Under Section 148 of the Act, directors must lay before the company once a year, Profit and Loss Account and Balance Sheet.  Incase of non-profit making organization, an Income and Expenditure Statement.

The law insists that the accounts must cover the period, incase of first accounts, the period starting from the incorporation, and subsequent/preceding accounts made up to a date not earlier than nine moths before the date of the meeting (for company having interest abroad, twelve months).

Failure by a director to comply with Section 148 may attract the following penalties:-
(i)                 Imprisonment for a term not exceeding 12 months.
(ii)               A fine not exceeding Sh. 10,000, or both.

Provided that:-
(i)                 The proceeding against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company.
(ii)               The offence was committed willfully.

Appointment of Auditors

To safeguard the interests of shareholders, the Companies Act provides for the appointment of auditors.  Auditors are servants of shareholders and their duty is to examine the affairs of the company on their behalf at the end of the year and report to them what they have found out.

Under Section 159, every company is required to appoint an auditor at each Annual General Meeting, failure to appoint at this meeting will cause members to make an application to the registrar to appoint the auditor.

The rule of thumb is that a retiring auditor is to be reappointed without any resolution being passed at the meeting unless:-
(i)                 He is not qualified for re-appointment.
(ii)               A resolution has been passed appointing someone else instead of him.
(iii)             A resolution has been passed that he shall not be re-appointed.
(iv)             He has expressed in writing his unwillingness to be re-appointed.

Under Section 159(6), a casual vacancy of auditors can be filled by directors.
No person other than a retiring auditor may be appointed at an Annual General Meeting unless a special resolution has been given and a copy of it has been sent to the retiring auditor forthwith.

The retiring auditor is usually entitled to be heard or to make representations in writing and circulated among the members.  The company must state in the notice that the representation has been made and sent a copy of the representation to each member.

If a copy of representation is not sent, the retiring auditor may request that they may be read at the meeting.

Disqualification for appointment as an Auditor

A person is not qualified to be an auditor unless:-
(i)                 He is a member of one or more professional bodies specified in first column of the schedule to the Accountants Act or
(ii)               He is authorized by the registrar to be appointed as having similar qualifications obtained outside, that is, U.K., South Africa or India.
(iii)             He has practiced in Kenya as an accountant before 26th May 1959.
(iv)             He has been appointed and practiced before 26th May 1959 as an auditor of an existing company.

The following persons are not qualified for appointment:-
(i)         An officer/servant of the company.
(ii)        A person who is a partner or in the employment of an officer or servant of the company.
(iii)       A body corporate.
(iv)       A person disqualified for appointment as auditor of subsidiary or holding company.

Remuneration of Auditors

It may be fixed by the company in an Annual General Meeting.
Incase of auditor appointed by directors to fill on casual vacancy or registrar in the event of a company failing to appoint one, his remuneration is governed by provisions of Section 159(7), which empowers directors and registrars to fix such remuneration.


(i)         Auditors as gents of Members

Auditors are agents of shareholders even where they are not appointed by them and their duties are to examine the affairs of the company on their behalf and report to them what they have found out.
Apart from any social contract, an auditor is not an agent of the company.
His certificate on the Balance Sheet is not an acknowledgment of the company’s indebtedness. But if he is negligent in the performance of his duties and this result in loss to the shareholders, he is liable to the shareholders; but this liability would not extend to third parties with whom no contractual relationship exists.

(ii)        Auditors as officers of the Company

Since they are normally liable for default in the performance of their duties, they are regarded as officers.

(iii)       Auditor as Employee of the Company

The nature of the relationship between an auditor of the company is that of a professional man and a client, rather than that of an employer-employee, but for certain reasons, he is a company officer.


(i)       Right to access of books, accounts and vouchers:-
The phrase book does not limit the scope, rather includes all books whether         statutory, statistical or memorandum.

(ii)        Right to attend Annual General Meetings of the company.

(iii)             Right to be heard, particularly on any part of the business which concerns him as an auditor.


(i)     They must acquaint themselves with their duties as laid down by the Act and Articles.
(ii)  They must report to the members on the accounts laid down before the    company in the general meeting.
The auditor is to give information in direct and express terms. Auditors occupy a fiduciary position in relation to the shareholders and in auditing the accounts maintained by the directors; and they must act in the best interest of the shareholders.
(iii) Duty of care: - Auditors must be honest and must exercise reasonable         skill and care; otherwise they may be sued for damages. An auditor was described as a “watchdog but not a blood hound”.  Thus, the auditors must be alert and careful and ascertain the company’s true position.
(iv)The auditor has a duty to advice either directors or shareholders as to what they ought to do.  He is not concerned with the policy of the company, whether the company is ill-managed or well managed.

London and General Bank
The greater part of the company’s capital was advanced as loans upon securities which were insufficient and difficult to realize.  For several years, the auditors pointed out to the directors the unsatisfactory nature of these securities and the auditors report to the members on the Balance Sheet date only stated, “The value of the asset as shown in the Balance Sheet is dependent on realization”.  On the faith of this Balance Sheet, dividends were declared, which were really out of capital.  It was held that it was the duty of the auditors to ascertain the true position of the company and to report to the shareholders. The auditors had failed in this duty and were liable. 

Liability of Auditors

They are liable for negligence, particularly in complying with the provision of the Act.


Like Us on Facebook

Contact Form


Email *

Message *