2.2 Legal framework

In Kenya, the legal framework for auditing is established by various laws, regulations, and regulatory bodies. The key components of the legal framework for auditing in Kenya include:

1. Companies Act, Cap 486: The Companies Act provides the legal framework for companies in Kenya. It sets out the requirements for financial reporting, including the preparation and audit of financial statements. It specifies the appointment, removal, and responsibilities of auditors for companies in Kenya.
2. Accountants Act, Cap 531: The Accountants Act governs the accounting and auditing profession in Kenya. It establishes the Institute of Certified Public Accountants of Kenya (ICPAK) as the professional regulatory body responsible for licensing and regulating auditors. The Act outlines the qualifications, registration, and code of conduct for auditors in Kenya.
3. International Standards on Auditing (ISAs): Auditors in Kenya are required to follow the International Standards on Auditing issued by the International Auditing and Assurance Standards Board (IAASB). These standards provide guidance on the auditor’s responsibilities, audit planning, risk assessment, evidence gathering, and reporting.
4. Capital Markets Authority (CMA) Act: The CMA Act regulates and supervises capital markets in Kenya. It establishes the Capital Markets Authority as the regulatory body overseeing listed companies and securities. The CMA issues regulations and guidelines that prescribe the requirements for audits of listed companies, including the appointment and duties of auditors.
5. Public Audit Act: The Public Audit Act governs the audit of public entities in Kenya. It establishes the Office of the Auditor General as the supreme audit institution responsible for auditing the accounts and financial statements of public entities. The Act outlines the scope, powers, and reporting requirements for the Office of the Auditor General.
6. Tax Laws and Regulations: Kenya Revenue Authority (KRA) is responsible for administering tax laws and regulations in Kenya. Tax audits are conducted to ensure compliance with tax obligations. Auditors may be involved in tax audits, which require adherence to specific tax laws, regulations, and reporting requirements.
7. Professional Bodies: The Institute of Certified Public Accountants of Kenya (ICPAK) and other professional bodies play a significant role in the legal framework for auditing. These bodies issue auditing guidelines, pronouncements, and practice notes that provide additional guidance and interpretation of auditing standards in the Kenyan context.