According to an assessment of the accounting and auditing environment in Kenya conducted by the World Bank in 2001, Kenya adopted International Standards in Auditing (ISAs) in 1998, thereby "closing the gap" between national and international auditing standards. However, the World Bank noted that Kenya was only partially compliant with the international requirements because of weak enforcement mechanisms and inadequate resources. Other weaknesses identified include the absence of guidance on application of ISAs, inadequacies in the legal and institutional framework, and lack of professional training and education. The World Bank recommended amending the main acts governing accounting and auditing practices and simplifying reporting requirements for Small and Medium-size Enterprises. However, since 1998 the ISAs have been revised and there is insufficient information publicly available regarding adoption of the new and revised standards in Kenya.

General Overview

The legal framework for financial reporting and auditing requirements in Kenya is largely based on the Companies Act, which is supplemented by the Accountant's Act. According to the 2006 Institute of Certified Public Accountants of Kenya (ICPAK) self-assessment, under the Companies Act, listed and private companies are required to have their financial statements audited. Under the Accountant's Act, the self-assessment further noted, the ICPAK is empowered "to issue regulations and standards for use in auditing financial statements" (p. 49).

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 suggested policy recommendations to improve the financial reporting framework in Kenya. According to the assessment, Kenya adopted the International Standards on Auditing (ISAs) in 1998 as Kenyan standards effective for periods commencing on or after December 1999. In this regard, the ICPAK 2006 self-assessment stated that the ICPAK's policy is to adopt "International Standards of Auditing as they are issued by the IAASB without any change or modification. Any new standards issued by the IAASB are adopted on the effective date" (pp. 49-50). The World Bank report pointed out that, "however, compliance with the requirements of IASs and ISAs is partial, due to enforcement mechanisms that continue to evolve and inadequate resources" (cover page). The report further elaborated on other significant reasons for Kenya's lack of compliance which included inadequacies in the legal framework, absence of implementation guidelines for application of ISAs and lack of professional skills and training. The World Bank explained that auditors were unable to ensure compliance with ISAs. It noted that while quality of auditing services seemed better at large firms, this was not always the case. The World Bank recommended the amendment of the Companies and Accountants Act to strengthen the accounting, auditing and financial reporting regime in Kenya. According to a 2005 ICPAK self-assessment, the Accountants Act was amended in 2002. It is unclear, however, if the World Bank's recommendations 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. 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 and ISAs for listed companies. Under the Capital Markets Authority Act and the Capital Markets (Securities) (public Offers, Listing and Disclosures) Regulations of 2002, the ICPAK self assessment of 2005 pointed out, "listed entities must prepare interim reports, have an Audit Committee and comply with rules on corporate governance which require their finance and accounting departments to be headed by a member of the Institute of Certified Public Accountants of Kenya (ICPAK)." The CMA does not play a role in the setting of auditing standards. Non-compliance with financial reporting, accounting, and auditing standards could lead to imposition of fines or suspension from the Nairobi Stock Exchange. The World Bank in its 2001 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 is 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 Institute of Certified Public Accountants of Kenya (ICPAK) is the accounting and auditing standard-setting body in Kenya. It was established under the Accountants Act, Chapter 531, Laws of Kenya. According to the ICPAK 2006 self assessment, ICPAK has adopted the IFAC Code of Ethics and its functions include promoting "standards of professional competence and practice amongst members of the Institute" (p. 56). Furthermore, the self-assessment notes that the ICPAK has issued a Guide to Professional Ethics which sets out guidelines for issues of ethical importance. However, per the World Bank there was no mechanism to ensure compliance with the ethical standards. The ICPAK is listed as a member on the International Federation of Accountants website.

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 200 has been adopted in Kenya; however, no information is provided regarding what version of ISA 200 has been adopted.

ISA 210 Terms of Audit Engagements (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 210 has been adopted in Kenya; however, no information is provided regarding what version of ISA 210 has been adopted.

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

EN

The 2006 ICPAK self-assessment states that ISA 220 (Revised) has been adopted in Kenya effective for periods beginning on or after June 15, 2005.

ISA 230R Documentation (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 230 (Revised) has been adopted in Kenya; however, no information is provided regarding what version of ISA 230R has been adopted.

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

EN

The 2006 ICPAK self-assessment states that ISA 240 has been adopted in Kenya effective for periods beginning on or after December 15, 2004.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 250 has been adopted in Kenya; however, no information is provided regarding what version of ISA 250 has been adopted.

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 260 has been adopted in Kenya; however, ISA 260 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 300 Planning an Audit of Financial Statements (effective 2004)

EN

The 2006 ICPAK self-assessment states that ISA 300 has been adopted in Kenya effective for periods beginning on or after December 15, 2004.

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

EN

The 2006 ICPAK self-assessment states that ISA 315 has been adopted in Kenya effective for periods beginning on or after December 15, 2004.

ISA 320 Audit Materiality (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 320 has been adopted in Kenya; however, no information is provided regarding what version of ISA 320 has been adopted.

ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

NC

The 2006 ICPAK self-assessment states that ISA 330 has been adopted in Kenya; however, ISA 330 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 402 has been adopted in Kenya; however, no information is provided regarding what version of ISA 402 has been adopted.

ISA 500 Audit Evidence (effective 2004)

EN

The 2006 ICPAK self-assessment states that ISA 500 has been adopted in Kenya effective for periods beginning on or after December 15, 2004.

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 501 has been adopted in Kenya; however, no information is provided regarding what version of ISA 501 has been adopted.

ISA 505 External Confirmations (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 505 has been adopted in Kenya; however, ISA 505 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 510 has been adopted in Kenya; however, no information is provided regarding what version of ISA 510 has been adopted.

ISA 520 Analytical Procedures (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 520 has been adopted in Kenya; however, no information is provided regarding what version of ISA 520 has been adopted.

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 530 has been adopted in Kenya; however, ISA 530 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 540 Audit of Accounting Estimates (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 540 has been adopted in Kenya; however, no information is provided regarding what version of ISA 540 has been adopted.

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 545 has been adopted in Kenya; however, ISA 545 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 550 Related Parties (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 550 has been adopted in Kenya; however, no information is provided regarding what version of ISA 550 has been adopted.

ISA 560 Subsequent Events (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 560 has been adopted in Kenya; however, no information is provided regarding what version of ISA 560 has been adopted.

ISA 570 Going Concern (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 570 has been adopted in Kenya; however, ISA 570 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 580 Management Representations (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 580 has been adopted in Kenya; however, no information is provided regarding what version of ISA 580 has been adopted.

ISA 600 Using the Work of Another Auditor (effective)

II

The 2006 ICPAK self-assessment states that ISA 600 has been adopted in Kenya; however, no information is provided regarding what version of ISA 600 has been adopted.

ISA 610 Considering the Work of Internal Auditing (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 610 has been adopted in Kenya; however, no information is provided regarding what version of ISA 610 has been adopted.

ISA 620 Using the Work of an Expert (effective 2005)

II

The 2006 ICPAK self-assessment states that ISA 620 has been adopted in Kenya; however, no information is provided regarding what version of ISA 620 has been adopted.

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

NC

The 2006 ICPAK self-assessment states that ISA 700 has been adopted in Kenya; however, ISA 700 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 701 has been adopted in Kenya; however, no information is provided regarding what version of ISA 701 has been adopted.

ISA 710 Comparatives (effective 2004)

NC

The 2006 ICPAK self-assessment states that ISA 710 has been adopted in Kenya; however, ISA 710 was subsequently revised and there is no indication in the ICPAK self-assessment that the revisions have been incorporated into Kenyan requirements.

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

II

The 2006 ICPAK self-assessment states that ISA 720 has been adopted in Kenya; however, no information is provided regarding what version of ISA 720 has been adopted.

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

II

The 2006 ICPAK self-assessment states that ISA 800 has been adopted in Kenya; however, no information is provided regarding what version of ISA 800 has been adopted.