NSE-listed firms face more stringent auditing standards

Listed companies and intermediaries of the Nairobi Securities Exchange (NSE) will be subjected to more stringent auditing standards from January 2017.

The auditors will be required to disclose all key matters that affect a particular business or operation in the course of the year for the purpose of providing full information for shareholders and other stakeholders.

According to the Institute of Certified Public Accountants of Kenya (ICPAK), the revelation of the key audit matters (KAM) will be introduced locally in a bid to make information in company books more accessible to the non-technical people.

“Highlighting of key audit matters is supposed to be implemented from January next year and people are keen to see the first reports from the auditors of listed companies,” said Michael Mugasa, a member of ICPAK committee on professional standards and a partner at audit-cum-advisory firm PricewaterhouseCoopers.

Mr Mugasa spoke at the InterContinental Hotel in Nairobi during a workshop called by ICPAK and the Capital Markets Authority (CMA) on the new KAM requirements for auditors under international financial reporting standards.

Mr Mugasa said the focus on KAM was a result of the concerns following the 2008 global financial crisis that saw auditors come increasingly under scrutiny for failure to forewarn stakeholders about key corporate and economic developments affecting the financial position and going concern-basis of the firms they audited.

Auditors were accused of not drawing attention to the factors that could affect the viability of the companies before they collapsed in the aftermath of the financial crisis.

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In many cases, auditors merely re-stated what the directors of the companies said about the good state of affairs of the firms, only for them to close down or to be discovered to have hidden serious matters from their stakeholders.

Shareholders lost value while taxpayers were in some cases forced to come to the aid of the firms considered “too big to fail”.

“From now on, an audit report will start with giving you the audit opinion and then proceed to elaborate on key audit matters for the year. This will not necessarily be negative information, but merely to say what major factors were at play for the company during the year,” said Mr Mugasa.

The inclusion of more work for auditors is also likely to push the cost of auditing for companies, Mr Mugasa said.

Other contributors during the workshop felt that there was a danger of the KAM being misinterpreted by stakeholders unless they were unambiguous, written in simple language and highlight both key positive and negative issues that affect a company’s operations.

CMA chief executive Paul Muthaura said he was collaborating with the Central Bank of Kenya to come up with guidelines for KAM for both listed companies and commercial banks.

Mr Muthaura said auditors would be expected to work meticulously and not yield to pressure to refrain from highlighting KAM management and director would rather keep away from the public view.