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Study Zone

CIMA E1: Conflict resolution

Rebecca Evans on how conflict can arise within the finance function, and why this may be both good and bad

June 2016

Managing the finance function makes up 15% of the CIMA E1 syllabus with two lead learning outcomes.

• Discuss the purpose of the finance function and its relationship with other parts of the organisation.
• Demonstrate the contribution the finance function makes to the sustainable delivery of the organisation’s strategies in a range of contexts.
• Analyse the components of the finance function.
• Discuss the potential for conflict within the role of the finance function.

• Explain how the finance function supports the organisation’s strategies and operations.
• Explain the activities fundamental to the role of the finance function.
• Explain the contemporary transformation of the finance function.

Not only is an understanding of this syllabus area important for E1, but it’s also key for the operational case study. Managing the finance function has been examined twice in recent exam diets, firstly in Variant 2 May 2015, where students were asked to discuss the contents and benefits of a SLA, and secondly in November Variant 4, in the context of considering the impact a new customer would have on the finance function.
At the CIMA conference, managing the finance function was identified by the CIMA examinations team as the area where students demonstrate the weakest level of performance. This is often because trainee accountants think they can answer the questions using their experience from the workplace and as a result don’t give it the attention it needs when they are studying.
Unfortunately for them, although much of the syllabus does cover content that PQs would pick up from their everyday work life, there are areas that could, and clearly are, catching students out. One such area is the potential for conflict within the finance function.

Conflict within the finance function
Conflict is a disagreement between people or groups with opposing opinions, views or principles. Within organisations conflict can take two forms: destructive conflict that is harmful to an organisation or individual, that can often lead to individuals or groups becoming alienated and demoralised; and constructive conflict, which can be viewed more positively as it encourages change and innovation alongside bringing problems to the surface so they can be identified and addressed.
In the E1 syllabus we are asked to consider conflict arising as result of three key factors:
• Interdependencies and independence.
• Short term versus long term.
• Capital versus revenue expenditure.
Interdependencies occur as individuals, groups or departments rely on others. In the context of the finance function this could be a reliance on information or resources, for example. A member of the finance team may rely on another person (either within, or external to, the finance function) for information to be able to complete a task. For the accountant, this is a high priority and they need the information now, but the person providing the information may have different priorities and as a result is slow to respond to the request. This difference in priorities and the dependence the accountant has on the work of another member of the organisation could cause conflict. The conflict would be exacerbated if the delay had consequences such as on the achievement of the accountant’s objectives or remuneration.
Independence is not relying on others for aid or support; not depending upon something else for existence or operation. Within the finance functions different individuals or groups may operate independently and as a result create conflict. For example, management accountants produce information with a focus on internal stakeholders, with few rules in terms of how it is presented or the method of calculation. Financial accountants, however, produce information mainly for external stakeholders, in accordance with accounting standards and company law. In many cases, the information produced by the two teams doesn’t reconcile as a result of it being produced in two separate ways. Conflict could well arise over the validity of each department’s figures.
Equally, independence could create conflict between finance and another department. In order for the internal auditors to remain impartial and objective they must remain independent – that is not influenced or controlled by others. However, this can make the auditors appear detached, so when they carry out the audit they can be perceived as interfering or as overly monitoring other functions. This can understandably create tension and conflict particularly when it comes to reporting anomalies or potential fraud.
Conflict could be as a result of different time horizons. For example, a research and development team will have a long-term focus as it may take many years for their ideas to result in value for shareholders. The finance team, when having to meet short-term profit targets, may propose a cut in the R&D budget to save money. This inevitably creates conflict – short-term profits or long-term potential value.

Capital versus revenue expenditure decisions can also be a source of conflict. For example, whether to invest in a new machine which is more efficient or whether to continue spending high levels on maintaining old, potentially inefficient machines. Different stakeholders will have differing views which could lead to disagreement.
Equally, there may be conflict over how to treat expenditure. When applying accounting standards, the financial accountant may conclude that a particular transaction is revenue based, whereas the management accountant may view the transaction as being capital based.
Conflict is a problem for all organisations. As finance professionals we can help avoid destructive conflict by identifying the potential sources of such conflict and using our communication skills to explain an alternative interpretation or put forward a different perspective.
• Rebecca Evans, Head of ACCA and CIMA, Kaplan Financial

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