessionalpreparationforacareerinbusiness.

Jackson 2004 ICAEWfundamentalprincipalsare–integrity,objectivity,competence,performance,courtesy.

InternationalFederationofAccountants

2005 Aprofessionalaccountantinbusinessmustbecommittedtointegrityandethics.

IMA 2008 Managementaccountingisaprofessionaldisciplineintegralinformulatingandimplementinganorganisation’sstrategy.

AndersonandWalker 2009 OrganisationssuchasICAEWbecamesignificantplayersontheBritishprofessionalsceneandweretoexertconsiderableinfluenceonthedevelopmentofaccountancyinstitutionsandprofessionalideologiesinseverallocations.

Theaccountingprofessionhasconsolidatedandcontinuestoexpanditsinfluenceandimpact

GranlundandLukka 1998 Managementaccountingprofessionalisationanduniversityteachingandresearchdrivesconvergenceofpractice.

Lambert 2002 Professionalqualificationsareessentialforacareerinfinance.

Fogartyetal. 2006 Professionalscanseektoexpandtheirdomainofpracticebeyondthelimitoftheirtechnicalcompetence.

ProfessionalOversightBoard 2006 MembershipofUKbasedprofessionalaccountingbodiesexpandedbetween2000and2005withwomenmakingupanincreasingpercentageofmembers.

ChenandChan 2009 ThepublicaccountingprofessionhasgraduallycometoplayanimportantandindispensableroleinChina’sfast-growingeconomy.

Spada 2009 Theprofessions,includingaccounting,arevitaltotheUKeconomy.

Conversely,therearechallengesfromrulesbasedregulationandgreaterattachmenttoemployersratherthantheaccountingprofession

Cohenetal. 2002 Relationshipbetweenprofessionalsandtheorganisationtheyworkforarecomplexandchanging.

ACCA 2008 Increasedregulationmayseethedemiseofprofessionaljudgementinfavourofrulesbasedregimes.




table a.1.10: ownership


owners and those who hold an organisation accountable have a significant impact on how all finance activities are undertaken. specific aspects include:

Pressuretomeetandmanagefinancialexpectations

Demirag 1995 CFOsperceivethatcapitalmarketpressuresareincreasinglydirectedtoshort-termperformanceevaluation,butalsodonotseemtobelievethattheircompaniesbehaveinashort-termmanner.

EIU 1997 Thepotentialofglobalopportunitiesmakesinvestorsdriveforbetterprofitabilityandfinancefunctionsmustrespond.

Grinyeretal. 1998 TheemphasisplacedbythecapitalmarketsonreportedearningsmakemanyoftheCFOsoflargeUKcompaniesshort-termistintheirperceptionsandbehaviours.

Froudetal. 2000 Institutionalinvestorsarenotallthesame.Venturecapitalistandbreak-upspecialistsfocusontheshorttermwhilepensionfundsandinsurancecompaniespursuepredictablemedium-termflows.Thegapbetweeninvestorexpectationsandwhatmanagementcandeliverleadstochange.


2002 CFOshavetodealwithdemandsfororganisationstomakeimmediatereturnsoninvestmentsanddomuchmorewithless.Theyneedtoreducetransactionprocessingcostswhileincreasingtheeffectivenessofdecisionsupportandstrategicactivity.

Zorn 2004 Overtheperiodof1963to2000theinfluenceoftheCFOhasriseninUSfirms.Originatingaspartoftheconglomerateidealtohandlethefundingofdiversifyingacquisitions,viabeingthesolutionfrom1979forrespondingtoearningsthreateningchangestoaccountingstandards,toacontinuallyexpandingrolefocussingonmanagingshareholdersandstockprices.

Mercer 2006 CapitalmarketdemandshaveintensifiedrequiringgreaterCFOengagementwithinvestors.

Sawyers 2008 PressurefromtheCitytoprovideexplanationofthenumbersisbecomingverytime-consuming.

Thedegreeofownerinterventiononfinanceactivitiesvaries

Hopwood 1987 Theapproachandstrategicintentofownersimpactsonthewaysthataccountingactivitiesandrolesdevelop.

Whitley 1999 Shareholderlock-inandthedegreeofownermanagementimpactonhowcontrolsystemsdevelop.

Collier 2005 Socialcontroloftheowner-manageriscrucialinthedevelopmentandoperationofacontrolsystem.

Davila 2005 Theexistenceofoutsideinvestorswillbeadriveroftheemergenceofamanagementcontrolsystem.

CFOResearchServices/SAP 2007 Higherexpectationsfrominvestors,togetherwithcompetitivepressuresandlinemanagerdemands,pullfinanceexecutivestowardsamoreactiveroleinsetting,validating,overseeingandensuringexecutionofbusinessstrategy.

Theimpactofachangeinownership

Jones 1985 Theuseofaccountingcontrolspostacquisitionhadamajorimpactontheoperationoftheacquiredcompany.Inappropriatechangesuchasoverlyformalbudgetingproceduresandafocusoninternalinformation,asopposedtoexternalrelationshipswithstakeholderssuchasbanks,causedconsiderableundesirableeffects.

EuskeandRiccaboni 1999 Evidenceonhowwithachangeofownershipexistingsystemscanbeusedtomeetdifferentends.

NilssonandRapp 1999 Pressuretoimproveprofitabilityfollowinganacquisitionledtochangesinmanagementcontrolsystems.

Buscoetal. 2006(a) Whenthenewownerdrovechangethroughtheaccountingsystem,itsutilitywasdependentonensuringthenewsystemsweretrusted.

Deloitte 2007 CFOsarenowmoreinvolvedinnavigatingkeystrategiceventssuchasmergersandacquisitions.This,togetherwitharisingnumberoffinancialrestatements,meansCFOsarehavingtorethinktheirroleespeciallyintermsofhowriskismanaged.

Nor-AziahandScapens 2007 Evidenceofhowmanagementaccountingchangetriggeredbyachangeinthetypeofpublicownershipmetresistance.Theaccountingchangesbecameseparatedfromandonlylooselycoupledwithotherorganisationalchanges.




Theimpactofpublicsectoraccountabilityorcharitablestatus

Auditcommission 2005 Thepublicsectorfacesachangingandcomplexoperationalenvironmentand,giventhespecialaccountabilitiesattachedtothestewardshipanduseofpublicmoney,allpublicbodiesneedtorisetothechallengeofimprovingfinancialmanagement.

Oracle 2008 Publicsectororganisationsaresubjecttomanyofthesamedriversastheprivatesector.However,ofparticularnoteareincreasingpublicexpectationsandgovernmentinitiativestotightenfinancialcontrol,improvefinancialmanagementandpromotepartnershipworking.

CIPFA 2009 Thepublicsectorneedsinfluential,qualifiedfinancedirectorstoensurepublicsectorresourcesareusedwisely.

table a.1.11: size


an organisation’s size has a significant impact on how finance activities are implemented, specifically:

Largerorganisationstendtohavemoresophisticatedandformalisedmanagementandcontrolsystems,withthegreateruseofspecialists

Chandler 1977 Largescalebusinessesdevelopedbecauseadministrativecoordinationmechanisms(includingaccountingprocesses),permittedgreaterproductivity,lowercostsandhigherprofitsthancoordinationbymarketmechanisms.

Sathe 1983 Withincreasingsizeandbusinesscomplexity,theimportanceofthespecialist’scontributionstothebusinessdecisionmakingprocessisincreasing.

JohnsonandKaplan 1987 Accountingprocedureswhichenablecentralisedcontrolwithdecentralisedresponsibilitywereessentialtotheperformanceoflargefirmsadoptingmultidivisionalstructuresafterthe1920s.

MooresandYuen 2001 Themovementthroughorganisationallifecycles(birth,growth,maturity,revival,decline)impactsontheformalityofmanagementcontrolsystems.

Chenall 2003 Largeorganisationsarelikelytohavemoreformalisedmanagementcontrolsystems,divisionalstructuresandmoresophisticatedcontrols.

Caoetal. 2005 InChinathereisasignificantcorrelationbetweenorganisationalsizeandthenumberofaccountantsemployed.

Davila 2005 Sizewillbeadriverofthetypeofmanagementcontrolsystemthatdevelops.

Insmallerorganisationsfinancestaffmayhavebroaderresponsibilitiesandfinanceactivitieswilltendtobelesscomplex

Hussainetal. 1998 SmallcompaniesinFinlanddidnothaveeffectivemanagementaccountingsystemsanddidnotpickuponnewtechniquessuchasABC.

Greenhalgh 2000 ThiscaseshowsanSMEcontinuingtocopewiththeincreasedcomplexityoftransnationalexpansionbyusingasimple,traditionalaccountingsystem.Theapproachseemedtobecost-effectivewithoutanyadverseeffects.

Berryetal. 2002 SuggeststhatthereispatchyuseofmanagementandcontrolinformationinUKSMEs.


2008 InSMEsfinanceexecutivestypicallyhaveHRandothermulti-functionalresponsibilities.

However,thespecificimpactofsizeisnotalwaysclearbecauseofitsinteractionwithotherdrivers

Child 1973 Theimpactofsizeneedstobeconsideredinrelationtotechnology,location,environmentalvariablesandcomplexitytodrawmeaningfulconclusions.Althoughsizeisthemajorpredictorofformalisation.

Deloitte 2000 FindingsvariedlittlebetweenFTSE-100tosmallcapitalisationquotedcompaniesonhowCFOsseetheircurrentrole,andhowitwillchangeoverfiveyears.

Abdel-KaderandLuther 2007 Differencesinmanagementaccountingsophisticationaresignificantlyexplainedbysize,aswellasenvironmentaluncertainty,customerpower,decentralisation,AdvancedManufacturingTechniques,TotalQualityManagementandJust-In-Time.

CadezandGuilding 2008 Therearenouniversallyappropriatestrategicmanagementaccountingapplications,astheydependonarangeofcomplexfactorsincludingsize,strategytypeandmarketorientation.

DossiandPatelli 2008 Evidencethatsubsidiaryparticipation,culturaltoleranceforuncertainty,subsidiarysizeandglobalpressuregivePMSagreaterinfluenceondecisions.



table a.1.12: strategy


strategic focus drives how finance activities are implemented especially management & control. more specifically:

Thecompatibilityofstrategywithmanagementandcontrolpracticesisgenerallybelievedtobebeneficialtoorganisationalperformance

Bruggemanetal. 1988 Managementcontrolsystemsshouldbecompatiblewithstrategyinordertobeeffective.

ChenhallandLangfield-Smith 1998 Someevidencethatorganisationalperformanceispositivelyrelatedtomanagementaccountingpracticesandmanagementtechniquesthatareconsistentwithstrategicpriorities.

Otley 1999 Performancemanagementsystemsshouldincludefiveintegratedelements–objectives,strategiesandplansfortheirattainment,targetsetting,incentiveandrewardstructuresandinformationfeedbackloops.Differenttypesoforganisationalplansandstrategieswilltendtocausedifferentcontrolsystemconfigurations.

Neelyetal. 2001 Themajorvalueinredesigningplanningandbudgetingprocessescomesfromensuringtheyarealignedwithstrategy.

Chenall 2003 Propositionsinclude:1)defenderstrategiesareassociatedwithtraditional,formalmanagementcontrolsystems;2)acompetitorfocussedstrategyisassociatedwithbroadscopemanagementcontrolsystems;and3)anentrepreneurialstrategyisassociatedwithformalmanagementcontrolsystemsbutorganicdecisionmaking.

Capgemini 2007 Thefinancedepartmentmusttakealeadrolebyidentifyingthedriversofrealvalueandembeddingtherelevantmetricsintheorganisationalstructure.

Hyvönen 2007 Fitbetweencustomer-focusedstrategyandfinancialperformancemeasuresimprovescustomerrelatedperformance(eg,marketshare).

CadezandGuilding 2008 Thereisnouniversallyappropriatestrategicmanagementaccountingapplication–itdependsonarangeofcomplexfactorsincludingstrategy.

Howeveraligningmanagementandcontrolpracticesandstrategycanbechallenging

Langfield-Smith 1997 Areviewoftheliteratureindicatesthatknowledgeoftherelationshipbetweenmanagementcontrolsystemsandstrategyisunclear.

CooperandKaplan 1998 OperationalcontrolsystemsandABCsystemshavefundamentallydifferentpurposes.Operationalcontrolsystemsprovideinformationaboutprocessefficiencies;ABCaboutunderlyingeconomicsofthebusiness.

MalmiandIkaheimo 2003 Avalue-basedmanagementstrategywasfoundtobejustrhetoricinsomeorganisations,whereasinothersitimpactedbothdecisionmakingandcontrolsystems,takingvariousformsfromonefirmtoanother.

Henri 2006(a) Interactiveperformancemanagementsystemsstimulatestrategydevelopment,whereasdiagnosticperformancemanagementsystemscanhinderit.Workinginparalleltheycanprovidedynamictension.

ManagementandControlfeedbackcanbecomeembeddedinstrategydevelopment

SnowandHrebiniak 1980 Defenders,prospectorsandanalysersallshowcompetenceingeneralandfinancialmanagement.

Hittetal. 1982 Theprimary,toplevelorganisationalstrategysignificantlyinfluencestherelativeimportanceofcertainorganisationalfunctions.Financetendstobestrongwhenfirmspursueacquisitivegrowth,stabilityorretrenchmentandlessstrongwhenpursuinginternalgrowth.

Fligstein 1987 Between1954and1979financepersonnelhavebecomeincreasinglydominantastopmanagers.Thiswasbecauseofchangesinthestrategyandstructureoforganisations,changesinanti-trustlawsthatpromotedunrelatedmergersandthemimickingoffirmsinsimilarenvironments.

ColignonandCovaleski 1993 Evidenceofhowaccountingpracticesarepartofthestrategiccontrolsystem;theyinterprettheenvironment,anddirecttheadaptationoftheorganisationinamannerparticulartotheinterestsofcorporatedecisionmakers.

Naranjo-GilandHartmann 2007 Theuseofmanagementaccountingsystemspartiallymediatestherelationshipbetweentopmanagementteamheterogeneityandstrategicchange.

Aernoudtsetal. 2008 Awiderangeofstudiesprovideevidenceoftheinterplaybetweenmanagementcontrolsystemsandstrategicdevelopment.



table a.1.13: organisational structure


organisational structure is intertwined with how finance activities are undertaken. specifically:

Organisationalstructureinfluencesandisinfluencedbyfinanceactivities.

Hopper 1980 Organisationalstructureimpingesdirectlyonthequality,methodsandusageofmanagementaccounting.Theremaybebenefitsrelatingtodecentralisationofthefinancefunction,althoughthismustbebalancedagainsttheadditionalcostandlossofhierarchicalcontrol.

Hopper 1980(a) Decentralisationwasassociatedwithgreaterinteractionbetweenaccountantsandothermanagersandwiththeprovisionofaccountinginformationperceivedasmorepertinenttomanagerialneeds.However,theaccountants’passivityinmanagementwascriticisedunderbothcentralisedanddecentralisedstructures.

Dearden 1987 Profitperformancecontrolmustfocusonmonitoringwhatmanagerscaninfluence.

Chenall 2003 Propositionsincludethatteam-basedstructuresareassociatedwithparticipationandcomprehensiveperformancemeasuresusedforcompensation,andthatorganicorganisationalstructuresareassociatedwithfutureorientedmanagementcontrolsystemsandactivity-costanalysis.

Gerdin 2005 Someevidencethatmanagementaccountingsystemdesignisadaptedtofitorganisationalstructureanddepartmentalinterdependencies.

CFOEuropeResearch 2007 Organisationalcomplexity(eg,differentreportinglinesanddifferentproductlines)areabigbarriertoproducinggoodmanagementinformation.

Abdel-KaderandLuther 2008 Differencesinmanagementaccountingsophisticationarepartlyexplainedbythelevelofdecentralisation.

Organisationalstructureinfluencesandisinfluencedbyfinanceactivities

Chenhall 2008 Movetohorizontalorganisationalstructuresprovidebothopportunitiesandchallengesformanagementaccountingtechniques.

Milleretal. 2008 Accountingandriskmanagementisimpactedbothbyevolvingorganisationalhybridisation(definedtoincludeorganisationalforms,practices,processesanddisciplines)andthehybridisationofaccountingtechniquesthroughencounterswithotherdisciplines.

Departmentalstructuresinfluencethedegreeandnatureofcollaborationandconflictbetweenfinanceandotherfunctions

Landsberger 1961 Dilemmasfacedbyorganisationsresultinconflictsbetweendepartments.Departmentstendtotakeastandononesideofdilemmasincludingflexibilityversusstability,short-runversuslong-runconsiderations,emphasisontheclearlymeasurableversustheintangibleandemphasisingeconomicresultsversusnon-economicvalues.

RuekertandWalker 1987 Theeffectivenessofrelationshipsbetweendepartmentsandthelevelofconflictdependonarangeoffactorsincludingoverlapsinresponsibilitiesandobjectives,thenatureofcommunication,formalrulesandproceduresandconflictresolutionmechanisms.Onespecificfindingwasthatmarketingdepartmentsperceivedtherelationshipwiththeaccountingdepartmentaspositivelyrelatedtotheamountofconflict,possiblybecausetheyobtainagreatershareofresourceallocationbytakingahardline.

Lascuetal. 2006 Thelevelofconnectedness(sharingofresponsibilitiesandinformation)betweenfinance,marketing,productionandresearchdepartmentsispositivelyassociatedwithfirmperformance.UScompaniesshowedmoreinterdepartmentalconnectednessthanPolishones.

Onepossibletendencyiscloserinvolvementoffinancestaffwithoperationalactivities

BIC 1992 Concernwithfinanceefficiencyleadstouseofsystemsbasedsolutionstogetherwitheliminationofunnecessaryworkandthedevolutionofcertainresponsibilitiestofinancefunctionswithinoperatingunits.

BurnsandScapens 2000(a) Organisationswithprocessstructuresusecross-disciplinaryteamswithhybridaccountantswhoencompassaccountingknowledgeandanin-depthunderstandingoftheoperatingfunctionsorcommercialprocessesofthebusiness.

MaasandMatjka 2009 Emphasisingthecorporatecontrolresponsibilitiesofbusinessunitcontrollersisnegativelyassociatedwiththeirabilitytosupportlocaldecisionmaking.Inadditiontheroleconflictandstresscausedbythisfocusmayleadtoanincreasedtoleranceofdatamisreporting.

BhimaniandBromwich 2010 ITdevelopmentsaredrivingthedevelopmentofnewflexibleandfluidorganisationalstructuresandbusinessmodelsoperatingonaglobalscale.Managementaccountantscanrespondbymovingtobeingbusinesspartnersandworkingcloselywiththebusinesstounderstandenterprisetechnologyandmarketingstrategy.



table a.1.13: organisational structure continued


Financialincentivesinfluencethebehavioursofthosecarryingoutfinanceactivities

Kerr 1995 Rewardsystemshaveamajorimpactonbehaviour.However,organisationsoftenrewardinappropriatebehavioursratherthanthosetheywishtoencourage.

GilletandUddin 2005 CompensationstructurethatismoreperformancerelatedisnotagoodindicatorofCFOintentionstoreportfraudulently.

PfefferandSutton 2006 Financialincentiveshaveapowerfulimpactonorganisationalperformance–positiveandnegative.Thisresultsfrommotivatingfunctionalordysfunctionalbehaviours,attractingorrepellingappropriate/inappropriatestaffandprovidinginformationonthevaluesandprioritiesofanorganisation.

PwC 2008 Bonusstructuresinfinancialservicesfinancedepartmentsoftenrewardthesolvingofimmediateproblemswhichfostersa‘fire-fighting’approachratherthanthedevelopmentoflong-termsolutions.Wherefinancedepartmentrewardsarelinkedtotheperformanceoffrontofficeteamsthiscanleadtoaninherentconflictofinterestinwhichfinanceprofessionalsmaynotwanttochallengerevenuegenerators.

IndjejikianandMatejka 2009 Between2003and2007publiccompaniesmitigatedmisreportingpracticesinpartbyreducingthepercentageofCFObonusestiedtofinancialperformance.

Outsourcingandsharedservicecentreshaveaspecificimpactonhowfinanceactivitiesareimplemented

KPMG 1998 Theresponsibilityforfinanceactivitiesmaymoveoutsideofthefinancedepartmentwithtransactionprocessingandspecialistrolesbeingoutsourcedwhiledecisionsupportisintegratedintothebusiness.

Kulmalaetal. 2002 Outsourcingeg,ofmanufacturing,placesadditionalpressuresonaccountingtoachieveconsistencyofcostcalculationsinordertogainthebenefitsofopenbookaccounting.

EIU 2006 Sharedservicecentres,notoutsourcing,islikelytobethewayforwardforfinancedepartments.

Capgemini 2008 TheestablishmentofsharedservicecentresinthefinanceandcontrolfunctionwillstrengthenthepositionoftheCFO.

CIMA 2008 Theuseofsharedservicecentres-oftenoffshore-toreducethecostoftransactionprocessingiswidespread.Someorganisationsusebusinessprocessoutsourcingtoimproveefficiency.

table a.1.14: People


the knowledge, skills, interests and attitudes of finance staff and their relationship with staff in other functions impact on how finance activities are implemented. the following themes emerged:

Theskillsofstaffplayamajorpartindeterminingtheeffectivenessoffinancedepartments

Simonetal. 1954 Inthelongrun,thedegreetowhichfinancedepartmentstakeonbroaderresponsibilitieswilldependontheirabilitytoattractpeopleofsuperiorcompetence.

EIU 1997 Thedrivetotransformfinance,leveragenewtechnologyandacquirenewcapabilitiesplacesapremiumonstaffskills.

CooperandTaylor 2000 Theworkofclericalaccountantshasbecomeincreasinglydeskilledinaccordancewithscientificmanagementprinciples.Thetrendmayalsostarttoimpactonmoreseniorroles.


2001 Accountantsneedtoupgradetheirskillstoenablethemtotakeonadditionalresponsibilities.

BundersonandSutcliffe 2002 Functionallydiversemanagementteamswhereeachmemberhasabroadrangeoffunctionalexperiencesshareinformationandperformbetterthanteamswheremembersaremorespecialised.

Bunderson 2003 Afunctionalbackgroundthatprovidesvaluableexpertiseandissimilartothefunctionalbackgroundsofotherteammemberswillbeassociatedwithcentralityinateam’sworkflowandinvolvementinteamdecisionmaking.Howeverpowercentralisationwillbeacriticalmoderatorofdecisioninvolvement.


2005 Professionalaccountantsinbusinessneedadeepunderstandingofcorporatefinance,economicsandaccounting.




Theskillsofstaffplayamajorpartindeterminingtheeffectivenessoffinancedepartments

DeutscheBank 2006 Financestaffprovidegoodexecutioninbankrelationships,debtissuance,capitalstructureandinvestorrelationships.However,lesswellexecutedareworkingcapitalmanagement,decisionsupportandriskmanagement.

Mercer 2006 IncreasedpressuresandcomplexitymeanthatCFOsneedtoexpandtheirskillsetsandmanyorganisationsarelookingoutsidetofillthetopfinancialrole.

ACCA 2007 Thetopskillsrequiredforfinanceleadersarestrategicandbusinessinsight,regulatoryknowledgeandchangemanagement.

CFOResearchServices/SAP 2007 Twinpressureforcommercialperformanceandregulatorycompliancepushtheneedfornewanddifferentskillsinthefinancefunction.

Smith 2007 Inassessingstaffperformancethereisuncertaintyindeterminingtheextenttowhichthelevelofperformanceachievedwasaconsequenceoftheskillofthestafforthenatureofthetask.

CIMA 2008 Thekeytobusinesspartneringisfinancialexpertiseandanalyticalrigour,notanabilitytoprovideexpertiseinotherdisciplines.Financecanprovidebothqualitativeandquantitativemanagementinformation.

KPMG 2009 Skilledfinanceprofessionalsarerequiredtointerpretandmakeeffectiveuseofbusinessintelligence.

However,attractingappropriatelyskilledstaffcanbedifficult

Sathe 1983 Thereisaninherenttensionbetweenthecontroller’sresponsibilitytoensurecomplianceversuscontributiontodecisionmaking.Relativelyfewindividualshavetheskillsandjudgementnecessarytodealwiththiseffectively.

PierceandO’Dea 2003 Evidenceofaperceptiongapbetweenmanagementaccountantsandmanagers.Forexampleaccountantsmayfocustoomuchontechnicalvalidityratherthanorganisationalrelevance.Someaccountantswereabletobalancethesimultaneousneedforindependenceandinvolvementbutthisremainschallenging.

Hoffjan 2004 EvidencefromasurveyofadvertisementsthatintheGermancontextmanagementaccountantsareportrayedasspecialistsfocusedoncostsavings.Theyarewellorganisedbutinflexible,passiveanduncreative.

EIU 2006 Financefacesaskillcrunch-recruitingskilledstaffisthekeyobstacletotransformingthefinancefunction.

Deloitte 2007(a) Peoplefromfinancialplanningandanalysisbackgroundsaresoughtafterbutdifficulttofind.

ACCA 2008 Ascarcityofskilledfinanceprofessionalsmeansthereisaneedfororganisationstodeveloptalentmanagementprogrammes.

Accenture 2008 Attractingandretainingfinancefunctiontalentisamajorchallenge.

Ernst&Young 2008(a) Recruitingskilledfinancestaffisthemainchallengeforfinancefunctions.

Baldvinsdottiretal. 2009 Theimageoftheaccountant,asdepictedbyaccountingsoftwareadverts,haschangedfromthe1970stodatethroughthefollowingstereotypes-fromaresponsiblepersontoarationalperson,acommunicatingperson,anactionman,afolloweroftheinstructionsofmanagementgurus,apersongivingupcontrolandahedonisticperson.

CIMA 2009 Issuesfacingthemanagementaccountingfunctionincludeashortageofskillsinfinanceandotherdepartmentsandalackofinvestmentinfinance.Thereisalsoalackofunderstandingaboutthecontributionofmanagementaccountants,bothfromtheaccountantsthemselvesandfromusers.

Ernst&Young 2010 CFOs’graspofthefinancefundamentalsandtheirmanagementstrengthsleadtoexpandingroles.However,thisincreasesthepossibilityofconflictsofinterestforexampletheneedtobetheobjectivevoiceandtowinresourcesforoperationalroles.InadditionthesheerdemandsontherolecanrestrictthestrategicinputofCFOs.

Financedepartmentscanplayamajorpartinshapingtheirownrole

RobinsandFoster 1957 Thecontroller’srolehasriseninimportanceduetothewillingnessofthecontrollertoassumeinterpretiveresponsibilities.

Ezzameletal. 1997 AccountantsadapttotheinfluencefromotherdisciplinesbyshowinghowaccountingiscriticalintheimplementationofalternativeexpertisemostnotablywithrespecttoIT.

Chapman 1998 Accountingisanongoingprocessnotacollectionoftechniques.Thereforetheindividualsinvolvedintheseprocesseshaveasubstantialroleinshapingthem.



table a.1.14: People continued


Financedepartmentscanplayamajorpartinshapingtheirownrole

BurnsandScapens 2000(a) Morepro-activemanagementaccountantsareemergingwhoincreasinglybecomepartofthemanagementteamwithinabusinessprocess.

Seigeletal. 2003 Theachievementofbusinesspartneringhastobepro-activelydrivenbyfinancestaffandrequiresexpertaccountingskills,excellentinterpersonalskillsandanunderstandingofbusiness.

Capgemini 2007 Forsuccessinanuncertainandcomplexbusinessenvironment,CFOsandtheirfinancefunctionsmusttakeholdoftheirowndestiniesanddefinetheirownfutures.Againstthebackdropoffluctuatingeconomies,unstablecurrencies,andthecontinuedburdenofcompliancethisisnoteasy.

BaxterandChua 2008 TheoreticalandpracticalevidenceofhowaCFOusesanapproachperceivedasdifferenttoatypicalCFOandyetmobilisedtechnicalaccountingpracticestoshapehisroleandbuildinfluence.

However,topmanagementteamsalsoplayakeyroleinhowfinanceactivitiesarecarriedout

ChagantiandSambharya 1987 Evidencefromthetobaccoindustrythattheprofileofanorganisation’stopmanagement,includingtheirfunctionalbackground,willimpactonthestrategyorientationofanorganisation.Thosepursuingadefenderstrategytendtohaverelativelymoreexecutiveswithafinancebackgroundthanthosewithprospectororanalyserstrategies.

Finkelstein 1992 Topmanagementteamswithfunctionalbackgroundsinfinanceareassociatedwithdiversificationandacquisitionactivity.Thismaybebecausetheylackoperationalexperiencebutareadeptatcarryingoutdeals,achievingfinancialsynergiesandbuildingthenecessarycapitalstructure.Indeed,themanagerialjobinadiversifiedorganisationmayresemblethatofmanagingafinancialportfolio.

HoughtonandNeubaum 1994 Topmanagersfunctionalexperiencesinfluencetheirbeliefstructuresandthestrategicissuestheyidentify.

Melone 1994 CFOstendtobelessoptimisticthanCorporateDevelopmentExecutivesinassessingpotentialacquisitiontargets.InadditionCFOsplacemoreweightonfinancialmatterswhereasCorporateDevelopmentExecutivesbalancestrategicandfinancialconsiderations.

Amason 1996 Diversityintopmanagementteamsmayleadtodecisionmakingbenefitswheredifferentperspectivesresultincognitiveconflictbutnotifaffective(emotional)conflictarises.

EuskeandRiccaboni 1999 TheroleoftheCEOwaspossiblythefundamentalelementinhowthemanagementcontrolsystemwasusedandevolvedinanItalianbank.

Bruce/InternationalFederationofAccountants

2002 Ininterviewing10CFOsitwasalwaysinformation,itsusesandpower,whichlayattheheartofwhattheyweresaying.ThepivotalroleoftheCFOwouldremainandtherelationshipwiththeCEOwouldbeattheheartofthat-whetherasrestraininginfluence,guardianofthecorporateconscience,orastherealstrategistbehindtheboardsplans.

MalmiandIkaheimo 2003 ThepoweroftheValueBasedManagement(VBM)championmaydeterminehowitisadopted.InonecasewhereVBMwassuggestedbytheCFOotherswerenotveryappreciativeandVBMdidnotpenetrateasfardowntheorganisationwhencomparedtoacasewheretheCEOwasastrongsupporter.

Davila 2005 AreplacementtothefounderCEOdrovethedevelopmentofmanagementcontrolsystems-ineffectreplacinganentrepreneurialapproachwithaprofessionalmanagementapproach.

DavilaandFoster 2005 ForgrowingcompaniesthehiringofafinancialmanagerandtheadoptionofmanagementaccountingsystemsareassociatedwithCEOswithmoreyearsofworkexperienceandwhovalueplanning,aswellaswithlargercompaniesandcompanieswithexternalinvestors.

Canellaetal. 2008 Topmanagementteamswhosemembershaveawiderangeoffunctionalexperiencepositivelyimpactfirmperformance.Thisimpactincreasesastheproportionofstaffwithofficesinthesamelocationincreasesandenvironmentaluncertaintyincreases.

CIMA 2009(a) Businessleadersshouldconsiderwhatroletheywouldlikethefinancefunctiontoplay.Despitemuchrhetoricaboutbusinesspartnering,inmostorganisationstherehasnotbeenastep-changeintheroleoffinance.Althoughthereissomeevidenceofamorebusiness-orientedrole,manyaccountantsaremainlyoccupiedintransactionalaccountingandfinancialreporting.

DirectorBankGroup/GrantThornton

2010 TheCFOsabilitytobuildrelationships,particularlywiththeCEO,isessentialtohisorhersuccess.TheCFOisexpectedtochallengetheCEOwhileatthesametimesupportingtheCEOandtheboard.



table a.1.15: culture


Financeactivitiesareintertwinedwithorganisationalcultureandpolitics

Bhimani 1994 Accountingprocessesareaffectedbybehaviouralfactors,politicalpursuits,institutionalforcesandsocio-culturalvalueswhichinterfacewithintheorganisation.

Malmi 1997 AccountingsystemssuchasABCpotentiallychangethepowerdistributioninorganisationsandarethereforelikelytobecontested.

Fernandez-RevueltaandRobson 1999 Politicalpressuresmeantthebudgetingprocessbecamedecoupledfromoperationalreality-providingarituallegitimationtoensurethecontinuityofaplant,despiteitsseverefinancialdifficulties.

Waggoneretal. 1999 Internalinfluencessuchaspowerrelationsanddominantcoalitionshaveamajorimpactonthedevelopmentofperformancemeasurementsystems.Themanagementofpoliticalprocess,amountoftop-levelsupport,andtheriskofloss/gainforthestaffinvolvedarekeyfactorsthatshapechangestooperationalmanagementsystems.

AhrensandChapman 2002 Whilecontestsofaccountabilityanddifferingmanagementapproachesleadtoconsiderablelocaldiversityonthedetailofhowcentralperformancereportsareused,inbroadtermstheydisseminateheadofficestrategytooperatingunits.

Gurdetal. 2002 Changestoaccountingsystemsoftenlagbehindorganisationalchanges.Managementcommitment,strongleadership,educationandcustomerfocustendtoreducesuchlagasdoestheneedtorespondtofinancialdistress.Workforceparticipation,however,didnotprovetobeasignificantfactorinreducingaccountinglag.

CFOResearchServices/BoozAllenHamilton

2005 CFOsviewintractablecorporateculturesasamajorbarriertochange.

BoozAllenHamilton 2006 TheCFOsincreasingroleinriskmanagementneedstocoverculturalriskssuchasmisalignedincentives,unethicalbehaviourandcommunicationbreakdowns.

Henri 2006 Culturescharacterisedbyflexibilitywillusemoreperformancemeasuresandusethemtofocusorganisationalattention,supportstrategicdecisionmakingandlegitimateactionstoagreaterextentthanculturescharacterisedbycontroldominance.

AhrensandChapman 2007 Organisationalmemberscanactivelyreconstitutetheirmanagementcontrolsystemsbydrawingonthemasasharedresource;furtherasstructuresofintentionalitytheybothshape,andareshapedby,sharednormsandunderstandings.

Järvenpää 2007 Culturalchangeinterventionshaveanimportantroletoplayinchangingandembeddingmanagementaccountingpractices-inthiscasemovingtoamoredecentralisedbusinesscontrollerfunction.

table a.1.16: routines


Financeactivitiesareintertwinedwithorganisationalroutines

Hopwood 1987 Accountingisembeddedinthefunctioningoftheorganisation,co-existingandinterdependentwithsuchotheraspectsoftheorganisationasitsstrategy,structure,approachestothesegmentationofworkandotherorganisationaltechnologiesandpractices.

Argyris 1990 Managementwillalwaysdevelopdefensivegamingresponsestoovercomethepressuretoperformresultingfrommanagementcontrolsystemssuchasbudgeting.Thereforeitisnecessarytodesigninterventionswhichacceptandengagewithsuchdefensiveroutines.

WalshandStewart 1993 Organisationscannotbeunderstoodinisolationfromtheactivityofaccounting–norcanaccountingbeunderstoodinisolationfromtheorganisation.

Simons 1995 Beliefsandboundariesleversofcontrolprovideformalinformation-basedroutinesthatmanagersusetomaintainoralterpatternsoforganisationalactivity.

BurnsandScapens 2000 Managementaccountingchangewillbeinfluencedbyinstitutionalstructureandoperationalroutines.

Granlund 2001 Economic,institutionalandindividualforcesarerelevanttochangeandstabilityinaccountingsystems.Thecasestudyfoundforcesforchangeincludedmanagementneeds,theimitationofothercompanies’practicesandthewilloffinancestaff.However,continuitywonoutbecauseoffactorssuchasexistingorganisationalroutinesandtheresistanceofakeyfinancemanager.



table a.1.16: routines


Financeactivitiesareintertwinedwithorganisationalroutines

Heldenetal. 2001 Providesevidenceofhowatransferpricingsystemcanonlybeunderstoodinthecontextoftheothercontrolsystems,whichareusedforthecoordinationofinternaltransactionsandfororganisationalcontrolingeneral.

Joseph 2006 RecentevidencesuggestthattheroleoftheaccountantandtheCFOismovingfromtraditionalcontroltostrategicdecisionmaking,byprovidingvalue-addinginformation.Howeverforthistransformationtobeunderstood,itisnecessarytoemphasisetheaccountant’sinstrumentalrolesininteractingbetweenwithinstitutionalstructuresininitiatingchange.

Kilfoyleetal. 2009 Informalaccountingsystemsdevelopalongsideandinteractwithformalsystemsdriveninresponsetoday-to-dayrequirements.


77Appendix2–Developmentofthefindings

a2.1 summaryWedevelopedthefindingsthroughthefollowingiterativeprocess:

• Literaturereviewsofacademicandpractitionerstudiestoidentifyfindingsrelevanttoassessingtheroleofthefinancefunction.

• Proposaldevelopmentdrawnfromsynthesisingandinterpretingthestudyfindings.

• Consultationswithawiderangeofpractitionersandacademics,leadingtotheintroductionoffurtherliteratureand/orfurtherdevelopmentoftheproposals.

Theprocesswasinformedbythepre-understandingoftheresearchteamasfinancefunctionpractitioners;thetestforvaliditywaswhethertheconclusionsresonatedwiththeunderstandingsofpractitioners.

a2.2 literature reviewAsaresultoftheiterationsmentionedaboveweselected261studiesforinclusioninthisreport.Weselectedtheacademicstudiesfromtheaccountingandorganisationalliteratureonthebasisthattheyprovidedfindingsrelevanttotheunderstandingoffinanceactivitiesandfinancedepartments.Theywereidentifiedbydatabasesearchesanddiscussionswithacademicsandpractitioners.Accessingpractitionersurveysandreportscannotbecarriedoutinsuchasystematicwayasoldersurveysarenotgenerallyarchived.Whilewehaveincludedawiderangeofstudies,morecouldhavebeenincludedparticularlyinrespecttherelationshipbetweenfinancedepartmentsandmanagementcontrol.Afullbibliographyisprovidedatthebackofthereport.

Wewouldwelcomesuggestionsforotherstudiestobeincludedinupdatestothisreport.

Asignificantproportionoftheliteratureinformedthewaywehavedelineatedandpresentedthefinanceactivitiesintheframework.However,thefocusofouranalysisrelatesto20surveyswhichspecificallyresearchedtheactivitiesundertakenbyfinancedepartments,CFOsorfinanceexecutives.Inthemainthesesurveyswereundertakenbyleadingglobalaccounting,consultancyandfinancialservicesorganisations.Theyallincludedquestionsinrelationtothreeareas:

• Responsibility:Dotherespondents/departmentshaveresponsibilityforXXXactivity?

• Importance:Dotherespondents/departmentsconsiderXXXactivitytobeofhighimportance?

• Timeallocation:Whatpercentageoftimedotherespondents/departmentsallocatetoXXXactivity?

Thevastmajorityofthepapersalsoprovidedrelevantevidenceonhowfinanceactivitiesareimplemented.AsshowninAppendix1,TableAsomeofthesestudieswereaimedatidentifyingarangeofdriverswhichimpactontheroleofthefinancefunctionorthenatureofperformancemanagementandcontrolwithinorganisations.Theotherpaperscoveredmorespecificresearchquestionsandthereforeconsideredonlyafewoftherelevantfactors.

a2.3 Proposal developmentThestudyfindingswereanalysedandsynthesisedtoidentifythemesrelevanttounderstandinganddescribingthefinancefunctionandhowfinanceactivitiesareorganised.Theinitialpatterntoemergewastheoveralldistinctionbetweenfinanceactivitiesandthedriverswhichshapehowsuchactivitiesareimplemented.Thesewerethenrefinedintogroupingsandsubgroupings.

Forthefinanceactivitiesthestartpointwastolistthepotentialactivitiesfromthesurveyresponsestothepractitionerstudies.Thisprocessachievedawidecoverage,giventherangeoftimescales,geographies,respondenttypeandresearchorganisationssampledbythestudies.

aPPenDix 2 – DeveloPment of the finDings


78 Appendix2–Developmentofthefindings

Basedonthepremisethatfinanceactivitiesarelinkedbytheproductionanduseoffinancialinformationwemadeanumberofattemptstopresenttheactivitiesidentifiedandthelinksbetweentheminaconciseandmeaningfulway.Throughanumberofiterations,discussionsandconsultationswealightedontheactivitieselementoftheframeworkpresentedinthisreport.

Thedriversweredevelopedbyisolating,foreachstudy,theevidenceandfindingsthatrelatedtohowfinanceactivitiesareimplemented.Thefindingsoftheindividualstudieswerethenorganisedintothemes,helpedinpartbythosestudieswhichcoveredmultipledrivers.Againtheprocessoforganisingwasiterativeanddevelopedthroughdiscussion,consultation,reassessmentandredevelopment.

a2.4 consultationTheinitialframeworkandinterimfindingsweretestedthroughconsultationswithleadingaccountingpractitionersandacademics.Thefeedbackresultedintheintroductionoffurtherliterature,thereassessmentofexistingliteratureanditerativereinterpretationsofthefindings.ThepractitionerconsultationswereundertakenwithseniortechnicalstaffatICAEW,membersoftheICAEWFinanceandManagementFacultyandothersenior,practicingaccountingprofessionals.TheacademicconsultationswereundertakenwitharangeofleadingacademicsandthroughpresentationsatleadingaccountingconferencesattheLondonSchoolofEconomicsandGentUniversity.

a2.5 limitationsThereareanumberoflimitationswhichneedtobeconsideredinrelationtothefindingsofthisreport:

• Thepractitionerstudiesweregenerallyproducedbycommercialorprofessionalorganisationstomeettheirinstitutionalobjectives,notdisinterestedlyaddingtogeneralknowledge.Nevertheless,asthefinancedepartmentandtheCFOweretheirprincipalareasoffocus,theseorganisationshaveavestedinterestinensuringthattheirresearchiscredibleandvalid.

• Theacademicstudiesgenerallytakeamoredisinterestedapproach,wheredevelopingknowledgeandgreaterunderstandingisthekeyobjective,withtheidentificationofpracticalimplicationsasecondaryconsideration.NeithertheroleofthefinancedepartmentasawholenortheroleoftheCFOhavebeenamajorfocusforacademicaccountingresearch.However,researchonmanagementaccountants,managementcontrolandaccountingpracticedoprovidearelevantsourceofevidenceforunderstandingthefinancefunction.

• Thefinancefunctionaspectoftheframeworkrepresentsastylisedpresentationofacomplexsetofinterrelatedactivities.Therangeofterminologyusedtodescribefinanceactivitiesinthesurveysisindicativeofthiscomplexity.Asignificantlevelofinterpretationhasbeenrequiredtocategorisetheactivitiesinthewaythatwehave.Otherinterpretationsareofcoursepossible.

• WehaveonlyusedEnglishlanguagesurveysandliterature.WhileanumberofthesurveyshaverespondentsfromawiderangeofcountriesthereisasignificantbiastoEnglish-speakingcountries.

• Theliteraturewaslargelyselectedfromthefieldsofaccountingandorganisationalbehaviour.Otherdisciplines,suchasstrategyandmarketing,maybeusefulsourcesofadditionalinsights.

• Weareawarethatwehaveusedliteraturefromabroadrangeoftheoreticalperspectivesandhaveinterpretedandhighlightedfindingswhicharerelevanttoourfocusontheroleofthefinancefunction.InsomecasesthefindingshighlightedinthetablesinAppendix1arenotthemainfocusofthestudy.


79Acknowledgements

Thereport’sprincipalauthorsareDrPhilipSmithandRickPayne.

ICAEWisgratefultoEmmaBreger,RobertHodgkinson,ChrisJackson,EmmaRiddell,LydiaSteyn,NickToyasandJacquiWestandtothefollowingcommentatorsforprovidinghelpfulinputtothedevelopmentofthereportinapersonalcapacity.

PeterAllenCarolynBreshHelenJessonAndyNeelyAdrianRyanRobertScapens

MembersoftheFinanceandManagementFacultyCommittee

AttendeesattheManagementAccountingResearchGroupConference,LondonSchoolofEconomics,2010

Attendeesatthe10thManufacturingAccountingResearchConference,GhentUniversity,2010

Noneofthecommentatorsshouldbeassumedtoagreewiththeviewsexpressedinthisreport,andtheyarenotresponsibleforanyerrorsoromissions.

acknowleDgements


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