CMA gives green light for auditors to nail rogue listed firms management

The Capital Markets Authority (CMA) has authorised auditors to disclose all key matters that affect listed companies in their reporting as it races to save investors from financial machinations by top management.

Previously auditors have only stated whether financial statements of a company fairly present true and fair view of the financial position or not.

“While the “traditional approach” remains valuable, many believe it is no longer enough. Auditors have insights to share, and investors are eager to be informed more on the operations of an entity,” said CMA in a circular sent out to listed companies and intermediaries.

Auditors of listed companies will be required to give detailed reports beginning end of this year. The detailed report will allow auditors to state areas of weaknesses, which they have pointed out to management and whether they have been addressed.

Inaccurate financial statements expose investors to risks that could dent confidence in the stock market. They could also see the companies collapse with public investments.

Such information will allow even flow of information in the market unlike current situation where only those in the know have the chance to dump shares on unsuspecting investors.

There has been increased focus on audit firms internationally following surprise collapse of companies that had been declared financially sound by auditors.

Companies have been asked to talk with the regulator where they feel that such auditors’ disclosures may negatively impact on their business.
The inclusion of more work for auditors is also likely to push the cost of auditing for companies.

READ: ICPAK defends auditors of collapsed banks

Investors in corporate bonds issued by Chase Bank and Imperial have also been left staring at losses following the sudden collapse of the lenders.

The credibility of several Nairobi Securities Exchange (NSE) listed companies has been questioned in recent years following revelations of alleged manipulation of accounts.

CMA last week made public penalties dished out to directors of Uchumi Supermarkets who were accused of giving misleading information to investors during the company rights issue.

In 2012, CMA called on auditors’ lobby ICPAK to investigate Deloitte and Touché on how it handled the financial statements of CMC Motors.

Boardroom wars in the motor vehicle company led to revelations of long­ hidden financial malpractices. Deloitte, however, exonerated itself arguing that the disclosed malpractices could only have been detected by investigations or a whistleblower.

In the same year there were questions on how commercial banks handled fixed-income books, with most of them accused of having manipulated bonds holding to overstate profit.