Responsibilities of CFO
Discuss about the Corporate Financial Management for Controllership Duties.
In the current scenario, the role of a CFO has undergone a sea change and in under immense evaluation whether it is externally or internally. In reality, the role of a CFO is entrusted with high pressure that relates to reduction of cost, increment of the revenue, cost control, etc. The role of a CFO has attained a strong focus owing to the ever-increasing regulations, financial statements, investor assessment, etc. In the present age, the CFO’s are needed to play crucial roles that will drive the organization towards success. The two main traditional roles are protecting the assets of the company by reducing risk and having the correct set of books. Secondly, a CFO needs to have an operation that is strong in nature and has the effectiveness. CFO needs to be a key strategic player otherwise; it is difficult to plan the activities in the age of cutthroat competition (Brealey et. al, 2011). The financial approach needs to be clear cut and must helps the business towards growth. Therefore, considering the activities of the CFO, the role of the CFO is described by selecting the CFO of ADX Energy Ltd. These responsibilities play a key role in shaping company strategies so that it can attain its goals. ADX Energy Ltd is ASX-listed oil and gas appraisal and exploration company (ADX Energy Ltd, 2015). It purposes to obtain superior shareholder returns through efficient choices of investment by applying high quality management and state of art technology. The responsibilities of a CFO play a very crucial role in attaining such goals and objectives.
Controllership Duties
The first general area of responsibility of a CFO is controllership duties. This responsibility makes the backward looking part of the CFO’s duty. Controllership duties imply that the CFO of a company is responsible for presenting and reporting appropriate, timely, and adequate historical financial information of the company where he or she is working. This is an important area because reporting ensures that the compliance system is properly established and helps in providing the relevant information to the stakeholders (Brigham et. al, 2011). Therefore, this role is crucial in terms of providing information. Similarly, in ADX Energy Ltd, Amanda Sparks and Peter Ironside perform the role of company secretary or CFO and are responsible for presenting and reporting accurate information so that every stakeholder like creditors, employees, analysts, shareholders and other management members can rely on the timeliness and accuracy of such information (ADX Energy Ltd, 2015). With prior inputs from the CEO, they prepare and publish the financial statements and provide full assistance and advice to the Audit Committees to ensure that the committee is efficient. Such responsibility is very imperative for proper functioning of a company because various relevant decisions are made because of it. In order to ensure the fulfillment of such responsibility, Sparks and Ironside typically present the annual financial report to the Board of Directors only after conforming that the company has adhered to the Australian Accounting Standards (AAS) and International Financial Reporting Standards. Furthermore, as ADX Energy is a non-financial company, its CFO’s use a combination of both financial and non-financial indicators for evaluating and analyzing the financial performance of the company. The financial and non-financial indicator is an important aspect that needs to be tame by the CFO. It helps the CFO in ascertaining the financial progress in a quick span of time (Libby et. al, 2011). They ensure that the company’s reporting clearly portrays their third party connections and other collaborative agreements, if any. Under section 295A of the Corporations Act 2001, the CFO’s of ADX Energy quarterly states in writing to the Board that the company has properly maintained the financial records and it gives a true and fair view of the company’s performance (ADX Energy Ltd, 2015).
Controllership Duties
Treasury Duties
The second general area of responsibility of a CFO is treasury duties. Amanda Sparks and Peter Ironside of ADX Energy Ltd are also responsible for the present financial condition of the company so that they can decide how to invest the resources of the company taking into account liquidity and risk of the company. Treasury is one of the key areas that need to be properly settled otherwise it leads to immense problem in terms of monetary condition (Melville, 2013). They also oversee the capital structure of the company in order to determine the best mix of equity, debt, and internal financing. The role is not limited to the capital structure rather the CFO observes whether the capital structure is perfectly balanced with an adequate level of equity and debt (Williams, 2012). A CFO needs to keep in mind that having a balanced level of equity and debt is the best for the company because a heavy reliance on debt will put undue pressure and a major chunk of the profit will go towards the interest payment (ADX Energy Ltd, 2015). On the other hand, if there is lower proportion of debt then the company will not be possible to utilize the maximum capacity. The issues that surround the capital structure hamper the smooth functioning of the company and it affects the financial risk, thereby affecting the company’s value. Therefore, Sparks and Ironside having an extensive experience in corporate governance, financial management and compliance for listed companies makes sure that while managing capital, the company continues as a going concern and it maintains and provides sufficient returns to the shareholders and other advantages for the stakeholders (Parrino et. al, 2012). They aim for such a capital structure that can ensure availability of lowest cost of capital to the company. They are also responsible to adjust such capital structure in the future in order to grab efficiency of favorable costs of capital and then issue further shares in the market. In smaller organizations, the responsibility of a CFO is limited to overseeing matters on salaries, investments, cash flow etc but in larger organizations whether financial or non-financial, a CFO has more of an oversight and administrative responsibility with respect to budgeting and management that is deciding on the pay scales and resource allocation based on reports from division managers.
Economic Strategy and Forecasting
The third general area of responsibility of a CFO is economic strategy and forecasting. It needs to be noted that the CFO needs to have a strong outlook of the economy and must forecast the condition considering the internal and external environment. This implies that a CFO is not only responsible for the past and present financial conditions of a company but he or she also plays a key role in the company’s future financial conditions. Forecasting is one of the vital parts in the kitty of the CFO because plans can work when there is a strong forecasting technique. It helps the company to grab opportunities and cements its position in the market. In all sizes and types of organizations, CFO’s are collaborating with the corporate boards and CEO so that they can assist in long-term strategic planning. Just like in ADX Energy Ltd, the CFO’s (Amanda Sparks and Peter Ironside) help in evaluating the productivity of the company and search for areas of efficacies that can be enhanced to further develop the profitability of the business (ADX Energy Ltd, 2015. They are also called upon by the Board to use their knowledge on general economic outlook, funding sources and markets to support the company in making wise decisions about risk and resource allocation.
Treasury Duties
It is to be noted that the qualifications of CFO may vary given the range of organizations but most of the employed CFO’s, in view of their financial management roles, are expected to have experience and training in finance and accounts. Due to increased competition for share of market, most companies focus on evaluating opportunities that can lower its business cost and increase income. Strategic planning by CFO’s is done based on economic, social, political, and technological environment, cost drivers and relevance of sustainable business practices. Strategic plays a dominant role because the external and internal environment faces many challenges and the CFO needs to be dynamic in nature so that the situation is understood in a better fashion and results are guaranteed (Spiceland et. al, 2011). As part of corporate governance, the CFO’s of ADX Energy Ltd also additionally declares that the internal compliance and risk management and control systems in association with the financial risks are appropriate, sound and functioning effectively and efficiently. (ADX Energy Ltd, 2015).
The financial condition of a company puts a CFO into areas like investment strategies, risk management, and acquisition of capital. The presence of CFO assures the enhancement of a performance measurement framework that gives an appropriate understanding as to whether the Board members and executive team have performed their roles effectively and whether they have sufficient financial information to execute their duties. They are directly accountable to the Board through the chairperson of the company on each matter that is associated to the proper functioning of the Board. As they have extensive knowledge on financial management and corporate governance, they provide financial and commercial advice to the Board, together with assistance in areas of capital raisings, corporate initiatives, and administration. Thereby critically they have a strong understanding of the business environment and helps the company to progress.
It is observed in the financial market that any type of information is circulated in the market and the information is quickly absorbed by the stock market in the due course of time. This implies that the reaction of the market is immediate to the news that comes to its ways. Moreover, it is a well-known fact that the individual share price is a strong reflector of the factor, as well as techniques provided by the technical analysis and fundamental analysis that helps in selecting the correct stock.
The Efficient market hypothesis is renowned as the Random Walk Theory and is regarded as the weight that present stock price indicates on the information that is available in the market backing up the value of the firm (Northington, 2011). Hence, there appears to be no way of making an enormous profit. The important hypothesis can be tag as the change in price that occurs in the stock market and the manner in which it happens. Both the investor as well as financial managers can get huge opportunity through this activity (Kalpan & Schoar, 2005). The EMH opines that the share prices focus on the information that reflects the fundamental value. The hypothesis became popular because it helps the investor to beat the conventional policy that was present.
Economic Strategy and Forecasting
The main role of a pension fund manager is to manage the investments or portfolio in an effective manner. The fund manager serves the client and this function is manage, on behalf of them so that the maximum returns are generated and even leads to better opportunities. Moreover, a pension fund manager is entrusting with the additional duty of safeguard of the capital. It is the duty of the pension fund manager to look after the capital so that it is not eroded and returns are derived with safety (Goyal & Wahal, 2008). The main reason for such a role is considering the fact that pension fund are established with a view to invest the funds that are idle in nature so that after retirement the expense of the client can be meet with ease and flexibility (Davies & Crawford, 2012). However, it needs to be noted that the fund manager cannot risk all the capital in assets that are risky in nature that will lead to erosion of the capital. Therefore, the management is done in a manner that leads to optimum return and low risk.
It takes into assumption that the market is highly efficient and in no situation, the manager will be able to beat the market return. It will make his job redundant in nature (Northington, 2011). On the other hand, if the pension manager makes an investment in asset classes that are risky in nature and other such as ETFs, options and futures, etc. then a good use of the network skills can be done to grab securities that will provide the maximum return (Goyal & Wahal, 2008). Hence, the market efficiency is put to debate and stock selection method is important.
References
ADX Energy Ltd 2015, ADX Energy Ltd Annual report 2015, viewed 5 September 2016, https://adx-energy.com/en/investors/annual-reports.php
Brigham, E.F. & Ehrhardt, M.C 2011, Financial Management: Theory and Practice, USA: Cengage Learning.
Davies, T. and Crawford, I 2012, Financial accounting, Harlow, England: Pearson.
Brealey, R., Myers, S. and Allen, F 2011, Principles of corporate finance, New York:
McGraw-Hill/Irwin.
Goyal, A. & Wahal . S. 2008, ‘The Selection and Termination of Investment Management Firms by Plan Sponsors’, Journal of Finance , vol. 63, pp. 1802â€Â1827.
Kalpan , S.N & Schoar, A 2005, ‘Private Equity Performance: Returns, Persistence, and Capital Flows’, Journal of Finance vol. 60, pp. 1795â€Â1823.
Libby, R., Libby, P. and Short, D 2011, Financial accounting, New York: McGraw-Hill/Irwin.
Melville, A 2013, International Financial Reporting – A Practical Guide, 4th edition, Pearson, Education Limited, UK
Northington, S 2011, Finance, New York, NY: Ferguson’s.
Parrino, R., Kidwell, D. & Bates, T 2012, Fundamentals of corporate finance, Hoboken, NJ: Wiley
Spiceland, J., Thomas, W. & Herrmann, D 2011, Financial accounting, New York: McGraw-Hill/Irwin,University Press
Williams, J 2012, Financial accounting, New York: McGraw-Hill/Irwin.
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