Ace the AFP Exam 2025 – Boost Your Financial Wizardry!

Treasury policies and procedures serve several critical functions within an organization, primarily focusing on risk management, compliance, and operational efficiency. The correct answer emphasizes that providing a framework for treasury strategy formulation is not a primary reason for their necessity.

While formulating a treasury strategy is indeed important for managing a company's liquidity, investments, and financing, the fundamental purpose of treasury policies and procedures lies in establishing clear guidelines that help manage risks and ensure compliance with legal and regulatory requirements. They act as a documented guide to best practices, helping staff navigate treasury activities effectively while minimizing errors and enhancing accountability.

Additionally, these policies function as a control process aimed at identifying and mitigating risks—such as financial, operational, and compliance risks—affecting the organization's treasury operations. They also serve as an effective internal audit and control tool, enabling the organization to assess its adherence to policies, detect shortcomings, and refine procedures.

In contrast, while the treasury strategy can be influenced by the established policies and procedures, the primary focus of these documents is not to formulate the overall strategy but rather to create a robust framework for managing financial activities safely and efficiently.