• 10 Marks

SCS – July 2023 – L3 – Q6a – Professional Practice and Codes of Ethics

Explain five reasons why the Director of Finance and Operations might project finance over other functions.

Some of the SavvyTech plc management team is concerned that the Director of Finance and Operations is domineering during the acquisition engagement processes at meetings. The Director of Finance and Operations mentioned in anger that ‘arguably, accountancy has an influence on business and government and that is both:
i) continuous and
ii) more extensive than any other profession’.

Required:
As a newly qualified Chartered Accountant responsible for code of ethics in SavvyTech plc, identify and explain FIVE (5) reasons in support of why the Director of Finance and Operations seems to be projecting finance over other functions.

  1. Central Role in Resource Allocation:
    • Finance plays a crucial role in determining how resources are allocated within an organization. The Director of Finance and Operations has to ensure that financial resources are efficiently distributed to various departments and projects. In the case of SavvyTech, the acquisition of the Utopia subsidiary and the withholding of dividends to fund this move make financial control and planning essential.
  2. Responsibility for Managing Financial Risk:
    • Financial leaders, like the Director of Finance and Operations, are responsible for assessing and managing risks, particularly those related to investments, funding, and capital expenditure. Given that the acquisition involves cross-border operations and potential tax issues, it is natural for the finance function to take a leading role in these discussions.
  3. Regulatory Compliance and Financial Reporting:
    • The Director of Finance must ensure that all decisions comply with financial regulations, including tax laws, financial reporting standards, and corporate governance requirements. The acquisition of a foreign subsidiary raises issues such as transfer pricing and double taxation agreements, which fall under the purview of the finance function.
  4. Maximizing Shareholder Value:
    • One of the key responsibilities of the finance department is to ensure that all business decisions maximize shareholder value. The Director of Finance and Operations likely emphasizes finance in the acquisition process because the financial viability of the deal directly impacts shareholders, especially with regard to profitability and dividend payouts.
  5. Strategic Financial Decision-Making:
    • Finance professionals provide insights on capital structure, funding options, and the overall financial health of the company. The Director of Finance is likely projecting finance because strategic decisions like acquisitions, which have long-term financial implications, require a deep understanding of financial metrics and risk analysis. This makes finance central to the decision-making process at SavvyTech.
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