Failure to keep detailed accounting records

Failure to keep detailed accounting records

Directors are under a legal duty to maintain detailed accounting records of their company.

In particular, they must maintain records:

* to show and explain transactions, and disclose the financial position of the company at any time with reasonable accuracy;
* to enable them to compile balance sheets and profit and loss accounts;
* to keep records of all money received and paid out by the company on a day-to-day basis;
* to maintain records of the company's assets and liabilities; and
* to keep records of stock levels and a year-end stock-take.

In practice, this means keeping:

* bank statements;
* cheque book/paying in book stubs;
* up-to-date ledgers; and
* invoices issued by and to the company, and receipts and cash vouchers.

It is also recommended that you keep records to enable you to create useful management information, profitability and cash flow forecasts, budgets, and regular balance sheets so you can tell if you're still solvent.

Directors must not only create these records but also keep them at the company's registered office or some other fit place. The Companies Act says that they must be kept for at least 3 years (for private companies) but my advice is to keep them for 10, as the taxman might want to investigate or you might want to explain to other regulators what happened many years later.

Failure to keep these records is a criminal offence and the director could be looking at a fine, imprisonment or both! They might also be disqualified from being a director. The Companies Investigation Branch (the business police) do regularly investigate failure to keep records and press charges.

If you do face an investigation, you will be interviewed under caution (although not normally arrested). It is important to have a solicitor present during the interview to advise you on the procedure and to ensure you fully understand questions being asked. A defence is available if you can show that you acted honestly and that the failure to keep records was excusable.

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