An accounting manual is an important tool that all companies should create and maintain. An accounting manual describes in detail accounting procedures and policies that are currently in affect at your company. The accounting manual is like an owner’s manual you would have for a car.
It is typical that small and medium sized companies produce and maintain an operations manual, but why not an accounting manual?
There are three reasons why so many small to medium sized companies lack accounting manuals:
- Accounting department management does not have the time
- Accounting department management does not believe it is important
- Accounting department management lacks the knowledge to create an accounting manual
If reason 1 or 2 is given, than as an owner or CEO, you should be concerned that the Accounting department management is reluctant to share information and therefore, wants to control the flow of information in order to maintain “power”. Since most small and medium sized companies have limited staff, and information and responsibilities are controlled by one or two accounting department personnel, it becomes very difficult to dismiss these employees. The adage “knowledge is power” comes into play when the CEO or Board of Directors becomes unhappy with the CFO and/or Controller and wants to remove the person. Without having the accounting policies and procedures manual, the CEO and Board of Directors will be reluctant to act due to the expected increase in stress incurred on the organization and on the remaining accounting department personnel. The stress to the organization can take many forms, such as; not meeting monthly or quarterly financial statement deadlines, audit deadlines, billing, payroll or even tax deadlines. All these stresses can have a material impact on running the organization and therefore, having an accounting policies and procedures manual becomes even more critical.
Why should an accounting manual be produced?
- To understand the responsibilities of each accounting department employee
- To understand the detailed tasks that are completed daily, weekly, monthly, and annually
- To have a step-by-step monthly financial closing checklist
- To document and specify internal control procedures
- To have a guide in case an accounting department employee leaves the company
- To demonstrate to the CEO, Board of Directors and the Audit firm that procedures are in place
How do you produce an accounting manual?
Take the processes that have been documented based on the 3/1/10 blog called “Documenting Company Processes”. Each pictorial process and associated tasks should be pasted at the top of the document supported by a written explanation of each task of the process. This will enable the user of the accounting manual to visually follow the process, while at the same time be able to understand in more detail how each task is completed. In the written document, the details should also include which files/spreadsheets are used and the location of the files.
If the user of the accounting manual is able to follow the process and recreate the results without assistance, than the creation of the accounting manual has been a success.