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 ..

Must you have a formal accounting background to become a CFO? Increasingly, the answer is no.

While historically CFOs cut their teeth in accounting and treasury operations, focused on managing costs and cash, today’s CFOs often serve as strategic business partners to the CEO. Under this remit, they lead M&A activity, serve as the external face of the organization to shareholders, and generally act as a broad-minded guardian of the business.

Jenna Fisher

Jenna Fisher

In my recent experience, this transition away from an accounting focus is stark. Among the last 50 CFO searches that I have completed over the past 18 months, only one client indicated that a CPA was highly desirable. Most of our clients, particularly larger ones, have in fact bifurcated the top finance and accounting functions. Following the Sarbanes-Oxley act in 2002, companies strengthened their accounting functions and appointed qualified chief accounting officers, who generally are highly technical CPAs.

This trend toward bifurcation of the CFO and CAO roles has only strengthened in recent years. According to Russell Reynolds research, the number of CFOs hired in the past three years with corporate accounting/control experience has decreased to 38%, compared with 51% of CFOs appointed more than three years ago.

CFOs with investment banking experience are actually more common among recent hires, as 24% of CFOs appointed in the past three years have such experience, compared with 17% of those hired before then.

The accounting experts that are currently serving as CFOs are mostly internal promotions. In the Fortune 250, 79% of all CFOs with leadership experience in corporate accounting/control experience were promoted to the role internally. While their technical accounting experience would seem to set them apart from the newer crop of CFOs, their tenure in fact grants them significant insight into the culture and strategy of the organization. In this group, the average time spent at the company prior to internal promotion to CFO is 14 years.

However, companies are increasingly looking externally for a CFO to meet the increased demands and expectations of the role. Among Fortune 250 CFOs hired in the past three years, 39% came from outside the company, compared with 23% before then. I believe this number will continue to increase, in line with growing activist shareholder activity, which is boosting the demand for experienced CFOs with a track record of success.

CFOs with operationally oriented backgrounds rather than pure accounting backgrounds will continue to be in demand, and increasingly so, as finance chiefs continues to grow in their role as a strategic partner to the CEO who is integral to the organization’s growth and success.

Jenna Fisher leads the global corporate sector for executive search firm Russell Reynolds Associates.

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10 responses to “Companies Don’t Need CFOs to Be CPAs Anymore”

  1. As a finance professional, with experience in both business support and controllership, in non-complex organizations I would agree with a bifurcation. However, the non-Controller-CFO has to maintain an eye-to-eye conversation with the CAO (or equivalent) every year end to ensure that is comfortable that the control environment (including escalation) provides sufficient transparency for the CFO to sign the financials. In more complex organizations, not having an accounting background may not be sufficient to the CFO to comprehend some dynamics in the financials, in particular around Balance Sheet and Cash Flows.

    As an investor, my preference is for the CFO to have an accounting background, for the last reason in the previous paragraph. Further, a non-controller-CFO has historically shown in many cases how incapable is to understand what an adequate control environment is.

    In other words, many finance savvy professionals can create, project, analyze and understand P&Ls. Not many can do the same on a Balance Sheet or what would cost to arrive at a particular answer in the Cash Flow.

  2. I have always been under the impression because you chose to take a test that permits you to do only one single unique process under the law, it doesn’t make you an expert in all things.

    So, you passed that CPA exam and you are the only profession allowed to do public audits, what in that exam makes you a better CFO? What in your audit experiences teaches you how to actually run a company? What in your education specifically teaches you how to interpret GAAP better?

    Obviously, if you do something, like Sox audits day in and day out, I would assume that you would be more conversant with the process, and possibly the laws, rules and policies surrounding the audit, but latter doesn’t need to be true. You could be mechanical in thought as opposed to analytical.

    So who makes a better CFO, a CPA or a non-CPA? The answer is the better CFO (regardless of certifications or degrees), period. And the better CFO is a compilation of all life experiences that include education, work, industries, volunteerism, geography, different managerial styles worked with, business sizes, etc.

    Just having passed the CPA exams is not the sole determining factor.

    • I believe CFO’s should be CPAs.
      It’s not because of technical skills, and it’s not because the role of the CFO is an accounting role. However, if you look at most of the frauds that have occurred in the last 15 years it’s been by CFOs who have previously been investment bankers or non CPA’s. These people are not bound by the same code of ethics is CPAs, and in fact their training is to find a way around the “rules” – “…. It doesn’t say you can do it, then you can do it..”
      CPA’s generally understand that they live by accounting principles, not accounting rules. This is not the tax code. The spirit of the accounting principles should govern proper financial reporting.

  3. Ms. Fisher,

    I’d be interested in knowing the demographics for your study. You mentioned that “Among the last 50 CFO searches that I have completed over the past 18 months, only one client indicated that a CPA was highly desirable.”

    Do your clients make up the Forbes 250, which you reference above? If so, please take into consideration that not everything in the world of business and finance is Forbes 250 (or 500 or 1000).

    Where are the companies located worked with you? Are they in large cities in New York or California? Or are the companies located abroad with an international presence?

    Maybe a CPA isn’t as necessary as it once was, but they are still, in my opinion, much more desirable than not. I don’t refute what you found in your research. I only want to know the demographics of your conducted research. I believe that could put your article in a little better perspective.

    Still, it’s very well written, and I do agree with the majority it.

    • Your questions are spot on, Chris. I have been a CFO for 25+ years scaling privately held entrepreneurial companies towards exit. I have to cover all bases from technical accounting to fund raising to operations to strategic planning. The clients Jenna Fisher has supported represent a fraction of the population of CFOs, albeit the lions’ share of Revenue and Market Share. Her viewpoint is very slanted and in fact not representative of the business world as a whole.

    • Well put Chris… There does seem to be two worlds and two subsets, the Fortune world and the rest of us. The subsets are Public and Private. The real difference is the amount of regulation and paperwork, but this county, and the world seem to think that only the Fortune Public’s are the rainmakers. I wonder how the rest of us survive?

  4. One function of the CFO’s portfolio should not be the driver of the position’s qualifications. I have seen excellent CFO’s who were not CPA’s, and CPA’s who made excellent CFO’s. The person and the qualifications they bring the job should always be the key drivers.

    In most instances a true CFO (v. the one/two person Accounting Department) will supervise positions that are basically (if not in name) Comptroller and Treasurer positions. These two positions should have the solid positional backgrounds.

  5. The article states that the CFO role does not require a CPA.
    If a CPA works in a senior position with a CFO who does not know how to research GAAP and/or maintain internal controls, or whose attitude is
    “I have my orders, and that’s good enough for me”, that CPA needs to find another job. The reality in that situation is “If the CPA does not docilely follow the CFO accounting instructions, (no matter how unsupportable), the CPA will be terminated (positioned on a “kill list” first), or marginalized in abeyance.” The author of the article really needs to spend many many hours reading court cases of accounting frauds. If the objective is to seriously improve the bottom-line or other analytics without proper regard to accounting principles, you need
    appropriately pliable or ignorant CFOs and CPAs working together for better tomorrows.

  6. Hi guys, I would like to ask what do you think is the role played by the CAO? I’m working in the finance department of a young growing company. The CFO himself does not have any accounting experience at all and does not understand accounting rules and internal controls. His prior experiences are corporate finance and hedge funds. He hired a CAO who has worked more than 10 years with the big four firms auditing various public companies. The CFO is focused on raising funds and going into acquisition deals; whereas the CAO is focused on technical accounting aspects and functions like an internal audit partner. My question here is: Should the CAO be in fact be stepping up as the conventional CFO? Hope to hear your thoughts. Thank you!

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