Companies Bill 2010
Provisions on Preparation and
Presentation of Financial
Statements
& Annual Return
Legal requirements
PART XIX (clauses 345-408) of the Companies Bill 2010
provides for:
• the preparation of the financial statements of a company.
• establishes two regimes of accounting for small
companies and large companies respectively,
• introduces IAS as the format for accounting, the IFRS as
the format for financial reporting, and recognizes the use
of websites for formal presentation of financial
statements and other information of a company.
PART XX (clauses 409-412) deals with annual returns of a
company and specifies the contents of an annual return.
Companies subject legal
requirements
The requirements as to financial statements
apply to different kinds of companies, the
main distinctions being:
• Companies subject to the small
companies accounting regime and (large)
companies that are not subject to that
regime
• Quoted companies and companies that
are not quoted.
Small accounting regime company
347. A company is small if any two or more of the following
conditions were satisfied in in relation to its last financial
year ending on or before the end of the financial year to
which the accounts relate:
• Turnover of not more than thirty million shillings;
• Total of its statement of financial position, not more than
fifteen million shillings
• Employees, not more than fifty
For a period than a company’s financial year, the maximum
figures for turnover shall be proportionately adjusted
Number of employees means the average number of
persons employed by the company in the year
Companies qualifying as small:
parent companies
348. A parent company qualifies as a small company in
relation to a financial year only if the group of companies
headed by it qualifies as a small group and it satisfies
two or more of the following requirements:
• an aggregate turnover of not more than 750 million
shillings net or 900 million shillings gross
• an aggregate statement of the financial position totaling
not more than 375 million shillings net or 450 million
shillings gross
• an aggregate number of not more that 50 employees
The aggregate figures are ascertained by aggregating the
net or gross figures for each subsidiary undertaking
included in parent company’s financial statements.
Companies excluded from the
small companies regime.
The small companies regime does not include a
company that is, or was at any time within the
financial year to which the financial statements
relate—
• a public company;
• a company whose financial statements are exempt
from audit requirements
• a body corporate, other than a company, whose
shares are admitted to trading on a stock exchange
or other regulated market in Kenya;
• a person who carries on insurance market activity.
Quoted and unquoted
companies.
350. A company is a quoted company in
relation to a financial year if its shares are
admitted to trading on a stock exchange or
other regulated market in Kenya
immediately before the end of the
accounting reference period by reference
to which that financial year was
determined.
Duty to keep accounting records.
351. Every company shall keep accounting
records which:• Sufficiently show, and explain the transactions
of the company during the year
• Disclose with reasonable accuracy, the financial
position of the company at the reporting time;
• Form the basis for the directors to ensure
compliance with all applicable legal and other
requirements.
Form of accounting records
Accounting records for each financial year shall contain—
• Entries from day to day of all sums of money received
and expended by the company and the matters in
respect of which the receipt and expenditure takes place;
• A record of the assets and liabilities of the company
• Statements of stock held by the company at the end of
each financial year, of goods sold and purchased, of the
identity of the buyers and sellers of goods
• Failure to keep proper accounting records is an offence
and, on conviction, every officer of the company
becomes liable to a fine not exceeding 500,000 shillings
or to imprisonment for a term not exceeding one year or
to both.
Preservation of accounting
records.
353. Accounting records of a company shall be kept at its
registered office or such other place in Kenya as the
directors think fit, and at all times be open to inspection
by the officers of the company.
The accounting records that a company is required by law
to keep shall be preserved by it for 7 years from the date
on which they are made, but in the case of a company
that is party to a lawsuit, until the lawsuit is concluded.
Every officer of a company which fails to preserve its
accounting records for the minimum prescribed period
commits an offence which attracts a fine not exceeding
500,000 shillings or imprisonment for a term not
exceeding two years or to both.
A company’s financial year.
355. The first financial year begins with the first day of its
first accounting reference period and ends with the last
day of that period or such other date, not more than 7
days before or after the end of that period, as the
directors may determine
Subsequent financial years begin with the day immediately
following the end of the previous financial year of the
company; and end with the last day of its next
accounting reference period or such other date, not more
than 7 days before or after the end of that period, as the
directors may determine
The directors of a parent company shall ensure that, except
where there are good reasons against it, the financial
year of each of its subsidiary undertakings coincides with
the financial year of the parent company
Accounting reference periods
and accounting reference date.
356. The accounting reference periods of a company are
determined according to its accounting reference date in
each calendar year.
The accounting reference date of a company is the last day
of the month of the anniversary of its incorporation
The first accounting reference period of a company is the
period beginning with the date of its incorporation and
ending with its accounting reference date.
Subsequent accounting reference periods of a company
are successive periods of twelve months beginning
immediately after the end of the previous accounting
reference period and ending with its accounting
reference date.
Change of accounting reference
date.
357. A company may change its accounting
reference date by shortening or extending the
current or previous accounting reference periods
provided that
• An accounting reference period shall not be
extended so as to exceed 18 months
• A notice extending a company’s current or
previous accounting reference period is not
effective if given less than five years after the
end of an earlier accounting reference period of
the company that was extended under this
section.
Financial statements to give true
and fair view.
358. The directors of a company shall ensure that
the company prepares
• financial statements that materially represents a
true and fair view of the assets, liabilities,
financial position and profit or loss of the
individual financial statements, of the company,
• In the case of a group, consolidated financial
statements that materially represents a true and
fair view of the aggregate assets, liabilities,
financial position and profit or loss of the of the
undertakings included in the consolidation
Duty to prepare financial
statements
362. The directors of every company shall prepare
individual financial statements for the company for each
of its financial years in accordance with the IFRS
• Where a small company is a parent company the
directors may, in addition to preparing individual financial
statements for the year, prepare group financial
statements for the year
• Where the company is a parent company the directors
shall ,in addition to preparing individual financial
statements for the year, prepare group financial
statements for the year unless the company is exempt
from that requirement.
Additional Information
Disclosures
The Bill identifies critical information about the company
which, if not reported in the financial statements, should
be disclosed in the notes to the financial statements or
be submitted together with the annual financial
statements of a company.
• Information about related undertakings
• Information about employee numbers and costs.
• Information about directors’ benefits: remuneration.
• Information about directors’ benefits: advances, credit
and guarantees
• Directors’ report.
Information about related
undertakings
• 364. the directors may only give information in respect of
the undertakings whose results or financial position, in
the opinion of the directors, principally affected the
figures shown in the company’s annual accounts; and
undertakings excluded from consolidation
• If a company fails to disclose full information about its
related undertakings in the notes to the financial
statements or in the annexure to the next annual return
of the company, the company and every officer of the
company who is in default commits an offence and shall
be liable on conviction to a default fine not exceeding
1,000 shilling or to imprisonment for a term not
exceeding six months or to both.
Information about employee
numbers and costs.
In the case of a company not subject to the small
companies, the following information on employees, if
not reported in the financial statements, shall be
disclosed in notes to the financial statements:
• the average number of persons employed and the
average number of persons so employed within each
category of employees determined with regard to the
organization of the activities of the company.
• wages and salaries paid or payable in respect of that
year
• Contributions by the company to any social security or
pension schemes on behalf of its employees
In group financial statements, the numbers for subsidiary
undertakings are consolidated
Information about directors’
benefits: remuneration
365. Information to be given in notes to the financial
statements:Gains made and consideration or benefits received or
receivable by directors on the exercise of share options,
under an incentive scheme, in respect of past services,
or for making available the services, of a person as
director or in any other capacity while director
Amounts paid to or receivable by a person connected with
a director; or a body corporate controlled by a director,
are treated as paid to or receivable by the director
Information on directors’ benefits:
advances, credit and guarantees
367. In the case of an individual company, details of the
amount, interest rate, amount repaid, balance
outstanding and main conditions of advances and
credits granted to directors, and guarantees entered into
by the company on behalf of its directors shall be shown
in the notes to its individual financial statements
• In the case of a parent company, details of advances
and credits granted to the directors of the parent
company, by that company or by any of its subsidiary
undertakings; and guarantees entered into on behalf of
the directors of the parent company, by that company or
by any of its subsidiary undertakings, shall be shown in
the notes to the group financial statements.
Directors’ report: Preparation
The directors of an individual company shall
prepare a directors report for each financial year
of the company.
The directors of a parent company shall prepare a
group directors’ report relating to the
undertakings included in the consolidation.
A group directors’ report may, where appropriate,
give greater emphasis to the matters that are
significant to the undertakings included in the
consolidation, taken as a whole.
• .
Contents of directors’ report:
general
• The report of the directors of a company for a financial
year shall state—
• the names of the persons who, at any time during the
financial year, were directors of the company; and
• the principal activities of the company in the course of
the year. In relation to a group directors’ report, outline
undertakings included in the consolidation.
• Except in the case of a small company, the report shall
state the amount, if any, that the directors recommend
should be paid as dividend.
• The Minister may by regulations specify other matters
that shall be disclosed in a directors’ report.
Contents of directors’ report:
business review.
For companies not subject to the small companies regime,
the directors’ report shall contain a business review to
inform members of the company and assist them to
assess how the directors have performed their duty. The
business review shall contain analyses and information
on the company’s :• Business risks and uncertainties
• Business development, trends, performance and position
and factors likely to affect its future development,
performance and position
• information on the impact of the business of the
company on the environment
• Information on the social and community issues and
policies of the company
Contents of directors’ report: Disclosure
of relevant audit information.
The Bill requires the directors of any
company, unless it is exempt from the
requirements with regarding audit of its
financial statements, to include in the
directors’ report a signed statement that
they have furnished relevant audit
information that may be needed by the
company’s auditor in connection with
preparing his report.
Statement as to disclosure of relevant
audit information
372. The directors’ report shall contain a statement that
each of the directors at the time the report was prepared
approved:• was aware that there is no relevant audit information of
which the company’s auditor is unaware;
• has taken all the steps that he ought to have taken as a
director in order to make himself aware of any relevant
audit information and to establish that the company’s
auditor is aware of that information.
• took all the steps, including enquiries with fellow
directors and the auditors and such other steps as are
required by his duty as a director to exercise reasonable
care, skill and diligence, in making relevant audit
information available for the auditor of the company
Approval and signing of
directors’ report.
373. The directors’ report shall be approved by the board of
directors and signed on behalf of the board by a director
or the secretary of the company.
• If the directors’ report is prepared in accordance with the
small companies regime, it shall contain a statement to
that effect.
• If a directors’ report is approved that does not comply
with the requirements of this Act, every director of the
company who knew that it did not comply, or was
reckless as to whether it complied and failed to take
reasonable steps to secure compliance with those
requirements or, as the case may be, to prevent the
report from being approved, commits an offence.
Components of financial
statements
• Profit and loss account (Income and Expenditure
Account)
• Statement of financial position -consolidated
for the group or detailed for individual companies;
• Statement of changes in equity
• Statement of cash flows
• Notes to the financial statements comprising
a summary of significant accounting policies and other
explanatory notes and disclosures.
Disclosure of general information
on reporting entity
• Each component of the financial
statements should be clearly identified. In
addition, information disclosing the identity
of the company should be prominently
displayed and repeated when it is
necessary for a proper understanding of
the information presented.
General information disclosure
(cont.)
•
•
•
•
•
Name of the reporting entity or other means of
identification;
Whether the financial statements are consolidated for
the whole reporting entity or relate to a service,
responsibility area, department or other segment of the
reporting entity.
The reporting date or the period covered by the
financial statements.
Reporting currency,
Level of precision (e.g. thousands or millions of units of
the reporting currency).
Presentation of financial
statements
• Where Financial Statements are
presented together with or as part of
another document, e.g. the annual report,
the Financial Statements shall be clearly
identified and distinguished from other
information in the same document.
Disclosure of compliance with
IFRS & relevant laws
Disclose that the financial statements:
• comply with the IFRS,
• present fairly the financial position,
financial performance and cash flows of
the company, and:
• comply with relevant legislative, regulatory
or other externally-imposed regulations.
Disclosure of comparatives
•
•
•
Unless when an IFRS permits or requires otherwise,
comparative information shall be disclosed in respect
of the previous period for all amounts reported in the
financial statements.
When the classification of items in the financial
statements is amended, the comparative amounts
shall be reclassified and the nature, amount and
reason of such reclassification of comparative amounts
disclosed.
When it is impracticable to reclassify comparative
amounts, disclose the reason for not reclassifying and
the nature of the changes that would have been made
if amounts were reclassified.
Approval and signing of financial
statements.
The annual financial statements of a company shall be
approved by the board of directors and signed on
behalf of the board by a director of the company.
The signature of the director shall be on the statement
of financial position of the company.
The statement of financial position of the financial
statements of a small company shall contain a
statement to that effect.
If the approved financial statements do not comply,
officers of the company who knew of the default or
failed to take reasonable steps to secure compliance
or prevent their approval commit an offence and are
liable to a fine not exceeding 1,000,000 shillings or
imprisonment for two years or to both.
Annual financial statements
408. “annual financial statements”, are a company’s
individual financial statements for that year; and any
group financial statements prepared by the company for
that year.
For an unquoted company, annual financial statements and
reports its annual financial statements, the directors’
report, and the auditor’s report on all those documents
For a quoted company, annual financial statements and
reports are its annual financial statements, the directors’
remuneration report, the directors’ report, and the
auditor’s report on all those documents
A COMPANY’S ANNUAL RETURN
• 409. Every company shall submit to the
Registrar successive annual returns each
of which is made up to a date not later
than the date that is from time to time the
company’s return date, i.e. the anniversary
of the company’s incorporation; or the
anniversary of the date the company filed
its last annual return.
Annual Return: contents
Every annual return states the date to which it is made up
and contains the following information—
• the situation of the registered office of the company and
the registered postal address thereof;
• the type of company and its principal business activities;
• the prescribed particulars of the directors of the
company; the secretary or joint secretaries of the
company; and any person appointed as an authorized
signatory of the company;
• if the register of members and register of debenture
holders, or a duplicate of any such register is not kept
available for inspection at the registered office, of the
company, the address of the place where it is kept;
411. The annual return of a company having
a share capital shall also contain a
statement of capital; and the particulars of
every person who is a member of the
company on the date to which the return is
made up; or has ceased to be a member
of the company since the date to which the
last return was made up, or in the case of
the first return, since the incorporation of
the company.
• A statement of the number of shares of each class held
by each member of the company at the date to which the
return is made up and the number of shares of each
class transferred since the date to which the last return
was made up; or in the case of the first return, since the
incorporation of the company, by each member or
person who has ceased to be a member; and the dates
of registration of the transfers to persons ceasing to be
or becoming members since the date of the last return;
• Where the company has converted any of its shares into
stock, the return shall give the corresponding information
in relation to that stock, stating the amount of stock
instead of the number or nominal value of shares.
Failure to deliver annual return
• 412.If a company fails to deliver an annual return before
the end of the period of twenty-eight days after a return
date, an offence is committed by every director of the
company; and
• in the case of a public company, every secretary of the
company; and every other officer of the company who is
in default commits an offence and is liable on conviction
to a fine not exceeding 100,000 shillings or to
imprisonment for a term not exceeding one year or to
both.
• the contravention continues until such time as an annual
return made up to that return date is delivered by the
company to the Registrar.