May-June-issue

pEN OFF
Do yoUr “financial
stateMent anD rePorts”
coMPly With the Kenyan
coMPanies act 2015?
By FCPA Dr. Jim McFie
One of the judges of the
2017 FiRe (Financial
Reporting Excellence)
Award pointed out that
many annual reports of
companies were not in compliance with
the Kenyan Companies Act 2015. To
make compliance a little easier, I provide a
checklist below. However, I need to write
an introduction in which I do not deal
with all the complexities of the Act, but
which covers the majority of situations
that would be encountered in Kenya. I
have highlighted a word in the line for
section 655(3)(b)(ii): the reason for this
is that the word is missing from the Act:
how do I know that a missing word is the
one I inserted? I found it in section 417(4)
(b) of the 2006 UK Companies Act, of
which our Act is a copy. I always regret
that we did not copy the New Zealand
Act, which is very simple to comply with
and on which Mauritius based its new
Companies Act. In the Global Talent
Competitiveness Index 2018 produced
by Insead, the Adecco Group and Tata
Communications, Mauritius ranks 24th
out of 119 countries in the “Regulatory
Landscape” element as opposed to
98th for Kenya. Mauritius is the most
competitive country in sub-Saharan
Africa.
The Kenyan Companies Act 2015
(henceforth KCA) introduces the term
“financial statement”. What is a “financial
statement”? Unfortunately the individual
who typed out the Companies Act
did not follow the rigour of adhering
consistently to this phrase and alternates
between “financial statement” and the
phrase which is more familiar to all of
us, “financial statements”. In accordance
with International Accounting Standard
1, “(The) Presentation of Financial
Statements”, a complete set of financial
statements is made up of a statement of
financial position (the phrase “balance
sheet” is used in the KCA and also
in financial statements prepared in
accordance with United States Generally
Accepted Accounting Principles) at the
end of the period; a statement of profit
or loss and other comprehensive income
for the period (presented as a single
statement, or by presenting the profit or
loss section in a separate statement of
profit or loss, immediately followed by a
statement presenting the comprehensive
income beginning with profit or loss);
a statement of changes in equity for the
period; a statement of cash flows for the
period; and notes, comprising a summary
of significant accounting policies and
other explanatory notes. Comparative
information for the preceding period
must also be presented as prescribed by
the standard.
Before we consider the requirements
that relate to the “financial statement and
reports” of companies, we need to be clear
about “small companies”. Section 624
defines a small company as one which
satisfies two or more of the following
requirements: (a) it has a turnover of
not more than fifty million shillings (in
the year); (b) the value of its net assets as
shown in its balance sheet as at the end of
the year is not more than twenty million
shillings; and (c) it does not have more
than fifty employees. However, there
are complications: a company is small
in its first financial year if the qualifying
conditions are satisfied in that year; and a
company is small in a subsequent financial
68 MAY - JUNE 2018