Editor’s note: This opinion article is adapted from the author’s comment on our recent article, “The Dark Side of Accounting Expertise.”

As a former CPA with public accounting experience and a former controller or CFO for three different public companies, I have long held that companies shouldn’t hire finance chiefs from public accounting.

The controller is a company’s chief accounting officer and should have ultimate responsibility for all accounting and reporting. The CFO’s primary responsibility, on the other hand, should be to understand company operations well enough to provide the financing needed to operate and grow the business.

Consequently, in my opinion CFOs should come from the treasury function or the financial services industry.

CPAs have no real training, knowledge, or experience in the financial markets in order to fulfill that role. Trying to make one into a CFO usually doesn’t work well, in my observation.

I’ve seen companies with weak controllers hire a CFO under the assumption that he or she will function as a higher-level, more-trusted controller or chief accounting officer.

That happens more often at privately held companies, but it’s not uncommon for management at public companies to have the same mentality — and it’s a worse problem there, because those companies typically have higher-level treasury and financing needs and activities.

What these companies end up with are two accounting-focused executives with little or no experience in financial markets. The CFO is not well-positioned to plan for, secure, and manage the company’s financing activities without a lot of outside help from consultants. The problem is exacerbated by a relative lack of accounting and financial experience among many CEOs and board members. In some cases they need to be educated on the appropriate respective roles for the CFO and controller/chief accounting officer.

I submit that the two roles should report separately to the CEO, or no farther down the ladder than the president or chief operating officer.

I also submit that a company will typically be better served if the controller’s background and experience is from the management accounting side of the accounting spectrum, rather than the public accounting side — even at a public company.

The CFO certainly will contribute to the company’s financial statements and reporting, and will be a user of them. But if his or her background is, as I propose, in banking, financial services, or investment banking, the CFO should not be ultimately responsible for them.

Nor should the CFO be in a position to exert undue pressure or influence on the controller’s execution of his or her authority over accounting and reporting.

In that scenario, a CEO or outside auditor should feel greater confidence that financial statements are more accurate, in compliance with GAAP, and less likely to be misstated.

If the controller is too weak for this management structure, the position should be upgraded. If there is not enough financing work to merit hiring a CFO, use consultants with some direction provided by the controller until financing requirements increase.

Danny Severns, a former controller and finance chief, is the owner of Essential Integrated Data, which advises CFOs and controllers at smaller organizations on operational software and management systems.

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11 responses to “Why CFOs Shouldn’t Come From Public Accounting”

  1. I agree with your analysis. However, I think the individual taking the CFO position, the Board, and other stakeholders will require financial market training opportunities to address any gap in skill requirements for the position.

  2. Interesting concept that should be further developed. The major point that CFO’s should not come from public accounting is basically sound as many public accountants do not have the corporate experience necessary to guide the function.

  3. Having been a CFO who has led three public offerings and also spent 10 years in a predecessor firm to a Big 4 Firm, I disagree. With private companies the CFO must be an expert in accounting, as the financing is usually limited to banks or private investors, both of whom need accurate reporting, which the CFO needs to pitch on behalf of the company. With a public company a CPA is at a disadvantage only to someone with experience in investment banking as far as capital markets go, and after the first time through, the curtain is easily slid back from this mystery.

  4. Reading this initially, I thought the author meant that you shouldn’t have a CFO with a significant background in public accounting. After reading it again, I realized my mistake. I think the premise is that the CFO shouldn’t be hired DIRECTLY from public accounting and I think that in a vast majority of cases that is probably true. There are too many operational issues and finance issues that sometimes may be outside the understanding of someone coming directly from public accounting. Rather, I would suggest that hiring mid-level finance and accounting staff from public accounting and grooming them in other areas BEFORE taking on the CFO role would be a more preferable model.

    • Randy is correct that the premise is they should not come directly from public accounting. And I have no axe to grid at all, as was suggested in one comment. Since the article was created from my comments to another article, I was trying to limit the text to be as brief as possible. As pointed out in the original article “The Dark Side of Accounting Expertise”, problems have continued to exist with accounting errors and misstatements, and the author of the article was looking into why those and other problems continue. That article provided the context for my remarks. It is a complex problem, and I think part of the problem is that in general, CPAs right out of public accounting, regardless of their firm level, do not have the training and knowledge in financial markets and issues to handle that job responsibly. World financial markets are very complex today and require a great deal of financial expertise. If a CFO of a public company came from the finance industry and part of his performance is judged on how well the company’s stock performs, he is not independent enough from the financial statements, and that can be part of the problems mentioned in the article. For a private company, if the financing need are limited to bank loans and private equity, a qualified Controller should be able to handle those tasks. One of my points was the a company should not need two high level accountants, and that the controller position should be elevated to such, that a CFO would not be needed in order for the accounting and reporting responsibilities to properly and expertly managed. The CFO level should be elevated to truly handle the financial needs of the company, and be involved in the operations enough to help guide and direct the operations and growth of the company.
      I have seen many different scenarios with the roles of Controllers and CFOs, and it is so convoluted, it is no wonder there are still errors and misstatements. I have worked with Controllers who are no more than educated bookkeepers, and CFOs who are no more than an office managers responsible for everything that is administrative in nature, most of which they have no experience in handling. Fortunately, I have also worked with organizations who really do it right, with strong Controllers responsible for all things accounting and reporting, and CFOs from the financial industry who was too busy with financing and treasury responsibilities to ever get involved with accounting, nor did they wish to do so. My point is that the jobs and responsibilities of each position should be much better defined than they are, those definitions should be more universally applied and understood, and the knowledge and experience needed to fill the jobs should be better defined and understood, and if fulfilled, perhaps that would help mitigate some of the problems mentioned in the article. My opinions are not just theory, since I can provide war stories that illustrate what I have seen as problems with how those positions are defined and how it contributes to what I see as misuse of both positions and poor management structure, but this is not the place or time.

  5. I completely agree with the premise that CFOs should not come from the public accounting world. BUT having the controller report to the CEO instead of the CFO would be a huge mistake and a supervisory burden that most CEOs would handle badly. If the CFO doesn’t have enough accounting knowledge to oversee the Controller the company should find another CFO.

  6. The title “The Dark Side of Accounting Expertise” is misleading and the article does not address the real risks factors associated with fraudulent financial statements. The author states that a CFO with CPA credentials (ex-manager/partner of audit (CPA) firms), who works in a firm with higher than average executive compensation, has both the financial incentives and expertise to misstate financial reports, and based on his research are more likely to produce fraudulent financial statements than a CFO, without CPA credentials, but with similar financial incentives.
    First, the “dark side” of this article is the “risk” that anyone with (or without) “expertise” in any field can use that expertise unethically, given the available opportunities, the financial incentives and the pressures to do so.
    It should be titled, “The Dark Side of Risk,” but instead focuses on a CFO’s CPA credentials as the reason for the risk, when it is an enterprise risk issue related to the firm’s governance and culture, including the board and management’s contribution to the risk of producing fraudulent financial statements. In addition, it omits the liability risk of the external CPA firm with respect to their due diligence in “auditing” and expressing professional opinions on the organization’s financial reports and management’s internal control systems.
    Lastly, the author omits information regarding additional expertise and experience each CFO may have had besides the CPA experience and equates CPA expertise with “accounting expertise,” with a limited knowledge of what each expertise entails. An ex-manager and/or partner of a CPA firm (especially a Big4 global firms or very large national firm) has extensive knowledge, expertise and experience in diversified areas, including, but not limited to management, business, consulting services, advisory services, audit and assurance services, strategy & operations services, human capital services, financial markets, data analytics, financial systems, technology & cybersecurity, communications, financial & legal risks, mergers & acquisitions, management information systems, enterprise risk services, controls systems & compliance, regulatory services, taxation services, etc. with extensive and diversified SEC and non-SEC clients, business industries, non-profits and government, etc.

  7. Everybody is wrong on this. Here’s the way things should work.
    External accounting for public companies should be lead by a full time board member with absolute authority over the CEO. He should be paid by fees that ultimately are directly paid by shareholders, and financial statement risk insurers. As for managing the company and it’s profit tracking accounting related to operations, here the CEO and a management accounting controller should be in charge. This management accounting controllers primary background should not be traditional ops, marketing, and accounting, it should be a blend of ops, marketing, strategy, and accounting only found in ERP software management and operation teams. This management accounting leader should be expert in all areas, including the financial accounting areas outside his/her career path.

  8. “I am fearful, or suspicious, of generalizations… They cannot guide me reliably in making decisions about particular individuals.” Ruth Bader Ginsburg

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