Lesson 6

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LESSON 6

ACCOUNTS AND AUDIT

CONTENTS

1 Read the Study Text below

2 Attempt Reinforcing Questions at the end of the Study Text.

3 Check your answers with those given in Lesson 9

STUDY TEXT

6.1 Books of Account

By s.147(1) every company shall cause to be kept in the English language "proper books of

account" with respect to -

(a) all sums of money received and expended by the company and the matters in respect of

which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company;

S.147(2) provides that "proper books of account" shall be deemed not to have been kept with

respect to the matters aforesaid if there are not kept such books as are necessary to give a true and

fair view of the state of the company's affairs and to explain its transactions.

By s.147(3) (a) the books of account are to be kept at the registered office of the company or, with

the consent of the registrar and subject to such conditions as he may impose, at such other place as

the directors think fit, and shall at all times be open to inspection by the directors.

6.2 Profit and Loss Account

By s.148(1) the directors of every company shall, at some date not later than eighteen months after

the incorporation of the company and subsequently once at least in every calendar year, lay before

the company in general meeting a profit and loss account for the period, in the case of the first

LESSON 6 ACCOUNTS AND AUDIT

account, since the incorporation of the company, and, in any other case, since the preceding

account. The account shall be made up to a date not earlier than the date of the meeting by more

than nine months or, in the case of a company carrying on business or having interests abroad, by

more than twelve months.

A company which does not trade for profit is required to lay an income and expenditure account

instead of a profit and loss account. The period during which the accounts are to be laid before

the general meeting may be extended by the registrar for any special reasons.

6.3 Contents and Form of Accounts

By s.149(1), every balance sheet shall give a true and fair view of the state of affairs of the

company as at the end of its financial year, and every profit and loss account shall give a true and

fair view of the profit or loss of the company for the financial year.

By s.149(2), a company's balance sheet and profit and loss account shall comply with the

requirements of the Sixth Schedule to the Act, (subject to such modifications as the registrar may,

on the application or with the consent of the company's directors, allow).

6.4 Group Accounts

S.150(1) provides that if, at the end of its financial year, a company has subsidiaries, then it must

include in its annual accounts "group accounts" dealing with the affairs of the subsidiaries as well.

By s.150(2)(b) group accounts need not deal with a subsidiary of the company if the company's

directors are of opinion that -

i. it is impracticable, or would be of no real value to the members of the company, in view of

the insignificant amounts involved, or would involve expense or delay out of proportion to

the value to members of the company; or

ii. the result would be misleading; or

iii. the result would be harmful to the business of the company or any of its subsidiaries; or

iv. the business of the holding company and that of the subsidiary are so different that they

cannot reasonably be treated as a single undertaking.

The approval of the registrar shall be required for not dealing in group accounts with a subsidiary

on grounds (iii) or (iv).

By s.150(2)(a), a company is exempt from the obligation to prepare group accounts if it is a wholly

owned subsidiary of another body corporate incorporated in Kenya.

6.5 Form of Group Accounts

S.151(1) provides that the group accounts laid before a holding company shall be consolidated

accounts comprising

(a) a consolidated balance sheet dealing with the state of affairs of the company and all the

subsidiaries to be dealt with in group accounts;

(b) a consolidated profit and loss account dealing with the profit or loss of the company and

those subsidiaries.

However, the group accounts need not be prepared in this form if the directors are of the view

LESSON 6 ACCOUNTS AND AUDIT

that they could be prepared in another form which would be readily appreciated by the

company's members (s.15(1)).

6.6 Contents of Group Accounts

By s.152(1), the group accounts laid before a company shall give a true and fair view of the state of

affairs and profit or loss of the company and the subsidiaries dealt with thereby as a whole, so far

as concerns members of the company.

S.153(1) further provides that the group accounts, if prepared as consolidated accounts, shall

comply with the requirements of the Sixth Schedule to the Act, so far as applicable thereto, and if

not so prepared, shall give the same or equivalent information.

6.7 Financial Year of Holding Company and Subsidiary

S.153(1) provides that a holding company's directors shall ensure that, except where in their

opinion there are good reasons against it, the financial year of each of its subsidiaries shall

coincide with the company's own financial year.

By s.153(2) the registrar is empowered to postpone the submission of a company's accounts to a

general meeting from one calendar year to the next for purposes of enabling the company's

financial year to end with that of the holding company.

6.8 Balance sheet

S.148(2) requires the directors to prepare and lay before the company in general meeting a balance

sheet as at the date to which the profit and loss account, or the income and expenditure account, is

made up.

By s.155(1) the balance sheet shall be signed on behalf of the board by two of the directors of the

company, or if there is only one director, by that director.

By s.155(4) if any balance sheet is not signed as required but a copy is issued, circulated or

published, the company and every officer who is in default shall be liable to a fine not exceeding

one thousand shillings.

6.9 Accounts to be Annexed to Balance Sheet

By S.156 (1) the profit and loss account, and, so far as not incorporated in the balance sheet or

profit and loss account, any group accounts laid before the company in general meeting, shall be

annexed to the balance sheet. however, S.156 (2) requires the accounts so annexed to be approved

by the board of directors before the balance sheet is signed on their behalf.

By S.156 (3), if any copy of the balance sheet is issued, circulated or published without having

annexed thereto a copy of the profit and loss to be annexed, the company and every officer of the

company who is in default shall be liable to a fine not exceeding one thousand shillings.

6.10 Directors Report

By S.157 (1) the balance sheet must have attached to it a directors' report on the company's affairs,

including the amount, if any, which they recommend should be paid by way of dividend, and the

amount, if any, which they propose to carry to reserves within the meaning of the Sixth Schedule

to the Act.

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LESSON 6 ACCOUNTS AND AUDIT CONTENTS 1 2 3 Read the Study Text below Attempt Reinforcing Questions at the end of the Study Text. Check your answers with those given in Lesson 9 STUDY TEXT 6.1 Books of Account By s.147(1) every company shall cause to be kept in the English language "proper books of account" with respect to (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company. S.147(2) provides that "proper books of account" shall be deemed not to have been kept with respect to the matters aforesaid if there are not kept such books as are necessary to give a true and fair view of the state of the company's affairs and to explain its transactions. By s.147(3) (a) the books of account are to be kept at the registered office of the company or, with the consent of the registrar and subject to such conditions as he may impose, at such other place as the directors think fit, and shall at all times be open to inspection by the directors. 6.2 Profit and Loss Account By s.148(1) the directors of every company shall, at some date not later than eighteen months after the incorporation of the company and subsequently once at least in every calendar year, lay before the company in general meeting a profit and loss account for the period, in the case of the first LESSON 6 ACCOUNTS AND AUDIT 2 accou ...
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