CFOs are removing some of the barriers that have traditionally existed between treasury and procurement functions.
Julian Eyre, a commodities and corporate treasury specialist at the financial technology provider OpenLink, pointed out that this is necessary as international commodity prices enter a period of volatility. He believes corporations are in danger of being hurt by commodity price swings if they have poor risk management in place. Accountants can play a role in controlling these problems.
“There are specific areas where the accounting function is becoming increasingly important,” said Eyre in an interview last week. “The first is this trend toward globalization of operations, the centralization of accounts or legal entities into a central global role.”
He sees the need for a global treasury role or global CFO function where accountants can manage complex inter-organizational or inter-account transfers, along with netting and offsetting across multiple legal entities within a global corporation.
“This requirement is further enhanced for changes in some of the reporting standards, such as IFRS 9, and specifically the hedge accounting, hedge allocation and hedge efficiency requirements, where the accountants need to be able to accurately report hedge allocation across portfolios and across legal entities in the right time bucket,” he added.
OpenLink is noticing further trends that could affect the jobs of corporate accountants. “In the past 18 months or so, we are seeing an increasing number of ex-banking staff joining global multinational corporates to bring additional levels of expertise across both corporate treasury and procurement,” said Eyre. “The result is that they need to have more powerful systems and tools to bring this additional level of skill to these businesses, and this is also driving an accounting requirement underneath.”
OpenLink markets its technology mainly to CFOs and treasury executives at companies.
“We tend to engage with the CFO or the global head of treasury in order to understand a little bit more about the issues that they face,” said Eyre. “For example, a lot of organizations on a global basis may have a natural hedge where they have global revenues and global expenses that tend to offset, and they need to make sure that they have a strong, reliable, timely view of their exposures across multiple currencies, cash flows and other treasury activities. But another function of this, for example, around working capital and cash flow management, is the increased volatility in the raw materials.”
Many organizations scrutinize their budgets early in the calendar year or fiscal year, he pointed out, and they can anticipate future cash flow based on their procurement spending.
“Then what happens is they get increased volatility in those raw materials, and they have to make additional allocations for working capital across the raw material spend group to address this change in volatility,” said Eyre. “The big foreign exchange moves also drive a similar example. So it’s about making sure they have access to the information that they need, perhaps moving away from a monthly process toward weekly or, ideally, daily.”
Eyre sees a need for CFOs to get a better grasp of how their companies’ commodity exposure fits in with their traditional treasury and finance exposures. He believes many traditional enterprise resource planning software systems fall short of accomplishing that.
“I think that’s a big challenge for the CFO and the finance department in order to try and expedite and make that more agile,” he said.