Accounting Policies and Procedures Manual: A Blueprint for Running an Effective and Efficient Department - Hardcover

Bragg, Steven M.

Hardcover

ISBN 10: 0470146621 ISBN 13: 9780470146620

Publisher: Wiley, 2007

Synopsis

Now in a fifth edition, Accounting Policies and Procedures Manual: A Blueprint for Running an Effective and Efficient Department is a how-to guide on creating an effective and efficient accounting department policies and procedures manual.

Written by Steven Bragg, the foremost authority in accounting and controllership issues, the new edition includes:

• A new, complimentary Web site providing readers with the foundation for creating or enhancing their accounting department policies and procedures manual
• More coverage of accounting procedures including inventory, billing, cash receipts, pricing, order entry, credit, collections, sales returns, capital budgeting, cash forecasting, payroll, and closing the books

Accounting Policies and Procedures Manual is the tool every accounting department needs to regularize and systematize its procedures to match the best in the industry.

About this title

About the Author

Steven Bragg, CPA, CMA, CIA, CPIM, has been the chief financial officer or controller of four companies, as well as a consulting manger at Ernst & Young and auditor at Deloitte & Touche. He received a Master's degree in Finance from Bentley College, an MBA from Babson College, and a Bachelor's degree in Economics from the University of Maine. He has been the two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written the following books through John Wiley & Sons:

• Accounting and Fiance for Your Small Business
• Accounting Best Practices
• Accounting Control Best Practices
• Accounting Reference Desktop
• Billing and Collection Best Practices
• Business Ratios and Formulas
• Controller's Guide to Costing
• Controller's Guide to Planning and Controlling Operations
• Controller's Guide: Roles and Responsibilities for the New Controller
• Controllership
• Cost Accounting
• Design and Maintenance of Accounting Manuals
• Essentials of Payroll
• Fast Close
• Financial Analysis
• GAAP Guide
• GAAP Policies and Procedures Manual
• Inventor Accounting
• Inventor Best Practices
• Just-in-Time Accounting
• Management Accounting Vest Practices
• Managing Explosive Corporate Growth
• Outsourcing
• Payroll Accounting
• Payroll Best Practices
• Revenue Recognition
• Sales and Operations for Your Small Business
• The Controller's Function
• The New CFO Financial Leadership Manual
• the Ultimate Accountants' Reference
• Throughput Accounting

Also :

• Advanced Accounting Systems (Institute of Internal Auditors)
• Run the Rockies (CMC Press)

Excerpt. © Reprinted by permission. All rights reserved.

Accounting Policies and Procedures Manual

A Blueprint for Running an Effective and Efficient DepartmentBy Steven M. Bragg

John Wiley & Sons

Copyright © 2007 Steven M. Bragg
All right reserved.
ISBN: 978-0-470-14662-0

Chapter One

ACCOUNTING MANUALS

1.1 INTRODUCTION

Ask a dozen accountants to name the major method of communicating in their accounting operations and they will probably describe the accounting manual. However, you will get 12 answers about what the manual is, varying from a simple listing of account names and numbers to an academic treatise of the philosophy and practice of accounting as used in that particular environment.

In its simplest form, the accounting manual documents the meaning of sets of descriptive numbers used in an organized manner to record, summarize, and report information. It may contain descriptions of one or more of the systems and procedures that explain the basic accounting structure of the enterprise.

However, the manual can be much more than numbers and definitions. It may contain organization charts to show responsibility and lines of authority, policy, formulas, clerical procedures, special industry terminology, data processing rules and procedures, forms descriptions and uses, and so on. It is the general map through which one can learn to travel through a company's operations.

Every business enterprise has an accounting system, from the self-employed person operating a small business out of his or her home to charitable, not-for-profit organizations, educational institutions, governmental agencies, industrial and service companies, and so on. The system may be completely undocumented, possibly just a checkbook and a list of receipts, or it may be an elaborate, difficult-to-maintain, small library of books and manuals used by large national and international companies.

An accounting manual has three basic purposes: to answer questions, to instruct accounting personnel, and to provide consistent reporting of business transactions. As a printed document, it must be useful and, more importantly, used. Therefore, it should be formal-not in the sense of being rigid and unyielding, but in the sense of being complete and consistent.

It should be available to all who need it or think they need it. Certainly, the accounting staff needs the manual. Also, line supervisors, managers, and others who submit accounting data should have the manual available to them.

It should always be current, a condition requiring a method of publishing changes, additions, and deletions very quickly (see the discussion of electronic methods of distribution in Chapter 4). Finally, the manual should be easy to use as a tool to answer questions of consistency, accuracy, and clarity of presentation.

A word of warning: Unless the contents of a manual are to be used exclusively by accountants in the accounting operation, the accountants must turn their terminology into our terminology-that is, terminology that can be understood by non-accountant users of the manual. Avoid accounting jargon at all times.

For reference purposes, accounting manual, as used in this book, includes all the modules described in this chapter. The reader has the choice of developing selected modules and combining them into one accounting manual or maintaining each one as a separate manual. The modules are:

General accounting manual

Corporate policies manual

Accounting procedures

Purchasing card manual

Accounting controls manual

Year-end manual

Budgeting manual

Property accounting manual

Forms manual

Document management manual

User manual

Information technology manual

Human resources manual

Each of these modules is briefly described in the following sections, and more fully described in the indicated chapters.

1.2 GENERAL ACCOUNTING MANUAL

The general accounting manual includes a general description of the overall accounting system, the chart of accounts, account descriptions, activities calendars for the accounting staffing, accounting policies, and descriptions of the key process cycles. Parts of the general accounting manual are usually included in the user manual to provide account coding information to other departments, such as purchasing and receiving, so that they can code transaction documents or otherwise provide accounting information. The general accounting manual is covered in Chapter 2.

The chart of accounts is the basic underlying account code structure that is used to record information in the general ledger. To create the chart, one prepares a list of every account number and name, which should include every asset, liability, ownership, income, and expense item. Then a one or two sentence definition is written for each line item in the chart of accounts. The list of definitions developed here will be the primary reference of permitted actions-and, more importantly, those that are not permitted-in each account being used. If divisions or departments are included in the corporate structure, then the account code structure can be stretched into a longer format to accommodate codes that can be traced to specific operating entities within the organization.

Job descriptions are extremely useful for determining which employee positions are responsible for which tasks, as well as to form a basis for periodic job reviews. These descriptions are most easily compiled by interviewing the staff members to see what they already do; on an ongoing basis, the descriptions can be adjusted to shift work among personnel to achieve increased levels of efficiency.

An activities calendar should be constructed not only for the entire department but also for each person within it. An activity calendar should itemize exactly which tasks should be completed on each day of the month. It forms the basis for task assignments within the accounting department, and is an excellent visual tool for managing the department's function. The calendar will be in a constant state of flux, as work tasks are constantly shifted among different staff members or moved to different time slots to create a balanced work flow for the department as a whole.

A more complete manual would contain a section on accounting principles and general procedures. For example, the company might indicate that it follows a published industry account numbering and format procedure, or that it operates in accordance with control guidelines laid down by the American Institute of Certified Public Accountants (AICPA).

Finally, the manual may contain flowcharts of the principal process cycles used by the company (such as the purchasing and order fulfillment cycles) as well as related procedures. The documentation of these key underlying activities gives the reader a broad conceptual overview of how the key accounting activities work, and how documents flow from function to function in order to complete tasks.

1.3 CORPORATE POLICIES MANUAL

Corporate policies are needed to set up boundaries within which transactions are to be accepted, and for how those transactions are to be processed. Policies are necessary components of a comprehensive system of controls and form an integral part of a company's risk management system. Chapter 5 contains nearly 250 policies for many transactional areas, including cash, hedges, barter transactions, inventory valuation, intangible assets, research and development costs, investments, debt extinguishment, warrants, lease terminations, dividends, options, and foreign currency translations. Though not all of these policies will be needed by any one company, a selection of the policies could form the foundation of a company's corporate policies manual.

1.4 ACCOUNTING PROCEDURES

The accounting procedures used must be clearly stated in a consistent format. To aid in the construction of such a manual, Chapter 3 itemizes a number of key writing, style, and mechanics guidelines. It also describes how to create an understandable flowchart that can accompany a procedure, including the most common direction of flow and types of graphics to use. The chapter also notes how to calculate and interpret read-ability statistics for a procedure. In addition to these general guidelines, the chapter describes how to lay out a simple procedure format and accompanying header, which are used in all subsequent chapters whenever example procedures are shown. Next, we cover the key work steps needed to construct a procedures manual, itemizing the process flow required to ensure that the information contained within a procedure is accurate. Finally, there is an itemization of suggested procedures that can be used. This list is by no means complete, because accounting systems will vary widely by industry, and even between companies within the same industry; nonetheless, it provides a core set of procedures that can be expanded upon to create a complete set of company-specific procedures.

With the basic procedure construction information in hand, one can then proceed to the creation of actual accounting procedures. Chapter 6 assists in this process by presenting a long list of actual procedures. They are summarized into the following categories for easy reference:

Acquisitions

Billing

Budgeting

Credit

Financial statement preparation

Fixed asset transactions

Funds management

Internal auditing

Payroll

Purchasing

The majority of the procedures were taken from the procedures manuals of several real companies that use different software packages and operate in different industries. Consequently, some of the most detailed information listed in the procedures will only be applicable to very specific situations, and must be modified to meet the reader's needs. Other procedures, such as those applying to acquisitions and budgeting, are more broad-based and can be applied to one's existing systems with comparatively little modification.

1.5 PURCHASING CARD MANUAL

A purchasing card program is an integral part of the purchasing program of many companies, since it usually results in a substantial reduction in the cost of acquiring goods and services. However, most such programs are informal, and can lead to purchasing abuses or excessive expenditures. The purchasing card manual shown in Chapter 7 itemizes how to set up a purchasing card program, as well as what forms are to be used to ensure that purchases are made in the appropriate amounts by authorized purchasers and that all purchases have been assigned to the correct cost centers.

1.6 ACCOUNTING CONTROLS MANUAL

In the era of the Sarbanes-Oxley Act, where adequate control systems are mandatory for publicly held companies, an accounting controls manual is not only a good idea, but should also be a cornerstone of a risk management program. Chapter 8 contains a list of nearly 400 controls that can be assembled into a controls manual, which in turn should be integrated into individual accounting procedures. It is advantageous to separately itemize controls in an accounting controls manual, since a risk manager or auditor can more easily peruse the document to ascertain the types of controls being used.

1.7 YEAR-END MANUAL

The year-end manual is probably better described as a year-end assignments list. It defines all of the tasks that must be accomplished at the end of a company's fiscal year to close the books and prepare the required accounting statements, schedules, and narrative for the annual report.

Once prepared, the year-end manual is updated annually for any changes in the fiscal year-end closing procedures. Such changes come about by a change in management, a change in auditors, or an expansion or contraction of year-end procedures caused by a change in accounting systems. The revised year-end manual is usually issued one or two months before the fiscal year-end to every employee assigned to complete one or more closing tasks. The manual is sometimes assembled in cooperation with the outside auditors, and working papers or schedules required by them are included as tasks. The year-end and period-end manuals are discussed in Chapter 9, which covers specific closing activities, the soft close, and closing procedures that are tailored to specific accounting positions.

1.8 BUDGETING MANUAL

Most organizations of any size spend a considerable amount of time creating budgets for at least the upcoming year, and perhaps for multiple years. If so, they have found that this is a complex and highly iterative process that impacts virtually every part of a company. In Chapter 10, we present the system of interlocking budgets and describe how they are structured so that one can see how information is first assembled for the sales budget. This information then cascades down into a series of "cost of goods sold" budgets that determine targeted inventory levels, purchasing volumes, production targets, and requirements for facilities as well as direct labor. After these steps are completed, budgets for supporting functions-such as general, administrative, and marketing-are added to the set of budgeting documents. The chapter contains a complete example of these interlocking budgets, as well as a discussion of flex budgeting, under which the supporting budgets all automatically change if revenue levels vary from the initial budgeted level. There is also coverage of the budgeting process and how budgets can be used as an integral part of corporate control systems.

1.9 PROPERTY ACCOUNTING MANUAL

The typical organization only tracks its fixed assets through some bare-bones entries in a depreciation calculation that itemizes the general type of asset, when it was purchased, what it cost, and the amount of its monthly depreciation. However, there are many other details that should be tracked, such as the presence of warranties that can be used in the event of a product failure, the location of each asset, and contact information about suppliers. A truly comprehensive set of information about each fixed asset is recorded in the property accounting manual, which is described in Chapter 11.

The chapter describes how to accumulate costs for projects that are being developed in-house with a project cost report. It also describes how to collect and organize information about land projects, which require the accumulation of special information such as legal descriptions, zoning classifications, and assessed value. There are additional discussions and different forms to cover land improvement projects, building projects, and the purchase of factory equipment, office equipment, vehicles, leasehold improvements, and leases. The chapter concludes with a complete example of a property accounting manual, showing the indexing, procedures, cost sheets, and instructions for the completion of each form.

1.10 FORMS MANUAL

Forms are the vehicles that carry information and approvals throughout the accounting map. They record the authorization and the purpose of a transaction and what actions are accomplished, such as buying, selling, making, biding, moving, adding, deleting, changing, and so forth. Forms are the foundation of computerized data processing activities. Developing and maintaining a forms manual need not be difficult or burdensome.

Chapter 12 provides a form survey worksheet to identify needed forms, presents a number of basic rules for creating forms, and then shows how to create form descriptions and compile them into a formal forms manual.

1.11 DOCUMENT MANAGEMENT MANUAL

Accounting departments are exceptionally good at creating paperwork, but typically experience considerable difficulty in indexing, storing, and disposing of it once it has been created. The document management manual shown in Chapter 13 contains policies and procedures that show how to handle these functions. The result should be a more organized accounting department where needed paperwork is readily available, less-necessary items are filed away, and there is a regimented system for disposing of outdated documents.

(Continues...)

Excerpted from Accounting Policies and Procedures Manualby Steven M. Bragg Copyright © 2007 by Steven M. Bragg. Excerpted by permission.
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Edition details

• Publisher: Wiley
• Publication date: 2007
• ISBN 10: 0470146621
• ISBN 13: 9780470146620
• Binding: Hardcover
• Language: English
• Edition number: 5
• Number of pages: 544