May 19 2025 |
What are Financial & Accounting Policies?
Financial and accounting policies are the procedures and guidelines followed by your company to prepare and report financial statements.
Financial and accounting policies are a set of standards, methods and measurement systems that govern the preparation and reporting of your company’s financial information . These policies area approved by your management team and developed for a long term, reflecting your company’s values and ethics. These are usually included in the notes that accompany your financial statements.
They cover:
- Revenue Recognition: Process of recognizing your company’s revenue, including advance payments or receipts for products or services that have not been delivered (deferred revenue)
- Doubtful Debts Allowances: Policies used to determine the value of your company’s revenue or loans provided to third parties that are unlikely to be collected
- Fixed Asset Depreciation: Process of calculating the annual depreciation of your company’s fixed assets, including rate of depreciation and expected lifetime of fixed assets
- Employees’ Benefits: Procedure of creating and maintaining a reserve to distribute your employees’ benefits and incentive plans such as leave encashment
- Budgeting: Processes related to finalizing the budget required to meet your company’s monthly, quarterly and annual growth plans
- Investment and Hedging Policies: Process of reviewing and approving investments in or by your company and protecting your interests against market risks such as currency fluctuations
Why are Financial & Accounting Policies important for business today?
Financial and accounting policies enable your company to:
- Maintain consistency in accounting the financial transactions across your company and jurisdictions
- Streamline decision-making processes to make book-keeping or accounting processes more efficient
- Ensure that your employees are following correct accounting and reporting practices for all transactions
- Communicate the process of calculating employee benefits and incentive plans to your employees
- Ensure financial and regulatory compliance with respect to disclosure
Why is it important for an event tomorrow?
Financial and accounting policies are important for an event tomorrow, as they help:
- Assess the financial and accounting policies used by your company to create your financial statements
- Measure consistency in reporting across group companies and evaluate internal processes
- Evaluate the process of reviewing, authorizing and approving investments in your company
Pros of addressing Financial & Accounting Policies
- Help reduce management and accounting issues such as overstatement or understatement of your company’s financial performance
- Serves as a training manual for new and existing employees to ensure accurate reporting and disclosure
- Resolve any potential disputes related to your company’s doubtful debts due to defined policies
- Avoid any discrepancy in employee benefits and incentives by specifying a standardized procedure
- Ensure accuracy related to your company’s financial information and avoid any discrepancy in reported numbers
- Assist your company in complying with various regulatory requirements across jurisdictions
Cons of not addressing this topic
- Increase in time required to file financial statements with regulators across jurisdictions
- Overstatement or understatement of financial performance of your company
- Increase in regulatory and litigation risks due to non-compliance with accounting standards
- Decreased credibility and reliability in company financial reporting.
ALSO LEARN ABOUT
- Acquisition and Disposal Documents
- Aged Creditors Report
- Aged Debtors Report
- Aged Inventory Report
- Audit Correspondence
- Debt Covenant Report
