Advanced Software (return to the homepage)
Guide to financial governance and compliance
Thought Leadership //05-03-2024

Guide to financial governance and compliance

by Andrew Pearson, SME Product Manager

What is financial compliance?

Financial compliance is something related to the way a company must fulfil specific rules, regulations, and laws as well as guidelines referring to areas of finance or accountancy. This does not only refer to the internal policies adopted by the business organisation itself, but also external regulations set forth by regulatory bodies.

Examples of what compliance means in the world of finance

Here are some specific processes and procedures involved in financial compliance:

1.      Know Your Customer (KYC): KYC involves verifying the identities of clients to prevent illegal activities such as money laundering or fraud. It may include checking identification documents and conducting background checks.

2.      Anti-Money Laundering (AML): Money laundering is a major issue that calls for the installation of systems to identify and report questionable activity. This usually entails monitoring the transactions for odd trends and informing about any suspicious activity.

3.      Data protection: Client data must be always protected by finance teams. This can include the encryption of data, limiting access to the sensitive information, and conducting periodic security checks.

4.      Regulatory reporting: Finance departments are often required to report the information on the current state of finances, business activity, and risk management methods to regulatory bodies.

5.      Ethics and conduct standards: Codes of conduct or ethics are there for employees to adhere to. These standards tend to measure a lot more than what is legally necessary and contribute towards a climate of ethics within the organisation.

The difference between compliance and financial auditing

Despite their differences, compliance and financial audits have the same goal of following rules, laws, and regulations to improve financial management. More than just a compliance plan, establishing procedures and controls to guarantee compliance is a proactive and preventative approach. Contrarily, financial auditing is a retrospective procedure that confirms the efficiency of systems and controls in the past, thereby fostering confidence among stakeholders.

Financial compliance should be understood as the act of managing and enforcing all financial laws and regulations that span across every aspect of finance from the teams.

Financial auditing involves the review of an organisation’s accounts by an outside entity to ascertain whether such records are correct and comply with the relevant accounting standards, laws, and regulations.

However, the intended objective of a financial audit is to give assurance that the financial statements portray an accurate reflection of the company’s overall financial standing too.

Key tasks in financial auditing include:

  • Examining financial records and transactions.
  • Testing internal control systems
  • Identifying any misstatements in the finances.
  • Reporting on the accuracy and fairness of the financial statements to stakeholders.

What is financial governance?

Financial governance refers to the processes utilised by a finance department to manage their information in a compliant manner. Tracking financial transactions, operations, compliance, and performing data control are all part of financial governance.

Key elements of financial governance

1.      Financial planning: This includes the nature of financial goals the organisation is to realise and making plans on how the objectives can be attained.

2.      Risk management: Aspects of such functions include identifying, assessing, and mitigating potential financial risks which would endanger the soundness of the organisation’s finances.

3.      Internal controls: These include the measures that have continued to be conducted as well as the policies that are designed to facilitate protection of resources, ensure accuracy of financial performance information and mitigate operational inefficiencies.

4.      Transparency and accountability: Provision of timely, accurate and transparent financial information to stakeholders is a source of confidence as they make decisions based on their well-informed view of the financial state of the organisation.

5.      Audit and assurance: It provides an objective view of a company’s financial statements, in addition to the scope and effectiveness of internal controls.

The difference between financial governance and compliance

Financial governance is a collection of subsets like systems, processes, and structures which make up the framework that regulates and oversees the use of an organisation’s financial resources. Basically, financial governance is about establishing a system of governance that will shape the structure of how financial matters are to be managed within the organ.

In contrast to the broad nature of financial governance, compliance is a narrower field. It refers to the adherence to existing regulations, standards, and internal ordinances. In finance, this would mean following the tax regulations, observing the securities laws, adhering to anti-money laundering practices, protecting the data privacy standards, and accounting protocols among others.

Why are financial governance and compliance important?

Financial governance provides a strong foundation for companies and ensures greater stability, compliance with all rules and regulations, as well as ethical conduct. It assists organisations in processing their financial data efficiently and having strong monitoring practices. Effective financial governance also represents keeping in line with the latest standards.

Adherence to the financial laws and regulations plays a vital role in reducing legal as well as reputational risks through the promotion of ethics and responsibility.

Key financial regulations you should know about

Here are some of the key financial regulations you should be aware of in the UK:

The financial regulatory landscape in the United Kingdom is evolving, with new regulations like the UK's Sarbanes-Oxley (UK SOX) and Making Tax Digital coming into play.


The UK SOX is a new corporate governance regime that the UK government introduced in response to major corporate failures. Its primary goal is to enhance audit controls, increase shareholder transparency, ensure accurate reporting, and identify risks.

As the UK prepares for SOX, organisations need an effective approach to managing compliance and risk. Large businesses could face more responsibilities under this regime, though it's noted that the reforms will not add regulations for smaller businesses.

The Financial Reporting Council (FRC) intends for the revised Code, often referred to as 'SOX-Lite', to apply to accounting years commencing on or after 1 January 2025. This means companies typically have two full reporting years before they are required to be SOX compliant.

Making Tax Digital

Making Tax Digital is an HM Revenue & Customs (HMRC) program which seeks to reform the UK tax machinery. According to this plan, UK corporations have to keep digital records and use software that submits their VAT returns.

The primary objective of Making Tax Digital is to automate the tax system and streamline taxation so as to make it easier for the taxpayers while reducing avoidable mistakes.

These laws play a major role in the success of any business and it is important to understand these regulations to ensure that your business fully complies with the necessary policies. Meeting financial regulations is not only a compulsory legal duty but is also an essential element of living up to the reputation of a business that can reliably stand the test of time in the UK.


UK GAAP, which refers to Generally Accepted Accounting Practice (GAAP) in the UK Taxes Acts and is the main statutory term in the UK Taxes Acts, acts as the regulatory authority controlling financial accounts and reporting across England, Scotland, Wales and Northern Ireland and is a widely used method of accounting that has now become more attractive due to tax efficiency concerns.    

As discussed, the objective of UK GAAP is to simplify the preparation of annual reports for successful submission by businesses’ finance teams who need to complete some documentation.

Standard setting in UK and Ireland are carried out by Financial Reporting Council (FRC) where codes are published in the form of accounting standards with consultation out-reach to stakeholders. The UK GAAP standard developed in 2015 is FRS 102, referred to as the ‘Financial Reporting Standard Applicable in the United Kingdom and the Republic of Ireland’.
The UK Accounting Council has, therefore, replaced the existing UK GAAP with three new Financial Reporting Standards: FRS 100, 101, and 102.


IFRS is a set of accounting standards that governs the accounting treatment for specific transactions and other events and accounted in financial statements. IASB is the issuing body of IFRS.

In the case of the UK, listed groups have been mandatorily required to prepare its consolidated financial statements under IFRS since 2005. This shift was designed to promote comparability and transparency of financial statements on a global level, helping investors and other interested parties comprehend and compare the financial results achieved by companies operating in different countries.

It is, nevertheless, important to point out that even though the UK GAAP and the IFRS are designed to create a sensible format for financial accounts, some aspects of these two frameworks tend to differ as exemplified by the case of treatment of financial instruments, inventory costs and research and development costs respectively. Understanding these variances is important because businesses need to know how to carry out proper financial reporting, including adhering to the standards required.

The role of a Financial Compliance Officer

Maintaining a robust financial compliance system is crucial for any business. While eliminating risk is impossible, recognising and minimising it is essential. This involves having strategies to manage issues and inform regulators when problems arise.

Assigning a dedicated person to oversee financial compliance is vital (just as you would in recruitment or facilities management) to ensure it's not simply treated as an afterthought.

A Chief Compliance Officer (CCO) is the backbone of a company's legal integrity and ethical conduct. Here are a few responsibilities of the CCO

  • Formulating guidelines in line with regulatory requirements.
  • Assess company procedures for possible risks.
  • Educate employees on current regulations and processes.
  • Communicate risk and compliance performance to business functions.
  • Manage communication with regulatory bodies.
  • Monitor changes in legislation that may affect company policies.
  • Offer guidance on rules and regulations and their interpretation.

In addition, a CCO takes the initiative to control risks by spotting possible non-compliance hotspots and putting preventative measures in place. By doing this, they assist in averting problems before they happen and shield the business from possible damages. Their presence improves the company's credibility and reputation.

How compliance and governance are changing

Financial compliance has changed significantly in recent times, especially since the 2008 financial crisis. Due to this incident, light-touch policies were reversed, and compliance became more strictly upheld.

The regulatory environment has changed too, requiring compliance officers and businesses to constantly adjust to new regulatory requirements.

Complying with data regulations has given this task an extra dimension. GDPR has presented new challenges for finance teams. Annually, the cost of compliance has increased due to newly established and amended rules as well as increased scrutiny.

The landscape has changed, and so have the instruments and methods deployed to manage compliance and risk. 

Tools for building best practice into your financial processes

Financial governance and compliance should form a key part of your business, but it’s not something that needs to be scary. Our financial management solution, OneAdvanced Financials, helps organisations to adhere to UK financial regulations in an automated fashion.

It also helps your organisation fulfil internal, statutory, and regulatory obligations, providing extensive reporting (via dashboards) and delivering actionable insights for informed decision-making.

This tool enables finance teams to perform tasks faster, more effectively, and with greater accuracy/visibility compared to traditional methods. It also ensures your organisation maintains the ability to adapt swiftly to shifts in the dynamic legislative environment.

Thought Leadership Financial Management Blog
Andrew Pearson

Andrew Pearson


SME Product Manager

Joined with our Acquisition of Exchequer Accounting Software back in 2016, Andrew is product manager for our SME solutions ensuring that our roadmaps are representative of market requirements. Andrew has over 15 years of experience working with finance and ERP software from a technical, development and support capacity.

Read published articles