The purpose of the SOP document is to provide step-by-step instructions to users to carry out business activities correctly, uniformly, and efficiently.
Availability & implementation of SOP helps accomplishment of the following.
· Enhance productivity
· Reduce errors and minimize delays in executing business processes
· Maintain consistency/uniformity across the organization
· Establish a clear chain of command
· Reduce training time of employees & business associates like vendors, channel partners, and customers.
· Meet statutory requirements accurately and timely.
This article includes the following processes related to the development of SOP for the F&A function.
1. Planning the structure of SOP (4 sections proposed)
2. Developing Section 1 of SOP - Processes, business activity narrations, and activity flow diagrams
3. Developing Section 2 of SOP – Associated Documents, manuals, configuration tables, and master data tables
4. Developing Section 3 of SOP – Authorisation Profiles for accessing section contents in 1 &2
5. Developing Section 4 of SOP- Activities for managing emergencies/disaster-like situations
6 . Review of the SOP
7 Approval of SOP by CEO/MD
8 Controlled circulation and training
9 Periodic review of SOP implemented
10. Potential activities (including unethical) that can adversely impact business
You can also listen to my video on the subject as per the link below.
Planning for initiating the development of SOP -6 activities
· 1. Forming the SOP cross-functional team (CFT) -All functions
· 2. Assigning a BU-level SOP -coordinator to monitor progress and facilitate conflict resolutions among interfacing functions
· 3. Deciding structure of SOP- Propose developing four sections as below
· 4. Deciding frequency for review of SOP by CFT
· 5. Identifying the persons (within each sub-function in Corporate F&A )will initiate, edit, delete, view, and approve SOP
· 6. Drawing timelines for completing SOP
2. Developing section 1 of SOP -5 activities
1. Narration of sub-processes in Part 1 of Section 1 as per the illustrations below.
2. Narration of business activities in Part 2 of the Section 1 as per specimen below
3. Timelines for the throughput time for executing each process
4. Activity flow diagrams
5. Navigation chart or & transaction codes embedded in case of ERP package
An overview of 15 primary processes,140 sub-processes, and 963 activities is tabulated below.
Primary Process | No of the processes | No of activities |
Identifying and Developing Competencies | 5 | 16 |
Carrying out Performance Appraisal of F&A based on KPIs and KRA | 3 | 23 |
Joint Ventures | 6 | 91 |
Mergers &Acquisitions | 6 | 100 |
Treasury investments | 8 | 113 |
Intangible assets | 8 | 30 |
Equity build-up & Dividend payments | 13 | 75 |
Borrowings-Long term and short term | 27 | 156 |
Role of CFO in pricing decisions | 9 | 41 |
Conducting risk assessment in the F&A function | 9 | 51 |
Developing Financial Authority Manual | 6 | 48 |
SOP | 9 | 29 |
Developing Budgets | 3 | 18 |
Performing Internal Audits | 15 | 120 |
Corporate Governance | 13 | 52 |
Total | 140 | 963 |
These are not being narrated here considering the sheer size of 963 activities as it will run into 346 pages as per details given in my book, for which Amazon links are given below.
Paper back-amazon link: India
Paper back-Amazon link-Global
However, for easier understanding, for one primary process, say “Borrowings-Long term and short term, “- a listing of a few subprocesses (out of 27) and a few activities (out of 156 ) are captured below.
Listing of Few sub-processes out of 27
· . Long-term Borrowing -Identifying sources for funds borrowing (Local sources
· . Determining the cost of Borrowings
· . Evaluation of loan rates & terms and Negotiations for finalizing the
And so on, the remaining 2 sub-processes
Listing of a Few activities for sub-process (Identifying sources for funds)
1. Identifying a list of a few local Indian players like
· Commercial banks: Both public and private,
· Financial institutions (for infrastructural projects and industrial development)
· NBFC: For project finance, infrastructure finance, equipment leasing, etc
· Infrastructure finance companies: for infrastructure projects like Airports,
2. Filing applications with shortlisted lenders for seeking long-term borrowings,
3. Identifying a list of a few overseas players who lend money, like
Multilateral development banks: (Funding for long-term projects and investments)
Export credit agencies supported by governments (provide financing and guarantees for
international trade)
· Global banks:
· Development financial institutions (for development projects)
· Global technology investors-
· Private equity firms:
· Sovereign wealth funds (Investment funds owned by Govts)
And so, on balance, 153 activities
3. Developing section 2 of SOP
This section includes copies of Documents(hard or soft), a listing of Tables, etc., relevant to the Corporate F&A function, such as below:
· I) Compiling & enclosing a List of Core documents:
· Ii) Compiling & enclosing a List of Statutory documents:
· Iii). Compiling & enclosing a List of Configuration tables:
· Iv) Compiling & enclosing a List of Master data tables
· v). Compiling & enclosing a List of applicable fields
i) A list of core documents -30 types identified in the book is below.
· Chart of accounts
· Cost center details
· Audited P&L and balance sheets with supports
· Audit reports for costs, operations, etc.
· M&A agreements
· JV collaboration agreements and matters
· Due diligence checklists for JV, M&A etc
· Risk assessment reports
· Listing agreements with exchanges
· Financial authority norms
· Credit policy document for “sales receivables“ for different OEM, Channel
· Purchase policy documents for “Payment terms and credit periods for PO” for
· Bill processing /passing guidelines for each type of vendor
· Inventory policy document for valuation and perpetual verification
· Treasury investment policy document
· Borrowing policy document
· Depreciation policy document
· Assets requisition cum justification0document
· Write off the document
· Asset disposal document
· LC requisition document
· LC document template
· Payment requisition document for advance payments
· Bank Guarantee requisition document
· Policy document for obtaining various insurance policies
· Purchase vouchers template
· Sales vouchers template
· Journal Vouchers Template
· Debit Notes & credit notes template
· Coding schemes for various types of financial documents
And more can be added
ii) A list of statutory documents -12 types identified in the book is as below.
· Checklists for compliance vis a vis each applicable Statutory Act
· Specimen/blank copies of all types of tax-paying documents
· Specimen copies of statutory returns
· statutory calendar of return filings
· statutory audit reports
· Approved Documents for board meetings, AGM, EGM, and board sub- committee meetings
· Corporate governance reports
· PAN, GST etc documents
· Approvals related to Company Act/other statutory bodies
· Imports licenses
· Tax /statutory fees paid documents.
· Replies to Statutory agencies.
And more can be added.
iii) A list of configuration tables -23 types identified in the book is as below
· Companies types/codes
· Chart of account
· Sourcing of funding types
· Investments types
· Finance organisation
· Document type
· Account type for posting
· Payment methods
· GL account group
· Customer account group
· Vendor account group
· Tax keys /codes
· Valuation area
· Depreciation types
· TDS types
· Tax procedures for pricing
· Company- wise divisions
· Assets types
· Withholding tax types
· Exchange rates-currency wise
· Tolerance limits for invoice value
· Document serial control
· Interest payment type
And more can be added.
iv) A list of Master data tables -9 types identified in the book is as below
· GL-General Ledger account master
· Asset Master
· GST rate Master
· Depreciation master
· TDS rate master
· Materials master (F&A -related columns/rows)
· vendor master (F&A -related columns/rows)
· Customer master (F&A -related columns/rows)
· Employee master (F&A -related columns/rows)
And more can be added
v) A list of fields -76 types identified in the book is as below
Fields Unique for F&A (34)
· Asset type
· Asset name
· Asset code
· Account document no
· Amount in account document
· Account type
· Account description
· Chart of account no
· Chart of account description
· Credit control area
· Cost center
· Tax type/classification
· Goods & service tax rate group
· Drawback rate group
· Exchange rate
· Fiscal year
· GL account no
· GL account group
· GL account text
· Special GL indicator
· Tax jurisdiction
· Tax code
· Tax amount
· Inventory Valuation category
· Vendor account group
· Customer account group
· Currency type
· Document posting key
· Fiscal year variant
· Bank key
· Terms of payment-vendor
· Payment-method
· Vendor tax registration number
· Customer tax registration number
Fields common for all functions (42)
· Company code
· Cost center
· Table
· activity
· condition type
· city
· Date of the document
·. Date of entry
·. Date of posting
·. Date of creation
· Date of payment
· Date of bill
· net value
· quantity
· payer
· UOM
· User name
· Customer name
· Customer number/code
· Vendor name
· Vendor number/code
· Address
· City
· State
· Country
· Country code
· Date of document creation
· Date of document posting
· Date of the document
· Material type
· Material name/description
· Material code
· Material number of manufacturer
· Quality check -Yes/no
· Quality parameter
· Specification
· Created by
· Edited by
· Viewed by
· Approved by
· Deleted by
· Net weight
And more can be added
4. Developing section 3 of SOP
Each Functional SOP Coordinator must Incorporate a cross-reference of the SOP Authorisation manual relevant to other interfacing functions considering the workflow to & fro
This section includes copies (hard or soft) of the authorisation matrix/manual capturing profiles for the following.
· 1. Compiling & enclosing Profiles for accessing activities in all processes vis a vis roles applicable for performing business activities
· 2. Compiling & enclosing Profiles for accessing Configuration tables & fields listed above vis a-vis roles applicable for performing business activities
· 3. Compiling & enclosing Profiles for accessing Master data tables & fields listed above vis-a-vis roles applicable for performing business activities
· 4. Compiling & enclosing Profiles for accessing Documents & fields listed above vis vis roles applicable for performing business activities
There can be thousands of permutations and combinations of (business activity to be performed, sub-function, position, level ) that make authorisation profiles and to be included
5 Developing section 4 of SOP
1. This includes preparing and enclosing communicating guidelines for managing emergencies or disaster-like situations such as those below.
a) CFT to capture possible causes, from the list below that may be relevant for F&A -
Corporate services function :
· Avalanches
· Biological emergencies
· Chemical emergencies
· Cold wave
· Cyclones
· Droughts
· Earthquakes
· Fire
· Floods
· Forest fire
· Heatwaves
· Landslide
· Lightening
· Nuclear-radiological
· Smog/air pollution
· Thunderstorms/dust storms
· Tsunamis
· Urban floods
b) IT/System outage causing partial or complete shutting off ERP/Software system by any reason
c) Emergency due to strikes, riots, civil commotion, war, terrorism causing or likely to cause work stoppages, risk or endanger to life and property
d) Sudden Statutory /regulatory changes necessitate sudden stoppage of business activities or need immediate/urgent mandatory compliances.
e) Sudden non-availability or scarcity of critical resources like below likely to adversely affect business profitability or customer demands or service:
i) Assets or equipment or tools and jigs and fixtures essential for the manufacturing of BOQ materials or for construction or for rendering customer services
ii) Human resources
iii) Critical inputs like Software Bill of materials or other inputs
2. This must also include actions /measures to be triggered in emergency-like situations in the F&A function.
· Commencing of business processes/activities as soon as possible to ensure business continuity in case of disruptions caused by emergencies
· Initiating countermeasures and putting in place alternate standby processes and systems, including manual/standalone IT solutions, which can enable the performing of Mission-critical activities in each process.This may require using alternate methods like manual or Microsoft office-based applications- solutions to maintain continuity.
3. Proposing financial transactions related to empowerment norms for managing emergencies as per policy/directives of Top management
6 Review of the SOP prepared earlier
1. The extracts of the SOP relevant for interfacing functions must be circulated to concerned HOD of the relevant function like Purchase, Manufacturing/operations, Sales & distribution functions also and comments must be received in a pre-defined time frame.
2. CFT Periodically meets at the Organisation level SOP coordinator for the following:
i)Resolving interfacing issues
ii) Deciding access rights to another function vis-à-vis each other
iii) Resolving throughput time/cycle time for completing each activity vis-à-vis Process
3. Amending the draft SOP to final for seeking approval from the CEO/MD as relevant.
7 Approval of SOP by CEO/MD
Reviewing amended SOP and CEO/MD giving formal written/documented approval for releasing and implementing SOP
8 Controlled circulation and training
This activity involves controlled circulation of the approved SOP (hard copy or soft copy as appropriate ) and imparting of training to the HOD’s of F&A and other interfacing functions as also key process owners.
9 Periodic review of SOP implemented
The activities include periodic (say six monthly or annually) reviews by the CFT to incorporate the changes in processes/resolve inter-functional conflicts.
Changes in the internal business processes
10 Potential activities (including unethical) that can adversely impact business.
· Assigning members to CFT who do not possess core competencies to develop
· CFT Not devoting enough time to developing a comprehensive SOP for each of
· Inadequate review and resolutions of the conflicts by the respective SOP
· Changes triggered by the statutory bodies
· Enhancing efficiencies by improving business processes/activities through
· Incorporating changes in the ERP module due to amendments
· Changes in document’s designs if any
· Seeking fresh approval of the changes in the SOP from the CEO/MD
· Circulating the revised controlled version of the SOP, providing training, and
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