17-09-2012, 05:34 PM
The challenges of the modern finance function
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Abstract
The 2008 global financial crisis has changed how we judge market trends, how we look
at companies results and how much we trust the leaders of many enterprises. It also
affects how certain business functions are regarded. Accordingly, trust and confidence in
financial institutions has been decreasing dramatically and this indirectly has a negative
effect on the overall reputation of the finance profession as well. Although finance and
accounting has been evolving continuously through its history, however, it is difficult to
claim that the traditional finance function is at its utmost strengths and reputation today –
at least challenge is growing and many people claim if proper financial controls were in
place the crisis might have not been so severe or long.
Introduction
As with many other modern professions, it is difficult to trace back precisely when and
where were finance and the accounting professions were born or who were their first
practicioners. Based on Gary Giroux (1999) “The history of accounting is as old as
civilization, key to important phases of history, among the most important professions in
economics and business, and fascinating. Accountants participated in the development of
cities, trade, and the concepts of wealth and numbers”. Furthermore, James deSantis
(1999) writes that “evidence of accounting records can be found in the Babylonian
Empire (4500 B.C.), in pharaohs' Egypt and in the Code of Hammurabi (2250 B.C.).
Eventually, with the advent of taxation, record keeping became a necessity for
governments to sustain social orders.” Although the first ‘accountants' seems to have
been around since humans have started to use money in their transaction, the first person
whose name we can find in the history books is Luca Pacioli (1447-1517), who is
regarded as the father of accountancy. His groundbreaking work of the Summa de
Arithmetica, Geometria, Proportioni et Proportionalita was published in 1494 in the
renaissance Italy. Although Pacioli`s ‘Summa' has dedicated only a few chapters to
finance his concepts created the foundation of modern finance.
The 21st century finance function
While there were hundreds of books on financial methods, accounting standards there
were relatively few studies made in the area of how finance could be able to help
business grow further in the current challenging environment. The concepts proposed in
this article and the forthcoming international study is showing an alternative scenario to
tackle these issues. The study which is being carried out currently is comparing the UK,
French and Hungarian financial management practices. Acknowledging the complexity
of international research we will use anchoring vignettes (G.King, 2004) to facilitate
cross cultural comparability.
One of the criticism of traditional finance function is that it spends too much time on
analysing the past instead of looking into the future. While learning from the past is also
important, however, supporting strategic planning without looking into the future is
hardly possible. Similar problem is the orientation of focus, which in most cases inward
looking. Finding finance people who are outward focusing and using benchmarking
techniques are still very rare nowadays. The traditional inward and past focused
orientation limits finance's capabilities to help the enterprise gain competitive advantage
by closely monitoring competition via benchmarking or to gain further market trust by
providing accurate forecasting.