How do you prepare a financial policy guide?

Executive Summary

A financial policy guide is the primary reference document that organizes how money is managed within the company: who approves expenditures, how transactions are recorded, what the limits of authority are, and how risks are managed. Having a clear and updated guide reduces errors and manipulation, facilitates auditing, and enhances the trust of owners, banks, and regulatory bodies. This article presents a practical methodology for preparing a professional financial policy guide that can be implemented immediately.

First: What is a financial policy guide?

It is an official document approved by senior management that defines:

• The financial rules adopted within the company

• The procedures and controls for executing financial operations

• The authorities and responsibilities for each management level

• The accounting reference used (IFRS or others)

In short: the guide answers the question"How do we manage money within the company?"And not"How much did we earn?".

Second: Why does your company need a financial policy guide?

• Standardizing financial practices and preventing individual interpretations

• Reducing the risks of manipulation and accounting errors

• Facilitating the work of internal and external auditors

• Accelerating financial decision-making with confidence

• A prerequisite for banks, investors, and good governance

Third: Basic principles before starting

Before writing any policy, ensure that the guide is:

1. Compliant with local laws and accounting standards

2. Clear, simple, and practically applicable

3. Proportional to the size of the company (neither excessive nor insufficient)

4. Written in procedural language, not rhetorical

5. Officially approved by senior management or the board of directors

Fourth: The standard structure of the financial policy guide

1️⃣ Introduction and Scope

• Purpose of the guide

• Covered entities (the company, branches, subsidiaries)

• Date of issuance and update mechanism

2️⃣ Financial governance and authorities

Includes:

• Financial management structure

• Authority matrix (Delegation of Authority)

  • Who approves the disbursement?

  • Limits of financial approvals

• Role of the Board of Directors / Audit Committee

3️⃣ Core accounting policies

Includes – at a minimum:

• Revenue recognition policy

• Expense policy

• Fixed assets and depreciation policy

• Inventory policy

• Provisions and doubtful debts policy

• Foreign currency policy

• Tax policy

The reference accounting standard for each policy is mentioned (e.g., IFRS).

4️⃣ Budgeting and financial planning policy

• Preparation of the annual budget

• Periodic review and variances

• Mechanism for approving amendments

• Responsibilities of different departments

5️⃣ Cash and banking policy

• Treasury management

• Opening bank accounts

• Bank reconciliations

• Cash and fund management

• Authorized signatures

6️⃣ Procurement and payment policy

• Purchase cycle (Request – Approval – Receipt – Payment)

• Supplier selection

• Purchase orders

• Invoice verification

• Payment controls

7️⃣ Payroll and bonuses policy

• Payroll preparation

• Approvals

• Deductions

• Incentives and bonuses

• Final settlements

8️⃣ Internal control and risk management

• Separation of duties

• Access controls for systems

• Fraud detection mechanisms

• Reporting violations

9️⃣ Financial reporting policy

• Monthly and quarterly reports

• Reports for senior management

• Reports for owners and external parties

• Timelines for financial closing

🔟 Audit and review policy

• Internal audit

• Dealing with external auditors

• Follow-up on observations

• Corrective action plans

1️⃣1️⃣ Record keeping and documentation

• Document retention period

• Paper and electronic archiving

• Confidentiality and data protection

Fifth: The standard format for each policy in the manual

Each policy must include:

1. Policy title

2. Objective

3. Scope

4. Regulatory or accounting reference

5. Policy (rules)

6. Operational procedures

7. Responsibilities

8. Date of approval and review

Sixth: Common mistakes to avoid

• Copying ready-made policies that do not fit the nature of the company

• General and non-applicable policies

• Not clearly defining responsibilities

• Lack of formal approval

• Not updating the manual as the company grows

Seventh: How to approve and activate the manual?

1. Review by the finance department

2. Approval by senior management / Board of Directors

3. Distribution to relevant departments

4. Training employees on it

5. Linking it to accounting systems

6. Reviewing it annually or upon any significant change