Under the provisions of the companies Act, companies are obliged to keep certain books of accounts in the English language. Under Section 147(1) every company shall cause to be kept proper books of accounts with respect to:
1. All sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place.
2. All sales and purchases of goods by the company.
3. The assets and liabilities of the company.
These books must give a true and fair view of the state of the company‟s affairs and explain its transactions.
Under Sec 147(3) these books of accounts must be kept at the registered office of the company or at such other place as the directors may determine but must at all times be accessible to directors for inspection. However, with the registrars consent, the books may be kept at a place outside Kenya but at intervals not exceeding 6 months they must be brought at some place in Kenya where they are open for inspection by directors.
Failure to keep books of accounts renders every director in default liable to a fine not exceeding Sh.10,000 or imprisonment for a term not exceeding 12 months or both.
However, the director may escape liability by establishing he had reasonable ground to believe and did believe that a competent and reliable person was charged with the responsibility and was in a position to discharge the same.
Under Section 148(1) of the Act, directors of every company must lay before it in general meeting a balance sheet and a profit and loss account or an income and expenditure account within 18 months of incorporation and at least once every calender year subsequently.
However, the registrar may for any special reason permit a company to lay the accounts before a general meeting held after 18 months or after the end of a calendar year.
It is the duty of directors to ensure that the necessary accounts are prepared and laid before the general meeting failing which they are liable to a fine not exceeding Sh.10,000 or imprisonment for a term not exceeding 12 months or both.
Format of the Accounts:
Under Section 149(2) of the Act, a company‟s balance sheet and profit and loss account must comply with the requirements of the 6th Schedule so far as applicable. Under Section 155(1), every balance sheet of a company must be signed by 2 directors on behalf of the board or by the only director of the company.
In the case of a bank, it must additionally be signed by the secretary and manager if any: if the bank has 3 directors, all must sign. If more than 3, at least 3 must sign.
However, if the number of directors of a company present in Kenya is less than that required to sign the balance sheet, the only director present must sign but attaché a statement explaining the reason for the non-compliance in the provisions of the Act. It is a criminal offence to issue, circulate or publish unsigned copies of a balance sheet. The company and every officer in default are liable to a fine not exceeding Sh.1,000.
Under Section 153(1), unless there are good reasons against it, directors of the holding company must ensure that its financial year, and those of its subsidiaries coincide. Under Section 150(1), if at the end of the financial year, a company has subsidiaries, directors must lay group accounts of the company and its subsidiaries before the general meeting of the holding company.
Under Section 150(1), the group accounts laid before the holding company must be consolidated accounts comprising:
1. A consolidated balance sheet dealing with the company and the subsidiaries.
2. A consolidated profit and loss account dealing with the profit or loss of the company and its subsidiaries.
Under Section 152(1) of the Act, the group accounts laid before the company must give a true and fair view of the state of affairs and profit or loss of the company and the subsidiaries dealt with as a whole. However, under Section 150(2). The group accounts laid before the general meeting need not deal with a subsidiary if directors are of the opinion:
1. That its impracticable.
2. That it will be of no real value to members of the company in view of the insignificant amounts involved.
3. That it would involve expense or delay out of proportion to the value to the members of the company.
4. That the result would be misleading
5. That it would be harmful to the business of the company or any of the subsidiaries.
6. That the business of the company and that of the subsidiary are so different that they cannot reasonably be treated as a single undertaking.
If directors form such an opinion in respect of each of the subsidiaries; no group accounts are required. However, the registrar‟s approval is necessary if the boards opinion is based on the group that the result would be harmful or that the business of the company and the subsidiary are different.
Annextures to the Balance Sheet:
Under the provisions to the Companies Act, certain documents must be attached to the balance sheet:
1. The profit and loss account and any group account to be laid before the company in general meeting.
2. The auditors report.
3. The directors report stating the boards opinion on the affairs of the company and the amount, if any, recommended as dividend and proposed as reserves.
It is a criminal offence to issue, circulate or publish a balance sheet unaccompanied by the profit and loss account or the auditors report.
The company and every officer in default are liable to a fine not exceeding Sh.10,000 or imprisonment for a term not exceeding 12 months. However, the accused may escape liability by proving that he had reasonable ground to believe and did believe that a competent and reliable person was responsible and was in a position to discharge the duty.
Under Section 158(1) of the Act, a copy of the balance sheet and its annextures to be laid before a company in general meeting must be sent to every member of the company, every debenture holder and every other person so entitled at least 21 days before the date of the meeting.