Operating any commercial enterprise involves keeping books and records. Running a company is no exception. Accurate financial records are a must for all companies. In addition to their commercial utility, companies in Australia are also legally required to maintain written financial records. This article explains your company record keeping requirements and details those books and records you need to keep.
Company Record Keeping Requirements
The Corporations Act 2001 (Cth) (the Act) obliges all companies to maintain written financial records that accurately record and explain its transactions, financial position and performance. These records must permit the preparation and audit of true and fair financial statements.
The Act considers correct record keeping such a fundamental task that it lists it as one of the key responsibilities of directors and company secretaries. The Australian Securities and Investment Commission (ASIC) views breaches of this obligation extremely seriously.
What Do We Mean by Financial Records?
The Act’s definition of financial records includes:
- Documents of prime entry;
- Receipts, invoices, orders for the payment of money, bills of exchange, promissory notes, vouchers and cheques;
- Any working papers or other documents necessary to explain how financial statements were drawn up and any adjustments required in that process.
While electronic records are acceptable, the Act requires that all financial records in electronic format must be convertible into hard copy within a reasonable time. The responsibility for this rests with the individual company even if a third party (such as their accountant) keeps their financial records on their computer system.
The point of recordkeeping from a legal perspective is to ensure that a person can correctly gauge a company’s financial position from the books. This assists transparency and accountability.
In general, the kinds of records and books that a company should keep include:
- Financial statements such as profit and loss accounts, balance sheets, depreciation schedules and taxation returns (for income tax, group tax, fringe benefits tax, business activity statements and all supporting documents);
- General ledger;
- General journal;
- Register of assets;
- Cash records including the cash receipts journal, bank deposit books, cash payments journal, cheque butts, petty cash books;
- Bank account statements, bank reconciliations and bank loan documents;
- Records for sales and debtors including the sales journal, debtors ledger, list of debtors, invoices issued, statements issued, delivery dockets.
- Invoices and statements received and paid;
- Creditors ledger;
- Records for work in progress including job/customer files, stock listings, creditors records;
- Unpaid invoices including correspondence, annual returns and forms for ASIC, records for wages and superannuation;
- Records of all computer back-up discs (back-ups should happen at least once a month);
- Registers (where relevant) for members, options, debenture holders, prescribed interests, charges, unclaimed property;
- Minutes of directors’ meetings;
- Minutes of members’ meetings;
- Deeds for trust, debentures, contracts, agreements (for example, lease agreements); and
- Any inter-company transactions, including guarantees.
The introduction of the Personal Property Securities Register on 30 January 2012 repealed those sections of the Act requiring companies to keep a register of all charges. However, this applies only to charges acquired from that date onwards. Companies must therefore still maintain a record for charges held before that date.
Further, while the Act does not require small proprietary companies to keep financial statements (for example, profit and loss accounts) unless ASIC or shareholders specifically request it, they are nonetheless a valuable commercial tool. For that reason, such companies should seriously consider preparing such statements even though it is not legally necessary to do so.
The Act requires companies to retain all of their financial records for a minimum of seven years.
Of course, this list of records is only a guide. The company record keeping requirements of every company differ because they depend on the company. For example, if your business holds a securities or futures licence you will need to keep a register to that effect.
LegalVision has helped many founders. If you would like help with directors’ duties, it would be our pleasure to assist you. Call LegalVision today on 1300 544 755.