When shareholders can insist on an audit
How members of an audit-exempt Kenyan company can require an audit under section 710, the deadline for their notice, and what the firm should do.
By Achekam · · 5 min read · For Accountants & audit firms in Kenya
A family company has been preparing unaudited accounts for years. It is small, its turnover is modest, and the directors are happy with the arrangement. Then one of the shareholders, a sibling who is not on the board, falls out with the others and wants an independent look at the books. Can they force an audit?
Under Kenya's Companies Act, 2015, they can, provided they hold enough of the company and act in time. For the firm that prepares the company's accounts, the request changes the engagement: a set of exempt financial statements becomes an audit, with all the planning, independence and timing questions that brings.
This article explains the members' right, the exemption it overrides, the deadline that governs it, and how a firm should respond. The references are to the Act as consolidated on Kenya Law in the version dated 27 December 2024.
The exemption the members are overriding
Section 711 of the Companies Act exempts a company from audit for a financial year if three conditions are all met: it qualifies as a small company, its turnover is not more than fifty million shillings, and its net assets at the year-end are not more than twenty million shillings.
Two further points come with it. The balance sheet of a company claiming the exemption must carry the directors' statements required by section 709. And under section 712, some companies can never use it: public companies and companies carrying on banking or insurance business are excluded, whatever their size.
For a quick sense of where a client stands, the question is not "is the company small?" but "does it pass every test in section 711 and avoid every exclusion in section 712?" A company that passes on turnover but fails on net assets needs an audit regardless of anything its members do. The wider check is covered in checking audit exemption in Nigeria and Kenya.
The members' notice under section 710
Section 710 gives members a way to switch the exemption off. Members holding at least ten per cent of the nominal value of the company's issued share capital can require the company to be audited. If the company has no share capital, the threshold is ten per cent of the members.
Several smaller shareholders may act together to reach the threshold. What they cannot do is act late.
The timing rule: one month before the year-end
The notice must be given no later than one month before the end of the financial year to which it relates. A notice that arrives after that point does not, under section 710, oblige the company to have that year audited.
This is the detail clients most often miss. A shareholder who becomes uneasy after the year-end, when the draft accounts land, has missed the window for that year. The notice can still be given for the following year, provided it arrives in time.
| Situation | Effect for the year in question |
|---|---|
| Company passes every section 711 test, no notice | Exemption available, with the directors' statements on the balance sheet |
| Members with at least ten per cent give notice a month or more before year-end | The company must be audited for that year |
| Notice arrives later than one month before year-end | Section 710 does not oblige an audit for that year |
| Company is public, a bank or an insurer | Never exempt; audit required regardless |
The full text of sections 709 to 712, alongside the rest of the Act's provisions on accounts and audit, is on Kenya Law's consolidated Companies Act.
The lodging deadline does not move
A members' notice changes the work but not the filing date. Section 684 requires a private company to lodge its financial statements with the Registrar within nine months after the end of its accounting reference period, and a public company within six months, with special rules for a first period longer than twelve months.
An audit takes longer than a set of exempt accounts, and it may start late if the notice came close to the year-end cut-off. The firm should plan the audit against the nine-month date from the day the notice is accepted. More on the lodging side is in lodging financial statements with the Registrar.
How Achekam helps with the decision, and where it stops
For Kenyan engagements, the engagement page shows an Audit Control Tower. It covers entity classification, whether company law requires an audit, ISA for LCE, an acceptance checklist, regulatory confirmations and sector checklists. The acceptance checklist must be approved by a partner other than its preparer before the audit report can be approved. The tower is explained in more depth in the audit control tower for Nigeria and Kenya.
The audit-requirement check has a limit firms should know about. Achekam's Kenyan check uses the Companies Act small-company and exemption thresholds only after a platform administrator approves them, and it never decides an exemption on employee numbers alone. At the time of writing, Achekam cannot yet tell a firm whether a Kenyan company is exempt from audit, because those thresholds ship awaiting that approval.
So the exemption decision, and whether a members' notice has removed it, is the partner's to make and document. Record the turnover and net asset figures, the section 712 position and any notice received, with its date, on the engagement file.
When the members insist: steps for the firm
- Check the notice. Confirm who signed it, what share of the nominal value of the issued share capital they hold together, and the date it reached the company.
- Compare the date with the year-end. If it arrived no later than one month before the year-end, the audit is required for that year.
- Revisit acceptance. A firm that has been preparing the accounts must consider whether it can now audit them independently. If not, the company needs another auditor.
- Issue a new engagement letter. Replace the compilation or preparation terms with audit terms, setting out responsibilities and the timetable to the lodging date.
- Brief the directors. Explain that the year will now be audited, so the balance sheet no longer relies on the section 709 exemption statements.
- Plan against section 684. Work back from the nine-month deadline and agree dates for records, fieldwork and sign-off.
Before the next year-end
If a client has shareholders outside the board, mention section 710 at the planning meeting well before the year-end. A known possibility is easier to plan for than a notice that arrives in the last week before the cut-off.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
