The Capital Markets Authority has fined audit firm Ernst and Young Ksh.10 million for failing to ensure accurate financial disclosure during Uchumi Supermarkets’ 2014 rights issue.
The regulator says the audit firm allowed major misrepresentations in the financial statements that investors relied on when the struggling supermarket sought extra funding.
The rights issue was intended to raise money to support Uchumi, but inaccurate information created a misleading picture of the company’s finances.
The CMA investigated the matter in 2015 and found that the statements prepared by EY did not reflect the company’s true financial position. In 2016, the regulator issued notices to show cause to both Uchumi officials and EY, demanding explanations for the irregularities.
These statements were expected to give a true picture of the retailer’s financial health, especially at a time when the supermarket chain was under pressure.
However, a year later, the CMA launched an inquiry that uncovered major misrepresentations in the information presented to investors. The findings raised difficult questions about the audit firm’s role and the accuracy of the disclosures that were relied upon during the cash call.
Because of these concerns, the regulator issued notices to show cause in 2016 to both Uchumi officials and EY, asking them to explain the irregularities.
EY moved to court to challenge the process, which temporarily slowed down the enforcement actions.
Even so, the courts later affirmed CMA’s authority, with the High Court in 2017 and the Court of Appeal in 2022 both ruling that the regulator had the legal mandate to proceed with the case.
With the legal barriers cleared, the CMA reviewed the matter and has now imposed a fine of Ksh.10 million on EY.
Beyond the financial penalty, the regulator has directed the firm to put in place three years of remedial training for all staff involved in auditing listed companies.
This requirement is intended to strengthen compliance, improve the quality of audit work, and prevent similar lapses in future.
The CMA has also made it clear that failure to follow through on these measures could lead to EY being barred from working with listed companies and other CMA licensees.
In addition to this, the regulator has asked the Institute of Certified Public Accountants of Kenya to take disciplinary action against two former EY audit partners.
CMA says the partners failed to ensure proper disclosure in Uchumi’s 2014 financial reports, a responsibility that forms the core of public trust in financial audits.
This latest decision builds on earlier actions taken against Uchumi’s former board and senior management, showing the regulator’s continued push to enforce accountability in Kenya’s capital markets.
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