TREASURY AND  CASH MANAGEMENT ESSENTIALS

POSITIONING TREASURY AND MANAGEMENT ACCOUNTING

The key role of the treasury function is to advise the Board and management on business decisions and financial considerations that are fundamental to corporate strategy. Securing financing, maintaining funding and managing risks are essential treasury skills that enable the execution of that strategy.

Positioning treasury and management accounting

Every organization deals with treasury issues, but many organizations do not have a distinct treasury function. Treasury may mean a discrete practice within an organization or part of the responsibilities of a management accounting function. Similarly, the role of Treasurer may be a discrete role or may be part of the responsibilities of a broader role such as Financial Controller or CFO.

At the strategic level, treasury is about advising on the appropriate choices, trade-offs and compromises involved when financial decisions are taken. Three strategic and interrelated questions are fundamental to treasury decision making:

  1. What should we invest in?
  2. How do we fund these investments?
  3. How do we manage the risk of our choices?

'Investing' refers to any use of resources for future benefit. It covers not only acquiring property, plant and equipment, M&A and intangible assets like patents, know-how and brands, but also R&D, staff training and marketing programs.

Even if not explicitly, management accountants address these questions on a routine basis because they are the foundations of business strategy development. Different organizations will have different financing considerations, as there will be different answers to these three questions. (Naturally, a utility company and a confectionery manufacturer will have very different responses.) The time horizons they take into account and the risks they need to manage may be different too, whether because of the nature of the business or the type of financing chosen. It is impossible to take sound decisions about any one of these questions without influencing or being affected by the answers to the other two. In other words, they are interdependent.

The answers to all three questions also depend on external factors, often interrelated, which can further increase uncertainty. Some strategic choices that may seem straightforward on the surface actually conceal unforeseeable consequences. Accordingly, judgment is constantly required – from the outset and as conditions change.

 

Go back

© 2017 Chartered Institute of Management Accountants and ACT (Administration) Limited. All rights reserved