CORPORATE LAW PROJECT

ON
FINANCIAL MANAGER: EVOLVING ROLE
AND RESPONSIBILITIES
Project Submitted to: Shyamtanu Pal

Project Submitted by
Apoorva Ramaswamy
Roll No. 33
Semester V

HIDAYATULLAH NATIONAL LAW UNIVERSITY

NEW RAIPUR (C.G)

ACKNOWLEDGEMENT
At the outset, I would like to express my heartfelt gratitude and thank my teacher, Shyamtanu
Pal for putting his trust in me and giving me a project topic such as this and for having the
faith in me to deliver. Sir, thank you for an opportunity to help me grow.
My gratitude also goes out to the staff and administration of HNLU for the infrastructure in
the form of our library and IT Lab that was a source of great help for the completion of this
project.

TABLE OF CONTENTS
Acknowledgement.......................................................................................................................

Introduction................................................................................................................................
Objective......................................................................................................................................

Hypothesis..................................................................................................................................
Review of Literature..................................................................................................................
Research Methodology..............................................................................................................
Chapter 1: Nature, scope and significance of Financial Management.....................................
Chapter 2: Organization of Finance Function in a Company...................................................
Chapter 3: Functions of the Finance Managers........................................................................
Chapter 4: Challenges faced by the Finance Managers...........................................................
Chapter 5: Emerging Role of the Finance Manager...................................................................
Chapter 6: Changed Position of the CFO under the Companies Act 2013.............................
Conclusion..............................................................................................................................
Bibliography.............................................................................................................................

INTRODUCTION
This project begins by discussing the concept of financial management and its nature, scope
and significance from the perspective of a company or business entity. Financial management
is an integral part of overall management. It is concerned with the duties of financial
managers in the business firm. Joseph and Massie have aptly defined financial management
as being the operational activity of a business that is responsible for obtaining and efficiently
utilizing the funds necessary for efficient operations. Thus, financial management is mainly
concerned with the effective management of funds in the business. Financial management as
practised by business firms can be called as Corporate Finance or Business Finance.
Every business concern needs finance to meet their requirements in the economic world. Any
kind of business activity depends on finance. It is for this reason that financial management is
called the lifeblood of business organization. Whether the business concerns are big or small
they all need finance to fulfil their business activities. In this context the position of the
financial managers is highlighted and the different functions carried out by them are
discussed. The finance manager plays a decisive role in the success of the organization. His
important duties are raising funds, allocation of resources, dealing in capital market, planning
of profit, etc. If the firm has an efficient and eminent finance manager, the path of success of
a firm will be clear.
The project discusses the emerging role of the finance managers in the light of globalization
and augmented complexity in the functions carried out by different companies. The age old
practice of keeping a single manager who was required to overlook entire operations of a
business have given way to the new world where there are many managers who are required
to look after specialized categories of operations. The face of Indian economy has changed
beyond recognition ever since India embarked upon the policies of liberalization in the early
nineties. There has been tremendous growth in all sectors of economy with emphasis now on
specialization to maximize the profits for any business. Today every company has separate
financial managers who are entrusted with the responsibility of not only preparing financial
reports but also to manage the investment policies of the company. Thus In the area of
finance and financial management, finance manager is important authority. Not only to raise
the finance of company, but also to perform other critical functions.

The rising significance of the position of a Chief Financial Officer as per the new Companies
Act of 2013 has also been discussed briefly. The project concludes with a quick summary on
the importance of the position held by the finance manager in view of the above mentioned
topics.

REVIEW OF LITERATURE

The role of chief financial officers (CFOs) has changed dramatically over the past decade.
They excelled at managing accounting, working capital, inventory, capital expenditure and
cost control, but are now being called upon to act as strategic partners to chief executive
officers (CEOs) and work towards sustainable financial growth. CFOs are being called into
boardrooms, and have to address technological challenges as services are delivered offline
also1.
In article that is The Evolving Role of Todays CFO, Myles Corson, BusinessFinance
Magazine it was held that the market cataclysm highlighted the need for CFOs to monitor
closely core financials such as managing liquidity and the capital agenda, controlling costs,
maintaining internal controls and delivering robust financial information. As W.W. Grainger's
CFO Ron Jadin explains, he works closely with the CEO "to figure out where we want to set
the guardrails around how fast we should grow, how much we should invest, and how far to
the left and right of those guardrails [the company] is allowed to operate. When the guardrails
are clear, growth can happen quickly."
The basic idea conveyed through an article Changing Role of Financial Management
written by Robert. A. Howells is that there has been a total attitudinal change among owners
towards the finance manager. He is no longer referred to as my accountant. Instead of being a
commodity, the finance manager is now a part of the top management. The finance manager
does not cover the routine duties of finance and accounting. As a member of top management
he is also responsible for formulation and implementation of policies and decision
making.The finance manager job has vastly changed. Earlier it was a support function now it
is mainline. And finance itself has been a profit center. In these competitive times, survival
depends largely on an organizations capabilities to anticipate and prepare for change rather
than just react to it. The role of the financial officer, thus, becomes crucial to meet these
technological, economic and political, changes.

1 The evolving role of new-age CFOs, Madhura Karnik and Malavika Joshi,
Livemint.com
6

OBJECTIVE
7

The main objectives of this project are to study about the functions and responsibilities of
financial managers and their importance for the success of the organization. The project also
aims at exploring their expanding role in the 21st century era in the light of challenges faced
by them and the additional duties imposed on them.

HYPOTHESIS

As the financial crisis and economic challenges of the past five years have reshaped the
global business environment, they have spurred profound changes in organizations and
companies around the world. In particular, the role of the financial managers has evolved and
expanded as the finance function has come to the fore. Today their functions are no longer
limited to merely handling the finances of the company; they now advise the top management
in creating financial policy, financial planning and other management related issues. In view
of the same they cannot be referred to as being merely an accountant, their functions and
position has evolved to the point that they are now among the top management executives of
the company.

RESEARCH METHODOLOGY
This Doctrinal research is descriptive and analytical in nature. Secondary and Electronic
resources have been largely used to gather information and data about the topic.
Books and other reference material have been primarily helpful in giving this project a firm
structure. Websites, dictionaries and articles have also been referred.

10

FINANCIAL MANAGEMENT:
ITS SCOPE AND SIGNIFICANCE
In modern times, we cannot imagine a world without the use of money. Money is the life
blood of the present day world and all our economic activities are carried out through the use
of money. For carrying on business we need resources which are pooled in terms of money. It
is used for obtaining physical resources, carrying out productive activities and business
operations, paying compensation to suppliers of resources etc. Hence financial management
is considered as an organic function of a business and has rightly become an important one.
A group of experts defines financial management as simply the task of providing funds
needed by the business or enterprise on terms that are favourable in the light of its objectives.
However financial management is certainly broader than the procurement of funds as there
are other functions and decisions too.
Other set of experts assume that finance is concerned with cash. Since every business
transaction involves cash directly or indirectly, finance may be assumed to be everything that
takes place in the conduct of a business. Obviously this definition is too broad.
The third set of people whose point of view has been widely accepted considers financial
management as procurement of funds and their effective utilisations in the business. Financial
management has to not only see that the funds cab be raised for installing plant and
machinery at a cost; but it also has to see that additional profits adequately compensate for
the costs and risks borne by the business while setting up the project.
Thus from the point of view of a corporate unit, financial management is related not only to
fund raising but also encompasses the wider perspective of managing the finances for the
company efficiently. In the developed state of a capital market raising funds is not a problem;
the real challenge of financial management is to put the capital resources to efficient use
through effective planning, financial organization and financial control and to deal with tasks
like ensuring the availability of funds, allocating them for different uses, managing funds,
investing them, controlling costs, forecasting financial requirements, profit planning etc.

11

ORGANIZATION OF FINANCE FUNCTION

IN A COMPANY
The responsibilities for financial management are spread throughout the organization in the
sense that financial management is, to an extent, an integral part of the job for the managers
involved in planning, allocation of resources and control. For instance, the production
manager (engineer) shapes the investment policy( proposal of a new plant), the marketing
manager provides inputs in forecasting and planning etc. Nonetheless, financial management
is highly specialised in nature and for the major part is handled only by the specialists. It is
therefore essential to set up an efficient organization for financial management functions.
Since finance is a critical functional area, the ultimate responsibility for carrying out financial
management functions lies with the top management i.e. board of directors/managing
director/chief executive or committee of the board. However the exact nature of the
organization of financial management differs from firm to firm depending on factors like size
of the firm, nature of its business, financial philosophy, ability of financial officers etc.
Similarly the designation of the chief executive of the finance department also varies widely
in case of different firms. In some cases they are known as the finance managers, vice
president (finance), director(finance) or the chief financial officer(CFO) etc. He reports
directly to the top management. His job is not concerned only with routine aspects of finance
and accounting. Being a member of the top management he is closely associated with the
formulation of policies and decision making2.
Again under him in the finance department, functions are distributed between other mangers
such as the treasurer and controller. They might be addressed by different names in different
companies. The main concern of the treasurer is with the financing activities of the company.
Included in his range of functions are obtaining finance, banking relationship, investor
relationship, short term financing, cash management, credit administration, investment,
insurance etc. The functions of the controller is related mainly to accounting and control such
as financial accounting, taxation, internal audit, management accounting and control,
budgeting, planning and control, economic appraisal and so on3.
2 Fianacial Management, Tata McGraw-Hill Education, Khan And Jain.
3 Ibid
12

FUNCTIONS OF FINANCE MANAGERS

To achieve the objective of financial management, that is to maximise the owners wealth, the
financial executives have to perform a variety of functions to discharge their responsibilities.
With the evolution of finance from being a mere descriptive study to one that is a highly
developed discipline, the role of financial managers has also undergone a sea change. In the
light of different responsibilities of the financial managers he performs mainly the following
duties.
1. Forecasting Financial Requirements: It is the primary function of the finance manager.
He is responsible to estimate the financial requirement of the business concern. He
should estimate how much finances are required to acquire fixed assets and forecast
the amount needed to meet the working capital requirements in future.
.
2. Raising Funds: Raising funds is one of the very important functions played by the
finance manager. It is the responsibility of the finance manager to make arrangement
of necessary funds from various sources. Funds can be raised by the way of equity
and debt. Maintaining excellent balance between debt and equity is the responsibility
of finance manager4.
3. Allocation of Resources: As the financial decisions influence other management
activities, proper allocation of funds is very much significant. After raising funds from
various sources the finance manager has to allocate the funds wisely in the best
possible manner. While allocating funds he has to consider some important points
such as size of the firm and its growth capacity, status of assets whether they are long
term or short term, mode by which the funds are raised, etc.
4. Dealing in capital market: Finance manager must understand the ins outs of capital
market. Risk is always involved at the time of trading securities in the stock markets.
Hence the finance manager has to understand and calculate the risk involved in
4 Vol. 1 | No. 1 | July 2012 www.garph.co.uk, FINANCIAL MANAGEMENT FOR THE
ORGANIZATIONAL SUCCESS: CHALLENGE BEFORE FINANCE MANAGERS, International
Journal of Advanced Research in Management and Social Sciences ISSN: 2278-6236, Dr.
Ravindranath N. Kadam.

13

trading of shares and debentures. The decision of a financial manager about the
distribution of dividend is also the one of his important functions.
5. Planning of Profit: The main motto and function of business organization is profit
earning. Profit earning is essential for the survival. Profit planning means appropriate
handling of the profit earned by the business organization. Profit earning of the firm is
determined by the product pricing, competition, demand and supply, cost of
production and output level, etc. The proper and healthy mix of variable and fixed
factors increases profitability of the business organization. A slight negligence in the
management of the determinants of profits leads to reduce profitability which harms
the sustainability of the firm. Hence planning all these things is the responsibility of
the finance manger.
6. Managing Assets: The function of asset management focuses on the decision- making
role of the financial manager. Finance personnel meet with the other officers of the
firm and participate in making decisions affecting the current and future utilisation of
the firms resources. They will not only identify the best composition of assets but
also identify the ways to use existing assets more effectively.
7. Interrelation with other Departments: Finance manager deals with the various
functional departments such as marketing, production, personnel, research,
department etc. Finance manager should have sound knowledge not only in finance
related area but also well versed in other areas. He must maintain a good relationship
with all the functional departments of the business organization.
Clearly, the clout of the finance manager is growing along with the change in his role and
reforms in the financial sector gather speed, this trend will only increase.

CHALLENGES FACED BY THE FINANCE MANAGERS

14

Reflecting the emerging economic and financial environment in the post-liberalisation era,
the job of financial requirements in India has become more complex, important and
demanding. The key challenges are inter alia, in the areas specified below5 :
1) Investment Planning: Investment planning focuses on effective investment strategies
and to analyze the risk associate with it. Finance manager is responsible for analyze
the risk and help management to reduce this risk so that it does not affect the financial
goal of an organization.
2) Financial Structure: Financial structure is the way in which company assets are
financed such as short term, borrowings long term debt, and equity. Finance manager
analyze the government rules and regulation, banks norms, capability of the
organization and the available options in the market to finance the companys assets.
That helps management to decide which option is profitable for the organization.
3) Treasury Operations: Treasury operations is basically the overall responsibility for
administering the banking functions of organization, cash management and
investment services. These all activities are directly linked with the growth of
organization and profit.
4) Investor Communication: Finance department provides investors with an accurate
account of the company's affairs. This helps investors to make informed buy or sell
decisions.
5) Management Control: Control is one of the managerial functions like planning,
organizing, directing etc. It basically includes the three steps, to set the standards,
measure actual performance and taking corrective action. Finance manager help
organization to set the targets and helps organization to achieve that target by
continuously monitoring the actual performance with set standards.

EMERGING ROLE OF THE FINANCE MANAGERS

5 Vol. 1 | No. 1 | July 2012 www.garph.co.uk, FINANCIAL MANAGEMENT FOR THE

ORGANIZATIONAL SUCCESS: CHALLENGE BEFORE FINANCE MANAGERS,
International Journal of Advanced Research in Management and Social Sciences
ISSN: 2278-6236, Dr. Ravindranath N. Kadam.
15

Over the last 80 years, the role played by the financial managers has changed dramatically,
driven, in great part, by events and changes external to the association. Initially the role of the
key financial executive was primarily that of an accountant. Businesses were generally small,
local and not terribly complex. Closing the books manually, providing some reports to
management and filing tax and other regulatory requirements was the job. These activities do
not contribute much of anything to value creation.
To some extent, the idea of controlling was beginning to creep into the job. Larger
companies such as GM had already begun to utilise what has become known as the DuPont
System of Controls6. This came about because of former DuPont Treasurer F Donaldson
Brown, who became GMs treasurer and worked closely with its CEO Alfred P Sloan Jr to
implement a system of internal controls to run what was then one of the largest corporations
in the world. But many companies lacked the size or sophistication of GM. As companies
grew in size, complexity and reach into the 1970s, the role changed to controller in a big
way..
By the 1950s, too, there was increased interest in financial analysis, managerial accounting
and management controls. Thus the job of the financial manager changed from emphasis on
accounting and control to more financial analysis and planning as companies were becoming
more strategic. During the 70s and 80s, financial executives continued to focus on planning,
both long-range and operating and control.
In 1990, Patrick J Keating and Stephen F Jablonsky undertook a research project for
Financial Executives Research Foundation (FERF)the research arm of FEIwhich led to
the publication of The Changing Roles of Financial Management, which made a sharp
distinction between the role of the finance executive as controller, or cop and business
partner. It was the idea of finance getting out of its centralised role of orchestrating the
planning, budgeting and measurement cycle and actually working closely with line managers.
For some companies, this meant actually physically relocating finance personnel closer to the
line managers and operations. The skills required for these assignments were frequently
different from those in the central office, requiring teamwork, analytical skills and the ability
to make and implement decisions rather than giving directions and expecting responses from
the field. Some companies, such as GM, had difficulty breaking from the old model of
6 The Changing Role of Fianacial Management, Robert.A.Howell, Issue( March
2011), CFOinstitute.com.
16

centralised control. Others, such as Toyota Motor Corp, had their finance personnel sitting
right on the factory floor so that they could be close, to understand and contribute to valuecreating actions7.
Several other trends were occurring in the 1990s. Companies were reengineering their
processes (also called business process redesign or BPR) to become more efficient and
effective, based on the Japanese lean production model. In a number of companies, especially
those where the concept of business partnering had taken root, finance personnel partnering
with line manager colleagues were actively involved in the BPR efforts. In those companies
where finance partnered with the line managers, the CFO and other senior financial
executives began to take on more strategic partner roles, working with CEOs and other top
management executives. Issues such as the best ways to grow the business (whether
internally or by acquisition); major investment and divestiture decisions; and such key
financing issues as leverage, stock repurchases and dividends became areas where finance
managers had much to add to the discussions and decisions; which role has continued to
date8.
The final evolutionary role for the financial leader is coach, making sure that those within the
entire enterprise are financially proficient. This doesnt mean that everyone must be a
financial expert, but that virtually every key manager throughout the organisation thinks in
terms of the financial implications of decisions they are confronted with9.

7 The Changing Role of Fianacial Management, Robert.A.Howell, Issue( March

2011), CFOinstitute.com.
8 The Evolving Role of Todays CFO, Myles Corson, BusinessFinance Magazine.
9
17

CHANGED POSITION OF THE CFO UNDER

THE COMPANIES ACT 2013
The Indian Companies Act, 2013 is going to make a big impact on Indian corporates in areas
including Administration, Accounting & Reporting, Internal Control, Corporate Social
Responsibility, and Governance structure. The Chief Financial Officer (CFO) of the company,
due to his pivotal position and significant responsibility, is expected to play a critical role in
the changed environment.
The traditional role of a CFO as an accountant responsible only for book keeping and
recording debits and credits has changed significantly and the areas of compliance, planning
and financial analysis have now become part of his job responsibilities.In the 21st century,
globally this role has been transformed to include aspects such as stakeholders management,
risk management, strategy building, developing business models, business planning etc 10.The
Companies Act, in India, has enhanced the responsibilities of the CFO manifold by formally
recognising this transformed role.For the first time, the Act defines the CFO as a person
appointed as the Chief Financial Officer of the Company and also stipulates that each
company belonging to the prescribed Class of Companies is required to have a CFO on a full
time basis. The person appointed as the CFO under the Act is also considered as a Key
Managerial Personnel (KMP). Being a KMP under the Act, the CFO is appointed,
remunerated and removed only through a board resolution. The importance accorded to the
role of a CFO is primarily due to the onerous responsibilities and obligations imposed by the
Act on the CFO. Now, wherever CFOs are appointed under the Act, they will have to
mandatorily sign the financial statements of their companies along with those authorised by
the boards. This is in line with the theory of making those responsible for execution to
formally acknowledge their responsibilities and accountability to the stakeholder group.The
responsibilities of the CFO for the preparation of the financial statements have also increased
due to the various new requirements such as consolidation, separate reporting on the
operating effectiveness of internal controls, enhanced disclosure requirements, etc. CFOs are

10 The Evolving Role of Todays CFO, Myles Corson, BusinessFinance Magazine.

18

also responsible for providing various inputs for meeting the enhanced board report
requirements11.
The Act casts tremendous responsibilities on the Audit Committees and the Board and the
new requirements include ensuring effective internal control environment, setting up a solid
regulatory and compliance framework, formulating a strong risk management platform,
providing a robust vigil mechanism, creating a fool proof mechanism for reporting of frauds,
and ensuring timely approval for related party transactions. CFOs have an important role to
play in all these areas and they will act as the backbone of corporates in discharging these
regulatory responsibilities in a seamless manner. Also the corporate social responsibilities of
the board would not only require the involvement of CFOs in ensuring compliance with the
Act, but also in analysing and maximising the value proposition of the same. Along with all
the importance gained, now CFOs are made responsible and liable for penalty and/or
prosecution for non-compliance with various provisions of the Act such as maintenance of
books of account, preparation & filing of annual accounts, disclosure of financial information
in offer documents, risk management, internal control etc.

CONCLUSION
11 Indian CFOs by the new Rule, Sriraman Parthasarthy, Hindubusinessline.com.
19

As CFO, Im in a unique position within the organization, at the absolute centre of the
universe. The only other executive besides me that has the same presence at the centre is the
CEO. Bruce Besanko, OfficeMax.
In addition to overseeing the companys financial health, financial managers are increasingly
involved in setting operational and commercial strategy, navigating their companies safely
through tighter credit markets, more complex regulation and unstable trading conditions.
Financial managers execute and support company strategy using their financial expertise,
enable that strategy by funding growth or leading key initiatives and develop and
communicate overall strategy along with their organizations CEO and board of directors.
As organizations continue to adjust to market volatility and economic uncertainty, financial
managers must increasingly provide expert advice to support boardroom decisions. They are
in an exceptional position to offer this level of strategic counsel because of their ability to
gather information from disparate parts of the company.
However it was aptly stated by Xerox CFO Luca Maestri Core skills in finance are the
foundation. They are non negotiable. If you are no good at financial analysis, you cannot be
the CFO. Thus despite the expansion of the job, CFOs must nonetheless maintain a laser
focus on vital financial responsibilities, which remain particularly essential to avoid any
financial crisis.

BIBLIOGRAPHY
20

The Evolving Role of Todays CFO, Myles Corson, BusinessFinance Magazine

Changing Role of Financial Management written by Robert. A. Howells.
Indian CFOs by the new Rule, Sriraman Parthasarthy, Hindubusinessline.com
Vol. 1 | No. 1 | July 2012 www.garph.co.uk, FINANCIAL MANAGEMENT FOR THE
ORGANIZATIONAL

SUCCESS:

CHALLENGE

BEFORE

FINANCE

MANAGERS,

International Journal of Advanced Research in Management and Social Sciences

ISSN: 2278-6236, Dr. Ravindranath N. Kadam.

Fianacial Management, Tata McGraw-Hill Education, Khan And Jain.

The evolving role of new-age CFOs, Madhura Karnik and Malavika Joshi,
Livemint.com

21