Financial Reporting and Auditing Standards

The Institute of Certified Puublic Accountant of Kenya (ICPAK) requires that all financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS) or International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) framework.

ICPAK also requires that all audits are to be carried out in accordance with International Standards on Auditing (ISA).

 

The definition of an SME in Kenya as formulated by ICPAK is an entity:

• That does not have public accountability;
• That publishes general purpose financial statements for external users (e.g. owners not involved in day to day management, KRA, existing and potential creditors, credit rating agencies);
• Whose debt and equity instruments are not traded in the public market (a domestic or foreign stock exchange or an over-the-counter market); and
• That does not hold funds in a fiduciary capacity for a broad group of outsiders as one of its primary businesses such as banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks.

 

The following entities are public interest entities and therefore cannot use IFRS for SMEs:

• Companies whose debt or equity instruments are traded in a public market or are in the process of issuing such instruments for trading in a public market;
• Banks and building societies;
• Savings and credit unions including SACCOs;
• Insurance companies;
• Retirement benefit schemes;
• State owned entities including state funded parastatals;
• Mutual funds;
• Investment banks; and
• Stock brokers.

Document Retention period

All accounting documents must be kept on file. Both manual files and electronic files are accepted but must be in reproducible format.

 

The retention periods are

• accounting source documents – for seven years from the end of the financial year during which the source document was recorded in the accounts;

• accounting ledgers, journals, contracts, financial statements, reports and other business documents

which are necessary for reconstructing business transactions during audits – for seven years as of the end of the corresponding financial year;

• business documents relating to long-term rights or obligations – for seven years after the expiry of their term of validity;

• accounting rules and procedures – for seven years after the amendment or replacement thereof;

• accounting registers created electronically should be preserved electronically. The legibility of the data should be ensured within the preservation period.