Financial Reporting under the Companies Act, 2015
Introduction
The new Companies Act, 2015 was assented by the President on 11th September 2015 and gazetted on 15th September 2015. The new Act introduced significant changes and replaced the old Companies Act, Cap 486.
Part XXV of the Companies Act, 2015 which relates to company accounting records and financial statements came into effect on 15th June 2016. The new Act introduced less onerous auditing and financial reporting requirements for certain categories of companies. Some sections of this part were further amended through Legal Notice dated 3rd August 2017.
Categories of Companies
Dormant and Trading/Active Companies
The Act defines a dormant company as a company that is dormant during any period in which it has no significant accounting transaction.
A company is exempt from the requirements of the Act relating to the audit of financial statements in respect of a financial year if it has been dormant since its formation or has been dormant since the end of the previous financial year and the conditions in section 714 (2) are satisfied.
The conditions stipulated in Section 714(2) are as follows:
(a) with regard to its individual financial statement for the financial year:
(i) is entitled to prepare financial statements in accordance with the small companies regime; or
(ii) would be so entitled but for having been a public company or a member of an ineligible group; and
(b) is not required to prepare group financial statements for that year.
Companies that are subject to the Small companies regime and Companies’ that are not subject to the small companies’ regime
A Company qualifies to be a small company if two or more of the following requirements are satisfied by the company in its first/preceding and subsequent financial year:-
i) it has a turnover of not more than fifty million shillings (KShs 50 million);
ii) the value of its net assets as shown in its balance sheet as at the end of the year is not more than twenty million shillings (Kshs 20 million); and
iii) it does not have more than fifty (50) employees.
The small companies’ regime does not apply to a company that is, or was at any time within the financial year to which the financial statement relates:
a) a public company; or
b) a member of an ineligible group.
A group is also ineligible if any of its members is;
a) a public company;
b) a body corporate (other than a public company) whose shares are admitted to trading on a securities exchange or other regulated market in Kenya; or
c) a company and its subsidiaries, which carries on co-operative society activities, microfinance activities, trade in insurance market or banking activity.
Disclaimer
The intention of this note is to provide general information relevant to the accounting and financial reporting requirements of the new Companies Act, 2015 (New Companies Act) together with new Companies (General Regulations) Regulations 2015. The document therefore does not give, or purport to give, professional advice and should not be treated as a substitute for the need to seek professional advice as may be appropriate. Even though we have taken reasonable steps to ensure the quality and accuracy of information as contained in this document, accuracy is not guaranteed. We shall therefore not be liable for any damage, loss or liability of any nature incurred directly or indirectly by whomever and resulting from any cause in connection with the information contained herein.
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