Chief Financial Officer - Explained
What is a Chief Financial Officer?
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Table of ContentsWhat is a Chief Financial Officer?What Does a Chief Financial Officer Do? Responsibilities of a CFOWhy Chief Finance Officer Position is importantKey Considerations for CFOsAcademic Research on Chief Financial Officer
What is a Chief Financial Officer?
A chief financial officer also known as CFO refers to a senior executive financial managerial position in a company. An individual holding this position has the responsibility of overseeing all financial/accounting activities of the company. The CFOs focus is basically on keeping track of the company's cash flow, including the overall financial planning and analysis. In the financial field, a CFO holds the senior-most position.
What Does a Chief Financial Officer Do?
Basically, the CFO is required to report to the Chief Executive Officer (CEO). However, his or her input on the investments of the company, management of income/expenses, and capital structure, is considered significant. Part of the company's overall success is attributed to the CFO. The CFO of the company always works with other senior managers to ensure that the company accomplishes all of its objectives. For instance, if there are plans to launch new campaigns by the marketing department, the CFO gives advice on the available funds. This enables them to plan within that budget. The CFO may also help the CEO to do a cost-benefit analysis, forecast, as well as acquire funds for various projects.
Responsibilities of a CFO
Basically, the CFO has the duty of planning as well as executing financial functions. He or she is accountable for all the financial and accounting components in the company. They include:
- Risk Management- The CFO has a responsibility of managing risks related to investments, foreign transactions exchange rates and interest rates.
- Treasury- It is also the work of the CFO to take charge of the company's investment activities. This ensures that the extra money is put to use to help generate more income, instead of it lying idle in the bank.
- Taxation- The CFO also ensures that the process of tax preparation such as income, international, and income taxes are handled appropriately.
- Investor Relations- Note that the shareholders do not always have information on how the company is financially performing. It is, therefore, the responsibility of the CFO to inform them of any important activities in the company. This ensures that the shareholders are not in the dark, an action that ensures that a good relationship is maintained.
- Controllership- This is a responsibility that requires the CFO to oversee the accounting system including the controller of the firm. He or she provides the shareholders and other managers in various branches, with all the financial reports. They use the reports to help them to make decisions and plan appropriately.
- Internal Audit- Auditing is also another CFOs responsibility within the organization. He or she is supposed to review and analyze all the financial records, to verify their compliance and accuracy. He or she is supposed to check the financial records and verify that they actually comply with the company's set procedures.
Why Chief Finance Officer Position is important
Basically, the responsibilities of the CFO have been to ensure compliance as well as quality control in the company. However, these roles have shifted to business planning and process changes, which makes the CFO a key partner to the CEO. Note that the CFOs contribution has a greater influence on the company's strategic plans. This is because most companies rely majorly on the CFOs opinions and reports to make decisions about the company's future position. This makes CFO one of the most important positions in any given organization. Also, in some countries like in the United States, they have seen employment growth in the financial industry. This is because the country has become an international financial hub, which has made many companies experience high-profit margins. This has lead to a high demand for CFOs by companies.
Key Considerations for CFOs
There are key things that CFOs must consider when executing his roles and responsibilities. They include:
- CFOs must ensure that the information they report is accurate. This is because most of the companys decisions are made based on the data reflected in the financial reports they make. Any misrepresentation of financial data by the CFO, will, therefore, negatively affect the overall operation of the company.
- Companies rely on the CFO to manage financial activities. The CFO must, therefore, adhere to the Securities and Exchange Commission (SEC) accounting principles when executing his or her financial duties. This ensures that a company does not get itself in any form of a financial problem for not following the set accounting principles.
- In addition, there are other regulatory entities such as the Sarbanes-Oxley Act, that CFOs must adhere to. This act specifically deals with prevention of fraud as well as disclosing financial information.
In the United States, CFOs are usually hired to handle taxation issues in the local, state as well as in the federal government. The CFO basically, acts as a link between the local residents and the accounting elected officials. They also oversee any other pending issues. The CFOs also have the responsibility of formulating financial policy and also managing government funds.
- What is the role of Managers of the corporation?
- What standards govern manager actions?
- Chief Executive Officer (CEO)
- Chief Financial Officer
- Chief Information Officer (CIO)
- Chief Investment Officer (CIO)
- Chief Legal Officer
- Chief Operating Officer
- Chief Risk Officer
- Chief Security Officer
- Chief Technology Officer (CTO)