COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (cfoS .
Consultation PaperCompetency Framework for CFOsin Public Interest Entities /201614 December 2016Invitation to comment on Consultation PaperCompetency Framework forChief Financial Officers(“CFOs”) in Public InterestEntitiesIssued for CommentResponse Due Date: 16 January 2017
THE MALAYSIAN INSTITUTE OF ACCOUNTANTS INVITES COMMENTS ON THE COMPETENCYFRAMEWORK FOR CHIEF FINANCIAL OFFICERS (“CFOs”) IN PUBLIC INTEREST ENTITIES.The Malaysian Institute of Accountants (“MIA”) has approved the release of this consultation paper on25 October 2016 for distribution to members and other interested parties for comments. Theproposals in this consultation paper may be modified in the light of comments received before beingissued in final form.The consultation paper provides a guideline on the core functions of a CFO and addresses thecompetencies and qualities needed for a person signing the statutory declaration as the officerprimarily responsible for the financial management of a company.MIA looks forward to receiving comments on this consultation paper from members and otherinterested parties. MIA welcomes comments on all matters addressed in the consultation paper.Comments are most helpful when they refer to specific paragraphs, include the reasons for thecomments, and, where appropriate, make specific suggestions for any proposed changes to wording.When a respondent agrees with proposals in the consultation paper, it will be helpful for MIA to bemade aware of this view.Comments are to be submitted electronically by 16 January 2017. Unless respondents requestconfidentiality, their comments are a matter of public record. All comments are to be directed to:The SecretariatProfessional Accountants in Business CommitteeDewan AkauntanUnit 33-01, Level 33Tower A, The VerticalAvenue 3, Bangsar South cityNo. 8, Jalan Kerinchi59200 Kuala LumpurTel : 03 2722 9000Fax : 03 2722 9100Email : hafsah@mia.org.my and zulfa@mia.org.myCopyright (2016) by the Malaysian Institute of Accountants (MIA). All rights reserved.The Malaysian Institute of Accountants’ logo appearing on/in this publication is a registered trademark of MIA. No part of thispublication either in whole or in part may be copied, reproduced, recorded, distributed, republished, downloaded, displayed,posted, stored or transmitted in any form (tangible or intangible) or by any means, including but not limited to electronic,mechanical, photocopying, scanning or audio/video recording, information storage or retrieval system for any purposewhatsoever without prior express written permission of MIA. Such request can be emailed to the Strategic CommunicationDepartment at: communications@mia.org.my"Permission is however granted to any person to make copies of this publication provided that such copies are strictly forpersonal use or fair use in the academic classrooms. Such copies shall not be sold or disseminated and each copy shall bearthe following credit line – “Used with the permission of the Malaysian Institute of Accountants”.Any unauthorized use of this publication and/or any creation of a derivative work therefrom in any form or by any means isstrictly prohibited and may violate the relevant intellectual property laws. In the event of any violation or infringement of MIA’scopyright and/or logo, MIA will not hesitate to take legal action for such violation and/or infringement.”Disclaimer Statement to be included in publicationsThis publication contains general information only and MIA shall not, by means of this publication be construed as renderingany professional advice in relation to any matter contained in this publication. This document shall not be used as a basis forany decision or action that may or may not affect your business. Before making any decision or taking any action that may ormay not affect your business, you are advised to consult an independent professional advisor.Whilst every reasonable care has been taken in preparing/compiling this document, MIA makes no representations orwarranties of whatsoever nature (either expressly or impliedly) in respect of this publication including but not limited to theaccuracy, suitability, reliability or completeness of the information contained in this publication.Please take notice that under no circumstances will MIA, its Council members, directors and employees be liable to any personor business entity for any direct or indirect losses, costs or damages howsoever arising including due to the use of and relianceof any information contained in this publication.
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESTable of ContentsDefinitions41.0Introduction52.0Duty of Care of a CFO73.0Responsibilities over the financial statements84.0Guiding Principles for CFOs of a PIE85.0Roles of a CFO in a ppendix 1:Laws and Regulations Affecting CFOs1. Requirements under the Companies Act, 1965 Relevant to CFOs2. Requirements under Bursa Listing Requirements relevant toCFOs3. Requirements under the Capital Market Services Act, 2007relevant to CFOsAppendix 2:Cases Involving Chief Financial Officer in Malaysia and OtherJurisdictionsAppendix 3:Training Needs Analysis3
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESDefinitions1.Chief Financial Officer (CFO)The person primarily responsible for the financial management of a company, the mostsenior person involved in the finance function of an organisation, who signs off thestatutory declaration on the correctness of financial statements in accordance with theCompanies Act, 1965 in Malaysia.2.Public interest entitiesPublic interest entities refer to those entities that are currently specified under Part 1 ofSchedule 1 of the Securities Commission Malaysia Act 1993 (SCMA). They include –(a) A public listed company or corporation listed on the stock exchange;(b) A bank licensed under the Financial Services Act 2013;(c) An insurer licensed under the Financial Services Act 2013;(d) A takaful operator licensed under the Islamic Financial Services Act 2013;(e) An Islamic bank licensed under the Islamic Financial Services Act 2013;(f) A financial institution prescribed under section 212 of the Financial Services Act 2013 orsection 223 of the Islamic Financial Services Act 2013;(g) A development financial institution prescribed under the Development FinancialInstitutions Act 2002;(h) A holder of a Capital Markets and Services Licence for the carrying on of the regulatedactivities of dealing in securities, dealing in derivatives or fund management;(i)An exchange holding company approved under the securities laws;(j)An exchange approved under the securities laws;(k) A central depository approved under the securities laws;(l)A clearing house approved under the securities laws;(m) A self-regulatory organisation recognised under the securities laws;(n) A private retirement scheme administrator approved under the securities laws;(o) A trade repository approved under the securities laws; and(p) The Capital Market Compensation Fund Corporation.4
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIES1.0IntroductionThe present business environment is constantly evolving with requirements andexpectations of stakeholders for corporations to be more competitive to remainrelevant and sustainable. The Malaysian Institute of Accountants (MIA) posits that theprospects for growth of the Malaysian capital market will continue as long as it has astrong and facilitative regulatory framework supported by high quality and reliablefinancial information, which builds trust and confidence in the marketplace.Quality and reliable financial information is a prerequisite for effective decision makingthat formulates and drives strategy and shapes the financial profiling and valuecreation activities of the company. To achieve this, a company needs to strengthen itsfinance function by equipping its human capital with professionals who have therequisite skills and expertise not only at the technical and operational level but also atthe strategic and managerial level.In December 2015, the MIA held its first Roundtable to gather opinion and deliberateon a proposed competency framework for accountants to enhance the quality offinancial reporting of listed issuers in Malaysia. This emanated from an earlierdiscussion with Bursa Malaysia where concerns were raised regarding thesubstandard quality of financial reporting of some public listed companies.This Proposal Paper focuses on the role of the CFO, the most senior person of thefinance function, in a PIE. The principles put forth and matters deliberated may also beapplicable in varying degrees to other entities including small and medium enterprises.Application for such other entities should be done with the understanding that thediscussion in this Proposal Paper is focused on CFOs in PIEs.The first Roundtable established the need for a framework for preparers thatessentially addresses the competencies and qualities needed for a person signing thestatutory declaration as the officer primarily responsible for the financial managementof a company. The majority of the Roundtable participants agreed that this particularperson ought to be the Chief Financial Officer (CFO), the most senior person involvedin the finance function of an organisation. It is, therefore, critical to determine thecompetencies needed in view of the tasks incumbent of a CFO and the mountingpressure and expectations of a person in this role from the Board of Directors,investors and other5
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESrelevant stakeholders. References were made to articles by the InternationalFederation of Accountants (IFAC) and best practices abroad in assessing the remit ofa CFO.In the second Roundtable, participants debated over the appropriate balance betweenthe stewardship and leadership role of a CFO. Reference were made on three mainstudies namely:i.The DNA of the CFO - A Study Of What Makes A Chief Financial Officer, Ernst &Young, 2010.ii.New Skills, Existing Talents - The New Mandate for Finance Professionals inSupporting Long-term Business Success, CGMA Bath Report, July 2012.iii.Beyond the Numbers: The Evolving Leadership Role of the CFO – CanadianFinancial Executives Research Foundation (CFERF), 2011.There is evidence of growing expectation for CFOs to assume more of a leadershiprole in driving the business but the question remains on whether CFOs can afford toneglect or lessen his stewardship role without jeopardising the mandate to comply withregulatory requirements.Taking into consideration the views shared, there was unanimity that the personmaking the statutory declaration on the financial statements has a duty of care to usersof financial statements and therefore should demonstrate strong competency.Notwithstanding the expectation that a CFO having a recognised professionalqualification would have the required technical skills, it was recommended that a CFOshould have specific training and continuous education to keep abreast of the latestdevelopments in the profession.With the establishment of the Implementation Committee (IC) of the Committee toStrenghten the Accounting Profession (CSAP), any proposals by the IC will be reviewedby regulators such as the SC and the AG’s Office who are members of the IC. Therelevance of the above development to the Roundtable is that members of theRoundtable had agreed that the preparers need to be regulated and not just theauditors, thereby promoting parity in treatment.Input from the roundtable is important in forming a view points to be put to the IC forconsideration on the following areas: What form of regulation would be imposed on preparers?6
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIES What is expected of a CFO? What analysis can be done to identify the gaps in competencies?It was determined in the third roundtable that the IFAC’s “Principles Guiding theExpectation of CFOs” and EY’s “Component Parts of the CFO Role” are sufficientlycomprehensive to provide guidance for CFOs in preparing themselves to drivesustainable value creation in their organisations. From a Malaysian context, furtherdeliberation was made to discuss the technical competency for compliance with lawsand regulations for categories of CFO with 3 different qualification backgrounds toaddress potential competency gaps.The ensuing sections of this Paper firstly set out the guiding principles and the roles ofCFOs and then focuses on and provides recommendations to address the potentialcompetency gaps in CFOs in two main categories:(a)Preparation of financial statements and external reporting in compliance withaccounting standards and relevant laws and regulations(b)Competency in financial management, strategy development and execution andcommunication with stakeholders.2.0Duty of care of a CFOApart from a duty under contract with the organisation that employs the CFO, the CFOis subject to the requirements under the Companies Act, 1965. The Companies Act,1965 contains relevant sections through which a CFO can be potentially charged,including Section 364 False and misleading statements, Section 366 Fraudulentlyinducing persons to invest money and Section 368 Fraud by officers. In addition, aCFO of a public entity is required to comply with the Bursa listing requirements andCapital Market Services Act 2007.A breach of duty of care may lead to potential legal action through regulation, civil lawor contract law. In Malaysia and other jurisdictions, there have been cases broughtagainst CFOs. A list of relevant laws and regulations affecting CFOs such as Bursaare included in Appendix 1. Examples of cases in relation to legal charges beingbrought against CFOs are included in Appendix 2.3.0Responsibilities over the financial statements7
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESThe Companies Act, 1965 has specific requirements for the signature of the followingpersons with respect to the financial statements of a company: Directors (under Section 169(15)) Auditors (under Section 174(1) & 174(2)) The person primarily responsible for the financial management of the company(under Section 169(16))It is important to highlight that whoever signs off on the financial statements as theperson primarily responsible for the financial management is ultimately responsibleover the correctness of the financial statements under Section 169(16) of theCompanies Act, 1965 regardless of whether the work was done by that person directly,delegated internally or outsourced.This paper defines the CFO (or equivalent) as the person primarily responsible forfinancial management, the most senior person involved in the finance function of anorganisation. It was established by the majority of the Roundtable participants that thisperson should be sufficiently competent to opine on the correctness of the financialstatements and therefore this person should be an MIA member who not only has acertain level of technical competency and work experience to qualify as a member butalso undergoes continuous professional development as required by the membership.4.0Guiding Principles for CFOs of a PIEAs a guidance to prepare professional accountants for finance leadership, it isrecommended that IFAC’s 5 key principles be used to guide the role and expectationsof a CFO of a PIE.These five key principles establish a framework for understanding the changingexpectations, scope and mandate of the person who exercises leadership in the mostsenior finance management position in an organisation. It captures the keyrequirements of the CFO’s role and highlights what professional accountants need todo to prepare for finance leadership, as well as the benefits of a professionalaccountant serving as the CFO.Principles Guiding the Role and Expectations of a CFO8
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESA professional chief financial officer (CFO) should:i.Be an effective organisational leader and a key member of seniormanagement.A CFO’s primary responsibility is to provide shared leadership and vision to theorganisation, its employees, and other key stakeholders. A CFO has a pivotal rolein facilitating all organisational parts to reach common performance objectives. ACFO also has the role to facilitate organisational accountability and transparency,while providing strategic leadership.A CFO owns the task of maximising expected economic value, while taking intoaccount wider sustainability considerations and other stakeholder interests. It iscritical for the CFO to build effective relationships and this requires the CFO to bean effective and influential communicator and negotiator.ii.Balance the responsibilities of stewardship with business partnership.The CFO’s role requires an appreciation of the importance of the dual aspects ofconformance and performance. While the nature of the role gives CFOs a goodvantage point within the organisation, it brings with it particular responsibilities andchallenges. These include ensuring that the stewardship aspects of the role do notcompromise, and are not compromised by, the increasingly important aspect ofbusiness partnering, and that CFOs retain credibility and the ability to deliver bothaspects of their responsibilities effectively. A CFO may also be a director of acompany with statutory duties.CFOs who are directors should be aware of their legal responsibilities andfiduciary duties while driving processes to help other directors and managementunderstand and take responsibility for fulfilling their duties to the organisation andits shareholders and stakeholders. The duties of a CFO appointed to anorganisation’s board extend to the whole organisation, with duties are not limitedto those of the CFO’s individual executive role.9
COMPETENCY FRAMEWORK FOR CHIEF FINANCIAL OFFICERS (CFOS) IN PUBLIC INTEREST ENTITIESAs business partners, CFOs need to be alert to situations that might compromisetheir professional objectivity. The most effective safeguard against accountabilityconfusion arising from potential tensions between stewardship and businesspartnership is to adopt a business mindset without sacrificing the objectivity andscepticism that CFOs require to persuasively challenge potentially imprudentmanagement proposals.CFOs should be able to balance and manage both stewardship and businesspartnering without compromising their responsibility to connect, support, andchallenge the organisation. This improves the quality of important decisions toensure business strategy delivers the highest financial value at an appropriatelevel of risk.iii. Act as the integrator and navigator for the organisation.CFOs need to help their organisation navigate through the processes andchallenges of strategy development, management, and execution. They shouldfacilitate the sustainable creation of value by helping to ensure that theirorganisations incorporate or integrate economic, environmental, and social factorsat all levels of decision making and reporting.To ensure this is done effectively, CFOs need to be positioned centrally, alongsidethe CEOs, in the strategic management of the organisation. This involves beingable to facilitate a common and unifying perspective on an organisation’s strategicobjectives, opportunities and threats, business model, and critical success factorsincluding resources, capabilities, and competencies needed to deliver the strategyin relation to changing circumstances and environmental factors and trends.iv. Be an effective leader of the finance and accounting function.CFOs need to guide their organisations to efficiently use resources at the sametime as delivering value to their customers. They should be able to assess andoptimize the benefits, and manage
Strenghten the Accounting Profession (CSAP), any proposals by the IC will be reviewed by regulators such as the SC and the AG’s Office who are members of the IC. The relevance of the above development to the Roundtable is that members of the Roundtable had agreed that the preparers need to be regulated and not just the
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1 Introduction 1 1.1 Background of the Study 1 1.1.1 Definition and meaning of Competency 2 1.1.2 History and Evolution of Competencies 8 1.1.3 Competencies for Sales Staff 12 1.1.4 The Sales Competency Model 19 1.1.5 ASTD Competency Model 20 1.1.6 Competency Mapping 24 1.1.7 Model of Competency Mapping 27
