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Movaris, Inc.

The CFO function needs to anticipate and accommodate new rules and regulations -not just react to them - for greater corporate success and personal job satisfaction.

The office of finance is currently undergoing a sea change. Our world has shifted dramatically, and a host of new challenges have emerged. Many of the attributes that made finance an attractive career choice are now hidden in a swamp of compliance, disclosures, litigation and controls, and the rewards for this profession are getting increasingly difficult to realize. In a February 2007 article, Fortune magazine summed up the position of today’s CFO by stating, “The chief financial officer post – once a finishing school for CEOs – has become the crummiest gig in the corporate suite.”

We have all been swept up in the effort to survive these changes, putting ourselves and our staffs on the defensive. It is time to get back in the driver’s seat and find a way for us not simply to survive but to succeed in this new world.

How Did We Get Here?

If you ask finance executives why they chose this career, they’ll likely tell you they wanted to create strategies and organizations to help drive the profitable growth of a company – and, of course, to do so legitimately. Today they would tell you that the job has evolved into something very different – a job focused on risk. A steady stream of restatements, scandals and court cases continually remind us of what is wrong in the world of finance. Let’s take a step back and review how we got here.

Finance has become a relentlessly high-pressure function. Faced with heightened governance and tighter deadlines, we are required to report at ever-increasing levels of precision and disclosure.

We live under a microscope. The events of the past decade have forced us to provide increased transparency in our financial reporting, not just on the operations of the business but also on the processes that we use to document them.

Stakes are higher. The risks range from material weaknesses to restatements to criminal prosecution, in some cases. When we are held personally accountable for the accuracy of the financial reports, our very liberty is at risk and this has profound implications for the way we perform the function.

The probability of errors is higher. In explaining the underlying causes of material weaknesses in Securities and Exchange Commission (SEC) filings, public companies often cite the complexity and proliferation of accounting rules, which create additional risk for error due to oversight or misapplication of generally accepted accounting principles (GAAP).

On a broader scale, U.S. markets have lost some of their luster. There has been much discussion about the decreasing competitiveness of U.S. public markets, whose share of the total value of global IPOs dropped from 50 percent in 2000 to 5 percent in 2005. This is due, at least in part, to the increased regulatory burden that has driven businesses to capital markets outside of the U.S. Similarly, since 2001, the number of venture-capital-backed acquisition exits has exceeded the number of IPO exits by more than 10-to-1, according to the Interim Report of the Committee on Capital Markets Regulation, December 2006.

All this is taking a toll on the finance profession. For example, in its 2005 report, “The Supply of Accounting Graduates and the Demand for Public Accounting Recruits,” the American Institute of Certified Public Accountants found that college graduates with degrees in accounting have only seen a modest rebound in job opportunities, which had been steadily declining since 1991. In addition, a Liberum Research survey indicated a 40 percent increase in CFO turnover in the first nine months of 2006, reflecting the pressures of Sarbanes-Oxley (SOX), stock option backdating and the resulting scrutiny of public companies.

How Do We Position Ourselves for Success?

The big question is this: What is it going to take for us to be successful in this new world? How do we get ahead of the game, instead of reacting to every new regulatory initiative that comes our way?

Take Control of the Process
As enterprises have evolved, we have discovered tools to assemble the data, improve efficiencies and report with ease. In fact, tools for aggregating and consolidating the numbers – ERP, CPM and others – are quite good: The arithmetic is almost always right. However, the close and financial reporting process is still like baking a cake by instinct, with no recipe to lead us through the process and no assurance that we won’t leave out an important step. Walk into any finance organization during the quarter-end close, and you will see a team hard at work assembling the ingredients, mixing them just so and adjusting as necessary until they achieve financial statements ready for public disclosure. Just don’t ask them to describe the process systematically; in today’s environment, this is no longer tenable.

While we have made significant efforts to adapt and enhance our finance data, we have skipped the process layer. Without integrated, streamlined operations, we are doomed to the same turmoil quarter after quarter, year after year.

The problem and solution lie in stitching it all together in what Movaris terms the “Last Mile of Finance” – the final critical phase of financial management prior to public disclosure, where financial and operational information are aggregated, tested and converted to a set of financial statements. Material weaknesses and errors in disclosures occur within the “Last Mile” because it remains, in large part, an onerous, time-consuming and intensely manual process. In fact, according to a 2006 study of public companies by IDC, the financial close is cited as the No. 1 financial process targeted for improvement.

Run Finance Operations as We Do Other Enterprise Processes
Every company, public or private, develops, manufactures and delivers a set of products and services. We need to view financial statements as a product delivered to customers – or, in this case, investors – who have a right to expect a public company to use the same level of diligence in producing these statements as they do in delivering the other products and services they sell.

Look to our colleagues on the manufacturing floor. In their quest to get from zero to Six Sigma, they were able to reduce costs, improve cycle times, increase customer satisfaction and produce higher-quality products. Companies have embarked on similar initiatives for procurement, customer service, order processing and even sales management. Finance should be no different.

Put Compliance in Its Place

Part of the answer is to create an environment where we are not constantly looking at compliance in the rearview mirror. Just as the enterprise does not exist merely to comply with rules and regulations, the office of finance is not simply about compliance.

Over the past few years, much effort has been put into building compliance infrastructures that can stand up to scrutiny. According to the University of Nebraska, public companies’ accounting fees have doubled to comply with SOX, as we’ve had to enhance control structures, hire entire compliance staffs and add new systems. Compliance will continue to be a priority. We need to accomplish corporate objectives within established legal and regulatory frameworks. We must be prepared to accommodate the ebb and flow of new rules and regulations.

Hire the Right People and Influence Education of Accountants
We can no longer be content to hire anyone with an accounting degree. Instead we must begin to develop the next generation of finance leaders — those with the vision, energy and skills to be successful in this new world of finance. With finance no longer just an accounting function, the quality and depth of people who staff the function will be a key success factor. Foundational skills will continue to be important, including financial analysis, understanding business models, being up to date on GAAP and being able to communicate effectively. However, the people who comprise world-class finance teams are also business-minded, accounting-savvy and articulate. To find these individuals, finance executives need to work with universities to explain the real work of finance and influence the training our potential future leaders receive. At the same time, we should be prepared to reduce reliance on public accounting firms to train our incoming finance professionals.

Build an Integrated Close
One of the key priorities of both the SEC and the Public Company Accounting Oversight Board is more integration – viewing the preparation and audit of financial statements and internal controls as a single process. For companies, this means that an integrated close is critical to the production of financial results that will not need to be restated. The integrated close focuses on the following key elements:

Start from the top – good, clean and accurate financial statements. Focus on tasks that directly relate to financial statements and work your way back from there. Rather than attempting to wrestle with thousands of accounting controls, this approach will force you to focus automatically on the financial statement accounts that are material.

Scope your work activities on those elements most likely to cause problems. Implement a structured approach for rationalizing your control activities and establish dynamic scoping rules that support a continuous, real-time process of control rationalization for evaluation of controls as “in” or “out of” scope. Dynamic scoping provides the ability to adjust your activities as you learn more about what is important and material throughout the close process.

Integrate your financial statement and internal controls audit and testing activities. Ensure auditors and management have the same understanding of the process and materiality. This means establishing a single version of the truth used by both management and auditors that tightly links financial numbers with the controls, tests and tasks needed to guarantee that the financial results ultimately reported are not subject to restatement.

Leverage automation to perform the mundane tasks, reduce process overlap and free up your resources to focus on the more challenging elements of your close. Strive for the right balance between good technology and good process and leverage automation capabilities to assess and manage risk.

Progressive finance organizations have already embraced the concept of the integrated close. Brown & Brown, one of the largest and most respected independent insurance intermediaries in the United States, is one of these companies. In the December 2006 issue of Financial Executive magazine, Brown & Brown CFO Cory Walker stated, “For mid-size companies [non-Fortune 1000 companies], the accounting and finance function will be more structured and better documented. In this new world order of high government regulations, there will be greater scrutiny to document and prove that all the decisions and accounting accumulation processes were performed in a consistent and complete manner. Attempting to document these decisions and processes in a non-automated method is a potentially corporate-life-threatening activity, given the aggressive regulatory environment ...”

Let’s Get Back to the Business of Finance

At the end of the day, the professional and corporate success of financial executives is based on the quality, accuracy and timeliness of our financial disclosures. It is about how we manage financial operations and how well we manage that “Last Mile of Finance,” not merely how well we comply with Sarbanes-Oxley or any other regulation.

It is time for us to break out of the defensive cycle and take charge of creating a new environment for success. Building an integrated close will give us a new level of control over our processes. It will also ensure operational readiness across the entire finance function and set us up for smooth sailing through that “Last Mile.” We must put compliance in its rightful place as an integral part of this infrastructure – one that can accommodate new rules and regulations instead of being driven by them.

And, in creating a set of best practices, we can return our focus to the real job of finance – contributing to the success and growth of the company. Only then will this job become rewarding again.