Restmount Kenya Ltd. was formed on 1 October 2006 in order to export tea and coffee to European markets. The Directors are unsure as to their...

Restmount Kenya Ltd. was formed on 1 October 2006 in order to export tea and coffee to
European markets. The Directors are unsure as to their responsibilities and the nature of their
relationship with the external auditors. The audit partner has asked you to visit the client and
explain to the directors, the fundamental aspects of the accountability of the directors and their
relationship with the auditor.

Required:
Explain to the directors of Restmount Kenya Ltd.
a. The need for an audit
b. Procedures for the appointment of an auditor of a public company under the Companies Act.
c. Directors responsibilities in relation to the accounting function of the Company.
d. Auditors’ statutory responsibilities in relation to the audit of the company’s financial statements.

Answers

a) The need for an audit. These are the requirements of the Companies Act Cap 486.
•• To prove the true and fair view of the companies state of affairs as at a given date.
•• To find out whether the company has kept proper books of account.
•• To write a report to be used by stakeholders.
•• To provide advice to management on areas of internal weaknesses.
•• Detection of errors and frauds.

b) Procedures for the appointment of an auditor
•• Upon registration of a company (30 days after) the Board of Directors or the Registrar of Companies appoints an auditor.
•• He can also be appointed at the AGM. If this approach is used the outgoing auditor must be given a 28 days notice.
•• Automatic reappointment. This occurs if there is no resolution to remove the existing
auditor, if the existing auditor has not given in writing a notice to resign and if he has not
committed an act to disqualify automatic re-appointment.
•• Casual vacancies may arise and should be filled by the directors of the company except if he resigned in which case it is filled by shareholders Casual vacancies arise if the auditor dies becomes incapacitated or he resigns.

c) Director’s duties with regard to accounting function:
•• Safeguarding the company assets an preventing fraud and error
•• Selecting suitable accounting policies and applying them consistently
•• Ensuring that the company keeps proper accounting records as per the Companies Act.
•• Delivering to the government agency, court or stock exchange a copy of the company’s
auditor financial statements within the specified period after year-end.
•• Stating whether applicable accounting standards have been followed subject to any
material departure disclosed and explained in the financial statements.
•• Prepare the financial statements on a going concern basis unless it is appropriate to
presume that the company will continue operations.
•• Setting up an internal control system to enable all the above responsibilities to be
carried out as required.

d) The auditor should make a report to members on accounts examined by them and laid
before company in AGM. It must contain statements as to matters mentioned in the 7th
schedule. They include:
•• Whether or not they have obtained all information and explanations which to the best of
their knowledge and belief were necessary for the audit.
•• Whether in their opinion proper books of account have been kept and proper returns
adequate for the purpose of the audit have been received from branches not visited.
•• Whether the profit and loss account and balance sheet are in agreement with the books
of account and returns.
•• Whether in their opinion and to the best of their knowledge and according to explanations
given to them financial statements give information required by companies act in the
manner so required and give the true and fair view.
•• In the balance sheet, the stare of affairs at the end of its financial year. In the profit and
loss account, the profit or loss for the year.

Wilfykil answered the question on April 12, 2019 at 07:54

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Restmount Kenya Ltd. was formed on 1 October 2006 in order to export tea and coffee to European markets. The Directors are unsure as to their...

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