By Richard F. Fischer, CPA, CGMA

CFOs in virtually every industry, size of organization, and geographic location are constantly reminded of the challenges they face when it comes to managing the financial and reporting aspects of their organization and, to some extent, the organization’s operations. Based on recent surveys of CFOs and other key members of management conducted by various universities, research organizations, and consultants, the top six concerns for CFOs going into 2020 are as follows:

• Attracting and retaining talent
• Rising wages, salaries and benefit cost
• Geopolitical uncertainty
• Looming recession
• Capital Expenditures
• Regulatory changes

Attracting and Retaining Talent

The U.S. Bureau of Labor Statistics reported that unemployment rate was 3.5% in November 2019. This is the lowest jobless rate since December 1969. November 2019 marks the twenty-first consecutive month in which the unemployment rate has been at or below 4.0%. As in 2019, the skill sets needed for available jobs may not align with the skill sets currently available. The role and skills of a typical finance person have changed over the past 10 years. A financial person typical has been strong in accounting, auditing, and compliance. Now, CFOs need a finance person that can perform analytics, interpret big data, and understand the industry in which they work. CFOs need financial people that will embrace change as new technologies are incorporated into the organization that allow for a better understanding of the entire operations while providing good financial management. As new technologies are introduced to handle transactional work, analytics will become the financial person’s core expertise. According to the CFOs surveyed, it is getting increasingly harder to find highly skilled talent. Consequently, some employers have turned to short-term job training programs to train current employees for hard to fill jobs. This, along with key members of management retiring and the tight labor market, may make this the biggest challenge for CFOs.

Rising Wages, Salaries, and Benefit Costs

The U.S. Bureau of Labor Statistics reported that average hourly wage earnings were $27.43 in November 2019, and average hourly wages are forecasted to continue to rise by 3.2% annually. Year over year wages have grown at or above 3.0% for 16 months. As the labor market tightens, salaries and wages will continue to grow to retain talent. Compounding the problem, changes in health care -- from both insurance companies and government-created programs -- are increasing health costs at a rate greater than wages. With an uncertainty in the direction that health care will take, the forecasting of future benefit costs and wages and salaries will be a challenge for CFOs.

Geopolitical Uncertainty

The geopolitical climate has a large effect on expectations of and confidence in the economy. CFOs will be watching trade war between China and the new trade deal with the United States, Mexico, and Canada. When finalized and implemented, the agreement will create more balanced, reciprocal trade and aide in growing the North American economy.

The U.S.-China trade war has already affected the U.S. economy with its tariffs on clothing, steel, and other imports, impacting U.S. companies as well as consumers. In additions to the trade wars, new conflicts in the Middle East have already resulted in fuel price increases, which are projected to keep increasing as long as the situation remains unsettled. With 2020 budgets already being prepared by CFOs, price increases in fuel will have an impact on company bottom lines.

With 2020 being an election year, a potential change in administration also has CFOs trying to determine what the impact would be regarding federal regulations, tax laws, and financial markets. Geopolitical uncertainty is one of the largest concerns and challenges for CFOs in 2020 and going into 2021.

Looming Recession

A majority of the CFOs surveyed expect a recession to start before the presidential election, with 53% believing the United States will be in a recession by the third quarter of 2020 and 67% predicting a recession by the end of 2020.

CFOs’ views are consistent with recession indicators, with the most popular recession indicator being the inversion of the yield curve. CFOs are concerned about not being prepared for the next recession, and many want to avoid increased borrowing to fund major new projects when a recession could be on the horizon.

Capital Expenditures

With concerns that a recession is on the horizon, companies are expected to reduce or curtail spending on capital expenditures. Based on the CFOs surveyed in the third quarter of 2019, capital expenditure was forecasted to grow by 3.6% over the next 12 months, down from capital expenditure growth of 9.4% a year ago. The decline in capital expenditures is related to companies trying to reduce cost and hoard cash for this possible economic recession.

Regulatory Changes

CFOs need to be current on regulatory changes from multiple governing bodies. From a financial and reporting aspect, they need to understand the current changes to U.S. generally accepted accounting principles (U.S. GAAP) and may also need to understand changes based on International Financial Reporting Standards. More recent changes to GAAP include revenue recognition and accounting for operating leases which, when implemented by an organization, could result in changes in an organization’s accounting and reporting processes, the recording of additional debt, and the timing of when revenue may or may be recognized. Many U.S. companies will have at least the next year to prepare for other accounting changes due to delays of standards on lease accounting, hedging accounting , current expected credit losses, and long-term insurance contracts. Regulatory changes go beyond financial and reporting and require CFOs to understand not only reporting but operations as well.

Learn more at PICPA's 2020 CFOs and Controllers Conference. Highlights include enhancing value; health care, employee benefits, and your bottom line; and embracing technology and change.

Richard F. Fischer, CPA, CGMA, is partner in charge of the accounting and auditing department of Louis Plung & Company and chair of PICPA’s Employee Benefits Plan Committee. He can be reached at info@louisplung.com.

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