As Regulatory Costs Grow, the Accounting Chief’s Duties Add Up
Kimberly S. Johnson
There’s a new VIP in the corporate finance department: the chief accounting officer. These senior-level accountants have long been a fixture at large multinational companies. But, thanks to the cost and intricacies of today’s regulatory and accounting requirements, their numbers have multiplied and their duties have expanded beyond managing their company’s books and preparing financial statements.
"The [chief financial officer] can’t individually do it all, but running the stress tests" to predict the impact of regulatory changes, "that’s my responsibility," said MetLife Inc. Chief Accounting Officer Peter Carlson. "It allows [the CFO] to do more externally and strategically."
Since 2009, there’s been nearly a 40% rise in the number of chief accounting officer titles, according to findings from Russell Reynolds Associates.
Companies are "looking for a higher level of strategic chief accounting officer," said Kristi Walters, executive director of executive recruiting firm’s CFO practice. They "need someone who’s willing to stand up and debate or give other ideas," about the best way to balance the spreadsheet, Ms. Walters said.
As the CFO’s right hand, accounting chiefs are tackling thorny issues, such as when and how to recognize revenue, or how to report to quarterly numbers to comply with both U.S. and foreign accounting standards.
They are also taking on new burdens. Like Metlife’s Mr. Carlson, many accounting chiefs attest to the accuracy of their company’s quarterly and annual financial filings. Their signature on these documents makes them liable–along with the CFO and chief executive—if the numbers turn out to be false.
Making heavy-hitting specialists more accountable for financial reporting might be having a positive effect. Since 2005, the number of large companies warning regulators that their prior financial statements might not be valid dropped 90%, according to data and research firm Audit Analytics. That suggests improvement in the safeguards companies use to prevent fraud and miscalculations.
Companies are placing heavier emphasis on such internal controls since the Sarbanes-Oxley corporate-governance law of 2002, "so all of a sudden you’re going to have to have someone with more skills to handle it," said Don Whalen director of research for Audit Analytics.
At many companies, the accounting chief’s job has broadened to include multiple types of accounting. Mr. Carlson’s job at MetLife changed in 2010 when the company acquired a foreign life insurance unit from American International Group for $16.2 billion. Now, a third of MetLife’s operating profit comes from outside the U.S. Keeping financial records that comply with accounting and insurance rules in the U.S as well as international standards adds to the complexity, he said.
So, too, does doing business with the federal government, which requires its own form of accounting, said Barbara Niland, CFO of shipbuilder Huntington Ingalls Industries Inc. This month the company promoted Assistant Controller Nicolas Schuck, to accounting chief.
Ms. Niland says that having a chief accounting officer frees her up to develop strategy and interact with the board and investors.
While some companies consider controllers akin to chief accounting officers, a controller doesn’t always fit the bill. "I think what happened over the last 15 years is that the accounting function started to separate from the controller function," said Gary Kabureck, former chief accounting officer at Xerox Corp.
During his 12 years as chief accounting officer, a separate controller focused on budgeting and planning, while Mr. Kabureck was responsible for the nuts and bolts of global bookkeeping.
He also attended every meeting of the board’s audit committee and personally wrote more than two dozen comment letters to standard-setters such as the Financial Accounting Standards Board.
"My job was to know the finer points of generally accepted accounting principles," said Mr. Kabureck, now a member of the International Accounting Standards Board, which sets financial reporting rules for more than 100 countries.
"The role needed someone diplomatic, with a backbone. I was the signing officer; I was the first one going down if things blew up," he said.
As the cost of regulatory compliance and the consequences of a slip-up mount, many companies are willing to pay six to seven figures a year for a top-notch accountant in exchange for peace of mind. Simone Lagomarsino, chief executive of Calif.-based Heritage Oaks Bancorp, said that so far this year it is spending four times as much as last year on compliance and risk management to cope with an increase in mortgage and banking requirements.
Last week Heritage promoted controller and chief accounting officer Jason Castle to CFO. Mr. Castle said his time as the company’s lead accountant gives him a deep understanding of the controls involved in steering a regional bank in a highly regulated environment.
It isn’t very common for a chief accounting officer to rise to CFO. Currently only 20% of finance chiefs promoted internally have such a background, according to executive recruiter Korn/Ferry International. But that might be changing. Last month, 11 companies promoted a controller or chief accounting officer to finance chief, according to a Wall Street Journal analysis.