Professional Documents
Culture Documents
Contemporary
Business Issues
Module 1:
The accountant as
business adviser
cpaaustralia.com.au
Edition 14a
Published by Deakin University, Geelong, Victoria 3217 on behalf of CPA Australia Ltd,
ABN 64 008 392 452
First published July 2010, updated January 2011, July 2011, revised January 2012
Reprinted with amendments July 2012, revised January 2013
Reprinted with amendments July 2013, revised January 2014
CPA Australia Ltd 2014. This is an electronic version of the printed study material.
Apart from any fair dealing (e.g. for the purposes of private study) as permitted under
the Copyright Act 1968 (Cwlth), no part of this material may be copied, scanned,
transmitted, distributed or reproduced in part or in whole without the permission
ofCPA Australia Ltd.
Edited and designed by DeakinPrime
Printed by Blue Star Print Group
ISBN 978 1 74156 139 5
Authors
Courtney Clowes
Keith De La Rue
Dr Jane Hamilton
Marina Kelman
Dr Siri Terjesen
Dr Julie Margret
Dr Hayat Khan
Advisory panel
Geoff Crawford
Dr Mary Dunkley
Dianne Harvey
Gavan Ord
Director, KnowledgEquity
Independent consultant, speaker and director,
AcKnowledge Consulting
Independent consultant
General Manager, Mergers and Acquisitions,
National Australia Bank
Assistant Professor, Kelley School of Business,
Indiana University, USA
Senior Lecturer, Department of Accounting,
La Trobe Business School, Faculty of Business,
Economics and Law, La Trobe University
Lecturer, Department of Finance, La Trobe Business School,
Faculty of Business, Economics and Law, La Trobe University
Corinne Proske
John Purcell
Stephen Zigomanis
Travis Pemberton
Kylie Ross
Alisa Stephens
Belinda Zohrab-McConnell
DeakinPrime
The material used in this segment has been designed and prepared for the purpose of individual
study and should not be used as a substitute for professional advice. The material is not, and is not
intended to be, professional advice. The material may be updated and amended from time to time.
Care has been taken in compiling the material but the material may not reflect the most recent
developments and has been compiled to give a general overview only. Users of the material should
not act on the basis of any of the material without first obtaining professional advice specific to
their own situation. CPA Australia Ltd and Deakin University and the author(s) of the material
expressly exclude themselves from any contractual, tortious or any other form of liability on
whatever basis to any person, whether a participant in this segment or not, for any loss or damage
sustained or for any consequence which may be thought to arise either directly or indirectly from
reliance on statements made in this material.
Any opinions expressed in the study materials for this segment are those of the author(s) and
notnecessarily those of their affiliated organisations, CPA Australia Ltd or its members.
STUDY GUIDE
1.1
Module 1
COURTNEY CLOWES
Contents
Preview 1.3
Introduction
Objectives
1.4
Ethical interaction
1.26
1.30
Review 1.36
References 1.37
Suggested answers
Module 1
STUDY GUIDE
1.3
Preview
In this module, we introduce you to the Contemporary Business Issues (CBI) segment,
andpresent you with opportunities to consider key business and ethical concepts.
Youwill also be presented with real-life scenarios to illustrate some of the dilemmas
andlimitations thatmay be encountered in applying those concepts.
Many people perceive the role of the stereotypical accountant as sitting in an accounting
office or finance department recording and reporting financial information. However,
thatis avery narrow view! Accountants also act as internal and external business
advisers, carry significant ethical responsibilities, and have expanded their focus well
beyond financial measures to consider physical and social areas as well. Thefocus of this
segment therefore is to provide you with a broad range of knowledge that willsupport
you in fulfilling your many and varied roles as an accountant.
Accountants not only fulfil a variety of different roles within organisations, they also
perform different types of roles depending on the size of an organisation. Forexample,
insmall-to-medium enterprises, accountants are often responsible for the finance,
information technology (IT) and human resources functions, as well as contributing
strategic advice as part of the executive management team.
For many public practitioners offering accounting services, there is also the ability
to move beyond compliance services and offer strategic business support. These
practitioners have identified that they can add more value than simply preparing tax
returns and compiling financial statements. Theyare well positioned to supply services
in financial planning, riskmanagement, strategic planning, the explanation of industry
trends, andusing financial information to better guide organisations.
Helping organisations adapt to a carbon-constrained economy and corporate
social responsibility (CSR) expectations has expanded the role of the accountant in
providing advice and setting up new reporting structures and systems. Professional
accountants are perceived as credible and reliable sources of financial information.
However, itis now critical to properly collect, record and analyse physical data such as
energy consumed, raw materials used (and wasted) and emissions. As such, thereare
opportunities for accountants to be involved in educating others as to the many
issuesthat organisations face, as well as in shaping the debate within organisations
about howto respond to those issues.
Module 1 attempts to broaden your understanding as to some of the many varied roles
that will be important for accountants to fulfil. Specifically, it focuses on accountants
as strategic business advisers. This increase in responsibility, frombeing providers of
information to being partners in decision-making, is challenging. Itrequires a deeper
understanding of the industry in which the accountant operates, andtheeconomy,
aswell as global social, environmental and political issues.
Thismodule introduces the CBIsegment in terms of accountants demonstrating
business acumen within theirrolesunderstanding contemporary business issues
and being able to offeralternative courses of action that reflect an understanding of
commercial, ethicaland environmental constraints, in order to successfully address
such issues.
Module 1
Introduction
1.4
STUDY GUIDE
Module 1
Objectives
After completing this module, you should be able to:
n
explain the changing role of the accountant and the type of strategic advice that
business enterprises are increasingly requiring from accountants;
n
explain the key strategic issues of concern to small-to-medium enterprises and
propose how the accountant can provide support in these areas;
n
determine what actions you would take to facilitate ethical behaviour in a given
situation and why; and
n
evaluate how accountants can add value to organisations by enabling sustainable
business decisionmaking.
STUDY GUIDE
1.5
The need for advice may come about for a variety of reasons. Typically, it arises from
the need for technical or professional expertise where the individual or organisation
requesting the advice does not have the necessary skills, experience or time. However,
advice may also be required as a form of second opinion to objectively analyse
information or perhaps verify a decision that is about to be made. The opportunity
to draw on the experience of an external person who may have seen similar issues
inotherorganisations is an additional benefit.
We can see that there is a wide range of areas where organisations may request
specific technical help or advice. It is important to consider the underlying purpose
of the work that will be performed. In many circumstances, it will be a quest for
improvedproductivity.
Productivity = outputs as a ratio of the inputs
Productivity = how efficient we are at producing items
If we can improve the level of outputs for a given level of inputs we can produce more
at a lower cost. This means that if selling prices stay the same we can then either
generate a greater profit for the same number of sales or, alternatively, try and grow
themarket by offering lower prices and capturing a higher volume of sales.
The benefit of productivity can be kept by the owner of the organisation, or shared
amongst others:
n
with employees (higher wages);
n
with customers (lower prices);
n
withsuppliers (higher prices); and
n
with government (higher taxes).
Consider the competitive advantage of Toyota versus General Motors based on the
following productivity statistics provided by Geng (2005):
Production time per vehicle:
Improvement since 2003:
Average labour cost:
General Motors
Toyota
34.3 hours
27.9 hours
2.5%
5.5%
$73.73
$48.00
From this, we can start to understand why the average profit per vehicle for Toyota
wasUSD 1488 whilst for General Motors the average loss per vehicle was USD 2331.
Thinking about productivity may help us understand strategic decisions made
by organisations in terms of location of staff and facilities. One way to improve
productivity is to increase the output generated by the same employees. However,
analternative method is to use lower-cost employees to generate the same level of
output. As such, relocating functions to lower-cost countries (offshoring) may help
achieve this improvement. This issue is discussed further in Module 2.
Dramatic cost cutting and other short-term approaches can lead to false productivity.
The National Health Service (NHS) in the UK has recently received significant criticism
for its focus on achieving financial outcomes at the expense of its patients. Thepressure
to achieve productivity gains by having fewer staff look after higher numbers of patients
has led to thousands of unnecessary deaths due to poor care. What appeared to be a
productivity improvement has actually created significant harm(Francis 2013).
Module 1
1.6
STUDY GUIDE
Module 1
Question 1.1
What types of activities or roles could a professional accountant provide to improve
productivity for an organisation?
STUDY GUIDE
1.7
We need to consider where the demand for advice arises. Important factors influencing
the need for advice include: the firm size, the sector or industry, the geographic location
of customers and the growth strategy of the firm. From a supply perspective, the main
variables influencing the provision of advice include the availability of professional staff
and the referral of clients to the firm (Xiao & Fu 2009). This highlights the importance of
accountants developing the skills and knowledge to effectively supply these requirements
(capacity and capability) and to establish strong networks tocreatenewopportunities
(marketing and sales).
Despite these observations, there is sometimes an interesting disconnection between
the need for advice and actually obtaining that advice. Organisations that most
need advice may actually be the ones less inclined to request it. Entrepreneurs who
are selfconfident, headstrong and act rapidly, often deny the need for help. In such
situations, there are significant opportunities for professional accountants, whether in
business or public practice, to identify these needs and offer their services in a way that
is beneficial to both parties.
Table 1.1 outlines several characteristics that might apply to different-sized organisations.
These characteristics can be useful in identifying potential areas for advisory services
and highlighting the varying levels of complexity of issues that may arise. As you
read through the table, consider your own organisation, andwhether the descriptions
accurately depict what you have personallyobserved.
Table 1.1
Characteristics of different-sized organisations
Small enterprise
Organisation
n
n
Entrepreneurial leadership.
Focused product/servicerange.
Mid-sized enterprise
Strategy
Customer/
community
n
n
Large enterprise
n
Large, international
customerbase.
Success or failure of the
enterprise is felt through
the whole supply chain,
theemployee base and the
wider community.
Module 1
1.8
STUDY GUIDE
Small enterprise
Financial
Module 1
Governance
Work force
IT processes
Mid-sized enterprise
n
n
Large enterprise
n
n
n
Independent non-executive
board.
Formal and clear internal control
and reporting structure.
Full internal audit function.
Formal and specialised
functions and roles.
Most support services brought
in-house unless specific
decision to outsource.
Internally self-sufficient
(orfunction outsourced).
Has formal contingency plans
and business continuity plan.
Source: Adapted from International Federation of Accountants (IFAC) (2008), The crucial roles of professional
accountants in business in mid-sized organisations, IFAC Professional Accountants in Business Committee,
NewYork, September, pp. 524 <http://web.ifac.org/media/publications/7/the-crucial-roles-of-pro/the-crucial-rolesofpro.pdf> (accessed July 2012). Usedwith permission of IFAC.
Question 1.2
For each of the characteristics listed in Table 1.1 (i.e. organisation, strategy, customer/
community, financial, governance, work force and information technology processes), listone
example of thetype ofstrategic advice that professional accountants may be ableto provide.
STUDY GUIDE
1.9
Organisations are expecting more insightful advice from accountants about future
opportunities and risks stemming from the global attempts to deal with these issues.
Theyare also expecting increased probity and ethical behaviour. We will explore these
global issues throughout this segment.
Counterpoint
There is a counterpoint or opposing argument, to the idea that accountants should be
stepping out from their traditional role and pursuing advisory-type roles. Somewould
argue that accountants should limit themselves to their area of expertisethat is,
reporting and auditing financial information. This line of argument suggests that
roles like auditing of environmental information (e.g. emissions, pollution and waste)
require skills in engineering, environmental science and recording, capturingor
auditing physical events, rather than skills in auditing of financial information.
Insomecircumstances, these claims have been made by professions in competition
with accountants for these types of roles.
The response to these arguments is that the term accountant is incredibly broad,
andthe experience and qualifications of accountants span the whole spectrum
of business and public sector activities. While the accounting profession requires
itsmembers to abide by a set of professional standards, two key expectations are
thatprofessional accountants:
1 make the right decisions about the services they perform; and
2 deliver services with professional competence and due care.
So, rather than regulate what accountants can and cannot advise on, the profession
places greater reliance on the professional values, ethics and soft skills of the individual
professional accountant.
Question 1.3
Do you believe professional accountants are well placed to provide strategic advisory
services (outside the traditional areas of cost accounting, financial accounting and taxation)
to organisations? Justify your position.
Module 1
At any point in time, there will always be a number of globally relevant issues with which
professional accountants need to be familiar. At present, the most important of these are:
n
after-effects of the Global Financial Crisis and Eurozone crisis;
n
human-induced climate change and sustainability;
n
harmonisation or convergence of accounting standards; and
n
explosion of social media, live communications and cloud computing.
1.10
STUDY GUIDE
Module 1
Figure 1.1
Providing business advisory services
Review
Issue
Requirement
Implementation
Request
Decision
Advice
Investigation
STUDY GUIDE
1.11
Table 1.2
Stage
Example
Commentary
Issue
Lack of expertise
Requirement
Expert advice
Request
To professional
accountant
Investigation
Advice
Recommended action
Decision
To follow
recommendation
Implementation
Actually follow
recommendation
Review
To monitor progress
or outcome of
implementation
Module 1
1.12
STUDY GUIDE
This example reveals a common flaw with many small business arrangements; that is,
they rarely encompass succession or exit plans (whether for the overall business, or for
individual employees orshareholders). It therefore highlights the need for strategic
advisory services at the earliest point inbusiness operations, rather than waiting for a
difficult situation to arise.
Module 1
Accounting roles
A broad range of roles that accountants perform is identified in the Ethics and
Governance segment of the CPA Program. As business leaders in an international context,
accountants can perform many diverse roles in the profession, including:
n
financial accountant;
n
financial executive supervising a team of accountants (chief financial officer (CFO),
financial controller);
n
management or cost accountant;
n
internal auditor; and
n
public practitioner (audit, assurance, financial management, taxation, forensic).
These roles can be matched with the main activities performed by professional
accountants in business as identified by the International Federation of Accountants
(IFAC 2005, p. 4):
Our focus here is on the accountant as a strategic business adviser. This may arise
either as an employee providing advice internally, or as an external service provider
advisingclients.
From the more traditional areas of finance, right through to supply chain management
and talent management, the ability to review, assess and improve a business in multiple
areas is an increasingly important skill.
STUDY GUIDE
1.13
One assignment involved helping a call centre operation that was struggling. The organisation had
beenlosing millions and was facing considerable difficulty. The tasks they performed in order to
turnthis organisation around involved the following:
Financial skills
Technical skills
Fyffe is quoted as saying we worked through the whole financial cycle to see how we could
save money the work also consisted of transforming data into actionable information, and the
organisation ended up turning around from its losses (IFAC 2008, p. 28).
To read more about this and other examples of professional accountants in business please
downloadThe crucial roles of professional accountants in business in mid-sized enterprises,
foundat <http://www.ifac.org/about-ifac/professional-accountants-business>.
This example demonstrates that accountants need to be able to act quickly in a wide
range of areas that are often seen to be outside the traditional accounting realm
(e.g.talent management/employee skills and supply chain management). It is important
to consider the different skills you would require to hire and terminate employees,
dealwith fraud, improve sales, refinance existing assets, restructure debt and turn losses
into profits (all within a short timeframe and whilst managing a variety of stakeholders).
Question 1.4
The business advisory industry thrives during periods of business change and hardship
(IFAC 2008, p. 26). Explain why this may be the case.
The variety of advice that can be provided is extremely broad, and is often dependent
on the roles currently being performed, as well as the experience and skills of the
individual accountant. The example below examines two types of specialist accounting
roles and suggests ways in which they can lead to strategic adviser roles.
Module 1
Whilst many assume that accountants focus purely on the numbers, the reality is that help can
be provided in a much broader set of circumstances. Consider the example of two professional
accountants, Ross Fyffe and Ivan Boardman, who provide consulting services to mid-sized
organisations under significant pressure.
1.14
STUDY GUIDE
Module 1
Forensic accountants provide expert witness, investigative or consulting services (APES 215,
APESB2008). The term forensic refers to a level of assurance that is suitable for legal proceedings
(i.e.use in court). Typically, forensic accountants provide advice on finance-related transactions
or conduct that may be illegal, unethical or otherwise improper (e.g. allegations of fraud or money
laundering). Strategic advice may be in the form of risk analysis and reductionideally provided prior
toany disputes, litigation or allegation of wrongdoing.
Taxation accountants ascertain their clients or employers tax liabilities or entitlements, and satisfy their
obligations under taxation law (APES 220, APESB 2011b). We typically think of taxation accountants
providing compliance-related services (e.g. preparation of a tax return). However, theprovision of
tax planning and advisory services (e.g. transfer pricing or entity structures) can providesignificant
strategic value tothe organisation.
Question 1.5
1 Soft skills, especially communication skills, networking and the ability to manage
relationships, are extremely important to progress to senior roles in accounting/finance.
At the CFO level, how important do you think it is to betechnically competent in the
finance role, compared to actually managing the financerole? Explain your reasoning.
2 A contemporary business and social issue is maintaining worklife balance. What risks
does an accountant providing strategic advice face inthisarea?
3 In the CFO role, howimportant do you think it is to:
STUDY GUIDE
1.15
Research findings based on 513 founders of small businesses have indicated that small business
owners who obtain counsel from accountants and/or attorneys are more likely to consider the
full spectrum of implications of legal entity type and are generally more satisfied that their choice
willpositively affect firm profitability (Hertz, Beasley & White 2009, p.81).
Table 1.3
Types of advice provided by professional accountants
Financial management
People management
Sustainability
To provide this type of strategic advice, accountants need more than technical
accounting skills. They also need a range of soft skills, including the ability to
communicate, influence and negotiate. Empathy, the ability to identify with clients
andtheir needs, isrequired, and the hard-to-describe skill of execution is also essential.
Wecan describe execution as the ability to get things doneto break down barriers,
meetdeadlines and deliver results that are at or above expectations. Itdescribes the
ability to turn knowledge of what could or should be done into action and results.
Execution skills areoften the difference between a knowledgeable adviser and a
successful one.
Soft skillsCommunication
Many accountants rely on their technical expertise as a sufficient basis for clients to
accept the advice and guidance they are given. However, being right is not enough.
Just as important as having potential answers is to be able to communicate them in a
manner that is readily understood by the receiver of the information, whomay not be
an accountant.
In Module 6 we explore communication in detail, including evolving ecological
modelsthat have greater interaction between sender and receiver of messages.
In the past, strong communication skills were often categorised as either verbal or
written. But, with electronic communications and the power of the internet to reach
so many people faster than ever before, there is a need to communicate across a much
wider variety of mediums.
As part of this change the traditional model of one-way transmission from sender to
receiver is changing to one of simultaneous transmission and reception of messages.
That is, you are not just providing advice and information, you are also receiving
feedback, interaction and information that you must incorporate into your own
messages. Ignoring others is unlikely to lead to successful communication. This is more
closely linked with the expected style of todays accountants, who should be advisers,
partners and collaborators, rather than the sole providers of specialised knowledge that
is dispensed to others.
Module 1
Some of the types of advice that may be provided by professional accountants are
shown in Table 1.3.
1.16
STUDY GUIDE
Module 1
People often feel uncomfortable or fearful when interacting with accountants because
they may not understand the language, concepts or ideas being discussed, and feel
vulnerable or foolish as a result. For this reason, when providing advice, it is helpful to
avoid jargon or technical terms without clearly explaining them. The overarching aim
is to make people feel comfortable so that they are able to understand and act on your
messages. If they feel unsure or intimidated, this is unlikely to occur.
Other factors that may hinder communication will be clients or employers facing
difficult economic decisions or hard choices between multiple options which may lead
to tension and conflict in the workplace. Understanding where there is, or may be,
potential interference, and adjusting your communication techniques to minimise this,
is important.
Some of the ways accountants can help to demystify accounting information is by
communicating it visually, with diagrams, colours and graphs. Specific examples include
traffic light systems, where results coded as green (good), yellow (caution) and red
(bad) help show non-specialists where to focus their attention, and what the results
actually mean. An example of this is shown in Figure 1.2 below.
Figure 1.2
Colour-coded traffic light reporting system
Indicators
July
August
September
Total
KPI 1
x%
x%
x%
x%
KPI 2
x%
x%
x%
x%
KPI 3
x%
x%
x%
x%
KPI 4
x%
x%
x%
x%
KPI 5
x%
x%
x%
x%
KPI 6
x%
x%
x%
x%
KPI 7
x%
x%
x%
x%
KPI 8
x%
x%
x%
x%
KPI 9
x%
x%
x%
x%
KPI 10
x%
x%
x%
x%
Status
Trend line
Financial
Environmental
Customer
Employees
Green (good)
Yellow (caution)
Red (bad)
An additional communication issue that affects accountants is effective filtering.
Whenwe attempt to communicate too much data or information we overload the
receiver. Too many reports can be just as harmful as too few. In Module 6 you will
explore a whole range of communication approaches including communicating with
non-accountants and, social networks, and planning your communication. It also
explores knowledge sharing, which helps us understand how people horde and guard
their knowledge rather than transferring it to others.
STUDY GUIDE
1.17
Figure 1.3 provides a snapshot of the variety of roles the accountant as an internal
employee may provide.
As you review Figure 1.3, consider the meaning of the embedded circles and the
significance of theinward and outward arrows for the accountant as an internal adviser.
Figure 1.3
The roles and domain of the professional accountant in business
CEO,
Independent
directors
Other
directors
Educators
Strategic
support
Business
assurance
Risk
management
Business
accounts
Shareholder
communications
Financial
reporting
Business
strategy
Finance
strategy
Management
information &
analysis
Stakeholder
communications
CFO
Corporate
finance
Enterprise
governance
Treasury
Consultants
Internal
control
Information
strategy
IT
Project
management
Member in
other roles
Advisors
Source: International Federation of Accountants (IFAC) (2005), The Roles and Domain of the
Professional Accountant in Business, IFAC Professional Accountants in Business Committee,
NewYork, November, p. 3 <http://www.ifac.org/sites/default/files/publications/files/the-roles-anddomain-of-the.pdf> (accessed October 2012). Used with permission of IFAC.
We can see from Figure 1.3 that there are a broad range of roles including high-level
finance, business and information strategy combined with enterprise governance,
aswell as more specific roles such as internal control, business assurance, treasury and
project management.
Module 1
Module 1
1.18
STUDY GUIDE
Small-to-medium enterprises
There is no single definition of an SME, and while precise definitions may vary between
regions, there are some broad themes that help provide clarity. Usually, SMEs havea
lownumber of employees relative to large, listed corporations. Ranges are usually
zeroto10 employees for a micro business, 11 to 100 for a small business and up to
either 250or500 for a medium enterprise. They also have relatively lower levels of
turnover, profitsand assets, and find it more difficult to access external sources of
funding. Theyare often family owned, and family desires and relationships may be
intertwined with the usual profit objective.
Smaller organisations often require generalist staff who have skills across a broad range
of areas and who must perform a variety of tasks within the organisation. While larger
organisations can usually afford to hire specialist staff, smaller firms may not be able to
afford (or may not need) the services of a full-time professional accountant. Wherefirms
do require full-time support, the accountant must often be a skilled generalist who is
able to perform management accounting, financial accounting, financial management,
taxation, compliance and other services, or contract out specific pieces of work.
Many SME owners fail to consider a variety of issues, including globalisation
(importing, exporting and foreign exchange), appropriate financing arrangements,
intellectual property protection, the role of the internet and corporate compliance
requirements (Calverley 2010). So, first, it is important for accountants who work for
these organisations to be aware of the critical issues and risks that are faced by the
organisation. Second, in order to play a more valuable role, there is significant scope
foradvisory services that can help manage risk and improve results.
It should be noted that many accounting firms also fall into the SME category
(i.e.based on their number of employees and turnover) and so face similar issues to
other organisations in this category. While a person may be technically proficient at
accounting-related tasks, this does not automatically lead to the conclusion that they
are able to successfully run their own business, which also involves sales, marketing,
systems, managing staff and other non-accounting skills. Therefore, it is imperative
that accountants focus on running their practices effectively in order for their advice
tohavecredibility. Example 1.6 helps provide some background to key issues that SMEs
in the AsiaPacific region face, which is useful knowledge when determining what
typeof advice is suitable.
STUDY GUIDE
1.19
Employment trends
Access to finance
Business advice
To read more about these findings please download The CPA Australia AsiaPacific Small Business
Survey 2012 from: cpaaustralia.com.au/cps/rde/xbcr/cpa-site/small-business-survey-2012.pdf.
Both the need and the opportunity for strategic advice are high. An accountant can
add value by evaluating financial consequences and strategic outcomes of capital
investments. Anaccountant who can recommend new products and services and help
support marketing efforts based on external economic analysis will be more useful than
one who can only provide the estimated cost structure and basic revenue forecasts.
Module 1
CPA Australia undertakes an annual AsiaPacific small business survey to gauge key business issues
in the region, including growth expectations, access to finance, employment trends and business
management practices. As CPA Australias CEO has noted: Small businesses are key economic drivers
and their state of health are not onlyindicators of broader economic performance but catalysts for
suchperformance (CPA Australia 2010).
1.20
STUDY GUIDE
Module 1
Violinist Andr Rieu, one of the worlds most famous performers, often plays to packed stadiums
around the world. However, behind every good performer, there should be a well-run operation.
Roelvan Veggel is the CFO and concert tour director of Andr Rieu Group. His generalist role
coversabroad range of activitiesfrom dealing with significant internal growth in sales and
staff numbers to obtaining finance to support growth while instilling financial disciplineall done
whileremembering tofocus on the founders vision.
A large part of an accountants role may focus on adding value. Identifying the success or
otherwise of product lines (e.g. concerts in different countries and stadiums for the Andr Rieu
Group), thestreamlining of revenue collection and more transparent cost information are just some
examplesofthese valuable services.
By handling your primary accounting responsibilities successfully, it may be possible to expand the
scope of your role beyond traditional boundaries. As Roel van Veggel states: You can create your
ownjob Youre expected and encouraged to look for potential needs throughout the company;
ifyousee a challenge you can address, you pick it up (IFAC 2008, p. 6).
Some areas of business have often been seen to be outside the area of accounting
expertise. However, Example 1.8 shows that financial analysis combined with business
understanding can be useful in many areas.
STUDY GUIDE
1.21
While Cadbury (2000) identified that family businesses often demonstrated strong
identity and clear, longer-term vision, there were other problems. Major risks included
dissension between family members, especially when the roles intertwined between
being a shareholder and being an employee. Difficulties also arose as growth occurred
for example, the increasing need for non-family employees, having to share control with
external financiers, and a lack of separation of strategic and operational issues. Succession
planning also became an issue over generations. Useful recommendations included
creating a board of directors, including external non-family directors, andproviding
external objective advice to help examine issues when family-member viewpoints may
be clouded.
As advisers, it is important to be able to understand the size, type, purpose and vision of
an organisation. Without a clear understanding of its structure and style, it is unlikely
that an adviser will be able to identify all the relevant issues and provide appropriately
tailored advice. Learning to deal with executives/owners who have a strong emotional
attachment to an organisation as well as a significant financial interest is a valuable skill.
Module 1
1.22
STUDY GUIDE
Module 1
One useful concept that helps explain the different needs of entrepreneurs is the business
life cycle. A traditional life cycle will see an organisation move from formation to growth,
then reach maturity, followed by decline. Entrepreneurs, who are in the formation
and growth phase, often have a different focus compared to those that are now in the
maturity phase with well established products, services, customersandmarkets.
An example of a successful entrepreneurial startup is Airbnb, founded in 2008.
Itsapproach is a twist on the normal accommodation plans for most travellers
insteadof booking into a hotel, Airbnb has created a matching service that links
travellers with individuals who are willing to rent out their own houses and apartments.
By 2011, thecompany was able to raise USD 112 million in funding and now claims
tohave listings in nearly 200 countries (Takahashi 2011).
Entrepreneurial activity requires certain support that accountants may be able to
provide. Access to funding is normally a very difficult process and accountants can help
identify and guide people through different sources (e.g. from family members, banks,
angel investors and venture capitalists). Business plan documentation, revenue and cost
forecasting, scenario analysis, risk management, and identification and management of
intangible assets are all essential components of entrepreneurship where support and
advice may be beneficial.
One additional benefit accountants may bring to entrepreneurial activity is the ability
to balance both compliance and performance roles. Risk-taking is important, butit
still needs to be considered and managed carefully. A balance is needed between
quick decision-making, energetic action and rapid change on the one hand, and calm
evaluation of the situation and ensuring legal compliance on the other. Accountants can
help provide an objective evaluation of performance, governance, structures and systems
whilst still encouraging innovation. In Module 5, we focus on innovation and managing
risk, and we explore the concept of entrepreneurship in more detail, including social
entrepreneurship, and links with economic development and the global economy.
STUDY GUIDE
1.23
Accounting roles in public practice are varied, and can include financial accounting
(and book-keeping), taxation, auditing, insolvency, mergers and acquisitions, as well
as advisory services. Often, accountants will specialise in one particular accounting
discipline. The opportunity then arises to partner with other accountants who
offer specialised and complementary services in another accounting discipline.
Suchpartnerships can exploit the benefits of cross-selling, where existing clients
are offered additional services, thereby increasing income levels and, hopefully,
furtherentrenching the client relationship.
Other industries are keen to team up with accountants because of their established
client base. The following extract outlines a scenario where financial plannersare
encouraged to partner with CPAs to provide holistic wealth management services
thatis, accounting, financial planning, estate planning, mortgage broking,
insuranceand stockbroking.
one of the biggest challenges CPAs face is one of your biggest opportunities:
the desire of many CPA clients to receive comprehensive financial planning
and financial services from their accountants
The good news is that you can make a compelling case that CPAs can address
nearly all of these difficulties by partnering with the right financial adviser
that is, one who provides comprehensive wealth management
You also must emphasize that the CPA firms clients would be receiving the
comprehensive wealth management services that they are already seeking and
that would keep them as clients. Your approach should be to highlight the
win-win-win situation an alliance would create for the clients, the CPAs and
you(Bowen 2009, p. 26).
Partnering with the legal industry can also provide cross-selling opportunities for
accountants, especially for corporate clients. Accountants are often confronted with
commercial legal issues surrounding contract management, taxation, mergers and
acquisitions and insolvency. Having the ability to offer a full range of commercial and
financial services can be a key competitive advantage.
Marketing
When an accountant decides to step into the strategic advisory role, they need to realise
that there is often more work to be performed than just advisory services. Thereality
is that an accountant needs to build up a client basethrough sales and marketing.
Currentclients may be used to receiving only the more traditional services. In order
to expand the service offering, accountants need to be able to communicate the new
services that they are able to provide and why these services are useful to the client,
and demonstrate that the pricing is appropriate. Marketing skills and non-billable time
building client relationships become essential, and these skills need to be developed
andrefined.
Strategic advice
When we talk about providing strategic advice, we are not simply limited to advising
on an organisations strategy. Advice can be strategic in nature, even if it relates to the
technical and operational aspects of an organisation. Strategic advice should, however,
have the longer-term objectives of the organisation in mind, whilst focusing on the
various steps and initiatives that are required to achieve those objectives.
Module 1
1.24
STUDY GUIDE
If you are going to provide strategic advice, it is crucial to understand not only what
your client needs and wants, but also your clients state of mind. You need to have a
clear understanding of the how the organisation approaches issuesso that you can
effectively guide them along. The advice by itself may not be of much value without
guidance towards successful implementation.
Module 1
Table 1.4
Provision of strategic advice
Client behaviour
Potential approach
However, it is not enough to say accountants should give strategic advice in these areas.
To clarify what this might actually mean, a specific example follows of turning advice
into results in the area of cash flow collectionan area that has been identified as
critical for many organisations and yet is often poorly managed.
STUDY GUIDE
1.25
Improving collections is a combination of technical understanding and procedural and operational skill.
From a technical side, the accountant can capture and report the structure of accounts receivable or
debtorsthat is, how many debtors are current or 30/60/90+ days overdue. From here, analysis can
be used to calculate the financial cost of these delayed payments as well as the risk and value of bad
and doubtful debts.
The traditional role of just reporting the level of debtors on a balance sheet has evolved. Theinformation
that is provided can help identify potential underlying issuesthat is, the strategic adviser can quickly
provide information to a client about whether there is a problem, such as a negative trend line, anincrease
in bad and doubtful debts or a declining cash balance.
This information could be combined with an analysis of external factors, such as customer industries
that are experiencing economic decline. The next step would involve reviewing the systems and
processes forissues such as:
n how and when invoicing is done;
n how credit terms are established;
n establishing whether statements are provided;
n when and how reminders to customers are made; and
n how slow payments are followed up.
In many circumstances, formal procedures are either non-existent, or employees do not heed them.
The opportunity then arises to develop and implement systematic procedures for invoicing and
cash collection. Improvements can be measured against the baseline trends that have already been
noted. The financial benefits from improved cash flow collection (lower net working capital financing
requirements) can be easily calculated and the non-financial benefits (such as less stress from having a
stronger cash balance and less time wasted chasing up slow-paying customers) can also be discussed.
The end result is the accountant, working in strategic partnership with the client, creating not only a set
of financial results, but systematically improving profits, cash flows andbusiness efficiency.
Module 1
1.26
STUDY GUIDE
Question 1.6
Module 1
Refer back to Table 1.1. Consider the strategic advice that a professional accountant
could give an enterprise in relation to its customers. Explain how that advice might differ
depending on whether an accountant was advising a small, medium or large enterprise.
Ethical interaction
We now turn our attention to another consideration for the accountant acting as a
strategic business adviser. Ethical decision-making is increasingly important in todays
business environment and is expected in many industries. In this section we explore
the ethical dimensions involved in providing strategic advice, and how the traditional
attributes of professional accountants, including integrity, honesty, credibility and service,
form a strong foundation for accountants to provide appropriate support toorganisations.
Professional accountants are much more than just numbers-focused. They are expected
to be able to tie together:
n
quantitative/financial factors;
n
qualitative/non-financial factors;
n
strategic and operational attributes; and
n
ethical, social and moral implications.
As members of CPA Australia, it is a mandatory requirement to comply withAPES110
TheCode of Ethics for Professional Accountants (the Code) (APESB2011a). TheCode is
examined in detail in the CPA Program EthicsandGovernance segment, and requires that
a member act in the public interest and maintain the following fundamental principles:
n
Integrityto be straightforward and honest in all professional and business
relationships.
n
Objectivityto not allow bias, conflict of interest or undue influence of others
tooverride professional or business judgments.
n
Professional competence and due careto maintain professional knowledge and
skill at the level required to ensure that a client or employer receives competent
professional services based on current developments in practice, legislation and
techniques, and act diligently and in accordance with applicable technical and
professional standards.
n
Confidentialityto respect the confidentiality of information acquired as a result
of professional and business relationships and, therefore, not disclose any such
information to third parties without proper and specific authority, unless there
is a legal or professional right or duty to disclose, nor use the information for the
personal advantage of the member or third parties.
n
Professional behaviourto comply with relevant laws and regulations and avoid any
action that discredits the profession (s. 100.5, APESB2011a).
The Code also provides a conceptual framework for members to apply as follows:
a Identify threats to compliance with the fundamental principles;
b Evaluate the significance of the threats identified; and
c Apply safeguards, when necessary, to eliminate the threats or reduce them
toanacceptable level (s. 100.2, APESB 2011a).
STUDY GUIDE
1.27
Question 1.7
Dilemma: In the face of a recent economic downturn, the board has requested that you,
as the CFO, together with the chief information officer (CIO), produce a business case for
outsourcing the organisations information technology (IT) operations offshore. The CIO sees
this as an opportunity to significantly reduce costs within his business unit, whichwill help
him achieve his substantial end-of-year bonus. As the CFO, you acknowledgethat there is
a possibility to reduce overheads associated with the IT operations and, asaconsequence,
increase profitability.
What ethical issues need to be considered in this situation?
By acting in a professional manner, accountants build trust and are granted further
responsibility. Their ability to put the public interest and those of the client before
their own self-interest is paramount in providing useful and valuable advice. If trust
is lost because of self-interest or unethical practices, it is unlikely that a client will ask
for advice because there will always be an underlying worry that they are at risk of the
advice not being in their best interests.
Question 1.8
Fair dealings (adapted from Sexton 2009)
Dilemma: As CFO you have been asked to develop a business plan to support a major
restructure of your organisation. The board is hesitant to approve such a major restructure,
so you decide to conceal the key assumptions contained in the business plan as this
would only confuse the board in its decision-making. At the next board meeting you
intend to present your business plan. You are hoping that no director questions you on
the assumptions or limitations of the business plan and that the decision to restructure
isapproved.
If you proceed with the above course of action, which fundamental ethical principle would
you most likely breach?
Module 1
1.28
STUDY GUIDE
Module 1
At the end of the day, the outsourcing dilemma seems to be a double-edged sword.
Criticscan rightly juxtapose domestic jobs loss with foreign exploitation and sweatshops.
Yet,thereis often a greater gain for developing countries that benefit from the resulting
economic development. Creative social enterprises like DDD have found a way to
make outsourcing a winwin proposition for all parties involved. Thus, its fair to say
that outsourcing in and of itself is a morally neutral concept, its the circumstances
and implementation of outsourcing contracts that create the ethical challenges
(Schlemmer2004).
Example 1.12: Potential conflict no. 2Oil or ethanolThe lesser of two evils?
The use of ethanol and other biofuels has been touted as the solution to the worlds reliance on fossil
fuels for energy. However, in attempting to solve one problem, a new problem has been created.
Biofuels are made from crops such as wheat and corn. As agricultural land is finite, thismeans that
products previously used for food are being redirected to create energy. This in turn has had the effect
of increasing global food prices and is expected to lead to significant food shortages in future.
Attempts to provide commercial and ethical advice to organisations on key decisions like the fuel
source of vehicle fleets, sourcing of energy for manufacturing and production, and product packaging
must therefore be carefully considered in order to avoid unforeseen ramifications. (We consider this
issue in more detail in Module 2.)
STUDY GUIDE
1.29
Many companies offer differential pricing (different pricing for the same product in different locations),
which is often a factor of capacity to pay (of the customer) and lack of competition in the market.
Animportant point to consider is the long-term consequences of stakeholder relationships when
extracting the maximum amount of profit in the short term. Potential examples include the following:
n The selling price for an item in an online store being based on the users estimated location. The
differentiated pricing may be based on average house prices in the users suburb/town, orperhaps
even how close the user is to a competitors physical store. Variations on this theme include
differential pricing based on the users browsing history, the web browser used and even the type
of device or platform being used. For example, some websites charge higher prices if you access
them with an Apple computer because they assume you have greater capacity and willingness
topay higher prices.
n Apple iTunes routinely charging over 40 per cent more in Australia versus the US, asmajor
competitors are either not currently distributing in the Australian market or do not have the same
range and depth (Pascoe 2010).
n The latest running shoes (e.g. Brooks, Nike) in Australia can cost more than double the price of
those in the US (after postage costs). To compound the issue, US shoe companies are attempting
to protect their Australian distributors by preventing the international postage of shoes from US
stores directly to Australian customers.
Examples 1.11 to 1.13 demonstrate that accountants face difficult moral, social and
commercial decisions on a daily basis. Balancing the needs of stakeholdersthe need to
retain financial viability and the desire to work in a sustainable manner, in a global and
fiercely competitive environmentis extremely challenging. As you continue to explore
contemporary business issues in this segment, the challenge is for you to develop a
robust framework that helps you to analyse and reach appropriate decisions.
Module 1
1.30
STUDY GUIDE
Module 1
STUDY GUIDE
1.31
Rather than being a separate, stand-alone focus on sustainability, these measures actually relate back
to, and can improve, the traditional focus of reducing costs and improving efficiency. This is because
unsustainable practices typically involve higher risks that can cause greater damage to reputation,
quality, culture and profitability over the long term.
There are a number of examples of customers using their buying power to instil sustainable practices
throughout the supply chain. For example, Westpac Banking Corporation has a code of conduct
for sustainable supply chain management, and requires suppliers to confirm their compliance
with the standards. However, rather than a simple push-down approach, sustainable supply
chain management can involve consultation with, and active engagement from, all parties in the
supply chain. Suchapproaches can lead to new innovations, greater customer/supplier alignment,
increasedefficiency, lower risks and lower costs throughout the supply chain.
In 2012, the Global Reporting Initiative (GRI) released an exposure draft of its fourth generation of
Sustainability Reporting Guidelines (G4 Developments). The final version was released in May 2013.
For more details on the G4 Guidelines refer to Module 4.
For specific actions related to the supply chain, the guidelines (GRI 2012, p. 45) suggest organisations
explain practices for the following:
Supplier selection
Supplier management
Explain:
how expectations are established and defined in
contracts with suppliers to promote improvement
in economic, environmental and social performance
(including targets and objectives);
how suppliers are incentivised and rewarded for
economic, environmental and social performance; and
feedback and dialogue mechanisms for suppliers.
n
Supplier termination
Module 1
As accountants, when we think of supply chain management, we typically think of minimising stock-outs,
cutting costs, improving data quality and increasing efficiency. However, in recent times, a key focus of
supply chain management has been sustainabilitythat is, the environmental, social and ethical impact
of the supply chain. Key areas to be considered include the level of emissions and waste, employment
practices, and the way in which suppliers and customers interact throughout the supply chain.
1.32
STUDY GUIDE
Physical accounting
Module 1
Physical accounting involves recording and reporting on the use of different types
of physical materials and the volumes used, consumed or transformed. This includes
considerations of waste, commercial and environmental sustainability, continuity of
supply chains, and the effective use of resources. The social and ethical outcomes ofthe
use of physical resources must also be considered. Major items that will be included in
any analysis will be water, oil, energy, and non-renewable resources.
The importance of understanding the source and sustainability of raw materials is
demonstrated in Example 1.15. Changing how raw materials are obtained or processed
may have a significant impact on the long-term viability of an organisations products
and profits.
STUDY GUIDE
1.33
Figure 1.4
Nitto Denko CorporationPhysical flows and volumes
Solvent vapors emitted
into the air:
779 metric tons
Material recycling
CO2 emissions:
390 824 CO2 metric tons
Energy purchased:
143 122 kl (in crude oil equivalent)
Amount of energy
recycled: 43 865 kl
(in crude oil equivalent)
Module 1
Amount of materials
recycled:
18 186 metric tons
Energy recycling
(thermal recycling)
This figure provides powerful information for internal decision-making and advice.
Forexample, we can see that 87 per cent of water consumed ends up as waste water.
It also shows that 33 per cent of solvents have managed to be recycled. By clearly
presenting physical information as well as costs, we are able to focus attention on
process redesign, product changes, and recycling efforts to improve profitability,
minimise waste and reduce the level of raw materials required in the first place.
When companies start producing and analysing this information, it can be a catalyst
forchange. Consider the following examples:
n
McDonalds moved away from polystyrene to recyclable packaging for
itshamburgers.
n
Dulux and other paint companies create water-based paints that have low
orzerovolatile organic compounds.
n
MonoSol has developed soluble and even edible packing films that replace plastic.
n
EADS (the parent company of Airbus) uses three-dimensional printers
(additivemanufacturing technology) to print aircraft parts rather than
manufacture them, significantly reducing waste of metal alloys, and cutting
weightby up to 50percent, which in turn saves fuel costs (Andy 2011).
1.34
STUDY GUIDE
Module 1
We are aiming to improve outcomes for all stakeholders and our focus should be to
obtain and exploit competitive advantages in an ethical and honest manner. Integrating
environmental analysis into management accounting, often called Environmental
Management Accounting or EMA, is a powerful approach that helps achieve this.
EMA uses a combination of tools, some of which focus more heavily on monetary
aspects, whilst others consider physical interactions. This leads to the following
classifications being used:
STUDY GUIDE
1.35
Along with the actual volumes of physical items that are used, consumed or wasted,
we are able to attach costs to these items. In many instances, these costs may well be
externalities. These are discussed in detail in the Ethics and Governance segment of the
CPA Program. As these externalities transfer costs from the organisation to society we
are likely to see more and more regulations that aim to minimise these externalities or
transfer them back to the organisation. An example is the cost of carbon. Previously,
carbon was a waste byproduct of many industrial processes, but there was no cost
attached. However, many governments have now put a price on carbon. Essentially,
this has turned anexternality, or cost outside the entity, into an internal cost.
There will be a range of consequences as a result of such costs. Some industries may
become unprofitable, and foreign competitors may become more aggressive and able
to capture market share. But, such developments will certainly motivate companies
to become more efficient, and focus on minimising these costs throughout the supply
chain. So the focus will be on the physical items consumed. Efforts to reduce the
level of raw material used, wasted or emitted will require more analysis, investment
andconsideration.
An example of reducing environmental costs is motor vehicle emissions. Transport
companies are channelling their attention to areas that they can control to not only
reduce emissions but to also reduce costs: more efficient driving, more efficient vehicles,
designing their routes more carefully, and using different raw materials (e.g. biofuels).
A simple example of success in this area is provided by South East Water. It was able
to reduce printing waste by 2000 pages per person per annum. This was achieved by
acombination of strategies including having staff walk to the printer and using a swipe
card to activate the print job, printing duplex (two-sided), and printing two pages to
apage (Hall 2010).
Module 1
1.36
STUDY GUIDE
Many scorecards are now attempting to incorporate environmental aspects into their
structure. Two main ways of doing this are to create a separate perspective or area for
environmental results. An alternative approach is to integrate measures throughout
existing perspectives of the scorecard.
Module 1
Review
In this module we provided an introduction to the CBI segment by outlining the
various roles of accountants and the ways in which they can provide strategic advice.
The opportunities to provide advice are not limited to external providers of accounting
services, and we have seen that accountants within organisations should be expanding
their areas of influence well beyond the traditional finance function.
With the broadening role of accountants there is a need to demonstrate a much broader
set of skills than ever before. In addition to the technical skills and knowledge that are
required to perform this role, it is important to demonstrate a wide range of soft skills
aswell. The importance of effective communication skills cannot be overstated.
We also considered the ethical dimensions involved in providing strategic advice.
Whilemembers of CPA Australia are expected to adhere to the Code in providing
services to clients and employers, the need to consider broader ethical issues arises.
Theneed to evaluate business decisions concerning products, services, location,
staffingand the use of raw materials raises commercial and ethical considerations.
Giving advice in this area must extend beyond an analysis of the financial implications
of a business decision to include the impact on various stakeholders, long-term
sustainability and the brand and reputation of the organisation.
The module concluded by considering strategic advice outside traditional areas,
including physical accounting and environmental management accounting. There is a
growing focus on sustainability whereby reducing the environmental and social costs of
business is a key priority. Accountants are well placed to provide services in these areas,
including the recording and reporting of physical information, identifying cost and
waste reduction opportunities and expanding performance measurement frameworks
tocapture environmental and social outcomes.
STUDY GUIDE
1.37
References
Module 1
1.38
STUDY GUIDE
Module 1
STUDY GUIDE
1.39
Module 1
1.40
STUDY GUIDE
Module 1
SUGGESTED ANSWERS
1.1
Module 1
Module 1
Suggested answers
Question 1.1
Professional accountants can provide several roles in improving productivity, including:
Data capture
Analysis
Resource control
Question 1.2
There is a wide range of business advisory services that professional accountants may
beable to provide, including:
Organisation
n
n
Strategy
n
n
n
n
1.2
SUGGESTED ANSWERS
Customer/Community
n
n
Financial
Module 1
n
n
n
Governance
n
n
n
Work force
n
n
IT processes
n
n
Question 1.3
Professional accountants, both internal and external to organisations, are well placed
to provide strategic advisory services to organisations for a number of reasons,
includingthe following:
n
The professional approach of the accountantsuch as having a service ideal, honesty,
integrity and not acting in their own self-interest.
n
The technical abilities of accountants are based on a systematic body of theory and
knowledge. They have gone through rigorous education and training, which
provides a base level of knowledge that leads to competence in delivery of services.
n
Many technical skills are transferablefor example, the technical requirements of
an audit (including setting the scope, determining the approach to sampling,
andobtaining and reviewing data) are often similar, despite the reviewed data
being of a different nature (i.e. physical measures instead of financial measures).
n
Accountants are often exposed to the whole of an organisationfinance, sales,
marketing, human resources, IT, legal, production, logistics and after-sales services.
This knowledge is invaluable when assessing the impact of potential decisions
across different parts of an organisation, as well as its industry supply chain.
n
Accountants are often exposed to several industries, and similar problems that arise
in different organisations. The ability to transfer their knowledge of how similar
problems have been resolved provides a valuable resource to clients who may
havenever experienced such problems.
SUGGESTED ANSWERS
1.3
In periods of change and hardship, many organisations realise that they cannot
continue operating as they have done previously. Business models that worked in the
good times may not be relevant when times get tougher. Many organisations find that,
indifficult times, there are additional pressures from:
n
shareholdersto continue generating sufficient returns;
n
employeesto provide tolerable working conditions and guarantee security of work;
n
suppliersto increase/maintain orders and margins; and
n
customerswho are buying less, and on reduced margins.
In addition, regulatory changes (e.g. new licensing regimes or new taxes) and changes in
community expectations (e.g. relating to the environment) can also have a significant
impact on organisations.
Organisations may not have sufficient resources or expertise to solve the underlying
issues, or make the required changes, and so typically request assistance from external
sources. By obtaining that expertise externally, both the adviser and the organisation
should benefit.
Question 1.5
1
There are two main ways of perceiving the CFO role. One is that it is a management
role, which oversees a technical function. The key skills involved would focus
on managing a team of people and difficult deadlines, makingsignificant
financial decisions and being able to interact with both internal and external
stakeholders, including banks, regulators, shareholders, consumers and employees.
Peopleand project management skills could be seen as equally important as
technicalcompetence.
However, the second (and more appropriate) view is that, in most situations,
it is likely that the CFO needs to be technically qualified. While the technical
specialists within the function would provide the technical skill, there is still a
need for the CFO to be knowledgeable and competent. A technical understanding
of what is being performed by subordinates is essential to properly managing the
function. Ifyou do not know what is expected of your team in terms of technical
requirements, time, and regulations, then it will be difficult for you to properly
understand and manage the area.
Along with the benefits of acting in an advisory role, there are also some potential
pitfalls. Hitting tight deadlines for important issues (and possibly across multiple
clients) can lead to difficulties in finding time and balance with non-work activities.
Such deadlines were traditionally compliance-based and reflected the end-of-month/
year processes. Being locked in well in advance, and being somewhat repetitive,
theseactivities could be planned for. However, strategic advisory services can take
place at any time through the course of the year, and the volume or extent of the
workload may not be as easily planned. Important areas of consideration tomaintain
worklife balance include:
n
planning and booking leave in advance;
n
planning work schedules and work pipelines into the future;
n
maintaining a time log and reviewing hours worked to monitor fatigue;
n
not overcommitting (either with the number of clients or the number/size
ofengagements); and
n
having access to temporary support services and backup personnel as needed.
Module 1
Question 1.4
1.4
SUGGESTED ANSWERS
Module 1
The CFO has a dual role of manager with technical expertise. The purely
technical role of ensuring the correct recording, reporting and communicating
of results must be combined with the broader manager role. Where the CFO is
providing strategic advice as to products, services, prices, organisational structure,
businessplanning and overall strategy, it is important for the CFO to be both
knowledgeable about the inner workings of the organisation and also a proud
supporter of the product offering. What may be more important than passion for
a specific product or service is that the needs of the customer are properly satisfied
and the financial position of the organisation is strong and under control.
Question 1.6
Potential opportunities for strategic advice in relation to customers include the following:
n
Customer profitability analysisUsing activity-based analysis to determine the full
cost of each customer (including cost of goods sold, sales time, customer service,
delivery, logistics and after-sales service). This can determine the real profit that
is generated by each customer, which can allow customers to be segmented
into groups according to profitability, and also how demanding they are on
organisational resources (e.g. sales personnel and after-sales service). The least
profitable customers can then be highlighted and strategies for dealing with them
can be created. These may include educating the customer on the costs incurred to
service them and charging for the services provided (menu-based pricing).
n
Customer performance ratings and satisfactionDeveloping reporting systems that
capture important measurements (like delivery in full and on-time statistics),
which should help influence customer satisfaction levels. Where ratings are not
satisfactory, strategies may be implemented to make improvements.
n
Customer pricing analysisAdvice may be provided based on analysis from tools
such as cost-volume-profit analysis and sales mix analysis, which may be used to
identify the most suitable pricing structures and profitable mix of sales offering.
n
Customer needs analysisAdvice on providing products and services that customers
actually need or desire. This may involve survey generation, the use of focus
groups, or the use of social media to canvass customer feedback. It also links into
other customer-related areas of satisfaction and pricing analysis, suchthat product/
service features can be reviewed and priced appropriately to satisfy customers and
generate maximum value for the organisation.
The advice will probably vary depending on the size of the organisation for
several reasons. Table 1.1 identified the following stereotypical characteristics of
differentsizedorganisations.
Small enterprise
Customer/
community
Few customers
account for large
part of turnover.
n
Close to their
customers and
customers
business plans.
n
Mid-sized enterprise
Growth of
customer base.
n
Moving away
from the direct
proximity of their
clients.
n
Large enterprise
Large,
international
customer base.
n
Success or failure
of the enterprise
is felt through
the whole supply
chain, the
employee base
and the wider
community.
n
SUGGESTED ANSWERS
1.5
Question 1.7
(Adapted from Sexton 2010)
There are many valid reasons to outsource business activities, including risk mitigation,
improved cost efficiency and access to technology and skilled staff not available
in your own organisation. Yet while outsourcing information technology (IT) may
reduce certain risks, such as continued reliance on legacy systems, there are also risks
associated with having a third party provide services. These risks include failure to offer
services to an appropriate standard (which could harm the reputation of your business),
possiblebreaches in security or an inability to comply with legal and regulatory
requirements. There are also additional risks associated with the loss of control over
theinformation source and its security.
Apart from undertaking due diligence to ensure that any identified risks are addressed,
it is also necessary to determine that the outsource provider has the appropriate
experience and expertise to handle your IT operations, that it is a viable and financially
secure organisation with good governance, and that the outsourcing arrangements
are appropriate to your business strategy. It is also important to ensure that you
are engaging with an ethical service provider whom you are able to trust with your
organisations sensitive and confidential data.
It is essential that the board fully understands the corporations ethical obligations
before any decision is made to outsource IT offshore. As well, any decision needs to be
in accordance with stated corporate social responsibility policies and obligations.
As CFO and a member of a professional accounting body, you also have personal ethical
obligations as outlined in the Code. Althoughthe Code does not specifically address
outsourcing, it does contain some fundamental ethical principles relevant to this
situation. Foremost is the principle of confidentiality. This requires members to refrain
from disclosing outside the organisation confidential information acquired as a result of
professional and business relationships without proper and specific authority from the
client or employer. Thisextends to refraining from using confidential information to
your personal advantage or to the advantage of third parties.
You need to ensure that the board specifically addresses the confidentiality issues that
arise from any outsourcing arrangement and formally documents its consideration of
these issues together with the authority for any disclosure of confidential information.
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A smaller organisation may not have the computer systems, records or personnel
to conduct a detailed customer profitability analysis, performance measurement or
scenario testing using pricing and sales mix tools. The advice may include support
in setting up the systems and putting processes in place to conduct this type of
work. Medium to larger-sized organisations are more likely to have accounting
staff and systems in place, soefforts may be more focused on fine-tuning systems,
advisingoncurrent best practice, andproviding an independent review and
verificationofcurrentmethods.
1.6
SUGGESTED ANSWERS
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The conceptual framework in the Code can also be applied in this situation:
a
Identify threats to compliance with the fundamental principles: As the CIO has his
annual bonus hinging on this decision, there is an appearance that his objectivity
is compromised. This situation would therefore create a self-interest threat
thatis, a threat that a financial or other interest will inappropriately influence
themembers judgment or behaviour (APESB 2011a).
Evaluate the significance of the threats identified: The CIO has the potential to earn
a substantial end-of-year bonus. Being in a decision-making position for the
organisation, and being a direct benefactor of the decision to outsource (as an
individual employee), suggests that the significance of the threat is high.
It is important that the ethical dimension of any outsourcing decision is given the
sameweighting as any financial considerations and is not obscured by perceived
increases inprofitability.
Question 1.8
(Adapted from Sexton 2009)
As CFO you have an obligation to act with integrity and therefore be straightforward
and honest in professional and business relationships. Integrity also implies fair
dealingand truthfulness. Further, paragraph 110.2 of the Code requires that a member
of CPAAustralia:
shall not knowingly be associated with reports, returns, communications or
other information where they believe that the information:
a
It is therefore important that you fully disclose to the board any key assumptions and
how they were assessed, as well as highlighting any limitations in the business plan.
As a member in the business you hold a senior position within your organisation.
The more senior the position, the greater will be the ability and opportunity to
influence events, practices and attitudes. It is therefore expected that you have a
role in encouraging an ethics-based culture in your organisation that emphasises
the importance that senior management places on ethical behaviour. Accordingly,
youshould not proceed with your planned actions and you will need to fully consider
your ethical obligations.
SUGGESTED ANSWERS
1.7
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It is important for members to always act with integrity and to make sure that any
report or communication does not omit or obscure information which could render
thereport or communication misleading.
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