Audit exemption for a small Kenyan non-profit company
Which tests a Kenyan non-profit registered as a company must pass to skip the statutory audit, who never qualifies, and the duties that remain.
By Achekam · · 5 min read · For Non-profit businesses in Kenya
A small community organisation in Kisumu runs a youth sports programme through a company it registered years ago. Its income is modest, it has a handful of staff, and each year it pays an audit fee that feels out of proportion to its size. The treasurer asks the obvious question: does a company this small really need an audit?
Under Kenya's Companies Act 2015, some small companies are exempt from audit. But the exemption has its own tests, stricter than the general definition of a small company, and some companies never qualify whatever their size. On top of the law, many non-profits answer to funders who ask for audited accounts regardless.
This article sets out the tests as they stand at the time of writing, and the questions to take to your accountant. It applies to non-profits registered as companies; organisations registered in another form follow the rules for that form.
Step one: is the company small?
A Kenyan company is small if it meets two of three tests, in the current year and in the previous year:
- turnover of not more than KES 50 million;
- net assets of not more than KES 20 million;
- not more than 25 employees.
The definition comes from section 624(3) of the Companies Act 2015, as amended in 2019. Two points catch organisations out. First, the tests must be met in both years, so a single quiet year after a busy one is not enough. Second, some companies are excluded from being small at all: under section 626, public companies and members of listed, banking, insurance and similar groups.
For a non-profit, "turnover" raises its own question: whether grants and donations count, and how. Ask your accountant how your income is measured for this test before relying on any figure.
Step two: the stricter test for the exemption
Being small is necessary but not sufficient. A Kenyan company is exempt from audit only if it is small and, in addition, its turnover is at most KES 50 million and its net assets at most KES 20 million. Public companies, banks and insurers never qualify. The rules are in sections 711(2) and 712, and dormant companies have a separate exemption under section 714.
The difference matters. A company can be small by meeting the turnover and employee tests while its net assets are above the limit, for instance because it owns a building bought with a capital grant. It is small, but it is not exempt, because the exemption needs both the turnover and the net assets limits met.
A worked example in words: a community health company has turnover within the limit in both years and fewer than 25 staff, so it is small. But last year a donor funded a clinic building, and its net assets are now above KES 20 million. It meets the definition of a small company and still needs an audit.
Companies that never qualify
Before working through the figures, check the company's type. Your certificate of incorporation and the Business Registration Service record show whether it is a private or a public company. A public company never qualifies for the exemption, however small it is, and neither does a bank or an insurer. If your non-profit is registered as a public company, the size tests do not help, and the audit stays.
Why a funder may still want an audit
The Companies Act exemption removes the legal requirement. It does not change your agreements.
Many grant agreements require audited financial statements, sometimes a project-specific audit as well. Your constitution or articles may require an audit regardless of the law. A bank lending to you may ask for one. And some donors simply trust audited accounts more.
Before dropping the audit, list every document that might require one: the articles, each current grant agreement, any loan agreement, and any registration or regulatory condition that applies to your organisation's form. If any of them requires an audit, the exemption changes nothing in practice. Some organisations in that position move to an agreed-upon procedures engagement for a particular funder, but that is a conversation to have with the funder and your accountant, not a substitute to assume.
The duties that remain
An exempt company still prepares annual financial statements. Kenya adopted IFRS for periods beginning on 1 January 1999, and an entity that is not publicly accountable may use IFRS for SMEs; your accountant will confirm which framework applies.
It also still lodges its annual return with the Business Registration Service through eCitizen, within 28 days of its return date, and must report changes in beneficial owners holding 10% or more within 14 days. The consolidated Companies Act on Kenya Law covers accounts and audit, including the small-company audit exemption, as well as annual returns and the register of beneficial owners.
Where Achekam fits
If you keep your books in Achekam, you can appoint your accounting firm through the firm's Achekam address or firm code, as accountant, auditor or adviser with an access level, and the firm accepts or declines. Your accountant can then work from your actual figures.
Be aware of one limit at the time of writing. When a firm uses Achekam's Kenyan audit-requirement check, it applies the Companies Act small-company and exemption thresholds only after an Achekam platform administrator has approved them, and it never decides an exemption on employee numbers alone. Until those thresholds are approved, Achekam cannot tell a firm whether a Kenyan company is exempt. The decision rests with your accountant's own assessment of the tests above.
If your auditor or accountant is not on Achekam, when your auditor is not on Achekam explains how to work with them. And if your accountant keeps your books for you, see when your accountant sets up and pays for your books.
Questions to take to your accountant
- Is the company private or public?
- How is our turnover measured for these tests, given grants and donations?
- Did we meet two of the three small-company tests this year and last year?
- Are both our turnover and our net assets within the exemption limits?
- Does any grant agreement, our articles or a lender still require an audit?
Ask these questions well before your year end, so that if the audit stays, it is planned rather than rushed.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
