Controllership

The Work of the Managerial Accountant

Steven M. Bragg

• Publisher: Wiley
• Year: 2009
• ISBN:
  9780470507810
• Edition: 8
• Topic: Commerce
• Subtopic: Comptabilité de gestion

Today's controllers are no longer seen as technicians who process transactions; they are now seen as business executives with a wide-ranging knowledge of total business operations, best practices, and corporate strategy. Providing a comprehensive overview of the roles and responsibilities of controllers in today's environment, this Eighth Edition of Controllership continues to provide controllers and vice presidents of finance with all aspects of management accounting from the controller's perspective, including internal control, profit planning, cost control, inventory, and financial disclosure.

PART I
The Broad Management Aspects of Controllership

CHAPTER 1
Accounting in the Corporation

Before a controller can delve into the specifics of the controller job description, it is first necessary to determine how the accounting function fits into the rest of the organization. This used to be a simple issue; the accounting staff processed transactions to support business operations—period. This required a large clerical staff managed by a small cadre of people trained in the underlying techniques for processing those transactions. In this environment, the stereotypical image of an introverted controller pounding away at a calculator was largely accurate.

The role has undergone a vast change in the past few decades, as technological improvements, the level of competition, and a shifting view of management theory have resulted in a startlingly different accounting function. This section describes how the accounting function now incorporates many additional tasks, and can even include the internal auditing and computer services functions in smaller organizations. It then goes on to describe how this functional area fits into and serves the needs of the rest of the company, and how the controller fits into the accounting function. Finally, there is a discussion of how ethics drives the behavior of accounting employees, and how this shapes the way the accounting staff and controller see their roles within the organization.

In short, this chapter covers the high-level issues of how the accounting function and its controller fit into the modern company, not only to process its transactions, which was its traditional role, but also to provide additional services.

Tasks of the Accounting Function

The accounting function has had sole responsibility for processing the bulk of a company’s transactions for many years. Chief among these transactions have been the processing of customer billings and supplier invoices. Though these two areas comprise the bulk of the transactions, there has also been a long history of delegating asset tracking to the accounting function. This involves all transactions related to the movement of cash, inventory, and fixed assets. Finally, the accounting staff has been responsible for tracking debt, which can involve a continuous tracking of debt levels by debt instrument, as well as the payments made to reduce them. These have been the transaction-based activities of the accounting staff.

A multitude of changes in the business environment has altered the role of the accounting function. One change has been the appearance of the computer services function. In a larger company, this function is managed within its own department and does not fall under the responsibility of the controller. However, it is common for the computer services group to fall under the management umbrella of the controller in a smaller company. Likewise, the internal auditing function frequently falls under the controller’s area. This function has expanded in importance over the past few decades as companies realize the benefits of having an internal watchdog over key controls. Though it should report directly to the Board of Directors, it is common for a small internal auditing staff to report instead to the controller. It is becoming more common for the computer services and internal auditing functions to be integrated into the role of the accounting staff, especially in smaller companies.

Besides adding new functional areas, the accounting staff has other new responsibilities that have arisen due to the increased level of competition. With worldwide barriers to competition crumbling, every company feels the pinch of lower competitive prices and now asks the accounting staff to provide analysis work in addition to the traditional transaction processing. These tasks include margin analysis on existing or projected product lines, geographic sales regions, or individual products. In addition, the accounting staff may even be asked to serve on new product design teams, so that they can determine the projected cost of new products, especially in relation to target costs. Further, the accounting staff must continuously review and report on nonproduct costs, which can range from advertising to utilities. This level of cost review and reporting calls for a different kind of accounting staff than the traditional kind that did nothing but process large volumes of transaction-related paperwork. It now requires highly trained cost accountants and financial analysts to conduct the work.

The world of business has become more international. Many companies are doing an increasing volume of business with companies based in other countries. This greatly increases the complexity of accounting, for a company must now determine gains and losses on sales to other countries. There may even be bartering transactions with organizations that do not have ready access to currency. In addition, if there is no separate finance function, the accounting staff may be called on to handle letters of credit and hedging transactions that are designed to reduce the level of risk that goes with foreign dealings. All of these issues call for a level of skill that was not required in the days of simple transaction processing.

In the face of more intensive competition, many companies are also merging or acquiring subsidiaries. This adds a great deal of complexity to the accounting staff’s work, for it must now coordinate a multitude of additional tasks in other locations. This includes setting up standard procedures for the processing of receipts, shipments, and cash. Also, closing the financial books at the end of each reporting period becomes much more complex, as the accounting staff must now coordinate the assembly and consolidation of information from multiple subsidiaries. Even if a company decides to consolidate all of its accounting facilities into one central processing location to avoid all this trouble, it still requires the management expertise to bring together the disparate accounting systems into a smoothly operating facility. This is not an easy task. The environment of mergers and acquisitions greatly increases the skill needed by the accounting staff.

The tasks of the accounting function are itemized below. The tasks that belong elsewhere—but are commonly given to the accounting staff in a small company—are noted under a separate heading.

• Traditional accounting tasks
  • Accounts payable transaction processing
  • Accounts receivable transaction processing
  • Asset transaction processing
  • Debt transaction processing
• New accounting tasks
  • Coordination and consolidation of accounting at subsidiaries
  • Currency translations
  • Margin analysis
  • Nonproduct cost analysis
  • Operation of accounting software
• New tasks assigned to the accounting function of smaller companies
  • Hedging and letter-of-credit transactions
  • Internal auditing programs

Given today’s highly volatile and ever-changing business environment, the only safe statement to make about the new activities presented in this section is that they will become only more complex, requiring even greater skill by the accounting staff to be accomplished in a manner that is both efficient and effective.

Role of the Accounting Function

Having noted the expanded number of tasks now undertaken by the modern accounting function, it is important also to note how the role of the accounting staff has changed in relation to the rest of the company.

When the number of accounting tasks was more closely defined around transaction processing, it was common for the accounting staff to be housed in an out-of-the-way corner of a business, where it would work without being impeded by other functions. Now, with a much greater number of tasks, the accounting staff finds itself involved in most major decisions. For example, the cost accountant is expected to serve on product design teams and to let other team members know if new designs will have costs that will meet targeted cost goals. An accounting analyst may be asked by the sales manager to evaluate the profitability of a lease deal being extended to a customer. The controller is frequently asked to sit in on executive committee meetings to give opinions on the cash flow issues for acquisitions or purchases. The accounts receivable clerk may work closely with the sales staff to collect overdue invoices from customers. For these reasons and others, the accounting function now finds itself performing a variety of tasks that make it an integral part of the organization.

A particularly important area in which the role of the accountant has changed is related to processes. When another area of the company changes its operations, which is increasingly common, the accounting staff must devise alterations to the existing systems for processing transactions that will accommodate those changes. For example, if the manufacturing function switches to just-in-time production or computer-integrated manufacturing, this has a profound impact on the way in which the accounting staff pays its bills, invoices customers, monitors job costs, and creates internal reports. Also, if the materials management staff decides to use material requirements planning or integrated distribution management, these new systems will issue information that is of great use to the accounting staff; it should connect its systems to those of the materials management staff to access that information. To alter its processes, the accounting staff must first be aware of these changes, requiring the accounting staff to engage in more interaction with other parts of the company to find out what is going on.

The most historically important role that the accounting staff must change is that of being a brake on other activities. Because most accountants are trained in implementing controls to ensure that assets are not lost, the accounting staff tends to shoot down changes proposed by other departments—the changes will interfere with the controls. The accounting personnel must realize that changes put forward by other functions are not intended to disrupt controls, but to improve the company’s position in the marketplace or to increase its efficiency. This means that some controls must be modified, replaced, or eliminated. It is very helpful for the accounting personnel to have an open mind about altering systems, even when the new systems interfere with the accounting staff’s system of controls.

In today’s increasingly competitive environment, it is very important for companies to develop strong relationships with their key suppliers and customers. These business partners will demand extra services, some of which must be fulfilled by the accounting staff. These changes may include the provision of special billing formats to customers or paying suppliers by electronic transfer. If these steps are needed to retain key business partners, then the accounting staff must be willing to do its share of the work. Too frequently, the accounting staff resists these sorts of changes, on the grounds that all transactions must be performed in exactly the same manner. The accounting department must realize that altering its way of doing business is sometimes necessary to support ongoing business relationships.

Altering the focus of the accounting staff from an introverted group that processes paper to one that works with other parts of a company and is willing to alter its systems to accommodate the needs of other departments is required in today’s business environment. This is in great contrast to the accounting department of the past, which had a minimal role in other company activities, and which was its conservative anchor.

Role of the Controller

The controller has tr...