CAO in the New Reality, Part 2
A continued discussion of the CAO’s evolving role
The current health and economic challenges mean Chief Accounting Officers (“CAO”) are taking on a plethora of new responsibilities—from oversight to talent management to conducting virtual financial closes. As the CAO role adapts to this new reality, issues such as valuation, cash-flow modeling, impairments and internal control over financial reporting (“ICoFR”) are coming to the forefront.
KPMG recently conducted the second part of the “CAO in the New Reality” webcast to delve further into these topics. It featured guest speakers Christina Liu, CAO of Zendesk, Kimberly Hoang, Inspire Brands’ Vice President Corporate Controller, and Sarah Schubach, Senior Director, Controller at Dropbox. Moderating the panel for KPMG were Deon Minnaar, Partner of Internal Audit & Enterprise Risk, and Brian Smith, Principal of Economic & Valuation Services.
Evolution of the CAO role in the new reality
Over the years, the function of accounting has shifted from simply closing the books to delivering insights necessary for critical decision making as a strategic partner to the business, Liu said. By executing transformational activities such as scaling up systems and automating processes, CAOs have created efficiencies to focus on business partnering to help the entire organization, according to Schubach and Hoang. In the new virtual reality, Hoang stressed that CAOs must focus on keeping their finance teams engaged and high performing while allowing no space for silos by cultivating a collaborative remote working culture through strengthened communication and connectivity. Finance teams are being incredibly flexible, but they need to be encouraged to stay engaged and excited, because “Zoom fatigue is very common,” noted Schubach.
Valuation, cashflow modeling, and approach to impairments
COVID-19 has taken a toll on businesses in different ways. Some companies have been fortunate to not have any major impacts to the business nor triggering events, whereas others are not so lucky. Our CAO panelists noted that identifying triggering events from a forecasting standpoint has been challenging. Across the board, forecasting teams transitioned to daily modeling, and businesses have shifted their focus to things they could control, such as revenue generation and cost-cutting. The CAOs expressed that having a robust and powerful Data & Analytics team has been critical to obtain real-time insights into how customers are reacting to the current environment. Now, as companies evaluate the 4th quarter of 2020, it will be time to perform their required annual goodwill impairment test and CAOs hope to leverage data and insights from earlier in the year to ease the strains of year-end impairment testing.
Impacts to ICoFR
Our CAO panelists agreed that one of the top challenges relating to internal control execution in a virtual environment has been estimates. When evaluating estimates and risk ranking earlier in the year, higher on the ranking typically were accounts receivables and reserves for doubtful allowances resulting from uncertainties in the new reality. Additionally, the CAOs emphasized that certain revenue streams with a variable consideration component create additional challenges and require further scrutiny. To address risks over internal controls, CAOs and their teams are focusing on process optimization, increasing automation, improving detection controls and streamlining certain processes. Notably, a great contributor to success over internal controls has been management’s investments in an organization’s transformation efforts within the accounting and finance function.
To learn more about the COVID-19 challenges facing the CAO, access our on-demand webcast.