Is an Accounting Background Important for Today's CFOs?
Over the years, I’ve had many discussions with public-company CFOs that went something like this: Me: So tell me about your background. The CFO: I came up through investment banking (or business development, or FP&A, or treasury — anything but accounting). Me: No accounting? The CFO: No. I understand accounting, but I don’t have a degree and never really had any formal training. Me: How do you feel about signing off on the accuracy of your financials, at some professiona ..
Some people ask if a CFO needs to have an accounting background. Is that even a question?
Hell yes. They not only should, they must.
A chief financial officer is responsible for the financial health of a company, from overseeing transaction-level data, to publishing financial statements, to investor calls. That’s a pretty broad range of responsibilities and skills. Often the focus is on the sexy parts of the job, like raising money and talking with investors. But that misses the more important elements of the job.
I get that raising money is the new party drug. Everyone is doing it or trying to do it. We live in the Shark Tank era. There are reality shows of companies raising cash and daily news about hot startups attracting mountains of money. Early-stage, industry-disruptive companies are judged as much by their ability to fundraise as their ability to operate effectively.
Frequently, investors in these companies tap their network of people who understand numbers and can provide endless reams of spreadsheets in the role of the CFO. That sounds good; numbers are numbers, right?
But understanding spreadsheet manipulation does not rise to the same level of rigorous study that a degree in accounting provides. What’s more, while “being good with numbers” may help you develop a business plan, that talent alone does not have the firepower to support an ongoing operation.
Accountants have an image problem. People may think they still wear transparent green visors and use flip phones. But well-educated accountants bring much more to the company than that musty cliché suggests.
A full accounting education naturally covers the accountant’s role of compliance, including GAAP, auditing, and taxes. It also covers finance operational theory and application. But compliance instills in accountants the rigors that each of these areas requires. Compliance is no joke, with parties such as the SEC, IRS, and IASSB reviewing what you do.
The image of accounting as associated only with compliance is only half right. It is just as much an operational function. There is even a designation that highlights this broader role, the Certified Management Accountant (CMA). It’s an easier and more effective transition for an accountant to develop the softer skills of investor presentation and negotiation than it is for a non-accountant to execute the solid processes and procedures required for strong financial management.
I’ve seen plenty of disasters when people are named CFO by default. Some individuals get the job simply because they studied finance.
There’s also the MBA finance chief who tries to hire a killer accounting manager to handle all those tedious areas of the business, like compliance. You have to wonder if it’s being done to properly round out the team or because the MBA wants to be the “idea” person and to ignore the operational mundane.
Then you have the scenario where the company lacks the cash flow to support a hierarchical accounting department. After layoffs, we’re back to the CFO who does not have the requisite accounting background to truly provide the adult supervision the company needs.
In any of these situations, it’s all fun and games until fraud hits and the company runs out money or can’t recover from a stumble. Think about how often you’ve read about the implosion of a seemingly solid company. Thank goodness for Sarbanes-Oxley. Pleading ignorance about fraudulent accounting does not cut it anymore.
Do your company a favor and get a CFO with a strong accounting background. Zenefits, are you listening?