The importance of financial records

Financial records in your business

Each family has their own stories to tell. This is their history, and it is also their legacy to pass on. Every family member uses this legacy to aid in their everyday life, making decisions about the future as their stories will guide how they approach situations. Similarly, financial records are some of the stories of an entity, alongside their strategy and mission. Financial records provide a legacy to refer to and assist in future decision making. 

An entity would prepare accounting records over time and all these records contribute to a vast volume of information about the entity’s activities and tell a story of the trends in funding, income generated and expenses, to name a few. 

Past financial records assist in decision making and building/maintaining a strategy for the entity. Analysing the past assists management to identify trends and then assess future projects, secure the right funding, strategise on the best income generating activities and cut unnecessary and excessive expenses that have little benefit for the entity. If they did not have access to this past financial information, they would not have the tools to make the best decisions for the entity going forward.

Stories communicate externally as well. Stories about one’s culture, traditions and values assist others to interact with that person as part of a family and culture. Similarly, financial records tell stories to those outside of the entity and allow investors and shareholders to gain insight into how the entity generates value and wealth, how it manages the funding and expenses and how it adds value to the community at large.

The accounting records also act as reference works for submitting the correct information to the South African Revenue Services in terms of VAT returns and Income Tax Returns within the prescribed periods. Having accounting records that are in order, accurate and complete makes these regular submissions to SARS a smooth and accurate process. 

Stories last for generations in families and the financial world also retains stories in the form of financial records – in fact, various legislation requires entities to keep their financial accounting records, Below is a summary of the length of time that entities need to retain their financial records in order to comply with the documentation retention laws:

SARS also has documentation retention rules (5 years and sometimes longer if there is non-compliance in submission or an audit pending on that return/submission to SARS). Therefore, entities must retain their financial records for at least these stipulated time period to comply with legislation in the country, including tax compliance. The consequences of non-compliance with these documentation retention requirements could cause financial loss (usually in the form of penalties and interest) and other more serious consequences for the entity. 

Stories in the form of financial records are important to remind entities of their historical trends, and what has worked in the past and to guide management into the future, highlighting areas for change and improvements to be made to the entity’s strategy and spending.

Kim Venter
Senior Manager: Audit Technical Training, Johannesburg

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