Question

Q1. Based on the ‘Real life’ titled ‘The accountant in the modern business environment’ in the section ‘Management accounting processes and techniques’, describe some of the qualities that a successful chief financial officer (CFO) should possess.

Q2.The ‘Real life’ scenario titled ‘Increasing competitive pressures faced by Asian airlines’ in the section ‘Australian organisations in the twenty-first century’ highlights the turbulent competitive environment faced by many airlines. Explain how such events might impact the type of information provided by management accountants in those organisations.

Answer 1

ANS:

Q1=

Overall world accounting is the most important function of every kind of business, behind the every successful business there is well handled accounting, and behind well handled accounting there is CFO.

So CFO should be following qualities:

1. Financial Foresight The ability to anticipate financial management issues and address them is an essential character trait in creating wealth for the company. 2. Excellent Communication Skills Written and oral communication skills are an essential quality for a CFO, as they must be able to effectively communicate the financial health of the company to all stakeholders. 3. Confidence The ability to make decisions on behalf of the company with confidence and assertiveness are good character traits for a successful CFO. 4. Vision and Foresight A CFO should have foresight and be in tune with his market, enabling him to create and implement business plans for the company and aligning them with the “bigger picture” of the company’s future. 5. Accounting & Financial Competence With the Sarbanes-Oxley Act of 2002 that requires CFO’s to sign off on financial statements and internal control systems confirming their accuracy it is essential for the CFO’s to know the Generally Accepted Accounting Principles (GAAP) and SEC regulations that are relevant to their business. 6. Deep Understanding of Business A deep understanding of business is a must because a good CFO is more than just a “numbers guy.” He should immerse himself in the operations of the company have a macro view of the numbers, drivers and pains relating to Sales & Marketing, R&D, Service providers, Vendors, etc. 7. Integrity and Ethical Standards A strong will which ensures that one is always doing the right thing by upholding the ethical and professional standards and is honest in all transactions with the company and the stakeholders. 8. Perspective on Risk The willingness to try new things and take calculated risks to grow the business and improve the financial position of the company. 9. Result Oriented Nature The ability to set goals that are specific, measurable, achievable, relevant and traceable is a good trait which helps a successful CFO manage the expectations of the company’s stakeholders-employees, investors, board of directors, analysts- as well as direct the financial operations of the company. 10. Leadership skills A CFO should posses leadership qualities to enable him to delegate and oversee the financial operations of the company effectively. These qualities include emotional intelligence; self awareness, self regulation, motivation, empathy and social skills. Planner The importance of the CFO's role in financial planning cannot be overemphasized. A solid financial plan, authored by the CEO and CFO, provides the backbone for any organization, linking the organization's strategic mission and vision to measurable financial goals. A well-developed financial plan helps the organization determine the critical relationship between strategy and financial capability and achieve operating results that ensure financial equilibrium. Allocator of capital The CEO is responsible for establishing a "vision" for strategic capital investment that sets forth what the organization wishes to accomplish given its mission, but the actual process of allocating that capital should be the province of the CFO. The most important financial decision made each year by the senior management team and ratified by the board is how much capital to spend and on which initiatives the dollars will be spent. Capital structure and debt management Expense management will always be important, but for the CFO, expense management should start with interest-rate management, debt management, and the overall management of sophisticated capital structures. Over time, capital-structure and cost-of-capital decisions can affect a balance sheet by millions of dollars. "Plain vanilla" finance--such as when an A-rating organization borrows money at a fixed interest rate for 30 years and then forgets about it--is a thing of the past. Today's transactions require daily attention to interest costs, manipulating the capital structure when opportunities emerge to lower all-in capital costs. Accounting officer Finance in the world following Enron, WorldCom, and Tyco means that the CFO is first and foremost the chief accounting officer. Financial leaders must act on the fact that organizational credibility depends on the accuracy of financial statements. Although major audit firms have tightened standards, significant accounting decision points remain for the CFO, including recognition of loss on investments, pension accounting, accounting for acquisitions and divestitures, and accounting for derivative transactions. Credit officer CFOs must be the guardian of their institution's credit quality, because an organization's long-term competitive position today substantially depends on its ability to raise affordable capital in the debt markets. This, in turn, is highly dependent on the organization's credit rating and overall creditworthiness. It is often up to the CFO to resist the short-term temptations to sacrifice strong balance sheets and A-category bond ratings for incremental debt capacity and additional strategic investment. Defender of financial integrity Management must avoid significant financial defeats that harm the organization's financial integrity. The mantra of the management team should be "anticipation, attention, analysis, and action." The CEO, CFO, and other key executives, working as a team, should examine each element of the organization's strategy and each capital investment to anticipate negative outcomes, evaluate overall risk and performance, and take action to ensure that any harm inflicted by a bad idea is limited to a single "bump in the road."

Q2:

The ‘Real life’ report of Australian organisations in the 21st century demonstrates issues such as increasing competition and pressure to reduce costs. This pressure makes it imperative to have a strong idea of a business’ costs. Management accountants’ role then has become important to the continuing success of organisations, by providing information that allows management to plan and control their organisations in response to today’s quickly changing business environment.

Identify management accounting information that could assist managers in making each of the following decisions. Remember to consider non financial information where relevant.

1. A marketing manager is considering whether or not to launch a new product.

 Competitors’ products and prices

 current market share

 cost of developing, producing and marketing the new product

 additional staff and equipment needs

2. A travel company is considering whether it should increase its staff numbers by one-third.

 Availability of new staff

 Cost of hiring new staff

 Any effect on morale of existing staff

 Additional office accommodation and vehicle requirements

 Additional salaries cost

3. A production team leader is considering whether an important customer order should be produced next week, or during overtime hours tonight.

 Different costs of the two alternatives

 Any impact on customer satisfaction from delaying production until next week

 The cost of overtime

 Delay to regular production if produced next week

 Availability of staff to work overtime

4. A fast-food chain is considering a site for a new store.

 Proximity of competitors and their sales volume

 Expected volume of sales from passing traffic

 Cost of rent

 Running costs

 Availability and salaries of employees

 Establishment costs such as refurbishing premises and promotions.