As part of uniformity and consistency principles in handling monthly financial closing, we need to clear doubts and put clear instructions on how to treat certain items in the General Ledger. By doing so, the closing of the accounts will be smoother and having lesser errors. 

I append below a simple guideline to assist the financial executives in the regulating of proper accounts classification, the uses of provisions, treatment of accrual method, and many others.

SAMPLE OF SOP:

1.0 PURPOSE
The purpose of this guideline is:
1.1.1 To ensure proper classification of both the profit and loss and balance sheet items for consistency and uniformity in the presentation of the monthly management accounts;
1.1.2 Encompass the good salient points for preparing journal vouchers, payment vouchers, cash vouchers, provision, suspense, control and reconciliation;
1.1.2 Include procedures to write off ( if any ) “abnormal” bad debts, inventory, disposal or scrap off fixed assets and creation or modification of accounts codes;
1.1.3 Include a Finance Time-table to ensure common understanding and teamwork to achieve the turnaround time of submission of reports to Asia Pacific Regional office/Corporate Office. ( Refer to my earlier article )

2. SCOPE
This policy applies to all the entities within the Asia Pacific Region with effect from the date as stated on the cover page of this policy
3. RESPONSIBILITY
3.1.1 The Chief Financial Executive of each entity is responsible for maintenance of this policy.
3.1.2.The Internal Audit Department or other personnel as assigned by the Vice President of Executive Management Team (EMT) is responsible to conduct periodic check and verification to ensure implementation and compliance of this policy.
4. APPLICABLE DOCUMENT
4.1. Chart of Accounts
4.2. Forms
5. GENERAL LEDGER

5.1. GENERAL PRINCIPLES
5.1.1 In the process of generating the proper financial statements, all the good accounting concepts namely Going concern, proper accruals, consistency, prudence, substance over form and materiality should be strictly adhere to.
5.1.2 It is the main objective that all management reporting should be timely, accurate and able to provide information by exception. At all time Finance Division should ensure that all internal controls/internal checks should be strictly followed and that a near zero audit recommendation can be achieved.
5.1.3 To ensure a common understanding of the objectives of closing the general ledger, a Time-table comprising our Finance Focus, reporting deadlines for Asia Pacific Regional office, internal management reporting, reconciliations, etc is to be established and distribute to all personnel in the Finance Division.
5.1.4 The creation of new accounts in the General ledger must be approved in writing by a Financial Accountant. Also any modifying ( add, delete, update) of accounts codes, Accounts Receivable and Accounts Payable should not be made without the proper sign off from the Financial Accountant. The following forms are used :-
-modifying accounts code – Chart of Account Maintenance Form
-modifying Accounts Receivable-Opening of AR Form
-modifying Accounts Payables- Accounts Payable Maintenance Form
5.1.5 Besides item 5.1.4, the following forms are available for determining proper authorization / approval :-
Write off Accounts Receivable-Approval form for Write of Bad Debts
Write off of Inventory- Approval form for Write off of Inventory
Disposal / Write off Fixed Assets- Disposal/Scrap of Fixed Assets Form
Request for Credit note - Request for Credit Note Form
5.1.6 Authorization should be in accordance to the guidelines on the Signature Authorization for Expenditure
5.1.7 For physical verification purposes of inventory and fixed assets, these should follow the relevant guidelines.
5.1.8 Deposits files should be maintained, where all refundable deposit receipts, etc should be stapled to A4 sized paper and file accordingly.
5.2 SUSPENSE AND CONTROL ACCOUNTS
5.2.1 The creation of suspense accounts in the General Ledger must be approved in writing by the Financial Accountant.
5.2.2 All suspense, provision, reserve and control accounts held within the Trial Balance must be analyzed every month and appropriate reconciliations completed. Any follow up action required must be noted and carried out promptly. The reconciliations must be reviewed and signed off by the Financial Accountant at least every quarter.
5.2.3. Control account balance should be checked to subsidiary ledger totals and differences investigated without delay.
5.3 PROVISIONS
5.3.1 All provisions held should be specific for a known problem and be based on a fully quantified assessment of liability.
5.3.2 Warranty and similar provisions where a liability is anticipated, should be assessed by establishing :
i) the cause or circumstances which would lead to the liability arising ;
ii) the likelihood of this occurring, by reference to past experience and current commercial practice;
iii) the associated cost of any corrective action ; and
iv) the extent of the risk, for example the potential number of items affected
Prior to the taking up into the financial records, this must be discussed with and approved by the Group Controller and, where there is significant impact on the Unit’s results, the Regional Finance Director must be consulted.
v) Any deviations from this procedure must be approved by the Regional Finance Director
 

5.4 JOURNAL VOUCHER
5.4.1 The journal voucher (JV) should contain sufficient information and related supports to facilitate the review and approval process and to provide a clear audit trail. The initiator of a JV should not have the authority to approve the entry. Any abnormal entry like write off Accounts Receivable, fixed assets and inventories should be countersigned by the Financial Controller, even though it has been signed off by the Financial Accountant. ( Any write off that requires the Board’s approval need to be supported to the JV )
5.4.2 The methodology of complete reversal (100%) of entry for accrual is use to reverse any accruals for example :
Debit Audit fee xx
Credit Accrual –Audit fee xx
Now using 100% complete reversal of entry, journal entry is as follows:
Debit Accrual – Audit fee xx
Credit Audit fee xx
5.3 PAYMENT/CHEQUE VOUCHER
5.3.1 All payment voucher (PV) should be prepared with proper description which should be concise and precise. Major alteration in the PV should all time be avoided. Proper planning and communications should be established when PV or cheques are issued to avoid cancellation.
5.3.2 Both cheque and PV number should always be in running sequences. For cancelled cheques the cheque number on the cheque should be detached and stapled to the cheque butt.
5.3.3 Cheque books when received from bank should be crossed account payee. At all times, it should be under lock and key and with a custodian.
5.3.4 PV for the General manager of the Operating units should be approved by the Directors. All audit purposes, the PV which has been approved should be signed off by the cheque signatories.
5.3.5 All supports like invoices, etc should be chopped paid with details of cheques and date paid to avoid double paying.
5.3.6 The measurement of a good payment voucher/cheque procedure is reflected by very negligible cheque or PV cancellation or alteration, missing documents and quick turnaround time from requesting of the payment to the checking and signing of the cheque signatories.
5.4 PETTY CASH
5.4.1 Imprest Cash float procedure applies to all entities to ensure all petty cash claims paid are properly authorized, accounted and documented. A CUSTODIAN has been nominated to take charge of the safe-keeping of such float. A letter of undertaking should be signed off by the appointed custodian.
5.4.2 Petty cash is for payment for petty sum which should not exceed $200.00
5.4.3 No exchanging or mingling of personal cheques with the petty cash is allowed.
5.4.4 Petty cash voucher should be approved by the immediate superior or the respective Head of Department.
5.4.5 After payment, the supports should be chopped “PAID” with payment date to avoid double payment.
5.4.6 A log should be maintained to account for all petty cash vouchers paid.
5.47 As part of good internal control practices, surprise physical count on balance of cash on hand and petty cash vouchers paid are conducted and documented to ensure full accountability of the petty cash float. Any discrepancy must be properly reconciled and rectified. It is the Custodian responsibility to ensure that all discrepancies are highlighted to this Business Unit Head for decision making.
5.5 RECONCILIATIONS
5.5.1 Following reconciliations should be done MONTHLY:
- Bank Reconciliations
- Intercompany Reconciliations
- Stock Reconciliations
Following reconciliations should be done QUARTERLY
- Suppliers Reconciliation
All reconciliations should be prepared in a proper format where the person prepared and person approved should be indicated.
  

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