Introduction
Accounting policies and procedures are rules, principles, and methods that employees in your firm use to analyze and report their financial transactions. This manual becomes the foundation of compliant and effective financial reporting and management, not just in your accounting firm, but in any business organization dealing with finances.
But are accounting procedures manuals required?
There’s no law requiring every organization to have an accounting procedures manual, but it has become a must-have for businesses and firms today. This is because industry rules, professional guidelines, and client expectations all encourage companies to be transparent with their employees and clients regarding financial performance. This is facilitated through internal control and by documenting their accounting procedures and processes.
Following the guidelines set in the accounting procedures manual helps firms adhere to U.S. accounting rules, as outlined in the Generally Accepted Accounting Principles (GAAP), or International Financial Reporting Standards (IFRS) for firms with overseas offices. It also allows companies to mitigate financial risks and maintain consistent financial statements and reports for clients.
Let’s take a deeper look at accounting policies and procedures, and how these can serve as assets in running your firm:
What are Accounting Policies and Procedures?
A simple way to explain the difference is that policies answer the “what” and “why,” while accounting procedures explain the “how” and identify the “who.”
Accounting policies outline your firm’s principles, bases, conventions, rules, and methods or practices. This applies when preparing and presenting your client’s financial statements, to establish the framework for recognizing, measuring, and disclosing financial transactions.
Policies reflect an organization’s approach to areas to recognize revenue, identify depreciation methods, and take another look at asset valuation, so that reporting becomes consistent over time and becomes a good resource in aligning with applicable accounting standards like GAAP.
Accounting procedures, on the other hand, refer to the operational steps and methods used to implement policies in daily practice.
These procedures may include aspects such as how invoices are processed for cash disbursements, when reconciliations are performed, who in management approves expenses, how liabilities can be avoided, and what documentation is required for journal entries.
Together, accounting policies and procedures form a comprehensive guide for everyone in your firm, from employees to management and senior partners, and even your offshore team, if applicable.
This way, all employees understand and follow the outlined processes for recording, managing, and reporting financial information, as well as their responsibilities for maintaining these processes consistently.
Aligning accounting policies and procedures shows transparency in transactions. It aims to reduce operational errors, support audit readiness, and provide a strong foundation for internal controls and decision-making.
Why Should Accounting Firms Document their Policies and Procedures
Documenting your accounting procedures manual directly impacts your firm’s performance and reliability, so you become more attractive to clients.
- Compliance: Well-documented policies support adherence to regulatory requirements, such as GAAP, IRS rules, or SEC guidelines.
- Internal Controls: Procedures protect your clients by reducing fraud, errors, and misstatements. It sets clear checks and balances in the manual.
- Consistency: With standardized processes, all team members follow the same playbook, so everyone is on the same page when dealing with clients.
- Training and Onboarding: A manual serves as a training resource for new hires and supports cross-training for employees.
- Scalability: Growth is easier for companies and firms when the foundation is organized and well-documented.
- Audit Readiness: Auditors often request to see your accounting procedures to verify the integrity of your systems.
Structuring Effective Accounting Policies and Procedures
Your accounting policy should follow a consistent template: objective, scope, responsible parties, and step-by-step instructions. These components create a well-rounded accounting policies and procedures manual.
While every firm is unique in its setup and services, the core principles of strong accounting are universal. Your policies and procedures manual should go beyond just technical rules; instead, ensure the manual also addresses how your team works together, what your clients need, and lists the tools you use.
The accounting policies you develop mirror how your finance function operates on a day-to-day basis.
That means they should be grounded in reality by reflecting actual workflows and approval chains, while still aligning with established regulatory frameworks and industry best practices.
- The most common policy topics in the accounting procedures manual include the chart of accounts, revenue recognition, payroll processing, expense reimbursements, and cash handling.
- Standard formats for distinguishing between policies (what/why) and procedures (how/when)
- Built-in role assignments, documentation protocols, and review schedules
- Direct alignment with GAAP standards for compliance
- Guidance on using the manual to scale and grow, for single-owner firms, mid-sized operations, and larger multi-office firms.
Read More: Scale and Grow Your Accounting Firm
This allows you to keep your internal documentation streamlined without missing essential elements. With a downloadable template, you can efficiently build or refine your firm’s accounting manual and tailor it to match your operational scale, compliance obligations, and evolving service model, which benefits both employees and management.
Many firms start with a pre-made document to outline their accounting policies and procedures template, then customize it to fit their needs. Here’s what a basic structure might look like:
Sample Procedure Outline:
- Policy Title: Name of the specific accounting rule or guideline.
- Objective: What the policy aims to achieve or its purpose.
- Scope: Who or what the policy applies to.
- Policy Statement: The core rule or principle being established.
- Procedures (step-by-step): Detailed instructions or examples on how to perform tasks related to the policy within the organization.
- Roles and Responsibilities: Who is accountable for what actions within the policy.
- Related Forms/Documents: List of relevant papers or examples of templates to use.
- Review Frequency: How often the policy will be re-evaluated and updated.
Customization Tips:
- For small firms, keep it lean and focused on daily tasks.
- For larger organizations, build templates for department-specific procedures.
- Update the templates annually or as standards change.
Key Components to Include in Your Guide
Chart of Accounts and Account Classifications
- Define your standard chart of accounts. This should include account codes, names, descriptions, and classifications.
- Establish rules for categorizing transactions consistently across departments.
- Clarify distinctions between direct costs, overheads, and non-operating items.
- Establish protocols for periodic review and updates to reflect organizational changes, mergers, and the introduction of new businesses.
Revenue Recognition
- Clarify when and how revenue should be recorded, differentiating between accrual and cash basis as appropriate.
- Address scenarios involving project-based billing, retainers, installment payments, or multi-element contracts.
- Outline the five-step revenue recognition model and apply it to specific use cases.
Expense Approval and Reporting
- Define approval hierarchies with monetary thresholds and escalation processes.
- Specify the required documentation, including receipts, signed approvals, GL codes, and submission platforms.
- Establish precise cut-off dates for reporting and periodic audits for data integrity and accountability.
Payroll and Employee Reimbursements
- Document the payroll cycle, from data collection (e.g., timesheets) to processing and compliance, to cash disbursements.
- Include treatment of employees’ bonuses, commissions, tax reporting (W-2/1099), and statutory deductions.
- For reimbursements, clarify eligible expenses, submission formats, turnaround times, and exception handling procedures.
Journal Entries and Closing Procedures
- Standardize journal entry documentation and approval workflows.
- Create a monthly close checklist template that focuses on key elements, including accruals, reconciliations, inventory adjustments, and financial review meetings.
- Implement quality control measures, such as variance reviews and dual verification, for sensitive entries.
Petty Cash and Cash Management
- Define allowable expenses, withdrawal limits, replenishment procedures, and the custodian’s duties.
- Complete documentation. Require a running ledger, receipt verification, and periodic audits for accuracy.
- Outline protocols for preparing and handling physical checks, cash receipts, and bank deposits securely.
Financial Reporting and Reconciliation
- Schedule recurring financial reports and define internal vs. external reporting responsibilities within the firm or organization.
- Detail procedures for account reconciliations, variance analysis, and exception reporting.
- Include a policy on report retention, sign-off procedures, and analytical review thresholds.
Conclusion
A clear accounting policies and procedures manual is a valuable tool for maintaining consistency.
Start with the basics: align with GAAP and use a reliable accounting policy template so the process becomes easier. And remember, regular updates and team training are key to keeping your manual relevant and practical.
By taking the time to document your processes, you strengthen your internal controls, support your team, and ensure that your firm is always audit-ready.
