Business readiness

Financial & Accounting Policies

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.

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