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Modern CFO: Role and


Responsibility
Apoorva Misra
CFO and Director Sales & Marketing |
Fomento Resources Group
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Agenda
Evolving Business Environment
Multi faceted role of a CFO
Activities Preformed by CFO
Live Example:-
Capital Budgeting;
Treasury Management

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Evolving Business
Environment
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Evolving Business Scenario
Economic challenges across the globe have reshaped the
Global business environment, and as a result, the CFOs role
Uncertainty prevails due to:
Lack of political unanimity
Technology shift
High level of:
Nationalism
Protectionism
Government regulations

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Multi Faceted Role of A CFO
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Role of CFO: Score Keeper
CFO has the ultimate responsibility of timely and accurate
financial reporting for internal and external users, the best CFO
are able to master this role.
Estimates that are constantly changing drive the information
used to produce financial statements. These changing
conditions mandate that the CFO be an astute evaluator of
data.
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Role of CFO: Accounting Technician
In the current Globalized World the CFO needs to understand
the Generally Acceptable Accounting Principles of its host
country as well as across the globe.
The harmonization of international accounting standards
toward International Accounting Standard is helpful in reducing
the variability in the accounting rules around the world
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Role of CFO: System Administrator &
Technology Innovator
The increased use of automation and ERP systems in the
present day environment makes it essential for the CFOs to
understand the system construct.
Technology comes at a high cost but the implication of not
having the right technology is dire. CFOs do need to play a
large role in technology selection and innovation.
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Role of CFO: Tax Planner
Tax planning is viewed as a means to increase shareholders
value.
Firms need to consider short term and long term impact of the
tax planning activities specially in the light of General Anti
Avoidance Rule GAAR and Controlled Foreign Corporation
CFC rules.

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Role of CFO: Communicator
CFO that succeed are great communicators.
CFOs needs to be able to interact with external agencies such
as tax authorities, other government authorities, shareholders,
bankers, lawyers etc. These external agencies have varied
outlook and objectives.
CFOs needs to be able to interact within the organization and
should be able to communicate his points clearly and precisely.

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Role of CFO: Risk Manager
CFOs are proactive risk managers. Financial management is
managing risk. Risk comes from several sources, such as
safety, contract provisions, relationships with employees,
customers, subcontractors, vendors, bankers.
The first steps in risk management are identifying and
analyzing sources of risk so that they are manageable. The
various types of risk that a modern day firm faces are
Strategic Risk
Operational Risk
Legal and Compliance Risk
Financial Risk
Risk of Business as usual

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Role of CFO: Strategic Risk
CFO has to have a detailed knowledge of the business,
equivalent to that of the CEO, to combine the financial and the
business aspects and guide the organization.
The Strategy Execution The CFO can lead
It is not sufficient to just flag a problem. It is needed to influence the
change and this would require soft skills as well as hard work
Each element of strategy should have dashboard to monitor
Do not ignore the small thing

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Role of CFO: Operational Risk
Operational risk is defined as the risk of loss resulting from
inadequate or failed internal processes, people and systems or
from external events
Do not ignore even the smallest breach of trust; it can take bigger
shape in the future.
CFO must have thorough understanding of business and its drivers
CFO has to understand and track internal and external environment
at all times
CFO must be a master of details. Both devils and innovation lie
there.

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Role of CFO: Risk Manager Legal and
Compliance Risk
Zero tolerance in the light of changing nature of regulations like
FCPA, anti-bribery, GAAR etc.
Legal risk always comes out in the long term.
There is a prevalent environment of Nationalism and
Protectionism. It is characterized by increased level of
unemployment in most countries
The CFO needs to develop an awareness and knowledge of
the local laws and regulations
Boundaries are shrinking: Global workforce is to be integrated
into the organization

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Role of CFO: Risk Manager
Financial Risk
Risk of Leveraging. Does adding debt actually reduce the
Cost of Capital?
Treasury Policy: Objective should align with Business
Risk.
Government Policy and Sociopolitical Risk
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Role of CFO: Risk Manager -
Business as usual Risk
The only thing certain in the world of business is uncertainty and
change. CFO should focus on Business Continuity Planning.
Business Continuity Planning is all about anticipating, preventing and
responding to incidents which could affect critical business functions in
planned manner.
How to continue operating if head office is damaged by disaster?
How to maintain production if one or more plants are out of
operation?
What happens if sales and marketing systems are shut down?
Where to source raw materials if the existing supply is interrupted?
What is the action plan if senior managers are suddenly unable to
work?
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Activities Performed by CFO
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Responsibilities of a CFO Capital
Budgeting
Capital Budgeting is one of the major responsibility of a CFO.
CFOs should understand the underlying business landscape to
perform a good capital budgeting exercise.
CFOs should also have a good grasp on latest trends and
changes taking place in the industry. Knowledge of these
changes will increase the reliability of the capital budgeting
exercise.
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Responsibilities of a CFO
Regulatory Compliances
Requirements for regulator compliances increase with the
complexity of the business as well as with geographical
diversification.
CFOs shall be aware of the requirements and should keep a
track of the regulator compliances made by the finance
departments as well as other departments.
CFO shall, on a regular basis, get an external agency to audit
the regulatory compliances
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Responsibilities of a CFO
Treasury Management
Modern day organizations need a very robust and dynamic
treasury policy.
The primary objective of treasury policy is to reduce the
business risk. The treasury investments shall ideally be
negatively correlated with the business risk.
Indian firms do carry large cash balances in their balance
sheet, making cash management policy very important.
Indian firms also carry high amount of currency, commodity and
interest rate risk. Treasury policy shall focus of reducing such
risk.
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Responsibilities of a CFO Risk
Management, non financial risks
Set-up an independent internal audit system. The internal audit
system should be directly report to the CEO.
Focus on regulatory and compliance risk and explore ways to
mitigate them.
Focus of Socio-political risk and explore ways to mitigate them.
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Live Examples
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CASE STUDY: Capital Budgeting
Basic Information
We are evaluating an investment into an iron ore exploration
company in Brazil.
The Brazilian Company is concessioner of exploration permit
and has very basic data on iron ore reserve and the quality of
the reserve.
The Indian Company will invest money in exploration of the iron
ore deposit.
How do you think one should proceed with the evaluation of
the opportunity?
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CASE STUDY: Cash Management
for Private Company
Commodity companies globally are in middle of a commodity
super-cycle, wherein the commodity companies are generating
large amounts of cash.
What should these commodity companies do with the large
amounts of free cash being generated?
What should these companies with large free cash flow do with
respect to their M&A activities, Dividend Policy CSR activities
etc.?
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CASE STUDY: Cash Management
for Private Company
A private limited company has a surplus cash balance (over
and above the cash required for running the business) of USD
300 Million [Rs 10,000 Million]. Let us discuss cash
management policy.
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