External Audit in Kenya – Step-by-Step Guide for 2025

Q: Who is legally required to undergo an external audit?

Limited liability companies, NGOs, SACCOs, donor-funded projects, and any entity whose regulator or funder requires one.

Q: What’s the difference between internal and external auditors in Kenya?

Internal auditors are part of the company or contracted long-term to review internal processes. External auditors are third-party, independent reviewers of financial statements.

Q: What are the qualifications of an external auditor in Kenya?

They must be a practicing member of ICPAK and affiliated with a registered audit firm.

August 3, 2025

Table of Contents

1. Key Takeaways

2. Introduction
3. What Is an External Audit in Kenya?
4. Why Do Businesses Need an External Audit in Kenya?
5. Objectives of an External Audit in Kenya

6. The External Audit Process in Kenya – Step-by-Step Breakdown
7. External Audit Requirements in Kenya – What Should You Prepare?

8. What Makes a Good External Auditor in Kenya?
9. How to Choose an External Audit Firm in Kenya – 6 Practical Tips

10. External Audit Vs Internal Audit in Kenya

11. FAQs – External Audit in Kenya

What is the role of external auditors in Kenya?

Who is legally required to undergo an external audit?

How often should I do an external audit?

What’s the difference between internal and external auditors?
What are the qualifications of an external auditor in Kenya?

12. Conclusion
13. Ready for Your Next External Audit?

14. Disclaimer

Key Takeaways

External audits in Kenya are mandatory for many entities under the Companies Act and sector regulations.

They improve financial transparency, detect risks, and ensure regulatory compliance.

Preparing in advance with the right documentation can save time and money.
Always hire licensed ICPAK-accredited audit firms with a reputation for independence and sector experience.

Introduction

In Kenya’s fast-changing business landscape, having clean, credible financial statements is no longer optional – it’s essential.

One of the most effective ways to assure your stakeholders, lenders, donors, and even the taxman that your accounts are above board is by conducting an External Audit.

Whether you’re a small business, NGO, SACCO, or a multinational operating locally, understanding the external audit in Kenya – what it is, who needs it, and how it works – is key to building trust and staying compliant.

This article will walk you through the meaning, process, legal requirements, and how to prepare for an external audit in Kenya.

What Is an External Audit in Kenya?

An External audit is an independent review of your financial statements, carried out by a licensed audit firm or certified external auditor.

An External audit in Kenya is conducted in accordance with the International Financial Reporting Standards (IFRS), the Accountants Act, and the Companies Act, 2015.

The goal of an External Audit is to express an objective opinion on whether your financial statements present a true and fair view of your financial position and performance.

Why Do Businesses Need an External Audit in Kenya?

You might be wondering, “Is an external audit really necessary?”

For many organizations, the answer is yes – either because the law mandates it or because third parties require it.

Here’s when you need an external audit in Kenya:

If you’re a limited liability company, public or private
If you run an NGO, SACCO, or donor-funded project
If you are registered under the Public Benefits Organization Act
If your regulatory body (e.g., CBK, IRA) mandates annual audits
If investors, banks, or development partners request audited reports

Objectives of an External Audit in Kenya

An external audit in Kenya goes beyond regulatory box-checking. It is designed to:

Give stakeholders confidence in your financial reports
Detect errors, fraud, or financial misstatements
Identify control gaps and help improve your systems
Promote accountability and sound financial practices
Demonstrate full compliance with KRA and IFRS requirements

The External Audit Process in Kenya – Step-by-Step Breakdown

Understanding the audit process helps your team stay prepared. A typical external audit in Kenya involves four key phases:

1. Audit Planning

This is where the auditor evaluates your business model, risk areas, and prior audits (if any). They’ll define the scope of the audit and agree on timelines.

You’ll be asked to provide:

Organization structure and policies
Past financials and audit reports
Chart of accounts
Key contracts and compliance documents

2. Fieldwork and Evidence Gathering

This is the most intensive stage. Auditors visit your office (or work remotely) to inspect financial records, cross-check transactions, and test controls.

They’ll likely review:

Cashbooks, trial balances, and ledgers
Bank statements and reconciliations
Tax filings (VAT, PAYE, Income Tax)
Payroll files and SHIF/NSSF submissions
Fixed asset register
Invoices and payment vouchers
Donor contracts or grant agreements (for NGOs)

3. Evaluation and Reporting

Once the fieldwork is complete, the auditor analyzes the findings and prepares a draft audit report. You’ll be invited to review and respond to any management comments or queries.

4. Final Audit Opinion

A formal audit opinion is then issued to the management.

The various types of external audit opinions in Kenya include:

Types of External Audit Opinions in Kenya

Audit Opinion	Meaning	What it Means for Your Business
Unqualified Opinion (Clean Report)	The financial statements are presented fairly, in all material respects.	No major issues. You’ve complied with accounting and tax laws.
Qualified Opinion	Most of the financial statements are accurate, but there are specific exceptions.	Some issues need fixing, but not widespread enough to impact the entire report
Adverse Opinion	Financial statements are materially misstated or misleading	Serious red flags. Likely to impact your credibility with investors or regulators.
Disclaimer of Opinion	The auditor couldn’t obtain sufficient evidence to form an opinion.	Audit couldn’t proceed. Usually due to lack of access or poor record-keeping.

External Audit Requirements in Kenya – What Should You Prepare?

Proper preparation shortens the audit time and improves your experience. Before the audit starts, ensure you’ve gathered the following:

Trial balance and ledger
Cash flow statement and income statement
Tax documents (VAT, PAYE, Income Tax)
Fixed asset register and depreciation schedule
Payroll files and statutory payment records
Contracts, leases, and board resolutions
Past audit reports (if any)

What Makes a Good External Auditor in Kenya?

Choosing the right auditor is critical. Here’s what to look for:

Independence: They must not have close ties to your company
Licensing: Must be registered with ICPAK and licensed under the Accountants Act
Experience: Have they audited similar companies or sectors?
Technical Knowledge: Should understand IFRS, tax laws, and sector-specific rules
Reputation: Avoid firms with legal issues or poor reviews

How to Choose an External Audit Firm in Kenya – 6 Practical Tips

Confirm their ICPAK registration and licensing
Review their track record in your sector
Get a transparent audit fee estimate
Check their independence and impartiality
Review client testimonials or references
Ensure they offer clear timelines and deliverables

External Audit Vs Internal Audit in Kenya

Feature	External Audit	Internal Audit
Who Conducts It	Independent auditor (licensed & ICPAK-registered)	In-house team or internal consultant
Purpose	Provide an independent opinion on financial statements	Improve operations, detect fraud, manage risk
Focus	Financial accuracy, tax compliance, legal standards	Processes, compliance, controls
Legal Requirement	Mandatory under the Companies Act, SACCOs Act, etc.	Optional (but often donor- or industry-driven)
Reports to	Shareholders, regulators, donors, and board	Management or audit committee
How often is it conducted?	Typically once a year (annually)	Ongoing or scheduled periodically
Where its most common	All registered companies, NGOs, donor-funded entities	NGOs, banks, large corporations

Frequently Asked Questions – External Audit in Kenya

1. What is the role of external auditors in Kenya?

They provide an independent opinion on your financial statements, ensuring compliance with IFRS and local regulations.

2. Who is legally required to undergo an external audit?

Limited liability companies, NGOs, SACCOs, donor-funded projects, and any entity whose regulator or funder requires one.

3. How often should I do an external audit?

Typically once a year – at the end of your financial year. Some sectors may require more frequent reviews.

4. What’s the difference between internal and external auditors in Kenya?

Internal auditors are part of the company or contracted long-term to review internal processes.

External auditors are third-party, independent reviewers of financial statements.

5. What are the qualifications of an external auditor in Kenya?

They must be a practicing member of ICPAK and affiliated with a registered audit firm.

Conclusion

External audit in Kenya is more than a formality – it’s a necessary tool for transparency, legal compliance, and trust-building.

Whether you’re preparing for your first audit or considering switching auditors, taking the time to understand the process and your obligations will save you time, money, and stress in the long run.