CFO vs CAO: Key Differences, Roles & Responsibilities

At the CXO cadre, new job titles are emerging to meet the growing need for functional specialisations. However, this trend often causes confusion for professionals aiming for such roles and business owners trying to build well-functioning leadership teams. The two such commonly misinterpreted C-suite roles are Chief Financial Officer vs Chief Accounting Officer. 

Key Takeaways

1. In a digital-first business model, both CFOs and CAOs play critically yet distinct roles. 
2. CFO responsibilities are future-oriented. They concentrate on strategic interventions to drive growth. 
3. CAOs are responsible for managing processes and optimising activities related to accounting, taxation and management reporting of business finances. 
4. CFOs manage interactions with external financial stakeholders, e.g., investors, lenders, shareholders and bankers. 
5. CAOs, on the other hand, manage legal and tax compliance, participate in audits and often represent their organisations to regulatory bodies.  

Who is a CFO?

The CFO is the top-most leadership role among financial executives in any modern organisation. If we can draw a parallel between the operations of a company and a ship, CEOs are ship captains while CFOs are navigators. Chief financial officers crunch numbers related to industry trends, operational data, capital costs, economic indicators, etc. They also support CEOs in managing relations with companies’ external financial stakeholders such as lenders, bankers, financial market analyst firms and shareholders. 

Who is a CAO?

Chief Accounting Officers are top executives heading accounting departments in large organisations. In comparison with CFOs as navigators in a ship, CAOs can be visualised as chief engineers in ships. They take care of process efficiencies and operational safety checks. We can also consider them as guardians of bookkeeping activities, ensuring proper accounting of every single rupee, earned and spent in business operations. 

With increasing emphasis on audits and compliance, CAOs are becoming companies’ faces before regulators. 

Key Differences Between CFO and CAO

The major reason behind confusion around CFO vs CAO is that both these roles deal with money but from different perspectives. 

The fundamental CFO and CAO differences are: 

CFO vs CAO: Roles in Financial Management

Financial management is the process that involves planning, organising, directing, and controlling a company’s financial resources. So, it is important to understand the interventions of CFOs and CAOs in financial management to fully appreciate the differences between these two CXO titles. 

In financial management, a CFO’s primary mandate is to create and grow a company’s equity valuation. To achieve these goals, CFOs,

• Determine the best combination of debt and equity capital.
• Lead and supervise budgeting and forecasting. 
• Ensure financial liquidity to reach the forecast without overshooting the budget. 
• Build a financial narrative among shareholders, financial market participants and other external stakeholders. 

In comparison, CAOs’ mandate is to protect a company’s value. For achieving this singular mandate, CAOs, 

• Produce accurate balance sheet, profit and loss statement, and cash flow statement within the stipulated timeframe. 
• Ensure a company’s strict adherence to accounting standards and statutory compliance. 
• Monitor, implement checks and balances, and exercise control to prevent errors, frauds and mismanagement of funds. 
• Take control of processes recording non-financial data for reporting Environmental, Social, and Governance (ESG) compliance. (This is an emerging responsibility for CAOs.) 

When to Hire a CFO vs a CAO? 

It’s a dilemma for every business owner planning to build a high-performance leadership team. Usually, CFOs are essential for businesses trying to scale. 

If a business owner is facing any of the following challenges, they should choose to hire a Chief Financial Officer. 

• Fund raising 
• Increasing complexity in business models 
• Merger and acquisition 
• Financial crisis management 

Usually, companies assign accounts team leads with supervisory roles to manage accounts and auditing activities. However, accounts team leads may not be capable of handling CAO-level responsibilities. 

Any of the following challenges may indicate requirement of hiring a professionally-trained CAO:

• Preparation for public offers (IPOs, FPOs)
• Expansion across regions with multiple accounting standards 
• Recurring audit failures and compliance issues 

CAO vs CFO: How Do They Work Together?

In every organisation, CFOs and CAOs have symbiotic relations. CAOs take control of the timely availability and accuracy of financial data, while CFOs build the strategic vision based on that data. Separation of roles and responsibilities becomes critical to maintain the independence and accountability of both these leaders. 

For a seamless functioning of a company’s finances, it is critical for CFOs and CAOs to work together through a feedback loop. 

1. CAOs record and maintain a company’s internal financial data. 
2. CFOs interpret and formulate growth strategies based on that data.
3. The board approves the growth strategy. 
4. CEOs ensure implementation of the strategy. 
5. Once implemented, CAOs continue recording and maintaining fresh financial data for further interpretation and course correction strategies.