RIGHTS OF AUDITORS 1. Rights of access at all time to accounting records of the company. This includes; a.

Rights of access to statutory books of accounts e.g. shareholders register, memorandum of association and minutes of important meetings. b. Access to returns from branches and vouchers of the company. 2. To require from officers and employees of the company any information and explanations deemed necessary for the purposes of the audit. This includes all information from clients books and vouchers, management representations e.t.c. 3. Rights in relation to general meetings. a. b. c. d. To receive notice To attend To speak To receive notice - 21 days notice before an ordinary AGM. - 7-14 days notice before an extraordinary general meeting. - 28 days for a resolution intended at removing him from office. e. Rights to clarify or add to his report any material information which came to his knowledge after the report had been dispatched to shareholders but which is in the interest of shareholders. f. Right to make a statement at the AGM clarifying accounts e.g. to correct statements whose impression was given by the board to the shareholders wrongly. 4. Rights associated with attempts to remove him from office or not to re-appoint him. a. Rights to send representations to shareholders. b. Rights to read representations at the AGM if they are not sent in good time because of the default of the directors. c. Receive 28 days notice of the meeting. d. To speak at the AGM 5. Rights to require that subsidiaries and their auditors provide such information and explanations as are deemed necessary for the purposes of the audit of the holding company. 6. Right to remuneration. Right to be paid audit fees when due, re-imbursed audit expenses incurred in connection with the audit assignment. 7. Rights to legal and technical advice. An auditor may use the work of an expert to get technical knowledge of what may have taken place in the organization.

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DUTIES OF THE AUDITOR a) To report to the members on each set of accounts laid before the company in the general meeting, whether in his opinion. a. The balance sheet gives a true and fair view of the state affairs of the company as at the balance sheet date. b. The profit and loss gives a true and fair of the profit (or loss) for the period ended on that date. c. The accounts comply with the requirements of the companys Act. b) Duty to state the following in his report. i. Whether the auditor has received all the information and explanations which in his opinion was necessary for his audit. ii. Whether he received adequate returns from branches not visited. iii. Whether in his opinion proper accounting records have been maintained. iv. Whether the accounts are in agreement with the underlying records. c) Duty to provide working papers. An auditor has a duty to assist investigators in to the companys affairs by providing his working papers, which are summaries of significant matters identified by the auditor during the course of the audit. d) Duty to certify a statutory report regarding. a) Number of shares sold by the company. b) Cash received in respect of allotment. c) Duty to certify the P&L and Balance Sheet in a prospectus. e) To include in his report any required information about the directors remuneration which has been omitted from the accounts. f) To consider if any information in the directors report is inconsistent with the accounts and to report the facts if there are any such instances. Procedures that a proposed auditor must undertake before accepting nomination Upon receipt of a request to accept appointment as auditor of an organisation the auditor should carry out the following procedures before accepting nomination. Before 1. Ensure he is professionally, legally and ethically qualified to act as an auditor. The auditor must ensure that he has not contravened any provisions of the companies Act in regard to independence. He must ensure that he is not a servant or in partnership with a servant of the company. He must also ensure that he has fulfilled all the professional ethical requirements in regard to

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independence. I.e. he must not have any personal, family or business relationships with the prospective client among other provisions. 2. Establish whether the firms resources are adequate to service the needs of the new client i.e. staff time with the necessary technical competence. 3. Seek references about the status of the company and its management. Such references will assist the auditor in assessing the potential risk in associating with this new client. Information sought would include the reputation of the company and its directors. 4. Communicate to present auditor. a. Communication is important; b. To get necessary information that could guide him on whether to accept or reject nomination. c. To enquire reasons for the change in auditors d. It is a detail of professional courtesy Request permission before hand to communicate with the outgoing auditor, if not granted decline the nomination. After accepting nomination i. Ensure that the removal or resignation of existing auditor is properly carried out in accordance with Cap 486. ii. That the (his) appointment is valid obtain copy of new resolution passed in AGM to appoint him. iii. Set up a letter of engagement to the directors of company. AUDIT ENGAGEMENT LETTER-ISA 210 The auditor and the client should agree on the terms of the engagement. The agreed terms should be recorded in an audit engagement letter or other suitable form of contract. It is in the interest of both the client and auditor that the auditor sends an engagement letter, preferably before the commencement of the engagement. The purpose of an engagement letter The letter defines the scope of work to be carried out and the respective responsibilities of the auditor and the client under the engagement. This helps in avoiding misunderstandings between the client and the auditor as regards to the scope of the work to be carried out and the respective responsibilities of both parties. The letter documents and confirms the auditors acceptance of the appointment It explains the forms of any reports to be issued under the engagement To educate the client on:1. His duty to maintain proper books of accounts and to prepare financial statements that show a true and fair view. 2. His duty to prevent errors and frauds. 3. His duty to provide all the necessary information Page 3 of 5

4. That the audit should not be relied upon to detect errors and frauds. 5. To explain the that the audit will be carried out on a test basis. 6. Basis of charging his fees. Minimise auditors liability to third parties. Commit client to his obligations in an audit.

Main contents of an engagement letter Refer to ISA 210 Paragraphs 6-8 The form and contents of an engagement letter may vary from client to client but would generally include; 1. Responsibilities and scope of the audit. Responsibilities of client to give/maintain proper record of account and prepare financial statements showing true and fair view. A description of the work to be carried out

1. The form of any reports or other communication of the results of the engagement. 2. The fact that because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is unavoidable risk that some material misstatements may remain undiscovered. 3. That the auditor will have unrestricted access to whatever records, documentation and other information requested in connection with the audit. 4. Details of other services to be provided such as taxation and management consultancy work 5. Fee: Basis on which it is computed, rendered and paid. 6. Expectation of receiving from management written confirmation concerning representations made in connection with the audit. 7. Request for the client to confirm the terms of the engagement by acknowledging receipt of the engagement letter. Recurring audits Refer to ISA 210 Paragraphs 10-11 Where the auditor is carrying out an audit for more than one financial period, he should consider whether circumstances require the terms of engagement to be revised and whether there is need to remind the client of the existing terms of the engagement. The auditor may decide not to send a new engagement letter each period. However, the following factors may make it appropriate to send a new letter; 1. 2. 3. 4. 5. Any indication that the client misunderstands the objective and scope of the audit. Where there are changes to the initial terms of engagement. Where there is a change in senior management or ownership. Where there is a significant change in the nature or size of the clients business. Changes in legal requirements e.g. if new legal provisions call for a change in the scope of the work. Page 4 of 5

PROFESSIONAL ETHICS These are the rules of conduct that govern the behaviour of an accountant. These are issued by ICPAK. The auditor gives credibility to financial statements and to do this he must be credible himself. To be credible, the auditor must possess and be seen to possess certain qualities: 1. Integrity: Straightforward honest and sincere in his approach to his professional work. A member must be aware of his role in the society and maintain high standards of conduct and should not certify what he knows is untrue as true and should take caution not to mislead intentionally or unintentionally. 2. Competence: He should carry out his work with due care and skill in conformity with professional and ethical standard issued by ICPAK or the laws of Kenya. A member should not undertake or continue professional work, which he himself is not competent to perform unless he obtains such advice and assistance as will enable him to perform such work. To be competent a member should be fully conversant with accounting bookkeeping, auditing, financial management, information technology, receivership, liquidation and bankruptcy law, contract law, taxation both personal and corporate and must be aware of the economic environment within which his clients operate. To be competent, he must also possess sound judgement. This is in professional as well as economic issues. He should be a good communicator. 3. Confidentiality: The guide to professional ethics states that information acquired in the course of professional work should not be disclosed except consent has been acquired from clients employer or other proper source or where there is public duty to disclose or where there is a legal or professional duty or right to disclose. A member acquiring information in the course of professional work should neither use nor appear to use that information for his personal advantage orfor the advantage of a third party. 4. Independence: The guide states that this is a fundamental concept to the accounting profession. It is essentially an attitude of mind characterised by objectivity and integrity. A member in public practice should be and should appear to be free in every professional assignment he undertakes of any interest which might distract him from being objective. He must be impartial and must not allow prejudice or bias to affect his judgement. A member not in practice may be unable to be or seen to be free of any interest which might conflict with the proper approach to his professional work. However this does not diminish his duty of objectivity in relation to that work.

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