External auditors of listed companies and banks must start reporting cases of malpractices and how company managers tackle them in new audit opinion regulations.
Institute of Certified Public Accountants (ICPAK) Thursday said it has tightened the noose on external auditing following increased cases of fraud by companies. Imperial Bank, CMC Holdings, Mumias Sugar and Kenya Airways are among companies recently involved in alleged financial scandals.
ICPAK chief executive Patrick Ngumi said the regulations come into play in 2017, and they seek to deepen disclosure on financial statements by companies. They are subject to requirements by the International Federation of Accountants.
“The public should expect listed companies and banks to begin noting key highlights and malpractices in published financial results so as to make comparisons,” said Mr Ngumi, “auditors in their reports will do more than review the numbers but understand the business and give their advisory.”
According to Mr Bernard Ndung’u, Director-General of Accounting Services at the National Treasury, external auditors are required by law to verify annual accounts as well as provide a true and fair picture of an organisation’s finances.
Auditors will in the new regulations, detect fraud and raise alarm to the board of directors and management. Companies will also be required to publish in a nationwide newspaper, the true picture of the malpractices noted in their financial reports.
Audit firms that fail to adhere to the new rules will be subjected to financial penalties and have their practicing certificates suspended.
IMPERIAL BANK EXTERNAL AUDITOR
ICPAK is now conducting an audit quality review on PKF the external auditor of Imperial Bank after the bank was put on receivership. It seeks to establish whether the auditor knew about the ‘unsafe and unsound business conditions’ mentioned by Central Bank of Kenya and how it was handled.
Imperial Bank has previously won five FiRE awards, sponsored by ICPAK. However, the accounting body notes that despite making losses, companies are honoured for disclosing accurate financial reports as per required standards.
TAINTED AUDIT FIRMS
Deloitte & Touche an external auditor, has been on the spot for professional misconduct in handling financial accounts of Mumias, CMC Motors, Tuskys Supermarket and the collapsed Dubai Bank.
Ernst & Young on the other hand was investigated by Commissioner for Co-operative Development over its role in Mwalimu Sacco’s acquisition of a majority stake in Equatorial Commercial Bank.
Mr Ngumi, together with Ndung’u spoke during a FiRe award press briefing Thursday. The two highlighted increased participation of the public sector in the awards aimed at increasing financial accountability. Over 200 public sector entities participated and will be awarded ON on Friday evening.