As part of our series of articles exploring the trends most likely to shape technical areas of the profession over the next decade, we look at forces impacting financial management
This article was first published in the September 2016 international edition of Accounting and Business magazine.
Across the private, public and third sectors, financial management is essential for organisational success. Creating and protecting value depends on efficient and effective financial planning, control and decision-making. Professional accountants working in financial management roles need to take account of both internal factors and external events in the wider economy as they prepare financial information to support decision-making in areas such as investment appraisal, tax and risk management, treasury and working capital management.
As highlighted in ACCA’s recent report, Professional accountants – the future, the current business environment makes financial management particularly challenging. Organisations have to operate in a world of widespread political instability, volatility in currency and commodity markets, growing emerging markets, constrained credit availability, rapid technological change, broadening business risks and heightened stakeholder focus on sustainable wealth creation. Strong financial management is vital but increasingly difficult to ensure.
Responding to change
According to extensive ACCA research, including detailed workshops with members across the world, financial management will become more difficult over the next decade. Future developments in local and global economies, the business environment, politics and law, society and technology are expected to reshape the roles and responsibilities of accountants in financial management.
The way that financial managers work will also continue to evolve, with more centralised shared-service centres and more outsourcing and offshoring enabled by globally mobile labour and increasing process automation. Senior financial managers will need to provide strategic insights to enable optimal structures across multiple parts of the business and multiple geographies, building the relationships needed to manage resources and risks.
Workshop participants generally agreed that the treasury function will become more important, with increased use of active and electronic cash management. Commodity and foreign exchange hedging is also expected to become commonplace in small and medium-sized organisations, requiring all financial managers to have a basic understanding of investment valuation and derivative-based hedging methods. Demand for experts will increase, too; by 2020 all financial managers are likely to need a basic knowledge of Islamic finance, including an understanding of sharia compliance, Islamic capital markets and risk issues.
As compliance with global regulation becomes more automated, financial managers will be able to focus more on business partnering: interpreting numbers, providing advice and clarifying risks. Data analysis expertise will be vital, although historical data analysis will become less important. Financial managers will need to provide reliable, forward-looking forecasts, based on an understanding of the business and its environment.
Financial managers of the future will also need to be equipped to address ethical issues. They will require the skills to manage conflicting expectations and priorities of those inside the organisation and of shareholders, investors, customers and governments. Non-financial performance will increasingly need to be factored into financial planning, control and decision-making. This means that financial managers will need to understand and articulate the links between corporate objectives and strategy, stakeholder expectations, the financials and all associated risks.
Planning for action
The changing world in which financial managers operate has implications for the skills and competencies they must develop. Communication skills will become even more important over the next decade. Tomorrow’s financial managers will need to be able to work in teams, collaborate, influence, persuade and present to others inside and outside finance. Language skills and multicultural awareness and experience will therefore also be vital.
Communication ability was identified by workshop participants as one of the 10 competencies expected to be most important in the financial management arena (see box). Those identified reflect the expectation that more financial executives will need to think, and sometimes behave, like chief executives. This means having a good grasp of emerging issues, including developments in global trade, markets and alternative finance. They will also need an up-to-date knowledge of major trade agreements and understand how regulatory frameworks for tax, capital movement and other areas influence decision-making.
Career progression will also depend on demonstrating a more strategic view of financial management – both holistically of the business and globally of the wider business environment. That strategic viewpoint will also be evident in professional accountants’ ability to appraise capital projects and investment opportunities, and to discuss arguments for and against mergers and acquisitions and other growth strategies. In addition, executives will need a sound grasp of risk and risk management, and the ability to assess the implications. By 2020, some business people expect senior financial managers to have the skills to build up an enterprise risk management model capable of giving an early warning to a company concerning emerging risks.
The top 10 competency list does not represent the only skills that financial management professionals will need. Based on workshop participants’ views, other areas where skills will be increasingly important over the next five to 10 years include environmental issues and integrated reporting, IT knowledge and IT application, critical analysis thinking and interpretation, restructuring and reorganisation.
'In the old days, you could set simple ethics rules that applied across your organisation. Now you have to develop a set of ethical core values that you can apply everywhere in the world.'
Arthur Lee FCCA, assistant president, CGN New Energy Holdings, Hong Kong
'As complexity increases, better ethical behaviour is needed and the principles come into play rather than the procedures around them.'
Rashika Fernando, director, enterprise project portfolio management office, CIBC, Canada
'The board of directors and board committees are where all policies are made and people are nominated. If the root structure goes wrong, the upper part cannot be sound.'
Marisa Wu, head of finance and senior VP, DBS Bank, China
'How ethics is handled has a bearing on the long-term sustainability of the company. A CFO, as risk manager, must understand how it affects the company.'
Yee Wing Peng FCCA, MD, Deloitte, Malaysia
'Things change, people change, values change and a lot of external factors affect a person. But when it comes to ethics, the profession needs a gold standard.'
Wayne Soo, managing partner, Fiducia, Singapore
Top 10 competencies in governance
- Corporate governance
- Risk management
- Professional and corporate ethics
- Technology awareness and application
- Board directors and committees
- Professional scepticism and critical thinking skills
- Internal control, review and compliance
- Global perspective
- Long-term and holistic perspective