Periodically, as one peruses local newspapers, one is confronted with large spreads of abbreviated financial statements of public companies.
Regulations relating to financial statements and accounting records of such companies are largely known. What is often overlooked is that all companies are compelled by the Companies Act to keep accounting records. More often than not, directors and shareholders of smaller, entrepreneur-led companies are unaware of this requirement and are left flouting corporate governance principles and the law.
Section 189 of the Companies Act provides that the Board of a company must ensure that accounting records of the company are kept. It should be noted that the โBoardโ refers collectively to all the directors of a company, even if there is only one director. The section goes on to outline the quality of such accounting records. Accounting records of a company must correctly record and explain the transactions of the company, must enable the financial position of the company to be determined with reasonable accuracy, and must enable the preparation of the financial statements of the company. The accounting records must also enable the financial statements to be audited.
Further, the accounting records must contain daily entries of money received and what it was received for, as well as all money spent and what it was spent on. The accounting records must contain a record of all assets and liabilities of the company. If the company provides services, there should be records of all services provided and relevant invoices. If the company deals in goods, the records must show a record of goods bought and sold as well as relevant invoices. Unless the company is a retail business, records must also identify the goods, and buyers and sellers thereof. The records must show stock held at the end of the financial year and any stocktaking done during the year. An interesting addition to these requirements is that the records must be kept in the English Language.
The penalty for failing to comply with Section 189 of the Companies Act is a fine of P20,000 for each director of the company. This heavy penalty should be motivation enough for entrepreneur directors to take time to ensure that their companies are compliant. These efforts may include setting up basic accounting systems and ensuring that their companies have active bank accounts.
Tshepo Motlhabi is the Associate Company Secretary at Bank Gaborone
