The 2013 Compilation of Material Findings on Audited Financial Statements Reviewed by the Philippine Securities and Exchange Commission (SEC) shows an average of 25% noted findings related to the absence of the Accounting Policy and deviation from the existing adopted accounting policy. This supports our observation as Public Practitioner in the Philippines of the common problem especially on the Small and Medium Enterprises (SMEs) of the absence on establishing a formal Accounting Policy Manual.
Commonly in the Philippines, the processing and recording of transactions and preparation of financial reports and tax returns were based on practices and employee’s own judgement. This leads to misapplications of accounting policies and estimates, lack of financial disclosures on the financial statements and noncompliance with government regulations like Bureau of Internal Revenue (BIR) and SEC. Worst, the whole Finance and Accounting Department process disappears with the resignation of the in-charge employee and the Company is left with nothing but painful headaches on its financial books.
Having an established accounting policies and procedures manual is a tool of having a strong and sound Finance and Accounting Department. The following are the major benefits of having a formal manual:
Guidelines in Preparing a Good Accounting Policies and Procedures Manual
Accounting manual should serve as a basic framework on how to understand the process and recording of financial transactions, and to prepare financial reports. This should be written as a means of reference to management, supervisors, new and existing accounting staffs, and auditors. This outlines the applicable and currently used accounting policies, systems and procedures. Moreover, this should be written in a user-friendly manner for which it serves as a basis for training new staffs. For example, a user friendly is by using flowcharts, templates, forms and screenshots of the systems used by the company as an illustrative example on how to process and records transactions and reports.
In addition, the best practices of an entity should be incorporated in the manual. An example is before approval of vouchers prepared by the staff, the said vouchers should still be reviewed by the supervisor or finance manager. With that, the responsibilities of the Finance and Accounting Department and other departments that are involved in the operation of the company should be clearly defined and listed to ensure that appropriate controls are observed. Furthermore, the manual should be updated on an annual basis for which it will be useful and relevant as a reference and guide.
In establishing a manual there is no “one size fits all” format, the policies and procedures outlined depends on the nature of business, size, and complexity of the organization. The following are the recommended contents of an Accounting Policies and Procedures Manual that can help Companies in the Philippines develop their own manual:
A good accounting policies and procedures manual is prepared mainly by the Finance and Accounting Department with the help of other different departments like operation, human resource, inventory, etc. Planning it with the different departments involved in the operation of the business helps to establish a manual that serves as a guidance in responding the issues encountered during the processing of financial transactions and reports.
Though the manual had been established, cooperation and acknowledgement of responsibility of the personnel involved is essential. The execution of the policies and procedures in the manual keeps a healthier Finance and Accounting Department. Because, a plan without execution is a loss.
By: Sheena Banggawan, CPA
Sheena is an experienced Auditor of G. Pagaspas Partners & Co., CPAs. She has exposed her self both in the Statutory Audit and Internal Audit works with various industries. This silent, small and humble looking CPA is an example of complex and intricate work of intellectual art. Looking through her works as a professional, one can say she got the potential to shine on her chosen field.
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