Buying And Living in a Multi-Unit Development Property in Ireland
13. Management Company Financial Records
13.1 Introduction
It is essential that the management company keeps comprehensive, accurate and up-to-date financial records.
The main purpose of financial records is to ensure that the company is able to monitor and account for how much it is spending, how much it is owed and how much money it has at its disposal etc.
As a company the management company will also have legal requirements in relation to the type of financial records that it is required to maintain under company law to maintain.
The details set out in this section only provide an overview of the process and procedures associated with the company's financial records.
More detailed information on companies financial reporting requirements may be obtained from the CRO at www.cro.ie.
13.2 Requirement to keep financial records
The management company must once every year file an Annual Return with the CRO.
The Annual Return contains certain fundamental information about the company and its financial activities.
All companies must file an Annual Return and all have an individual return date. Up-to-date financial statements in relation to the company must usually accompany the annual return.
Under company law, companies are legally required to account for their financial activities and transactions by keeping financial records. These are used to prepare accounts and statements which must provide a true and fair view of the company's financial affairs.
When submitting their accounts to the CRO, companies are required to disclose details of their accounts when they hold their Annual General Meeting (AGM).
It is therefore very important that a system is set up which allows all associated documents such as invoices, receipts, contracts, bank statements etc. to be carefully retained.
The directors are free to decide how the financial information is recorded e.g. in paper journals or electronically, so long as the records are "readily accessible and readily convertible into written form".
The Office of the Director of Corporate Enforcement states that companies and their directors are strongly advised to seek professional accountancy advice when setting up their accounting and internal control systems to ensure that the systems implemented enable the company and its directors to comply with their legal requirements in this regard.
This advice should always be borne in mind by directors.
13.3 Who is responsible for keeping the financial records?
Under company law, the obligation to keep and maintain proper books of account rests with the company itself.
Failure to maintain proper financial records is an offence for which the company and the directors may be prosecuted.
The financial records must be kept for six years after the latest date to which the record relates. However, companies are free to keep their records for periods longer than six years if they wish.
Almost all management companies will have their accounts prepared with the assistance of professional accountants who may also act as auditors to the company.
13.4 Ownership of the financial records
The accounting records must always remain the property of the management company and be freely available for inspection by the directors, secretary and the management company's auditor.
It is important to note that whoever is appointed to maintain the management company's financial records does not own these records.
For example, managing agents may offer to keep the financial records on the company's behalf as part of their service.
In the event that the management company decides not to renew its contract with one managing agent, it is important that it should be able to supply its new managing agent with its financial records as well as all the records relating to such matters as inspections of the lifts in the complex, the company's insurance arrangements, etc.
13.5 Who is entitled to view the company's financial records?
Under company law, the company's financial records must be kept in a location where they are freely available for inspection by the directors, secretary and auditors.
It is important to know that while the company's accounts should be presented to the members at the AGM, the members of a company do not have a legal right to examine all of the company's financial records e.g. invoices, receipts etc.
However, management companies are free to permit a member to do so.
Requests to view the financial records should be facilitated informally by directors as and when requested, or they can be formalised by inserting a clause in the company's articles of association under which members have the right to examine the financial records.
13.6 Basic form of financial records
At the most basic level, management companies should keep a record of receipts and payments.
In general, the minimum details which should be recorded as regards payments are the:
- Date of payment;
- Amount paid (inclusive and exclusive of VAT);
- Cheque/draft number;
- Name of individual/company being paid.
The receipts book should record the details of all money received by the company. In general, the minimum details which should be recorded are the:
- Date of receipt of payment;
- Amount received;
- Amounts lodged to the bank, showing clearly the composition of any lodgement where a lodgement
- contains more than one receipt;
- Name of individual/company making the payment.
13.7 What type of information should the company's financial records contain?
Under Company Law a company's accounting records must:
- Correctly record and explain the transactions of the company, i.e. records of services provided and relevant invoices/ payment receipts;
- Be kept on a "continuous and consistent basis", with all entries made in a timely manner, and consistent from one year to the next;
- Record all money received and spent by the company.
- Each record should show the date and amount of money spent or received and details of the transaction.
- In general, these details will consist of at least two elements: (i) the name of the person or business from whom the money was received or to whom it was paid and (ii) the reason or purpose of the transaction;
- Include details of all the assets and liabilities of the company;
- Include a record of all services provided and of all the invoices relating to these services;
- Enable the financial position of the company to be determined at any time with reasonable accuracy;
- Enable the directors to ensure that the annual accounts of the company comply with company law;
- Allow the annual accounts of the company to be readily and properly audited.
13.8 What sort of financial information must be presented to the CRO/members?
After the company's financial records have been audited (see section 13.10) the directors must present the company members with the following accounts and reports at the AGM:
- A profit and loss account (or an income and expenditure account if the company is not trading for profit). This summarises the main categories of company income and expenditure and sets out the profit the company has earned after all the expenses incurred in running the business. An income and expenditure account is the equivalent of the Profit and Loss Account in a business not run for profit. When income exceeds expenditure, there is a surplus and when expenditure exceeds income there is a deficit; A balance sheet. This is a list of the assets (the resources owned by the company and liabilities (the amount of money the company owes to suppliers/debtors of a company at a particular point in time);
- A directors' report. As set out in section 12.4, this is a report prepared by the directors disclosing certain statutory and non-statutory requirements of the company's activities and financial affairs during the year. The report must be signed on behalf of the directors by two directors;
- An auditors' report. Setting out the auditor's opinion on the accuracy of the company's financial statements.
13.9 How do you know if the financial records are being correctly maintained?
An audit is an independent professional opinion as to whether the financial statements of a company, as presented by the directors, give a true and fair view of its profit or loss and state of affairs for a particular financial period.
The obligation on companies to have an annual statutory audit conducted comes from the Companies Acts.