Every company must keep adequate accounting records
The Institute of Chartered Accountants in England and Wales (the ICAEW) has issued guidance (the Guidance) for directors on the Companies Act 2006 requirement that all companies must keep adequate accounting records.
The Guidance discusses the:
- Legal requirement set out in section 386 of the Companies Act 2006.
- Contents, form and organisation of accounting records.
- Preservation of accounting records.
- Requirement that “accounting records should be such as to disclose with reasonable accuracy, at any time, the financial position of the company at that time”.
- Record requirements relating to cash, assets and liabilities, stocks and purchases and sales of goods.
The Guidance is titled “Tech 01/11: Guidance for directors on accounting records under the Companies Act 2006″ and can be found on the ICAEW website through this link. Related guidance at the same link is “Tech 6/08: Financial and accounting duties and responsibilities of directors”.
Failure to keep adequate accounting records is a criminal offence
Non-compliance with section 386 is a criminal offence by every director who is in default. Breach of the section is also one of the matters to which the court must have regard under the Company Directors Disqualification Act 1986 when considering an application for disqualification of a director. For more about the disqualification of directors, see our post here.
As an aside, BAE Systems plc (BAE) was fined £500,000 in December 2010 for breach of section 221 of the Companies Act 1985, the predecessor section to section 386 of the Companies Act 2006. That was the largest fine to date for failure to keep accounting records. Charging BAE with that offence was effectively a device to bring to an end bribery allegations that had been made against BAE. Nevertheless, that the failure to keep adequate accounting records offence could be used to pursue a bribery allegation is an indication of how broadly the offence is drawn. The BAE judgment is here.
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