Tag: CFO

How Can A CFO Become A More Strategic Business Partner? | Sherpas in Blue Shirts

Two years ago, I blogged about the switch from CIOs to CFOs as the new influencer in technology spend decisions. Fast forward to today, and there’s a lot of talk about how CFOs can become a more strategic partner to the business by adding more value. There are a couple of approaches that companies take to achieve this objective, but, alone, these tactics don’t achieve the desired outcome.

One thesis, as described in a recent SandHill article, is that companies need to implement different software to capture and integrate data from multiple sources so the CFO will have the framework for data-driven opinions to present to the C-suite.

In the context of the CFO role, what is strategic?

Read more at Peter’s Forbes blog

The Industry-Wide Significance of Accenture’s PureApps Acquisition | Sherpas in Blue Shirts

Accenture recently announced its acquisition of PureApps, a UK-based Enterprise Performance Management (EPM) provider.  Our understanding is that it’s a full-service provider for all Oracle Hyperion EPM and BA solutions. Nevertheless, PureApps is a small firm and the revenue won’t make a noticeable difference to Accenture. So why is Accenture buying PureApps? My opinion: they are buying a niche player as an influence point with a stakeholder group that is growing in importance in the technology and in BPO services.

PureApps’ services in implementing Oracle Hyperion give them relationships at the office of the CFO. As I recently blogged, the office of the CFO is growing in influence for tech spend, especially in the transformation space. With this acquisition, Accenture gains the advantage of a set of services and immediate credibility in serving CFOs.

This is a nice — and important — acquisition as it gives Accenture the following benefits:

  • Enables more relevance and a counter play to the CFO access sphere that Deloitte and the Big Four consulting firms currently enjoy for large-scale transformation projects.
  • Strengthens Accenture’s position in the European markets.

Bottom line: the acquisition is a smart play for stable growth in the core consulting/transformation space, which will continue to grow as the digital world gains momentum.

Accounting for Outsourcing Costs: Expense or Capitalize? | Sherpas in Blue Shirts

A question we often receive from CFOs in the U.S. is how to treat the costs associated with outsourcing.

In 2007, Everest Group wrote a well-researched white paper on this topic, citing U.S. Generally Accepted Accounting Principles (GAAP). While seemingly a long time ago, the conclusions in the paper are still very true today, with minor updates.

Following are our suggestions on accounting treatment for four key categories of outsourcing costs: (In addition, see how our Finance and Accounting research helps orgs optimize global F&A operations).

# Cost Category Advised Treatment*
1. Exit or restructuring costs: These are costs related to employee termination benefits, contract termination, employee relocation, and facilities consolidation. These may include, but are not limited to: costs incurred in selling or otherwise disposing of a part of the business; consolidating and/or closing selected sites; and relocating operations from one site to another. The key here is that the cost must be incremental to other costs incurred in the course of normal operations, or be associated with a contract that will either be terminated or completed. Expense: Outsourcing implementation costs almost always need to be included in results from continuing operations, but restructure costs can be disclosed on a line item basis within the income statement.
2. Asset impairments: These are costs related to asset retirement abandonment or sale (primarily related to the IT infrastructure); an asset becomes impaired when its carrying value exceeds its fair market value. This can also be classified as a restructure cost.Note: A sale of assets by a client to a service provider at a price above FMV does not eliminate the requirement to record an impairment. Expense: Should be included in the income statement in results from continuing operations.
3. Transition and transformation costs: These are costs related to assessment, process reengineering, solution design, workforce redesign, and parallel processing. These includes costs associated with the preparation and administration of the RFP process, current state assessment, recruiting, training, and internal-use software acquisition, development, and implementation.Note: A scenario in which the service provider initially incurs these costs and then either re-bills them to the buyer or bundles them with future service fees does not eliminate the requirement for the buyer to recognize an expense. Expense: Although transition and transformation costs are not recorded on a line item basis in the income statement, these costs need to be disclosed in the footnotes to the financial statements if they are material in amount.
4. Software implementation costs: These are costs strictly associated with the application development stage – acquisition license fees, configuration and integration, custom coding, installation to hardware, testing and parallel processing, and primary data conversion costs.Note: Most other software-related costs (implementation planning and evaluation, user training, and post-implementation operating) should be classified as transition or transformation costs, and must be expensed in the period they are incurred. Capitalize: Most of the costs associated with the application development stage may be capitalized.

 

As noted above, both exit and asset impairment costs should, in most instances, be disclosed in results from continuing operation, although they may qualify for disclosure as restructuring cost. However, if they are the results of an exit or disposal activity that involves a discontinued operation as defined in accounting standards codification section 205-20, they should be included within the results of discontinued operations.

For further information on the timing of expense recognition and the technical nature of the accounting treatments, readers should reference the following authoritative sources applicable in accounting standards codification section:

  • 205-20: Presentation of Financial Statements – Discounted Operations
  • 350-40: Intangibles–Goodwill and Other – Internal-use Software
  • 360-10: Property, Plant and Equipment
  • 420-10: Exit or Disposal Cost Obligations
  • 720-45: Other Expenses – Business and Technology Reengineering 

The U.S. Securities and Exchange Commission (SEC) recognizes the financial accounting and reporting standards of the Financial Accounting Standards Board (FASB) as “generally accepted” for purposes of the federal securities laws. The SEC is strongly committed to a single set of global standards, and recognizes that International Financial Reporting Standards (IFRS) is best-positioned to serve the role of that single set of global standards for the U.S. market and the ongoing convergence process between the FASB and the International Accounting Standards Board (IASB). The SEC does not permit its domestic issuers to use IFRSs in preparing their financial statements; rather, it requires them to use US GAAP. The SEC permits but does not require its foreign private issuers to use IFRSs as issued by the IASB in preparing the issuer’s financial statements.
* This guidance is based on Everest Group’s advice to its clients. In addition, the information is based on U.S. GAAP, and may not be in exact alignment with IFRS and IASB. Buyers should always consult with both their internal financial accounting staff and external auditors to determine how they should address the specifics of their situation.

Changing Influence in Tech Spend | Sherpas in Blue Shirts

Recently I had a conversation with an executive at a large software house known for its ERP. One of many things that struck me in our conversation was the change in whom the sales team targets. Their primary target is no longer the CIO; now it’s the CFO.

Apparently, in today’s business outcomes-driven world, CIOs are no longer authorized to drive tech spend decisions of this type, nor do they have the ability to write the check.

As I reflect on this change in decision rights and executive focus, I don’t find it at all surprising; after all, it is consistent with what I’ve blogged about several times. As she put it, the reasons for buying technology today are driven much more by business need and the impact that the technology can drive; it’s increasingly less about the technology itself. In this shift in mindset, the CFO and senior business stakeholders have become more influential because they have the best understanding of the business impact needed from the technology.

The lesson for a global services business

If the technology players are shifting their focus to the CFO as the influencer of tech spend, I think this underlines the changing dynamics or decision rights for the global services industry and the imperative to engage with and serve others outside of the CIO.

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