How to Write an Accounting Policies Guide for the Company? (With a Proposed Model)
How to Prepare an Accounting Policies Manual for Your Company? (With Template)
The Accounting Policies Manual is not just a routine document; it is the “Constitution” of the finance department. It defines the rules of the game: how to depreciate assets, when to recognize revenue, and who authorizes payments. Without it, the company relies on individual whims, leading to chaos and fraud. This guide provides the practical structure for writing your manual professionally—Digital Salla.
- Why does every company (even small ones) need a policy manual?
- The 5 Main Chapters: Basis, Revenue, Assets, Inventory, and Procurement.
- Structure Map (SVG): Organizing the manual hierarchy.
- Drafting Tips: How to balance “Strictness” and “Flexibility”.
- Interactive Tool: Policy Manual Generator (Customizable Template).
1) Why Prepare a Manual? (The Governance)
It protects the company from:
- Inconsistency: Treating similar transactions differently in different months.
- Knowledge Loss: Chaos when the Chief Accountant resigns.
- Audit Delays: Auditors ask “What is your policy?”—the manual answers.
2) Manual Structure Map: Hierarchy (SVG)
A logical flow from general rules to specific cycles.
3) Chapter 1: General Principles
Defines the foundation:
Finance SOPs - Detailed Steps
- Basis of Accounting: Accrual Basis (unless small entity).
- Fiscal Year: e.g., Jan 1 to Dec 31.
- Functional Currency: The currency of the primary economic environment.
- Materiality Threshold: Minimum amount for capitalizing assets (e.g., $500).
4) Chapter 2: Revenue & Sales
When do we record sales?
Policy should specify: “Revenue is recognized when control transfers to the customer (Delivery or Installation)”.
Also defines credit limits and bad debt provisioning rules.
5) Chapter 3: Assets & Inventory
Key Decisions:
- Depreciation Method: Straight-line is common.
- Useful Lives: e.g., Computers (3 years), Furniture (5 years).
- Inventory Valuation: FIFO or Weighted Average (LIFO is banned under IFRS).
6) Tips for Effective Drafting
- Be Specific: Don’t say “Review quickly.” Say “Review within 3 business days.”
- Use Roles, Not Names: Say “The CFO must approve,” not “Mr. Ahmed must approve”.
- Update Regularly: Review it annually to align with new standards.
7) Interactive Tool: Policy Manual Generator
Fill in the basics to generate a draft text for your manual.
8) Frequently Asked Questions
Can I copy a manual from another company?
You can use it as a template, but you MUST customize it. A manufacturing policy won’t work for a software company (e.g., Inventory vs. Intangibles).
Is the manual mandatory for SMEs?
While not strictly “mandatory” by law for very small firms, it is highly recommended for tax compliance and obtaining bank loans.
Does the manual replace IFRS?
No. The manual explains how the company applies IFRS (or local GAAP) in its specific context.
9) Conclusion
An Accounting Policies Manual is your first line of defense against chaos. It transforms accounting from “Opinion” to “Procedure.” Start simple with the core chapters (Revenue, Assets, Cash) and expand as you grow—Digital Salla.