Company directors have financial record keeping duties under the Corporations Act and substantial penalties can apply for a failure to maintain adequate financial records.
What are the duties?
All companies are required to keep and maintain accurate financial records which:
- correctly record and explain the company’s transactions and financial position
- would enable true and fair financial statements to be prepared
What are financial records?
In essence, financial records:
- are broadly defined in the Corporations Act and include invoices, receipts, bills of exchange (eg. cheques), promissory notes, documents for prime entry (eg. cash books and journals) and working papers
- must be retained by the company for at least 7 years after completion of the transactions to which they relate
How are financial records to be kept?
The financial records may:
- be stored in electronic form provided they can be converted into hard copy within a reasonable period of time
- be kept in any language, however, an English language translation must be provided within a reasonable period of time if requested by a person entitled to inspect the records
- be kept overseas provided sufficient written information is retained within Australia which would enable true and fair financial statements to be prepared
What rights does a director have to inspect financial records?
In summary:
- a director of a company has a right to inspect the financial records of the company
- this right is based on the director’s duty to manage the affairs of the company with due care, skill and diligence
- a company must make its financial records available at all reasonable times for inspection by a director
- if a company refuses to make its financial records available for inspection, a director may apply to the court for an order requiring the company to make its records available to the director or a person authorised by the director to inspect the records on the director’s behalf
- under the Corporations Act, a former director may also inspect the books and financial records of a company up to 7 years after they ceased to be a director of the company provided the inspection is related to current, pending or anticipated legal proceedings
- a director should negotiate access rights (usually under a Deed of Access, Insurance and Indemnity) with the company to provide a broader right of access than available under the Corporations Act
What are the penalties?
A company director who fails to take all reasonable steps to comply with their financial record keeping obligations will have breached a civil penalty provision of the Corporations Act and the court, upon application by ASIC, may: [...] READ MORE →