The Changing role of the Finance and Accountancy function

Friday, 9 September 2011 03:55 -     - {{hitsCtrl.values.hits}}

MTI Finance pioneers thought leadership on the changing role of the accountancy function

By Dinali Goonewardene

MTI consulting made a presentation on the changing role of the accounting function incorporating a wealth of experience stemming from their work in corporate finance. Chief Executive Officer Hilmy Cader began at the outset by saying that reduced trade barriers, regional economic blocs and globalisation has created a need for cross border opportunities for staff and for off shoring. This is evident going by the number of Business Process Outsourcing and Knowledge Process Outsourcing entities in operation. This trend has emerged within the last five years and is evident purely in the accounting and finance function, Kapila Liyanage, Head of Finance and Administration, MTI Consulting said, differentiating this function from other professions.

There is an increase in white collar crime and there are higher levels of irresponsible corporate conduct, and tighter corporate regulations relating to Finance, the Environment and Human Resources which has created a need for higher levels of Compliance Accountability and reporting and new forms of accounting for human capital, the environment, brand equity and corporate social responsibility.

The challenges for business is the trend towards share owning democracies, demanding shareholders and pressure groups advocating corporate governance. This has caused a need for greater accountability and compliance. There is greater competition and increased cost transparency such as in apparel  firms  where costs are not opaque but customers ask for a detailed break down of cost and ask to be apprised of the margins being kept by the company. The conversion from humanware to software optimisation has implications on the conventional accounting staff strength which had reduced.

There are an increased number of mergers and acquisitions and we have been looking at intangible assets since their valuation has come to the fore, Carder said. Brand valuation is driving markets globally and new accounting standards are required to implement these areas and the importance of risk management is growing. The accounting function is therefore not always straightforward and there is a need for more specialised accountability based functions and competencies.

There are new and exciting industries and functions attracting talent as opposed to conventional accounting. Bodies like the Institute of Chartered Accountants play a role where hard core technical skills are needed while the accountants from the Chartered Institute of Management Accountants have moved towards strategic planning and other areas, Carder said.

“In corporate Sri Lanka the human resource talent is city bound, speaks English...” Carder said. This entails looking at the quality of local universities, limited English speaking “living” pool, the economy of the Western Province and the Colombo business community. The top jobs are bagged by the “Colombo Club” and “old boys clubs” and there are limited opportunities for those without membership criteria.

Non core functions are outsourced and the Finance and Accounting function is a likely candidate for outsourcing. There is off-shoring and there has evolved a close-to-retirement class of “burnt out:” professionals, freelance knowledge workers. This has caused opportunities for outsourcing and a threat to finance careers.  

There has been a power shift from functional management to business management creating a demand for business managers. We took a look at the finance function from the focus of the value chain pushing myopic functional specialist back, Carder said. There is merging or increased fluidity of the functional divide creating a demand for business managers with cross functional competencies which is challenging some of the roles of finance function’s value chain analysis.

There is competition from financial services institutions which outsource their services to accounting functions such as capital structuring, raising capital, Budgeting, working capital management, systems and control, transaction management, accountability, Management Information Systems - living, financial compliances, dividends and investment decisions and bankruptcy/closure related services.

If the functions of accounting are studied from the perspective of there being virtually no competition from the finance function to the core function being out sourced, it being easily out sourceable and it being possible to outsource: it is possible to outsource Capital Structuring, Capital raising is easily outsourcable, and there is virtually no competition from the core finance function to outsource budgeting. Working capital management can be sourced out and managed easily. Systems and control is easily outsourced to an outside party while transaction management can be outsourced.  Accountability, financial compliances such as tax management, dividend and investment decisions and closure or bankruptcy related work can be outsourced with virtually no competition from the finance function. The Management Information System (MIS) too is easily outsourceable.

The challenge lies in that conventional finance/micro accounting functions are being hijacked by other functions or technology. The core finance or accounting function is shrinking.

Globalised trade has resulted in globalised accountants and global trade appreciation and there is need for increased compliance and reliable accountants with hard core competencies. The technical accountant’s role has become more specialised and the role of Chartered Institute of Management Accountants more generalised.

There is a need for new forms of accountability from brand equity to carbon footprints. This has called for sharpened competencies and a taking of the moral high ground. The increasing importance of risk management and mergers and acquisitions has resulted in high value adding competencies or the value proposition. Software is replacing the accountant. Peripheral industries or functions are cannibalising the conventional accountant’s role or accounting. Software is replacing Accountant-ware to coin a phrase or reducing the need for conventional accountants or the headcount. The mystique of accounting is diminishing as more management professionals learn the fundamentals aided by IT and the web. There is a reduced need for bottom of the value chain function and a need to migrate up the value adding functions. National accountability issues have created an opportunity to take the moral high ground. In an increasingly corrupt corporate world there is tighter regulation and enforcement and scrutiny of accountability. Globalisation has created common functions across the globe and in Sri Lanka sufficient measures are being taken to adopt International Accounting Standards. There is an opportunity to take leadership in expert knowledge dissemination and legislation.