Directors are responsible for maintaining the company’s accounting books and records in accordance with applicable accounting standards and laws governing the country where the company is registered.
The maintenance of accounting books primarily involves recording and categorizing a company’s financial transactions, such as purchases, sales, payments, and receipts. Maintaining a company’s accounting records includes the relevant documents and information related to the company’s financial entries. These may include purchase and sales receipts, bank reconciliations, payroll and insurance statements, tax forms, and other related documents. Proper maintenance of a company’s accounting books and records is important for various reasons, some of which are:
- Compliance with laws and regulations
- Financial monitoring of the company
- Tax compliance of the company.
In accordance with article 141 of the Companies Law, Cap. 113, directors of a company registered within the Republic of Cyprus are required to ensure the maintenance of accounting books and records that are deemed necessary for the preparation of financial statements in accordance with the law.
Specifically, the accounting books must explain all transactions with accuracy and enable the determination of the financial position of a company with reasonable accuracy at any given time. These books must include, amongst other, supporting documents such as contracts and invoices that accurately depict:
- All monetary amounts received and expended, along with the matters for which the corresponding receipts and expenditures were made.
- All sales, purchases, and any other transactions.
- All assets and liabilities of the company.
These accounting books and records are required to be kept for a period of six (6) years after the end of their reporting financial year, at the registered office of the company or at any other place deemed suitable by the directors. Each company is obligated to keep its accounting books and records open for inspection by the directors.
If the directors of the company fail to take reasonable measures to comply with the provisions of the legislation, they commit a criminal offence. In case of conviction, they are subject to imprisonment for a term not exceeding one year or a fine not exceeding one thousand pounds (approximately equivalent to 1,768 euros), or both.
It should be noted that according to the Criminal Code Chapter 154, Article 311, intentional misappropriation or keeping of false accounts, or falsification of books or accounts by directors of companies is considered a crime subject to imprisonment for a period of 7 years.
Further, Article 312 of the Criminal Code is relevant as well. This article prohibits any director, officer, or auditor of a company from issuing, circulating, publishing, agreeing to issue, circulate, or publish a written statement or account they know to be false, with the intent to (a) deceive or defraud a member, shareholder, or creditor, whether specific to the company or not, or (b) induce any person, whether specific to the company or not, to become a member of the company, entrust property to the company, provide security for their benefit, or advance any assets to the company. Such actions are considered offences and the offender is subject to imprisonment for a term of 7 years.
It is therefore undeniably clear that the proper maintenance of accounting books and records by the directors of a company is necessary for the proper conduct of the company’s operations and for ensuring its compliance with the law.