Keeping accounting records – Companies Act 2006

A recurring question from business owners is what are the accounting records that a company is required to maintain and the frequency with which they should be updated, as with many owner-managed companies the accounting records kept may, in many circumstances, be sketchy at best and be updated on a sporadic basis, mainly to coincide with external reporting requirements.

Adequate accounting records

Adequate means accounting records that are sufficient to:

  • show and explain the company’s transactions
  • disclose with reasonable accuracy, at any time, the financial position of the company at that time
  • enable the directors to ensure that the accounts they are required to prepare comply with the relevant requirements of the law.

In particular the accounting records must contain:

  1. entries from day to day of all sums of money received and spent by the company and the matters to which they relate, and
  2. a record of the assets and liabilities of the company.

Where a company’s business involves trading in goods, the records must also contain:

  1. statements of stock held by the company at the end of each financial year
  2. all statements of stock-takings from which those statements are prepared and
  3. statements of all goods sold and purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be identified – except when goods are sold as part of ordinary retail trade.

The requirements of Companies Act are only concerned with records needed by directors to prepare statutory accounts and represent only the minimum level of accounting records that a company must keep. The actual requirements are not very specific, probably recognising that the level of detail and the nature of the records needed by different companies will depend on the type of business and complexity of the company’s organisation. As a general indication, however, adequate accounting records must be an organised collection of information detailing entries of day to day receipts and expenditure and showing with reasonable accuracy the assets and liability of the company. An unorganised bag full of invoices and receipts is unlikely to represent adequate accounting records.

However accounting records that would allow directors to effectively manage a company will normally include records that provide more detail, and various degrees of analysis, than those suitable for meeting statutory reporting requirements and that would also be updated in a very timely manner.

Frequency of updating

Although accounting records need to be able to disclose the financial position of the company at any time – and to show day to day entries of money received and spent – they do not need be updated immediately to reflect all transactions entered into by a company. Rather, records need to be updated in reasonable time and on a regular basis, which would vary depending on the nature and complexity of the business, i.e. there is no set deadline in legislation or applicable practice that would apply across all sectors and organisations. What is relevant is that the records are suitable to establish the position of the company, with reasonable accuracy and minimal adjustments, if consulted at any time.

Storage and access to records

The accounting records must be kept at the company’s registered office (or such other place as the directors think fit to keep them) for a period of at least three years from the date on which they are made (in the case of a private company) or six years (in the case of a public company).

Section 1135 of Companies Act allows accounting records to be kept in electronic form; albeit requiring that when records are so kept they should be capable of being reproduced in hard copy form.

A company’s accounting records must be open to inspection by the company’s officers at all times; it has to be noted that shareholders, either holding a minority or a majority of the company’s shares, are not granted a specific right of access to accounting records by Companies Act.

Offences for failure to keep records

Failure by a company to keep accounting records in accordance with the requirements of Companies Act 2006 may result in an offence being committed by every officer of the company who is in default. In any case it would be a defence for an officer to show that he acted honestly and that the default was excusable in view of the circumstances in which the company’s business was carried on.