Section 286 of the Corporations Act 2001 imposes a direct obligation on companies — and through the duty of care provisions, on their directors personally — to keep financial records that correctly record and explain their transactions, financial position, and performance, and that would enable true and fair financial statements to be prepared and audited.
Bookkeepers who work with incorporated clients are working within a legal framework that goes well beyond tax compliance. Understanding these obligations helps you explain to directors why good record-keeping is not optional, and protects you professionally by ensuring the records you maintain meet the statutory standard.
The Section 286 Obligation
Section 286 of the Corporations Act 2001 (Cth) requires every company to keep financial records that:
- Correctly record and explain its transactions and financial position and performance
- Would enable true and fair financial statements to be prepared and audited
"Financial records" is defined broadly under section 9 of the Corporations Act to include: invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes, vouchers, and other documents of prime entry, as well as any working papers or other documents necessary to explain the methods by which financial statements are made up.
This is a wider definition than the ATO's record-keeping requirements. It captures working papers, reconciliation schedules, cost allocation methodologies, and supporting documentation — not just the source documents. A company that can produce a tax return but cannot explain how its figures were derived is not meeting the section 286 standard.
The 7-Year Retention Requirement
Under section 286(2) of the Corporations Act, financial records must be retained for seven years after the transactions to which they relate are completed. This is a minimum — in practice, records relating to assets (particularly capital items with long effective lives) may need to be retained for longer to support depreciation schedules and capital gains calculations.
The seven-year rule applies from the date the transaction is completed, not from the end of the financial year or the date of the source document. For a long-term contract completed in 2024, the related financial records must be kept until at least 2031.
Compare this to the ATO's general five-year retention requirement under section 262A of the ITAA 1936 (five years from the lodgement due date of the relevant return). The Corporations Act seven-year rule is the longer obligation and should govern retention policy for incorporated clients.
Retention checklist for company financial records:
- Source documents (invoices, receipts, bank statements): 7 years
- General ledger and subsidiary ledgers: 7 years
- Bank reconciliation statements: 7 years
- Asset registers and depreciation schedules: 7 years after disposal of the asset
- Payroll records: 7 years (also required under Fair Work Act 2009 for 7 years)
- Contracts and agreements: 7 years after completion or termination
- Minutes of directors' meetings (particularly those authorising financial transactions): 7 years
What Counts as a Financial Record
The definition is intentionally broad to ensure it captures the full picture of a company's financial activity. Beyond the obvious documents (bank statements, invoices, receipts), financial records include:
- Electronic data: Transaction data held in accounting software is a financial record, whether or not it has been printed. The company must be able to reproduce it in a readable form during the retention period. Cloud accounting software subscriptions that are cancelled, removing access to historical data, are a compliance risk — ensure clients export or archive data before switching platforms.
- Foreign currency records: For companies with transactions in foreign currency, records must document the exchange rates used to translate amounts to Australian dollars. The ATO and ASIC both require this.
- Cost allocation schedules: Where the company allocates costs between business units, projects, or entities in a group, the methodology and supporting calculations are financial records.
- Director loan accounts: The running balance of director loan accounts, the supporting transactions, and any documentation of the commercial terms (if applicable) are financial records subject to the seven-year rule.
Personal Liability for Breaches
This is where the stakes become very clear for directors. A company that fails to keep financial records as required by section 286 is guilty of an offence. Under section 344, any person involved in the contravention — including a director who authorised or failed to prevent the failure — can be personally liable.
ASIC can prosecute for breach of section 286. The consequences can include:
- A fine of up to 10 penalty units (currently $3,330 per unit) per breach for individuals
- Disqualification from managing a company
- Personal liability for insolvent trading claims if inadequate records made it impossible to determine whether the company was solvent (section 588G of the Corporations Act)
The insolvent trading dimension is particularly significant. If a company enters liquidation and the liquidator cannot determine the company's financial position because records were not kept, the presumption is that the company was insolvent. Directors cannot argue they did not know the company was trading while insolvent if they failed to keep the records that would have told them.
The Bookkeeper's Role in a Compliant Records System
Bookkeepers cannot assume legal responsibility for the company's record-keeping obligations — those obligations rest with the directors. However, bookkeepers play a central role in maintaining the records system. Your professional responsibilities include:
- Maintaining the accounting records in a manner that would enable financial statements to be prepared and audited
- Retaining source documents (or ensuring the client retains them) in an accessible format for the required period
- Documenting the accounting policies and reconciliation processes used — these are part of "working papers" under the section 9 definition
- Advising clients when records are inadequate or missing, and documenting that advice
If a client is consistently unable to produce source documents, or if records have been destroyed early, document your concerns in writing and raise them with the director or the client's accountant. You do not want to be in a position where inadequate records are attributed to your work product.