In the past treasury was viewed, along with other support functions, as a department that was only noticed when something went wrong. Today, this is no longer the case. While the consequences of treasury failing to perform are relatively easy to identify, improvements in treasury technology mean treasurers are able to play a more proactive role, both at the strategic and operational levels. This means treasurers can make a much wider range of decisions, each of which will have some impact on their organizations’ financial statements. Understanding how treasury activity affects the financial statements, and therefore enhances value, is a key skill for any corporate treasury practitioner.
The latest AFP Executive Guide, underwritten by Chatham Financial, explores treasury’s impact on financial statements. The first part of the guide provides a short explanation of the role treasury plays, or can play, in an organization. It outlines how this has changed over the years, highlighting how developments in technology have allowed treasurers to move from being a reactive to a more proactive function. It also shows how technology and regulatory change mean it is now increasingly possible to standardize and centralize much of a treasury’s activities, giving the treasurer more opportunity to engage in strategy development and other projects that add value to the business as a whole.
The second part starts by explaining how financial statements are used in the market. It then shows how treasury activity can have a significant impact on an organization’s financial statements, both directly and indirectly, highlighting how treasury practitioners can generate value for the business.
Treasurers need to understand how their decisions impact the financial statements for three key reasons. First, it emphasizes the importance of their role to them and their departmental colleagues. Second, it can help treasury extend its influence within the organization, both at board and at business unit level. Third, understanding these linkages will help treasurers make better decisions, not least when seeking to maintain compliance with lender-imposed covenants.