How Regulation Molds Corporate Money Managers

Regulation has changed the makeup of the modern corporation, especially when it comes to managing finances. Since the turn of the millennium, large companies have been tasked with reacting to harsher rules in financial reporting and accounting, and a globalizing business market means companies have to juggle federal compliance at home and abroad.

In the last few years, regulation has become a key focus of financial executives at a corporation. In some instances, federal watchdogs have forced businesses to nurture the emergence of a new executive role — the chief accounting officer – to alleviate some of the regulatory compliance burden off of the chief financial officer.

But new research suggests that the same regulatory pressures that gave rise to the CAO have also begun to blur the line that differentiates the chief accounting officer from the chief financial officer.

[bctt tweet=”New research suggests that the same regulatory pressures that gave rise to the CAO blur the line that differentiates the chief accounting officer from the CFO.”]

If it sounds confusing, it’s because the role of corporate money managers is more complex than ever before.

The Rise Of The Chief Accounting Officer

The pressure from federal watchdogs in the last several years has been a key driver behind the rise of the chief accounting officer. Reports from The Wall Street Journal published yesterday (Aug. 25), citing research from Russell Reynolds Associates, said there has been about a 40 percent increase in the number of executives with chief accounting officer titles in the just the last six years alone.

This influx, experts told The WSJ, is a direct result of new and diverse regulatory pressures that require corporations to hire specialists that can help navigate the enterprise around these rules. And with the globalization of the business climate, companies must not only navigate national rules, but also ensure compliance with financial and accounting rules in other jurisdictions, too.

The pattern of hiring a lead accounting executive appears to be working. According to reports, the number of major corporations that have notified regulators of probable discrepancies or inaccuracies of previous financial reports has dropped an impressive 90 percent in the last decade, according to research from Audit Analytics.

Blurred Lines

The role of chief accounting officer may have emerged as a separate entity from the chief financial officer, but recent analysis suggests that corporate money managers, regardless of titles, have more in common than one may think.

For example, according to WSJ, while today just one-fifth of CFOs also have a background in accounting (according to Korn/Ferry International statistics), analysis finds that a significant number of businesses are promoting either a finance controller or chief accounting officer up to CFO.

The most recent research also reveals that financial officials – including CFOs, CAOs and controllers – all share similar worries about the evolving regulatory landscape. New findings from Grant Thornton released Tuesday found that Congressional dysfunction is increasingly becoming a point of worry.

The inaction of federal lawmakers to extend existing tax provisions has become a significant source of frustration for corporate finance executives. With these tax rules in limbo, financial and accounting officials are unable to plan ahead accordingly – though more than half told researchers that they are proceeding as if Congress will extend current tax rules.

Overall, 45 percent of the executives surveyed said that “increasing costs of compliance present the biggest challenge to growth,” while nearly one-third agreed that “keeping up with the volume and complexity of regulations is their No. 1 challenge.”

Analysis could suggest that while regulators have, in a way, forced corporations to create new titles and hire specialists in an array of areas of finance, the money managers of today’s businesses are all challenged to respond to the ongoing changes of regulatory compliance – or otherwise risk a dented reputation and hefty fines.