This post is part of a series on effectively leading the office of the CFO. In the series, we dive into the primary silos a modern CFO is responsible for and how they can most effectively be managed.
The Controllership function objectives are to safeguard the organization’s assets; track the financial activities of the organization; produce timely and accurate financial statements and ensure the flow of financial information for management decision making. Controllership is designed for the most part to “look backward historically”, while the CFO uses historical, current, and prospective looking data to aid in managing the future direction of the company.
The elements of Controllership include budgeting, reporting, and accounting for the operations of the business. Building an effective Controllership function depends on the complexity, size, industry standards, geography, and available systems to support the accounting and reporting of the business. Managerial approaches to the business must also consider the value of centralized vs decentralized functions, the benefits of management accounting vs GAAP accounting vs compliance accounting, the basis of accounting used, and the level of detail and timeliness demands for accounting and reporting.
Systems and Processes
The CFO is responsible for maintaining an established set of accounting processes as well as an accounting system organized to manage the data. While specific accounting software may have more bells and whistles than the next, all of them accomplish the same task. Accounting software is a tool for recording, tracking, and analyzing through queried reports.
Accounting processes contain all day-to-day operations for the controllership function. The processes are the guidelines for the accounting staff. They ensure that controllership activity is consistent and reliable. This includes all transaction recording, data management, financial analysis, closing procedures, budgeting, etc. All processes are designed from a specialized skill set present in the controller and CFO. The design of these processes takes into consideration all accounting regulatory compliance including GAAP or IFRS, audit guidance, and tax law. Without this specialized knowledge, a process could create more work in the future, or worse, produce an error that can seriously damage the company.
These are the first line of defense against misstatement. Internal control is an ongoing system to ensure that accounting duties are accomplished as planned and in-line with established processes. Not only does internal control support the reliability of financial data, but also plays a key role in preventing fraud. Controls such as segregation of duties are put in place to prevent an individual from having too much power over a given process, in turn discouraging fraud and promoting accuracy.
Given that the CFO can carry personal liability as an officer of the company, internal control becomes especially important security. The CFO must ensure that both preventative and detective control activities are in place and that there is adequate communication among the entire finance team. In addition to segregation of duties, other control activities include authorization, record retention, physical safeguards, IT controls, review procedures, etc.
The controllership function is responsible for producing tax filings including industry, state, and federal taxes. Also, the CFO and controller must be aware of upcoming legislation that may impact the taxation of the business. A strategic tax approach is essential to allow the company the best access to the bottom line. As with most disciplines under the office of the CFO, the smaller the organization, the more of a hand the CFO will need to play in ground-level activities. For instance, in larger companies, the CFO may rely on a Chief Tax Officer, which would make effective teamwork and communication the highest priority. In smaller companies, the CFO may only be able to internally rely on the controller and accounting staff to aid in the preparation of all tax work.
The CFO’s audit relationship is especially important in large public companies but is nonetheless an important part of the role even at a smaller organization. In the case of an external audit, the company needs to be sufficiently prepared in the way of internal controls and financial reporting. If the CFO is not prepared, the company can lose a tremendous amount of work effort and time to satisfy audit demands.
The CFO should work regularly with the audit committee, reporting through an established communication plan the continued activity of finance and accounting. Internal audit, whether a separate department or function of someone’s role, also needs to have regular communication with the CFO. Internal audit should be up to date on all new accounting issues, preparing for and implementing process changes promptly.
Controllership in the Ten Pillars of Finance
The McCracken Institute for Advanced Learning in Finance is based on a foundation created by CFOs called the Ten Pillars of Finance. These pillars make up the breadth of responsibility that falls under the office of the CFO. The controllership pillars breaks down into the sub-categories displayed in the graph below and outlined above in this post.
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