An assessment of the accounting and auditing environment in Kenya was conducted by the World Bank in 2001. The World Bank noted that Kenya had adopted International Accounting Standards (IASs) in 1998, thereby "closing the gap" between national and international accounting standards. However, compliance with reporting requirements was only partial, due to inadequacies in the enforcement mechanism, legal and institutional framework, and education in the field of accounting. The World Bank recommended amending the main acts governing accounting and auditing practices, clarifying financial reporting requirements for listed companies and financial institutions, and simplifying reporting requirements for small and medium-size enterprises. Since 2001 the International Accounting Standards Board (IASB) has revised the IASs and issued new IFRSs for the areas where no guidance previously existed. Although the Institute of Certified Public Accountants of Kenya, in its 2005 self-assessment prepared for the International Federation for Accountants, states that international standards are adopted without any modifications, there is insufficient information publicly available regarding adoption of the new and revised standards in Kenya.

General Overview

In November 2001, the World Bank conducted a review of accounting and auditing practices in Kenya based on the information provided by the Kenyan authorities. This assessment evaluated the weaknesses and strengths of accounting and auditing requirements and reviewed the reporting requirements against actual practices. The Report on the Observance of Standards and Codes (ROSC) published in November 2001 as a result of this assessment contained policy recommendations to improve the reporting framework in Kenya. According to the assessment, Kenya adopted the International Accounting Standards (IASs), later renamed as International Financial Reporting Standards, or IFRSs, as Kenyan standards in 1998. Although the "standards gap" had been closed, the World Bank found that the compliance with reporting requirements was only partial, due to inadequacies in the enforcement mechanism, legal and institutional framework, and education in the field of accounting. Kenyan standards are applicable for all companies regardless of their size and field of activity. According to a 2005 Institute of Certified Public Accountants of Kenya (ICPAK) self-assessment prepared for the International Federation for Accountants, "IFRSs are adopted as drafted without amendments except to rename the IFRS as a national standard and / or to translate it into another language" (p. 75). However, some standards are not applicable in Kenya and therefore have not been adopted. Since the 2001World Bank assessment, the International Accounting Standards Board (IASB) revised IASs and issued new IFRSs for areas where no guidance previously existed. Although the ICPAK in its 2005 self-assessment states that international standards are adopted without any modifications, there is insufficient publicly available information regarding adoption of the subsequently revised or new IFRSs.

The legal framework for accounting requirements in Kenya is largely based on the Companies Act. According to the 2005 self-assessment by the ICPAK, under the Companies Act, listed and private companies are required to prepare financial statements in accordance with IFRSs. The Accountants Act supplements the Companies Act and specifies rules for private sector accounting standards. The World Bank observed that neither act accounted for a legal obligation to comply with the accounting standards in use and recommended the amendment of the two acts to strengthen the financial reporting regime in Kenya. According to the 2005 ICPAK self-assessment, the Accountants Act was amended in 2002. It is unclear, however, if the World Bank's recommendation have been incorporated into the revised Accountants Act.

According to the description of the Kenyan regulatory framework as detailed in the 2005 ICPAK self-assessment, banks are regulated by the Central Bank of Kenya (CBK). The CBK does not set any additional accounting or auditing requirements. Compliance with accounting standards is enforced by the ICPAK. The Banking Act and the Central Bank Act specify the minimum disclosure requirements. The securities market is regulated by the Capital Markets Authority (CMA), which monitors compliance with IASs for listed companies. Noncompliance could lead to imposition of fines or suspension from the Nairobi Stock Exchange. The CMA does not play a role in the setting of accounting standards. The 2001 World Bank assessment noted that enforcement of accounting standards was not as rigorous and that the stock exchange did not have any mechanism for improvement in quality of financial reporting by listed companies. The insurance sector is regulated by the Commissioner of Insurance that draws its power from the Insurance Act Chapter 487 of the Laws of Kenya. According to the 2005 ICPAK self-assessment, the Commissioner of Insurance "sets out a mandatory minimum disclosure as well as classification and valuation criteria which are applied along with the requirements of International Accounting Standards and International Standards on Auditing." The self-assessment further notes that the Commissioner of Insurance routinely reviews published accounts for compliance with mandatory requirements.

The ICPAK is the accounting and auditing standard-setting body in Kenya. It was established under the Accountants Act, Chapter 531, Laws of Kenya along with the establishment of the Registration of Accountants Board (RAB) and the Kenya Accountants and Secretaries National Examinations Board (KASNEB). The KASNEB conducts examinations for prospective accountancy professionals while the RAB is responsible for registration of successful candidates. These candidates can then be registered as ICPAK members. The World Bank noted that the process involving three different bodies leads to coordination problems. The ICPAK is listed as a member on the International Federation of Accountants website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. However, the IASB subsequently revised IASs and issued new IFRSs for the areas where no guidance previously existed. There is insufficient information publicly available regarding adoption of the new and revised standards in Kenya.

IFRS 2: Share-based Payment (effective 2005)

II

See Principle 1.

IFRS 3: Business Combinations (effective 2004)

II

See Principle 1.

IFRS 4: Insurance Contracts (effective 2006)

II

See Principle 1.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

II

See Principle 1.

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

II

See Principle 1.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

See Principle 1.

IAS 1: Presentation of Financial Statements (effective 2007)

II

See Principle 1.

IAS 2: Inventories (effective 2005)

II

See Principle 1.

IAS 7: Cash Flow Statements (effective 1994)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 7 was last revised in 1992, prior to its adoption by the Kenyan authorities.

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

II

See Principle 1.

IAS 10: Events after the Reporting Period (effective 2005)

II

See Principle 1.

IAS 11: Construction Contracts (effective 1995)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 11 was last revised in 1993, prior to its adoption by the Kenyan authorities.

IAS 12: Income Taxes (effective 2001)

II

See Principle 1.

IAS 14: Segment Reporting (effective 1998)

II

See Principle 1.

IAS 16: Property, Plant and Equipment (effective 2005)

II

See Principle 1.

IAS 17: Leases (effective 2005)

II

See Principle 1.

IAS 18: Revenue (effective 1995)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 18 was last revised in 1993, prior to its adoption by the Kenyan authorities. In the 2001 assessment, the World Bank noted that Kenyan companies were not fully compliant with the requirements of this standard.

IAS 19: Employee Benefits (effective 2006)

II

See Principle 1.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 20 has been effective since 1984.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

II

See Principle 1.

IAS 23: Borrowing Costs (effective 1995)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 23 was revised in 1993, prior to its adoption by the Kenyan authorities.

IAS 24: Related Party Disclosures (effective 2005)

II

See Principle 1.

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 26 was revised in 1987, prior to its adoption by the Kenyan authorities.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

II

See Principle 1.

IAS 28: Investments in Associates (effective 2005)

II

See Principle 1.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

EN

According to the 2001 World Bank assessment, the ICPAK adopted IASs in 1998. IAS 29 was revised in 1989, prior to its adoption by the Kenyan authorities.

IAS 31: Interests in Joint Ventures (effective 2005)

II

See Principle 1.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

II

See Principle 1.

IAS 33: Earnings per Share (effective 2005)

II

See Principle 1.

IAS 34: Interim Financial Reporting (effective 1999)

II

See Principle 1.

IAS 36: Impairment of Assets (effective 2004)

II

See Principle 1.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

II

See Principle 1.

IAS 38: Intangible Assets (effective 2004)

II

See Principle 1.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

II

See Principle 1.

IAS 40: Investment Property (effective 2005)

II

See Principle 1.

IAS 41: Agriculture (effective 2003)

II

See Principle 1.