“CFOs are expected to play four diverse and challenging roles”

Porus Doctor, Global Internal Audit Leader, Asia Pacific Region and CFO Program Leader and Partner, Deloitte Touche Tohmatsu India LLP, shares interesting insights into the changing financial landscape and the role CFOs must play.

1.We have moved from GSTR1, 2, 3 regime to GSTR-3B regime. Now the e-way bills are also being rolled out in a staggered manner. What are the implementation challenges for finance? How do you see GST shaping up and what will be the final impact on the economy?
 
Porus Doctor: GST is a transaction tax with an impact on all business verticals. The implementation challenges in GST arise from the sea-change that the tax has brought about and the ongoing changes that the government has introduced from time to time. These changes are necessary to address various issues that were not addressed earlier and, hence, most of the changes made in GST after its introduction have been to assist businesses and take care of their concerns.
 
GSTR-3B is a simple return containing a summary of inward and outward supplies for the respective month, acting as a self-declaration return to be filed regularly by taxpayers after paying appropriate taxes. The idea behind introducing GSTR-3B was to give sufficient time to stakeholders to get themselves ready and well-equipped with the GST system and also the fact that the GSTN portal was under development at the time of filing GSTR-1 and 2 during initial months of GST implementation.
 
In case of the e-way bill system, the validity of the e-way bill has been set on the basis of distance travelled, owing to which, it is believed to be a great move and is expected to put pressure on the logistics companies to move faster. However, the timelines set may have to be reconsidered by the government, as the same are considered to be unrealistic by various industry leaders. Also, GSTN’s inability to handle the flood of returns raises doubts about the success of the e-way bill system, which is also completely automated.
 
Given the above, in our view, as the supplier or recipient is generating the e-way bill and supplying it to the transporter, there may not arise any challenge. The problems may arise when wrong data is entered, not entering it on time, getting documents mixed up between transporters, etc. For implementing any change, preparedness is key and given that this system will be introduced in a staggered manner, finance teams must gear up and prepare well in order to avoid incorrect/ delayed data entry that could result in increased transport time and the consequential financial impact.
 
The transition to overall GST system may have disrupted the working cycle for many companies for some time, as they had to modify their supply chain based on the assessment of tax-savings and inventory-management costs. However, in the long run it would have a positive impact on the economy, as well as on the ease of doing business. 
 
The final impact of GST on the economy would possibly be an expansion of the taxpayer base and an eventual move to lower rates of tax, with increased electronic surveillance measures to detect tax evaders.
 
2.How do you see CFOs navigating the maze of reforms in this regime of rising compliance costs and stricter norms? 
 
PD: The country has seen a series of reforms in the recent past, such as GST and IND-AS. The cost of compliance has significantly impacted most businesses and it also involved a change in the existing IT systems, which consequently resulted in higher costs. However, in the long run, it creates a level playing field for most companies. CFOs have been focusing on making sound decisions, which have led them to a world of new opportunities arising from these regulatory changes and have helped them navigate more confidently through the changing uncertainties of the regulatory environment.
 
Further, as global regulations proliferate and stakeholder expectations increase, organizations are exposed to a greater degree of compliance risk than ever before. Specifically, compliance risk is the threat posed to a company’s financial, organizational or reputational standing resulting from a breach of laws, regulations or codes of conduct. Thus, for CFOs it is increasingly critical to ensure complete compliance, as the cost of compliance would be significantly lower than the cost of non-compliance.
 
3.Does the evolving finance landscape call for newer skill set for CFOs? How would the CFOs equip themselves to manage the higher demands being made on them by the C-suite?
 

PD: Traditionally, the finance function led by the CFO was required to provide financial data. However, in the current scenario, CFOs are increasingly seen as a partner to the CEO in making crucial business decisions. This calls for CFOs to equip themselves with newer skill sets and focus on the following:

CFOs need to be tech-savvy to leverage technological innovations — from the cloud to data analytics — to advance their finance agenda and finance’s ability to partner with the business.
•CFOs should have the ability to operationalise and execute company strategy based on data-driven insights.
•CFOs need to upgrade their communication skills to ensure clarity, simplicity and accessibility with their stakeholders within and outside the organisation.
 
CEOs typically want their CFOs to look for new opportunities and potential black swans, plan for future growth, create and effectively communicate the corporate growth story and improve decision-making around key investments. At the same time, boards have their own expectations around risk-management, protecting the company’s reputation and compliance and regulatory matters. CFOs need to equip themselves with the right people in the right seats to deliver on these top priorities. They must also further reskill and create a sustainable finance talent pool that helps them meet the demands and requirements of all the stakeholders. CFOs would need to build a mechanism to continuously monitor the implementation of legal framework and enhance governance through effective use of dashboards.

These skill sets would help CFOs to partner in the business growth and smoothen the implementation of policies, controls and new technologies adding value to the business.

4.How can CFOs address the data dysfunction being faced by organisations?
 
PD: As pressures have intensified for CFOs, companies need more structured information that can effectively support the business decision-making process. CFOs need to ensure that they embed analytics to partner efficiently with the business and provide crucial insights. Companies, today, collect unprecedented quantities of data from their own operations, supply chains, production processes and customer interactions. Using the power of predictive analytics, companies can harness this data to provide meaningful insights, resulting in a competitive advantage by providing real-time insights across the value chain, from inventory management to pricing. However, dysfunctional data may not allow CFOs to get the correct picture due to the following reasons:
 
1.Incorrect master data: Despite caution, numerous issues with master data in various systems are observed and an error in master data creates downstream issues. It is the most regressive error that causes major dysfunctions, including incorrect grouping and summation, incorrect allocation and reporting issues. Setting up a master data governance organization with clear ownership of various entities, apart from periodic data audit to ensure quality, would be helpful.
 
2.Incorrect transaction data: While the impact of incorrect transaction data (that would be caused by an incorrect value pick or a mistype by the user) is far less compared to incorrect master data, it can cause major dysfunctional reporting systems due to calculation issues on a base value. Hence, CFOs can fix it at the source (typically the financials module of ERP) by introducing stronger field-level validations, as well as user education.
 
3.Inaccurate correlation: It is the most difficult to find and is caused by an incorrect association of a child data value with a parent code. Unless blatantly obvious, these errors may remain undiscovered and cause inadvertent misrepresentation of facts in the financial statements and reports. For CFOs to overcome this, it is important to conduct periodic data audit (using both automated data validation scripts and maker/checker manual methods).
 
Along with tactical measures, the most important aspect of handling a data dysfunction situation is beyond the automation and audits. Through an established organization of data governance and monitoring, CFOs need to focus continuously on imbibing the culture of accuracy within the organisation.
 
5.Cyber security is a top concern for most organizations. While it is true that CFO-CIO is an important collaboration when it comes to addressing the organization’s tech needs, what role does the CFO play in cyber security?  
 
PD: Cyber security requires continuous and proactive engagement from top management, including CFOs. CFOs need to embed cyber risk as part of the overall risk strategy to ensure that it reaches across the organization and that all stakeholders are informed what they need to protect. Detailed planning and management are required from the CFO’s desk to ensure cybersecurity at the organization level. The CFO must
•Identify critical assets and associated risks and vulnerabilities 
•Define a plan to meet the critical infrastructure operations and regulatory requirements
•Prepare a strategy and plan to protect the organizations’ assets
•Evaluate the robustness of the incident response and communication plans
 
Working with the CIO to see how finance can help create a culture of security and privacy is crucial. Building a finance organization that can help and guide various business divisions to build and share regular reports on privacy and security risks for key risk indicators would be helpful for continuous monitoring. Along with monitoring the risks and the costs attached to these risks, the CFO could annually review the cybersecurity budgets, so that the company is always prepared to deal with these risks and attacks. Another important aspect that a CFO could look at and review periodically is cyber insurance.
 
6.From the CFO’s perspective, what would you say is the ROI on disruptive technologies like cognitive technology tools, RPA, artificial intelligence and robotics? What are the new synergies being played out between IT and finance in the era of such technologies?
 
PD: Evaluating ROI on technology spend is no simple matter. CFOs need to be prepared to help figure out which initiatives can best create growth opportunities, address competitive needs and provide operational efficiencies. This is what CFOs need to do to help their CEOs understand how the technology budget is being spent and whether projects are aligned with the strategy. No matter how promising the technology is, if it’s not aligned with the strategy, the chances of getting the anticipated return on investment (ROI) are diminished. CFOs can address this challenge by taking a top-down, strategy-first approach to technology-spend decisions, paired with a disciplined governance process to keep technology projects on track and on budget, and when completed, fulfill their intended purpose and perform as expected. CFOs can start to gain clarity by viewing them through four broad lenses: 
 
•What technology spend is critical for maintaining the business—in other words, what has to be done now to keep the wheels running; 
•What initiatives could help execute the enterprise strategy, get ahead of competitors and grow shareholder value; 
•What technology projects would enable the organization to operate more efficiently; and 
•Which projects fall into the less critical “nice to have” category 
 
ROI on the investment made on technology spends would best be determined in qualitative than quantitative terms at this stage. CFOs can look at the benefits each of the disruptive technologies bring to the finance function and the business to make the spend decisions. 
 
For CFOs, it’s important to understand the Chief Information Officer’s (CIO) pressure points and show what finance can do to help alleviate some of them. It’s also important for CFOs to work with the CIO in directing spend to address the organization’s broader strategic challenges. CFO-CIO collaboration on the technology priorities is important to enhance the impact these investments will have on information access and improved analytic capabilities. CFO and CIOs need to foster alignment on business cases and budgets to help finance understand the technology strategy and help push the rest of the organization to follow that strategy.
 
7.We have been talking about the changing role of the CFO for some time now. So what is it finally? 
 
PD: Yes, the role of the CFO has undergone a major evolution. Today, CFOs are facing an array of new risks, responsibilities and challenges, from managing globally-diversified businesses to mitigating new technology risks. Economic uncertainty, increased regulatory requirements and increased investor scrutiny have forced them into the spotlight. CFOs are expected to play four diverse and challenging roles. The two traditional roles were of the steward, protecting the assets of the organization by minimizing risk and the operator, running a tight finance operation that is efficient and effective. Now it is imperative for CFOs to be strategists, helping to drive overall strategy and catalysts, instilling a financial mindset throughout the organization to help other parts of the business perform better. These varied roles make a CFO’s job more complex than ever. CFOs need to get more involved in strategic decisions, and earlier in the process, as these have financial consequences. The strategic CFO provides the CEO with business insights that serve as the foundation of value creation. The CFO’s role has evolved from a custodian preserving value to a visionary creating value. This role focuses on strategy and value realization and optimization.  This broader value creation and greater uncertainty requires a new strategic lens to be applied by the CFO – one that is capable of discerning ‘where to play’ strategically, ‘how to play’ commercially and ‘how to win’ competitively.
 
 
 
 

 


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