Category Archives: Generally Accepted Accounting Principles (GAAP)

Modern finance team makeovers: Controllers

Posted on by • Posted in Artificial Intelligence, Chief Accounting Officer (CAO), Controller, Controllership Function, Digital Transformation, Finance Department, Financial Close, Generally Accepted Accounting Principles (GAAP), Sarbanes Oxley Act (SOX), Talent Imperative, Talent Management, Talent Pipelines, Trusted Advisor • Leave a comment

https://www.cfodive.com/news/controllers-unsung-finance-heroes/704643

As finance departments undergo seismic tech-driven changes, controllers are poised to play a crucial role as the CFOs’ right hand.

Today’s finance chiefs are making strategic decisions and driving digital transformation, but to execute their changing roles successfully, they need to be supported by an equally resilient, adaptive team.

New technologies, ways of working and shifting business needs are impacting the day-to-day roles not just of the CFO, but of other crucial financial executives as “at the highest level, the entire finance organization is [undergoing] a seismic shift in ways that they haven’t seen ever,” said Sanjay Sehgal, advisory head of markets for Big Four accounting firm KPMG.

Taking a look at the evolving new responsibilities that controllers — as well as other staff in finance departments  — must embrace will be crucial for finance chiefs who must build modern finance teams capable of tackling the upcoming challenges of 2024.

Trusted advisor

The controller “is really becoming and has become the trusted advisor to the CFO,” Sehgal said in an interview.

As with many jobs, the role can vary depending on the company. But generally controllers oversee their company’s daily accounting operations, along with payroll and the accounts payable and receivable departments, according to human resource consulting firm Robert Half. It can also entail preparing internal and external records, handling the firm’s general ledger and taxes as well as reconciling accounts, coordinating audits and managing budgets. 

Already, the importance of the controller position is reflected in compensation trends: the role ranks among the most well-paid members of the finance team, with corporate controllers in the 75th percentile — meaning they take home salaries greater than three-quarter of financial professionals — in compensation earning annual average salaries around $210,750, according to data from human resource consulting firm Robert Half.

Controllers rank among top paid financial professionals

Starting salaries for corporate accounting executives in the 75th percentile

Central to the role too is the responsibility controllers take for their company’s close activities, ensuring the business is “producing information in a controlled fashion, to report to the street and to the Securities and Exchange Commission for a public company,” said Kevin McBride, corporate controller and chief accounting officer for software-as-a-service company ServiceNow.

In his capacity as controller for the Santa Clara, California-based SaaS company, McBride oversees global payroll, accounts payable, travel, collections, and credit, he said in an interview. The role of controller and chief accounting officer can also have some overlap, but don’t need to be combined; a CAO can be another name for a principal accounting officer as required under the Sarbanes-Oxley Act, for example, McBride said. A CAO typically focuses on more broad corporate governance, therefore, while a controller’s focus is more narrowly on processes such as the close and ensuring financial statements are compliant with GAAP.

Controllership is “really getting to the numbers and the descriptors and the story behind financial performance and ensuring that process is well-controlled,” McBride said. Joining ServiceNow in November 2021, he previously logged a 21-year tenure at tech giant Intel, where he served in a variety of key financial roles including as its vice president of finance and corporate controller as well as its global accounting and financial services controller. He also spent time at the Financial Accounting Standards Board as an industry fellow before joining Intel.

Opening a path to the touchless close

In recent years, however, controllers have also found themselves branching out from a pure numbers function as part of the ongoing “seismic shift” taking place in the whole of finance — driven partly by the advent of generative AI, machine learning, cloud technologies and other digital tools which have captivated the attention of finance leaders in recent months, Sehgal said.

New technologies such as GenAI could fundamentally change how controllers operate and the purpose of the role — for example, “I can see a future where we have a touchless close process,” Sehgal said.

This would mean the entire financial close process would no longer need routine manual intervention by such people as the controller, according to a 2022 report by Gartner which noted 55% of finance executives were targeting a touchless close by 2025.

Finance teams could inch closer to making such a process a reality in 2024 as companies continue to experiment with the applications of generative AI, something that could rapidly shift where today’s controllers are directing their time and focus.

The new technologies that have filtered into accounting over the past few decades have enabled their own improvements in quality, efficiency and cost, McBride said, allowing business leaders to get the information they need to run the business at a lower cost. When it comes to the controllership, “it also gives us capacity to invest in other ways to help drive business impact,” he said.

However, it’s also important to remember that technology is “nothing new in accounting,” McBride — who started his career working on paper spreadsheets — said and that in “each one of these technology introductions, there’s the hype and then there’s the reality,” he said. Generative AI and the promise it brings remains in its early stages, he said.

As automation seeps into finance, technology opens up more time by removing routine tasks, in turn enabling the controller and the CFO to deepen their relationship. “With the CFO, we’re spending more time talking about strategic matters and how to best position not just the controllership but finance,” McBride said.

The evolution of the relationship comes as CFOs are likewise pivoting to a role more focused on driving strategy and controllers are finding themselves responsible for processes that may previously have been under the remit of the finance chief.

“As the CFO elevates himself or herself, I think the controller plays a bigger role in the organization,” Sehgal said.

Finance chiefs are serving more and more often as the “right hand” of the CEO and spending less time poring over day-to-day numbers, said Claire Bramley, CFO of San Diego, California-based AI cloud analytics and data platform Teradata. The controller and the CFO work closely together to drive an effective, innovative and forward-looking finance function, but that focus on day-to-day operations is what separates the two positions, Bramley said in an interview.

As a finance chief, “you need to make sure that you’ve got the processes in place, you understand what’s going on,” she said. However, the finance chief is now spending more time figuring out how to drive things forward at the company, she said.

Adding free cash flow forecasts 

Bramley pointed to something like free cash flow as an example: because she’s now spending more time conducting strategy transformation work on part of Teradata, she’s now relying on her controller to take on free cash flow management forecasting, she said.

Controllers, critically, still serve as “the owners of the financial data, from a protocols perspective, from a reporting perspective, and the CFO and the executive teams depend on that,” Sehgal said. Indeed, taking responsibility for the numbers is still the core of the controller’s role, McBride agreed.

However, controllers are not immune to the job creep plaguing the financial function amid a lack of qualified accounting talent, emerging technologies and new business needs. As the CFO’s role evolves into a more strategic position, the rest of finance could potentially be pulled along in their wake.  

“It’s very easy for a controller to be kind of put off to one side … and not be pulled into, I’ll say some of the business and strategic decisions,” Bramley said. “But if you decide as a controller that you want to be more involved in that, I think many companies give you the opportunity to build your business acumen, to build your business relationships and to be able to be an important part of managing the business.”

For example, the controller today has a huge opportunity to take point on digital transformation at a business — the controller organization tends to be the biggest team in the finance function, “so if they can drive [digital transformation], and they can be leading edge, then the rest of finance can adopt that moving forward,” Bramley said.

This can also provide a pathway to controllers to the CFO seat — Bramley spent two years serving as the global controller for HP, where she logged a 14-year tenure before making the jump to Teradata.

“The modern-day controller who is involved in strategic decision making, who is helping add business value, who is having an impact from a technology standpoint, I think, is an obvious candidate for a CFO,” she said.

Targeting the accounting shortage: 2024 tactics

Posted on by • Posted in Accountant, Accounting, Accounting Talent Shortage, Audit, Certified Public Accountant (CPA), Financial Reporting, Generally Accepted Accounting Principles (GAAP), Recruiting, Talent Competition, Talent Imperative, Talent Management, Talent Pipelines • Leave a comment
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CFOs and finance department recruiters have faced a workforce problem for years now, labor experts say: a shrinking pool of U.S. accounting professionals needed to close the books every quarter, complete audits, and make sure the company’s financials comply with GAAP and other regulations. 

The hits that have chipped away at accounting labor health are myriad and the statistics stark. While the number of practicing accountants and auditors in the U.S. spiked in 2019, across the past decade since 2013 the total declined by about 10% to 1.62 million last year, with roughly 190,000 jobs disappearing from the work rolls, according to the Bureau of Labor Statistics.

Meanwhile, the total number of test takers who passed the CPA Exam fell to 18,847 in 2022 from 19,544 the year earlier, and the lowest level since 2007, according to the latest numbers available from the Association of International Certified Professional Accountants. 

Studies and those analyzing the trend point to a variety of likely culprits: the onerous 150 hours of course credit — equivalent to a fifth year of college — students typically need to become a CPA, generally lower starting salaries compared to other areas of finance, and the demanding hours and rising regulations that lead some practicing accountants to look for the exits once they’re in the field. At the same time, the launch of the generative AI tool ChatGPT in late 2022 led to a new wave of questions about the industry’s future.

Tom Hood, executive vice president of business engagement and growth at the AICPA, is in the optimistic camp of those who believe the pipeline decline is poised to turn around, noting that he has seen other cycles when disruptive shocks such as Microsoft’s Excel in the 1980s damped interest and sparked doomsday talk around the possible “end of accounting.”  

“We’ve had ebbs and flows, we’ve had these shortages before and every time that’s happened we as a profession have rallied together,” said Hood, a CPA, adding that AI will automate certain tasks in accounting but will not replace accountants. “We’ve moved this needle before and I think we’re already starting to see it move now.” 

In 2024 professional associations and lawmakers are working on numerous initiatives as well as legislation to close the cracks that have leaked talent from the field. In the meantime, companies have found ways to get the staff needed to get their finance work done. CFO Dive talked to experts about some notable tactics that are likely to shape the accounting workforce this year. 

States, CPAs and the 150-hour credit question  

Currently state regulatory bodies that set the rules require those who want to to become a Certified Public Accountant to have 150 credit hours of education in accounting or related subjects to become a licensed CPA. But amid the growing shortage, there has been a controversial push by states to create another pathway to licensure which include cutting the college credit hour requirement back to 120 hours.

For example, this year Minnesota lawmakers are expected to consider new legislation introduced in the state’s Senate and House in 2023 that would allow candidates to earn a CPA certificate with only 120 hours of college credit, along with passing the CPA exam and some additional work experience or professional education. This alternative would be in addition to the current system that requires 150 hours and one year of work experience, plus passing the CPA exam.

Geno Fragnito, director of government relations for the Minnesota Society of CPAs that supports the change, notes that the current national shift to the 150 rule gained steam in the 1980s after Florida made the change amid a surplus of accountants due to many wanting to move to the state. Florida started the ball rolling by increasing the credit hour requirement to 150 hours in 1983, according to a Journal of Accountancy report.

But in recent years, the MNCPA’s members have consistently pinpointed the credit requirement as one of the main contributors to the drop in CPAs.

“I don’t think there was a meeting that either our CEO or I attended where it was not brought up organically. It was never on our agenda to discuss but it always came up,” Fragnito said. Looking ahead, Fragnito said that other states that are seeking to tweak the credit hour formula include South Carolina and Washington state. 

A “volatile year” for CPA exam takers 

Two exam-related changes are impacting accounting candidates this year in very different ways. “It’s an exciting time but I think 2024 will be a very volatile year,” Mike Decker, vice president of the CPA Examination & Pipeline Extension for AICPA, said in a recent interview. One of the changes is student-friendly: it’s designed to ease deadline pressures and address pandemic-related delays that might have affected some test takers. In a move announced last spring, the National Association of State Boards of Accountancy extended the window that a candidate has to complete the exam once they pass the first section from 18 months to 30 months. The move grew out of the AICPA’s effort to address the accounting shortage, known as its pipeline acceleration plan. 

Meanwhile, this month marked the launch of a revamped CPA Exam called the CPA Evolution. The test has both new content and structure and a greater focus on technology in an effort to combat research that found that accounting firms were hiring fewer accountants in favor of non-accountants with tech backgrounds, according to a Nov. 7 report by Michael Potenza of Becker. “It’s not that CPA Evolution is meant to be harder than the previous version of the exam, it’s simply meant to better prepare you for the skills and competencies needed in modern accounting,” Potenza, a CPA, wrote. 

Raises and remote work 

Tactics that CFOs themselves are using to meet their staff needs include sweetened offers and going offshore or considering remote workers to gain talent. With most small and medium-size CPA firms unable to find enough qualified U.S. accountants, this summer a study found that over half of firms planned to hike starting salaries by 14%, CFO Dive previously reported. Lisa Simpson, vice president of firm services at AICPA, is hearing about similar approaches taken by firm leaders she’s spoken with. In the past few years, she said, firm leaders indicated they were providing several high percentage salary increases for new hires and existing employees. Last year firms gave raises at rates above inflation as well as continuing bonuses, and business leaders said they expect to continue raises into 2024.

Meanwhile, many firms are outsourcing U.S. accounting work to professionals in India, the Philippines, and Eastern European countries like Poland, according to Matt Wood, head of global FAO Services at Austin, Texas-based Personiv, a global outsourcing provider which serves those needs. While outsourcing to other companies was previously the domain of larger firms, the pandemic has led to more companies being comfortable with remote accounting staff, he said.

The shift to hiring accounting staff outside the U.S. “has been happening for a while now, but it really accelerated in 2020. The accounting talent pool was already shrinking, and businesses were feeling the impact of that pre-pandemic. Then, all of these other pieces fell into place; teams were working remotely and protecting cashflow took priority,” Wood said in an emailed response to questions from CFO Dive.