Archives For Sarbanes-Oxley

tall building, modern CFOBy Jeffrey C. Thomson, CMA; President and CEO, IMA

According to The Changing Role of the CFO, a new report co-published by ACCA and IMA®, CFOs will face many challenges in the future, including global economic uncertainty and volatility, fluctuating energy prices, and turbulent currency markets, along with a shift in economic power. The report identifies emerging priorities that will impact the future role of the CFO and cites nine future key issues that will shape the finance function’s top job, including regulation, globalisation, technology, risk management, transforming finance, stakeholder engagement, strategy, integrated reporting, and talent.

Of course, these emerging priorities could well vary by global region depending on regulation, socio-economic factors, environmental conditions, culture, and more. But as a former U.S.-based CFO, I wonder if we in the U.S. face a couple of unique challenges associated with regulatory uncertainty and litigation. These issues exacerbate the ‘day-to-day’ challenges – and opportunities – of today’s CFO team.

First, let me tee up the uncertainty associated with regulation. Usually, when we discuss the CFO team’s lead role in dealing with uncertainty and disruption, it is in connection with consumers and competition, not regulation since that tends to be a ‘known’ quantity with exposure drafts, comments letters, discussion roundtables etc. before a regulation associated with financial reporting even goes into effect. Specifically, I am focusing on the uncertainty associated with adoption of IFRS in the U.S. Will the U.S. adopt IFRS? If not in full, what would an ‘incorporation’ model look like? The larger questions are around the degree to which U.S.-based CFO teams should begin the training process and technology changes necessary to affect a massive shift from the decades-old US GAAP. This is not the resource allocation challenge that CFOs deal with every day in trading off returns on various investments; it is a long-term decision to invest in training and technology without clarity as to ‘if, how and when.’

Smart CFOs will need to do two things: (1) Hire and nurture good technical talent, so adopting to any deviation to pure-play GAAP will be that much easier; and, (2) Stay close to the regulatory scene and be a proactive advocate for the best solution (e.g., SEC, FASB, IASB, IFRS Foundation, etc.)

The second, arguably unique challenge for U.S.-based CFOs is with integrated reporting, or, the evolution of external corporate reporting. At least in the U.S., the external disclosures are voluminous and yet do not adequately inform stakeholders as to long-term sustainable value generation and growth because they are too financially focused, too complicated, and yet not comprehensive enough. But the unique challenge in the U.S. is not so much about selecting more non-financial measures, or measures more of a leading indicator variety, or even how to source and report measures such as employee learning and growth, process improvements, sustainability, carbon footprint, societal contributions, or governance factors. It is the litigious nature of society and an often ‘unforgiving’ regulatory environment in the U.S. If this challenge is approached as ‘let’s report everything – and thus subject it to internal controls and audit – because it may be useful to some stakeholder in the future,’ then much like in the early days of Sarbanes-Oxley, integrated reporting will be viewed as a ‘social tax’ with little societal good and expensive shackles placed on corporate entities. There are no easy answers here, but leading CFOs need to be at the table to find the right balance, rather than waiting for the steam-roll effect of transforming external corporate reporting ‘to just happen.’

What do you think?