FDs urged to beef up weak risk assessment standards


Finance directors need to spend more time looking forward rather than back,
as the economic downturn exposes shortcomings in companies’ assessment of risk.

That was one of the main messages from a survey of 750 finance executives and
accountancy partners in Europe, Africa and Asia.

The survey from the ACCA institute predicts how finance departments and
accounting firms will change over the next five years.

A total of 84% of respondents said their businesses will be ‘more wary’ about
risks to their business in five years’ time, adding that their companies’
strategy would need to reflect possible pitfalls.

‘Management teams have arguably been found wanting in their risk management
strategies in the past.

Investors and other stakeholders, including governments and regulators, will
place increasing emphasis on the need for high standards of risk management,’
the ACCA report said.

‘It is not surprising, therefore, that CFOs, partners and senior accountants
see enterprise risk management as a skill area that will be of increasing

FDs will oversee a change in their department’s remit, the survey also said,
with accountants expected to play a bigger role in the assessment of business
risks, raising finance and using financial data more effectively.

‘Survey participants see accountants as becoming strategic advisers to the
business, rather than backroom number-crunchers focused on day-to-day
accounting,’ the ACCA survey said.

‘Qualified accountants working within business will also have a key role to
play in putting together and presenting the business case for funding in order
to persuade potential investors to provide their support. This will require a
combination of technical expertise as well as analytical ability and sound
communication skills.’

Ian Dilks, senior partner, finance function advisory, at
PricewaterhouseCoopers, agreed that FDs and their departments needed to have a
better understanding of financial and operational risks facing a business,
including the risk of suppliers defaulting on payments.

Corporate governance regulations drawn up in recent years, such as the
Sarbanes-Oxley Act, have resulted in FDs spending more time on compliance and
less time analysing data and acting as a ‘sounding board’ for the chief
executive, he added.

‘The ambition of many CFOs was to become much more of a business partner to
the chef executive,’ Dilks said. ‘[FDs] need to do more data analysis rather
than data gathering, and as a consequence provide insights into what is going on
in the business.’

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