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ICPAK absolves auditors from blame in ongoing banking crisis

BUSINESS
By Dominic Omondi | April 13th 2016

An accountancy body has defended its members amid the current banking crisis, claiming that company directors are largely to blame for lapse in corporate governance.

As debate on financial malpractices including those of banks falsifying their financial books rages on, the role of external auditors has come under spotlight.

Audit firm, Deloitte, which is the external auditor of the two troubled banks —National Bank of Kenya (NBK) and Chase Bank — has since been roped into the list of those under investigations.

The criminal investigations department earlier summoned six NBK and two Chase Bank officials following reports of financial misdeeds, which saw NBK financial status queried and Chase Bank placed under receivership.

Responsibilities

However, the Certified Public Accountants of Kenya (ICPAK) has absolved external auditors from blame.

“While it is very common to put the spotlight on the role of various regulators and the external auditors, the primary responsibility for fair presentation of the financial results is that of the Board of Directors,” said ICPAK in a statement.

The regulator said contrary to common belief, financial statements of an institution are “not prepared by and owned by auditors”.

“Auditors simply audit the financial statements as prepared by the Board of Directors in accordance with the International Standards on Auditing,” explained ICPAK.

To back up its claims, the accountancy body cited decrees by the International Standards on Auditing which it said, made it clear that it was not the role of external auditors to prevent or detect fraud. However, it acknowledged that they may come across the vice in the course of their duty.

However, ICPAK promised to sanction errant members if and when they commit an offence. “We will continue to take action against members of the Institute who are involved in perpetrating fraudulent practices,” said the accountancy body in a statement signed by its national chairman Fernandes Barasa.

They also recommended that employers engage regulated professional accountants who are members of the Institute. ICPAK is revising its laws to expand the repercussions of its members purported to be involved in professional misconduct.

The roles and duties of board of directors which are embedded in the new Companies Act, 2015 highlight some of the duties of the director.

For example, directors are supposed to act within their powers - to abide by the terms of the company’s memorandum and articles of association and decisions made by the shareholders.

Unfortunately, regulations which highlight the roles of directors and penalties have not been gazetted to become operational.

“We appeal to the office of the Attorney General to move with speed and gazette phase II regulations which provides significant reforms on financial reporting and increases the penalties for non-compliance so as to punish such directors and officers who promote accounting fraud,” it said.

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