Global Compliance

Audit Obligations for Kuwaiti Commercial Companies

The law which governs the auditing of companies in Kuwait is Law Number 1 of 2016 on the promulgation of the Companies Law hereinafter referred to as the Companies Law or the Law. This practice note assists the readers to understand the Kuwaiti laws concerning the auditing procedure in Kuwait as also, the procedure for auditing as well as the rules for appointing an auditor. The rules pertaining to auditing under the Companies Law applies to all the companies established in the state of Kuwait or on those whose headquarters are located in the state of Kuwait.

Audit Requirements:

Every public joint stock company/ Limited Liability Company (LLC) shall have one or more auditors nominated by the board of directors and simultaneously approved by the general assembly; The tenure of auditors will be until the conclusion of the first Annual General Meeting. The board of directors must mention in company contracts the fees of the auditor which must also be reflected in the accounts of the company.

According to the Companies Law of Kuwait, the company contract of the LLC must mention the appointment of one or more auditors to audit the accounts of the company. In respect of their appointment, powers, responsibilities, remuneration, dismissal, and resignation the auditors shall be subject to the rules and provisions applicable to auditors in a shareholding company. (Article 109)

Auditor under the Companies law also has the authority to call for the general meeting of the partners or some partners holding no less than one-quarter of the membership interest in the capital of the company.

Every public shareholding company should have one or more auditors to be appointed by the ordinary general meeting following approval of central bank of Kuwait. The company's incorporators may appoint one or more auditors until the constituent meeting is convened. However, in urgent cases, in which the auditor elected by the general meeting cannot carry out his relevant duties for any reason, the board of directors may appoint a replacement, provided that the matter shall be discussed in the first convening of the general meeting to be resolved.

The auditor shall not be the chairman or a member of the board of directors of the company the accounts of which he is auditing, nor a person assuming any administrative tasks or supervising its accounts, nor a relative of the second degree of a person overseeing the company’s management or accounts. During his term, the auditor shall not purchase or sell shares in or assume any consulting services for the company the reports of which he is auditing.

Rights and Duties of the Auditor

The auditor shall at any time have the right of access to the company’s books, registers and documents and may request any details he deems necessary. He should also have the right to verify the company’s assets and liabilities. The auditor can invite the General Assembly on his request made to the Board of Directors. Approving the financial statements of the company. If the auditor is unable to exercise his rights mentioned above, he shall report this in writing to the board of directors, which shall submit this to the ordinary general meeting and shall serve the Ministry and the Authority with a copy thereof.

The auditor shall during and after the completion of his work in the company maintain the confidentiality of data and information that he has access by virtue of his work, shall not use such data and information to gain a benefit for himself or a third party and shall not disclose any secrets concerning the company.

The auditor shall be liable for the financial statements contained in his report and for any damage sustained by the company, the shareholders or others due to a fault committed in the course and because of his work. If the company has more than one auditor, they shall be jointly liable unless one of them proves that he was not involved in such fault that caused the liability.

Auditor Report:

Pursuant to Article 230 of the Companies Law the auditor or his authorized accountants who participated with him in the audit shall attend the ordinary general meeting and shall submit a report on the company's financial statements. The statements should reflect the company's balance sheet at the end of the financial year and the results of the company for such year and whether the data contained in the board of directors' report are consistent with the facts established in the company's books and documents in accordance with the generally accepted auditing principles and the provisions of the Companies Law. If the company has one or more auditors, they shall prepare a joint report. Should there be disagreement between the auditors regarding specific issues, such dispute shall be recorded in the report, and the point of view of each of them shall also be provided.

The auditor report should reflect the following particulars basis that the report was prepared in accordance with the provisions of the law:

• Whether the auditor obtained the information he deemed necessary for doing his work satisfactorily;
• Whether the balance sheet and profit and loss account conform to the facts and include all that is provided for in the law and the Company Contract and reflect the actual financial position of the company;
• Whether the company maintains proper accounts;
• Whether the company undertook the inventory and it has been carried out in accordance with the accepted practices;
• Whether the data included in the report of the board of directors conforms with what is stated in the company’s books;
• Whether there have been violations of the provisions of the law or the Company Contract during the financial year and whether these violations still exist, to the extent such information is made available to the auditor and;
• Any other data prescribed by the executive regulations.

Glossary:

• Company: The company is incorporated by a contract by which two or more persons undertake to participate in a profit-making project with each of them contributing assets or labor, to divide what is generated from the project in profits and losses.  
• Company Law: Law Number 1 of 2016 on the promulgation of the Companies Law of Kuwait.
• Audit Bureau Law: Law Number 30 of 1964 on the establishment of Audit Bureau as amended.
• Civil Code: Decree Law Number 38 of 1980 regarding the Civil and Commercial Law.
• Ministry: Ministry of Commerce and Industry.  
• Registration: Registration in commercial Register.
• Company Contract: The memorandum of incorporation or the memorandum of incorporation and articles of association.
• Incorporator: Anyone who takes actual part in the incorporation of the company, executes the contract thereof in person or through a representative and participates in the capital of the company with a cash or in-kind share.