ECF2

Module 1

PART 1
THE BROAD MANAGEMENT ASPECT OF
CONTROLLERSHIP

This module is a combination of

synchronous & asynchronous learning
and will last for one week.

February 20, 2023

Date Initiated
February 28, 2023
Date of Completion

San Mateo Municipal College ECF2 – FINANCIAL CONTROLLERSHIP

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 MODULE 1

This module is designed to be discussed for a period of two weeks. Lesson delivery will be done in synchronous and
asynchronous learning. The platform to be used will be facebook messenger, google classroom and google meet created for
the class.

LEARNING OBJECTIVES:

At the end of the module, you are expected to learn the following:
• Identify tasks of the accounting function
• Know the role of accounting function
• Know the role of the controller
• Discuss the impact of ethics on the accounting role
• Updates on the revolving role of accounting.

INPUT INFORMATION

INTRODUCTION
Before a controller can delve into the specifics of the controller job description, it is first necessary to determine
how the accounting function fits into the rest of the organization. This used to be a simple issue; the accounting staff
processed transactions to support business operations—period. This required a large clerical staff managed by a small
cadre of people trained in the underlying techniques for processing those transactions. In this environment, the
stereotypical image of an introverted controller pounding away at a calculator was largely accurate. The role has undergone
a vast change in the last few decades, as technological improvements, the level of competition, and a shifting view of
management theory have resulted in a startlingly different accounting function. This section describes how the accounting
function now incorporates many additional tasks, and can even include the internal auditing and computer services
functions in smaller organizations. It then goes on to describe how this functional area fits into and serves the needs of the
rest of the company, and how the controller fits into the accounting function. Finally, there is a discussion of how ethics
drives the behavior of accounting employees, and how this shapes the way the accounting staff and controller see their
roles within the organization.

Task of Accounting Function

The accounting function has had sole responsibility for processing the bulk of a company’s transactions for many
years. Chief among these transactions have been the processing of customer billings and supplier invoices. Though these
two areas comprise the bulk of the transactions, there has also been a long history of delegating asset tracking to the
accounting function. This involves all transactions related to the movement of cash, inventory, and fixed assets. Finally,
the accounting staff has been responsible for tracking debt, which can involve a continuous tracking of debt levels by debt
instrument, as well as the payments made to reduce them. These have been the transaction - based activities of the
accounting staff.
In today’s increasingly competitive environment, it is very important for companies to develop strong relationships
with their key suppliers and customers. These business partners will demand extra services, some of which must be fulfilled
by the accounting staff. These changes may include using electronic data interchange transactions, providing special billing
formats to customers, or paying suppliers by electronic transfer. If these steps are needed to retain key business partners,
then the accounting staff must be willing to do its share of the work. Too frequently, the accounting staff resists these sorts
of changes, on the grounds that all transactions must be performed in exactly the same manner. The accounting
department must realize that altering its way of doing business is sometimes necessary to support ongoing business
relationships. Altering the focus of the accounting staff from an introverted group that processes paper to one that works
with other parts of a company and is willing to alter its systems to accommodate the needs of other departments is required
in today’s business environment. This is in great contrast to the accounting department of the past, which had a minimal
role in other company activities, and which was its conservative anchor.

ROLE OF THE CONTROLLER

The controller has traditionally been the one who manages a few key transaction cycles, monitors assets, and
delivers financial statements. The key factor is that, due to the vastly increased interaction with other departments, the

San Mateo Municipal College ECF2 – FINANCIAL CONTROLLERSHIP

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
con troller must be highly skilled in interdepartmental dealings. This involves constant interactions with fellow department
heads, attendance at a swarm of meetings, and the issuance of opinions on a variety of topics regarding the running of
functions with which the controller previously had no connection. Because of this changed role, the controller must now
have top-notch interpersonal and management skills—the former to deal with other departments and the latter to oversee
the changes needed by the other departments.
In addition, the controller must govern a group of employees that is much more educated than was previously the
case. This requires constant attention to the professional progress of each per son in the department, which requires goal
setting, mutual discussion of training requirements, and continuous feedback regarding employee performance. This
clearly calls for management skills of an order far higher than formerly required of a controller that presided over a clerical
function.
Also, the wider range of functions managed by the controller now requires a wider range of knowledge. Besides
the traditional training in accounting, a controller now needs at least a passing knowledge of computer systems, internal
auditing, and administrative functions (because this area frequently falls under the controller’s area of responsibility). In
addition, traditional accounting functions have now become more complex; a controller must know about outsourcing
accounting functions and managing in a high-speed growth environment, as well as the increasing complexities of tax
laws, Securities and Exchange Commission (SEC) filings, and generally accepted accounting principles. It would take a
perpetual student to have an in-depth knowledge of all these areas, so it is more common for the controller to manage a
cluster of highly trained subordinates who are more knowledgeable in specific areas, and who can advise the controller as
problems arise. In short, the role of the controller has expanded beyond that of a pure accountant to someone with broad
management and interpersonal skills who can interact with other departments, as well as manage the activities of an
increasingly well-educated group of subordinates, while also working with them to further their professional careers. This
is a much more difficult role for the modern controller, requiring someone with at least as much management experience
as accounting knowledge.

IMPACT OF ETHICS ON THE ACCOUNTING ROLE

With the globalization of business, competition has become more intense. It is possible that the ethical foundations
to which a company adheres have deteriorated in the face of this pressure. There have been innumerable examples in the
press of falsified earnings reports, bribery, kickbacks, and employee thefts. There are vastly more instances of ethical
failings that many would perceive to be more minimal, such as employee use of company property for personal use,
“smoothing” of financial results to keep them in line with investor expectations, or excessively robust sales or earnings
forecasts. The controller and the accounting staff in general play a very large role in a company’s ethical orientation, for
they control or have some influence over the primary issues that are most subject to ethical problems—reported earnings,
cash usage, and control over assets.
The accounting function can have a serious negative impact on a company’s ethical standards through nothing
more than indifference or lack of caring. For example, if the controller continually acquiesces to management demands to
slightly modify the financial statements, this may eventually lead to larger and larger alterations. Once the controller has
set a standard for allowing changes to reported earnings, how can the controller define where to draw the line? Another
example is when the accounting staff does not enforce control over assets; if it conducts a fixed-asset audit and finds that
a television has been appropriated by an employee for several months, it can indirectly encourage continuing behavior of
this kind simply by taking no action. Other employees will see that there is no penalty for removing assets and will then do
the same thing. Yet another example is when the accounting staff does not closely review employee expense reports for
inappropriate expenditures. Once again, if employees see that the expense report rules are not being enforced, they will
gradually include more expenses in their reports that should not be included. The accounting staff has a significant negative
influence over a company’s ethical standards simply by not enforcing the rules.
It is not sufficient to merely say that the accounting staff must uphold high ethical standards, if the standards are
not defined. To avoid this problem, the controller should create and enforce a code of ethics. Some illustrative topics to
include in a code of ethics are:
• Bidding, negotiating, and performing under government contracts
• Compliance with antitrust laws
• Compliance with securities laws and regulations
• Conflicts of interest
• Cost consciousness
• Employee discrimination on any grounds
• Gifts and payments of money

• Hazardous waste disposal

• International boycotts
• Leave for military or other federal service
San Mateo Municipal College ECF2 – FINANCIAL CONTROLLERSHIP
BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
• Meals and entertainment
• Political contributions
• Preservation of assets
• Restrictive trade practices
• Standards of conduct
• Use of company assets
• Workplace and product safety

The wide range of ethical topics, some going well beyond the financial arena, make it obvious that the CEO really
is the best source of this document, rather than the controller, though the controller can certainly contribute to those portions
relating to financial issues.
Once the code of ethics has been created, it must be communicated to all employees. Once again, this is the
CEO’s job, but the controller should constantly reinforce it with his or her staff. It is especially helpful if the controller visibly
refers to the ethical code whenever an ethical issue arises, so that the accounting staff knows that the controller is
decisively adhering to the code.
A code of ethics becomes the starting point in the series of judgments a controller must follow when confronted
with an ethical issue. The logical series of steps to work through are:
• Consult the code of ethics
Having a corporate code of ethics is a great boon to the controller, for he or she can use it as the basis for any
ethics-related decision. A senior company officer would have difficulty forcing the controller to adopt a different
course of action than what is prescribed by the code of ethics, since this would go against a directive of the Board
of Directors. If the controller feels it is necessary to take a course of action contrary to what is stated in the code,
then the reasons for doing so should be thoroughly documented. If there is no code, then proceed to the next step.

• Discuss with the immediate supervisor

The controller’s immediate supervisor is probably either the Chief Financial Officer (CFO), Chief Operating Officer
(COO), or CEO. These are the most senior positions in the company, occupied by people whose behavior should
be at an ethically high standard. Consulting with them for advice is a reasonable second step in the absence of a
code of ethics. However, if the supervisor is the one causing the ethical problem, then skip this step and proceed
to the next one.

• Discuss with the trusted peer

There is usually someone within the company in whom the controller places a great deal of trust. If so, consult
with this person in regard to the proper course of action. Be more circumspect in doing so with a person outside
the company, since this runs the risk of spreading information elsewhere, with possible deleterious consequences.
If there is no one with whom to discuss the issue, then proceed to the next step.

• Discuss with the company’s ethic committee

If there is an ethics committee, this is a good forum for discussion. Unfortunately, many companies do not have
such a committee, or it meets so infrequently that the immediate needs of the controller may not be met through
this approach. In either case, proceed to the next step.

• Discuss with the Board’s Audit Committee

Many boards have an audit committee, which should be comprised entirely of independent directors. If so,
the controller should take his or her concerns to this group. Keep in mind that this is a serious step, since the
controller is now going around the corporate reporting structure, which may have unenviable consequences later on if
the controller chose not to tell senior management of this action.

• Consider leaving the company

If all these avenues are untenable or result in inadequate advice, the controller should seriously consider leaving
the company in the near future. Reaching this final step probably means that the ethical issue is caused by senior
management, and also that there are no outside checks on their ethical behavior, such as an audit committee of
the Board of Directors.

San Mateo Municipal College ECF2 – FINANCIAL CONTROLLERSHIP

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.
 EVOLVING ROLE OF ACCOUNTING

Though there are many variables that can impact the direction of the accounting function and the
controller’s role in the future, there are a few broad trends that are likely to continue, and from which one can
predict the evolving role of accounting.
The accounting department is likely to become a more common route to top management positions. The
accounting area has always been a fertile one for training people in the nuts and bolts of transactions, and how
they must function. This is useful for a lower-level manager, but now that the department also handles a multitude
of additional tasks, such as cost analysis, target costing, and advanced finance functions, it becomes a much
better training area for higher-level managers. The company of the future will not only see large numbers of well-
trained people advancing out of accounting, but they will also see a large proportion of new recruits clamoring to
get into it, so that they too can receive the necessary training and experience. Also, because of the greater breadth
of responsibility to be obtained in this area, it will become more common for senior management personnel to
come out of this area.
Today, accountants are increasingly involved in direct interaction with clients, decision making and
strategy-making. Currently, accountancy also involves key areas of business forecasting, taxation, compliance,
financial management and customer support.

Assessment:

A graded recitation after the discussion.

Reference:

Anderson, J. R. and Bragg, Steven M., Controllership: The Work of the Managerial Accountant, John Wiley and
Sons Inc.

San Mateo Municipal College ECF2 – FINANCIAL CONTROLLERSHIP

BSBA Major in Financial Management Prepared by: Ester C. Castillo, Instructor

“Sharing of this module to any flatform is not allowed

without proper consent of the owner and the institution
this was submitted”.