Overview of the Companies Act New Compliance Requirements.

Transcription

1 Overview of the Companies Act New Compliance Requirements. October Deloitte & Touche

2 Financial Reporting & Auditing Requirements 2015 Deloitte & Touche

3 Session 1 Introduction of small company and group regimes. 2 Key highlights on accounting records and annual financial statements. 3 Directors reports. 4 Directors remuneration reports. 5 Audits. 6 Highlights on offences and fines relating to financial reporting For information contact Deloitte Touche Tohmatsu Limited 2

4 Companies Act 2015 What s new?

5 Introduction of Small Company & Group Regimes Small Companies Regime -A company qualifies as a small company in respect of a financial year or a subsequent financial year if it meets or more of the following requirements:- Turnover =< KES 50 million; Net assets (as at the balance sheet date) =< KES 20 million; and Number of employees =< 50 Small Groups Regime A group of companies qualifies as a small group in respect of a financial year or a subsequent financial year if it meets or more of the following requirements:- Group turnover =< KES 50 million; Group net assets as at the balance sheet date =< KES 20 million; and Number of employees in the group =< 50 4

6 Introduction of Small Company & Group Regimes..cont. Entities scoped out of Small Companies or Small Groups Regime Small companies regime does not apply to a company that is, or was at the time within the financial year:- A Public Company; or A member of an Ineligible Group A Group is considered ineligible for the small groups regime if any of its members is:- A Public Company;or 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 An Insurance or Banking Entity 5

7 Introduction of Small Company & Group Regimes..cont. Other matters in relation o the Small Company Regimes:- The financial statements of entities subject to small company and group regimes need not be audited. The financial statements do not need to disclose directors remuneration and their related parties (individuals and entities). The directors report for entities subject to small company/group regimes need not disclose dividends proposed by the directors. Business review report is not required in the directors report of an entity subject to small company/group regimes A Balance Sheet must be lodged with Registrar for each Financial Year. P&L and directors report may be filed but it s not mandatory. Where the company is not exempted from audit, the directors shall also lodge the auditors report. 6

8 2. Key Highlights on Accounting Records and Annual Financial Statements Mandatory Annual Reports and Financial Statements of an Unquoted company (S 620(2)) Annual financial statements; Directors report; Auditors report on the financial statements and directors report unless the company is exempted from audit. Mandatory Annual Reports and Financial Statements of a Quoted company S 620(2) Annual financial statements; Directors remuneration report; Directors report; and Auditors report on annual financial statements; auditable part of the directors remuneration report; and the directors report. 7

9 Key Highlights on Accounting Records and Annual Financial Statements cont. New definition of Proper Accounting Records i.e. records that: Show and explain the transactions of the company; Disclose with reasonable accuracy, up to the end of the previous 3 month trading period, the financial position of the company at that time; and Enable the directors to ensure that every financial statement required to be prepared complies with the requirements of the Act. 8

10 Key Highlights on Accounting Records and Annual Financial Statements cont. Retention of Accounting Records: Accounting records shall be kept at the company s registered office; and be open at all times to inspection by the officers of the company. The records must be retained for at least 7 years from and including the date on which they were created. Setting and Changing Accounting Reference Periods: Accounting reference period should be set at the anniversary when it incorporation occurs provided that the first reference period is at least six months and not more than 18 months. A company is at liberty to change its current or preceding accounting reference period through a notice to the Registrar. However a notice is not effective if given less than 5 years after the end of an earlier accounting reference period extended i.e. a company can only get extend its accounting period once in a 5 year period unless waivered by the CS. The reference periods cannot be extended by more than 8 months. 9

11 Key Highlights on Accounting Records and Annual Financial Statements cont. Preparation of Individual Company and Group Financial Statements A parent company that is not subject to small companies regime is required to prepare both individual company financial statements and group financial statements. The financial statements must express a true and fair view. Financial statements express a true and fair view, if and only, if they are in compliance with the prescribed financial reporting standards and the requirements of Companies Act A wholly owned subsidiary of an intermediate parent undertaking is exempted from preparing group financial statementsifits financial statements and those of its subsidiaries are incorporated in the group financial statements of a larger group. However the financial statements of the larger group consolidating must be subject to an audit. A partially owned intermediate parent undertaking may also take advantage of the exemption from preparing group financial statements provided that they notify the minority shareholdersthrough a notice for a period not less than 6 months for each financial year. 10

12 Key Highlights on Accounting Records and Annual Financial Statements cont. New Mandatory Disclosure Requirements Average number of employees; Average number of persons employed by categories as directors may determine Directors remuneration. Signing of Financial Statements Financial statements must be approved by the directors; The directors can arrange for one or more of the directors to sign the financial statements; and Names of the signing directors must be indicated on the balance sheet 11

13 Key Highlights on Accounting Records and Annual Financial Statements cont. Other Key Highlights Companies are in some casestodistribute summary financial statements to those entitled to receive copies. A quoted company must publish its annual reports and audited financial statements including its preliminary results at its website and the published financial statements must remain available at the website for at least one year. CS to set regulations on how to correct defective annual reports and financial statements already circulated.. 12

14 3.0 Directors Report Mandatory Contents Names of the directors who served during the year; Principal activities of the company/group; Dividends proposed by the directors; and Business review. Business review Must be a fair review of the company s business Should discuss a description of the principal risks and uncertainties facing the company. These are similar to IFRS 7 and IFRS 4 disclosures. Should have a balanced and comprehensive analysis of the development and performance of the company during the year; and the position of the company at the end of the financial year consistent with the size and business of the company. Development projects that are still under negotiation that may be prejudiced due to the disclosure need not be disclosed. 13

15 Directors Report. cont. Quoted entities to provide enhanced business review which will include: main trends and factors likely to affect the future development; performance and position of the company. Specifically the directors should include the analysis of the financial KPIs; non-financial KPIs such as employee information; environmental matters; references to the annual financial statements. Information on environmental factors; employees; social and community issues Information about persons with who the company has contractual or other arrangements that are essential to the business of the company Note: where any of the above information is not contained in the enhanced business review the directors must indicate. 14

16 Directors Report. cont. Directors Statement as to the information given to Auditors The following representation will be mandatory in all directors reports: Each of the persons who is a director at the date of approval of this report confirms that:- so far as the director is aware, there is no relevant audit information of which the company s auditors are unaware; and the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of S657 of the Companies Act

17 Directors Report. cont. Other matters:- The directors report must be approved and signed on their behalf by one of the directors or the secretary. Where the directors report is prepared in accordance with the small companies regime, the report should contain a statement to that effect. 16

18 4.0 Directors Remuneration Report The following highlights have been noted under the new act:- All quoted companies must prepare directors remuneration report for each financial year. The CS to publish regulations to prescribe requirements for the contents of the directors remuneration report. Directors remuneration report must be approved by the directors and signed by one of the or the company secretary. 17

19 5.0 Audits Scope Provided the members have not required, entities subject to small company regimes and dormant companies (since inception or PY) are exempted from audit. (If an entity takes advantage of the exemption, it must be disclosed in the balance sheet. A group of companies qualifies if the group turnover is not more than KES 720 million net or KES 860 million gross; and the net assets of the group do not exceed KES 360 million.) The directors taking advantage of the exemption must provide the following statement on the balance sheet:- 18

20 Audits cont. We confirm that:- a) The members of the company have not required the company to obtain an audit of the financial statements for the year ended [Indicate the Year End Date]; and b) The directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2015 with respect to accounting records and the preparation of the financial statements. For notice to require an audit to be effective, the notice must be served no later 1 month to the end of the financial year and must be endorsed by at least members holding voting shares of 10% or by 10% of the members of the company. 19

21 Audits cont. Scope Requirement for audit is mandatory for public companies and companies conducting insurance or banking businesses; a group with any member being a public company or a listed company on a securities exchange or other regulated market in Kenya; Not-For-Profit entities required to be audited by Auditor General. Audit opinion The auditors are required to form opinion on the following: Annual financial statements Directors report Auditable part of the directors remuneration report (quoted companies only) Signing of the audit opinion mustbe signed in the name of the auditor. 20

22 Audits cont. Other matters:- Auditor to notify the audit authority/the institute when leaving the office. The company also has a similar duty to notify the audit authority. 21

23 Highlights on Offences and Fines relating to Financial Reporting Offence 6.1 Failure to keep proper accounting records Fine Body corporate fine not exceeding KES2 million 6.2 Failure to preserve records 6.3 Failure toprepare financial statements for a financial year Natural person fine not exceeding KES 1 million or an imprisonment for a term not exceeding two years, or both. Body corporate fine not exceeding KES2 million Natural person fine not exceeding KES 1 million or an imprisonment for a term not exceeding two years, or both. Fine not exceeding KES 1 million Fine ofnot more than KES 200,000 for any instance of further offences committed through continued non-compliance. 22

24 Highlights on Offences and Fines relating to Financial Reporting Cont. Offence 6.4 If the directors approve misleading financial statements of a company or of a group of companies Fine Finenot exceeding KES 500,000 per director 6.5 If thedirectors prepare financial statements that are not in compliance with the applicable accounting framework 6.6 Failure to prepare group financial statements where the exemption is not availableto a parent undertaking Fine not exceeding KES 500,000 per director Fine not exceedingkes 500,000 per director 23

25 Highlights on Offences and Fines relating to Financial Reporting Cont. Offence 6.7 Failure to ensure that the group entities are applying similar accounting policies Fine Fine not exceedingkes 500,000 per director 6.8 Missing information on averagenumber of employees in the financial statements Fine not exceedingkes 500,000 per director 6.9 Approval of the financial statementsthat do not comply with the requirements of the Act 6.10 Failure to present a directors report Fine not exceeding KES 1 million Fine not exceeding KES 500,000 24

26 Highlights on Offences and Fines relating to Financial Reporting Cont. Offence Fine 6.11 Presenting adirectors report that does not disclose the names of the directors; principal activities of the company/group; dividends proposed by the directors 6.12 If the business review(and enhanced business review report for quoted entities) is not included in the directors report 6.13 False information to the auditors with regard to the directors report Fine not exceeding KES 500,000 Fine not exceeding KES 500,000 Fine not exceedingkes 1 million; or imprisonment for a term not exceeding 5 years; or both 6.14 Failure to include a directors remuneration report in the annual report (quoted companies only) Fine not exceeding KES 1 million 25

27 Highlights on Offences and Fines relating to Financial Reporting Cont. Offence Fine 6.15 Failure to distribute annual reports and financial statements as required to the members Fine not exceeding KES1 million per director. 26

28 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms.. This communication is for internal distribution and use only among personnel of Deloitte Touche Tohmatsu Limited, its member firms, and their related entities (collectively, the Deloitte Network ). None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication 2008 Deloitte Global Services Limited