Kiwi companies’ CFO risk highlighted
New Zealand companies are leading the world when it comes to monitoring the performance of their Chief Financial Officer (CFO), according to KPMG International’s 2014 Global Audit Committee Survey.
However when it comes to succession planning, New Zealand is doing just as poorly as the rest of the world.
The survey showed 73% of New Zealand companies reported that the performance of their CFO was ‘rigorously evaluated against clear performance objectives’ which was well above the global average of 59%.
Souella Cumming, the head of KPMG’s Audit Committee Institute (ACI), says it is encouraging to see New Zealand companies are increasingly valuing the CFO role.
“The CFO is becoming as critical to an organisation’s performance as the CEO,” she says.
“In many of the companies we work with at KPMG, we’re seeing a definite re-positioning of the CFO role. They are evolving into much more of a strategic business partner within the organisation.”
This growing reliance further highlighted the need to put in a formal succession plan.
The survey revealed that 62% of global companies do not have a formal succession plan in place for the CFO – and warned this was a ‘major risk’ for any company.
“Not having a clear CFO succession plan in place is a major risk for any company,” she said, advising companies to: “Make sure there’s a formal CFO succession plan in place; and establish clear performance objectives against which the CFO’s performance can be rigorously assessed and continually improved.”
The 2014 Survey also found that the workload of audit committees continues to grow bigger and wider. It was expanding beyond the core responsibility of financial risks into other areas such as IT, cyber-security, and global systemic risks. Forty-three percent (43%) of respondents said it was becoming “increasingly difficult” to oversee these wider responsibilities.
Graeme Edwards, Head of Audit at KPMG New Zealand, says management and Boards should be careful not to overload their audit committee members.
“Audit committee agendas are not getting any lighter,” he says.
“These survey findings should serve as a catalyst for boards and management teams to assess the adequacy of their governance processes in critical areas. It’s a good time to step back and assess whether the audit committee’s risk oversight responsibilities are appropriate.”
Strategies to better manage the workload might include reallocating responsibilities among the full Board and board committees; or creating new committees to focus on specific areas of risk.
Other findings included which risks, aside from financial reporting risk, posed the greatest challenges to their company.
Government regulation/impact of public policy initiatives was ranked as the biggest challenge, at 48% globally (and 53% among New Zealand companies).
Cumming says this is not surprising, given the increasing pressures of public policy around issues such as health and safety.
“Health and safety is currently top of mind, particularly in the wake of the Pike River disaster. The Government has signalled changes to legislation that will place more onerous responsibilities on directors, with significant consequences for non-compliance.”
In other survey findings, more than 80% of Audit Committee members wanted to see their company’s internal audit team take on broader responsibilities. They wanted to extend internal audit’s role beyond the traditional financial reporting and controls, to encompass other key risks facing the business.
Cumming says Australasian companies are well-placed to take this ‘enterprise-wide’ approach to risk management, as they are already ahead of the game having adopted it in the early 90’s making them world leaders in that context.