Yes, the IRS created this rule to help lessen the compliance burden on small-business taxpayers. If you get audited, they can ask for anything they want, including the balance sheet. Generally, the IRS has a statute of limitations of 3 years, so at least keep a copy on file for the past three years(or as long as your company has been in business, if shorter). You should have one prepared/on file as part of your business's financials every year anyway, just a good practice.
As far as personal liability - I'm not 100% sure, but I really can't imagine that you would be held liable for not reporting a balance sheet, especially if you weren't mandated to report it on your returns to begin with.