Challenges that CFOs will have to address in 2022

The volatile economic environment will force companies to further cut their spending. At the same time, they can't afford to ignore the accelerating digitalization of business processes and the growing importance of the ESG agenda, which will become the keynote of the CFO’s efforts in 2022 — RBC Pro

RBC Pro asked experts to name the trends that will determine the activities of CFOs in 2022. Eight trends have been identified.

1. Maintain and increase the working capital

Anastasia Vinner, Commercial Director, Unicon Outsourcing

“The current instability does not allow companies be sure that their key customers will remain solvent. Therefore, they will shift the focus of their efforts from increasing profits to reducing the risks of non-payments and finding additional sources to back up their own business, that is, towards maintaining current working capital. Their CFOs will have to perform a comprehensive analysis of business processes and evaluate both financial and operational performance correctly.”

Alexander Sirous, managing partner, Crowe CRS

“In 2021, there was a significant (multiple) increase in the logistics cost for deliveries of goods to Europe from China and other countries of Southeast Asia (perhaps not only from this region, but it is the most important in terms of trade flows by sea). At the same time, shipments take much more time than before. The two inevitable consequences will be as follows:

• companies’ increased need for working capital;

• a shortage of components and, as a result, an increase in prices.”

2. Cost reduction

Anastasia Vinner, Commercial Director, Unicon Outsourcing

“With businesses in recession and the economy not growing, companies’ management teams are looking for ways to keep internal costs as low as possible while avoiding heavy workload on specialists. They will expect their CFOs suggest how to achieve this objective.

Companies will continue to move to smaller offices and shift to hybrid work patterns, and there will be further cuts in hospitality spending. Furthermore, we will see maximum consolidation by reducing the number of intermediate line managers.”

3. Tax control tightening

Dmitry Karev, COO, Acsour

“The tax authorities are increasingly using automation tools and big data analysis to detect violations. In the future, their control will tighten, and the automatic search for discrepancies between counterparties — will get even better. As a result, companies will no longer be able to apply tax schemes in the foreseeable future. This, in turn, will increase both companies’ willingness to leave the ‘grey zone’, and their need for experts in finance who can arrange operations in full compliance with the law.”

Marina Pavlova, Partner, Crowe CRS

“On 1 July 2021, there were two significant changes that will be felt by CFOs only in 2022.

The National Commodity Tracking System was launched. It is designed to counter ‘grey’ imports and illegal circulation of goods. The system allows tracking the movement of goods from the manufacturer to the final buyer. So far, only certain categories of goods that account for the most counterfeit products, in particular electronic equipment and household appliances, are subject to tracking. Now companies will be able to exchange documents on these goods only in electronic format. Full-scale operation of the system is to start on 1 July 2022 — this will be at the same time when all fines provided for by the new legislation come into force.

The rules for obtaining an electronic digital signature (EDS) have changed. According to the new rules, a certificate can only be issued by the Federal Tax Service or authorised control centres (CAs). Companies have to obtain a new signature after 1 January 2022 after the validity of the previous one expires. The list of authorised centres includes centres accredited under the new rules.”

4. Digitalization of financial processes and increased cyber risks

Ekaterina Trofimova, Partner and Head of Practice of Services to Financial Institutions, Deloitte CIS

“COVID-19 has accelerated the digitalization of financial processes. The changes impact all elements of budgeting, financial planning and monitoring. CFOs use special programs to analyse huge amounts of data on costs of different business units. They are looking for ways to optimize costs and achieve strategic target savings. In addition, they use analytical tools to understand how changes in the budget will affect the company's performance in different economic or business scenarios.

Digitalization has increased cybercrime and related costs. Thus, CFOs faced the task of optimizing IT support costs in order to eliminate and minimize these risks.”

Irina Odinaeva, Senior Managing Director Strategy & Consultingfor interactions with banks, Accenture Russia

“To maintain and develop a business, it is necessary to make a large number of operational decisions. Speed ​​matters for any business function. But it is particularle important for a CFO who weekly or daily makes decisions worth of billions of dollars.

There is a formidable gulf between CFOs who have the tools to make quick decisions and those whose access to such tools is limited. Enterprise-wide digital transformation can provide such tools.

One of the most important tools for CFOs is cloud technologies that allow them to quickly process data while maintaining a high level of security and avoiding unnecessary costs. Other tools that CFOs can use to make quick, data-driven decisions include:

• RPA — it is used to perform repetitive steps without manual intervention;

• visual analytics applicationsthey allow you to access data in an interactive and graphical format and enable deeper analysis;

• Natural Language Generation (NLG)this is a process of automatic generation of a text using structured data;

• Natural Language Processing (NLP) — it enables machines to understand and interpret human language as it is written or spoken;

• Machine Learning (ML) — this technology helps to classify data, recognize similar patterns and combine them into clustersin the end, it enables deriving insights from the data;

• Artificial Intelligence (AI) — similar to human intelligence, it helps make decisions in new situations.

These are technologies widely used in finance. They help budget, develop forecasts, allocate resources, create financial and management reporting, process invoices and payments.

Organizations that use the new Breakthrough Speed ​​paradigm will be able to make informed decisions quickly and develop new skills — they can create significantly higher value. According to Accenture's latest study on the CFO’s role, S&P 500 companies across a wide range of industries could increase their EBITDA Compound Annual Growth Rate (CAGR) to 6.9% over the next three years if they implement this transformation.

CFOs become the catalyst for digital strategy. They not only digitize the company’s financial function, but also focus on determining the future business direction. Some of their initiatives outside of finance include creating new business models and renewing the strategy.”

6. Increased importance of the ESG agenda

Ekaterina Trofimova, Partner and Head of Practice of Services to Financial Institutions, Deloitte CIS

“The influence of ESG factors on global business is growing. ESG disclosure is becoming widespread. Companies that pay more attention to the ESG agenda find it easier to attract investors. They can enjoy the approval not only by the community, but also by the government represented by regulators. In the near future, organizations’ financial departments and, in particular, CFOs will focus on modifying and adjusting the financial development plan and business strategy taking into account specific ESG factors.”

Boris Yatsenko, Managing Partner, FBK Grant Thornton

“The ESG agenda will increasingly influence the decisions of companies’ top executives in various sectors of the Russian economy. The planned introduction of a carbon tax in the EU will have a significant impact on Russian exporters of steel, non-ferrous metals, fertilizers, etc. This will also adversely affect the Russian economy as a whole. The commitments assumed by Russia to reduce its carbon footprint will require considerable adjustments in technologies, production chains and production structure. The transition to a low-carbon economy in Russia will require investments of tens and even hundreds of billions of dollars. In 2022, Russian companies will have to adjust their medium-term and long-term development strategies taking into account this trend.”

7. Changes in accounting

Marina Pavlova, Partner, Crowe CRS

“From 1 January 2022, another package of changes to the accounting rules will come into effect in Russia. The changes will concern the accounting procedure and reporting on fixed assets (FAS 6/2020 “Fixed assets” and 26/2020 “Capital investments”) and lease relations (FAS 25/2018 «Lease accounting») in the statements for 2022. Statements for 2021 are to be prepared subject to the provisions of FAS 5/2019 “Inventories”. Furthermore, FAS 27/2021 “Documents and document flow in accounting” will be effective from January.

Given the new FAS, quite a lot of methodological and technical issues will have to be resolved.

— For fixed assets:

• organizations must set new limits for fixed assets; now their value is not specified in the standard;

• the procedure for calculating the depreciation of fixed assets and the procedure for recognizing scheduled repairs and maintenance, have changed;

• a new way to keep records of fixed asset revaluation is provided;

• a procedure for checking fixed assets for depreciation and a procedure for reporting the results of their disposal in the financial statements has been set;

• new rules for recording investment property have become effective.

— For inventories, the changes are related to:

• procedure for keeping records of materials for administrative needs;

• creation of reserves for depreciation of inventories, production costs.

- For lease, the following changes have been made to the procedure for:

• keeping records of short-term and long-term leases;

• documenting them in accounting records and statements taking into account the discount rate.

- The new document flow standard introduces such a concept as “ supporting document “; sets general requirements for accounting registers, changes the rules for correcting documents.

8. Increased demand for outsourcing of accounting functions

Dmitry Karev, COO, Acsour

“The conscious demand for outsourcing of accounting functions will continue to grow. The ability of outsourcing companies to introduce modern document processing tools into their operations and the increasing share of electronic document management make it possible to offer good service value for money to the market.”

Source: RBC Pro