Topic 2
Auditing Class Notes
Guarantee pass
Correct 100%
**The Auditor and the Kenya Companies Act, 1962, Cap 486**
**2.1. Appointment**
Each company is required to appoint an auditor or auditors at every annual general meeting
(AGM). The appointed auditors hold office from the end of that AGM until the end of the next
one. An auditor who is retiring is automatically considered reappointed without a resolution
unless:
- They are not eligible for reappointment.
- A resolution is passed at the AGM to appoint someone else or expressly states that they
should not be reappointed.
- They have submitted a written notice of their unwillingness to be reappointed (Section
159(2)(a-c)).
If no auditor is appointed or deemed reappointed at the AGM, the registrar has the authority to
fill the vacancy (Section 159(3)). Directors can appoint the first auditors anytime before the first
AGM to hold office until that meeting and can also fill a casual vacancy in the office of auditor
(Section 159(6)).
**2.1.1. Qualifications for Appointment as Auditor**
To qualify as an auditor:
- One must hold a practicing certificate issued under Section 21 of the Accountants Act (Section
161(1)).
- An auditor should not be an officer or employee of the company (Section 161(2)(a)(i)).
- An auditor should not be a partner or employed by an officer or employee of the company
(Section 161(2)(a)(ii)).
- An auditor should not be a corporate entity (Section 161(2)(a)(iii)). An auditor disqualified from
being appointed for the company is also disqualified from being appointed for its subsidiary or
holding company.
, The term "officer or servant" does not include the auditor, even though the auditor holds office
(Section 161(2)(b)).
**2.1.2. Duties**
The auditor must report to the members on all accounts presented at the AGM during their
tenure:
- The report should cover matters outlined in the 7th Schedule of the Act (Section 162(1)).
- The auditor must include statements on whether the accounts comply with the Companies Act
and whether the balance sheet and profit and loss account present a true and fair view.
The auditor must investigate and report on whether:
- Proper books of account have been maintained.
- Proper returns have been received from branches not visited by the auditor.
- The accounts align with the books of accounts.
Additionally, the auditor must confirm whether they have obtained all necessary information and
explanations for the audit.
**2.1.3. Rights**
- The right to have their report read at the company (Section 162(2)).
- The right to access the company’s books, accounts, and vouchers at all times.
- The right to request any information and explanation from the company’s officers deemed
necessary for their duties (Section 162(3)).
- The right to receive notice of and attend meetings, reporting on any matters concerning them
as an auditor (Section 162(4)).
- The right to report findings to members, including any failure by directors or employees to
provide necessary information and explanations (Section 162(1) and 7th Schedule).
**2.1.4. Powers**
While the rights might be seen as powers, the Companies Act does not grant the auditor any
legal powers to aid their work. Directors may withhold information, refuse to publish the auditor’s
report, deny access to records, or fail to notify them of meetings without any legal recourse
available to the auditor. The Companies Act does not grant auditors legal powers.
**2.2. Dismissal/Removal**
An auditor can be removed at any time before their term ends, regardless of any agreement
with the company. This removal occurs through an ordinary resolution at a meeting with special
notice (28 clear days). Only members at a properly constituted meeting can remove an auditor.
Auditing Class Notes
Guarantee pass
Correct 100%
**The Auditor and the Kenya Companies Act, 1962, Cap 486**
**2.1. Appointment**
Each company is required to appoint an auditor or auditors at every annual general meeting
(AGM). The appointed auditors hold office from the end of that AGM until the end of the next
one. An auditor who is retiring is automatically considered reappointed without a resolution
unless:
- They are not eligible for reappointment.
- A resolution is passed at the AGM to appoint someone else or expressly states that they
should not be reappointed.
- They have submitted a written notice of their unwillingness to be reappointed (Section
159(2)(a-c)).
If no auditor is appointed or deemed reappointed at the AGM, the registrar has the authority to
fill the vacancy (Section 159(3)). Directors can appoint the first auditors anytime before the first
AGM to hold office until that meeting and can also fill a casual vacancy in the office of auditor
(Section 159(6)).
**2.1.1. Qualifications for Appointment as Auditor**
To qualify as an auditor:
- One must hold a practicing certificate issued under Section 21 of the Accountants Act (Section
161(1)).
- An auditor should not be an officer or employee of the company (Section 161(2)(a)(i)).
- An auditor should not be a partner or employed by an officer or employee of the company
(Section 161(2)(a)(ii)).
- An auditor should not be a corporate entity (Section 161(2)(a)(iii)). An auditor disqualified from
being appointed for the company is also disqualified from being appointed for its subsidiary or
holding company.
, The term "officer or servant" does not include the auditor, even though the auditor holds office
(Section 161(2)(b)).
**2.1.2. Duties**
The auditor must report to the members on all accounts presented at the AGM during their
tenure:
- The report should cover matters outlined in the 7th Schedule of the Act (Section 162(1)).
- The auditor must include statements on whether the accounts comply with the Companies Act
and whether the balance sheet and profit and loss account present a true and fair view.
The auditor must investigate and report on whether:
- Proper books of account have been maintained.
- Proper returns have been received from branches not visited by the auditor.
- The accounts align with the books of accounts.
Additionally, the auditor must confirm whether they have obtained all necessary information and
explanations for the audit.
**2.1.3. Rights**
- The right to have their report read at the company (Section 162(2)).
- The right to access the company’s books, accounts, and vouchers at all times.
- The right to request any information and explanation from the company’s officers deemed
necessary for their duties (Section 162(3)).
- The right to receive notice of and attend meetings, reporting on any matters concerning them
as an auditor (Section 162(4)).
- The right to report findings to members, including any failure by directors or employees to
provide necessary information and explanations (Section 162(1) and 7th Schedule).
**2.1.4. Powers**
While the rights might be seen as powers, the Companies Act does not grant the auditor any
legal powers to aid their work. Directors may withhold information, refuse to publish the auditor’s
report, deny access to records, or fail to notify them of meetings without any legal recourse
available to the auditor. The Companies Act does not grant auditors legal powers.
**2.2. Dismissal/Removal**
An auditor can be removed at any time before their term ends, regardless of any agreement
with the company. This removal occurs through an ordinary resolution at a meeting with special
notice (28 clear days). Only members at a properly constituted meeting can remove an auditor.
