Books of Account

Duty to maintain proper books of account

Under the Companies Act, every company is required to maintain proper books of account. The directors of the company are required to ensure that this requirement is complied with.

Proper books of account should:

• Correctly record and explain the transactions of the company
• At any time enable the financial position of the company to be determined with reasonable accuracy
• Enable the company’s directors to ensure that the balance sheet and profit and loss account comply with the Companies Act, and;
• Enable the accounts to be readily and properly audited.
• Books of account must be kept on a continuous and consistent basis. That is to say the entries made in them must be made in a timely manner and be consistent from one year to the next.

The Act stipulates that the books of account must contain:

• Entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipts and expenditure take place
• A record of the company’s assets and liabilities
• If the company’s business involves dealing in goods – stocks
• A record of all goods purchased and sold (except those goods sold for cash by way of ordinary retail trade) showing the goods, sellers and buyers in sufficient detail to enable the goods, sellers and buyers to be identified and a record of all the invoices relating to such purchases and sales, and
• A statement of stock held by the company at the end of each financial year and all records of stock takes on which such statements are based
• Where the company’s business involves the provision of services, a record of the services provided and all the invoices relating to those services must be maintained

Duty to prepare annual accounts

Generally, companies are required to prepare accounts on an annual basis.

The annual accounts are prepared from the information contained in the company’s books of account and other relevant information. The accounts (also known as financial statements), which are required to give a true and fair view of the company’s affairs, normally include the following, some of which are required by law and others of which are required by accounting standards:

• Profit and loss account: this records the income and expenditure of the company over a particular period and shows the profit or loss arising from the company’s activities
• Balance sheet: this is a statement of the company’s assets and liabilities at a given point in time
• Cash flow statement: this is a statement of the company’s cash inflows and outflows over a period of time. It is a requirement under accounting standards but is not required in the case of small companies
• Notes to the financial statements: these contain detailed information relating to the profit and loss account, balance sheet or cash flow statement e.g. analysis of fixed assets and depreciation
• Directors’ Report: The directors are required to annex a report to the accounts, known as a directors’ report. This is a report by the directors to the members of the company. It is required to address certain matters, namely – the state of the company’s affairs and the report should address any changes in the nature of the company’s business during the year;

The term ‘true and fair view’ is not defined in law. However, it is generally accepted that a set of financial statements will give a true and fair view when they have been prepared in accordance with (i) the provisions of the Companies Act, and (ii) accounting standards (accounting standards are statements of standard accounting practice issued by the Accounting Standards Board).

• A fair review of the development of the business during the financial year
• Particulars of any important events affecting the company which have occurred since the year end
• An indication of likely future developments in the business of the company
• An indication of the company’s activities, if any, in the area of research and development
• The amount, if any, that the directors recommend should be paid as a dividend
• The steps that the directors have taken to ensure compliance with the requirement for the company to maintain proper books of account, and
• The exact location of the books of account

Accounting Reference Date (ARD)

The ARD is the annual date for the company to file an Annual Return.

New companies have an ARD of six months from their date of Incorporation.

A company’s ARD is 12 months from its previous year’s ARD, unless the company has altered that ARD. The annual return must be filed with the Companies Registration Office within 28 days of the date to which it has been made up. Where accounts are required to be attached to the annual return the filing deadline is either:

• The company’s ARD plus 28 days
• The company’s financial year-end plus nine months and 28 days

The ARD is a specific date in every year allocated by statute to every company that is obliged to file an annual return.

New companies have an ARD of six months from their date of incorporation. A company’s ARD is 12 months from its previous year’s ARD, unless the company has altered that ARD. The requirement to attach accounts to an annual return, which accounts predate the date to which the return has been made up by no more than nine months, may result in a company electing to alter its ARD. Failure to file your annual return within the deadline will result in late filing penalties.

Annual return filing deadline:

The annual return must be filed with the Companies Registration Office within 28 days of the date to which it has been made up. Where accounts are required to be attached to the annual return the filing deadline is either:

• The company’s ARD plus 28 days, or
• The company’s financial year end plus nine months and 28 days, whichever is the earlier.

Filing of Accounts

In almost every case accounts must be attached to the annual return. The financial year end of those accounts must be no earlier than nine months before the date of the return. To comply with that requirement it might be necessary to change your company’s ARD.

A checklist on Form B1 lists all the documents which are required by law to be attached to the annual return of a limited company. Generally speaking, these documents are:

• A copy of the balance sheet
• A copy of the profit and loss account
• A copy of the directors’ report and
• A copy of the auditor’s report