SOPs and their Importance in the Financial Accounting Function

Business organizations today are very vast and complex. If keeping track of their daily activities itself is a challenge, managing their daily activities is an even greater challenge. Numerous transactions happen, new clients are acquired, additional engagements with existing clients are commenced, contracts are renewed/terminated as well as payments are received and made, on a daily basis. A large number of employees – having diverse character, age experience etc.- join; employees leave, take casual leaves and change roles every day. A reputed company  cannot afford disruptions in its service or deterioration of its reputation because of the daily changes that take place within the organization.

That is where Standard Operating Procedures (SOPs) come into play. SOPs are a set of procedures, relevant to an organization’s domain and composed by the organization itself. They guide the organization on how to carry out its complicated day to day activities and what to do in case of an emergency or absence of a few employees. Their main objective is to ensure that the quality, consistency and continuity of the organization’s services are not disrupted when employees leave the company or change their roles or take leaves; or certain structural changes are made. To use a sailor’s language, SOPs ensure the smooth sailing of the ship (company) even in turbulent waters (emergencies).

SOPs – a Financial Accounting Perspective:

It is well recognized that SOPs are not just important in the case of Financial Accounting – they are imperative, as the F & A team handles the all important financial asset of an organization. SOPs are to be established and followed by in-house F & A teams as well outsourced FAO partners alike. In fact, SOPs are among the key criteria that are considered while hiring an FAO partner. FAO partners with robust SOPs help create value for their clients as well as for themselves in the long run. Now, let us have a look at the benefits of SOPs for FAO organizations in detail.

Benefits of SOPs in F & A:

  • They reduce the training time required for employees: New employees join and leave an organization quite frequently. If SOPs for training for various departments/teams are in place, new joiners will receive adequate and uniform training, within optimum time period, from the date of joining. They will have the minimum knowledge required to carry out their operations once they hit the floor. Therefore, there won’t be any drastic drop in the company’s productivity or quality and consistency of service. They also reduce the training time required for new joinees, as the trainers know exactly what topics they should train them on. Reduction in training time implies that the organization is also able to reduce training costs.

 

  • They ensure continuity of service: When a key staff member is on leave or is sick or has left the company, SOPs ensure that someone else takes over the role and performs his or her duties well. An example of this kind of SOP would be the ‘notice periods’ for various designations. If a junior level accounting executive  puts down his papers, the notice period is usually one or two months because that time is sufficient for the company to find a replacement for that position. Whereas, if an accounting manager/team lead puts down his or her papers, he or she will have to serve at least three months notice period because the organization requires that much time to find a suitable replacement for that position. In short, the higher the designation of an employee, the longer the notice period that has to be served. Also, during the notice period, a senior level employee is expected to train the newcomer in the organization’s culture, work ethics and his/her role. This practice ensures the organization’s uninterrupted quality, consistency and continuity of service at all times.

 

  • Reduce errors and enhance productivity: SOPs tell an employee what to do in any situation. If they have any doubts regarding any of their assigned tasks, they can always approach their boss or the concerned authority and get them clarified. This is especially crucial in the case of F & A activities. To keep track of and improve an employee’s performance, team meetings, conference calls and monthly target meetings are held. All these SOPs ensure that an employee’s work is of good quality, it is error-free, it is delivered in time and ultimately it is profitable to the company. By regularly communicating and coordinating with boss and colleagues as per the SOP, an employee can do an error-free, qualitative and timely work.

 

  • Ensure that the Service Level Agreements are honored: Organizations sign Service Level Agreements (SLAs), which are service-based and/or customer-based. If an organization has SOPs in place to handle its business clients, it will find it easy to answer queries, understand SLA expectations and understand how the service affects the organization’s market performance and profits and deliver accordingly. Therefore, there is no room for ambiguity or misunderstandings and thereby souring of business relationships. Some organizations are proactive and ‘foresee’ their client’s business requirements even before they get started on the contract. The client’s business requirements are not discovered only while executing the contracts and this saves the organization a lot of effort, avoid misunderstandings and avert delay in service delivery to its clients. The organization can execute its daily operations smoothly, without any delays or disputes with its clients if such proactive measures (client SOPs) are in place.

Conclusion

It is more than evident that the case for SOPs is very strong in the Financial Accounting domain, regardless of the status of the department as ‘in-house’ or ‘outsourced’. SOPs for various departments/teams are ideally stored in  electronic format as it helps in preventing damages and loss. Also, it is easier and faster to store and distribute electronic SOPs than physical (paper based) SOPs. Despite the robustness and usefulness of existing SOPs, they should be subjected to scrutiny and the necessary changes must be made by an organization every year. . SOPs, followed over a period of time, can positively influence the team/organization culture and contribute in its value creation process.

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