Table of Contents:
- Accounting rules in Kenya and the world
- The retention of records/documents
- What is the law in Kenya?
- 3-month grace period in Kenyan accounting law
- 7-year legal storage requirement
- Why you should store your records indefinitely
- What format must these records be kept in?
Are you a business owner worried about where to store the records for your enterprise? Or perhaps you are an Office Manager looking to de-clutter your office and implement a proper document management system?
In this article, we will be going through the legal implications of your corporation’s records. This information will allow you to make a better-informed decision about your records and prevent any costly legal cases and complications further down the line. You would be surprised at how useful one small, seemingly insignificant, document could be in 5 years’ time during an unexpected legal case.
So, let’s jump right in.
Accounting rules in Kenya and the world
Each and every country has a different set of laws governing the operational and accounting requirements of the companies that call it home. These laws are often documented with unfamiliar legal jargon or complicated language.
For all of Kenya’s business operators, however, failure to understand the laws that govern companies is not an option.
Fortunately, we, at the Filing Room Kenya, understand our country’s accounting laws very well and we’ve created this document in order to help all of this country’s businesspeople. If, however, you want to follow our research to its source, you can access the document here.
It is a survey of global accounting regulations conducted by ARMA, the world’s leading Information Management organisation, and is backed by their world-renowned reputation.
The retention of records (also called ‘documents’)
The difference between a record and a document is very minor and often only deemed important to the industry professionals who handle both daily. The gist of it is that documents can change whereas records are evidence of an event or transaction that has transpired so they cannot change. A record often begins as a document, but not all documents are records.
This information is not necessarily important, and your storage provider will usually handle all of this for you. However, if you would like to know what differentiates a document from a record, you can do so here. If you have decided to implement your own storage and records management system, I would recommend reading this document and all the others on our website before doing so.
Keeping your records is incredibly important for a number of reasons. The day-to-day recording of your business’ interactions can act as a story of the project you’ve embarked on. Those records are often useful in assessing company philosophy or for interested parties that want to document the growth of their business. Accurate records can also help your business if it ever finds it necessary to prove a certain something has happened.
What some potential entrepreneurs do not know is that it is actually also a legal requirement that you keep your company’s records. Records are not just valuable to company directors. The Kenyan government considers them an essential asset in the well-running of the state.
Records help the government shape national corporation policy. They ensure that courts can solve business disputes. And they also ensure that the government understands what factors are influencing certain areas of industry.
What is the law in Kenya?
According to Kenyan accounting law, every company must be constantly employed in the creation of proper accounting records that show and explain the company’s financial position for the most recent 3-month period.
In simpler terms, this means that any given corporation or business needs to be able to give a full appraisal of their financial position for the previous 3-month period. This does not mean that records should be kept for only 3 months. For most business
es, providing financial information for a 3-month period will require the use of records from many months outside the 3-month period – such is the nature of accounting.
These records must contain, though are not limited to, an assessment of day-to-day receipts and expenses as well as the documentation of assets and liabilities, inventory records as well as a statement of all goods bought and sold.
Items such as receipts and inventory records will serve as the records for the 3-month period. However, it may be wise to compile these records into documents that can be added to and changed. Indeed, this is an efficient method of records management. It is important that the original records are preserved.
Why must records be kept for 7 years?
Once these records are created, they must be kept for a minimum of 7 years. This is the really important part. The government insists that all corporations keep and effectively manage their records for a seven-year period in order that Kenya’s enterprising businesses can always remain transparent.
After 7 years, it is no longer a legal requirement for corporations to keep these records and they can be disposed of. However, this is not advised.
7 years is the legal minimum requirement for how long your records should be kept. However, it is generally considered pertinent, amongst all elements of the business world, to keep them for much longer than that. In cases where the Kenyan Revenue Authority suspects fraud, or if a Human Resources complaint is made, company directors may be asked for records going back as far as the company’s conception.
It falls to the company’s directors to prove their own innocence and having the correct records, effectively and appropriately managed, may prove to be a business-saving decision. Records that are kept safe, organised, and healthy can save a corporation millions of shillings.
Creating a good records management system is hard, but not impossible. Whilst in-house storage may seem a cost-effective solution, for most businesses it simply is not. If you are worried, or just want some advice on your in-house storage, do not hesitate to get in contact with us and we will talk you through our processes.
What format must these records be kept in?
The Kenyan government ensures that these records are kept for 7 years. However, depending on the document being kept, this can be in either physical (usually paper) or electronic form.
Digitally storing documents is an optimal solution. They are easily accessible, secure, and take up next to no space. We would advise that, where possible, corporations should pursue this form of storage. However, in Kenya, it is often not an option to store digital documents legally.
Kenya’s corporate law states that digital documents (emails and e-documents, for example) are considered an appropriate form of accounting record if they were generated, sent, or received in that format, if the origin, destination, and date can be surmised by that document and also that the digital format accurately represents the information found therein.
At first read, that might seem complicated. So, let’s simplify it. Digital records can be kept digital if, they were so when they were created, there is a time stamp on them and, so long as they are accurate.
Digital documents are likely to solve many issues faced by corporations in the future regarding the storage of important records and they are also likely to render Kenya’s 7-year storage laws obsolete as they are based on the idea that records do eventually need to be destroyed. However, as of right now, businesses still process large quantities of paper documents that will still need to be organised and stored.