ICAEW THOUGHT LEADERSHIP

FINANCE DIRECTION

The finance function:

a framework for analysis
ICAEW Finance direction initiative

The Finance Function: A Framework for Analysis

forms part of the FinanceDirection thought
leadership programme of the ICAEW Business and
Management Faculty.
Building effective finance functions is a key
concern of organisations and finance professionals.
This report provides a foundation for considering
the key challenges involved and a reference source
for those analysing or researching the role of the
finance function.
ICAEW’s Business and Management Faculty
provides its members with up-to-date business
ideas; the latest management tools; unbiased
and independent information and helps them to
become an effective part of the management team.
Membership is open to finance professionals with
an interest in financial management. Further details
are available at icaew.com/bam.
We welcome comments and enquiries on this
report. To contact us please email
[email protected].
Additional copies of this report can be downloaded
from icaew.com/financedirection, where further
information on our work is also available.
September 2011

© ICAEW 2011, Reprinted 2018.

All rights reserved. If you want to reproduce or redistribute any of the material in this publication, you should
first get ICAEW’s permission in writing. ICAEW will not be liable for any reliance you place on the information in
this publication. You should seek independent advice.

ISBN: 978-0-85760-285-5
The finance function framework –
figure 1

USING THE DIAGRAM

Section 1 of this report provides an overview of the

framework shown in Figure 1, overleaf. The references
in Figure 1 correspond to the numbering structure
of the report in Sections 2,3,4 and 6. They can be
used to navigate to greater detail for each element
of the framework.
FIGURE 1. A FRAMEWORK OF FINANCE
ACTIVITIES AND THE DRIVERS WHICH
SHAPE THEIR IMPLEMENTATION

ENVIRONMENTAL ACCOUNTING
DRIVERS DRIVERS
• Political and social 6.1.1 • Representation 6.2.1
• Market 6.1.2
• Techniques 6.2.2
• Location 6.1.3 Inform • Regulation 6.2.3
• IT 6.1.4
• Sector 6.1.5 • Professionalisation 6.2.4
Influence/direct

FINANCE ACTIVITIES

Strategy and Risk 2.4 and 4.4 Funding

2.5 and 4.5
3.10

3.9 3.8

Organisational Management 3.7

Activities and Control 3.5
2.3 and 4.3
3.6
3.4

3.3

Accounting Compliance
2.1 and 4.1 2.2 and 4.2
3.1 3.2

ORGANISATIONAL
DRIVERS

• Ownership 6.3.1
• Size 6.3.2
• Strategy 6.3.3
• Structure 6.3.4
• People 6.3.5
• Culture 6.3.6
• Routines 6.3.7
 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

Contents

1. Overview 9
1.1 Introduction 10
1.2 Uses of the framework 10
1.3 The framework 11
1.4 Structure of the report 11
1.5 Finance activities 12
1.5.1 Purposes 12
1.5.2 Interactions between finance activities 12
1.5.3 Information content 13
1.5.4 Operational dynamics of the activities 13
1.5.5 Inherent tensions and challenges – why they arise 13
1.5.6 Inherent tensions and challenges – summarised 14
1.6 The role of the finance department 15
1.6.1 Finance department responsibilities 15
1.6.2 Finance activities considered to be of high importance 16
1.6.3 Time allocation of finance departments 16
1.6.4 Finance department adaptability 16
1.7 The drivers that shape how finance activities are implemented 17
1.7.1 Environmental drivers 17
1.7.2 Accounting environment drivers 17
1.7.3 Organisational drivers 18
1.8 Practical implications 18
1.8.1 Regularly revisit the big picture 18
1.8.2 Be careful about buying ‘best practices’ 19
1.8.3 Planning verses adaptability – manage the trade-offs 18
1.8.4 Be realistic – finance departments can’t do everything 20
1.8.5 Respond to the inevitable tests of individual ethics and resilience 20
1.9 Next Steps 21
1.9.1 Engage in constructive discussions 21
1.9.2 Organise knowledge 21
1.9.3 Develop the framework further 22
1.9.4 Commit to further research 22
1.10 Benefits 24

2. The nature and content of finance activities 26

2.1 Accounting 26
2.1.1 Transaction processing 26
2.1.2 Accounting and reporting 26
2.1.3 Financial control 26
2.2 Compliance 28
2.2.1 Regulatory 28
2.2.2 Tax 28
2.3 Management and Control 30
2.3.1 Processes 30
2.3.2 Applications 30
2.3.3 Internal auditing 31
2.3.4 Management accounting 31
2.4 Strategy and Risk 35
2.4.1 Strategy 35
2.4.2 Risk management 35
2.4.3 Mergers and acquisitions 35

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.5 Funding 38
2.5.1 Investor relations 38
2.5.2 Debt financing 38
2.6 Management and resourcing of activities 40
2.6.1 Finance systems 40
2.6.2 People management 40
2.6.3 Outsourcing and shared services 40
2.7 Other activities 40

3. The interactions between finance activities 43

3.1 Organisational activities with Accounting 43
3.2 Accounting with Compliance 43
3.3 Accounting with Management and Control 43
3.4 Compliance with Management and Control 44
3.5 Compliance with Funding 44
3.6 Organisational activities with Management and Control 44
3.7 Management and Control with Funding 45
3.8 Management and Control with Strategy and Risk 45
3.9 Organisational activities with Strategy and Risk 45
3.10 Strategy and Risk with Funding 45

4. Inherent tensions and challenges 47

4.1 Accounting 47
4.1.1 Validity of information and financial control 47
4.1.2 Weighing the costs and benefits of financial controls 47
4.1.3 Differing information required for Compliance and Management and Control 47
4.2 Compliance 48
4.2.1 Differences between public information and internal reporting 48
4.2.2 Compulsory external requirements have to be met 48
4.2.3 High reported profits attract investors but increase tax liabilities 48
4.3 Management and Control 49
4.3.1 Differences between operational and accounting information 49
4.3.2 Deciding which information to use as the primary performance measure 50
4.3.3 Interpretation of variances 50
4.3.4 Ensuring plans and targets are owned by operational managers 51
4.3.5 Gaming 51
4.4 Strategy and Risk 51
4.4.1 Financial versus non-financial orientation 51
4.4.2 Short term versus long term 51
4.4.3 Involvement versus objectivity 51
4.4.4 Mismatch of funding availability versus strategic requirements 52
4.5 Funding 52
4.5.1 Consistency and coherence of information 52
4.5.2 Pressure of uncertainty 52
4.5.3 Changes to funders’ terms and lending covenants 52
4.5.4 Conflicting interests between investors, funders and managers 53
4.6 Resourcing – key challenge 53
4.7 Other activities – key challenge 53

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

5. The role of the finance department 54

5.1 Finance department responsibilities 55
5.2 Finance activities considered to be of high importance 56
5.3 Time spent on activities 57
5.4 Interpreting the results 57
5.5 How finance activities are implemented is idiosyncratic 57

6. Drivers shaping the implementation of finance activities 58

6.1 Environmental drivers influencing the finance function 58
6.1.1 Political and social 58
6.1.2 Market 59
6.1.3 Location 59
6.1.4 Information Technology 60
6.1.5 Sector 60
6.2 Accounting environment drivers 61
6.2.1 Accounting representation 61
6.2.2 Management and control techniques 61
6.2.3 Regulation 62
6.2.4 Professionalisation of accounting 62
6.3 Organisational drivers 62
6.3.1 Ownership 63
6.3.2 Size 63
6.3.3 Strategy 64
6.3.4 Organisational structure 64
6.3.5 People 65
6.3.6 Culture 65
6.3.7 Routines 65

Appendix 1 – Supporting evidence for the drivers 67

Appendix 2 – Development of the findings 89

A2.1 Summary 89
A2.2 Literature Review 89
A2.3 Proposal development 89
A2.4 Consultation 90
A2.5 Limitations 90

Acknowledgements 91
Bibliography 92
Endnotes 105

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THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

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1. Overview
In this section we summarise the framework
of finance activities and the drivers that shape
their implementation (Figure 1). We also cover
the issues and practical implications that arise
from its development.

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1. Overview

1.1 INTRODUCTION

Business partnering, business intelligence, benchmarking, outsourcing, talent management – just

some of the solutions put forward to develop effective finance functions. Sometimes they help and
sometimes they don’t. We believe that greater confidence in selecting the best course of action can
only be achieved by carefully analysing finance functions and the unique contexts within which they
operate. In this report we propose a framework which helps managers carry out this analysis.

The framework of finance activities and the drivers that shape their implementation (‘the framework’) is
shown in Figure 1 as a pull out flap from the back page. The framework is summarised and discussed in
Section 1, which also covers the practical implications of our work and proposes some next steps. For
those interested in more detail and the supporting evidence for the report Sections 2 to 6 provide a
guide to the framework. These sections can be navigated using the references on Figure 1.

The report is based on discussions with senior finance professionals, a wide-ranging review of the
relevant literature and our own experience.

Our work aims to support finance staff and their advisors in their role of contributing to organisational
success. In order to achieve this aim a broad understanding of finance functions and the contexts
they operate in is vital. This understanding will help managers anticipate and adapt to change as they
attempt to build effective finance departments. In doing so it is important that we are realistic about
the limits of the contribution that finance departments can make to performance, and also that we
acknowledge that finance activities can be carried out successfully outside of the finance department.
This report also serves to highlight the relationships between finance activities and the inherent
tensions and challenges faced by finance staff. Developing our understanding of finance functions is an
ongoing process which the framework helps to facilitate.

1.2 USES OF THE FRAMEWORK

The framework summarises a complex set of interrelationships, which play out differently depending
on context and change in nature over time. As a result it is highly unlikely that we will ever have a
definitive understanding of the finance function and how it contributes to organisational success.
Therefore in this report we aim to provide a practical tool and reference material which can be used
and developed over time. It provides a checklist and a guide to ensure that relevant activities, issues
and contextual factors are taken into account when managers make judgements about how to build
effective finance functions. Based on this foundation managers and their advisors can develop tailored
solutions which suit their own unique circumstances. Furthermore the framework can be used to assess
the appropriateness of advice from others.

We also think the framework can be used to:

• profile finance functions in order to compare them;
• analyse finance functions from different perspectives;
• organise what we know about finance functions and make that knowledge more accessible and
usable; and,
• facilitate constructive discussions - discussions which can deepen our understanding of finance
functions and provide the basis for further research.

We see real benefits if the use and development of the framework can provide a common language
and a comprehensive agenda for discussing the finance function and finance departments.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

ICAEW intend to develop and improve the framework and therefore we ask that you review the report
and send us your feedback.1

1.3 THE FRAMEWORK

The five interrelated activities at the centre of the framework, the light pink boxes in Figure 1, make
up the finance function of an organisation. The link between the activities is that they all relate to the
production, flow, interpretation, communication and use of financial information, as well as related,
explanatory non-financial information.

The term ‘finance function’ can be used in two ways – as a set of activities, which is how we use the term
in this report, and to identify the group of people generally responsible for, and specialising in, finance
activities. We use the term ‘finance department’ to describe the latter.

The outer circle of the framework highlights the interrelated drivers that shape the implementation of
finance activities – who does what and how. Although all organisations need to carry out the finance
activities identified in order to operate effectively, the drivers mean that the arrangements for doing so
in any particular organisation are idiosyncratic. While the evidence suggests that the activities are often
carried out by finance departments this is by no means always the case.

1.4 STRUCTURE OF THE REPORT

Section 1 of the report provides an overview of the framework with brief descriptions of the activities
and the nature of the interactions between them. This is followed by a summary of the inherent
tensions and challenges arising from finance activities and their interrelationships. The drivers that
shape the implementation of finance activities are then summarised. Based on this discussion we
highlight some practical implications for those looking to implement effective finance functions.
Section 1 concludes with some suggestions for further developing the framework.

Sections 2 – 6 of the report provide more detail on each element of the framework and can be
navigated by using the references on Figure 1.
• Section 2 – describes the content of each finance activity and provides supporting tables which
analyse the surveys used to inform their development.
• Section 3 – describes the interactions between finance activities in greater depth (the solid and
dotted arrows).
• Section 4 – provides a more comprehensive discussion of the inherent tensions and challenges
summarised below in subsection 1.5.6.
• Section 5 – analyses the role of the finance department by pulling together the results of  the various
surveys used in this report.
• Section 6 – discusses the drivers shown on the outer circle of the framework which shape how
finance activities are implemented. These findings are supported by over 250 reports and papers
which are summarised in Appendix 1.

Appendix 2 describes how the findings of the report were developed.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

1.5 FINANCE ACTIVITIES

1.5.1 PURPOSES
The finance activities shown in Figure 1 are derived from an analysis and interpretation of
20 surveys of what CFOs and finance departments do. An activity is an action, task or process.

Each of the finance activities originate from organisational activities and focus on the production and
use of information to meet the following purposes:
1. Accounting: to record the financial consequences of organisational activities.
2. Compliance: to meet the requirements of governmental and other regulatory bodies.
3. M
 anagement and Control: to produce and use financial and related information to inform, monitor
and instigate operational actions to meet organisational objectives.
Strategy and Risk: to inform and influence from a financial perspective the development and
4. 
implementation of strategy, and to manage risk.
5. Funding: to inform and engage with investors and funders, both current and potential, to obtain
and maintain the necessary financial resources for the organisation.

The subcategories of each of the above activities are described in Section 2.

As mentioned above the five interlinked finance activities make up the finance function of an
organisation. The organisational activities shown on the diagram are effectively all the other activities
that an organisation carries out. Importantly these include the leadership, management and resourcing
activities necessary to implement the finance activities (see 2.6).

1.5.2 INTERACTIONS BETWEEN FINANCE ACTIVITIES

The framework shows the direct interactions between the finance activities. These consist of two types:
• Inform: The flow of information – both financial and support information – from one activity for use
by another (solid arrows on Figure 1). For example basic accounting information is used in the
production of management accounts.
• Influence and direct: The use of the information by one activity to influence and direct which activities
are carried out and how they are implemented (dotted arrows on Figure 1). For example the need for
Compliance activities to report in accordance with International Financial Reporting Standards (IFRS)
means they will influence what is recorded by Accounting2 activities in the ledger system.

The framework show what we believe are the main, ongoing interactions between finance activities.
Other interactions may occur but it is useful to eliminate those interactions which currently do not seem
to be prevalent. The details of the interactions are described in Section 3.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

1.5.3 INFORMATION CONTENT

Information is interpreted in a broad sense to include the formal and the informal, documented and
oral. For our purposes it consists of two types:
• Financial information: This consists of transactions, records, aggregations and analysis relating to
the financial consequences of organisational actions - past and prospective.
It consists of both numbers and descriptions. This would include for example trial balances, statutory
accounts and discounted cash flow calculations.
• Support information: This provides context and understanding which enables financial information to be
linked to underlying organisational activities. It is required to interpret and assess the significance of the
financial information. For example headcount records and commentary in the management accounts.

1.5.4 OPERATIONAL DYNAMICS OF THE ACTIVITIES

The interlinked activities operate in a dynamic manner with the following key aspects:
• Open: All activities are open ie, their implementation will be impacted both by the interaction with
other activities and the drivers, as discussed in Section 6.
• Adapting and changing: Given the open environment and complex range of drivers, the activities
will adapt and change in response.
• Continual interactive feedback: As Figure 1 shows there are continual, interactive back and forward
flows of information and influence in the framework.
• Multiple timescales: The timing of finance activities and information flows vary depending on
the nature and timing of organisational and environmental activities, environmental norms and
organisational choice. Past, present and future are all relevant as are different periodicities eg, real
time, daily, weekly, monthly and annually.

1.5.5 INHERENT TENSIONS AND CHALLENGES – WHY THEY ARISE

The nature of finance activities and their interrelationships result in some inherent tensions and
challenges which have to be managed. The tensions arise because:
• the information flows and interrelationships between finance activities mean that problems with one
activity feed through to other activities;
• the finance activities serve different and sometimes conflicting purposes and use different
information which may or may not be reconcilable;
• conflicts of interest may result in finance activities being undermined or used to support personal
rather than organisational objectives;
• finance activities have to contend with uncertainties over cause and effect relationships;
• there are pros and cons of different approaches to finance activities and trade-offs have to be
made; and
• finance activities have to be carried out with limited resources.

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1.5.6 INHERENT TENSIONS AND CHALLENGES – SUMMARISED

The inherent tensions and challenges in carrying out the finance activities we have identified are
summarised in Table 1.5 below with a more detailed discussion in Section 4.

TABLE 1.5: SUMMARY TENSIONS AND CHALLENGES

ACCOUNTING
Financial information produced by Accounting flows through the whole framework so any problems here
mean that the validity of information throughout the organisation is compromised.
Financial controls have costs and benefits that need to be weighed against each other.
Information required for Compliance differs from that required for Management and
Control making it difficult for Accounting activities to meet both needs.
COMPLIANCE
Information required for external publication differs from internal reporting. These differences can be
difficult to explain and may lead to questioning of the validity of both.
Compulsory external requirements have to be met leading to uncertain and uncontrollable resource
requirements. Moreover meeting the requirements can be perceived as being expensive and of limited
value resulting in pressures to cut corners.
High reported profits attract investors but increase tax liabilities. This means there are conflicting pressures
on the level of profits to report.
MANAGEMENT AND CONTROL
The information produced directly by organisational activities and the accounting information used
by Management and Control may differ. This gives rise to different interpretations of organisational
performance and time spent on discussing differences – sometimes productively but often dysfunctionally.
Management and Control including general management and control, cash management, investment
appraisal and tax (see 2.3) require different information and sometimes have conflicting purposes. This
makes it difficult to decide which information to use as the primary performance measure.
Variances between ‘actuals’ and plans can be difficult to interpret. Do they suggest the need for changes to
behaviours and processes in order to achieve the original plan or do plans need to be reassessed?
Where plans are produced by financial specialists there is a risk that operational managers do not
understand/take ownership of those plans.
Management and Control processes are subject to gaming.
STRATEGY AND RISK
A balance has to be struck between concentrating on easily measurable financial targets and equally
valuable, but more intangible, non-financial targets.
Short-term needs may conflict with longer term strategic objectives.
Where those responsible for finance activities become more actively involved in decision making their
objectivity may be compromised.
Strategic objectives require funding, which may be difficult to obtain. This may lead to pressures to over
promise on the probability of implementation success and predicted financial outcomes.

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TABLE 1.5: SUMMARY TENSIONS AND CHALLENGES CONTINUED

FUNDING
Investors and funders use publicly available information and may have access to information produced
for internal use. Differences between them may undermine organisational credibility with funders and
investors.
Investors and funders require prospective information on financial performance and prefer certainty. This
may lead to pressures on organisations to downplay the uncertainties inherent in prospective information.
Renewal of funding is subject to uncertainty and may be withdrawn due to changes in a funder’s internal
policies as well as perceived financial difficulties in an organisation.
The conflicting interests of managers, equity investors and debt funders have to be managed.
RESOURCING
Finance activities have to be managed but finance specialists may lack leadership and management skills.

How organisations respond to these tensions and challenges will have a significant impact on
organisational performance. Therefore anyone concerned with managing the risks faced by
finance functions should benefit from reading the more detailed discussion of the tensions and
challenges in Section 4.

1.6 THE ROLE OF THE FINANCE DEPARTMENT

The consolidated survey data on finance department responsibilities, time allocation and the
importance attached to finance activities is discussed briefly below with some further details in Section
5. Given the different approaches taken in the surveys we urge caution in interpreting the summarised
results and recommend that readers also review the detailed tables in Section 2. However, some
patterns do emerge.

1.6.1 FINANCE DEPARTMENT RESPONSIBILITIES

High levels of finance department responsibility are apparent for core process type activities –
accounting, transaction processing, financial information, tax, cash management and financial controls.

Medium levels of finance department responsibility are seen in the application type areas such as
general management and control and Strategy and Risk. These areas of activity are those where CFOs
and finance departments often aspire to achieve more influence. Some achieve such aspirations
and some do not. Moreover there seems to be no rigorous evidence of growing strategic influence
in recent years. In our opinion many CFOs achieved such influence many years ago and reports of
growing influence have been made regularly since at least 19763.

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1.6.2 FINANCE ACTIVITIES CONSIDERED TO BE OF HIGH IMPORTANCE

Within Management and Control, the production and analysis of financial information, which includes
management reporting, financial analysis, budgeting and forecasting, shows the highest average ‘high
importance’ score. The explanation may be that these are activities where finance departments have
high responsibility and the potential to significantly impact on organisational performance. There
are likely to be high expectations that finance departments will perform these activities to a high
standard and problems will need to be addressed urgently. A similar argument can be made for the
high importance attached to general management and control, within which we include terms such as
business support, decision support and business partnering.

High importance is also attached to both Strategy and Compliance. Assessing the relative priority to
give to these two areas is often a key challenge for finance departments.

Although important treasury and cash management are not rated as highly as the above. This may be
because the surveys concerned were carried out before the 2008 financial crisis.

People management, finance systems and organisation-wide IT are also seen as highly important. This
is to be expected as they are key enablers of finance department and organisational performance.

Accounting and reporting, transaction processing and financial controls receive lower ‘high
importance’ ratings. These activities are often perceived as ‘hygiene’ factors – the expectation is
that they will be carried out effectively and efficiently but they are not seen as adding value to an
organisation. They will only receive significant management attention when major problems occur or
there is scope for significant cost savings.

1.6.3 TIME ALLOCATION OF FINANCE DEPARTMENTS

Time-based responsibilities have not been consolidated because the variation in survey approaches
means that the results are potentially misleading. Greater insights are gained by looking at the detailed
tables in Section 2.

The most telling trend is highlighted by the IBM surveys of 2003 and 2010, one of the few surveys to
use similar terminology over time. These surveys show that the proportion of time spent by finance
departments on transactional activities, control activities and decision support has hardly changed over
the period covered.

1.6.4 FINANCE DEPARTMENT ADAPTABILITY

Given the surveys show differences in finance department responsibilities, we infer that how these
activities are undertaken, and indeed whether they are carried out by finance departments at all,
will vary across organisations. The arrangements for carrying out finance activities are shaped by the
impact of the drivers described below.

Furthermore the inherent tensions we have discussed previously make for ongoing instabilities in the
finance function meaning that finance departments need to constantly monitor the effectiveness of
their activities and respond to any problems identified.

The combination of the drivers and the inherent tensions and challenges points to the need for finance
departments to constantly adapt to their unique circumstances, which may include taking on additional
responsibilities or relinquishing existing ones.

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1.7 THE DRIVERS THAT SHAPE HOW FINANCE ACTIVITIES ARE IMPLEMENTED

The drivers which shape how finance activities are implemented are shown on the framework (Figure 1)
under the headings of environmental drivers, accounting environment drivers and organisational
drivers. The environmental and accounting drivers have both a direct impact on finance activities and
an indirect impact via their impact on the organisational drivers. It is also important to note that finance
activities have an impact on the organisational drivers as shown on Figure 1 by the angled base of the
finance activities box.

Managers can use the lists of drivers as a checklist to ensure they consider their unique circumstances when
positioning the finance function within organisations and managing finance activities.

The wide range of drivers and the interactions between them suggest a high level of complexity and
uncertainty. Knowledge of the impact of these complexities and uncertainties on finance functions is
extremely limited. However, we discuss a range of evidence relevant to each driver in Section 6 and
provide further details in Appendix 1. Key points include:

1.7.1 ENVIRONMENTAL DRIVERS

• Political and social factors are fundamental to the context within which finance activities are
undertaken. For example politics will influence financial regulation and the social context will impact
on attitudes to shareholder value.
• Finance activities need to respond to Market forces, broadly interpreted to include the economic
and financial environment, and customer and supplier relationships. The impact of financial crises
can be significant. Competitive pressures may lead to the closer involvement of finance staff with
other functions in an organisation such as operations and marketing.
• Location – national differences, globalisation and the interplay between them provide strong, often
conflicting, influences on how finance activities are implemented.
• Information Technology (IT) developments may have a transformative impact on the implementation
and delivery of finance activities and the pace of IT development provides an ongoing challenge.
• Differences in industry Sector, and in particular related differences in levels of uncertainty, impact
finance activities, especially Management and Control and Strategy and Risk.

1.7.2 ACCOUNTING ENVIRONMENT DRIVERS

The accounting environment drivers are a subset of the environmental drivers but are discussed
separately because of their specific relevance to the role of the finance function.

• Accounting Representation: Financial information can only provide a partial representation of

organisational reality and is based on conventions, estimates and assumptions. As a result finance
departments can take different approaches to how accounting information is produced, presented,
interpreted and used. Clearly if subsequent events show these approaches and associated
assumptions to be mistaken the credibility of the producers and users of the information can be
called into question.

• A wide range of Techniques can be used for Management and Control purposes. There are no clear
guidelines on what is appropriate in any given situation. However, there is some evidence of the
desirability of integrating financial and non-financial measures.

• Regulation directly impacts all finance activities. Financial scandals increase the focus on this area.
There is some pressure for finance professionals to work on broader regulatory issues including
sustainability.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

Professionalisation of accounting has influenced finance activities in many parts of the world. This
• 
influence may be increasing as membership of professional bodies continues to grow. However,
this may be offset by the reduction in their regulatory role which is being superseded by rules
prescribed and enforced by governmental and global institutions.

1.7.3 ORGANISATIONAL DRIVERS

• Ownership: The influence from owners or institutions to which an organisation is accountable (eg,
governments) will be significant in shaping the focus of finance activities, although the level of
intervention will vary. Changes in ownership or accountabilities can result in significant changes to
finance activities.
• Size plays a major role in influencing finance activities particularly with respect to levels of
sophistication and formality of management and control systems, and the breadth of finance
department responsibilities.
• Aligning Management and Control activities with organisational Strategy is generally believed to be
beneficial but can be difficult to achieve.
• Organisational Structure is intertwined with how finance activities are undertaken. Consideration
needs to be given to collaboration between finance and other functions, financial incentives and the
use of outsourcing and shared service centres.
• The skills of People in the finance department partly determine the nature and effectiveness of
finance activities. However, attracting appropriately skilled staff can be difficult. While finance
departments can play a major part in shaping their own role they will also be directed and
influenced by top management teams, especially the CEO.
• Finance activities are intertwined with organisational Culture, political processes and broader
operational Routines.

Anyone interested in carefully considering the factors which impact on the design and operation of
finance functions should benefit from reading the more detailed discussion of each driver in Section 6
and the supporting evidence in Appendix 1.

1.8 PRACTICAL IMPLICATIONS

When taken together the interrelated activities, drivers, and tensions and challenges suggest that
finance functions have to deal with a high degree of complexity and uncertainty. For example the
challenge of meeting the information requirements of multiple stakeholders will be made more
complex by acquisitions and subject to greater uncertainty when markets are turbulent.

The framework and the supporting evidence give some indication of how these complexities and
uncertainties play out for the finance function and organisations. However, given the
complexities and uncertainties and the importance of context our understanding is inherently
limited and therefore it is not feasible to offer detailed, prescriptive advice. Nevertheless it is possible
to draw out some insights and practical implications that provide some guidance to managers. These
are summarised under the five headings below (1.8.1 to 1.8.5). In subsection 1.9 we have identified
some next steps that could fruitfully be followed to further enhance our understanding.

1.8.1 REGULARLY REVISIT THE BIG PICTURE

Based on their experience and expertise many finance professionals manage the finance function
and adapt to the environment very effectively despite the complexity. They achieve this through a
combination of intuition, careful thought, teamwork and the use of relevant tools and techniques. In
addition they regularly revisit the big picture – considering the finance function as a whole and how

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

it fits with organisational needs and context. Taking a holistic view improves a manager’s ability to
spot problems early, avoid unintended consequences and adapt quickly. However, the important tacit
element of this knowledge is by definition difficult to communicate to others.

The framework provides a start point for making this tacit knowledge more accessible. It provides a
high-level checklist of activities, drivers and tensions to consider, albeit without clear, unambiguous guides
for action. Even experienced managers can gain from reviewing the framework, especially when
circumstances change. It facilitates the process of assessing whether previously successful approaches
still apply. For example the framework makes clear that when a finance professional moves from one
organisation to another the focus of finance activities, the most relevant challenges and the nature and
relevance of the drivers may change and therefore need to be reconsidered.

1.8.2 BE CAREFUL ABOUT BUYING ‘BEST PRACTICES’

If we accept the need for finance activities to respond to wide variations in context then it is difficult to
see how specific and detailed best practices can be advocated universally. Indeed it is clear that many,
perhaps most, finance activities can be carried out very effectively outside of the finance department.

Practices will need to be tailored to the unique circumstances of the organisation concerned. This is not
to say organisations cannot learn from the practices of others and the proposed solutions of advisors.
However, a great deal of care is required to ensure that practices that work in one context do translate
to another context. For example, failures in introducing Activity Based Costing or ‘business partnering’
may be more to do with not fitting the context than poor implementation.

The framework provides one way of ensuring that contextual differences are considered when
assessing the appropriateness of new practices which have worked elsewhere.

1.8.3 PLANNING VERSES ADAPTABILITY – MANAGE THE TRADE-OFFS

Our discussion also suggests that operating and improving finance activities will need to be based on
judgements of what will remain the same, at least in the near term, and what is likely to change. The
drivers identified all have the potential to change, sometimes quickly, significantly and unpredictably.

This makes it difficult to see how rigid, standardised processes will have a long shelf life for all but the
most basic of finance activities.

In addition detailed long-term plans for changing how finance activities are carried out are likely to
become outdated very quickly. This is a huge challenge, given for example that the introduction of
major finance system changes across large organisations may take years to implement.

An alternative approach is to focus on adaptability, both in terms of ongoing processes and change
projects. For example programmes to ‘transform’ the finance function can be established with high-
level principles and long-term objectives but with shorter term, smaller projects used to move finance
towards the end goal. This would enable relatively quick changes to tactics.

However, adaptability comes at a cost. Building redundancy into systems and processes, collecting
business data that may not be essential in current circumstances and employing more highly skilled
staff than strictly necessary for current workloads are not easy to justify.

Also we do need to be careful not to overemphasise change. Change is more noticeable than things
that stay the same. Finance functions have been using double-entry bookkeeping for centuries and the
aspiration of finance professionals to be more closely involved with the business and strategy have been
discussed for many decades. In addition the tensions and challenges highlighted are inherent to the

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

activities framework and represent ongoing challenges for the finance function. While the ways in which
these tensions and challenges become manifest may differ, the underlying issues can be anticipated.

1.8.4 BE REALISTIC – FINANCE DEPARTMENTS CAN’T DO EVERYTHING

When reading some of the commentary which goes with the survey data analysed in this report, it is
possible to get the impression that superhuman CFOs, with highly talented teams, using integrated
systems and sophisticated analytical techniques are the main determinant of organisational success.
While we do believe that effective finance functions can be an important part of such success it is
important that we are more realistic in our expectations.

There are inherent limitations to the capabilities of the finance function. We have mentioned the
problems of accounting representation (discussed further in subsection 6.2.1), which apply whoever
takes responsibility for finance activities. CFOs and finance teams have cognitive limitations and blind
spots as do all organisational members. Finance departments have to work within resource constraints.
IT systems design usually involves compromise because of these constraints and the limited
functionality of systems available.

Playing down such limitations may be seen as advantageous, for example to speed up decision
making, inspire confidence in investors and indeed garner resources for the finance department.
However, over promising and under delivering will tarnish a finance department’s reputation. Moreover
if finance departments are to live up to the rhetoric of being the voice of reason in organisations and
the providers of ‘objective’ information for evidence based decision making, then surely this must be
based on an honest assessment of the department’s capabilities and its outputs.

Communicating such limitations is not easy. For example business managers have limited time and
overloading them with provisos and caveats can be counterproductive. Their existing knowledge
of limitations and assumptions may be difficult to assess and the limitations that need to be
communicated will vary depending on the particular situation.

Therefore finance professionals have to strike a difficult balance in deciding what to communicate in
different situations. Too much information with multiple scenarios, long lists of assumptions and no
recommendations may mean that valuable information gets ignored. Too little information with no
context or provisos and a decisive recommendation may result in insufficient consideration of the
issues and ineffective decisions – or a request for more information!

A further consideration is that the failure to market and promote what can be achieved by finance
departments will lead to them being less influential than other departments. Again a balance has to be
struck between the ongoing striving of finance departments to contribute more to organisations, which
among other things is highly motivational for staff, and an acceptance of the appropriate positioning of
the finance department’s role in a particular organisation.

1.8.5 RESPOND TO THE INEVITABLE TESTS OF INDIVIDUAL ETHICS AND RESILIENCE

The framework and the tensions and challenges identified, help us understand why the ethics and
resilience of finance professionals are often severely tested. An individual’s response to these tests
will vary depending on their character and ability. Therefore organisations need to consider how they
reduce the risks of inappropriate responses of those carrying out finance activities. Organisational
leaders, managers of other functions, professional bodies, academics and consultants all have a role
to play in providing support. The framework helps articulate the issues to these interested parties from
which appropriate actions can be developed. These may include, inter alia:
• monitoring and responding to conflicts of interest;
• establishing the necessary checks and balances on finance function activities;

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

• developing and communicating ethical guidelines;

• the careful recruitment and selection of finance staff; and
• providing appropriate training, development and mentoring4.

1.9 NEXT STEPS

In this section we suggest some next steps for developing the framework and further research which
would add to our understanding of finance functions and how they can become more effective.

1.9.1 ENGAGE IN CONSTRUCTIVE DISCUSSIONS

We believe the framework provides a basis for useful debates around the role of the finance function
and how finance activities can be made more effective. Presentations of earlier versions of the
framework generated significant discussion between finance professionals, consultants and academics
on a wide range of issues.

Discussion of the following questions may generate further progress:

• D
 oes the framework adequately capture finance activities, their interrelationships and the drivers
that shape the finance department’s role?
• D
 o the inherent tensions discussed represent a comprehensive list of the potential conflicts? How
can the tensions and challenges be dealt with?
• How do the interrelationships between each finance activity and between finance activities and
organisational activities operate? Can the interrelationships be improved?
• When the drivers shaping finance activities change what might be the consequences for the finance
function? What responses might be appropriate?
• Based on existing knowledge and evidence, what guidance, if any, can be confidently provided to
help finance departments become more effective in dealing with the circumstances they face?

1.9.2 ORGANISE KNOWLEDGE

The framework and this report are an attempt to map some of our existing knowledge of the finance
function and to make it more accessible. Additional studies, past and future, could be incorporated into
our work to make it more comprehensive and further develop the arguments.

However, any way of seeing is also a way of not seeing. While we have tried to allow for multiple
perspectives we are cognizant of the fact that the framework is inevitably limiting. It may obscure the rich
diversity of work that has been carried out. In addition there are risks in combining different theoretical
perspectives in the way that we have. The few lines we have used to summarise studies in Appendix 1
clearly simplify the findings and may suggest a coherence that is not justified. We hope however that
readers of this report will delve further into the literature to build their own more nuanced understanding.

It was not an easy process trying to bring together the studies we have included. Clearly other
approaches are possible. We would be interested in feedback on the usefulness of our approach in
supporting the accumulation of knowledge about the finance function and discussing alternatives.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

1.9.3 DEVELOP THE FRAMEWORK FURTHER

We do not see the framework as cast in stone and would like to develop it further. Such developments
will be based on discussing the framework more widely, obtaining feedback from those who use the
framework and suggestions for further literature to incorporate.

In particular, we have tried to track down the main English language surveys of CFOs and the finance
function which cover their activities from a responsibility, time or priority perspective. However, we may
have missed some, particularly those carried out before 2000. It would also be interesting to consider
surveys carried out in other languages. If you can provide access to surveys not covered in this report
please do let us know. The development of new surveys is discussed below.

1.9.4 COMMIT TO FURTHER RESEARCH

Despite the wide range of work carried out which helps us to understand the role of the finance
function, clearly there is still much more that can be done. In this section we offer four suggestions of
particular research areas that we believe warrant further attention.

1. Survey development to analyse trends and compare finance functions

As can be seen in the tables supporting the activities framework in Section 2, a large number of
different terms are used to describe what finance departments do in organisations. There may be some
advantages in working towards the use of more standardised terms in future surveys. This would allow
the identification of trends over time and greater comparability between surveys. In addition academic
work which factor analyses finance activities would also be useful.

Currently claims for changes in the role of the CFO and the finance department are based on one-
off surveys and subjective views about the future. Interestingly the notable exception tells a different
story. As previously mentioned the series of IBM CFO Surveys between 2003 and 2010 indicate that
the proportion of time spent by finance departments on decision support is almost unchanged over
the period and remains a long way short of CFO aspirations. Some standardisation of finance activity
categories would enable more rigorous analysis of trends over time.

Our knowledge of how CFO roles and finance departments vary in relation to drivers such as size,
nationality and industry sector would also be enhanced if surveys used similar terminology. From this
basis more detailed assessments of the relationship between the nature of finance departments, the
contexts they operate in and organisational performance could be derived.

There will always be debates about how best to disaggregate the activities of the finance function.
However, the use of the ‘big five’ model of personality is also contentious but has proved useful
in advancing knowledge in the field of psychology. A collaborative effort of those carrying out
surveys in order to develop some guidelines and categories of activities may be similarly helpful in
understanding finance functions.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2. Studying finance departments as a whole

A great deal of academic work has been carried out on the role of individual management accountants,
performance management systems and particular financial management techniques. Case studies
looking across organisations are also plentiful. However, studies at the finance department level of
analysis appear to be limited.

The tensions and challenges we have identified suggest that there would be value in looking more
deeply at how different parts of finance functions interact. For example how do teams responsible
for Management and Control activities work with those responsible for Compliance and Investor
Relations? What issues arise and how are they dealt with?

It is also worth noting that academic work studying CFOs is quite limited, perhaps as a result of
difficulties in obtaining access to them.

Commercial benchmarking firms have carried out significant work on the costs of carrying out finance
activities and the timeliness of report production. It would be useful to extend this to measuring
the relative influence of finance functions. Possible measures include looking at finance department
representation on key committees, discretionary expenditure limits of finance staff and the degree of
decision making authority with respect to investment decisions.

We also think the framework could be used to both profile finance departments in order to compare
them and to analyse finance departments from different perspectives. For example those with an
interest in promoting sustainability could consider how the finance activities and their interrelationships
would need to change to support this agenda. The impact of such changes on the inherent tensions in
the framework could also be analysed.

3. Studying finance department relationships with other departments

As discussed in relation to the organisational Structure driver, how finance departments work with the
rest of the organisation is an important area of study if we want to understand how they impact on
organisational performance. The design of finance departments and allocating their responsibilities
cannot be undertaken in isolation from an understanding of their relationships with other departments.

It is important to note that the interactions between finance departments and operational departments
are not based purely on the use of management accounting information. Rather there are multiple,
interrelated interactions which include discussions spanning management information, financial
controls, tax, statutory accounting, investor relations and so on. This view is reinforced by the tensions
and challenges identified which suggest that decision making will be influenced by a broad range of
financial considerations. In addition, while we have identified a few studies which look at the levels of
collaboration and conflict between finance and other departments in organisations there is scope for
more work.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

4. The development of more interdisciplinary work

The benefits of interdisciplinary work have been highlighted by a number of scholars eg, Merchant,
Van der Stede and Zheng5. These include the cross fertilisation of ideas and theories from one
field to another and the insights generated through collaboration. For example, given the complex
interrelationships shown in the framework it would seem helpful to examine the role of the finance
function using complexity theory.

The benefits extend beyond academic work to that carried out by professional firms and bodies. A
large amount of this work is finance staff talking about finance staff. However, much can be learned
from analysing how staff in other departments work with the finance department and their perceptions
of the finance department.

The barriers to carrying out work across disciplines are significant and the cost benefit trade-offs
are not clear cut. However, we believe that significant progress could be made in better advising
organisations if there were greater cross disciplinary collaboration. For instance understanding
the relationships between the marketing department and the finance department would benefit
from collaboration between the relevant marketing and accounting experts in commercial entities,
universities, professional bodies and consulting firms.

1.10 BENEFITS

We believe that discussing and utilising the framework and carrying out the research highlighted
above will greatly enhance our understanding of the finance function and therefore support finance
function effectiveness. By acknowledging that finance activities can be conducted successfully outside
of the finance department we recognise the need to focus on organisational performance, however
that is defined, rather than simply promoting the interests of the finance department. Nevertheless we
believe the framework can be used to analyse finance functions constructively. This analysis will provide
CFOs and other senior managers with a basis for developing the capability of the finance department and
positioning it to support organisational success.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2 – 6. The finance function: a guide

Sections 2 to 6 provide more detail on
each element of the framework and can
be navigated by using the references on
Figure 1.

• Section 2 – describes the content of

each finance activity and provides
supporting tables which analyse
the surveys used to inform their
development.

• Section 3 – describes the interactions

between finance activities in greater
depth (the dotted and solid arrows).

• Section 4 – provides a more

comprehensive discussion of the
inherent tensions and challenges
summarised in subsection 1.5.6.

• Section 5 – analyses the role of the

finance department by pulling together
the results of the various surveys used in
this report.

• Section 6 – discusses the drivers shown

on the outer circle of the framework
which shape how finance activities
are implemented. These findings
are supported by over 250 reports
and papers which are summarised in
Appendix 1.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2. The nature and content of finance activities

In this section we provide a more detailed description of each finance activity and its subcategories. We
also provide a table for each activity showing the supporting evidence from the surveys used to inform
the activity categories. Survey respondents were generally CFOs and finance professionals.The references
below correspond to those on Figure 1 – the first reference in each light pink finance activities box.

2.1 ACCOUNTING

The purpose of Accounting is to record the financial consequences of organisational activities. This
covers any activity undertaken by or on behalf of an organisation that results in a financial obligation
or benefit. The supporting evidence is shown in Table 2.1, from which three elements of Accounting
are identified:

2.1.1 TRANSACTION PROCESSING

Transaction processing involves the recording and settlement of financial transactions arising from
organisational activities. Cash obligations, payments and receipts are coded and recorded, usually
through a double-entry bookkeeping system including standard ledgers of debtors, creditors, cash
book and general.

2.1.2 ACCOUNTING AND REPORTING

The aggregations of financial transactions in general ledgers together with any required accounting
adjustments enable the production of trial balances based on charts of accounts. The trial balances in turn
enable the production of basic accounts in the form of profit and loss statements and balance sheets.

The double-entry system provides a central unifying process and global standard for accounting.

2.1.3 FINANCIAL CONTROL

Financial controls are required to ensure the protection of assets and to ensure that all financial
transactions are accurately recorded and reported. Activities include inter alia setting internal control
policies, reconciling external statements and monitoring payment of invoices.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.1: ACCOUNTING

Author Date Measure About what activity Measure About Result
whom
ACCOUNTING
TRANSACTION PROCESSING
Mckinsey 2009 R Accounts payable Within scope of Fin. Dept. 79%
Mckinsey 2009 R Accounts receivable Within scope of Fin. Dept. 75%
Mckinsey 2009 R Payroll Within scope of Fin. Dept. 56%
Accenture 2008 I Transaction processing Critical performance factor for Fin. Dept. 24%
Ernst & Young 2008 I Administering accounts Most important for CFO 17%
payable/receivable
Weston 1954 T Credits and collection % time allocation for Fin. Dept. 7%
Weston 1954 T Supervise cashiers % time allocation for Fin. Dept. 3%
IBM 2003 T Transactional activities % Finance workload Fin. Dept. 50%
distribution
IBM 2010 T Transactional activities % Finance workload Fin. Dept. 49%
distribution
ACCOUNTING AND REPORTING
IBM 2005 R Accounting Function reports to CFO 93%
EIU 2006 R Collecting and reporting Leadership resides in Fin. Dept. 89%
financial information
CFO Research 2007 R Financial information Responsibility of CFO 91%
IBM 2008 R Accounting Function reports to CFO 93%
Mckinsey 2009 R General accounting Within scope of Fin. Dept. 84%
Ernst & Young 2008 I General accounting Most important for CFO 20%
ICAEW 2010 I Accounting, bookkeeping, Greatest skill/role Fin. Dept. 32%
transactions needed by
ICAEW 2010 I Financial reporting Greatest skill/role Fin. Dept. 35%
needed by
Weston 1954 T Accounting % time allocation for Fin. Dept. 13%
ICAEW 1993 T Internal financial reporting % time allocation for CFO 36%
and control
CIMA 2010 T Provision of accounting advice % time allocation for Fin. Exs. 4%
CIMA 2010 T Accounting in a multinational % time allocation for Fin. Exs. 3%
context
CIMA 2010 T Accounting operations % time allocation for Fin. Exs. 20%
(a)
FINANCIAL CONTROL
IBM 2005 R Controls Function reports to CFO 65%
IBM 2008 R Controls Function reports to CFO 68%
Mckinsey 2009 R Travel and expense processing Within scope of Fin. Dept. 65%
Ernst & Young 2006 I Internal financial controls In top six for increased focus CFO 67%
Accenture 2008 I Internal controls Critical performance factor for Fin. Dept. 38%
Ernst & Young 2008 I Travel and expenses Most important for CFO 7%
management
ICAEW 2010 I Internal financial controls Greatest skill/role needed by Fin. Dept. 16%
IBM 2003 T Control activities % Finance workload Fin. Dept. 26%
distribution
IBM 2010 T Control activities % Finance workload Fin. Dept. 25%
distribution

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.2 COMPLIANCE

The purpose of Compliance is to meet the requirements of governmental and other regulatory bodies.
The evidence has been classified to distinguish two elements – regulatory and tax – with the details
shown in Table 2.2.

2.2.1 REGULATORY
Regulatory compliance covers the range of activities necessary to produce, communicate and verify
financial information to meet legal and regulatory requirements (excluding tax which is covered
separately below). This would include the completion of statutory accounts. Also included are activities
which demonstrate to external parties that governance and control procedures meet externally set
standards eg, from the UK Corporate Governance Code and Sarbanes-Oxley.

2.2.2 TAX
Tax relates to both complying with the tax requirements of the relevant national authority and tax
planning. The surveys do not generally identify these two aspects of tax separately in which case they
are included here. Where tax management is shown separately we have included it as a subcategory of
Management and Control.

Tax reporting and compliance involves the analysis and aggregation of financial transactions in order to
compute tax liabilities. Negotiation with tax authorities may also be required.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.2: COMPLIANCE

Author Date Measure About what activity Measure About Result
whom
COMPLIANCE
REGULATORY
FEI Canada 2005 R Government liaison Directly accountable to CFO 24%
IBM 2005 R Compliance Function reports to CFO 53%
IBM 2008 R Compliance Function reports to CFO 50%
Deloitte 2000 I Corporate governance Ranked:1 = very important CFO 1.94
to 5 = not important
CFO Research 2002 I External financial reporting High/highest priority for Fin. Dept. 58%
transparency
IBM 2003 I Managing governance/ In top five areas of focus for CFO 54%
controls/risk
IBM 2005 I Finance compliance programs/ Top importance for Fin. Exs. 59%
internal controls
IBM 2005 I Meeting fiduciary and Top importance for Fin. Exs. 57%
statutory requirements
Ernst & Young 2006 I Regulatory compliance In top six for increased focus CFO 60%
Accenture 2008 I Financial and regulatory Critical performance factor for Fin. Dept. 30%
reporting
Ernst & Young 2008 I Regulatory and external Most important for CFO 45%
reporting
ICAEW 2010 I Corporate governance, Greatest skill/role needed by Fin. Dept. 8%
compliance
Deutsche Bank 2006 T External financial reporting/ % time allocation for CFO 6%
accounting
Deutsche Bank 2006 T Regulatory compliance % time allocation for CFO 4%
Deutsche Bank 2006 T Accounting policies % time allocation for CFO 3%
CIMA 2010 T Preparation of statutory/ % time allocation for Fin. Exs. 4%
regulatory reports
CIMA 2010 T Analysis and application of % time allocation for Fin. Exs. 3%
accounting standards
CIMA 2010 T Corporate governance, % time allocation for Fin. Exs. 3%
compliance
CIMA 2010 T Ethical issues % time allocation for Fin. Exs. 2%
CIMA 2010 T Sarbanes-Oxley issues % time allocation for Fin. Exs. 2%
CIMA 2010 T External reporting % time allocation for Fin. Exs. 12%
(a)
TAX
ICAEW 1993 R Taxation Responsibility of Fin. Dept. 87%
IBM 2005 R Tax Function reports to CFO 70%
IBM 2008 R Tax Function reports to CFO 72%
Mckinsey 2009 R Tax Within scope of Fin. Dept. 77%
ICAEW 1993 I Taxation High importance for Fin. Dept. 39%
Deloitte 2000 I Taxation Ranked:1 = very important CFO 2.05
to 5 = not important
Accenture 2008 I Tax management and Critical performance factor for Fin. Dept. 20%
operations
ICAEW 2010 I Tax Greatest skill/role needed by Fin. Dept. 8%

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.3 MANAGEMENT AND CONTROL

The purpose of Management and Control activities is to produce and use financial and support
information to inform, monitor and instigate operational actions to meet organisational objectives.
These activities will also play a part in defining and refining those objectives.

A wide range of overlapping terms are used in relation to Management and Control activities as
demonstrated by study findings shown in Table 2.3. This makes it difficult to analyse the activities
involved. However, in order to organise the findings the following typology is used:
• Processes to produce and analyse the information for management and control purposes;
• Applications of the information produced;
• Internal auditing; and
• Management accounting – as a catch-all term.

Each of these classifications is discussed further below.

2.3.1 PROCESSES
‘Processes’ covered here include the development, production and analysis of the information
used for management and control purposes. Some surveys distinguish between financial and
non-financial information.

Financial information – the main terms used in the surveys were planning, forecasting, budgeting,
target setting, analysis and reporting. Clearly these processes overlap and interact to a great extent
and are also iterative. For example the reporting and analysis of actual data against forward-looking
information provide the basis for action and the next cycle of forward planning. Their content
and scope depend on organisationally defined aggregations and analysis of financial data and
transactions, covering both the past and the future. Financial information may also be drawn from
external sources for example using the accounts of other organisations when carrying out competitor
analysis. Supporting information provides a link between the financial information and underlying
organisational activities.

Non-financial information relates to information such as carbon emissions, customer feedback and
elements of the balanced business scorecard. As it is not financial information it does not strictly fit into
the framework of activities. However, some studies include the term in looking at finance department
activities and it is likely that non-financial information is being combined with financial information.

2.3.2 APPLICATIONS
‘Applications’ relate to how information is used for Management and Control. The context will
determine how the information is aggregated and analysed (eg, profit-based or cash flow-based). The
following four principal applications were identified:
• General management and control of operational activities, generally with an implicit focus on
profitability or value for money goals. The nature of finance department involvement can vary
significantly, as evidenced by the wide range of terms shown by Table 2.3.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

• Cash management and treasury has two aspects. First, as a key performance dimension, for
example, through company valuations based on the net present value of projected future cash
flow. Second, as an asset class to be managed through treasury activities. These can include raising
finance, leasing, working capital management, interest rate and currency risk management. Clearly
there will be some overlap with funding activities see 2.5 below.
• Investment appraisal seeks to assess the merits of investment options, potentially using both cash
approaches (eg, net present value and internal rate of return) and profit-based appraisals (eg, return
on investment).
• Tax management involves the consideration of a range of factors such as decisions on transfer
pricing, legal entity structures, operating locations and financing structures. Generally the focus will
be on minimising tax liabilities, although reputational issues may come into play, eg, with aggressive
tax avoidance schemes. As previously mentioned surveys which do not distinguish between tax
compliance and tax management are discussed above as a subcategory of Compliance (2.2.2).

2.3.3 INTERNAL AUDITING

Internal auditing may involve a range of activities but a key element will be ensuring that controls
operate as designed. Clearly all finance and organisational activities may be subject to internal audit.

2.3.4 MANAGEMENT ACCOUNTING

Management accounting is a catch-all term, particularly when used by academics and professional
bodies, which may extend beyond Management and Control and is therefore highlighted separately.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.3: MANAGEMENT AND CONTROL

Author Date Measure About what activity Measure About Result
whom
MANAGEMENT AND CONTROL
PROCESS – FINANCIAL INFORMATION
FEI Canada 2005 R Forecasting and projections Directly accountable to CFO 87%
IBM 2005 R Business/financial analysis Function reports to CFO 84%
IBM 2008 R Business/financial analysis Function reports to CFO 81%
Mckinsey 2009 R Financial planning and analysis Within scope of Fin. Dept. 86%
CFO Research 2002 I Accuracy of earnings and High/highest priority for Fin. Dept. 81%
revenue forecasts
CFO Research 2002 I Profitability measurement High/highest priority for Fin. Dept. 56%
IBM 2003 I Measuring/monitoring In top five areas of focus for CFO 65%
business performance
IBM 2005 I Measuring/monitoring Top importance for Fin. Exs. 69%
business performance
Ernst & Young 2006 I Financial analysis and reporting In top six for increased focus CFO 58%
Accenture 2008 I Budget and forecasting Critical performance factor for Fin. Dept. 45%
Accenture 2008 I Target setting Critical performance factor for Fin. Dept. 29%
Ernst & Young 2008 I Business management Most important for CFO 51%
reporting
Ernst & Young 2008 I Annual budgeting and outlook Most important for CFO 61%
forecasting
ICAEW 2010 I Planning, forecasting, Greatest skill/role needed by Fin. Dept. 28%
budgeting
Deutsche Bank 2006 T Financial planning and analysis % time allocation for CFO 9%
Deutsche Bank 2006 T Management reporting/ % time allocation for CFO 9%
accounting
CIMA 2010 T Communication of financial % time allocation for Fin. Exs. 6%
information
CIMA 2010 T Prepare/interpret management % time allocation for Fin. Exs. 6%
accounting information
PROCESS – NON-FINANCIAL INFORMATION
EIU 2006 R Collect and report Leadership resides in Fin. Dept. 18%
non-financial information
CFO Research 2007 R Non-financial information Responsibility of CFO 27%
ICAEW 2010 I Non-financial measures reporting Greatest skill/role needed by Fin. Dept. 7%
CIMA 2010 T Social accounting issues % time allocation for Fin. Exs. 1%
CIMA 2010 T Green (environmental) issues % time allocation for Fin. Exs. 1%
APPLICATION – GENERAL MANAGEMENT AND CONTROL
IBM 2005 R Business support/performance Function reports to CFO 54%
management
EIU 2006 R Controlling costs Leadership resides in Fin. Dept. 69%
EIU 2006 R Advising business units on Leadership resides in Fin. Dept. 30%
operating decisions
IBM 2008 R Business support/performance Function reports to CFO 54%
management

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.3: MANAGEMENT AND CONTROL CONTINUED

Author Date Measure About what activity Measure About Result
whom
MANAGEMENT AND CONTROL
APPLICATION – GENERAL MANAGEMENT AND CONTROL
CFO Research 2002 I Operational decision support High/highest priority for Fin. Dept. 60%
CFO Research 2002 I Flexible cost structure High/highest priority for Fin. Dept. 34%
IBM 2003 I Driving cost reduction/ In top five areas of focus for CFO 52%
continuous improvement
IBM 2005 I Continuous process/business Top importance for Fin. Exs. 61%
improvement
IBM 2005 I Driving cost reduction Top importance for Fin. Exs 55%
IBM 2005 I Aligning finance with business Top importance for Fin. Exs. 55%
Accenture 2008 I Performance management and Critical performance factor for Fin. Dept. 55%
reporting
ICAEW 2010 I Decision support, performance Greatest skill/role needed by Fin. Dept. 19%
management
BIC 1992 T Assisting CEO and other % time allocation for CFO 27%
executives
BIC 1992 T Ad hoc advice % time allocation for CFO 13%
IBM 2003 T Decision support % Finance workload Fin. Dept. 24%
distribution
Accenture 2008 T Managing performance of % time allocation of CFO 18%
overall enterprise
IBM 2010 T Decision support % Finance workload Fin. Dept. 26%
distribution
CIMA 2010 T Provision of business advice % time allocation for Fin. Exs. 5%
CIMA 2010 T Business partnering % time allocation for Fin. Exs. 3%
CIMA 2010 T Management support % time allocation for Fin. Exs. 18%
(a)
APPLICATION – CASH MANAGEMENT AND TREASURY
ICAEW 1993 R Treasury Responsibility of Fin. Dept. 83%
IBM 2005 R Treasury Function reports to CFO 74%
EIU 2006 R Advising on treasury Leadership resides in Fin. Dept. 70%
IBM 2008 R Treasury Function reports to CFO 72%
Mckinsey 2009 R Treasury Within scope of Fin. Dept. 81%
Mckinsey 2009 R Credit decisions Within scope of Fin. Dept. 60%
ICAEW 1993 I Treasury High importance for Fin. Dept. 50%
Deloitte 2000 I Treasury management Ranked:1 = very important CFO 1.95
to 5 = not important
IBM 2003 I Managing balance Sheet In top five areas of focus for CFO 39%
Ernst & Young 2008 I Treasury management Most important for CFO 34%
Accenture 2008 I Treasury management and Critical performance factor for Fin. Dept. 15%
operations
ICAEW 2010 I Treasury, financing cash Greatest skill/role needed by Fin. Dept. 9%
management
Weston 1954 T Preparation of cash budgets % time allocation for Fin. Dept. 5%
Deutsche Bank 2006 T Cash management % time allocation for CFO 6%
Deutsche Bank 2006 T Working capital management % time allocation for CFO 6%
CIMA 2010 T Treasury/financial risk % time allocation for Fin. Exs. 4%
management

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.3: MANAGEMENT AND CONTROL CONTINUED

Author Date Measure About what activity Measure About Result
whom
APPLICATION – INVESTMENT APPRAISAL
CFO Research 2002 I Management of fixed asset High/highest priority for Fin. Dept. 27%
investments
Ernst & Young 2008 I Fixed assets management Most important for CFO 19%
Ernst & Young 2008 I Marketing investment Most important for CFO 13%
appraisal
Weston 1954 T Advise on expenditures for % time allocation for Fin. Dept. 7%
capital assets
Deutsche Bank 2006 T Making investment decisions % time allocation for CFO 7%
CIMA 2010 T Capital investment appraisal % time allocation for Fin. Exs. 3%
APPLICATION – TAX MANAGEMENT
EIU 2006 R Advising on tax Leadership resides in Fin. Dept. 70%
Deutsche Bank 2006 T Tax management % time allocation for CFO 4%
CIMA 2010 T Tax planning/compliance % time allocation for Fin. Exs. 3%
INTERNAL AUDITING
ICAEW 1993 R Internal audit Responsibility of Fin. Dept. 60%
IBM 2005 R Internal audit Function reports to CFO 48%
IBM 2008 R Internal audit Function reports to CFO 38%
Mckinsey 2009 R Internal audit Within scope of Fin. Dept. 49%
ICAEW 1993 I Internal audit High importance for Fin. Dept. 16%
Deloitte 2000 I Internal audit Ranked:1 = very important CFO 2.77
to 5 = not important
Deutsche Bank 2006 T Internal audit % time allocation for CFO 3%
CIMA 2010 T Internal audit % time allocation for Fin. Exs. 3%
MANAGEMENT ACCOUNTING
ICAEW 1993 R Management accounting Responsibility of Fin. Dept. 97%
ICAEW 1993 I Management accounting High importance for Fin. Dept. 81%
Deloitte 2000 I Management accounting Ranked:1 = very important CFO 2.16
to 5 = not important
CIMA 2010 T Management accounting % time allocation for Fin. Exs. 22%
(a)

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

34
 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.4 STRATEGY AND RISK

The purpose of Strategy and Risk activities is to inform and influence from a financial perspective the
development and implementation of strategy, and to manage risk. Detailed results of the relevant
activity studies are shown in Table 2.4. While mergers and acquisitions are shown separately in the
table, they are treated as an aspect of strategy.

2.4.1 STRATEGY
Finance is firmly implicated in the strategy process for three main reasons:
• Financial resources: the effective implementation of strategies requires sufficient financial resources.
• Success measure: for commercial entities in particular a key measure of organisational success
is financial performance.
• Cross-organisational visibility: financial information provides a uniform measure of performance
across the organisation and is a key means of making organisational activities visible and thus
understanding the business.

However, the wide range of terms used to describe strategic activities suggests significant variation in
how finance activities are implicated in the strategy process. Again see Table 2.4.

2.4.2 RISK MANAGEMENT

Definitions of risk management vary widely and are often ambiguous, although for this paper there
is the linking theme of finance. One approach is to focus solely on downside risks and the harm
or losses that may arise from organisational action or inaction. Examples might include the risk
that cost reduction programmes lead to health and safety shortcomings. An alternative approach
involves looking at the relationship between risk and upside potential. For example diversifying into
a new business may be high risk but have the potential for greater returns than developing existing
businesses. For this reason we have included risk management alongside strategy.

The range of activities is potentially very broad including inter alia the setting of high-level risk policies,
the identification of risks across the organisation and the monitoring of action plans designed to
manage such risks.

2.4.3 MERGERS AND ACQUISITIONS

A specific element of the strategy process is mergers, acquisitions and divestments. Financial
considerations are central here including financial due diligence and the negotiation of price.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.4: STRATEGY AND RISK MANAGEMENT

Author Date Measure About what activity Measure About Result
whom
STRATEGY AND RISK MANAGEMENT
STRATEGY
ICAEW 1993 R Strategic planning Responsibility of Fin. Dept. 71%
FEI Canada 2005 R Board and/or committee Directly accountable to CFO 54%
support
FEI Canada 2005 R Strategic and business planning Directly accountable to CFO 39%
FEI Canada 2005 R Writing all/part of strategic plan Directly accountable to CFO 30%
IBM 2005 R Strategic planning/business Function reports to CFO 42%
development
EIU 2006 R Developing long-term Leadership resides in Fin. Dept. 33%
business strategy
IBM 2008 R Strategic planning/business Function reports to CFO 34%
development
Mckinsey 2009 R Strategic planning Within scope of Fin. Dept. 51%
Mckinsey 2009 R Business development Within scope of Fin. Dept. 23%
ICAEW 1993 I Strategic planning High importance for Fin. Dept. 46%
Deloitte 2000 I Strategic planning Ranked:1 = very important CFO 1.47
to 5 = not important
CFO Research 2002 I Formulation of corporate High/highest priority for Fin. Dept. 60%
strategy
CFO Research 2002 I Modelling the drivers of High/highest priority for Fin. Dept. 42%
shareholder value
IBM 2003 I Supporting CEO in creating In top five areas of focus for CFO 68%
shareholder value
IBM 2005 I Partnering to identify/execute Top importance for Fin. Exs. 61%
growth strategies
IBM 2005 I Supporting enterprise Top importance for Fin. Exs. 43%
transformation activities
Ernst & Young 2006 I Corporate strategy In top six for increased focus CFO 52%
development
Accenture 2008 I Value-centred culture Critical performance factor for Fin. Dept. 31%
orientation
Accenture 2008 I Strategy development Critical performance factor for Fin. Dept. 27%
Ernst & Young 2008 I Strategic partner to the board Most important for CFO 65%
ICAEW 2010 I Strategy formulation Greatest skill/role needed by Fin. Dept. 5%
Weston 1954 T Participate in long-range firm % time allocation for Fin. Dept. 8%
planning
Weston 1954 T Advise the board of directors % time allocation for Fin. Dept. 6%
Weston 1954 T Preparation of long-term % time allocation for Fin. Dept. 5%
budgets
BIC 1992 T Assisting strategic % time allocation for CFO 20%
development
ICAEW 1993 T Participating in strategy % time allocation for CFO 15%
formulation
Accenture 2008 T Planning and developing % time allocation of CFO 16%
enterprise strategy
CIMA 2010 T Strategic financial planning % time allocation for Fin. Exs. 4%
CIMA 2010 T Strategic management % time allocation for Fin. Exs. 4%
accounting
CIMA 2010 T Business/thought leadership % time allocation for Fin. Exs. 3%
CIMA 2010 T Value based management % time allocation for Fin. Exs. 2%
CIMA 2010 T Strategic networks and % time allocation for Fin. Exs. 2%
alliances

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.4: STRATEGY AND RISK MANAGEMENT CONTINUED

Author Date Measure About what activity Measure About Result
whom
RISK MANAGEMENT
IBM 2005 R Risk management Function reports to CFO 53%
EIU 2006 R Managing risk Leadership resides in Fin. Dept. 49%
IBM 2008 R Risk management Function reports to CFO 48%
Mckinsey 2009 R Financial risk management Within scope of Fin. Dept. 75%
Mckinsey 2009 R Operational risk management Within scope of Fin. Dept. 46%
CFO Research 2002 I Risk management High/highest priority for Fin. Dept. 51%
IBM 2005 I Supporting/managing Top importance for Fin. Exs. 40%
enterprise risk
Ernst & Young 2006 I Risk management In top 6 for increased focus CFO 65%
Accenture 2008 I Financial risk management Critical performance factor for Fin. Dept. 30%
Accenture 2008 I Business risk and operational Critical performance factor for Fin. Dept. 18%
risk
Ernst & Young 2008 I Risk management Most important for CFO 57%
ICAEW 2010 I Risk management Greatest skill/role needed by Fin. Dept. 13%
Deutsche Bank 2006 T Risk management % time allocation for CFO 6%
Accenture 2008 T Overseeing enterprise risk % time allocation of CFO 9%
management
MERGERS AND ACQUISITIONS
ICAEW 1993 R Acquisitions Responsibility of Fin. Dept. 75%
FEI Canada 2005 R Divestiture Directly accountable to CFO 78%
FEI Canada 2005 R Mergers and acquisitions Directly accountable to CFO 33%
ICAEW 1993 I Acquisitions High importance for Fin. Dept. 23%
Deloitte 2000 I Mergers and acquisitions Ranked:1 = very important CFO 1.68
to 5 = not important
CFO Research 2002 I Mergers and acquisitions/ High/highest priority for Fin. Dept. 36%
alliance management
Ernst & Young 2008 I Acquisitions and disposals Most important for CFO 36%
ICAEW 2010 I Mergers and acquisitions, Greatest skill/role needed by Fin. Dept. 4%
divestments
Weston 1954 T Contacts with investment % time allocation for Fin. Dept. 4%
bankers
Weston 1954 T Approve terms for capital % time allocation for Fin. Dept. 3%
acquisitions
ICAEW 1993 T Involvement in acquisitions % time allocation for CFO 8%
and divestments
Deutsche Bank 2006 T Merger, acquisition & % time allocation for CFO 6%
disposals decisions
CIMA 2010 T Mergers/acquisitions/ % time allocation for Fin. Exs. 1%
divestments

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.5 FUNDING

The purpose of Funding activities is to inform and engage with investors and funders, both current and
potential, to obtain and maintain the necessary financial resources for the organisation. Engagement
includes the provision of information, relationship building, and negotiation. The provision of
information enables investors and funders to appraise organisational performance, actual and
projected, in relation to their financial interest in the organisation. This information is in addition to that
which is publicly available through regulatory disclosures.

The activity studies show a split between investor relations and debt financing as detailed in Table 2.5,
which summarises the evidence. Funders include those providing loans, asset finance, grants etc. Some
institutions may possess mixed stakeholdings and/or hold hybrid financial instruments. This adds a
layer of complexity but does not impact the core issues.

2.5.1 INVESTOR RELATIONS

Investor relations is largely concerned with equity investors including individuals, fund management
institutions, hedge funds and private equity organisations. Their objective is generally to achieve a
financial return. Criterion for guiding their investment decisions include the potential for growth in
shareholder value relative to the riskiness of the investment; the level of running returns achievable through
dividends, and gains achieved through an exit. Accordingly, their interests are met by providing
guidance on the financial prospects of the organisation, how plans will be achieved and the risks
involved. The level of information equity investors can obtain will be determined by the extent and
nature of their equity holding and their relationship with the organisation and other shareholders.
For example, a majority shareholder of a private company is likely to have full access to all available
internal information; the information access of a shareholder in a quoted company will be determined
by listings requirements.

2.5.2 DEBT FINANCING

Those providing debt finance covered by the practitioner studies are in broad terms commercial
lenders (eg, banks). Their focus is to ensure that their loans plus interest and fees are repaid, either
from operating cash flow or from the liquidation of collateral. Thus, their requirements are met if
an organisation remains solvent, generates sufficient cash to meet repayment requirements and
ensures that any security provided retains its value and remains unencumbered. Finance activities
include negotiating with debt funders who are aiming to protect their position by negotiating terms
and lending covenants that set minimum performance criteria, which, if met, are intended to ensure
repayment. Typically, a flow of information will be agreed (eg, monthly accounts, covenant results)
which will allow the funder to confirm compliance on an ongoing basis and to take action to recover
funds in the event of the agreed terms and criteria not being met.

Other types of funder, not explicitly covered by the practitioner studies, include donors to charities or grant
providers (eg, development agencies). Their focus is on ensuring that the funding provided has been
spent in accordance with the intended objectives; this will include an interest in the solvency of the
organisation to ensure its continuity.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.5: FUNDING

Author Date Measure About what activity Measure About Result
whom
FUNDING
INVESTOR RELATIONS
ICAEW 1993 R Investor relations Responsibility of Fin. Dept. 50%
FEI Canada 2005 R Investor relations Directly accountable to CFO 46%
FEI Canada 2005 R Stakeholder relations Directly accountable to CFO 29%
IBM 2005 R Shareholder relations Function reports to CFO 41%
EIU 2006 R Guiding investors on business Leadership resides in Fin. Dept. 48%
performance
IBM 2008 R Shareholder relations Function reports to CFO 36%
ICAEW 1993 I Investor relations High importance for Fin. Dept. 30%
Deloitte 2000 I Investor relations Ranked:1 = very important CFO 1.44
to 5 = not important
Accenture 2008 I Investor relations Critical performance factor for Fin. Dept. 10%
Weston 1954 T Advise on dividend policy % time allocation for Fin. Dept. 3%
BIC 1992 T Cultivating external relations % time allocation for CFO 11%
ICAEW 1993 T Dealing with brokers and % time allocation for CFO 9%
analysts
Deutsche Bank 2006 T Investor relations % time allocation for CFO 8%
Deutsche Bank 2006 T Dividend and share buy back % time allocation for CFO 2%
policy
Deutsche Bank 2006 T Equity issuance % time allocation for CFO 1%
Accenture 2008 T Interface with board of % time allocation of CFO 10%
directors/investor relations
CIMA 2010 T Corporate finance % time allocation for Fin. Exs. 3%
DEBT FINANCING
FEI Canada 2005 R Finance/capital structure Directly accountable to CFO 80%
change
Deloitte 2000 I Finance/funding Ranked:1 = very important CFO 1.34
to 5 = not important
Accenture 2008 I Capital management Critical performance factor for Fin. Dept. 26%
Weston 1954 T Contacts with banks/short % time allocation for Fin. Dept. 7%
term funders
Weston 1954 T Planning security issues % time allocation for Fin. Dept. 2%
Deutsche Bank 2006 T Debt issuance and % time allocation for CFO 5%
management
Deutsche Bank 2006 T Bank relations % time allocation for CFO 8%
Deutsche Bank 2006 T Capital structure % time allocation for CFO 3%

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

39
 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

2.6 MANAGEMENT AND RESOURCING OF ACTIVITIES

As part of the organisational activities the finance activities covered in the framework have to be
managed, organised and resourced. The surveys cover three main categories: people management,
finance systems and outsourcing and shared services. The detailed results of the activity studies are
shown in Table 2.6.

2.6.1 FINANCE SYSTEMS

The finance activities shown in the framework require the development, implementation and
management of finance systems. We have included quite a wide range of related survey items under
this heading but have tried to exclude items which relate to managing an organisation’s IT function as a
whole (See Table 2.7 – Other activities).

2.6.2 PEOPLE MANAGEMENT

The management and development of the people carrying out finance activities will generally be
the responsibility of the relevant line managers. Therefore the questions asked in surveys relate to
importance and time allocation rather than responsibility.

2.6.3 OUTSOURCING AND SHARED SERVICES

Outsourcing and shared service centres represent a particular way of resourcing finance activities. In
the case of outsourcing, responsibilities will relate to managing the relationship and contract with the
provider of the outsourced services, whereas shared services responsibilities will relate to managing
the people and systems which provide the services.

2.7 OTHER ACTIVITIES

In order to ensure completeness it is important to consider other activities that the surveys indicate
may be the responsibility of the CFO or the finance department. These are summarised in Table 2.7.
While it could be argued that some are based in financial information eg, pensions and insurance,
others are quite separate eg, human resources and legal. The view taken here is that there is no
coherent interlinking with the finance activities in the framework which are based in the production and
use of financial information.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.6: MANAGEMENT AND RESOURCING OF ACTIVITIES

Author Date Measure About what activity Measure About Result
whom
MANAGEMENT AND RESOURCING
FINANCE SYSTEMS
CFO Research 2002 I Overcoming barriers to High/highest priority for Fin. Dept. 49%
transforming finance
IBM 2005 I Driving integration of Top importance for Fin. Exs. 35%
information
Ernst & Young 2006 I Performance measurement In top six for increased focus CFO 49%
systems
ICAEW 2010 I New financial processes, Greatest skill/role needed by Fin. Dept. 18%
technology
CIMA 2010 T Maintenance of financial % time allocation for Fin. Exs. 4%
systems
CIMA 2010 T Develop management % time allocation for Fin. Exs. 4%
accounting systems
CIMA 2010 T Management information % time allocation for Fin. Exs. 12%
(a) systems
PEOPLE MANAGEMENT
IBM 2005 I Developing your people Top importance for Fin. Exs. 55%
Accenture 2008 I Workforce management Critical performance factor for Fin. Dept. 30%
Accenture 2008 I Finance organisation strategy Critical performance factor for Fin. Dept. 56%
and structure
ICAEW 2010 I Management of team Greatest skill/role needed by Fin. Dept. 8%
BIC 1992 T Supervising finance function % time allocation for CFO 27%
Accenture 2008 T Managing finance and % time allocation of CFO 34%
operations
Accenture 2008 T Addressing workforce % time allocation of CFO 11%
effectiveness
CIMA 2010 T Managing staff % time allocation for Fin. Exs. 6%
CIMA 2010 T Management of projects % time allocation for Fin. Exs. 5%
OUTSOURCING AND SHARED SERVICES
IBM 2005 R Shared services – finance and Function reports to CFO 51%
accounting
IBM 2005 R Outsourcing – finance and Function reports to CFO 39%
accounting
IBM 2008 R Shared services – finance and Function reports to CFO 40%
accounting
IBM 2008 R Outsourcing – finance and Function reports to CFO 28%
accounting

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE 2.7: OTHER ACTIVITIES

Author Date Measure About what activity Measure About Result
whom
OTHER ACTIVITIES
ORGANISATION WIDE IT
ICAEW 1993 R IT Responsibility of Fin. Dept. 68%
IBM 2005 R IT Function reports to CFO 33%
IBM 2008 R IT Function reports to CFO 27%
ICAEW 1993 I IT High importance for Fin. Dept. 40%
Deloitte 2000 I IT Ranked:1 = very important CFO 1.98
to 5 = not important
CIMA 2010 T E-business technologies % time allocation for Fin. Exs. 2%
CIMA 2010 T Implementation/management % time allocation for Fin. Exs. 3%
of IT systems
LEGAL
ICAEW 1993 R Legal affairs Responsibility of Fin. Dept. 58%
FEI Canada 2005 R Primary contact with external Directly accountable to CFO 33%
legal council
FEI Canada 2005 R In house legal council Directly accountable to CFO 23%
ICAEW 1993 I Legal affairs High importance for Fin. Dept. 15%
Deloitte 2000 I Legal/regulatory matters Ranked:1 = very important to 5 CFO 2.71
= not important
HR
IBM 2005 R Human resources/ Function reports to CFO 11%
administration
IBM 2008 R Human resources/ Function reports to CFO 10%
administration
Deloitte 2000 I Personnel matters Ranked:1 = very important to 5 CFO 3.02
= not important
PENSIONS
ICAEW 1993 R Pensions Responsibility of Fin. Dept. 65%
ICAEW 1993 I Pensions High importance for Fin. Dept. 19%
Deutsche Bank 2006 T Pensions management % time allocation for CFO 2%
PROPERTY
ICAEW 1993 R Property management Responsibility of Fin. Dept. 47%
ICAEW 1993 I Property management High importance for Fin. Dept. 6%
INSURANCE
ICAEW 1993 R Insurance Responsibility of Fin. Dept. 71%
ICAEW 1993 I Insurance High importance for Fin. Dept. 12%
OTHER
IBM 2005 R Procurement Function reports to CFO 29%
IBM 2005 R Alliance management Function reports to CFO 10%
IBM 2005 R Other Function reports to CFO 10%
IBM 2008 R Procurement Function reports to CFO 24%
IBM 2008 R Alliance management Function reports to CFO 10%
Deloitte 2000 I Overseas operations Ranked:1 = very important CFO 2.80
to 5 = not important
Deloitte 2000 I Administration Ranked:1 = very important CFO 2.97
to 5 = not important
ICAEW 2010 I Other management roles Greatest skill/role needed by Fin. Dept 8%
ICAEW 1993 T Other % time allocation for CFO 32%

Key: Measure R = Responsibility, I = Importance, T = Time; Respondent: Fin. Exs. = Financial Executives, Fin. Dept. = Finance Department

42
 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

3. The interactions between finance activities

In this section we describe the main, direct interactions between finance activities. Each reference
below matches the interaction reference next to the arrows on Figure 1.

As previously discussed the interactions consist of two types:

• Inform: The flow of information – both financial and support information – from one activity for use
by another (solid arrows on Figure 1).
• Influence and direct: The use of the information by one activity to influence and direct which
activities are carried out and how they are implemented (dotted arrows on Figure 1).

Where these interactions fail to take place effectively, organisations are likely to face a number of
issues. These are discussed for each activity as tensions and challenges.

It should be noted that other interactions between activities may occur – there is no logic that excludes
them taking place. However, it is useful to eliminate those interactions which currently do not seem to
be prevalent.

3.1 ORGANISATIONAL ACTIVITIES WITH ACCOUNTING

Organisational activities inform Accounting: Organisational activities trigger financial transactions and
obligations which are processed by Accounting. These financial transactions can be communicated in
numerous ways, with varying degrees of formality – from paper-based purchase orders to oral requests
for accruals. It should be noted that some financial transactions are generated by finance activities
themselves, such as funding transactions.

Accounting informs organisational activities through the provision of basic transactional information
such as unpaid invoices that require line management attention.

Organisational activities influence and direct Accounting for example through input to decisions on
payment terms and discount arrangements for customers and suppliers.

Accounting influences and directs organisational activities through internal control processes to be
implemented at the point of organisational actions (eg, purchase orders, authorisations, stock systems,
transactional coding rules). These are required to ensure the validity, completeness and accuracy of
financial obligations.

3.2 ACCOUNTING WITH COMPLIANCE

Accounting informs Compliance activities by providing the required information, in the form of data
files, financial reports and supporting information.

Compliance influences and directs Accounting activities by specifying the aggregations, analyses and
controls needed for Compliance. Examples include accounting standards and Basel banking regulations.

It should be noted that Accounting interacts indirectly with other finance activities as the information
produced provides a core input to all finance activities and financial controls influence all activities.

3.3 ACCOUNTING WITH MANAGEMENT AND CONTROL

Accounting informs Management and Control by providing financial information – ‘the actuals’ – which
form the basis for further analysis, such as comparison to targets and plans, and reconciliation to
information generated elsewhere.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

Management and Control informs Accounting by generating information to be recorded in accounting

systems. This can be either as a matter of course, for example funding entries generated by treasury
activities, or optionally, such as the recording of budgets in ledger systems.

Accounting influences and directs Management and Control and is influenced by Management and
Control in a two-way, iterative process. This involves the negotiation of the formats of the financial
information which can be provided by accounting systems given various needs.

3.4 COMPLIANCE WITH MANAGEMENT AND CONTROL

Compliance informs Management and Control where financial performance may be measured based
on compliance requirements, for example return on risk assets or regulatory capital as determined by
banking regulation.

Management and Control informs Compliance through the provision of information to meet regulatory
requirements such as narrative disclosures on business performance and risk.

Compliance influences and directs Management and Control where regulatory requirements act
as constraints on the organisation for example minimum capital requirements in the financial
services sector.

It should be noted that Compliance also impacts on organisational activities and Strategy and Risk via
Management and Control by imposing constraints on organisational actions and strategies.

3.5 COMPLIANCE WITH FUNDING

Compliance informs Funding through the provision of information that will be made publicly available,
such as account filings or statements made in line with listing requirements. This information provides
a way of validating other information produced by the organisation, particularly when it is subject to
external assurance processes.

Funding informs Compliance through the provision of information to meet regulatory requirements
such as details of major shareholders.

3.6 ORGANISATIONAL ACTIVITIES WITH MANAGEMENT AND CONTROL

Management and Control informs organisational activities by providing financial and support
information and analysis which supports control, decision making and organisational actions.

Organisational activities inform Management and Control by providing financial data and information
sourced from operational systems and processes. This is an additional information flow to that
provided by Accounting.

Management and Control directs and influences organisational activities and is directed and influenced
by organisational activities. This is the fulfilment of the principal purpose of the activity - to use financial
and support information to influence, manage and control organisational activities to meet organisational
objectives. It is a two-way iterative process, as information is subject to continual reinterpretation and
reassessment, in response to both unfolding events and differing management opinions.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

3.7 MANAGEMENT AND CONTROL WITH FUNDING

Management and Control informs Funding by providing information in the formats agreed, eg, cash
flow forecasts.

Funding informs Management and Control by providing information on projected funding costs, investment
hurdle rates and minimum performance requirements, such as those imposed by bank covenants.

Management and Control influences and directs Funding and is directed and influenced by Funding.
This is a two-way process in which the content and format of the flow of information to investors and
funders will be agreed.

It should be noted that Funding also impacts on organisational activities via Management and Control
and Strategy and Risk because the availability of funding constrains or facilitates organisational actions.

3.8 MANAGEMENT AND CONTROL WITH STRATEGY AND RISK

Management and Control informs Strategy and Risk by providing information on current and
prospective financial performance, including evidence and assessment of the income, cost and
balance sheet dynamics driving performance.

Management and Control influences and directs Strategy and Risk as emerging operational outcomes
and developments, together with their associated financial consequences, influence strategy
formulation and risk assessment.

Strategy and Risk influences and directs Management and Control by providing the strategic agenda
and context for the production and use of information. Risk management activities will also be
important factors influencing the nature of information produced.

3.9 ORGANISATIONAL ACTIVITIES WITH STRATEGY AND RISK

Strategy and Risk informs organisational activities by communicating the financial strategy and
performance against it, together with the risks that the organisation needs to manage.

Organisational activities inform Strategy and Risk by providing information on opportunities, threats,
strengths and weaknesses. Given the flow is direct to Strategy and Risk and not via Management
and Control then the information provided will not be primarily finance based, although it is likely to
include financial content.

Strategy and Risk influence and direct organisational activities by providing the strategic direction to
guide the development of organisational actions and approach to risks.

Organisational activities influence and direct Strategy and Risk as emerging operational outcomes
and developments, together with their associated financial consequences, influence strategy
formulation and risk assessment.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

3.10 STRATEGY AND RISK WITH FUNDING

Strategy and Risk informs Funding by communicating the (financial) strategy and risks of the
organisation to facilitate the negotiations for funding provision or investment. A key consideration will
be the degree to which such communication is integrated with management and control information to
anchor medium/long-term strategy in historic, current and prospective performance.

Funding informs Strategy and Risk by feeding back investor and funder views of the organisation
gleaned from meetings, presentations and roadshows.

Strategy and Risk influences and directs Funding and is influenced and directed by Funding. This
involves the negotiation of the fit between the organisational strategy, the provision of funding
and anticipated returns for investors and funders. It can be of specific importance where there is a
requirement to fund new strategic initiatives, such as mergers and acquisitions, growth programmes or
when dealing with financial crises.

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4. Inherent tensions and challenges

The nature of finance activities and the interactions between them result in a number of inherent
tensions and challenges. These are discussed below for each Finance activity. The top level references
correspond with the second reference in each dotted activity box on Figure 1.

4.1 ACCOUNTING

4.1.1 VALIDITY OF INFORMATION AND FINANCIAL CONTROL

The financial information produced by Accounting flows via Compliance and Management and
Control through the whole framework. If Accounting activities do not operate effectively the validity of
information used throughout the organisation is compromised. This may lead to serious organisational
problems such as loss of assets, impaired decision making or the breakdown of investor confidence.

4.1.2 WEIGHING THE COSTS AND BENEFITS OF FINANCIAL CONTROLS

We have already noted the importance of financial controls. However, assessing the costs and benefits
of such controls is not always easy. Organisations have to decide on the degree to which they can trust
people to do the right thing and the risks that might arise if they do not. For example fiddling expenses
may be significantly more likely and damaging, both financially and reputationally, in certain industry
sectors compared to others.

There are two further complications. Firstly, the benefits of financial controls are difficult to assess as
it is difficult to know what losses have been prevented when controls operate effectively. Secondly,
ill-designed financial controls can restrict an organisation’s ability to adapt and innovate which may
be necessary to maintain profitability or meet other organisational objectives. For example requiring
multiple sign-offs for relatively low levels of expenditure at senior management level can lead to slow
decision making and implementation.

The upshot is that difficult judgements are required in deciding how detailed and rigorous financial
controls should be.

4.1.3 DIFFERING INFORMATION REQUIRED FOR COMPLIANCE AND MANAGEMENT

AND CONTROL
The financial information required for Compliance and that required for Management and Control
is based on the aggregation and analysis of the same underlying financial consequences of
organisational activities. However, the information content, the methods of classification and analysis,
the period lengths and the timeliness deemed appropriate are likely to be different. This can be
problematic. Indeed Johnson and Kaplan (1987) in their seminal book ‘Relevance Lost: The Rise and
Fall of Management Accounting’ argued that management accounting lost its usefulness when it
started to focus on using information required for compliance which was irrelevant for managing and
controlling performance.

Particular problems arise in how to design and implement accounting and operational systems
which can meet both Compliance and Management and Control needs. The degree to which such
information can and should be consistent/reconciled is also contested (see also related tensions 4.2.1
and 4.3.1).

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4.2 COMPLIANCE

4.2.1 DIFFERENCES BETWEEN PUBLIC INFORMATION AND INTERNAL REPORTING

The information contained in publicly available reports is likely to differ from that produced for internal
management purposes. Organisational management may therefore question the relevance of external
accounts. However, given that investors and funders will use such information as the basis for assessing
organisational performance, management cannot afford to ignore the picture that external accounts
portray. External accounts, being standardised and sometimes subject to external assurance, enable
investors to compare the performance of competing organisations.

Full reconciliations between internal and external reporting can be difficult to achieve, especially when
the information is produced to differing timescales. Furthermore investors may make adjustments
to external accounts for their own purposes including the treatment of one-off costs, goodwill, fair
value accounting, cost allocations, stock valuation and leases. Even to the extent that reconciliations
are achieved, explaining the differences to non-financial managers is not easy. The threat is that the
apparent inconsistencies can lead to the questioning of the validity of both internal and external
reporting by both organisational management and investors and funders.

4.2.2 COMPULSORY EXTERNAL REQUIREMENTS HAVE TO BE MET

The level and nature of work required for Compliance is dependent on factors largely outside of the
control of the organisation. This has two significant consequences:
• Uncertain and uncontrollable resource requirements: The work commitment necessary to meet
regulatory requirements can be increased and altered with limited potential to mitigate the impact.
Sarbanes-Oxley, for example, meant some organisations had to transfer skilled staff from other activities,
such as Management and Control, to meet this non-negotiable requirement.
• Danger of non-compliance: Meeting regulatory requirements cannot be guaranteed. Clearance by
the relevant regulatory authorities may take place sometime after the reporting period in question,
thereby increasing the risk that regulatory requirements are not proactively identified and met.
Further, monitoring and meeting financial compliance and regulatory requirements can be
perceived as being expensive and of limited value. This leads to pressure for these activities to
be carried out at the lowest cost possible, and, perhaps, to limit the care taken. However, this is a
dangerous approach as the costs and reputational damage of regulatory failure can be high and, at
the extreme, lead to business collapse.

4.2.3 HIGH REPORTED PROFITS ATTRACT INVESTORS BUT INCREASE TAX LIABILITIES
In jurisdictions where tax liabilities are assessed based on adjusted statutory accounts there will be
conflicting pressures on the level of profit to report. This is because while accounting judgements
which lead to reporting ‘higher’ profits will provide a positive message to funders they may also result
in a higher tax liability.

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4.3 MANAGEMENT AND CONTROL

4.3.1 DIFFERENCES BETWEEN OPERATIONAL AND ACCOUNTING INFORMATION

While both operational and accounting information used by Management and Control are drawn from
the same underlying organisational activities, their nature will differ significantly, as summarised in
Table 4.3. Both sources have comparative advantages and disadvantages.

The main advantage of operationally sourced information is that it can have a direct connection to
organisational activities. It can be real time and be collected and analysed to reflect organisational
structures (eg, by branch, product, customer, salesperson) and cycles (eg, daily, weekly) as appropriate.
It can also be both formal and informal and quickly adapted to respond to changed requirements. Its
disadvantage is that it is difficult to build in controls to ensure validity and reliability (eg, to ensure that
all costs incurred have been captured).

Accounting-sourced information has the opposite disadvantages and advantages. It does not have the
same close link to organisational activities - being more formal, time-lagged, produced to accounting
timescales (often monthly) and analysed in line with a chart of accounts, which are generally rigid and
standardised. On the other hand such standardisation and the inherent controls of the double-entry system
can provide accounting information with greater validity and reliability.

A range of potential consequences follow from this, principally relating to the extent to which
operational and accounting information are reconcilable or consistent:

• The different sources of information may give rise to differing interpretations of organisational
performance resulting in uncertainty and conflict.

• Time can be wasted discussing the accuracy of the information rather than focusing on analysis and
the implications of the information for decision making.

• On the other hand the difference can be constructive when consideration of information from
different perspectives gives rise to new insights. Blindly accepting one source of information or the
other because it supports a particular interest may be dysfunctional.

• More sophisticated ledger and Enterprise Resource Planning (ERP) systems may increase the
integration of accounting and operational information and reduce the differences highlighted.

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TABLE 4.3: OPERATIONAL-SOURCED INFORMATION COMPARED TO

ACCOUNTING-SOURCED INFORMATION
Characteristics Operational source Accounting source
OVERALL
Information status Operational data Accounting system output
Core reason to produce Management information Cash control/compliance
Users Management Compliance, investors,
management
Operational connection Direct Indirect
LINK TO OPERATIONS
Time periods To fit organisational cycles Monthly/Annual
Collection speed Real time Lagged
Classification standard To fit analysis required Chart of accounts
PRODUCTION
Recording medium Internal systems Accounting records
Validity controls Organisationally designed Financial controls/
double-entry
Reporting basis Management techniques Accounting policies
Link to cash Indirect Direct
Link to tax Indirect Direct

4.3.2 DECIDING WHICH INFORMATION TO USE AS THE PRIMARY PERFORMANCE MEASURE

The four different Management and Control applications identified – general management and
control, cash management and treasury, investment appraisal and tax - require different information
and different formats, albeit they are all based on financial data. The skill sets required to produce
and analyse such information will also differ. Moreover the interests of different stakeholders will
come into play. For example banks may focus on cash, shareholders on profit, individual proprietors
on minimising tax liabilities and senior managers on growth. The upshot is that conflicts can arise in
determining which format and interpretation to provide as the primary performance measure and
focus for management actions.

4.3.3 INTERPRETATION OF VARIANCES

In broad terms variances between ‘actuals’ and plans/targets occur for two main reasons:
1. A failure in the execution of organisational activity designed to meet planned outcomes.
In this instance understanding variances facilitates the assessment, investigation and modification
of behaviours and processes.
and/or
2. The assumptions which underpinned plans/targets were, or have become, unrealistic.
In this instance understanding variances facilitates the reassessment of strategies, plans
and projections.

Differentiating between the two can be difficult, especially if the cause is a mixture of both. Clearly,
failure to identify the causes of variances, or misinterpreting their cause, can lead to difficulty and
uncertainty in developing appropriate responses.

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4.3.4 ENSURING PLANS AND TARGETS ARE OWNED BY OPERATIONAL MANAGERS

As previously highlighted, the finance activities framework does not identify or recommend who
should carry out such activities. However, the production of financial plans and targets may be carried
out by specialist staff. While operational staff responsible for implementation can be closely involved
with this process, this is not necessarily the case. Problems arise where operational staff are not
sufficiently involved in understanding, setting and agreeing plans/targets against which performance
will be assessed. This can lead to the plans and targets being disowned by those responsible for
implementation. Negative consequences can include operational actions which conflict with financial
targets, lack of accountability and targets and plans detached from organisational realities.

4.3.5 GAMING
Management and Control processes may be subject to gaming by operational managers. Budgeting
processes in particular are well known for being subject to gaming by those responsible for delivering
financial outcomes. The most common distortion is for budgets to be padded, income understated
and costs overstated, in order to ensure budgets are achieved or exceeded and the associated rewards
obtained. Although such gaming is usually viewed as dysfunctional, some benefits may accrue by
enabling organisational adaptability.

4.4 STRATEGY AND RISK

4.4.1 FINANCIAL VERSUS NON-FINANCIAL ORIENTATION

A central advantage of financial appraisals is that they can provide a clear performance measure.
However, their disadvantage is not being able to assess contributors to organisational performance
which cannot be easily quantified, for example the capacity to innovate, internally developed
intellectual property and service quality.

There is a risk that initiatives with more easily measurable and apparent financial outcomes crowd out
options with more subjective, intangible benefits which nonetheless may produce significant returns.
Difficult judgements have to be made, perhaps supported by the use of more non-financial information
integrated with financial information.

4.4.2 SHORT TERM VERSUS LONG TERM

Similar to the above point is the often discussed issue of too much focus on the short term. Generally
Management and Control activities focus on the achievement of short-term targets, using short-
term performance measures. A tension arises if actions to achieve short-term performance are at variance
with actions required to meet longer-term strategic objectives. A common case in point is reducing
maintenance costs and investment in new machinery in the short term and thus potentially harming
long-term prospects. The trade-off requires balancing the benefits of optimising short-term performance,
including cash flow, against uncertain long-term benefits. In practice this can be difficult to achieve.

4.4.3 INVOLVEMENT VERSUS OBJECTIVITY

Financial activities may be seen as stopping with the provision and analysis of information to support
strategic decisions made by others. However, there is the potential for those responsible for finance
activities to be implicated more directly in decision making – from making recommendations through to
actually making decisions and being accountable for them. There is trade-off between the loss of objectivity
that may result against the benefits to decision making that deep financial knowledge and insight can bring.

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4.4.4 MISMATCH OF FUNDING AVAILABILITY VERSUS STRATEGIC REQUIREMENTS

Strategic initiatives require sufficient funding. Where funding needs to be raised externally, funding
providers tend to require some form of collateral, evidence of successful implementation of previous
strategies and/or assurance over the certainty of future outcomes. Issues can arise in two ways:
1. Giving in to pressures to provide assurances to funders and investors of implementation success
beyond that which can reasonably be given; or
2. Being overly accepting that strategy implementation will be determined by the ease of obtaining
funding rather than the potential attractiveness of the strategy.
In both cases finance activities move centre stage in determining an organisation’s strategic
development. The level of resilience and capability among those responsible for finance activities will
be a key factor in how these tensions play out.

4.5 FUNDING

4.5.1 CONSISTENCY AND COHERENCE OF INFORMATION

The information provided to funders and investors is drawn from two sources:
1. Publicly available information (eg, published accounts) to meet regulatory requirements; and
2. Internally focused information to meet management and control and strategy requirements, which
in itself can be drawn from mixed sources - accounting and/or operational.
Internal information can be reconfigured to meet investor and funder requirements and to support
managerial interpretation and external communication of performance. However, publicly available
information must meet fixed standards. This can result in differences between the two information
sources for example due to different accounting treatments, modes of analysis or time horizons. A
pressure point arises because such differences may undermine credibility with funders and investors
who require the information to be valid, plausible, coherent and consistent.

4.5.2 PRESSURE OF UNCERTAINTY

The relationships with investors/funders generally require the provision of prospective information on
future financial performance, together with management’s assurances about their validity. These can
relate to both commercial prospects and the confirmation of continuing solvency.
The validity of prospective information is dependent on the accuracy of the assumptions made about
the future and may be subject to significant uncertainty. However, in order to obtain financial resources
and meet investor and funder expectations there may be pressure to downplay such uncertainties and
commit to a greater level of certainty on the achievability of future cash flows than is warranted. Failure
to meet committed future cash flow performance can lead to a break down in credibility with funders,
with potentially harmful consequences.

4.5.3 CHANGES TO FUNDERS’ TERMS AND LENDING COVENANTS

Sufficient funding is essential for the continued viability of an organisation. However, funding is
generally provided on a conditional basis for limited time periods, which are subject to renewal
negotiations. Challenges arise in having to deal with such uncertainty. The level of uncertainty is
increased because funding facilities may be withdrawn due to circumstances beyond an organisation’s
control eg, a change in the funder’s internal strategies or policies. Moreover, funders such as banks are
often larger and more powerful than the organisations they fund.

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4.5.4 CONFLICTING INTERESTS BETWEEN INVESTORS, FUNDERS AND MANAGERS

Investors and funders have different core interests – investors in increased shareholder value and
funders in the return of their financial commitment together with fees and interest. Further where there
are multiple funders or investors, there can be conflicting interests and rights within each category;
for example differing levels of security for funders and differing levels of management control for
shareholders. They may also differ in their views on commercial prospects. Managers’ objectives can
also diverge from those of other stakeholders for example by focussing on increasing the size of the
organisation. These different interests can result in conflict in relation to strategy, dividend policy,
borrowing levels, approaches to winding up etc. Such conflicts will place additional pressures on
finance activities.

4.6 RESOURCING – KEY CHALLENGE

The key inherent challenge is that the effective development and management of both people and
systems is essential to the effective implementation of the interlinked activities in the framework.
However, those involved in finance activities may not have developed leadership, management and IT
skills to the same level as their finance technical skills.

4.7 OTHER ACTIVITIES – KEY CHALLENGE

Given the decision to exclude these other activities from the finance activities framework clearly there
are no inherent tensions. However, the addition of such responsibilities to those responsible for finance
activities will lead to the need to develop unrelated specialist skill sets. The loss of benefits associated
with specialisation will need to be weighed against the benefits of allocating responsibilities in this way.

53
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THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

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5. The role of the finance department

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GRAPH 5.1: AVERAGE RESPONSIBILITY AND ‘HIGH IMPORTANCE’ RESULTS FOR FINANCE ACTIVITIES

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

GRAPH 5.2: AVERAGE RESPONSIBILITY AND ‘HIGH IMPORTANCE’ RESULTS FOR FINANCE
ACTIVITY SUBCATEGORIES EXCLUDING SINGLE RESPONSES

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5.1 FINANCE DEPARTMENT RESPONSIBILITIES

Not surprisingly the evidence shows a general pattern of high finance department responsibility for
financial processes, with lower levels of responsibility for less direct applications. Thus:
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accounting is not 100% which may be because those using shared service centres or outsourcing
60
services no longer regard accounting as their responsibility. The only non-core process type activity
in this band is mergers and acquisitions.
50
• Medium levels of finance department responsibility (40% to 59%). This band principally covers
application type activities such as general management and control and strategy and risk
40
management. These areas of activity are often those where CFOs and finance departments have
long aspired to achieve more influence. Further research is required to better understand why such
30
aspirations are in many cases not being achieved and indeed to consider whether greater influence
would be beneficial to organisations.
20

Responsibility for internal audit and organisation-wide IT also fall into this band. However, the
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surveys show that finance department responsibility for these areas may be declining over time.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

With respect to internal audit this is possibly due to the increased focus on the need for internal
audit to maintain its independence from the finance department. In the case of IT this may reflect
the fact that historically the finance department was one of the major users of IT, but now most
parts of organisations are IT dependent and IT capability is often a major contributor to competitive
advantage. This is also reflected in the development of the role of the Chief Information Officer with
a reporting line to the CEO.
• L
 ower levels of finance department responsibility (20% to 39% and not covered). Unsurprisingly
lower levels of responsibility are reported for outsourcing and shared services as many organisations
will not have pursued this approach to delivering finance activities.

Investment appraisal, debt financing, finance systems and people management were not covered
by enough surveys from a responsibility point of view to be included. This may be because they
are subsumed by broader categories in some surveys. In the case of finance systems and people
management, responsibility for the activities may be taken for granted as a means of delivering the
other activities.

The collating and reporting of non-financial information also shows a low level of finance
responsibility based on two surveys in 2007 and 2008. It will be interesting to see whether finance
departments will respond to the calls made by some commentators to take greater responsibility for
non-financial measures through tools such as the balanced business scorecard.

5.2 FINANCE ACTIVITIES CONSIDERED TO BE OF HIGH IMPORTANCE

‘High importance’ results will vary significantly across time and between organisations because
priorities are influenced by the drivers shown in the framework and the particular situation of an
organisation. Therefore averages must be treated with caution.

Financial information, which includes management reporting, financial analysis, budgeting and
forecasting, shows the highest average ‘high importance’ score. The explanation may be that these are
activities where finance departments have high responsibility and the potential to significantly impact
on organisational performance. There are likely to be high expectations that finance departments will
perform these activities to a high standard and problems will need to be addressed urgently. A similar
argument can be made for the high importance attached to general management and control.

High importance is also attached to both Strategy and Compliance. Assessing the relative priority
to give to these two areas is often a key challenge for finance departments. Developing and
implementing an appropriate strategy is essential in achieving organisational success and is perceived
as an interesting area to be involved in. However, to some extent finance department involvement is
discretionary – particularly in respect of strategy formulation. Clearly compliance with regulation is
compulsory and must receive some focus. This focus often increases in response to financial scandals.

Although important treasury and cash management are not rated as highly as the above probably
because the surveys concerned were carried out before the 2008 financial crisis.

People management, finance systems and organisation-wide IT are also seen as highly important. This
is to be expected as they are key enablers of finance department and organisational performance.

Accounting and reporting, transaction processing and financial controls receive lower ‘high
importance’ ratings. These activities are often perceived as ‘hygiene’ factors – the expectation is
that they will be carried out effectively and efficiently but they are not seen as adding value to an
organisation. They will only receive significant management attention when major problems occur or
there is scope for significant cost savings.

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5.3 TIME SPENT ON ACTIVITIES

Time-based responsibilities have not been consolidated because the variation in survey approaches
means that the results are potentially misleading. Greater insights are gained by looking at the detailed
tables in Section 2.

The most telling trend is highlighted by the IBM surveys of 2003 and 2010, one of the few surveys
to use similar terminology over time. These surveys show that the proportion of time spent by
finance departments on transactional activities, control activities and decision support has hardly
changed. Despite aspirations to spend more time on decision support and the increased availability
of technology to facilitate this, finance departments spent 24% of their time on decision support in
2003 and 26% in 2010. There are a number of possible reasons for this. Maybe technology advances
are largely used to cut staff numbers rather than free up people to work on decision support. It is also
possible there is some sort of limit to the proportion of time it makes sense for finance departments
to spend on decision support. It should also be noted that the statistics do not indicate whether the
quality of the time spent on decision support has improved.

5.4 INTERPRETING THE RESULTS

Caution must be placed on interpreting these results too precisely, as they are based on averages of
surveys, with relatively small numbers of surveys using each detailed category (one to eight surveys).
Terminology varies significantly. They also cover a long time period, although the majority were carried
out between 2002 and 2010, with differing specific questions and quality levels. On the other hand the
total number of people surveyed, the number of survey questions and the number of surveys is high,
providing some basis for the discussion above.

The benefits of developing more consistent terminology and conducting surveys which enable the
profiling of finance departments and comparisons over time are discussed in Section 5.

5.5 HOW FINANCE ACTIVITIES ARE IMPLEMENTED IS IDIOSYNCRATIC

We have argued that there is a coherent set of interlinked activities that make up the finance function
of an organisation. The process aspects of producing information, including financial controls are
generally the responsibility of a finance department. The application of the information is more variably
the responsibility of the finance department and some finance departments take a lead role in strategy
and risk. We infer from this is that how these activities are undertaken in any particular organisation will
be idiosyncratic and shaped by the impact of the drivers described in Section 6.

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6. Drivers shaping the implementation

of finance activities

This section discusses a number of interrelated drivers which shape how finance activities are implemented
in an organisation. These fit three groupings, as shown in the outer circle of the framework (Figure 1):

• The Environmental drivers provide the context within which organisations, and thus their finance
activities, operate. These impact finance activities both directly and indirectly.
• The Accounting Environment drivers are a subset of the Environmental drivers which have specific
relevance to the role of the finance function. Their nature and content is principally driven by the
Environmental drivers although they also play a role in shaping the environment. The Accounting
environment drivers also impact directly and indirectly on finance activities.
• The Organisational drivers arise from the economic, operational and behavioural profile of an
organisation. Their nature and impact is influenced by interactions with both the Environmental and
Accounting environment drivers. There is a complex interaction between the Organisational drivers
and finance activities because finance activities both respond to the Organisational drivers and play
a part in shaping them.

The number of influencing drivers identified and the fact that they interact makes for complex
relationships between the drivers and finance activities. This complexity is amplified by the fact that the
drivers identified are subject to ongoing change which may be gradual or abrupt.

The precise content, nature and interaction of the influencing drivers will be different for each
organisation, given that each operates in a unique context. Consequently their collective impact on
how finance activities are implemented will also be different for each organisation. However, there are
likely to be some common tendencies and trends. This is because the same range of drivers impact
each organisation, certain drivers at any one time may be particularly powerful and organisations often
copy one another.

A number of papers and reports have identified a range of drivers which impact on finance activities.
Their focus tends to be on the role of the CFO and Management and Control activities. This literature
has been used to build up the range of drivers discussed below. Details of the papers used are shown
in Appendix 1, Table A.1.

We now go on to discuss each driver in detail which can be navigated using the references shown
against each driver in Figure 1.

6.1 ENVIRONMENTAL DRIVERS INFLUENCING THE FINANCE FUNCTION

The Environmental drivers shape how finance activities are implemented, both by their direct impact
on the activities themselves, and indirectly via their impact on the Accounting environment and
Organisational drivers. Five Environmental drivers have been identified:

6.1.1 POLITICAL AND SOCIAL

Political and social drivers are fundamental to the context within which financial activities are
undertaken. For example politics will influence regulatory systems including tax, company, contract,
property and employments laws. The social context will impact on many areas including attitudes
to shareholder value, sustainability and business ethics. Cleary where organisations operate
transnationally or globally, finance activities will need to respond to social and political differences
between countries.

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The impact of political and social drivers is implied in a number of studies but those discussing them
most directly are covered in Appendix 1, Table A.1.1.

6.1.2 MARKET
The Market driver is defined widely to include the economic and financial environment, and customer
and supplier relationships.

The nature of, and changes to, the competitive environment and capital markets drive how finance
activities are organised and which activities are prioritised, in particular:
• Management and Control activities respond to market changes. Management and control
practices aim to support organisational survival and goal achievement. Therefore to be effective
these practices need to reflect, adapt and respond to the ongoing impact of market forces on
the organisation.
• Strategy and Risk activities respond to market changes. In the same way strategy and risk
management practices need to reflect, adapt and respond to the ongoing impact of market
forces. Competitive markets and instability make long-term value creation extremely difficult and
finance departments have a role to play in analysing and explaining the strategic impact of market
conditions and the related risks.
• Financial staff may become more closely involved in operational activities. Also related to the
above, increasing market pressures lead to a greater focus on financial performance which can
provide the opportunity for closer involvement of finance staff in supporting operational activities.
This is reflected by the growing use of such terms as business partner, business support and hybrid
accountant to describe the roles of finance staff.
• Financial crises can have pronounced effects on how finance activities are undertaken. Financial
crises mean finance activities are placed centre stage with significant management focus. Finance
departments are used to both identify what needs to be done (eg, cost reduction, retrenchment,
asset management and/or capacity utilisation) and provide institutional sanction for it being done.
Despite increased requirements from the finance department, they themselves can come under
pressure to reduce their own costs and headcount. Unsurprisingly poor organisational performance
is associated with an increased likelihood of the CFO being replaced.

See Appendix 1, Table A.1.2 for further details.

6.1.3 LOCATION
National differences, globalisation and the interplay between them provide strong, often conflicting,
influences on how finance activities are implemented. The main impacts are on:
• Compliance. Organisations operating in single jurisdictions have to meet local regulatory
requirements, although they may have to respond to changes which arise from globalisation, for
example the introduction of IFRS. Where organisations operate in multiple jurisdictions, there will be
a need to contend with the complex balancing of global, head office and local requirements.
• Management and control systems design and implementation. There is a complex interplay
between divergent national influences and convergent global influences. Local traditions influence
the role of finance staff, how accounting is mobilised and the choice of performance management
techniques and processes. Against this globalisation leads to greater international consistency for
example through the global consulting industry. Global organisations and global supply chains also
seek to standardise processes and policies to improve communication and automation.

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• The relative importance of financial information and finance departments. Differing national
cultures can ascribe differing levels of importance to financial information and how it is interpreted.
This in turn impacts on the influence that finance departments have in organisations.

See Appendix 1, Table A.1.3 for further details.

6.1.4 INFORMATION TECHNOLOGY

Relentless IT development may have a transformative impact on the implementation of finance
activities and also provides an ongoing challenge. Impacts include:
• Reduction in resources required for transaction processing as IT enables the automation and
standardisation of processes.
• Potential to improve information collection and analysis for Management and Control activities.
IT improves the capacity for collection, integration and analysis of financial information and
indeed access to new types of relevant information. This in turn provides the potential for finance
departments to make a greater contribution to business support, performance management and
decision making.
• Changes to the role of finance staff through diffusion of information. IT enables financial
information to become more easily accessible and usable throughout organisations. This can lead
to either a contraction or expansion in the roles of finance staff. Expansion through finance staff
becoming more closely involved in operational decisions; contraction if the availability of financial
information means line managers can use the information, without the need to involve finance staff.
• Problems resulting from the introduction of new systems or IT shortcomings. In addition to the
potential benefits and organisational changes resulting from IT developments identified above, the
threat of fragmentation is equally important.

Information sources can become fragmented where new systems are introduced alongside existing
systems. This can arise for a number of reasons including the obsolescence of earlier systems;
mergers and acquisitions and the introduction of new products and services. The difficulties in
combining and reconciling the various sources of information may lead to significant errors and
misunderstandings. In many organisations finance staff spend large amounts of time trying to
address the root causes and symptoms of such issues.

In addition problems can occur through information overload. IT enables cheaper access to new,
broader information sources with increased detail. The downside is that this may lead to information
overload making the most relevant and useful information difficult to discern.

See Appendix 1, Table A.1.4 for further details.

6.1.5 SECTOR
Differences in industry sector impact on how finance activities are implemented, especially
Management and Control and Strategy and Risk. Much of the evidence focuses on variations
associated with differing levels of uncertainty in different sectors. For example utility companies may
face less uncertainty than IT software companies. In addition certain finance activities in the service
industries will be different from those in manufacturing because it is more difficult to standardise
processes and measure outputs in the service sector. It should also be noted that organisations in
particular sectors will often mimic the organisational structures of their peers. As yet no clear evidence
base has been established to assist in aligning the design of performance management systems with
sector characteristics.

See Appendix 1, Table A.1.5 for further details.

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6.2 ACCOUNTING ENVIRONMENT DRIVERS

The Accounting environment drivers are a subset of the Environmental drivers, which have specific
relevance to the role of the finance function. Four drivers are identified:

6.2.1 ACCOUNTING REPRESENTATION

Financial information and accounting reports can only ever provide a partial representation of
organisational reality. Accounting representations are based on interpretations by those who produce
them and in turn have to be interpreted by their users. Although the information generated through
accounting is central to decision making and running an organisation, finance departments and other
users of accounting information should not lose sight of accounting’s inherent limitations.
• Accounting reports are based on uncertain assumptions about both future outcomes and the
appropriateness of income and cost allocations. Much of the information contained in accounting
reports is based on assumptions about an uncertain future. Uncertainties related to accounting for
day to day activities include whether accrued revenues will be collected, depreciation rates match
the actual lives of fixed assets and provisions for warranties are sufficient. Accounting for one-off
events may also require judgements about the future such as whether legal claims will be successfully
defended or not. These issues contribute to the continual reworking of accounting standards resulting
in changes to which finance functions have to respond. Therefore financial reports are subject to
ongoing restatements as outcomes differ from prior assumptions and accounting standards change
In addition decisions about how revenues and costs are allocated to different lines of business
and to different periods may have significant implications for how a business unit’s performance
is perceived. Ongoing debates about whether and how overheads and central costs should be
allocated and the number of different costing techniques advocated are indicative of the problem.
• Finance functions differ in the ways that they apply accounting standards and make
organisationally specific assumptions to create a working certainty. For many purposes this is totally
adequate in practice. However, if subsequent events show these assumptions to be mistaken, the
prior accounting reports can be challenged as unreliable. If the resulting adjustments are material,
the credibility of those who produced the information and used it as the basis of decision making
and action can be called into question.

See Appendix 1, Table A.1.6 for further details.

6.2.2 MANAGEMENT AND CONTROL TECHNIQUES

How Management and Control activities are implemented is strongly impacted by the type of
technique used to analyse, project and report financial information. Two key themes emerge:
• The type of technique used impacts on how Management and Control activities operate.
However, no clear guidelines have evolved to appraise which is most appropriate. A wide array
of management accounting techniques have been developed over time, generally in response to
specific historic, organisational and/or environmental contexts. Despite a wide range of research on
their use, no coherent patterns have been identified to help guide the choice of technique which is
most appropriate in a given situation. Rather, the evidence suggests that the techniques in use are
determined by such factors as subjective appraisal, historical usage or pressure from managers or
advisors to use the latest technique (or fad).
• Some organisations have developed greater integration of financial and non-financial measures
with the aim of improving performance. However, the evidence also suggests that while this may be
desirable, it can be difficult to implement in practice.

See Appendix 1, Table A.1.7 for further details. It should be noted that the table only shows a small
sample of the very wide range of research available.

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6.2.3 REGULATION
Compliance activities are directly driven by external requirements, with a knock-on impact to other,
interconnected finance activities.
• The weight of regulation determines the significance, complexity and technical requirements of
Compliance activities. Over a number of years regulatory requirements have been increasing and have
led to significant changes in finance departments. As they are largely non-negotiable, this has increased
the amount of time and focus required from finance executives. It has also raised the strategic importance
of Compliance given the increasing risks from non-compliance. The increased regulatory burden can also
have the knock-on effect of crowding out other finance activities, such as Management and Control.

• Moreover financial scandals increase the focus on its importance. A clear example of this was the
implementation of Sarbanes-Oxley in response to Enron, Worldcom etc.

• Regulation feeds through to impact on Management and Control and Accounting activities. Clearly the
information and financial controls required to comply with financial regulation impacts on Accounting
activities which must respond to external as well as internal requirements. There is also an impact on
Management and Control where regulations place constraints on organisational activities and also where
there is a preference to maintain consistency between management information and external reporting.

• There is some pressure for finance professional to work on broader regulatory issues including
sustainability. The prominence of natural environment, ethical and governance issues is leading to the
finance function extending its scope beyond the narrow financial.

See Appendix 1, Table A.1.8 for further details.

6.2.4 PROFESSIONALISATION OF ACCOUNTING

The accounting profession can play an influential role on finance activities, specifically:
• In some parts of the world the implementation of finance activities is strongly influenced by the
training standards and ethics required by professional bodies to which a large proportion of
finance executives belong. This professionalisation of accountancy grew out of the requirement for
professional objectivity in meeting early regulatory standards, especially in relation to insolvency
and audit.
• The accounting profession has consolidated and continues to expand its influence and impact.
For example the membership of professional accounting bodies has continued to expand and they
have helped drive the convergence of international accounting practices.
• Conversely there are challenges from rules-based regulation and greater attachment to employers
rather than the accounting profession. In recent years regulatory requirements have increasingly
been prescribed by governmental and global institutions, reducing the impact of the professions. In
addition there is an intrinsic tension between professional and employer allegiances.

See Appendix 1, Table A.1.9 for further details.

6.3 ORGANISATIONAL DRIVERS

Organisational drivers relate to the nature of the organisation within which finance activities are carried
out. The Organisational drivers are influenced by the Environmental and Accounting environment
drivers as organisations adapt to their circumstances. It is important to note that as finance activities are
an integral part of an organisation, the organisational drivers both influence and are influenced by the
functioning of finance activities. Seven drivers are identified:

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6.3.1 OWNERSHIP
Owners and those who hold an organisation accountable have a significant impact on how all finance
activities are undertaken. Specific aspects include:
• Pressure to meet and manage financial expectations. The level and nature of the pressure to
meet financial expectations for commercial organisations will vary depending on the nature of
organisational ownership. For example many private equity owners focus on high financial returns
which support their exit strategies whereas institutional investors such as pension funds often take
a longer-term view. Where organisations do focus on the financial expectations of investors it can
enhance the influence of the CFO. On the other hand the CFO and the finance department will also
be under pressure to reduce costs and headcount.
• The degree of owner intervention on finance activities varies. Owner managers, such as family
owners or partnerships, by definition have wide authority in determining how finance activities are
carried out. When outside investors become involved this may bring pressure to change finance
processes and outputs. In particular interventionist, private equity firms may impose specific
requirements concerning financial reporting and control. Organisations established as joint
ventures may face complex and possibly conflicting requirements from the owning partners. For
public listed companies with broad based shareholders there will be less direct owner influence on
how finance activities are undertaken.
• The impact of a change in ownership. This can trigger changes in all aspects of finance activities
either to meet the changed requirement of the new owners or to integrate the processes of merged
or acquired organisations. Dealing with a change of ownership can be extremely difficult with
compatibility issues in relation to all finance processes, including behavioural and organisational
aspects, IT systems and financial policies.
• The impact of public ownership or charitable status. With public ownership/accountability or
charitable status come organisational goals which are different to commercial organisations.
Financial goals do not form a central part of organisational objectives as the espoused outcome
is the provision of service levels. Financial priorities are expressed as providing value for money
services and safeguarding public money or charitable resources.

See Appendix 1, Table A.1.10 for further details.

6.3.2 SIZE
An organisation’s size has a significant impact on how finance activities are implemented, specifically:

• Larger organisations tend to have more sophisticated and formalised management and control systems,
with the greater use of specialists. Indeed it has been argued that the development of accounting systems
have played a key role in enabling large, multi-divisional firms to exist.

• In smaller organisations finance staff may have broader responsibilities and finance activities will tend to be
less complex. Such broader activities result from limited management resources. Management and control
processes are likely to be simpler and gaps may become apparent when new circumstances develop.

• However, the specific impact of size is not always clear because of its interaction with other drivers. This can
be particularly so in larger multidivisional organisations, where finance activities can be spread widely, with
varying degrees of responsibility and sophistication depending on the structure of the organisation.

See Appendix 1, Table A.1.11 for further details.

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6.3.3 STRATEGY
Strategic focus drives how finance activities are implemented especially Management and Control.
More specifically:
• The compatibility of strategy with Management and Control practices is generally believed to be
beneficial to organisational performance. As a consequence the effective implementation of new
strategies may require changes to Management and Control activities.
• However, aligning Management and Control practices and strategy can be challenging.
Management and control processes tend to focus on short-term performance, whereas strategy tends
to have a medium/long-term time horizon. Ensuring alignment can be difficult, especially where
actions that enhance short-term performance can damage long-term prospects (eg, reductions in
expenditure on marketing or research and development).
• Management and Control feedback can become embedded in strategy development. The feedback
from Management and Control activities can be a primary input to the development of strategy.
Where this is the case there will be an ongoing feedback loop between strategy development and
the implementation of Management and Control activities. It is also worth noting that the importance
of the finance department relative to other departments may be higher in firms pursuing acquisitive
growth or retrenchment rather than organic growth.

See Appendix 1, Table A.1.12 for further details.

6.3.4 ORGANISATIONAL STRUCTURE

Organisational structure is intertwined with how finance activities are undertaken, specifically:
• Organisational structure influences and is influenced by finance activities.
The organisational structure will have a central impact on the way in which financial information
is aggregated and analysed (eg, profit centre categorisation), how it is produced (eg, centralised
or decentralised), who produces it (eg, in the finance department or elsewhere) and to whom it is
disseminated. Conversely financial considerations will impact on the organisational structure, for
example through the need for appropriate legal entity structures for tax and regulatory purposes.
• Departmental structures influence the degree and nature of collaboration and conflict between
finance and other functions. Departments in organisations rely on each other to meet their objectives
but these objectives may conflict. Relationships between them depend on a number of factors
including levels of interdependence, overlaps in responsibilities and conflict resolution mechanisms.
• One possible tendency is a closer involvement of finance staff with operational activities. However,
this aspiration has been talked about for many years and the degree to which the aspiration has
been achieved varies significantly between organisations.
• Financial incentives influence the behaviour of those carrying out finance activities.
The impact can be functional or dysfunctional. A key question is whether rewarding finance staff
based on the financial performance of organisations jeopardises their objectivity and leads
to unethical behaviour.
• Outsourcing and shared service centres have a specific impact on how finance activities are
implemented. These changes include where finance activities are undertaken, how they are
undertaken and the management responsibility for their effective implementation.

See Appendix 1, Table A.1.13 for further details.

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6.3.5 PEOPLE
The knowledge, skills, interests and attitudes of finance staff and their relationship with staff in other
functions impact on how finance activities are implemented. The following themes emerged:
• The skills of staff play a major part in determining the effectiveness of finance departments. A large
number of studies suggest that the degree to which finance departments recruit, train and retain staff with
appropriate skills and personal characteristics will influence the nature and the effectiveness of activities
carried out in the department. The degree of diversity in the finance department will also have an impact.

• However, attracting appropriately skilled staff can be difficult. Studies identify skill shortages as a major
issue although it should be noted these studies were carried out before the 2008 financial crisis. Part
of the difficulty may be that the sheer number of skills and personal characteristics sometimes listed as
necessary for effective finance personnel may result in unrealistic expectations. Moreover some required
personal characteristics may be seen as at odds with one another, for example attention to detail and
strategic thinking.

• Finance departments can play a major part in shaping their own role. Finance department staff can
influence which activities they take responsibility for, how tasks are prioritised and the resources and
processes used to carry out the tasks. In addition, commentators have argued that finance departments
who want to take on broader business roles will need to proactively pursue this goal rather than wait for
the organisation to give them such opportunities.

• However, top management teams also play a key role in how finance activities are carried out. The
relationship between the CFO and the CEO is particularly important in determining the influence of the
finance department. Studies also suggest that the functional backgrounds of top management team
members will play a role in influencing strategy and the information that is attended to. For example there
is some evidence top management teams with more executives from a finance background are more
likely to focus on acquisitions than organic growth.

See Appendix 1, Table 1.14 for further details.

6.3.6 CULTURE
Finance activities are intertwined with organisational culture and politics. Organisational culture,
power relationships and politics will have a significant impact on how finance activities are
implemented and how information is interpreted and used. In addition, changes to finance activities
and the introduction of new accounting techniques will impact on the culture of an organisation and
may change the distribution of power. As a result such changes are likely to face resistance and be
difficult to implement. Proactive attention to such factors will be required for finance activities, and
changes to them, to be effective. Top level support for proposed changes is argued to be an essential
prerequisite to success.

See Appendix 1, Table A.1.15 for further details.

6.3.7 ROUTINES
Finance activities are intertwined with organisational routines. Broader organisational routines and
processes will tend to shape, and be shaped by, how finance activities are implemented. Finance
activities are part of overall organisational routines and may reflect or conflict with such routines.
Moreover finance activities may change or be changed by institutional forces which in turn adapt to
their external environmental and management interventions.

See Appendix 1, Table A.1.16 for further details.

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Appendix 1 – Supporting evidence for the drivers

TABLE A.1: PAPERS COVERING A RANGE OF DRIVERS

AUTHOR DATE FINDINGS
A number of papers and reports have identified a range of drivers which impact on finance activities
KPMG/The Institute of 1998 Competitive pressures, technological innovation, globalisation, new business
Chartered Accountants in structures, the need to focus on value, the demand for new skills and changing
Australia attitudes to work will impact the finance function.
Sheridan 1998 The main drivers of change for financial management include new attitudes to
quality and service, social pressures from stakeholder activism, as well as intense
competition, new opportunities and risks, and regulatory and environmental
pressures.
Waggoner et al. 1999 Performance management systems change in response to a wide range of factors.
These include internal influences such as power relationships, peer pressure and
the search for legitimacy; external influences such as legislation, market volatility,
information technology; process issues including the manner of implementation
and system design and transformational issues such as the degree of top level
support and the impact of organisational culture.
Chenhall 2003 Discusses the impact of the external environment, technology, organisational size,
organisational structure, strategy and national culture on the design of management
control systems. More detailed propositions are summarised in the relevant
sections.
Burns and Baldvinsdottir 2005 Key drivers of role change for management accountants include globalisation
and internationalisation, new management philosophies and strategic goals,
organisational restructuring and the actions of influential groups and individuals.
FEI Canada 2005 The top challenges faced by Chief Financial Officers (CFOs) are compliance, finance
availability, strategic planning, human resource (HR) issues, personal pressures and
market conditions.
Ernst & Young 2006 The CFO’s role has been affected most by increasing corporate governance
obligations but also increasing demands from investors, increasing penalties
for mistakes, changes in technology and a broader set of demands from board
colleagues.
Byrne and Pierce 2007 The role of management accountants is influenced by a wide range of factors.
These include external factors (ownership, environment and regulation), internal
factors (size, structure, culture, technology, management, business nature and
circumstances, location, performance systems) and individual factors (orientation,
background, skills and personal characteristics).
Ernst & Young 2008 Factors most contributing to the changing role of the CFO are increasing
regulatory requirements, expectations from board and audit committees, corporate
governance obligations and risk management.
Ernst & Young 2008(a) The challenges and opportunities for the financial controller are increasing
because businesses are becoming more global and complex; finance is becoming
a business partner at the heart of the organisation; increased pressure to deliver
high-quality management information; there are pressures to move from efficiency
to effectiveness including dealing with shared services, outsourcing and mature
technical systems; the CFO is passing more work to the financial controller (FC) as
he or she spends more time on investor relations.
KPMG 2008 The finance function is shaped by market influences including globalisation,
investor demands, the rise of regulation, the power of technology and an increased
focus on the social responsibilities of organisations.

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TABLE A.1: PAPERS COVERING A RANGE OF DRIVERS CONTINUED

AUTHOR DATE FINDINGS
Ferreira and Otley 2009 Performance management systems (PMS) need to be viewed in a holistic manner
and take into account a number of areas. These include an organisation’s vision
and mission, key success factors, structure, strategies and plans, key performance
measures, target setting, performance evaluation and reward systems. Also
important are the ways PMS are used; the feedback and feedforward information
flows and associated systems and networks and how PMS change and respond to
the environment and the strength of the links between the components of PMS.
Contextual and cultural factors also need to be considered.
Bhimani and Bromwich 2010 Management accounting and management accountants are impacted by the
increasingly global, digital and volatile environment faced by enterprises; the
adoption of flexible supply chains; new management techniques and growing
regulatory requirements.
CIMA 2010 Finance function changes can be seen as either motivated by the need for cost-
efficiency or the need for value creation. The range and extent of change is affected
by organisational size, sector, location, increased competition, increased risk and
uncertainty, advances in information technology (IT), the impact of regulation, new
markets, changes in top management and increased service demands.

TABLE A.1.1: POLITICAL AND SOCIAL

AUTHOR DATE FINDINGS
Political and social drivers are key to the context within which financial activities are undertaken
DiMaggio and Powell 1983 Organisations come to resemble one another through social and political pressures,
copying other organisations in order to achieve legitimacy and the influence of
professional networks that span organisations.
BIC 1992 The 1990s saw the collapse of communism, the gulf war, the return to economic
health of Latin America and a prolonged recession, so that coping with rapid and
unpredictable change becomes a top priority for business. This in turn requires the
finance function to become more strategic in outlook and more outspoken and
open in their views.
Sheridan 1998 The main drivers of change for financial management include new attitudes to quality
and service, social pressures from stakeholder activism, as well as intense competition,
new opportunities and risks, and regulatory and environmental pressures.
Zambon and Zan 2000 It is well known that accounting is relative to and contingent upon organisational
and social contexts.
Fligstein 2004 Social and political forces mean that the role of shareholder value as a predominant
driver of organisational activities has ended. In addition companies can no longer
achieve profitability through financial engineering.
Napier 2006 The nature of accounting change is strongly intertwined in the social. Accounting
is seen to be implicated in wider arenas, with networks of practices, principles and
people constituting a variety of ‘accounting constellations’.
IBM 2008 The world is undeniably risky – 62% of businesses with revenues over US$5 billion
have encountered material risk events in the last three years - 87% of which were
strategic, geopolitical, environmental, operational or legal.

TABLE A.1.2: MARKET

AUTHOR DATE FINDINGS
The nature of, and changes to, the competitive environment and capital markets drive how finance activities are organised
and which activities are prioritised, in particular:
Management and Control activities respond to market changes
Turney and Anderson 1989 Competition from Japan precipitated significant organisational changes.
Accounting change was an essential part of the success in supporting the need for
modern manufacturing techniques and continuous improvement.
Cooper 1996 The growing importance of cost management is changing the practice of
management accounting. While management accounting is more important,
management accountants and the management accounting function is less
important. They need to take a supportive and monitoring role with more
individuals actively involved in the cost management process.
Chapman 1997 Under conditions of rapid change accounting systems are unable to just optimise
faster. Therefore operational considerations must be involved in the decision
process, not coded but in their original form.

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TABLE A.1.2: MARKET CONTINUED

AUTHOR DATE FINDINGS
Management and Control activities respond to market changes
Ezzamel et al. 1997 Emphasis on improving bottom line results entails more use of accounting and
other quantitative controls.
Helden et al. 2001 Competitive pressures led to the introduction of business units responsible for
their  own results and the questioning of performance management and transfer
pricing practices.
Ezzamel et al. 2004 Commercial pressures from a changed trading environment can lead to the
reconstitution of accounting measures to facilitate the changes necessary for
commercial salvation.
Busco et al. 2006 Performance measurement systems as a common organisational language are
(a) central to adapting to changed market conditions which require collaboration
across the organisation.
Smith 2007 Management accounting systems must be able to respond flexibly to unanticipated
market changes.
Abdel-Kader and Luther 2008 Differences in management accounting sophistication are significantly explained by
a range of factors including environmental uncertainty and customer power.
Strategy and Risk activities respond to market changes
Simons 1995 Competitive environments require responses. This leads to the requirement for
interactive control systems, which focus organisational attention on strategic
uncertainties and provoke the emergence of new initiatives and strategies (eg,
profit planning systems).
Froud et al. 2000 The effective use of financial metrics to identify and implement actions that lead to
increased long-term shareholder value is limited by the inherent competitiveness
of the market.
Booz Allen Hamilton 2006 The CFO’s role has evolved significantly over the last decade, and now needs to
drive an organisation’s overall risk management programme, which must be defined
broadly, and consider changing market conditions.
Widener 2007 Strategic risk and uncertainty drive how levers of control are used.
CFO Research Services/ACCA 2009 The turbulent economic environment has meant greater CFO involvement and
focus on strategy and risk management.
Mckinsey 2009 CFOs believe the global economic turmoil will lead to the following permanent
reactions by the finance function: 1) a continuous effort to reduce costs (52%
respondents); 2) tighter management of working capital (48%); and 3) an increased
focus on operational and financial risk management (43%).
Financial staff may become more closely involved in operational activities
Gerstner and Anderson 1976 Financial resources have become the critical determinant of corporate plans and
strategies and therefore the CFO’s involvement in operational decisions is much
greater than it was in the late 1960s.
Phillips and Ross 1996 The two main drivers of change in the finance function are the business
environment and IT, leading to the need to adopt a more business-orientated
approach. This leads to a shift away from producing numbers, towards working with
other departments, becoming more involved in non-financial matters and adopting
a strategic viewpoint.
EIU 1997 Global market changes demand a response from the CFO and the finance function.
Burns and Scapens 2000(a) Competitive market conditions mean accountants take on hybrid roles which
encompass accounting knowledge and an in-depth understanding of the operating
functions or commercial processes of the business.
Kulmala et al. 2002 In pursuing competitive advantage, organisations have adopted network structures
and complex supply chains. These changes demand new management accounting
techniques eg, open book accounting and proactive, managerial roles for
management accountants, including working in cross-disciplinary teams.
CFO Research Services/SAP 2007 Finance is pulled in two directions – regulation on one side and competition and
investor expectations on the other. The pressure is for the finance function to
respond by moving beyond the narrow finance role.
Sorenson 2009 Global competition drives management accounting change with finance
professionals increasingly taking on business support roles.

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TABLE A.1.2: MARKET CONTINUED

AUTHOR DATE FINDINGS
Financial crises can have pronounced effects on how finance activities are undertaken
Hopwood 1987 Difficult market conditions lead to accounting changes but it is very difficult to
generalise on the changes required.
Euske et al. 1993 When there was a crisis, organisations abandoned both their formal and informal
control mechanisms, and implemented high-intensity forms of control including real
time, high-involvement management.
Mian 2001 Poor organisational performance tends to lead to both CFO replacement and high
Chief Executive Office (CEO) turnover.
Radcliffe et al. 2001 Trading crises can lead to downsizing, where accounting is used to both identify
what needs to be done (eg, cost reduction, retrenchment, asset management,
capacity utilisation), and provide institutional sanction for it being done.
Gurd et al. 2002 Financial difficulties provided a strong pressure to introduce change and reduced
the time required to introduce accounting changes.
Arthaud-Day et al. 2006 High CFO and CEO turnover has been observed in US firms filing material
misstatements.
IBM 2010 The global economic downturn has put CFOs under the spotlight and their finance
organisations have had to deal with urgent financial issues. Uncertainty and volatility
has drawn them into boardroom conversations about forecasts, profitability, risk
management and strategic decisions. As a result CFOs are emerging with far more
influence at the enterprise level.

TABLE A.1.3: LOCATION

AUTHOR DATE FINDINGS
Location – national differences, globalisation and the interplay between them provide strong, often conflicting influences on how
finance activities are implemented. The main impacts are on:
Compliance
Fligstein and Freeland 1995 There is no evidence of convergence across societies toward a single form of governance.
This is mainly a function of three factors - timing of entry into industrialisation, the role of
states in property rights and regulations, and the social organisation of national elites.
ICAEW 2006 Different national compliance pressures lead to differing requirements.
Lindsay 2007 Globalisation is associated with a number of reporting complexities for finance activities,
including different generally accepted accounting principles (GAAP) regimes and
transitional periods when moving to International Financial Reporting Standards (IFRS).
ACCA 2008 Global implementation of IFRS will lead to global harmonisation of regulations and
auditing standards.
Management and Control systems design and implementation
Demirag 1994 In general Japanese companies operating in Britain paid less attention to financial
control systems than to achieving smooth production and good quality products.
Cooper 1996 In Japanese firms, job rotation exposes engineers to accounting and other aspects of the
business. This enables them to undertake management accounting tasks without the need for
management accountants, who carry out such tasks in western firms.
Ahrens 1997 In Germany, accountants and accounting served to legitimise completed operational
proposals. In the UK, accountants mobilised accounting to influence emerging proposals
as soon as possible.
Brewer 1998 A top-down approach to implementing ABC for Harris Semiconductor’s worked better for
their Malaysian plants than their US plants.
Carr and Tomkins 1998 Anglo-American short termism, as compared to Germany and Japan, is seen in the
over-reliance on high ‘comfort factor’ financial hurdle rates in making strategic
investment decisions. In addition some German CEOs did not see their senior finance
executives as sufficiently involved in these decisions to warrant interviewing.
Granlund and Lukka 1998 Globalisation of markets and the global consulting industry drives convergence of
management accounting practices. On the other hand national legislation, regulation,
institutions, cultures and companies drive divergence.
Whitley 1999 The nature of labour markets impact on what control systems work; for example a
top-down centralised approach works better in high-authority societies, but not so
well in societies where there is a high degree of labour skill and autonomy.

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TABLE A.1.3: LOCATION CONTINUED

AUTHOR DATE FINDINGS
Management and Control systems design and implementation
Chow et al. 1999 National cultures affect the design, and employee preferences for, different types of
management controls but the study also found that the relationship between the
two remains ambiguous.
Ahrens and Chapman 2000 The underlying occupational identity of management accountants in Britain and Germany
involved a common concern to drive economic pressure into their organisations. However,
this was expressed differently - the British highlighted their marketable experience; the
Germans their ability to provide a distanced analysis of economic flows.
Kulmala et al. 2002 Globalisation pressures can push a company to move to a network mode of operation,
especially as companies outsource. This highlights the importance of cost management
and, where there is outsourcing, cost transparency across the network. This can be difficult
to achieve.
Chenall 2003 National culture is associated with how management control systems are designed but no
specific conclusions can be drawn.
Ewert and Wagenhofer 2007 A distinctive feature of German management accounting is its separation from financial
accounting. The advantage of this is that it allowed independent development of
sophisticated systems. The disadvantage is that it can lead to the emergence of differing
earnings figures. There is now pressure for greater convergence of financial accounting and
management accounting.
Chow et al. 2007 Chinese management accounting practices have become increasingly receptive to modern
management accounting applications since the open door policy began in 1978. The
pace of adoption has accelerated since 1997 because of increased marketisation and
privatisation.
Accenture 2008 Increasing globalisation results in pressure to deal with heightened complexity, competition
and cost control.
Busco et al. 2008 There is a tension between global performance management systems aimed at achieving
a global unity of effort, versus the contradictory forces emanating from multiple centres of
decision making.
Chanegrih 2008 National cultures and macroeconomic contexts impact on how management accounting
change is implemented and its success.
Deloitte 2008 Complex networks of production, distribution, suppliers and customers make common
measurement and tracking of financial performance difficult.
Dossi and Patelli 2008 Cultural tolerance for uncertainty, pressures to globalise, subsidiary participation and
subsidiary size give performance management systems a greater influence on decisions.
IBM 2008 The response to globally interdependent market places has usually been to allow finance
activities to operate according to specialised standards and local preferences, although this
is usually not the best approach.
Hoffjan et al. 2009 Differences in management accounting arise due to culture. For example profits may
be calculated differently, with Anglophone countries relying on the general ledger and
Germanic countries using separate costing systems. Further, accounting is taught as a
discipline in Germany, but is a profession in Anglophone countries.
THE RELATIVE IMPORTANCE OF FINANCIAL INFORMATION AND FINANCE DEPARTMENTS
Budde et al. 1982 High profitability and growth were the dominant goals for both British and West German
companies. Where differences emerged it was not clear whether this arose from cultural
factors rather than, for example, the generally greater success of German organisations.
Bhimani 1994 Cultural differences impact on how accounting information is valued and interpreted.
Ezzamel et al. 1997 Accounting is presented as being much less central in the USA than in the UK.
Froud et al. 2000 The spread of financialisation is limited by structural barriers and by institutional differences
between national economies.
Vámosi 2000 There were both differences and similarities between management accounting in
communist and western capitalist regimes. For example, the role of costing was the same,
but cash flow was a new discipline for organisations in previously communist countries.
Lascu et al. 2006 The relative impact of finance and accounting is stronger than marketing in Poland
compared to the USA as a consequence of the former planned economy.
Vasilou and Daskalakis 2009 Generally, while there are differences in institutional characteristics between Greek and
other US and European companies, this does not seem to affect the way of thinking of
financial managers when they decide on capital structure issues.

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TABLE A.1.3: LOCATION CONTINUED

AUTHOR DATE FINDINGS
The relative importance of financial information and finance departments
Accenture 2008(a) Globalisation provides an opportunity to enhance the capability of the finance function
through taking advantage of multiple sourcing options, access to more skilled and diverse
staff/leadership, and expanded opportunities for outsourcing.
CIMA 2010(a) The West is moving ahead of the East in terms of the trend for finance professionals to
move towards roles that add value beyond traditional financial recording and reporting.
This may be due to different starting positions, organisational structures, the mix of
manufacturing and service industries, and cultural climates.

TABLE A.1.4: IT
AUTHOR DATE FINDINGS
Relentless IT development may have a transformative impact on the implementation of finance activities and also provides
an ongoing challenge. Impacts include:
Reduction in resources required for transaction processing
Harding 1963 The use of computers can achieve a great deal of productivity improvement in
finance.
IMA 1997 There is a need to redesign the finance function in order to effectively use IT to save
transaction processing costs and to enable management to be more involved in
decision support and strategy.
Ernst & Young 2003 World-class finance functions spend much less on transaction processing by
standardising technology, simplifying processes and consolidating and eliminating
redundant resources.
KPMG 2008 Over the past 20 years, technology has been the single biggest change agent in
the transformation of business and the finance function. It reduces the man hours
required to process transactions, enabling both the workplace to exist anywhere,
and the real-time exchange of information.
Potential to improve information collection and analysis for Management and Control activities
Drucker 1990 The frustration of manufacturing automators with traditional accounting methods,
which did not capture the benefits of reduced non-production time and improved
quality, led to the development of new cost accounting techniques.
Davis and Albright 2000 This case shows that new IT both drives organisational change and facilitates
organisational choices. The impact on accounting was to reduce headcount and
manual processes with some evidence of remaining accounting staff taking on more
analytical roles.
Scapens et al. 2003 IT developments, particularly databases which enable the storage of information
to meet different user needs and technologies that enable ease of access to
information around the organisation, lead to significant changes in the role of
management accountants. Some evidence that management accountants are
becoming integral members of management teams.
Scapens and Jazayeri 2003 The introduction of an Enterprise Resource Planning (ERP) system facilitated
changes already in train including for management accounting the removal of
routine jobs, the development of line managers accounting knowledge, more
forward-looking information and a wider role for management accountants.
Mercer 2006 Technological change and globalisation have reduced the lives of business models
meaning that the role of finance is expanding beyond assessing new opportunities
and threats to managing complex operations and new business risks.
Capgemini 2008 Integrated IT and highly capable employees are key components in establishing
an overarching performance management framework. Globalised, standardised
and integrated finance and control processes, emphasising global master data and
regulation documents, should support flexible company performance management.
This will result in the replacement of a silo mentality in the finance and controlling
organisation and enable integrated working methods.
Grabski et al. 2008 ERP system implementations have major but variable impacts on the role of
management accountants. These include less time on data collection, more on
data analysis, more involvement in decision making, increased focus on internal
reporting and an increased focus on benchmarking.

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TABLE A.1.4: IT CONTINUED

AUTHOR DATE FINDINGS
Changes to the role of finance staff through diffusion of information
Hopwood 1987 Different information technologies are creating the potential for continued shifts in
the locus and organisational significance of the accounting craft.
BIC 1992 CFOs have realised in order to succeed in their role, the finance organisation needs
to be restructured with new technology and work methods introduced to ensure
finance can meet its new commitments.
Coombs et al. 1992 IT systems transform culture, control and competition.
Phillips and Ross 1996 IT is one of the major drivers of change for the finance function. However, many
finance functions in the UK are not taking advantage of the resulting potential to
become further integrated into the business.
EIU 1997 Relentless innovation in information management technology gives CFOs the
opportunity to rearrange the human resources, processes and technology they control.
Ezzamel et al. 1997 The IT capacity for large databases has given the finance staff the potential both to
widen their scope for monitoring activities and, as time on accounts preparation
reduces, spend more time on new calculations, including the non-financial. There
is also the scope to significantly reduce accounting personnel. IT developments
raise the question of how far management accounting, as a distinctive practice, can
survive the possible demise of the management accountant, as a distinctive and
ubiquitous practitioner.
Granlund and Lukka 1998 Advanced IT and production technologies (eg, ERP) drive convergence of
management accounting practices.
Jazayeri and Hopper 1999 The introduction of world class manufacturing processes and associated finance
systems changes had a complex impact on the finance function. On the one hand
financial accounting and budgetary control systems run by accounting remained in tact
and product costing systems were not changed to incorporate activity-based drivers.
On the other hand there was a marked decline on the influence of the accounting
department with production staff taking responsibility for cost management.
Burns and Scapens 2000(a) The advances in IT, and in particular the rise in database systems decentres
accounting knowledge, leading accountants to become more involved in operations
and the provision of a commercial orientation leading to hybrid accountants.
Burrows et al. 2001 IT systems enable operational staff, in this case pilots, to engage in real time cost
management of aircraft operations. It is doubtful whether management accountants
themselves have been prominent in this innovation.
Caglio 2003 The adoption of ERP systems have ambiguous and inconsistent consequences for
accountants. In this case the result was hybrid roles for accountants (encompassing
business management, strategic thinking and IT) and improved recognition for
their expertise.
Quattrone and Hopper 2005 ERP systems have the potential to change the relationship between head office
and scattered subsidiaries. In one case the ERP system left organisational structures
unchanged and incrementally improved prevailing practices of central control. In the
other case the ERP system broke down functional barriers and distances, with information
accessed and input from different locations - ‘everyone is an accountant now’.
O’Donnell et al. 2004 Emerging e-business technologies will impact on the roles of CFOs. Questions
remain as to whether they will gain power or lose out to Chief Information Officers.
Nevries et al. 2008 Management accounting departments are under threat from sophisticated IT
systems and other suppliers, but this study provides evidence that they positively
impact on performance, enabling resistance to this threat.
Problems resulting from the introduction of new systems or IT shortcomings
KPMG/The Institute of Chartered 2001 Although ERP systems are common, many have not been implemented so as to
Accountants in Australia deliver as much business value as they could.
CFO Research Services/ 2002 Inadequate IT systems block finance transformations and finance remains bogged
Capgemini Ernst & Young down by transaction processing.
Granlund and Malmi 2002 ERP systems have not, as yet, had an impact on management accounting, which
continues to operate as a separate system. The reasons seem to be functional/
economic such as integration problems, complexity, modest functionality and
interface problems.
CFO Research Service/Booz 2004 CFOs who are ‘Growth Navigators’ or ‘Execution Maestros’ see outmoded business
Allen Hamilton intelligence, a lack of forward-planning capabilities and fragmented technology as
barriers to achieving their finance goals.

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TABLE A.1.4: IT CONTINUED

AUTHOR DATE FINDINGS
Problems resulting from the introduction of new systems or IT shortcomings
Dechow and Mouritsen 2005 The impact of ERP systems on control systems can create blind spots where they
do not provide coverage. ERP systems are a collective affair, not the property of the
accounting function.
IBM 2005 Structural complexity, fragmented information systems and lack of standardisation
results in ‘various versions of the truth’, with manual data reconciliations and ineffective
use of technology inhibiting finance’s ability to influence decisions and deliver insight.
Deloitte 2008 Lack of up-to-date information for strategic and operational purposes and
inadequate process and data standards are key barriers to improving business
performance. Finance has a key role in overcoming these barriers.
CFO Research Services 2008 Many organisations still wrestle with how to take disparate sources and legacy
systems - sometimes built with 20-year old obscure computer languages, or relying
on manual feeds into a comprehensive database - and improve processes to make
them faster, smoother, and more streamlined.
CIMA 2008 ERP systems have left accountants busy using spreadsheets to format reports and
conduct ad hoc analysis. However, vendors are now overcoming these limitations
which release capacity for accountants to become finance/business partners.
CIMA 2009 Software issues such as out-dated, inflexible and poorly integrated systems
(requiring manual reconciliations) or lack of strategic vision for IT are one of the
main issues confronting the management accounting function.

TABLE A.1.5: SECTOR

AUTHOR DATE FINDINGS
Differences in industry sector impact on how finance activities are implemented, especially Management and Control and
Strategy and Risk
Burchell et al. 1980 The level of certainty over cause and effect arising from sector characteristics will
impact on the role of accounting practice.
Hambrick 1981 Executives had high power if, by virtue either of their functional area or scanning behaviour,
they coped with the dominant requirement imposed by their industry’s environment.
Accounting executives had greater power where cost control was the dominant need.
Goold and Quinn 1990 Managers in businesses that face turbulent and rapidly changing environments may gain
less benefit from strategic controls, than managers in more stable or mature businesses.
Lowry 1993 Management accounting practices differ between the manufacturing and
service sectors. In manufacturing outputs can be quantified whereas services are
characterised by non-standard outputs, non-routine technology and have fewer
repetitive procedures. Therefore services are less susceptible to control through
management accounting.
Chong 1996 Under high task certainty, the use of broad scope management accounting systems
led to effective decisions; under low task certainty it led to information overload.
Brignall 1997 The nature and use of costing and performance management systems should be
contingent on the interaction of competitive environment, chosen mission and
strategy and service process type.
Whitley 1999 Diversity of activities and rate of change impact on how control systems develop.
Spekle 2001 The type of control device that is appropriate depends on the nature of the activities to
be controlled. Activities can be defined in three dimensions – extent of programmability,
degree of asset specificity and intensity of ex post information impact.
Chenall 2003 Three propositions are made, drawn from a review of prior studies, on what
management control system designs are best suited to particular operating
environment characteristics. These are: 1) standard processes lead to
standard controls; 2) task uncertainty leads to more informal controls; and 3)
interdependencies lead to more informal systems.
CFO Research Services/Booz 2005 Sector conditions are a major driver of the CFO/finance team approach required.
Allen Hamilton Mature/high fixed cost sectors need ‘Execution Maestros’; disrupted sectors require
‘Turnaround Surgeons’; high-growth, high-margin sectors require ‘Growth Navigators’;
and sectors subject to major market changes require ‘Business Transformers’.
Deutsche Bank 2006 The finance function adds most value in high growth, non-investment grade companies.
Zoni and Merchant 2007 Controller involvement in decision making is positively related to some situational
variables, including capital intensity, operating interdependency, line managers’
financial competence and formalisation of strategic planning and budgeting processes.

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TABLE A.1.5: SECTOR CONTINUED

AUTHOR DATE FINDINGS
Differences in industry sector impact on how finance activities are implemented, especially Management and Control and
Strategy and Risk
Abdel-Kader and Luther 2008 Greater sophistication in management accounting is significantly related to greater
environmental uncertainty, customer power, decentralisation and size and the use of
Advanced Manufacturing Technology, Total Quality Management and Just-In-Time.
Yang 2008 Organisations mimic their peers in their adoption of different work systems.
Mckinsey 2009 CFOs in manufacturing are significantly more likely to be ‘value managers’
than those in the financial services industry, where finance staff focus more on
transactions.
CIMA 2009 On average the manufacturing and financial services sectors use more management
accounting tools than other service sectors and the public sector.
Bhimani and Bromwich 2010 For internet businesses based on generating advertising revenues, income and
cost dynamics will be significantly different from more traditional businesses.
Management accountants will have a role to play in analysing plausible revenue
opportunities that are dissociated from the underlying product.

TABLE A.1.6: ACCOUNTING REPRESENTATION

AUTHOR DATE FINDINGS
Financial information and accounting reports can only ever provide a partial representation of organisational reality
Accounting reports are based on uncertain assumptions about both future outcomes and the appropriateness of income and
cost allocations
Morgan 1988 Accountants typically construct reality in one-sided ways. The idea of objectivity
in accounting is largely a myth and stands in the way of future interesting
developments in the discipline.
Phelan 1997 Financial techniques based on assumptions about the future are unreliable as the
future is uncertain. They need to be supplemented by management judgement and
strategic thinking.
McSweeney 2000 Accounting reports are dependent on assumption as to the future.
Mattessich 2003 Accounting statements cannot be inherently true in a positivistic sense, as they are
irredeemably dependent on subjective allocations to periods.
Lindsay 2007 More complex financial instruments make it difficult to give an accurate picture of
the organisation and establish performance indicators.
Smith 2007 Validity of reporting is inherently uncertain due to period allocation, cost centre
allocation and recognition issues.
Moore 2009 The inherent paradoxes and limitations of accounting mean that it is not possible
to express an economic reality via bottom line based measurements - the
interdependent nature of phenomena precludes perfect measurement.
Priddy 2010 Even the most rudimentary set of financial statements is shot through with
assumptions about the unknowable future. Companies’ accounts are prepared
on a going concern basis. This feeds into assumptions about provisions and
impairments, useful economic lives, the value of long-term contracts and work
in progress, and most controversially into post-retirement benefits. All these
assumptions are based on the centrality and the dangerous simplicity of a
compounded and discounted future.
Finance functions differ in the ways that they apply accounting standards and make organisationally specific assumptions to
create a working certainty
Hines 1988 By communicating financial accounting reports as a reality, reality is created.
Macintosh et al. 2000 Accounting has become hyperreal and self-referential. However it does impart
some element of exogeneity and predictability, and can therefore be relied on for
real consequences.
Wouters and Verdaasdonk 2002 Accounting provides a common quantification measure of information for decision
making although it loses the richness of operational knowledge.
Mouck 2004 Accounting standards are akin to the rules of a game – therefore by implication
accountants must know how to play the game. Accounts can only give fuzzy
indicators of wealth and changes in wealth. The standard-setter has therefore to
be constantly amending rules to keep accounting reporting within the bounds of
acceptable perceptions of reality.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE A.1.6: ACCOUNTING REPRESENTATION CONTINUED

AUTHOR DATE FINDINGS
Finance functions differ in the ways that they apply accounting standards and make organisationally specific assumptions to
create a working certainty
Andon et al. 2007 Accounting inscriptions are fabricated through situated and experimental means.
Accounting as a ‘knowledge object’ is inherently unsettled, reflecting partial and
changing ‘ontologies’, reshaped by the variegated and shifting collectives of
elements tied to it.
McKernan 2007 Accounting inquiry can and ought to be maintained as a form of truth seeking;
but the pursuit of objective truth in accounting needs to be grounded in
intersubjectivity, in communication between subjects relating to a shared world, it
cannot be divorced from the political, from human interests and needs.
Smith 2007 The profit goal can provide a unified corporate objective and performance
measure.
Oracle 2008 (a) The concept of ‘one version of the truth’ is a myth, as the ‘truth’ is dependant on
context. Generally, information is aggregated vertically, up the organisational
structure, thus moving through a range of contexts, leading to information
that cannot be reconciled or compared. The solution is to look at information
horizontally, thus making its use context specific.
Hall 2010 Managers primarily use accounting information to develop knowledge of their work
environment and it is just one of many information sources. It is primarily through
talk rather than written reports that accounting information becomes implicated in
managerial work.

TABLE A.1.7: MANAGEMENT AND CONTROL TECHNIQUES

AUTHOR DATE FINDINGS
How Management and Control activities are implemented is strongly impacted by the type of technique used to analyse,
project and report financial information. Two key themes emerge:
The type of technique used impacts on how Management and Control activities operate
Robins and Foster 1957 Use of management accounting techniques (eg, break-even) can help profit
planning.
Johnson and Kaplan 1987 Management accounting techniques have developed over time in response to
specific industry factors and historical developments. Producing management
accounts based on Financial Reporting requirements can lead to them being
inappropriate. Accounting systems are required to support three functions: 1)
external financial reporting; 2) short-term operational control; and 3) long-term
product costing.
Miller and O’Leary 1987 Budgeting and standard costs emerged in the early 20th century as the accounting
representation of the scientific management philosophy, which treated the
individual as a governable person.
Fleischman and Parker 1990 Cost accounting developed as a discipline in early capitalism covering expenditure
control, department cost management, overhead allocation, cost comparison, costs
for decision making, budgeting, forecasting and inventory control.
Drury and Tayles 1995 The rock of management accounting practice is financial accounting based monthly
accounts. Full absorption costing is widely used for decision making – but its validity
for this purpose is often not checked.
Horngren 1995 There have been three noteworthy developments in management accounting in
the last 30 years – contribution reporting, zero-based budgeting and Activity Based
Costing (ABC). But the search for cost systems that link cause and effect is never-
ending. There are also trade-offs between desires for simplicity and the need to
deal with complexity.
Drury and Tayles 1997 Survey evidence suggests that many companies use the same inventory valuation
methods for financial and management accounts, even though this does not
provide the most appropriate internal analysis measure. A key reason for this is that
companies want internal accounts to be congruent with external reporting.
Freidman and Lyne 1997 The advent of activity-based techniques has the potential to improve the
operational usefulness of information provided by management accounting.
This could lead to either management accountants becoming more business
oriented or, if the techniques are assimilated by other disciplines, being displaced
by non-accountants.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE A.1.7: MANAGEMENT AND CONTROL TECHNIQUES CONTINUED

AUTHOR DATE FINDINGS
The type of technique used impacts on how Management and Control activities operate
Chenhall and Langfield-Smith 1998(a) There are a large array of management accounting techniques available with
variations in their use and perceived benefits.
Miller 1998 Accounting is an assemblage of calculative practices and rationales that were
invented in other contexts and for other purposes. Practices that are now regarded
as central to accounting were at the margins previously and practices that are at the
margins today may be at the core of accounting in the future.
Zimmerman 2001 The empirical management accounting literature has failed to produce a
substantive cumulative body of knowledge.
Colwyn Jones and Dugdale 2002 ABC is an example of how new management accounting ideas are developed by
management knowledge entrepreneurs. These ideas may not be intellectually
coherent and therefore dissolve into a melange of competing and contradictory
practices.
Meyer 2002 Activity-based profitability analysis is the best measure of organisational
performance, as it overcomes the problems of multiple, often contradictory
non-financial measures.
Ezzamel and Burns 2005 Evidence of how tensions arose between finance managers and buyers/
merchandisers, as a consequence of the attempted introduction of Economic
Value Added in a major retailer.
Boyns and Edwards 2007 Calculative techniques have been used for centuries for planning, decision making
and control. However, the precise nature of the accounting tools and techniques
has changed dramatically over the years.
CFO Europe Research 2007 One factor hindering the progress of finance professionals towards a business
partnering role may be the diversity of management information required by
decision makers.
Sorenson 2009 The use of ABC, strategic management accounting and balanced business
scorecards have facilitated the involvement of accountants in multiple perspectives
of performance management.
Some organisations have developed greater integration of financial and non-financial measures with the aim of improving
performance
Johnson 1992 Non-financial performance indicators need to replace accounting as the main
information source and need to be provided real time to people who carry out
operational actions.
Agrawal et al. 1998 Cost management systems must meet two objectives – beat global competition
and continuously improve. A comprehensive system will include ABC, Total Quality
Management, Just-In-Time and process improvement.
Nilsson and Rapp 1999 Introduction of flow-oriented production reduced the need for planning and
coordination. Great emphasis was placed on simplifying the control system and on
using non-monetary information instead. This was partly because control systems,
structured exclusively around monetary data, are less reliable in an environment
characterised by uncertainty.
Ambler 2000 Marketing metrics are a mix of financial and non-financial information. The only
department that can realistically integrate the two is finance, except for large
companies with specialised departments.
Lillis 2002 The difficulty in designing completely integrated financial and non-financial
performance measures inhibits the effectiveness of a PMS as a facilitator of
strategy implementation.
Busco et al. 2006 (a) Implementation of non-financial performance measures (six sigma) was linked to
business financials and reinforced organisational alignment.
Fullerton and Kennedy 2008 The use of lean accounting techniques led to changes in the content and impact
of finance activities. This included using a greater number of lean tools, having
more cross-trained work teams, using more visual presentations of performance on
the shop floor, streamlined accounting processes and less tracking of labour and
overhead allocations.
De Geuser et al. 2009 Evidence that the balanced scorecard has a positive impact on organisational
performance. This is achieved through a better translation of strategy into
operational terms; the fact that strategising becomes a continuous process and
the greater alignment of various processes, services, competencies and units of
an organisation.

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TABLE A.1.8: REGULATION

AUTHOR DATE FINDINGS
Compliance activities are directly driven by external regulation, with a knock-on impact to other, interconnected finance activities.
The weight of regulation determines the significance, complexity and technical requirements of Compliance activities
Sathe 1983 The finance function has responsibility for ensuring compliance with designated
policies, procedures and standards dictated by the requirements of governmental
agencies and regulatory bodies, in addition to the business support role.
ICAEW 1993 The weight of corporate governance adds to complexity.
Sheridan 1998 Regulation is one of the major drivers of change in the finance function.
Ernst & Young 2003 Increasing demands from shareholders, non-executives, regulators and
governments, including the introduction of Sarbanes Oxley (SOX) and Higgs
and Smith, are critical challenges for the finance function.
FEI Canada 2005 In 2005 compliance was regarded as the top challenge by survey respondents
although it was not expected to be so in three years time.
Ernst & Young 2006 Corporate governance has been the main driver of change in the CFO’s role over
the past five years.
Mercer 2006 SOX has increased regulatory demands. Regulatory changes have made the
CFO’s relationship with auditors more difficult and the interaction with boards
more intense.
CFO Research Services/SAP 2007 Finance is pulled in two directions - regulation on one side and competition and
investor expectations on the other. It has to respond to both pressures.
Deloitte 2007 The rising number of financial restatements means finance departments become
heavily focused on accounting, reporting and regulatory compliance.
Capgemini 2008 Corporate governance continues to be of key importance.
Ernst & Young 2008 Factors most contributing to the changing role of the CFO are increasing
regulatory requirements, expectations from board and audit committees, corporate
governance obligations and risk management.
Moreover financial scandals increase the focus on its importance
BIC 1992 The importance of corporate governance has been heightened due to rise of
shareholder activism (especially in the US), furore over executive compensation,
the cosy relationship between management and bankers, poor profit performance
in many companies and the desire to overcome short-termism among many
managers. Responses include strengthening the investor relations department and
audit committees, and engaging with key shareholders.
CFO Research Services/ 2002 Accounting scandals and recession drive focus on reporting accuracy.
Capgemini Ernst & Young
EIU 2006 Compliance is a long-term challenge and very time-consuming. Corporate scandals
have led to investors requiring more CFO time.
KPMG/The Institute of 2007 The CFOs increasing focus on strategy was interrupted by the impact of Enron,
Chartered Accountants in which forced CFOs to focus on stewardship. 2007 saw a more balanced position
Australia developing with an equal focus on stewardship and strategy development/value
adding functions.
KPMG 2008 Enron caused greater emphasis on controls and risk management.
Regulation feeds through to impact on Management and Control and Accounting activities
Johnson and Kaplan 1987 The need to produce external reporting that meets financial accounting
requirements is a major driver of management reporting practices.
CFO Research Services/SAP 2007 Regulatory pressures, especially SOX, push the finance department towards more
rigour in controllership and financial reporting.
There is some pressure for finance professional to work on broader regulatory issues including sustainability
Ezzamel et al. 1997 Accounting’s increasing involvement in non-financial information flows, coupled
with increasing financial awareness in other specialisms, will begin to threaten
accounting as a distinctive function. Yet paradoxically, its success within the new
game depends on its ability to maintain such an identity which, of course, remains
founded on its external reporting role.
KPMG/The Institute of 2001 Finance professionals need to monitor and respond to growing concern over the
Chartered Accountants in natural environment which may lead to changed investment criteria, new reporting
Australia content (triple bottom line) and new green taxes.
ACCA 2007 Greater stakeholder scrutiny expands the role of CFO further into ethical and
governance issues.

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TABLE A.1.9: PROFESSIONALISATION OF ACCOUNTING

AUTHOR DATE FINDINGS
The accounting profession can play an influential role on finance activities. Specifically:
In some parts of the world the implementation of finance activities is strongly influenced by the training standards and ethics
required by professional bodies to which a large proportion of finance executives belong
Armstrong 1985 Accountancy, as a broad range of subjects and technologies, has a heavy
representation at key decision making levels. This is partly the result of efforts by
the accounting profession to achieve managerial ascendency in competition with
other professions. However, in Germany and Japan accountants are less numerous
and less senior in management hierarchies.
Loft 1986 Accounting developed as a profession with ICAEW establishing itself towards the
second half of the 19th century. Professionalisation was transferred into internal
management accounting with the foundation of CIMA after World War I. In the
UK accounting is carried out by professional accountants with allegiances to their
professional associations as well as to their employers. The professional bodies
are closely involved with the creation of management accounting as it is.
Whittington and Whipp 1990 The finance profession was successful, relative to marketing and engineers, in
developing a professional apparatus capable of conferring both technological
competence and ideological credibility.
Matthews et al. 1998 In the UK accounting qualifications have been the dominant professional
preparation for a career in business.
Jackson 2004 ICAEW fundamental principals are – integrity, objectivity, competence,
performance, courtesy.
International Federation of 2005 A professional accountant in business must be committed to integrity and ethics.
Accountants
IMA 2008 Management accounting is a professional discipline integral in formulating and
implementing an organisation’s strategy.
Anderson and Walker 2009 Organisations such as ICAEW became significant players on the British professional
scene and were to exert considerable influence on the development of accountancy
institutions and professional ideologies in several locations.
The accounting profession has consolidated and continues to expand its influence and impact
Granlund and Lukka 1998 Management accounting professionalisation and university teaching and research
drives convergence of practice.
Lambert 2002 Professional qualifications are essential for a career in finance.
Fogarty et al. 2006 Professionals can seek to expand their domain of practice beyond the limit of their
technical competence.
Professional Oversight Board 2006 Membership of UK based professional accounting bodies expanded between
2000 and 2005 with women making up an increasing percentage of members.
Chen and Chan 2009 The public accounting profession has gradually come to play an important and
indispensable role in China’s fast-growing economy.
Spada 2009 The professions, including accounting, are vital to the UK economy.
Conversely, there are challenges from rules based regulation and greater attachment to employers rather than the accounting
profession
Cohen et al. 2002 Relationship between professionals and the organisation they work for are complex
and changing.
ACCA 2008 Increased regulation may see the demise of professional judgement in favour of
rules based regimes.

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 THE FINANCE FUNCTION: A FRAMEWORK FOR ANALYSIS

TABLE A.1.10: OWNERSHIP

AUTHOR DATE FINDINGS
Owners and those who hold an organisation accountable have a significant impact on how all finance activities are
undertaken. Specific aspects include:
Pressure to meet and manage financial expectations
Demirag 1995 CFOs perceive that capital market pressures are increasingly directed to short-
term performance evaluation, but also do not seem to believe that their companies
behave in a short-term manner.
EIU 1997 The potential of global opportunities makes investors drive for better profitability
and finance functions must respond.
Grinyer et al. 1998 The emphasis placed by the capital markets on reported earnings make many of the
CFOs of large UK companies short-termist in their perceptions and behaviours.
Froud et al. 2000 Institutional investors are not all the same. Venture capitalist and break-up
specialists focus on the short term while pension funds and insurance companies
pursue predictable medium-term flows. The gap between investor expectations and
what management can deliver leads to change.
CFO Research Services/ 2002 CFOs have to deal with demands for organisations to make immediate returns
Capgemini on investments and do much more with less. They need to reduce transaction
Ernst & Young processing costs while increasing the effectiveness of decision support and
strategic activity.
Zorn 2004 Over the period of 1963 to 2000 the influence of the CFO has risen in US firms.
Originating as part of the conglomerate ideal to handle the funding of diversifying
acquisitions, via being the solution from 1979 for responding to earnings
threatening changes to accounting standards, to a continually expanding role
focussing on managing shareholders and stock prices.
Mercer 2006 Capital market demands have intensified requiring greater CFO engagement with
investors.
Sawyers 2008 Pressure from the City to provide explanation of the numbers is becoming very
time-consuming.
The degree of owner intervention on finance activities varies
Hopwood 1987 The approach and strategic intent of owners impacts on the ways that accounting
activities and roles develop.
Whitley 1999 Shareholder lock-in and the degree of owner management impact on how control
systems develop.
Collier 2005 Social control of the owner-manager is crucial in the development and operation of
a control system.
Davila 2005 The existence of outside investors will be a driver of the emergence of a
management control system.
CFO Research Services/SAP 2007 Higher expectations from investors, together with competitive pressures and line
manager demands, pull finance executives towards a more active role in setting,
validating, overseeing and ensuring execution of business strategy.
The impact of a change in ownership
Jones 1985 The use of accounting controls post acquisition had a major impact on the
operation of the acquired company. Inappropriate change such as overly
formal budgeting procedures and a focus on internal information, as opposed
to external relationships with stakeholders such as banks, caused considerable
undesirable effects.
Euske and Riccaboni 1999 Evidence on how with a change of ownership existing systems can be used
to meet different ends.
Nilsson and Rapp 1999 Pressure to improve profitability following an acquisition led to changes in
management control systems.
Busco et al. 2006 (a) When the new owner drove change through the accounting system, its utility
was dependent on ensuring the new systems were trusted.
Deloitte 2007 CFOs are now more involved in navigating key strategic events such as mergers and
acquisitions. This, together with a rising number of financial restatements, means
CFOs are having to rethink their role especially in terms of how risk is managed.
Nor-Aziah and Scapens 2007 Evidence of how management accounting change triggered by a change in
the type of public ownership met resistance. The accounting changes became
separated from and only loosely coupled with other organisational changes.

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TABLE A.1.10: OWNERSHIP CONTINUED

AUTHOR DATE FINDINGS
The impact of public sector accountability or charitable status
Audit commission 2005 The public sector faces a changing and complex operational environment and,
given the special accountabilities attached to the stewardship and use of public
money, all public bodies need to rise to the challenge of improving financial
management.
Oracle 2008 Public sector organisations are subject to many of the same drivers as the private
sector. However, of particular note are increasing public expectations and
government initiatives to tighten financial control, improve financial management
and promote partnership working.
CIPFA 2009 The public sector needs influential, qualified finance directors to ensure public
sector resources are used wisely.

TABLE A.1.11: SIZE

AUTHOR DATE FINDINGS
An organisation’s size has a significant impact on how finance activities are implemented, specifically:
Larger organisations tend to have more sophisticated and formalised management and control systems, with the greater use
of specialists
Chandler 1977 Large scale businesses developed because administrative coordination
mechanisms (including accounting processes), permitted greater productivity,
lower costs and higher profits than coordination by market mechanisms.
Sathe 1983 With increasing size and business complexity, the importance of the specialist’s
contributions to the business decision making process is increasing.
Johnson and Kaplan 1987 Accounting procedures which enable centralised control with decentralised
responsibility were essential to the performance of large firms adopting
multidivisional structures after the 1920s.
Moores and Yuen 2001 The movement through organisational life cycles (birth, growth, maturity, revival,
decline) impacts on the formality of management control systems.
Chenall 2003 Large organisations are likely to have more formalised management control
systems, divisional structures and more sophisticated controls.
Cao et al. 2005 In China there is a significant correlation between organisational size and the
number of accountants employed.
Davila 2005 Size will be a driver of the type of management control system that develops.
In smaller organisations finance staff may have broader responsibilities and finance activities will tend to be less complex
Hussain et al. 1998 Small companies in Finland did not have effective management accounting
systems and did not pick up on new techniques such as ABC.
Greenhalgh 2000 This case shows an SME continuing to cope with the increased complexity of
transnational expansion by using a simple, traditional accounting system.
The approach seemed to be cost-effective without any adverse effects.
Berry et al. 2002 Suggests that there is patchy use of management and control information in
UK SMEs.
International Federation of 2008 In SMEs finance executives typically have HR and other multi-functional
Accountants responsibilities.
However, the specific impact of size is not always clear because of its interaction with other drivers
Child 1973 The impact of size needs to be considered in relation to technology, location,
environmental variables and complexity to draw meaningful conclusions.
Although size is the major predictor of formalisation.
Deloitte 2000 Findings varied little between FTSE-100 to small capitalisation quoted companies
on how CFOs see their current role, and how it will change over five years.
Abdel-Kader and Luther 2007 Differences in management accounting sophistication are significantly explained
by size, as well as environmental uncertainty, customer power, decentralisation,
Advanced Manufacturing Techniques, Total Quality Management and Just-In-Time.
Cadez and Guilding 2008 There are no universally appropriate strategic management accounting
applications, as they depend on a range of complex factors including size, strategy
type and market orientation.
Dossi and Patelli 2008 Evidence that subsidiary participation, cultural tolerance for uncertainty, subsidiary
size and global pressure give PMS a greater influence on decisions.

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TABLE A.1.12: STRATEGY

AUTHOR DATE FINDINGS
Strategic focus drives how finance activities are implemented especially Management & Control. More specifically:
The compatibility of strategy with management and control practices is generally believed to be beneficial to organisational
performance
Bruggeman et al. 1988 Management control systems should be compatible with strategy in order to
be effective.
Chenhall and Langfield-Smith 1998 Some evidence that organisational performance is positively related to
management accounting practices and management techniques that are consistent
with strategic priorities.
Otley 1999 Performance management systems should include five integrated elements –
objectives, strategies and plans for their attainment, target setting, incentive and
reward structures and information feedback loops. Different types of organisational
plans and strategies will tend to cause different control system configurations.
Neely et al. 2001 The major value in redesigning planning and budgeting processes comes from
ensuring they are aligned with strategy.
Chenall 2003 Propositions include:1) defender strategies are associated with traditional, formal
management control systems; 2) a competitor focussed strategy is associated with
broad scope management control systems; and 3) an entrepreneurial strategy is
associated with formal management control systems but organic decision making.
Capgemini 2007 The finance department must take a lead role by identifying the drivers of real
value and embedding the relevant metrics in the organisational structure.
Hyvönen 2007 Fit between customer-focused strategy and financial performance measures
improves customer related performance (eg, market share).
Cadez and Guilding 2008 There is no universally appropriate strategic management accounting application –
it depends on a range of complex factors including strategy.
However aligning management and control practices and strategy can be challenging
Langfield-Smith 1997 A review of the literature indicates that knowledge of the relationship between
management control systems and strategy is unclear.
Cooper and Kaplan 1998 Operational control systems and ABC systems have fundamentally different
purposes. Operational control systems provide information about process
efficiencies; ABC about underlying economics of the business.
Malmi and Ikaheimo 2003 A value-based management strategy was found to be just rhetoric in some
organisations, whereas in others it impacted both decision making and control
systems, taking various forms from one firm to another.
Henri 2006(a) Interactive performance management systems stimulate strategy development,
whereas diagnostic performance management systems can hinder it. Working in
parallel they can provide dynamic tension.
Management and Control feedback can become embedded in strategy development
Snow and Hrebiniak 1980 Defenders, prospectors and analysers all show competence in general and financial
management.
Hitt et al. 1982 The primary, top level organisational strategy significantly influences the relative
importance of certain organisational functions. Finance tends to be strong when
firms pursue acquisitive growth, stability or retrenchment and less strong when
pursuing internal growth.
Fligstein 1987 Between 1954 and 1979 finance personnel have become increasingly dominant
as top managers. This was because of changes in the strategy and structure of
organisations, changes in anti-trust laws that promoted unrelated mergers and
the mimicking of firms in similar environments.
Colignon and Covaleski 1993 Evidence of how accounting practices are part of the strategic control system;
they interpret the environment, and direct the adaptation of the organisation in a
manner particular to the interests of corporate decision makers.
Naranjo-Gil and Hartmann 2007 The use of management accounting systems partially mediates the relationship
between top management team heterogeneity and strategic change.
Aernoudts et al. 2008 A wide range of studies provide evidence of the interplay between management
control systems and strategic development.

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TABLE A.1.13: ORGANISATIONAL STRUCTURE

AUTHOR DATE FINDINGS
Organisational structure is intertwined with how finance activities are undertaken. Specifically:
Organisational structure influences and is influenced by finance activities.
Hopper 1980 Organisational structure impinges directly on the quality, methods and usage of
management accounting. There may be benefits relating to decentralisation of the
finance function, although this must be balanced against the additional cost and
loss of hierarchical control.
Hopper 1980(a) Decentralisation was associated with greater interaction between accountants
and other managers and with the provision of accounting information perceived
as more pertinent to managerial needs. However, the accountants’ passivity in
management was criticised under both centralised and decentralised structures.
Dearden 1987 Profit performance control must focus on monitoring what managers can influence.
Chenall 2003 Propositions include that team-based structures are associated with participation
and comprehensive performance measures used for compensation, and that
organic organisational structures are associated with future oriented management
control systems and activity-cost analysis.
Gerdin 2005 Some evidence that management accounting system design is adapted to fit
organisational structure and departmental interdependencies.
CFO Europe Research 2007 Organisational complexity (eg, different reporting lines and different product lines)
are a big barrier to producing good management information.
Abdel-Kader and Luther 2008 Differences in management accounting sophistication are partly explained by the
level of decentralisation.
Organisational structure influences and is influenced by finance activities
Chenhall 2008 Move to horizontal organisational structures provide both opportunities and
challenges for management accounting techniques.
Miller et al. 2008 Accounting and risk management is impacted both by evolving organisational
hybridisation (defined to include organisational forms, practices, processes and disciplines)
and the hybridisation of accounting techniques through encounters with other disciplines.
Departmental structures influence the degree and nature of collaboration and conflict between finance and other functions
Landsberger 1961 Dilemmas faced by organisations result in conflicts between departments.
Departments tend to take a stand on one side of dilemmas including flexibility
versus stability, short-run versus long-run considerations, emphasis on the clearly
measurable versus the intangible and emphasising economic results versus
non-economic values.
Ruekert and Walker 1987 The effectiveness of relationships between departments and the level of conflict depend
on a range of factors including overlaps in responsibilities and objectives, the nature of
communication, formal rules and procedures and conflict resolution mechanisms. One
specific finding was that marketing departments perceived the relationship with the
accounting department as positively related to the amount of conflict, possibly because
they obtain a greater share of resource allocation by taking a hard line.
Lascu et al. 2006 The level of connectedness (sharing of responsibilities and information)
between finance, marketing, production and research departments is positively
associated with firm performance. US companies showed more interdepartmental
connectedness than Polish ones.
One possible tendency is closer involvement of finance staff with operational activities
BIC 1992 Concern with finance efficiency leads to use of systems based solutions together
with elimination of unnecessary work and the devolution of certain responsibilities
to finance functions within operating units.
Burns and Scapens 2000(a) Organisations with process structures use cross-disciplinary teams with hybrid
accountants who encompass accounting knowledge and an in-depth understanding
of the operating functions or commercial processes of the business.
Maas and Matejka 2009 Emphasising the corporate control responsibilities of business unit controllers is
negatively associated with their ability to support local decision making. In addition
the role conflict and stress caused by this focus may lead to an increased tolerance
of data misreporting.
Bhimani and Bromwich 2010 IT developments are driving the development of new flexible and fluid organisational
structures and business models operating on a global scale. Management
accountants can respond by moving to being business partners and working closely
with the business to understand enterprise technology and marketing strategy.

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TABLE A.1.13: ORGANISATIONAL STRUCTURE CONTINUED

AUTHOR DATE FINDINGS
Financial incentives influence the behaviours of those carrying out finance activities
Kerr 1995 Reward systems have a major impact on behaviour. However, organisations often
reward inappropriate behaviours rather than those they wish to encourage.
Gillet and Uddin 2005 Compensation structure that is more performance related is not a good indicator
of CFO intentions to report fraudulently.
Pfeffer and Sutton 2006 Financial incentives have a powerful impact on organisational performance –
positive and negative. This results from motivating functional or dysfunctional
behaviours, attracting or repelling appropriate/inappropriate staff and providing
information on the values and priorities of an organisation.
PwC 2008 Bonus structures in financial services finance departments often reward the solving
of immediate problems which fosters a ‘fire-fighting’ approach rather than the
development of long-term solutions. Where finance department rewards are
linked to the performance of front office teams this can lead to an inherent conflict
of interest in which finance professionals may not want to challenge revenue
generators.
Indjejikian and Matejka 2009 Between 2003 and 2007 public companies mitigated misreporting practices in
part by reducing the percentage of CFO bonuses tied to financial performance.
Outsourcing and shared service centres have a specific impact on how finance activities are implemented
KPMG 1998 The responsibility for finance activities may move outside of the finance department
with transaction processing and specialist roles being outsourced while decision
support is integrated into the business.
Kulmala et al. 2002 Outsourcing eg, of manufacturing, places additional pressures on accounting to
achieve consistency of cost calculations in order to gain the benefits of open book
accounting.
EIU 2006 Shared service centres, not outsourcing, is likely to be the way forward for finance
departments.
Capgemini 2008 The establishment of shared service centres in the finance and control function will
strengthen the position of the CFO.
CIMA 2008 The use of shared service centres - often offshore - to reduce the cost of transaction
processing is widespread. Some organisations use business process outsourcing to
improve efficiency.

TABLE A.1.14: PEOPLE

AUTHOR DATE FINDINGS
The knowledge, skills, interests and attitudes of finance staff and their relationship with staff in other functions impact on
how finance activities are implemented. The following themes emerged:
The skills of staff play a major part in determining the effectiveness of finance departments
Simon et al. 1954 In the long run, the degree to which finance departments take on broader
responsibilities will depend on their ability to attract people of superior
competence.
EIU 1997 The drive to transform finance, leverage new technology and acquire new
capabilities places a premium on staff skills.
Cooper and Taylor 2000 The work of clerical accountants has become increasingly deskilled in accordance
with scientific management principles. The trend may also start to impact on more
senior roles.
KPMG/The Institute of 2001 Accountants need to upgrade their skills to enable them to take on additional
Chartered Accountants in responsibilities.
Australia
Bunderson and Sutcliffe 2002 Functionally diverse management teams where each member has a broad range
of functional experiences share information and perform better than teams where
members are more specialised.
Bunderson 2003 A functional background that provides valuable expertise and is similar to the
functional backgrounds of other team members will be associated with centrality
in a team’s workflow and involvement in team decision making. However power
centralisation will be a critical moderator of decision involvement.
International Federation of 2005 Professional accountants in business need a deep understanding of corporate
Accountants finance, economics and accounting.

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TABLE A.1.14: PEOPLE CONTINUED

AUTHOR DATE FINDINGS
The skills of staff play a major part in determining the effectiveness of finance departments
Deutsche Bank 2006 Finance staff provide good execution in bank relationships, debt issuance, capital
structure and investor relationships. However, less well executed are working
capital management, decision support and risk management.
Mercer 2006 Increased pressures and complexity mean that CFOs need to expand their skill sets
and many organisations are looking outside to fill the top financial role.
ACCA 2007 The top skills required for finance leaders are strategic and business insight,
regulatory knowledge and change management.
CFO Research Services/SAP 2007 Twin pressure for commercial performance and regulatory compliance push the
need for new and different skills in the finance function.
Smith 2007 In assessing staff performance there is uncertainty in determining the extent to
which the level of performance achieved was a consequence of the skill of the
staff or the nature of the task.
CIMA 2008 The key to business partnering is financial expertise and analytical rigour, not an
ability to provide expertise in other disciplines. Finance can provide both qualitative
and quantitative management information.
KPMG 2009 Skilled finance professionals are required to interpret and make effective use of
business intelligence.
However, attracting appropriately skilled staff can be difficult
Sathe 1983 There is an inherent tension between the controller’s responsibility to ensure
compliance versus contribution to decision making. Relatively few individuals have
the skills and judgement necessary to deal with this effectively.
Pierce and O’Dea 2003 Evidence of a perception gap between management accountants and managers.
For example accountants may focus too much on technical validity rather than
organisational relevance. Some accountants were able to balance the simultaneous
need for independence and involvement but this remains challenging.
Hoffjan 2004 Evidence from a survey of advertisements that in the German context management
accountants are portrayed as specialists focused on cost savings. They are well
organised but inflexible, passive and uncreative.
EIU 2006 Finance faces a skill crunch - recruiting skilled staff is the key obstacle to
transforming the finance function.
Deloitte 2007(a) People from financial planning and analysis backgrounds are sought after but
difficult to find.
ACCA 2008 A scarcity of skilled finance professionals means there is a need for organisations
to develop talent management programmes.
Accenture 2008 Attracting and retaining finance function talent is a major challenge.
Ernst & Young 2008(a) Recruiting skilled finance staff is the main challenge for finance functions.
Baldvinsdottir et al. 2009 The image of the accountant, as depicted by accounting software adverts,has changed
from the 1970s to date through the following stereotypes - from a responsible person
to a rational person, a communicating person, an action man, a follower of the
instructions of management gurus, a person giving up control and a hedonistic person.
CIMA 2009 Issues facing the management accounting function include a shortage of skills in
finance and other departments and a lack of investment in finance. There is also a
lack of understanding about the contribution of management accountants, both
from the accountants themselves and from users.
Ernst & Young 2010 CFOs’ grasp of the finance fundamentals and their management strengths lead to
expanding roles. However, this increases the possibility of conflicts of interest for
example the need to be the objective voice and to win resources for operational roles.
In addition the sheer demands on the role can restrict the strategic input of CFOs.
Finance departments can play a major part in shaping their own role
Robins and Foster 1957 The controller’s role has risen in importance due to the willingness of the controller
to assume interpretive responsibilities.
Ezzamel et al. 1997 Accountants adapt to the influence from other disciplines by showing how
accounting is critical in the implementation of alternative expertise most notably
with respect to IT.
Chapman 1998 Accounting is an ongoing process not a collection of techniques. Therefore the
individuals involved in these processes have a substantial role in shaping them.

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TABLE A.1.14: PEOPLE CONTINUED

AUTHOR DATE FINDINGS
Finance departments can play a major part in shaping their own role
Burns and Scapens 2000(a) More pro-active management accountants are emerging who increasingly become
part of the management team within a business process.
Seigel et al. 2003 The achievement of business partnering has to be pro-actively driven by finance
staff and requires expert accounting skills, excellent interpersonal skills and an
understanding of business.
Capgemini 2007 For success in an uncertain and complex business environment, CFOs and their
finance functions must take hold of their own destinies and define their own futures.
Against the backdrop of fluctuating economies, unstable currencies, and the
continued burden of compliance this is not easy.
Baxter and Chua 2008 Theoretical and practical evidence of how a CFO uses an approach perceived as
different to a typical CFO and yet mobilised technical accounting practices to shape
his role and build influence.
However, top management teams also play a key role in how finance activities are carried out
Chaganti and Sambharya 1987 Evidence from the tobacco industry that the profile of an organisation’s top management,
including their functional background, will impact on the strategy orientation of an
organisation. Those pursuing a defender strategy tend to have relatively more executives
with a finance background than those with prospector or analyser strategies.
Finkelstein 1992 Top management teams with functional backgrounds in finance are associated with
diversification and acquisition activity. This may be because they lack operational
experience but are adept at carrying out deals, achieving financial synergies and
building the necessary capital structure. Indeed, the managerial job in a diversified
organisation may resemble that of managing a financial portfolio.
Houghton and Neubaum 1994 Top managers functional experiences influence their belief structures and the
strategic issues they identify.
Melone 1994 CFOs tend to be less optimistic than Corporate Development Executives in assessing
potential acquisition targets. In addition CFOs place more weight on financial matters
whereas Corporate Development Executives balance strategic and financial considerations.
Amason 1996 Diversity in top management teams may lead to decision making benefits where different
perspectives result in cognitive conflict but not if affective (emotional) conflict arises.
Euske and Riccaboni 1999 The role of the CEO was possibly the fundamental element in how the management
control system was used and evolved in an Italian bank.
Bruce/International 2002 In interviewing 10 CFOs it was always information, its uses and power, which lay at
Federation of Accountants the heart of what they were saying. The pivotal role of the CFO would remain and
the relationship with the CEO would be at the heart of that - whether as restraining
influence, guardian of the corporate conscience, or as the real strategist behind the
boards plans.
Malmi and Ikaheimo 2003 The power of the Value Based Management (VBM) champion may determine how
it is adopted. In one case where VBM was suggested by the CFO others were not
very appreciative and VBM did not penetrate as far down the organisation when
compared to a case where the CEO was a strong supporter.
Davila 2005 A replacement to the founder CEO drove the development of management control
systems - in effect replacing an entrepreneurial approach with a professional
management approach.
Davila and Foster 2005 For growing companies the hiring of a financial manager and the adoption of
management accounting systems are associated with CEOs with more years of
work experience and who value planning, as well as with larger companies and
companies with external investors.
Canella et al. 2008 Top management teams whose members have a wide range of functional experience
positively impact firm performance. This impact increases as the proportion of staff
with offices in the same location increases and environmental uncertainty increases.
CIMA 2009(a) Business leaders should consider what role they would like the finance function
to play. Despite much rhetoric about business partnering, in most organisations
there has not been a step-change in the role of finance. Although there is some
evidence of a more business-oriented role, many accountants are mainly occupied
in transactional accounting and financial reporting.
DirectorBank Group/Grant 2010 The CFOs ability to build relationships, particularly with the CEO, is essential to his
Thornton or her success. The CFO is expected to challenge the CEO while at the same time
supporting the CEO and the board.

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TABLE A.1.15: CULTURE

AUTHOR DATE FINDINGS
Finance activities are intertwined with organisational culture and politics
Bhimani 1994 Accounting processes are affected by behavioural factors, political pursuits,
institutional forces and socio-cultural values which interface within the organisation.
Malmi 1997 Accounting systems such as ABC potentially change the power distribution in
organisations and are therefore likely to be contested.
Fernandez-Revuelta and 1999 Political pressures meant the budgeting process became decoupled from
Robson operational reality - providing a ritual legitimation to ensure the continuity of a
plant, despite its severe financial difficulties.
Waggoner et al. 1999 Internal influences such as power relations and dominant coalitions have a major
impact on the development of performance measurement systems. The
management of political process, amount of top-level support, and the risk of
loss/gain for the staff involved are key factors that shape changes to operational
management systems.
Ahrens and Chapman 2002 While contests of accountability and differing management approaches lead to
considerable local diversity on the detail of how central performance reports are
used, in broad terms they disseminate head office strategy to operating units.
Gurd et al. 2002 Changes to accounting systems often lag behind organisational changes.
Management commitment, strong leadership, education and customer focus tend
to reduce such lag as does the need to respond to financial distress. Workforce
participation, however, did not prove to be a significant factor in reducing
accounting lag.
CFO Research Services/Booz 2005 CFOs view intractable corporate cultures as a major barrier to change.
Allen Hamilton
Booz Allen Hamilton 2006 The CFOs increasing role in risk management needs to cover cultural risks such as
misaligned incentives, unethical behaviour and communication breakdowns.
Henri 2006 Cultures characterised by flexibility will use more performance measures and
use them to focus organisational attention, support strategic decision making
and legitimate actions to a greater extent than cultures characterised by control
dominance.
Ahrens and Chapman 2007 Organisational members can actively reconstitute their management control
systems by drawing on them as a shared resource; further as structures
of intentionality they both shape, and are shaped by, shared norms and
understandings.
Järvenpää 2007 Cultural change interventions have an important role to play in changing and
embedding management accounting practices - in this case moving to a more
decentralised business controller function.

TABLE A.1.16: ROUTINES

AUTHOR DATE FINDINGS
Finance activities are intertwined with organisational routines
Hopwood 1987 Accounting is embedded in the functioning of the organisation, co-existing and
interdependent with such other aspects of the organisation as its strategy, structure,
approaches to the segmentation of work and other organisational technologies
and practices.
Argyris 1990 Management will always develop defensive gaming responses to overcome the
pressure to perform resulting from management control systems such as budgeting.
Therefore it is necessary to design interventions which accept and engage with such
defensive routines.
Walsh and Stewart 1993 Organisations cannot be understood in isolation from the activity of accounting –
nor can accounting be understood in isolation from the organisation.
Simons 1995 Beliefs and boundaries levers of control provide formal information-based routines
that managers use to maintain or alter patterns of organisational activity.
Burns and Scapens 2000 Management accounting change will be influenced by institutional structure and
operational routines.
Granlund 2001 Economic, institutional and individual forces are relevant to change and stability in
accounting systems. The case study found forces for change included management
needs, the imitation of other companies’ practices and the will of finance staff.
However, continuity won out because of factors such as existing organisational
routines and the resistance of a key finance manager.

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TABLE A.1.16: ROUTINES

AUTHOR DATE FINDINGS
Finance activities are intertwined with organisational routines
Helden et al. 2001 Provides evidence of how a transfer pricing system can only be understood in the
context of the other control systems, which are used for the coordination of internal
transactions and for organisational control in general.
Joseph 2006 Recent evidence suggest that the role of the accountant and the CFO is moving
from traditional control to strategic decision making, by providing value-adding
information. However for this transformation to be understood, it is necessary
to emphasise the accountant’s instrumental roles in interacting between with
institutional structures in initiating change.
Kilfoyle et al. 2009 Informal accounting systems develop alongside and interact with formal systems
driven in response to day-to-day requirements.

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Appendix 2 – Development of the findings

A2.1 SUMMARY

We developed the findings through the following iterative process:

• Literature reviews of academic and practitioner studies to identify findings relevant to assessing the role
of the finance function.

• Proposal development drawn from synthesising and interpreting the study findings.

• Consultations with a wide range of practitioners and academics, leading to the introduction of further
literature and/or further development of the proposals.

The process was informed by the pre-understanding of the research team as finance function practitioners;
the test for validity was whether the conclusions resonated with the understandings of practitioners.

A2.2 LITERATURE REVIEW

As a result of the iterations mentioned above we selected 261 studies for inclusion in this report. We
selected the academic studies from the accounting and organisational literature on the basis that they
provided findings relevant to the understanding of finance activities and finance departments. They
were identified by database searches and discussions with academics and practitioners. Accessing
practitioner surveys and reports cannot be carried out in such a systematic way as older surveys are not
generally archived. While we have included a wide range of studies, more could have been included
particularly in respect the relationship between finance departments and management control. A full
bibliography is provided at the back of the report.

We would welcome suggestions for other studies to be included in updates to this report.

A significant proportion of the literature informed the way we have delineated and presented the
finance activities in the framework. However, the focus of our analysis relates to 20 surveys which
specifically researched the activities undertaken by finance departments, CFOs or finance executives.
In the main these surveys were undertaken by leading global accounting, consultancy and financial
services organisations. They all included questions in relation to three areas:
• Responsibility: Do the respondents/departments have responsibility for XXX activity?
• Importance: Do the respondents/departments consider XXX activity to be of high importance?
• Time allocation: What percentage of time do the respondents/departments allocate to
XXX activity?

The vast majority of the papers also provided relevant evidence on how finance activities are
implemented. As shown in Appendix 1, Table A some of these studies were aimed at identifying
a range of drivers which impact on the role of the finance function or the nature of performance
management and control within organisations. The other papers covered more specific research
questions and therefore considered only a few of the relevant factors.

A2.3 PROPOSAL DEVELOPMENT

The study findings were analysed and synthesised to identify themes relevant to understanding and
describing the finance function and how finance activities are organised. The initial pattern to emerge
was the overall distinction between finance activities and the drivers which shape how such activities
are implemented. These were then refined into groupings and subgroupings.

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For the finance activities the start point was to list the potential activities from the survey responses
to the practitioner studies. This process achieved a wide coverage, given the range of timescales,
geographies, respondent type and research organisations sampled by the studies.

Based on the premise that finance activities are linked by the production and use of financial
information we made a number of attempts to present the activities identified and the links between
them in a concise and meaningful way. Through a number of iterations, discussions and consultations
we alighted on the activities element of the framework presented in this report.

The drivers were developed by isolating, for each study, the evidence and findings that related to how
finance activities are implemented. The findings of the individual studies were then organised into
themes, helped in part by those studies which covered multiple drivers. Again the process of organising
was iterative and developed through discussion, consultation, reassessment and redevelopment.

A2.4 CONSULTATION

The initial framework and interim findings were tested through consultations with leading accounting
practitioners and academics. The feedback resulted in the introduction of further literature, the
reassessment of existing literature and iterative reinterpretations of the findings. The practitioner
consultations were undertaken with senior technical staff at ICAEW, members of the ICAEW Finance and
Management Faculty and other senior, practicing accounting professionals. The academic consultations
were undertaken with a range of leading academics and through presentations at leading accounting
conferences at the London School of Economics and Gent University.

A2.5 LIMITATIONS

There are a number of limitations which need to be considered in relation to the findings
of this report:
• The practitioner studies were generally produced by commercial or professional organisations to meet
their institutional objectives, not disinterestedly adding to general knowledge. Nevertheless, as the
finance department and the CFO were their principal areas of focus, these organisations have a vested
interest in ensuring that their  research is credible and valid.

• The academic studies generally take a more disinterested approach, where developing knowledge
and greater understanding is the key objective, with the identification of practical implications a
secondary consideration. Neither the role of the finance department as a whole nor the role of the
CFO have been a major focus for academic accounting research. However, research on management
accountants, management control and accounting practice do provide a relevant source of evidence for
understanding the finance function.

• The finance function aspect of the framework represents a stylised presentation of a complex set of
interrelated activities. The range of terminology used to describe finance activities in the surveys is
indicative of this complexity. A significant level of interpretation has been required to categorise the
activities in the way that we have. Other interpretations are of course possible.

• We have only used English language surveys and literature. While a number of the surveys have
respondents from a wide range of countries there is a significant bias to English-speaking countries.

• The literature was largely selected from the fields of accounting and organisational behaviour. Other
disciplines, such as strategy and marketing, may be useful sources of additional insights.

• We are aware that we have used literature from a broad range of theoretical perspectives and have interpreted and
highlighted findings which are relevant to our  focus on the role of the finance function. In some cases the findings
highlighted in the tables in Appendix 1 are not the main focus of the study.

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Acknowledgements

The report’s principal authors are Dr Philip Smith and Rick Payne.
ICAEW is grateful to Emma Breger, Robert Hodgkinson, Chris Jackson, Emma Riddell,
Lydia Steyn, Nick Toyas and Jacqui West and to the following commentators for providing helpful input
to the development of the report in a personal capacity.
Peter Allen
Carolyn Bresh
Helen Jesson
Andy Neely
Adrian Ryan
Robert Scapens
Members of the Finance and Management Faculty Committee
Attendees at the Management Accounting Research Group Conference, London School
of Economics, 2010
Attendees at the 10th Manufacturing Accounting Research Conference, Ghent University, 2010
None of the commentators should be assumed to agree with the views expressed in this report, and
they are not responsible for any errors or omissions.

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Endnotes

1
Email [email protected]
2
Text is capitalised where it refers to specific finance activities or drivers shown in Figure 1.
3
Gerstner Jr., L. V., and Anderson M. H., ‘The chief financial officer as activist’, Harvard Business
Review, vol 54, no 5 (September 1976), pp100-106.
4
For further information see ICAEW, Instilling Integrity in Organisations, London: ICAEW, 2011.
5
Merchant, K. A., Van der Stede, W.A., and Zheng, L., ‘Disciplinary constraints on the advancement
of knowledge: the case of organizational incentive systems’, Accounting, Organizations and Society,
vol 28, no 2-3 (2003), pp251-286.

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