Chief Financial Officer (CFO)

Official Role, Reporting Relationships, and Qualifications

The CFO, as an executive officer of a corporation, is among its chief administrative leaders, and he or she serves at the discretion and pleasure of the chief executive officer (CEO) and the board of directors. By law, the corporate charter, and prudent business practice, the CFO and other officers join with the board of directors to guide the organization's strategic direction and provide important oversight regarding the integrity of its operations and financial reporting and control processes. Officers owe the corporation fiduciary duties of care, loyalty, and good faith in overseeing its affairs. For tax-exempt organizations, these fiduciary duties include as well a duty of conformity to the purposes and activities that form the bases for their exemption before federal and state tax authorities.

The CFO often reports to the CEO or to a chief operating officer. In the case of a large, multisegment organization, each business unit may have a CFO, or the equivalent, who reports to its CEO. Because of the CFO's rank and portfolio of responsibilities, it is common for corporations to confer authority on their CFOs to enter into contracts on their behalf.

Many CFOs have a background in accounting, finance, and related fields, although in the United States this is a matter of business practice and preference rather than a legal or professional requirement. Many large entities select professionals with extensive experience in relevant fields, especially public accounting, and/or service in similar capacities at other business units or organizations for this role. Because of the diversity of recruitment practices, the Sarbanes-Oxley Act of 2002 § 407 requires companies that list securities in public capital markets to disclose whether at least one member of their board audit committee qualifies as a “financial expert.” If a company cannot disclose at least one such expert, it must disclose why this is not the case.

The CFO's Scope of Responsibilities: Accounting, Control, and Treasury Functions

The CFO's responsibilities include leading the financial affairs of the organization and administering its related processes, principally the accounting and control functions. Depending on the organization, the CFO's portfolio may include treasury functions as well. Within the accounting and control functions, professional staff oversee managerial and financial accounting roles, the former relating to the collection, analysis, and reporting of financial information about an entity to aid managerial vigilance and decision making and the latter having to do with preparing financial statements in accordance with applicable public- and private-sector standards, including generally accepted accounting principles (GAAP), primarily for external users.

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