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THE CODE

Accountants Professional Ethics Forum

at Nairobi Safari Park

CPA EDWIN MAKORITuesday, February 14, 2017

Credibility . Professionalism . AccountAbility 1

Overview

ICPAK and ICPAK Requirements

IFAC Regulations/Requirements

Professional Ethics

Companies Act

CMA requirementsCommunication

ICPAK And ICPAK Requirements

Credibility . Professionalism . AccountAbility 3

About ICPAK

The accounting profession in Kenya is self regulated by

ICPAK

ICPAK was formally established in 1978 with the

enactment of the Accountants Act

Kenya Accountants and Secretaries National

Examinations Board (KASNEB)

Registration of Accountants Board (RAB)

Institute of Certified Public Accountants of Kenya

(ICPAK)

About ICPAK

The Accountants Act was revised in 2008 with theAct being effective on 1st January 2009

Kenya Accountants and Secretaries NationalExaminations Board (KASNEB)

Institute of Certified Public Accountants ofKenya (ICPAK)

Functions of KASNEB

Prepare syllabuses for professionals’ and technicians’ examinations in accountancy.

Rules and regulations. Conduct examinations. Promote recognition of its examinations in

foreign countries. Investigation and disciplinary-students Research Publication of books and other materials. Accreditation of training institutions.

Functions of ICPAK

Promote standards of professional competence and practice.

Research and publications Promote the international recognition of the

Institute. Advise KASNEB Advise the Minister-Financial accountability in all

sectors of the economy.

Other Guiding Documents

Institute’s By laws

Constitution of Kenya 2010

Regional and International Affiliations

Regional and International affiliationsEast Africa Community-MRA Pan African Federation of Accountants

(PAFA) International Federation of Accountants

(IFAC): SMOS 1 to 7: Membership in IAESB, NC,SMP.

ICPAK Applicable Requirements

Professional Accountants in Public Practice

Professional Accountants in Business

Associate Members

IFAC Regulations/Requirements

Credibility . Professionalism . AccountAbility11

Overview

About IFAC

IFAC Membership and Compliance

• Member Body Obligations

• Compliance Program

12Credibility . Professionalism . AccountAbility

IFAC Today

•Global organization for accountancyprofession

•Expanding network of 163 member bodies in119 countries, representing 2.5 millionaccountants

•Supported by regional accounting networks


IFAC Mission

•To serve the public interest,strengthen the worldwideaccountancy profession andcontribute to the development ofstrong international economies


IFAC Membership and Compliance

Statements of Membership Obligations (SMOs) Approved by IFAC Board March 2004 Basis for evaluating status of members in

good standing Basis for evaluating new applicants

Incorporate International Standards

Assist in implementing the International Standards


IFAC- SMOs

1. Quality assurance2. Investigation and discipline3. International Education Standards4. Pronouncements and papers issued by the

IAASB5. IFAC Code of Ethics6. IPSASs7. International Financial Reporting Standards


Overview of the mandate for training

IFAC SMOs:

SMO 2: International Education Standards (IESs) for

Professional Accountants and Other

Pronouncements Issued by the IAESB


Overview of the mandate for training

IESs:

IES 7: Continuing Professional development

Output measurements

IES 8: Professional Competence for Engagement

Partners Responsible for Audits of Financial

Statements


Professional Ethics


Ethics

What is ethics?

Ethics is concerned with how an attitude, action or decision is determined as ‘right or wrong or good or evil’

(Donaldson, 1988).


We all want to do the right thing, don’t we?

Ethics is a global issue

All accountants are facing similar decisions

IFAC code applies globally and is at the heart of

ethics

Local factors come into play in application of

ethics


Why Ethics is important?

o Protect Public Interest

o Objectivity and Integrity

o Ethics underlies judgement in a principles

based accounting regime


Potential Ethical dilemmas for Accountants

Monthly financial targets not likely to be met.

Possible manipulation of figures in financial accounts.

In the Kenya bonuses/share options for employees may

depend on certain level of profits being reached

Pressure from client/bank if an audit report needs to be

signed today and there is insufficient information to know

whether accounts show a true and fair view


Impact of dilemmas

• Some issues may be trivial – but there may

still be a right and wrong course of action.

• Others may lead to severe consequences –

as various accounting scandals worldwide

can testify.


IFAC-Code of Ethics

Part A – Framework applies to all professionalaccountants

Part B – Professional accountants in publicpractice

Part C – Professional accountants in business

Fundamental Principles

Integrity

To be straight forward and honest in all professional and

business relationships

Objectivity

To not allow bias, conflict of interest or undue influence

of others to override professional or business judgments


Professional Competence and Due Care To maintain professional knowledge and skill at

the level required to ensure competentprofessional services based on currentdevelopments in practice, legislation andtechniques

To act diligently in accordance with applicabletechnical and professional standards


Confidentiality• To refrain from disclosing confidential information

acquired as a result of professional and businessrelationships without proper and specific authority todisclose unless there is a legal or professional right orduty to disclose

• To refrain from using confidential information acquiredas a result of professional and business relationships forpersonal advantage or the advantage of third parties


Professional behaviorObligation to comply with relevant laws and regulations and avoid any action that discredits the profession

Application of the Code of Ethics

Professional Accountants in Public Practice

Professional Accountants in Business

Companies Act


Interpretations, Definitions and Responsibilities


Introduction

AN ACT of Parliament to

consolidate and reform the law relating to the

incorporation, registration, operation, management

and regulation of companies;

to provide for the appointment and functions of

auditors;

to make other provision relating to companies;

and

to provide for related matters


Introduction

The Companies Act, 2015 was assented by the President on 11th September 2015 with

only Section 2 of the Act coming into operation on the date of gazettement on 15th

September 2015.

It has 1,026 sections grouped into 42 parts each of which has several divisions and

supplemented by 6 schedules.

The first phase of implementation of the laws was published in Gazette Notice 233 of

2015 where the following parts became operational; Parts 1 to 14, Part 23, Part 31,

Part 32, Part 38, Part 40, Part 42 and the First, Second and Sixth Schedules of

the Act.

The Companies Act, 2015 became fully operational in June 2016 via Legal Notice

dated 15 June 2016


Who is a Director?

The Companies Act 2015 defines a director as including any

person occupying the position of a director, whatever the

title.

There is therefore no distinction between executive

(management) and non-executive (supervisory) directors and

all directors of a company have the same duties and liabilities

to the company.


Director’s Duties

The Act provides that directors owe the following duties:-

a. to act within power and to use powers for the right

purpose

b. to promote the success of the company;

c. to exercise independent judgement;

d. to exercise reasonable care, skill and diligence;

e. to avoid conflicts of interest;

f. not to accept benefits from third parties; and

g. to declare interests in proposed transactions and

arrangements.


Director’s Duties

The board of directors is ultimately responsible for the company’s

business affairs and governance as stated in its governing

documents, including the articles of incorporation, the by laws,

and shareholder agreements.

The success of the board of directors depends on the

composition, structure, resources, diligence, and authority of the

entire board, as well as their working relationships with other

participants of corporate governance, including management,

external auditors, internal auditors, legal counsel, professional

advisors, regulators and investors.


Section 3: Interpretation – definition of

“auditor”

Page 325 and 329

"auditor" means-

(a) a person or firm appointed as an auditor of a company under Part

XXVII; or

(b) a person or firm appointed as an auditor of a body of a kind

prescribed by the regulations for the purposes of this definition;

"body corporate" includes a firm that is a legal person under the law by

which it is governed;

“firm" means an entity, whether or not a legal person, that is not a

natural person; and includes a body corporate, sole proprietorship,

partnership or other unincorporated association;


Section 3: Interpretation

Page 332

“Prescribed financial accounting

standards” means statements of standard

accounting practice issued by a

professional body or bodies in

accounting and finance recognized by

law in Kenya;


Section 123 – Members of a director’s family.

For the purposes of this Part, a person is a member

of a director’s family if the person is-

1. the director’s spouse

2. a child or a step-child of the director;

3. a child or step-child of the director’s spouse

who lives with the director and has not

reached eighteen years of age; or

4. a parent of the director


Section 124: When director

connected with a body corporate.

A director is connected with a body corporate if, but only if,

the director and the persons connected with the director

together—.

(a) are interested in shares comprised in the equity share

capital of the body corporate of a nominal value equal to

at least twenty percent of that share capital; or

(b) are entitled to exercise or control the exercise of more

than twenty percent of the voting power at any general

meeting of that body


Section 131: Minimum Age of Director

and Appointment of Directors.

A person who has not reached eighteen years of age

may not be appointed to be a director of a company

Changes minimum age from 21yrs to 18yrs and

removes limit of 70 yrs under old CA s186

Appointment made in contravention is void.


Section 243:

COMPANIES SECRETARIES.

A private company is required to have a secretary only if it

has a paid up capital of five million shillings or more.

Every public company is required to have at least one

secretary.

If a company fails to comply, the company, and each officer

of the company who is in default, commit an offence and on

conviction are each liable to a fine not exceeding five

hundred thousand shillings.


Transactional and Financial Implications


Section 151 : Duty to declare interest in proposed

or existing Transaction or arrangement.

If a director of, a company is in any way, directly or indirectly, interested in a

proposed transaction or arrangement with the company, or in a transaction or

arrangement that the company has already entered into, the director shall declare the

nature, and extent of that interest-

(a) to the other directors; and

(b) if the 'company is a public company, to the members of the company.

If, in the case of a public company, a proposed transaction or arrangement' with the

company, or a transaction or arrangement that the company has already entered into,

is for an amount, or for goods or services valued at an amount, that exceeds ten

percent of the value of the assets of the company, the declaration shall also be made

to the members of the company either-

(a) at a general meeting of the company; or

(b) by notice given to. the members


Section 151 (3): Duty to declare interest in

proposed or existing Transaction or arrangement.

A declaration is not effective for the purpose of

unless the valuation of the goods or services and the

valuation of the assets of the company are certified by

the company's auditors as being the true market value

of those goods or services and those assets.

Amount or value of the goods or services valued should

exceed 10% of the valued assets of a company


Section 620 – interpretations under part XXV and

660 – Regulations may prescribe requirements for

contents of directors’ remuneration report.

620. (1) In this Part- annual financial statement", in relation

to a company, means the company's individual financial

statement for a financial year, and includes any group

financial statement prepared by the company for that year.

(2) In the case of an unquoted company, its annual financial

statement and reports for a financial year consist of —a) its annual financial statement;

b) the directors' report; and

c) the auditor's report on the financial statement and directors'

report unless the company is exempt from audit.





(3) In the case of a quoted company, its annual financial

statement and reports for a financial year consist of-

1. its annual financial statement;

2. the directors' remuneration report;

3. the directors' report; and

4. the auditor's report on-

5. the financial statement;

6. the auditable part of the directors' remuneration

report;





660. (1) The regulations may prescribe:-

1. the information that is required to be

included in a directors' remuneration report;

2. how information is to be set out in the

report; and

3. what is to be the auditable part of the report.


Section 624 and 625

Companies qualifying as small: general rules.

624(3)- The qualifying conditions are satisfied by a

company in a year in which it satisfies two or more of

the following requirements-

1. It has a turnover of not more than fifty

million shillings;

2. 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

3. It does not have more than fifty employees;


Section 624 and 625

Companies qualifying as small: general rules.

Companies qualifying in this regime are

exempted from auditing requirements under

Section 724.


Section 769 and 770

Quoted Companies: Audit Committee..

The directors of a quoted company shall ensure that the company has

an audit committee appointed by the shareholders of a size and

capability appropriate for the business conducted by the company.

If a quoted company is a subsidiary of another quoted company, the

other quoted company may assume responsibility for performing the

obligation imposed on the subsidiary

If the directors of a quoted company fail to comply, each of the

directors in default commits an offence and on conviction is liable to a

fine not exceeding one million shillings.


Section 487

Net asset restriction on distributions by public

companies.-General Rules

.A public company may make a distribution only

if the amount of its net assets is not less

than the aggregate of its called-up share

capital and distributable reserves; and

if, and to the extent that, the distribution

does not reduce the amount of those assets

to less than that aggregate.


Overview of the Companies Act 2015 on Financial Reporting

14/02/2017 Uphold Public Interest 54

Directors’ Report• Business review• Enhanced business review for

audited entities.• Statement on accuracy and

completeness of information to auditors

Financial Statements• Name of signing directors must be disclosed• Must be filed at registrar of companies within

9 months of the end of the reporting period (Private Companies)

• Must be filed at the registrar of companies within 6 months of the end of the reporting period (Public Companies)

Introduction of small company and small

group regimes

Exemption from preparation of group financials• Requirement that the consolidating entity

must be incorporated in Kenya removed.• Small group companies exempted• Partially owned subsidiaries can take

advantage

Clearly defines mandatory annual reports and financial statements for quoted and

non-quoted companies

Accounting Reference Periods• Change of accounting reference

period limited to once every five years

Accounting Records• Expanded definition• Defined retention period (7

years)

Companies Act 2015 - Highlights

Overview of the Companies Act 2015 on Financial Reporting

628. (1) Every company shall -keep proper accounting records. (2) For purposes of subsection (1), -accounting records, are proper

only if they —

▪ (a) show and explain the transactions of the company;

▪ (b) disclose with reasonable accuracy, up to the end of the previous three month trading period, the financial position of the company at that time; and

▪ (c) enable the directors to ensure that every financial statement required to be prepared complies with the requirements of this Act.

629. (1) If a company fails to comply with a provision of section 628, the company, and each officer of the company who is in

default, commit an offence.


635. (1) The directors of every company shall prepare a financial statement for the company for each of financial year of the company.

636. (1) The directors of a company may approve financial statement for the purposes of this Division only if they are satisfied that the statement gives a true and fair view of the assets, liabilities and profit or loss —

a. in the case of an individual financial statement of the company;

b. in the case of a group a financial statement—of the undertakings comprising the consolidation as a whole, so far as concerns members of the company.

(2) In performing the auditing functions under this Act relating to a company's annual financial statement, the company's auditor shall have regard to the directors' duty under subsection (1).

(3) If the directors of a company in contravention of subsection (1), each of the directors who is in default commits an offence and on conviction is liable to a fine not exceeding five hundred thousand shillings.


Accounting Records and Financial Statements.

•PART XXV Sections 620-704— Company accounting records and financial statements

•Responsibilities for financial statements

•Reporting period and record keeping

•Annual reports including business review


Unquoted company - annual financial

statement and reports for a financial year

consist of

its annual financial statement;

the directors' report; and

the auditor's report on the

financial statement

directors' report unless the

company is exempt from audit

Quoted company - annual financial statement

and reports for a financial year consist of-

– its annual financial statement;

– the directors' remuneration report;

– the directors' report; and

– the auditor's report on-

– the financial statement;

– the auditable part of the directors‘

remuneration report

Section 626 (2) Companies excluded from the

small companies regime.

Page 723.

(2) A group is ineligible if any of its members is

a. a public company;

b. a body corporate (other than a public

company) whose shares are admitted to

trading on a securities exchange or other

regulated market in Kenya; or

c. a person who carries on insurance market

or banking activity.


Section 628 – Duty of company to keep proper

accounting records.

Section 629

628. (1) Every company shall -keep proper accounting records.

(2) For purposes of subsection (1), -accounting records, are proper only if they

—

(a) show and explain the transactions of the -company;

(b) disclose with reasonable accuracy, up to the end of the previous three

month trading period, the financial position of the company at that time; and

(c) enable the directors to ensure that every financial statement required to be

prepared complies with the requirements of this Act.

629. (1) If a company fails to comply with a provision of section 628, the

company, and each officer of the company who is in default, commit an

offence.


Section 628 – Duty of company to keep proper

accounting records.

Section 629

(2) A person who is found guilty of an offence under

subsection (1) is, liable on conviction.—

(a) in the case of a body corporate, to a fine not exceeding

two million shillings; or

(b) in the case of a natural person, to a fine not exceeding one

million shillings or to imprisonment for a term not exceeding

two years, or to both.


Section 630:

Where and for how long Company is required to

keep its records.

630(2) A company shall preserve its accounting

records for not less than seven years from and

including the date on which they were created.


Statement of Director’s Responsibilities

The Companies Act requires the directors to prepare financial statements which give a true and

fair view of the state of affairs of the company as at the end of the financial period and of the

operating results for that period. It also requires the directors to ensure that the company

maintains proper accounting records which disclose with reasonable accuracy the financial

position of the company. The directors are also responsible for safeguarding the assets of the

company.

The directors accept responsibility for the preparation and fair presentation of financial

statements that are free from material misstatements whether due to fraud or error. The also

accept responsibility for:-

i. designing, implementing and maintaining internal control relevant to the preparation

and fair presentation of financial statements;

ii. selecting and applying appropriate accounting policies; and

iii. making accounting estimates and judgements that are reasonable in the circumstances.


How does CA 2015 Affect it?


Include the remuneration policy

Should the remuneration be aggregated or disaggregated??

Are the requirements of IAS 24 sufficient???

654.(2) The directors shall include in their report astatement that with respect of each of the persons,who was a director at the time the report wasapproved —a) there is, so far as the person is aware, no

relevant audit information of which thecompany's auditor is unaware; and

b) the person has taken all the steps that theperson ought to have, taken as a director so asto be aware of any relevant auditinformation and to establish that thecompany’s auditor is aware of thatinformation.


Section 655: Business review to be

included in certain directors’ report.

655. (1) Unless the company is subject to the small companies regime, the directors shall include in their report a business

review that complies with subsection (3), so far as relevant to the company.

(2) The purpose of the business review is to inform members of the company and assist them to assess how the directors

have performed their duty under section 144.

(3) The business review complies with this subsection if —

(a) it contains-

a fair review under subsection (1) of the company's business; and

a description of the principal risks and uncertainties facing the company-

(4) In the case of a quoted company, the directors shall specify in the business review (to the extent necessary for an

understanding of the ' development, performance or position of the company)

1. the main trends and factors likely to affect the future development, performance and position of the business

of the company;

information about

environmental matters (including the impact of the business of the company- on , the

environment);

the employees of the company; and

social and community issues, including information on any policies of the company in relation to

those matters and the' effectiveness of those policies-, and

2. information about persons with whom the company has contractual or other arrangements that are essential to

the business of the company.


The Act now legislates audit committees for quoted companies.

The Code, 2015 also provides requirements for audit committees.

ICPAK and CMA believe that effectives of audit committees is the cornerstone to establishing robust internal control framework and quality financial reporting process.


Include in the annual reports and audited financial statements a report of the audit committee,

separate from directors' report which shall provide:-

i. comment on the internal controls and the effectives of the audit committee on

oversighting the internal control framework

ii. how the audit committee oversees external auditor independence (impact of non-audit

services, audit firm tenure and audit partner rotation)

iii. any significant audit matters considered and how the committee has addressed the

matters.

Section 657 – content of directors’ report:

statement as to disclosures to auditor

657. (1) This section applies to a company unless-

it is exempt for the relevant financial year from the requirements of Part

XXVII with respect to the auditing of company's financial statement; and

the directors take advantage of that exemption.

(2) The directors shall include in their report a statement that with respect of each of

the persons, who was a director at the time the report was approved —

a) there is, so far as the person is aware, no relevant audit information of which

the company's auditor is unaware; and

b) the person has taken all the steps that the person ought to have, taken as a

director so as to be aware of any relevant audit information and to establish

that the company s auditor is aware of that information.

(3) In subsection (2) “relevant audit information" means information needed by

company's auditor in connection with preparing the auditors’ report.


Section 773 - Eligibility for appointment as

a statutory auditor.

773. A natural person or firm is eligible for

appointment as an auditor only if the person, or each

partners of the firm-

1) is a holder of a practicing certificate issued

under section 21 of the Accountants Act;

and

2) has a valid annual license issued under

section 22 of the Accountants Act


Section 779-Power of Cabinet Secretary to

recognize qualifications of foreign auditors for

purposes of this Act.

The section is amended in the Act as follows

778 (1) The Cabinet Secretary may, on the recommendation of the

Institute of Certified Public Accountants of Kenya, by notice

published in the Gazette, declare that persons of the following classes

are to be recognized as being holders of an approved foreign

qualification for the purposes of this Act-

1. persons who are qualified to audit company financial

statements of accounts under the law of a specified foreign

country;

2. Persons who hold a specified professional qualification in

accountancy obtained in a specified foreign country.


TRANSITIONAL AND

SAVING ARRANGEMENTS

If the financial year of an existing companybegan before, but has ended after, the repeal ofsections 147 to 163 of the repealed Act (or ofsuch of those sections as are applicable), thosesections continue to apply to the companywith respect to its accounts for that year, andto the audit of those accounts, as if that repealhad not taken effect.


CMA Requirements


WHO IS CMA?

The Capital Markets Authority is anindependent public agency established byan Act of Parliament, Cap 485 A.

The Authority came into being onDecember 15, 1989 when the Act waspassed and was inaugurated in March1990.


CMAs Role?

The CMA is a regulating body charged with the primeresponsibility of supervising, licensing and monitoringthe activities of market intermediaries, including thestock exchange and the central depository and settlementsystem and all the other persons licensed under theCapital Markets Act.

It plays a critical role in the economy by facilitatingmobilization and allocation of capital resources tofinance long term productive investments.


Functions of CMA

1. Licensing and supervising all the capital market intermediaries

2. Ensuring proper conduct of all licensed persons and market

institutions.

3. Regulating the issuance of the capital market products (bonds, shares

etc )

4. Promoting market development through research on new products

and institutions.

5. Promoting investor education and public awareness

6. Protecting investors’ interest


CMA Regulations and Rules

1. The Capital Markets (Collective Investment Schemes) Regulations, 2001 2. The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 3. The Capital Markets (Licensing Requirements) (General) Regulations, 2002 4. The Capital Markets (Takeovers and Mergers) Regulations, 2002 5. The Capital Markets (Foreign Investors) Regulations, 2002 6. The Capital Markets Tribunal Rules, 2002 7. The Capital Markets Asset Backed Securities Regulations 2007 8. The Capital Markets (Registered Venture Capital Companies) Regulations 2007. 9. The Capital Markets(Conduct of Business) (Market Intermediaries) Regulations 201110. The Capital Markets(Corporate Governance) (Market Intermediaries) Regulations, 2011 11. The Capital Markets (Demutualization of the Nairobi Securities Exchange Limited)

Regulations 2012 12. The Capital Markets Futures Exchanges Licensing Requirements Regulations 2013 13. The Capital Markets Real Estate Investment Trusts Collective Investment Schemes

Regulations 2013


CMA Guidelines

1.Guidelines on Corporate GovernancePractices by Public Listed Companies

2.Guidelines on the Approval and Registrationof Credit Rating Agencies

3.Guidelines on Financial Requirements forMarket Intermediaries


Interactive Session

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