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Study finds risk-management role growing for SE Asia CFOs

Dec 25. 2013
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WHILE chief financial officers continue to face a wide range of demands, their role in risk management in the region became significantly more important than it was a year earlier, according to the "Deloitte Southeast Asia CFO Survey 2013", conducted in

It found that 72 per cent of the CFOs polled were more involved in risk management than 12 months earlier.

Traditionally, the role of the CFO has been one of financial management and operational responsibilities, but the focus has shifted towards risk management in recent times because of the changes in the external and internal environments their organisations have faced.

The survey found that constantly evolving global regulatory environment (67 per cent) and the increasingly stringent domestic regulations for both statutory and industry-specific reporting (58 per cent) were the biggest factors pushing the companies, and their CFOs, to pay more attention to risk management, particular in terms of compliance.

This inaugural Deloitte Southeast Asia CFO Survey was open for three weeks from October 7 and was completed by 53 CFOs representing a wide range of industries.

Another factor for the evolving role is the internal shift in companies towards compliance and risk management, with more than half (54 per cent) of the polled CFOs reporting it as a reason. Consequently, the majority (90 per cent) cited regulatory and industry compliance as their top area of involvement in risk management.

There is also a shift, or a desire for a shift, in how CFOs in Southeast Asia would like to spend their time. While they are spending more time in their “operator” and “steward” roles, more of them would like to spend their time as a “strategist” or “catalyst” instead. Nearly half (49 per cent) would like to spend only one day a week as a steward, allowing them to dedicate the rest of their time to be more strategic.

“While CFOs in Southeast Asia desire to play more strategic roles, the economic situation in the region does not allow for it,” said Hugo Walkinshaw, Deloitte Southeast Asia CFO programme leader.

“Globally, particularly in the United States of America, while chief executive officers expect CFOs to spend over 70 per cent of their time as a strategist and catalyst, most CFOs still cannot achieve this due to compliance and operational issues. This reality is also evident in Southeast Asia, where market forces make it hard for CFOs to minimise their time spent in their role as a steward.”

Top causes of stress for Southeast Asia CFOs include concerns regarding compliance, the slowing down of China’s economy, and increased competition as companies see costs rising faster than revenues.

Amid the worries, however, sentiments of the CFOs in the region were more optimistic (44 per cent) than in the third quarter of 2012. External factors such as positive developments in their industries or markets and internal factors such as their products and services and changes in their operations, financing or assets play a role in driving this optimism.

Board involvement in risk management has also become increasingly significant in the region, with 65 per cent of the CFOs reporting that their boards were involved in risk matters that included compliance. While there is a large difference between the boards’ involvement in the public sector and the private sector (88 per cent and 44 per cent respectively), this is a gap that, in recent years, is diminishing because of increased regulations and reporting requirements.

CFO optimism: 44 per cent of CFOs in Southeast Asia are more optimistic now compared with the third quarter of 2013, with external drivers such as positive development in the industry and market, and internal, company-specific factors such as products and services and changes in their operations.

This optimism differs greatly between private and public companies. About 80 per cent of the optimistic private-sector CFOs attribute internal and company-specific factors for their optimism, whereas only 50 per cent of public-sector officers note these reasons.

Overall, CFOs of public companies are less optimistic than those of private ones (35 versus 24 per cent). Almost 90 per cent of the less optimistic CFOs of public companies note external factors such as the global economic slowdown, the situation in China, US government debt, foreign-currency risks, and external compliance requirements as reasons for their pessimism.

In the technology, media and telecommunications industry, 33 per cent are more optimistic, compared with 25 per cent in the energy and resources sector. In the manufacturing space, 45 per cent of respondents are optimistic.

CFO involvement in risk management by industry: The changes in CFO involvement differ by industries. The largest change is found among CFOs of technology, media and telecommunications companies, where 89 per cent are more or much more involved in risk management, followed by 80 per cent of manufacturing CFOs. The lowest change is among energy and resources companies, where only 62 per cent of CFOs report an increase in involvement.

Reasons for CFO involvement – private versus public companies: The top reason for CFOs in public companies is external global industry changes in regulations and compliance (77 per cent). The top reason for CFOs in private companies is internal shift emphasising compliance (64 per cent).

Top five risks that CFOs are involved in: 90 per cent of the polled CFOs mention regulatory and industry compliance as their No 1 area of involvement in risk management, but only 76 per cent noted external statutory reporting. A total of 85 per cent of respondents reported that they were involved in operational risk management, while about 81 per cent were involved in strategic risk management.

As companies strive to strengthen their internal controls, 83 per cent of CFOs polled say they are involved in managing and improving internal controls as well as remediating control issues.

Top risk-reduction strategies: The top three strategies are to strengthen internal controls frameworks (90 per cent), continuous internal audit (77 per cent) and the implementation or overhaul the enterprise risk system (58 per cent).

Dedicated roles for risk and compliance: 33 per cent of the CFOs polled confirmed that their risk officer reported to them, compared with 34 per cent who report to their CEO.

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