Accounting records are documents and materials used in the preparation of financial statements and tax documents. They must be kept for a set period of time and can be electronic or paper. GAAP procedures must be followed, and audits review the accuracy and completeness of records. Failure to maintain accurate records can result in legal and financial penalties.
Accounting records are documents and supporting materials used by individuals and companies in the preparation of financial statements, tax documents, etc. By law, companies must keep such records for a set period of time, often seven years, to make them available for inspection and audit. Publicly traded companies may be subject to random inspections by regulatory agencies and these inspections include a review of accounting records for accuracy and completeness.
These records can be electronic, paper, or a combination of both. They include any documentation related to financial transactions, from payroll records to end-of-day printouts from cash registers. Bank statements are also included in accounting records, along with similar statements related to investments. Accounting books are also considered accounting records. Essentially, if it contains a record related to a company’s financial activity, it is an accounting record.
Companies are expected to keep this documentation in good working order. Accountants and support staff generally oversee the maintenance of such records and use the documents in the preparation of things like investor statements and tax returns. If the records are not complete, the financial statements made by the company will be inaccurate and this may be grounds for legal and financial penalties.
Procedures known as generally accepted accounting principles (GAAP) must be followed when maintaining, handling and using accounting records. These procedures standardize basic accounting tasks to ensure they are performed uniformly by all accountants, eliminating the possibility of using so-called “creative accounting” to hide losses and misstate financial facts for personal gain.
When an audit is ordered, all accounting records are requested for review. The auditors will review the material and take note of any missing material, misleading records, or records that are improperly maintained. All of this information is weighed when developing an audit opinion. Regulators interested in financial practices can review the audit results to gather information. This information may be used in the prosecution of companies suspected of fraudulent accounting practices, or to exonerate companies facing such accusations.
People are generally advised to keep accounting records as they can be audited by tax authorities. If people do not have the records to support the claims made on their taxes, they may be subject to penalties. At the very least, their tax liability may be adjusted, forcing them to pay more in taxes. If their records appear to be fraudulent, rather than just carelessly kept, they may face legal penalties.
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