How CFOs & Audit Committees Build Collaborative Relationships - Boardroom News & Insights

How CFOs & Audit Committees Can Build Collaborative Relationships

The relationship between the board and senior management has always been important. However, the way CFOs relate to the board’s audit committee deserves special attention. This is not only because of the audit committee’s role in overseeing financial reporting but also because of a critical shift taking place in the CFO’s role. 

These leaders are increasingly expected to become strategists, helping the company make informed decisions about future direction and growth. Because of these changing expectations, it’s more important than ever for CFOs to learn to communicate and collaborate well with audit committees. With that in mind, the seven ways a CFO can accomplish that goal involve:

  1. Open the Lines of Communication.
  2. Strengthen Relationships in the C-Suite.
  3. Facilitate Talent Development.
  4. Have a Firm Grasp on the Issues.
  5. Offer Insight on Performance & Outcomes.
  6. Manage Risks Effectively.
  7. Articulate the Story to Stakeholders.

Let’s take a closer look at each of these strategies and what CFOs can do to activate them efficiently, effectively, and successfully.

1. Open the Lines of Communication.

No one gets to the level of CFO without being able to do their job effectively.

As a member of senior management, the CFO is expected to anticipate problems and have a plan to prevent or manage them before they happen.

If surprises arise regularly, this could be a sign of poor management skills. 

Instead, the CFO should be meeting regularly with the audit committee chair. With this:

  • The two can start to develop a solid working relationship.
  • The CFO has the opportunity to discuss any unexpected challenges.
  • No one is making decisions without the full scope of information.

2. Strengthen Relationships in the C-Suite.

Since it is the CEO’s job to drive strategic thinking at the company, the CEO and CFO should partner well together. This means that any CFO the board chooses must be able to build trust, be responsive to communication from the CEO, and display accountability in all actions. 

How the CFO handles this relationship is also a good indication of how they might handle relationships with the rest of the C-suite executives. If the CFO is provocative or domineering, they’ll have difficulty building trust and rapport. The key is to be able to challenge other executives on serious issues without alienating the team.

3. Facilitate Talent Development.

The audit committee takes on the responsibility of overseeing the finance organization.

Therefore, it wants to ensure that it hires the very best talent so the department is staffed with the skills and expertise it needs. 

The CFO should:

  • Determine how to win the committee’s confidence in the company’s employees
  • Showcase their valuable knowledge and experience
  • Share their plan and the actions they’ve taken to develop a talent pipeline
  • Invest in development for individuals who want it

Inspiring confidence in the company’s current employees and the CFO’s succession planning capabilities highlights the CFO’s skills as a leader. It also emphasizes their suitability for other roles — perhaps they would like to pursue the CEO position or become a non-executive director someday.

4. Have a Firm Grasp on the Issues.

While the CFO may not be a CPA, the organization still expects them to stay on top of both the business and accounting issues the company is facing. This gives the CFO a clearer and more complete picture of the organization’s finances and greater insight into what they need to do to meet their company’s strategic needs.

The chief accounting officer and external auditors can be helpful sources of information about the organization’s accounting, finance, and business issues. For those who don’t have an extensive background in the industry they currently work in, industry briefings can also provide valuable insight.

5. Offer Insight on Performance & Outcomes.

The CFO’s job entails much more than simply providing financial reports or telling the CEO what has happened in the recent past. They must also be able to look to the future, deliver a strategic vision, and provide plans for how the company might achieve it. 

As the CFO issues quarterly earnings guidance disclosures, the audit committee should look over the reports to ensure they are releasing investor-grade information that fulfills both the company’s legal obligations and its promises to investors to make decisions with the most robust and up-to-date information available. 

6. Manage Risks Effectively.

A CFO must maintain a clear understanding of the risks the organization is facing, including:

  • Financial reporting and tax compliance risks
  • Debt and liquidity risks
  • M&A risks
  • Process risks
  • Talent management risks
  • Supply chain risks
  • Data security risks
  • Geopolitical and environmental risks

Each of these risks can potentially impact the business’s financial outlook, and it’s a good idea for the CFO to have regular strategic conversations with the audit committee about what that impact could look like and how to mitigate it. 

As a member of senior management, the CFO must show the committee that they can see potential issues coming down the pipeline and that they have a plan to keep the business out of harm’s way.

7. Articulate the Story to Stakeholders.

The CFO is the best person to articulate the company’s financial story to investors, employees, customers, the board, and the general public. The audit committee wants to see that rather than just reporting on the numbers, the CFO can communicate with all stakeholders about what those numbers mean for the future of the business. 

Communicating well helps the CFO build positive relationships with key stakeholders, and this in turn establishes credibility and enhances the company’s image. The ability to clearly demonstrate how the company’s financial decisions are creating value and driving growth is a skill worth pursuing for CFOs who want to successfully manage their relationship with the board.

Successful Relationships Move Companies Forward

There’s no getting around the fact that CFOs and audit committees need each other. Consequently, it is in the business’s best interests for these two parties to learn to work together effectively. 

Maintaining open lines of communication and ensuring CFOs work to build positive relationships with the board and senior leaders is a great start. However, it’s also vital that CFOs have the ability to articulate complex accounting and business issues. In addition, they must understand the broad range of risks that can potentially impact the business’s financial outlook. 

Because the CFO is the audit committee’s connection to organizational management, building and nurturing a solid relationship is necessary. This not only makes everyone’s job much easier but also ensures a greater level of success for the company as a whole. 

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