From left: KPMG Chief Executive Officer Josphat Mwaura, Billow Kerrow, and Icpak Chairman Michael Itote during the international public sector accounting standards conference on August 24, 2010. Photo/LIZ MUTHONI
Accountants have rejected some sections of the Companies Bill 2010, saying the clauses reduce the contribution of small firms to the economy.
The Institute of Public Accountants of Kenya (ICPAK) said the drafters of the Bill had simply copied the UK Companies Act of 2006 without refining it to support growth of the country’s small-sized companies.
The accountants were particularly unhappy with a proposal that exempts companies with a turnover of less than Sh30 million from statutory audit.
The Bill also gives directors leeway to decide whether such audits are necessary.
“This blanket exemption of SMEs from statutory audits is not good for the economy and will create a mess in the financial management of these organisations since such audits have traditionally provided an avenue for a risk management mechanism against the excesses by directors,” ICPAK chairman Michael Itote said in a statement.
Under the Bill, firms will only be classified either as small or big.
A small company under the proposed legislation is one which registers a turnover of not more than Sh30 million in one particular year, has a balance sheet of not more than Sh15 million and less than 15 employees.
The accounts intend to lobby MPs to amend the sections at the committee stage.
The Bill also allows a holding company to enjoy benefits accorded to small-sized companies if they have gross aggregate turnover of Sh900 million or a net of Sh750 million, a net aggregate balance sheet size of less than Sh375 million or gross of Sh450 million and less than 15 employees.
“Such provisions will in effect remove all SMEs out of the radar of public audit, resulting in a significant drop in job opportunities for the small and medium practitioners as in most cases their clientele base is strongly founded on SME business,” said the ICPAK statement.
However, the accountants’ association acknowledged that the proposed law will entrench good corporate governance that had in the past lacked in the management of the corporate segment, by making directors more accountable in discharging their obligations.
Among other things, legislation being proposed to replace the country’s 60-year-old Companies Act recognises single member companies and will also formalise electronic shareholder communications – the cheaper mode of engagement that listed companies have largely adopted in the last two years to cut the costs of handling shareholders.
On Wednesday, the Kenya Private Sector Alliance (Kepsa), which has been pushing for the speedy enactment of the Company Bill 2010, appealed to the Parliamentary Committee on Trade, Finance and Planning to correct the flaws already identified by ICPAK to make the Bill useful to the entire corporate sector.
“The ICPAK officials are the technical people who have been advising us on this Bill and many others such as the Partnership Bill, the Limited liability Bill and the Insolvency Bill, meaning their position is the same as Kepsa’s,” the alliance said through its communications office.
The accountants said exempting SMEs from statutory audits would also lock most of the small-sized businesses from credit, since banks traditionally demand audited financial statements before giving loans.
The Kenya Revenue Authority, which also relies on audited financial reports to asses incomes, will also find it difficult to meet its revenue targets, the accountants said.
KRA plans to widen its tax base and increase collection without adjusting current tax rates.
The Company Bill 2010 Bill was approved by Cabinet in November last year and is expected in Parliament in the coming weeks.
