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KASNEB Newsline, Issue No. 1 January - March 2013 January - March 2013 KASNEB Newsline, Issue No. 1PB 1

NewslineThe Professional Journal of KASNEB Issue No. 1 January - March 2013

KASNEB

KASNEB

ETHICS IN INFORMATION SYSTEMS

KASNEB Newsline, Issue No. 1 January - March 2013 January - March 2013 KASNEB Newsline, Issue No. 12 1


Contents

KASNEB

Editor HonorarisPius M. Nduatih

Editorial TeamStaff members of KASNEB

Circulation Office

KASNEB Towers Hospital Road, Upper HillP.O. Box 41362 - 00100

Nairobi - KenyaTel: 254(020) 2712640 / 2712828

Cellphone: 0722-201214/0734-600624Fax: 254(020) 2712915

E-mail: [email protected]: www.kasneb.or.ke

KASNEB Newsline is the professional students journal of KASNEB.

The views expressed in this journal are those of the respective authors and do not necessarily reflect those of KASNEB.

The Editor welcomes contributions from readers especially students and trainers in accountancy, finance, management, administration, ICT and cognate subjects.

The Editor reserves the right to edit articles for the purposes of clarity and brevity.

Trainers and students are free to photocopy materials contained in this journal for purposes of learning without seeking prior consent from KASNEB.

Reproduction is allowed without charge as long as prior consent is sought and the source acknowledged.

Correspondence should be addressed to:

The EditorKASNEB Newsline

Marketing and Corporate AffairsUnit

P.O. Box 41362 - 00100NAIROBI.

NewslineKASNEBEditorialPage 2

Fraud detection and preventionPage 15

Ethics in information systemsPage 3

Public speakingPage 28

Knowledge managementPage 32

PictorialPage 48

KASNEB updatesPage 42

Credit managementPage 22

Examinations feedbackPage 49


Editorial

Editor HonorarisPius M. Nduatih

The pivotal role of information communication technology (ICT) in operations management, decision support and other applications cannot be gainsaid. The influence of ICT has been cross-cutting, permeating through virtually every sector and niche; from business, research, education, government and the social arena. Indeed ICT has featured high amongst the transformative forces of the 20th and 21st centuries.

The ripple effects of this phenomenal growth in ICT have been far-reaching. Of prime concern are the inherent risks that threaten to derail the growth of this crucial industry. In this connection, the risk of illegal access to organisational information or manipulation of data is of particular interest. The reality of this threat has been brought home by the exponential growth of the internet.

Addressing these challenges calls for a systematic and holistic approach. The fulcrum of such an approach is the development of a comprehensive code of ethics for practitioners and users of ICT. This code can be augmented with various technology-based controls.

The above background sets the stage for the lead article in this edition of the KASNEB Newsline. Titled “Ethical and Social Issues in Information Systems”, the article explains the key technological trends that raise ethical issues and elaborates on the fundamental ethical principles relating to ICT.

The second article explores organisational fraud with an emphasis on the indicators of fraud and preventative measures. The article also outlines the various conditions that facilitate fraud in an organisation.

The third article provides insight on the ingredients of an effective credit management policy. The writer argues that legal action to recover debts should be the last resort, with priority being accorded to a personalised and non-confrontational approach to debt management.

We revisit the topic of public speaking in the fourth article where the writer provides further insights on how to capture and retain the interest of an audience.

The fifth article is on knowledge management. The writer spotlights on the various techniques and practices that facilitate the flow of knowledge into and within the firm.

This edition of the journal also features feedback on the November/December 2012 examinations and various updates of relevance to our readers.

Enjoy your reading.


Background

In the last decade, we have witnessed arguably one of the most challenging periods for global business. Lapses in management judgement have occurred across a broad spectrum of industries. Numerous examples exist of such lapses which have led to business failures. The most recent is that of the Lehman Brothers (USA) in 2010.

Although the major instances of failed ethical and legal judgements were not masterminded by information technology departments, information systems were instrumental in many of these frauds. In many cases, the perpetrators of these crimes artfully used information available from financial reporting systems to perpetrate their crimes and bury their decisions from public scrutiny in the vain hope that they would never be caught.

In Kenya today, for instance, we have reduced cases of violent bank robberies compared to the 80's and 90's but the banking sector is loosing more money than in the past. Technology-savvy employees are manipulating banking information systems to conduct and mask fraud.

So, when using information systems, it is essential to ask, what is the ethical and socially responsible course of action?.

ETHICAL AND SOCIAL ISSUES IN INFORMATION SYSTEMS

John Waibochi Gitahi, Lecturer,

Palmax Business and ICT College,Karatina


Information systems

Ethics in information systems

Ethics refers to the principles of right and wrong that individuals, acting as free moral agents, use to make choices to guide their behaviours.

Information systems raise new ethical questions because they create opportunities for intense social change, threatening existing distributions of power, money, rights and obligations. Like other technologies, such as steam engines, electricity and telephone, information technology can be used to achieve social progress but also to commit crimes and threaten social values.

Ethical issues in information systems have been given new urgency by the rise of internet and e-commerce. Internet and digital firm technologies make it easier than ever to assemble, integrate and distribute information, unleashing new concerns about the appropriate use of customer information, the protection of personal privacy and the protection of intellectual property.

So what is the relationship between ethical, social, and political issues in an information society?

Information technology has a ripple effect, raising new ethical, social and political issues that must be dealt with at the individual, social and political levels. These issues are elaborated below.1. Information rights and

obligations - what information rights do individuals and organisations possess with

respect to themselves? What can they protect?

2. Property rights and obligations - how will traditional intellectual property rights be protected in a digital society in which tracing and accounting for ownership are difficult and ignoring such property rights is so easy?

3. Accountability and control - who can and will be held accountable and liable for the harm done to individuals and collective information and property rights?

4. System quality - what standards of data and system quality should we demand to protect individual rights and the safety of society?

5. Quality of life - what values should be preserved in an information and knowledge based society? Which institutions should we protect from violation? Which cultural values and practices are supported by new information technology?

Key technology trends that raise ethical issues

Ethical issues long preceded information technology (IT). But IT has nevertheless heightened ethical concerns, taxed existing social arrangements and made some laws obsolete or severely crippled. There are 4 key technological trends responsible for these ethical stresses.

(a) Doubling of computer power

The doubling of computer power every 18 months has made it possible for more organisations to depend on information systems for their core production processes. This has increased our vulnerability to system errors and poor data quality.

(b) Rapidly declining data storage costs

Advances in data storage techniques

Information rights and obligations

Information rights and obligations

System quality

Political issues

Social issues

Ethical issues

Individual

Society

INFORMATION TECHNOLOGY AND SYSTEMS

Politics

Quality of life

Accountabilityand control


Information systems

and rapidly declining storage costs have been responsible for the multiplying databases maintained by private and public organisations. These advances have made the routine violations of individual privacy both cheap and effective.

(c) Advances in data analysis techniques

Advances in data analysis techniques for large pools enable companies and government agencies to find out highly detailed personal information about individuals. Contemporary data management tools enable organisations to combine myriad pieces of information stored on computers to reveal not only users' credit information but also their driving habits, tastes, associations and their political interests.

Profiling is the use of computers to compile data from multiple sources and create electronic dossiers of detailed information on individuals.

For example, several thousands of the most popular websites allow an advertising broker, for instance, to track the activities of visitors in exchange of revenue from advertisements based on visitors information.

ChoicePoint for example gathers information from police, criminal and motor vehicle records, credit and employment histories, current and previous addresses, professional licences and insurance claims to assemble and maintain electronic dossiers on almost every adult in the United States. The company sells this personal information to businesses and government agencies. Demand for personal data is so enormous that data brokers businesses such

as ChoicePoint are flourishing.A new data analysis technology

called nonobvious relationship awareness (NORA) has given both the government and private sector initiatives even more profiling capabilities. NORA can take information about people from different sources and correlate to find obscure hidden connections that might help identify criminals or terrorists.

NORA technology scans data and extracts information as the data are being generated so that it could, for example, instantly discover

a man at an airline ticket counter who shares a phone number with a known terrorist before that person boards an airplane. The technology is an important tool securitywise but has privacy implications because it can provide such a detailed picture of the activities and associations of a single individual.

(d) Networking advances and the Internet

Copying data from one location to another and accessing personal data from remote locations is much easier with growth in networks and internet. But this also opens up the possibilities of mining large pools of data remotely using small desktop machines permitting invasion

Electronic information activities and ethical issuesActivity Description of activity Ethical considerationWhat data to collect Personal data and its sensitivity Proper use of computing technology to

protect the data

How it is collected Directly (primary data), using existing databases (secondary data)

Must be collected at the consent of the individual

How is it processed Logic used in processing data Proper use of algorithm, that is, should not be any bias that would favour one over the other individual

How is it presented Printed form, computer screen, distribution

Must be presented and distributed with the consent of individual

What purpose is it used for

Used for marketing, performance evaluation, credit analysis, determining eligibility of some sort

Should be used for the purpose for which the data was created and should not be harmful

The extent of its impact Determine the consequence of its use such as credit approval, legal consequence, health impact

If the impact is severe that would hurt someone's life or if it is going to impact a large number of individuals

Name standardisationMarchMerge

NORA alerts

HumanResourcesSystems

CustomerTransaction

Systems

Incident and Arrest

Systems

TelephoneRecords

Watch Lists


Information systems

of privacy on a scale and with a precision heretofore unimaginable.

NORA technology can take information about people from different sources and find obscure, nonobvious relationships. It might discover, for example, that an applicant for a job at a casino shares a telephone number with a known criminal and issue an alert to the hiring manager.

Developing ethics in an information society

Ethics is a concern of humans who have freedom of choice. Ethics is about individual choice: when faced with alternative courses of action, what is the correct moral choice? What are the main features of ethical choice?

Basic concepts for ethical analysis

(i) ResponsibilityThis means that you accept the potential costs, duties and obligations for the decisions you make.

(ii) AccountabilityThis is a feature of systems and social institutions. It means mechanisms are in place for identifying who took

responsible actions and who are the responsible parties. Systems and institutions in which it is impossible to find out who took what action are inherently incapable of ethical analysis or ethical action.

(iii) LiabilityThis extends the concept of responsibility further to areas of laws. Liability is a feature of the political systems in which a body of laws permits individuals (and firms) to recover damages done to them by other actors, systems or organisations.

(iv) Due processThis is a related feature of law-governed societies and is a process in which laws are well known and understood, and there is an ability to

appeal to higher authorities to ensure laws are applied correctly.

These basic concepts form the basis of an ethical analysis of information systems and those who manage them.

Ethical analysis: A five-step process

When presented with a situation that seems to present ethical issues, how should you analyse it? The following steps should guide you:

• Identify and clearly describe the facts.

• Define the conflict or dilemma and identify the higher-order values involved.

• Identify the stakeholders. • Identify the options that you can

reasonably take. • Identify the potential

consequences of your options.

Six fundamental ethical principles

1. Golden ruleDo unto others as you would have them do unto you. Put yourself into the place of others and thinking of

An infomation system must

• Contribute to society and human well-being• Avoid harm to others• Be honest and trustworty• Be fair and take action not to discriminate• Honour property rights including copyrights and patents• Give proper credit for intellectual property• Respect privacy of others• Honour confidentiality


Information systems

yourself as the object of the decision can help you think about fairness in decision making.

2. Immanuel Kant’s categorical imperativeIf an action is not right for everyone to take, it is not right for anyone. Ask yourself, if everyone did this, could the organisation, or society, survive?

3. Descartes’ rule of changeIf an action cannot be taken repeatedly, it is not right to take at all. This is the slippery-slope rule: an action may bring about a small change now that is acceptable, but if it is repeated, it would bring unacceptable changes in the long run.

4. Utilitarian principleTake the action that achieves the higher or greater value. This rule assumes you can prioritize values in a rank order and understand the consequences of various courses of action.

5. Risk aversion principleTake the action that produces the least harm or least potential cost. Some actions have extremely high failure costs of very low probability(such as building a nuclear facility

in an urban area) or extremely high failure costs of moderate probability(speeding and motor accidents). Avoid these high-failure-cost actions, paying greater attention to high-failure-cost potential of moderate to high probability.

6. Ethical “no free lunch” ruleAssume that virtually all tangible and intangible objects are owned by someone unless there is a specific declaration otherwise. If something someone else has created is useful to you, it has value, and you should assume that the creator wants compensation for this work.Actions that do not pass these rules deserve close attention and a great deal of caution. The appearance of unethical behaviour may do as much harm to you and your company as actual unethical behaviour.

Professional code of conduct

These are promulgated by associations of professionals which take responsibility for the partial regulation of their professions by determining entrance qualifications and competence.

Code of ethics are promises by professions to regulate themselves

in the general interest of society. For example avoiding harm to others, honouring property rights (including intellectual property) and respecting privacy. Information managers have to observe their professional code of conduct (not currently in place in Kenya) to avoid exposing their clients.

Information rights: privacy and freedom in the internet age

Privacy is the claim of individuals to be left alone, free from surveillance or interference from other individuals or organisations, including the state. Claims to privacy are also involved at the workplace; millions of employees are subject to electronic and other forms of high-tech surveillance (Ball, 2001).

Information technology and systems threaten individual claims to privacy by making the invasion of privacy cheap, profitable and effective.

The claim to privacy is protected in the USA, Canadian and German constitutions in a variety of different ways and in other countries through various statutes. Most American and European privacy laws are based on a regime called Fair Information


Information systems

Practices (FIP). FIP is a set of principles governing the collection and use of information about individuals. FIP principles are based on the notion of a mutuality of interest between the record holder and the individual. The individual has an interest in engaging in a transaction, and the record keeper – usually a business or government agency – requires information about the individual to support the transaction. Once information is gathered, the individual maintains an interest in the record, and the record may not be used to support other activities without the individual's consent.

Internet challenges to privacy

Internet technology has posed new challenges for the protection of individual privacy. Information sent over this vast network may pass through many different computer systems before it reaches its final destination. Each of these systems is capable of monitoring, capturing and storing communication that passes through it.

Much of this monitoring and tracking of website visitors occurs in the background without the visitor's knowledge. It is conducted not just by individual websites but by advertising networks such as Microsoft Advertising, Yahoo and Double Click that are capable of tracking all browsing behaviour at thousands of websites. The commercial demand for this personal information is virtually insatiable.

Websites can learn the identities of their visitors if the visitors voluntarily register at the site to purchase a product or service or to obtain a free service, such as information. Websites can also capture information about visitors without their knowledge using cookie technology.

Cookies are small text files deposited on a computer hard drive when a user visits websites. Cookies identify the visitor's Web Browser software and track visits to the websites. When the visitor returns to a site that has stored a cookie, the website software will search the visitor's computer, find the cookie, and know what that person has done in the past. In this way, the site can customise its content for each visitor's interests. For example, if you purchase a book on Amazon.com and return later from the same browser, the site will welcome you by name and recommend other books of interest based on your past purchases. Double Click, described earlier in this chapter, uses cookies to build its dossiers with details of online purchases and to examine the behaviour of website visitors.

Other more subtle and surreptitious tools for surveillance of

Internet users include Web Beacons, also called We bugs, which are tiny objects invisibly embedded in e-mail messages and Web pages that are designed to monitor the behaviour of the user visiting a website or sending e-mail. The web beacon captures and transmits information such as the IP address of the user's computer, the time a Web Page was viewed and for how long and the type of Web Browser that retrieved the beacon and previously set cookie values. Web beacons are placed on popular Web Sites by third party firms who pay the websites a fee for access to their audience.

A Spyware can secretly install itself on an Internet user's computer by piggybacking on larger


Information systems

applications. Once installed, the spyware calls out to websites to send banner advertisements and other unsolicited material to the user, and it can also report the user's movements on the Internet to other computers. More information is available about intrusive software.

About 75 percent of global Internet users use Google search and many of its services such as gmail, doubleclick, Youtube, Google Toolbar, Google Chrome and Google analystics making Google the world's largest collector of online user data.

Technical solutions

In addition to legislation, new technologies are available to protect user privacy during interactions with websites. Many of these tools are used for encrypting email, for making e-mail or surfing activities appear anonymous, for preventing client computers from accepting cookies, or for detecting and eliminating spyware.

There are now tools to help users determine the kind of personal data that can be extracted by websites. The Platform for privacy Preferences, known as P3P, enables automatic communication of privacy

policies between an e-commerce site and its visitors. P3P provides a standard for communicating a website's privacy policy to internet users and for comparing that policy to the user's preferences or to other standards, such as the European Directive on Data protection. Users can use P3P to select the level of privacy they wish to maintain when interacting with the website.

Property rights: intellectual property

Contemporary information systems have severely challenged existing laws and social practices that protect private intellectual property. Intellectual property is considered to be intangible property created by individuals or corporations. Information technology has made it difficult to protect intellectual property because computerised information can be so easily copied or distributed on networks. Intellectual property is subject to a variety of protection under three different legal traditions:

trade secrets, copyright and patent law as explained below:

(i) Trade secrets

Any intellectual work product – a formula, device, pattern, or compilation of data used for a business purpose can be classified as a trade secret, provided it is not based on information in the public domain. Protections for trade secrets vary from state to state. In general, trade secret laws grant a monopoly on the ideas behind a work product, but it can be very tenuous monopoly.

Patents

Trademarks

Copyright

Database rights

Design rights

Performersrights


Information systems

Software that contains novel or unique elements, procedures or compilations can be included as a trade secret.

(ii) Copyright

Copyright is a statutory grant that protects creators of intellectual property from having their work copied by others for any purpose during the life of the author plus an additional 70 years after the author's death.

For corporate-owned works, copyright protection lasts for 95 years after their initial creation.

Copyright protects against copying of entire programs or their parts. Damages and relief are readily obtained for infringement.

(iii) Patents

A patent grants the owner an exclusive monopoly on the ideas behind an invention for 20 years. The intent behind patent law was to ensure that inventors of new machines, devices or methods receive the full financial and other rewards of their labour and yet make widespread use of the invention possible by providing detailed diagrams for those wishing to use the idea under license from the patent's owner.

The key concepts in patent law are originality, novelty and invention The strength of patent protection is that it grants a monopoly on the underlying concepts and ideas of software. The difficulty is passing stringent criteria of non-obviousness (such as the work must reflect some special understanding and contribution), originality, and novelty.

Challenges to intellectual property rights

Contemporary information technologies, especially software, pose severe challenges to existing intellectual property regimes and create significant ethical, social and political issues. Digital media differ from books, periodicals and other media in terms of ease of replication, transmission, alteration, difficulty in classifying a software work as a program, book, or even music, compactness – making theft easy and creating difficulties in establishing uniqueness.

The proliferation of electronic networks, including the Internet, has made it even more difficult to protect intellectual property. Using networks, information can be more widely reproduced and distributed.

The Internet was designed to transmit information freely around the world, including copyrighted information. With the world wide web in particular, you can easily copy and distribute virtually anything to thousands and even millions of people around the world, even if they are using different types of computer systems.

Mechanisms are being developed to sell and distribute books, articles and other intellectual property legally on the internet, and the Digital Millennium Copyright Act (DMCA) of 1998 is providing some copyright protection. The DMCA implemented a World Intellectual Property Organisation Treaty that makes it illegal to circumvent technology- based protections of copyrighted materials. Internet Service Providers (ISPs) are required to take down sites of copyright infringers that they are hosting once they are notified of the problem.

Conclusion

Information managers must come up with procedures and mechanism of protecting information against exposure to outsiders. In addition, they must apply sober decision making whenever situations arise which guarantee some benefits to them or their proxies but may be detrimental to the organisation or its stakeholders. The interests of the owners of the information should guide any decision making. Breaking of trust may lead to undesirable consequences both for the organisation and the decision makers.


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The qualifications are a MUST for all:• Credit managers • Risk managers• Credit controllers• Credit card officers• Debt managers• Co-operative officers• Microfinance officers• Leasing officers• Asset finance officers• Hire purchase officers• Mortgage managers • Credit officers • Account managers• Debt collectors • Sales ledger administrators• All in the lending sector

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Why train with the Kenya School of Credit Management?

• Pioneers and trainers in credit management in Kenya• Specialists in training credit management in East and Central Africa• We are a one stop shop for all interested in the career of credit

management• Highly experienced and qualified lecturers• Centrally located in the central business district• Job placement for qualified persons in credit management

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Credit Management Technicians (CMT) - Examinable by KASNEBCertified Credit Professionals (CCP) - Examinable by KASNEB

Certificate in Credit Management - Examinable by Gretsa UniversityDiploma in Credit Management - Examinable by Gretsa University

Bachelor of Commerce - Credit management option. Now available at Gretsa University - Thika on a full time, part time and distance learning basis. CCP/CPA/CPS graduates to join at third year.

In-house and open programs in Credit Management available.

Executive Credit Management Program now available through distance learning.

ACADEMIC CALENDAR

KSCM has two semesters in one calendar year. The semesters begin in January and July every year.

SEMINARS AND WORKSHOPSKenya School of Credit Management is a market leader in training and facilitating seminars/ workshops that equip staff working in the credit departments with the latest tools to handle credit.

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Conditions that exist for fraud to occur

Ordinarily, the following conditions could facilitate fraud:1. Incentive/pressure - This occurs when

managers and/or employees have an incentive, or are under pressure which provides a motive to commit fraud.

Definition

The Institute of Internal Auditors (IIA) Guidance Paper on Managing the Business Risk of Fraud defines fraud as any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/ or the perpetrator achieving a gain. Fraud could also be defined as any act characterised by deceit, concealment, or violation of trust. These acts are perpetrated by parties and organisations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage. Fraud therefore involves a range or irregularities and illegal acts characterised by intentional deception of misrepresentation, which an individual knows to be false or does not believe to be true. Fraud is indeed perpetrated by a person knowing that it could result in some unauthorised benefit to him or her, to the organisation or to another person. In addition, fraud can be perpetrated by persons outside and inside the organisation.

Ok. Let's now brainstorm on how to justify

John Maina WachiuriMBA Finance, CPA(K), CIA

Senior Internal AuditorEast African Development Bank

Kampala, Uganda

FRAUD INDICATORS AND PREVENTION


Fraud prevention

2. Opportunity - A fraud could occur when an opportunity exists, for instance, absence, or ineffective controls or the ability of staff to override controls.

3. Rationalisation/attitude - Those involved in fraud may rationalise a fraudulent act as being consistent with their personal code of ethics. Some individuals possess an attitude, character or set of ethical values that allows them to knowingly and intentionally commit a dishonest act.

Fraud indicators

There are several red flags that may signal fraudulent conduct. An auditor should be alert to red flags and investigate conditions that might indicate potential fraud.

The following situations may indicate or create an environment for fraud to take place:

− High personnel turnover. − Low employee morale. − Documents supporting adjusting

entries not being readily available.

− Write off of inventory shortages with no attempt to determine size.

− Late completion of bank reconciliations.

− Use of duplicate invoices to support payments to suppliers.

− A deteriorating income trend when the industry or the organisation as a whole is doing well.

− Increase in the number of customer complaints.

− Unrealistic performance expectations.

− Potential business failure in the near term.

− Decentralising operations with weak internal reporting systems.

− Material related - party transactions not in the ordinary course of business.

− Intentional failure to enforce an organisation’s code of ethics.

− Abnormally rapid growth in profits, particularly relative to the industry.

− Earnings growth combined with lack of adequate cash.

− Use of accounting principles that conform with the letter

Perceived pressure/incentive

Nobody really checksAbility to carry out misappropriation of cash or organisational

assets: poor internal controls, lack of oversightOpportunity to commit and conceal the fraud act

I need to hit my monthly targets.Motivation or incentive to commit fraud:

meet expectations, avoid criticism, cover mistakes. Nonshareable financial need

Environment that

encourages fraud

Attitude/Everyone's doing itMorally defensible justification for actions

seemingly out of character for the perpetratorJustification of dishonest actions:

low compensation, company is profitable.

Dissatisfaction with employer

Terminal illness

Financing new business interests

Addiction to drugs/alcohol

Desire to ensure viability of the corporation

Pleasing others

Influenced/implicated by others

Maintaining own/family business

Financial pressure (business)

Financial pressure (personal)

Gambling

Greed

0 5 10 15 20 25 30

PERCENTAGE

CAUSES


Fraud prevention

(form) of requirements and not the substance, or that vary from the industry practice.

− A debt ratio that is too high or difficulty in repaying debt.

− Complex, unusual transactions at the end of the financial period.

− Financial results which are excessively better than those of competitors.

− Changes or trends in financial statements which are not explained.

− Accounts or operations located in tax haven countries without a good business rationale.

− Excessively optimistic public statements about future growth.

The following behavioural and lifestyle symptoms may point towards possibility of embezzlement:i. Pronounced criticism of others

so as to divert attention.ii. Rewriting records under

the guise of neatness in presentation.

iii. Carrying unusually large cash balances or heavy buying of securities.

iv. Replying to questions with unreasonable explanations.

v. Engaging in gambling activities.vi. Regularly borrowing small

amounts from fellow employees.vii. Refusing to take vacations and

declining promotions for fear of detection.

viii. Association with questionable characters.

ix. Creditors appearing at the place of business demanding their dues.

x. Spending too much time on the phone making personal calls.

xi. Getting annoyed at reasonable questioning.

xii. Refusing to take custody of records during the day, working overtime regularly.

xiii. Constant association with, or entertainment by, a member of a supplier’s staff.

xiv. Buying expensive automobiles and extravagant household furnishings.

Common forms of fraud in organisations

These include: − Destroying, altering, or voiding

cash sales tickets and pocketing the cash.

− Charging personal expenses to the company through misuse of purchase orders.

− Pilfering stamps. − Issuing credit or false customer

claims and returns. − Stealing merchandise, tools,

supplies and other items of equipment.

− Removing small amounts from cash funds and registers.

− Overloading expense accounts or diverting advances to personal use.

− Pocketing payments on customers' accounts and issuing receipts on scraps of paper or in self-designed receipt books.

− Increasing the amount of

suppliers’ invoices through collusion.

− Falsifying additions to payrolls; withholding unclaimed wages.

− Removing small amounts of cash funds and registers.

− Collecting an account, pocketing the cash, and charging it off; collecting charges off accounts and not reporting.

− Failing to make bank deposits daily or depositing only part of the money.

− Removing small amounts from cash funds and registers.

− Charging customers’ accounts with stolen cash.

− Issuing credit or false customer claims and returns.

− Altering dates on deposit slips to cover stealing.

− Withholding cash sales amounts by using false charge accounts.


Fraud prevention

− Using carbon copies of previously used original vouchers or using a properly approved voucher of a prior period by changing the date.

− Using personal expenditure receipts to support false paid out items.

− Recording unwarranted cash discounts.

Fraud prevention

Fraud prevention involves any action taken to discourage the commission of fraud and limit fraud exposure when it occurs. The fundamental mechanism for averting fraud is having a strong internal control system. The primary

responsibility for establishing and maintaining internal control rests with the management.

The COSO Framework presents the following as control elements of a fraud prevention propgramme.

(a) Control environmentOrganisations must establish an appropriate control environment that includes:

• Oversight by the audit committee, board, or other oversight body.

• Hiring and promotion guidelines and practices.

• A code of conduct, ethics policy, or fraud policy to set the appropriate tone at the top.

• Investigation of reported issues and remediation of confirmed violations.

(b) Fraud risk assessmentOrganisations must identify and assess fraud related risks. The assessment addresses the potential for the following: Fraudulent financial reporting. Asset misappropriations. Improper receipts and

expenditures. Financial misconduct by

management and others. Assessment as to whether

adequate segregation of duties exists.

Governance

Fraudcontrol

strategies

LEADERSHIP

CULTURE

Policy & legislation Prevention

Detection

Mon

itoring

Eval

uatio

n & reporting

Res

pons

e

• Fraud risk management• Fraud policy• Preventive measures• Communication of identified

fraud• Building fraud prevention into

program design

Opp

ortu

nity

Rationalisation

Motive

Response tofraud risk

Evaluation of the fraud risk and prioritisation

Ownership of the risk(development of annual fraud planin liaison with senior management)

Consideration of factors (materiality, history, last review, audit risk assessments)

Assess the most vulnerable areas

Assess risk of fraud

RESPONSE


Fraud prevention

(c) Control activitiesIt is important for organisations to establish and implement control practices for purposes of preventing fraud. These include actions taken by the management to identify, prevent, and mitigate fraudulent financial reporting or misuse of the organisation’s assets as well as prevent override of controls by management. Organisations should also establish a methodology or a process to confirm that staff have read and understood corporate policies and procedures and a signed statement that they are in compliance with them.

(d) Information and communicationIt is crucial for organisations to establish effective fraud related information and communication practices such as:o Documentation and dissemination

of policies, guidance, and results.o Opportunities to discuss ethical

dilemmas.o Communication channels.o Training for personnel.

o Considerations of the impact and use of technology for fraud deterrence for instance the use of continuous monitoring software.

(e) MonitoringOrganisations should conduct ongoing and periodic performance assessments and identify the impact. There should also be use of computer technology for fraud deterrence.

Conclusion

Internal auditors are responsible for assisting organisations to prevent fraud by examining and evaluating

Chief Executive/Board of Directors

Audit Committee Fraud Control Officer

Internal Auditor

Fraud Risk Assessment

Fraud Control Plan

the adequacy and effectiveness of internal controls, commensurate with the extent of a potential exposure within the organisation. It is also important for internal auditors to have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organisation. The internal audit activity must evaluate the potential for the occurrence of fraud and how the organisation manages fraud risk. At the point of developing engagement objectives, an internal auditor must consider the probability of significant errors, fraud, non-compliance and other exposures.

CREATING AWARENESSEDUCATION AND COMMUNICATION

Disciplinarycode

Investigation

Internal controls

Physical and

information

security

Resolution

Ongoing

maintenance

and review

Organisational

policies and

procedures

Reporting

and monitoring

Fraud

policy and

response plan

Cod

e of

co

nduc

t, et

hics

and

busi

ness

Inte

rnal

au

dit

Fraud

detection


Tuition block

College buses

Computer laboratory

Students' excursion trip to Mombasa

Students' excursion trip to Maasai Mara

DEGREE PROGRAMMES

DEGREE PROGRAMMES DURATION FEE PER SEMESTER 2013 (Sh.)

Bachelor of Commerce (Bcom)(JKUAT) 3 years (8 semesters)

48,500

Bachelor of Science in Information Technology (Bsc IT)(JKUAT) 3 years (8 semesters)

48,500

Bachelor of Education – Arts (Secondary)/ECDE/ Primary Option (LU)

2 ½ years (8 semesters)

47,500/33000 (SB)

DIPLOMA PROGRAMMES DURATION FEE PER SEMESTER

Diploma in Law (IU) 2 years 22,500

Diploma in Information Technology (IU) 2 years 22,500

Diploma in Information Technology (JKUAT) 2 years 31,500

Diploma in Information Technology (KNEC) 2 years 14,000

Diploma in Information Science (Library) (KNEC) 2 years 14,000

Diploma in Archives & Record Management (IU) 1 & 3 months 22,500

Diploma in Education Arts Secondary/ECDE/Primary Option (LU) 2 years 29,500/25,000(SB)

Diploma in Secretarial Studies (KNEC) 2 years 22,500

Diploma in Business & Office Management (IU) 2 years 22,500

Diploma in Business Management (ABE/KNEC) 5 months/1½ years

15,000

Diploma in Business Administration (JKUAT) 2 years 15,000

Diploma in procurement management (JKUAT/KNEC) 2 years 15,000

Diploma in Sales and Marketing (ICM/KNEC) 5 months 15,000

Diploma in Human Resource Management (ABE/KNEC/JKUAT) 5 months / 1½ years

15,000

Higher Diploma in Business management (ABE/KNEC) 1 year 15,000

Higher Diploma in Human resource management (ABE/KNEC) 1 year 15,000

Higher Diploma in Sales & Marketing (ICM) 1 year 15,000

Graduate Diploma in Sales & Marketing (ICM) 5 months 17,500

Graduate Diploma in Human resource management (ABE) 5 months 17,500

Graduate Diploma in Business management (ABE) 5 months 17,500

CERTIFICATE COURSES DURATION FEE PER TERM

Secretarial Studies (KNEC) 1 ½ years 10,000

Certificate in Information Science (Library) (KNEC) 1 year 14,000

Certificate in Archives & record Management (IU) 6 months 22,500

Certificate in ECDE (KNEC) 1 year 17,500/11,500 (SB)

Certificate in Information Technology (IU) 4 months 22,500

Certificate in Information Technology (JKUAT) 3 months 31,500

Certificate in Computer engineering 4 months 14,000

Bridging course in mathematics (JKUAT) 4 months 25,000



TRAINERS IN ACCOUNTANCYP.O Box 956-60100 Embu Kenya Tel:068 30247, 0721152709, 30120, 30961 Email: [email protected] or [email protected], Website: www.embucollege.com or www.embucollege.ac.ke Location: 200m from Embu County Council offices/Embu Law Courts

KASNEB COURSES DURATION FEES SINGLE SUBJECT

BLOCK RELEASE

SINGLE SUBJECT FOR BLOCK RELEASE

ATC I 5 months 9,500 2,20029/4/2013-26/5/2013

2,250

ATC II 5 months 9,500 2,200 2,250

CPA & CPS Sections 1 & 2 5 months 9,500 3,650 2,250

CPA & CPS Sections 3 & 4 5 months 10,500 4,000 6/5/2013-1/6/2013

2,500

CPA & CPS Sections 5 & 6 5 months 11,500 4,000 2,750

Certified Information Communication Technologists (CICT) Sections 1- 6 1 ½ - 3 years 9,500

Information Communication Technology Technicians (ICTT) 1 year 9,500

KASNEB registration deadline is 31st May 2013 and late registration deadline is 28th June 2013

• Next semester commences on 11th June 2013 for CPA Sections 1 & 2 and ATC levels I & II and 17th June 2013 for CPA Sections 3 to 6.

• We congratulate our June/July – November/December 2012 group for posting exemplary results in November/December 2012 KASNEB exams

• We would specifically recognise outstanding performance of 100% in the following subjects;

Economics, Cost Accounting, Auditing and Assurance, Management information Systems, Financial Management, Quantitative Analysis and Advanced Auditing and Assurance.

May intake classes commence on 7th May 2013

April 2013 School based commence on 13th April 2013

NB/ABE classes for new students commence on 11th June 2013

Why join our Campus

� Fully accredited by KASNEB � Well equipped library and free internet services to students

� Competent & experienced lecturers � Variety of Student activities, Clubs and Societies

� High pass rate in examinations � Facilities include lecture halls, computer labs and hostels

� Transport is available within a radius of 20 kilometers

� Friendly and serene environment � Free branded corporate wear � KNUT members enjoy 15% discount


Introduction

A sale is not considered effective unless you are sure it can be collected or paid for within an acceptable time period. The collection system, if not well coordinated, can pose significant cash flow and by extension liquidity problems to the organisation. Such an organisation might be forced to lean towards its partners and business associates, like bankers and other creditors. If

not well addressed at this point, it could eventually lead to business failure.

However, when basic credit management principles and best practices are well observed, there is adequate business cash flow which enables the business to grow and gives it the muscle to compete effectively. Effective credit management is therefore a core finance function in every organisation.

The following tips and best practices will assist every credit controller or organisation in developing a framework which, if well observed and followed guarantees collection and the creditor trap is avoided. They are meant to make collection processes seamless in such a way as to avoid hassle and therefore distinguish the ‘credit controller’ from the ‘debt collector’. The difference between the two is the hassle involved in meeting their goals.

EFFECTIVE CREDIT MANAGEMENT

Danielton KiminzaCPA and CCP graduate

Credit Management ConsultantIntelfin Consulting (EA), Kenya


Credit management

Tips to effective credit management

(i) Develop a credit policy

“Failing to plan is planning to fail”.

Develop a plan beforehand on how the credit function should operate. Formulation of this policy may be a boring activity, but it’s worth every minute spent on it. The elements should include;• Objectives. Outline the kind of

businesses to extend credit to, the circumstances under which the same is to be extended, how much credit is to be extended, the terms of payment, and the triggers to the revocation of the credit lines.

• Credit approval process. Identify the internal steps of approving new debtors, and how to assess creditworthiness of each debtor. Set durations to review the creditworthiness, as this may change from time to time.

• Credit limits. Set a criterion for allocating credit limits to each client. This may be based

on either volume or time. You may for instance offer a preset limit for all clients until you have been with them for a particular period, or they have paid for a certain volume of business (or number of invoices) on time, or even according to their industry risk rating. However, this limit should not be set too low in a manner which would constrain the customer in terms of volume which may necessitate a search for another vendor. It should considerably satisfy the client needs in order to ensure that they treasure the relationship.

• Credit terms. This should cover the precise period of payment after delivery of goods and accompanying invoices. For instance “within 30 days after invoice delivery”. It should also include incentives for prompt payment (if any) and disincentives of late payment, like penalties and interest. These MUST be well understood and acknowledged by the client.

• Monitoring and escalation procedure. Set procedures of monitoring growing account balances and escalation to the relevant authorities in your organisation for a decision to be reached. For instance, red flagging all invoices over 60 days and forwarding to the credit manager/director for further investigation and appropriate action.

• Response to bad debts. Internally decide beforehand on how to deal with accounts which have fallen in arrears. This may include shortening credit terms, reducing credit limits, closer

monitoring and weekly analysis, a warning letter to the client all aimed at reducing exposure. If you can’t be paid for outstanding invoices, don’t let the account grow further. In extreme circumstances, you may consider using a debt collection agency or even litigation. You should also consider writing off bad debts periodically to make your ‘receivable account’ realistic.

Having a watertight credit policy keeps you vigilant and shows your customer that you are serious about payment, setting out the terms of engagement early enough, in addition to managing their expectations.

(ii) Know your customer

Knowledge is power – don’t let your customer become a liability to your business.

Even in seasons of low demand, don’t overlook this step and accept new customers blindly. Getting background information about your customers may not be the


Credit management

easiest task, but it's first important to establish if this is a legitimate registered business. The companies registry can provide that information, and the emergence of credit reference bureaus is a great relief for information on would-be debtors. However, the 5 C’s approach as summarised below is a tested way to assess your customers.• Character. Assess the

organisation’s general willingness to pay based on their overall attitude during the negotiations, their company values, their financial track record and its directors. Factors such as court actions and a dark financial past may be a pointer to the ethical and financial standing of the organisation. A previous supplier, and even the internet may also offer credible information on their track record, but this must be vouched for accuracy. The character of the customer helps you set credit limits and terms.

• Capacity. From the prospective customer’s financial track record, make a decision on whether the organisation is able to generate enough cash flows to meet its financial obligations including your dues as well as cover its other expenses.

• Capital. Understand the

organisation’s core capital base, the nature of liability for debts, the assets they hold and even shareholder commitments. This will clearly show you whether the organisation is committed and able to pay its debts within specified time intervals.

• Cash flow. Cash flow is considered the ‘back bone’ of the business, far more important than profitability (an organisation can survive several years without profitability but without cash flow it can’t sustain operations). Consider the cash cycles of the business as well as the other obligations that the organisation may have, such as payment of salaries. Through this it’s possible to judge whether the organisation will meet its obligations in the prospective contract. For donor funded organisations like NGOs it’s important to be assured that funding will be available during the period of engagement.

• Conditions. Consider the economic conditions in the particular industry, which may require your adjustment or may affect the ability to pay, including international economic conditions which may have an effect on the domestic market

and fluctuations in exchange rates. For instance, many donor funded organisations were starved of funding during the economic crisis in Europe and USA, which by extension affected their ability to pay.

Debtor assessment should be continuous and changes in the payment cycles should be monitored closely, to ensure that the client’s financial position is still intact.

(iii) Invoice correctly, clearly and promptly

“The devil is in the detail”.

Any delay or error in invoicing automatically translates into delays in payment. Extending the time before the invoice reaches the client also extends payment terms by the same period.

The agreement with the client or order should cover issues regarding invoicing. It should specify to whom the invoices should be sent, when and how. Ensure the following:• Invoices are raised correctly and

promptly. The correct company name should be used, the goods well specified, and where there are specific order numbers or references, they should be quoted.

• Invoices are sent to the right person in the organisation, and that a confirmation of receipt is signed. Don’t send the invoice to a busy chief executive if it should be going to his or her personal assistant or a payables accountant. Confirm if necessary.

• The invoice states how and


Credit management

when payment should be made, which had been agreed and signed by the customer before credit was approved.

• Follow up with a call or email to ensure that there are no disputes regarding the invoices. This also allows the customer to give feedback on the work invoiced. Where there are disputes, solve them immediately, as some customers will withhold payment for other invoices unless a dispute on a certain invoice is sorted. Let the customer have no excuse for non-payment.

To ensure correct details are captured on the invoice, you should have someone verify the invoice details against the order, so that before dispatch any corrections are made.

(iv) Be assertive in asking for payment

“Give to Caesar what’s due to Caesar”.

The client at this point has no excuse but to pay what is due. When you get paid, the sale is complete. When a customer doesn’t pay,

they’re hanging on to money that is rightfully yours and you should ask for it. • Be polite, professional and

persistent; do what you say you’re going to do when you said you were going to do it. Have a routine system for following up non-payment that includes letter, email, and telephone, but be prepared to act more quickly if the amount is large or you are concerned about the customer.

• Make immediate contact when payment has not arrived; make known to the client what figure/amount you expect and when you expect it. Follow up promises to make sure they are met, making clear the consequences of non-payment.

• If a customer persistently pays late or makes excuses, review your engagement with them and consider whether you’re prepared to continue supplying on credit terms. It may be better to lose an order, or even the customer, than supply goods, not get paid and suffer a bad debt which you ultimately have to write off as a loss.

• Where customers pay electronically, they should send you the remittance advice in

advance so that when you receive the funds, you allocate their account accordingly. Where they send a cheque, it should be accompanied by a remittance advice detailing which invoices are settled by the payment, for easy account allocations.

• Periodically (preferably monthly) send each customer a statement, and also send immediately after they have made a payment and you have allocated the account. This helps to bring out disputes (if any) in addition to keeping the customer always informed.

Conclusion

These best practices and credit management measures are designed to ensure that the client pays you promptly. If you have followed up and still the client has refused to pay, you may consider taking legal action against them or engaging a collection agency. However, always consider the commercial reality of the situation. For instance, if the customer is insolvent or has no available funds, further action is unlikely to help, so weigh the costs of follow up against the size of the debt. Nevertheless, the above tips are meant to help you avoid bad debts.

ProfileKCA University is a premier business university whose main campus is situated in Ruaraka along the Thika super highway. The University takes pride in producing world-class graduates committed to excellence, integrity and service to the community. A diverse selection of competitive academic and professional programs are offered at an affordable rate and delivered by a competent faculty whose members are leaders in their fields of expertise. Accreditation KCA University has been a leader in the academic arena since 1989 in line with the values of our founders the Institute of Certified Public Accountants of Kenya, ICPAK. This was acknowledged by His Excellency Mwai Kibaki, the President of the Republic of Kenya, and the Commission for University Education (CUE) through the award of Charter on 1st March 2013.

students. The complex has integrated digital equipment in the 50 classrooms, 9 state- of- the art computer labs, and 5 lecture theatres incorporating modern ICT in the learning process and resulting in a versatile graduate.

Financial aid At KCAU, we believe that education is an investment for the future and should be accessible to all regardless of background or status. For this reason the University has allocated a large portion of its revenue to a financial aid program that subsidizes costs for needy students. We offer a range of undergraduate scholarships and awards in recognition of outstanding academic achievements, leadership qualities and special talents. Requests for financial aid by needy students have grown overwhelmingly; in order to meet this demand and sustain the financial aid programs the University has set up an endowment fund. University staff and alumni are contributing to the fund and are inviting well wishers to partner with them to enable KCA University support more of these ambitious but disadvantaged young people.

Accessibility While in Kenya and the region at large, emphasis is laid on the final results achieved by a high school student, at KCAU we provide students with an opportunity to progress from the lowest to the highest level of academia for as long as they demonstrate excellence and talent. KCAU students who hold academic and professional qualifications recognized by the University Senate are awarded exemptions that allow them accelerate their degree programs. With an abridged degree requirement, such students enjoy reduced tuition costs and duration of study.

ICPAK ICPAK has proven to be a critical and strategic partner in KCAU’s conception and growth providing continuous support and leadership. Out of this rich relationship, ICPAK members have enjoyed discounts on KCAU academic programs.

Current offers include:• ICPAK Members 20% discount on Tuition• Spouse 10% discount on Tuition• Dependents/ Children (Limited to 2)10% discount on Tuition

As a fully accredited University, the University programs are recognised for further education and employability in Kenya, the region and the world. These programmes include Graduate, Undergraduate, Diploma, Certificate and Professional courses. However, KCAU is growing its bouquet of programs to include degrees that are relevant to a dynamic industry that requires innovators and job creators.

CampusesOur regional influence is evident in the KCA campuses located in Kisumu, Kitengela and Nairobi Central Business District which, cater for the community’s demand for quality university education. Additionally, KCAU is in collaboration with communities in Tanzania and Southern Sudan, training and building capacity for leadership and governance.

Premier FacilitiesKCAU boasts an ultra- modern library which seats 1,500 and provides access to an extensive collection of books, periodicals (magazines and journals), audio- visual material and electronic databases and journals.

The Martin Oduor-Otieno Library has an in- built network link and reliable wireless internet that facilitates research and academic discourse on a global platform.

Academic exercise in the Main campus is hosted in the contemporary- design tuition complex which accommodates more than 3,000


Public speaking is talking to a group of people - this is the most clear and simple definition of public speaking. This could be in a public rally, class room, seminar, workshop, board room, religious meeting, community gathering or even an interviewing panel.

The Oxford English Dictionary defines public speaking as the action or practice of addressing public gatherings; the making of speeches.

The truth of the matter is that this definition is not complete in that it states that public speaking is about addressing gatherings, but this is not always the case.

Wikipedia defines public speaking as ‘the process of speaking to a group of people in a structured, deliberate manner intended to inform, influence or entertain the listeners.’ Wikipedia’s definition is indeed perhaps the most useful for understanding public speaking. First, one must be speaking to a group of people. Then, it must involve structure, that the speaker must plan how to introduce himself, how to build the body of his speech and conclusion, just making noise before an audience will not make an impact. Finally, the most important part is the purpose of speaking. One should never go before an audience without a purpose. The speaker must in preparation ask, what is the main

Dan MugeraPublic speaking coach

East African Centre for Public SpeakingMombasa

PUBLIC SPEAKING FURTHER INSIGHTS

Public speaking is the process of speaking to a group of people in a structured, deliberate manner intended to inform, influence or entertain the listeners


Public speaking

purpose for speaking to a particular audience? This will enable him/her to have direction and objectives which will deliberately lead the speaker to impact the audience positively.

What public speaking is not

Training in public speaking, I can tell you, is not a matter of externals that is clothes, gestures and other added external flavours. Kindly don’t get me wrong, clothes and gestures do have an honourable place in public speaking, but it is important to note that public speaking is not primarily that, because, armed with that only, the speaker can be mechanical and cheap. Also, public speaking is not imitation. Many are the times that speakers try to copy other speakers in the hope that they will also enhance their brand and be

seen as experts like the ones they are copying, but the result is utter disaster.

Again and again I have met speakers trying to imitate famous speakers like the current American President Barrack Obama or associate pastors speaking like their Bishops in the name of the spiritual aspect of impartation. But, I ask myself, should individuals stretch themselves that much just to impress an audience? Certainly not. Speakers should always strive to be original, they are free to learn from other experienced speakers, but, they must not sink themselves to the valleys of simple copy cats living under the shadows of other speakers and becoming highly perfected machines for the delivery of other men’s goods.

Finally, public speaking is not standards. It is not sticking

to particular standards, but understanding the aspects of what you want to tell your audience and move ahead to organize your thoughts and deliver your speech. One cannot say that for a speech to be effective, the speaker need to commence with a definition, a story or even a joke. One cannot claim that a powerful speech must have historical perspectives or religious connotations, because, this will be sticking to standards which are not at all necessary to make a speech effective.

What public speaking is

Public speaking therefore is public utterance, of the man or the woman herself. To be effective, the speaker must think of the things which should be given forth. This cannot happen if the individual has not learnt the art of reading and reflection so as to digest these thoughts and allow them to mature before presenting them. A public speaker should therefore be a person who understands himself or herself in terms of the strengths and capabilities, attitudes and beliefs before delivering the speech.

A public speaker must be confident, well prepared and entertaining in delivering a speech and not vice versa

A public speaker must conquer fear in order to be able to stand before an audience

Just a minute. I seem to have misplaced my

speech


Introduction

According to futurist Alvin Toffler, “The illiterate of the 21st century will not be the individual who cannot read and write, but the one who cannot learn, unlearn and relearn.” It is generally accepted that knowledge management emerged as a discipline in the early 1990s, fuelled by a confluence of computing availability, propagation through consulting firms and conference promotion.

More often than not, information overload is mistaken for knowledge management. Knowledge management then, is a ‘‘set of techniques and practices that facilitate the flow of knowledge into and within the firm’’ Birkinshaw (2001). It needs a systematic approach to develop capabilities which accelerate the evolution of knowledge into a key organisational resource. Knowledge is now regarded as the most strategically significant organisational asset with companies emphasising on capabilities and intangible resources as competitive tools (Kiessling and Harvey, 2006). However, knowledge may also be the organisational asset managed least effectively (Schutz and Carpenter, 2008). Much of the knowledge that serves as a source of advantage is tacit in nature (McDonnell et al., 2007), which is difficult to formalise and share due to its highly personal

Kellen KiambatiMBA, Strategic Management

Management consultant

Knowledge components

TechnologyPeople

Process

LEARNING

Data store & formatsnetworks, internet, data mining and analysis, data tools, automation standards

KM maps, work flows, integration, best practices, business intelligence

standards

Attitudes, sharing, innovation, skills team

work, motivation, organisation, vision/

objectives, communities, standards

70%

10%

20%n%=effort required

KNOWLEDGE MANAGEMENT THE ILLITERATE OF THE 21ST CENTURY


Knowledge management

nature and its embedment in people’s actions and experiences. Organisations vary greatly in how they manage knowledge and workers who possess this tacit knowledge. Some organisations primarily focus on maximizing their productivity; others focus on the importance of collaboration and team work for knowledge sharing; while others heavily invest in their training and development and structure knowledge work for flexibility and change (Lepak and Snell, 2002). This diversity of management approaches is reflected in the significant variance in the performance of knowledge intensive companies within the same industry (Guthridge et al., 2008). Organisations need to

adopt a more strategic approach to managing knowledge workers as superior performance is linked to tacit knowledge, the retention of employees who possess this knowledge and the ability to continuously harvest their knowledge and expertise (Kiessling and Harvey, 2006).

Knowledge management can also be intertwined with knowledge risk management (KRM). KRM is an emerging field which offers a solution to the problems associated with conventional risk management methods. The problem of environmental complexity is manifested by individuals not knowing enough about the risk to anticipate, its likelihood and consequences. Environmental complexity creates uncertainty. Knowledge moves individuals along the spectrum of uncertainty towards certainty; making risk a ‘learnable’ rather than an entirely random event (Apgar, 2006).

The understanding of transmission of knowledge is of special importance in two of the key socio-economic problems of our time: (a) international inequalities in productivity, and (b) the failure of the education system in reducing income

inequality. The two problems have a considerable formal similarity. If one nation or class has the knowledge which enables it to achieve high productivity, why is not the other acquiring that information? That a nation or class has a consistently high productivity implies a successful communication system within the nation or class, so the problem turns on the differential between costs of communication within and between classes (Arrow, 1969).

Efficient knowledge use enhances competitive advantage and improves organisational success. Knowledge management has become increasingly important as organisations realize that

Identification of knowledge needs

Discovery of existing knowledge

Storage and organisation of knowledge

Acquisition of knowledge

Creation of knowledge

Sharing of knowledge

Use and application of knowledge

Training

Knowledge acquisition

dissemination

Knowledge development

KM strategy

Processessupport

competitive

Corporatestrategy

Business

Management

Management

Knowledge

Products and services

Performancemeasurement and

feedback

DetermineContribute to

KnowledgeBenefits

Access to best/latest thinking

Faster access to knowledge

Better sharing

Knowing who is doing what

Better/fasterinnovation

Improved customer service

Reducing knowledge loss

Productivity/performance

IntermediateBenefits

OrganisationalBenefits

Novel approachesNew ideas

Faster problem solving

New hireseffective quicker

Minimises duplication/re-invention



effective use of their vast and varied knowledge assets and resources provides them with the ability to innovate and respond to fast changing customer expectations. Organisations develop Knowledge management capabilities to help support a range of vital operational and innovative activities. The interest in organisational capabilities has created a focus on the development and implementation of knowledge management processes and infrastructure required to support daily work practices.

Nielsen (2006) states that competitive advantage rests on the ability to constantly develop capabilities that form the basis for products and services offered by organisations. To remain competitive it is insufficient to have resources and assets, as organisations must also possess strong knowledge management capabilities for developing and supporting work practices and routines. This is especially true for organisations competing in dynamic markets as knowledge management capabilities enable organisations to react to

changing market conditions, and achieve and sustain competitive advantage, (Wheeler, 2002; D’Aveni, 1994).

Knowledge management is emerging as a key concern of organisations, particularly those who have already redesigned their business processes and embedded a total quality approach into their practices. Major consulting firms are now gearing up to add knowledge management to their lines of business. Knowledge management has become increasingly important as organisations realise that effective use of their vast and varied

knowledge assets and resources provides them with the ability to innovate and respond to fast changing customer expectations.

Organisations aim to develop knowledge management capabilities into a state where these practices are institutionalised and embedded into its daily work practices. Organisational support capabilities need to develop at a rate that matches organisational growth and sustains quality. Unbalanced growth of support capabilities affects developmental systems and undermines daily work practices. Institutions should provide a structured approach for global organisations to develop, diagnose and characterise knowledge management infrastructure and process capabilities. Characteristics that determine the state of an organisation’s knowledge management capability development programme should be defined too.

An organisation can acquire more information than any one individual, for it can have each member performing different experiments. Thus, the limitations on an individual’s capacity are overcome. But as always there is a price to be paid. The information

Manage creativityCoachBrainstorm

Encourage self-learningEncourage experimentationEncourage feedback

Get rid of bureaucracyInstill confidence in peopleDifferentiate and position

APPLYManage ideas

Establish innovation systemEnergise people

Cross-pollinate ideasBuild knowledge communitiesCommunicate effectively

The wheel of knowledge managementFive interwoven functions and enabling actions

SIMPLIFYSYNERGISE

CREATE LEARN


Operational knowledge

management

Strategicknowledge

management

Market &strategy

People and

motivation

Structure and process

Knowledge & systems



has to be coordinated if it is to be of any use to the organisation. More formally stated, communication channels have to be created within the organisation. Error is unnecessary when the information is available somewhere in the organisation but not available or used by the authority. The reason for this failure is, simply enough, the overload of the information and decision-making capacity of the authority. In an organisation of any complexity, an individual or a small group cannot be aware of all that is relevant. Thus, the organisation is getting the benefit of a considerable amount of information which is free to it. Even though the code of the organisation may make the internal transmission of information costly, if there is enough of it (coming in from outside), the behaviour of the organisation may change.

There have been studies by both economists and sociologists on the diffusion of innovations; the relation between the two types of studies resemble nothing so much as the parable of the blind men and the elephant. While Griliches and Mansfield stress the profitability of the investment and the risks involved, the sociologists are concerned with the nature of the channel connecting the adopters of an innovation with

potential followers. While mass media play a major role in alerting individuals to the possibility of an innovation, it seems to be personal contact that is most relevant in leading to its adoption. Thus, the diffusion of an innovation becomes a process formally akin to the spread of an infectious disease within and between classes. Selecting people for jobs is one of education’s latent functions: its manifest function is the management of knowledge.

Knowledge management as a child of data management

There was another parallel birthing for the concept of knowledge management in the 1970s and 1980s, arising out of an almost distinct tradition: the growing ascendancy of computing in the life of organisations. We can say ‘‘almost distinct’’ because rapid developments in computing capabilities and information technology were very clearly seen to be drivers for the increasingly important role of knowledge and information in society and corporate life; they were a key theme, for example, in the public policy deliberations of the panel on the management of information and knowledge convened by the US

House of Representatives in 1970 (US House of Representatives, 1970). However, as this line of thinking developed in the 1970s, it was relatively untroubled by an awareness of broader issues relating to the economics of knowledge, knowledge-based organisations, educational and societal aspects of knowledge management and the demands of public policy. The actors in the computing tradition were concerned primarily with defining their own roles and status within organisational systems, and striving to define how they could meet organisational needs as they perceived them. In a sense, this specialised branch of thinking about knowledge management prefigured the larger act of forgetting that occurred in the 1990s. A report written for the US Department of Defense by Berry and Cook in 1976, entitled Managing Knowledge

Decision making

Synthesising

Analysing

Summarising

Organising

Collecting

KNOWLEDGE

INFORMATION

DATA

INFORMATIONDOMAIN

KNOWLEDGEDOMAIN

Contex

t

Context

Triggers

Trigger

s

Generat

es

Generates

Generat

es

Support

s RequiresSupports

KNOWLEDGE

DATA

LEARNING/INNOVATION

TASK/DECISION

KASNEB Newsline, Issue No. 1 January - March 201336


as a Corporate Resource casts a revealing light on the early formation of knowledge management ideas from a computing point of view.

It is revealing because it illustrates the almost complete divorce between the mental models of management science (for example) and computer science, and for prefiguring the strange way in which thinking around data and technology management dominated the shape, form and implementation of ‘‘official’’ knowledge management in its first decade, at the exact same time that the dominant literature of knowledge management during the 1990s talked about quite different things. Of those early pioneers, only Wiig (1997) seems to have tried, not entirely successfully, to get to grips with the implications of computer science thinking for knowledge management, particularly in relation to early work in expert systems, artificial intelligence and knowledge-based systems. More precisely, the Berry and Cook report demonstrates that the theoretical foundations for the technological implementation of knowledge management (in terms of an enterprise data architecture) were already being laid in the 1970s, and these theoretical foundations had no connection whatever with the economic, social, organisational or psychological understandings of the natural workings of knowledge within human groups that had been evolving since the early 1960s. The starting point for Berry and Cook was the growing tide of opinion in the

data management community in the early 1970s that data should be managed as a corporate resource.

Conclusion

The effects of knowledge production and use have significant economic impact beyond management of capital and labour, and therefore require serious managerial attention (within organisations) and policy attention (within governments) at senior levels. The dynamics of knowledge use within organisations are substantively different from the dynamics of knowledge use within societies, even though they share similar problem sets, and even though they need to interact with each other; it is difficult for knowledge management professionals to be effective without an understanding of these different dynamics and how they interact. The naturalistic patterns and constraints of knowledge diffusion within s o c i a l g r o u p s

are reasonably well understood, but largely unexploited by knowledge management theorists and professionals; the diffusion of knowledge across social groups is less well understood, but is being intensively studied by economists, and this body of theory is also under-exploited within knowledge management.

However, knowledge management is not owned by any one group in an organisation, nor by any one profession or industry. But if different professionals want to be key players in the emerging knowledge

management phenomenon, they need to understand

the multiple perspectives of the other players. Knowledge management requires a holistic and multidisciplinary approach to management processes and an understanding of the dimensions of knowledge

work. Knowledge management should

be the evolution of good management practices sensibly

and purposively applied.

icaew.com/icpakicpak.com

Shaping buSineSS leaderS in accountancy and finance ICPAK and ICAEW, leaders in the finance and accountancy profession, are working in partnership to support their members and continually raise standards of the profession.

As a CPA you can now become a member of ICAEW, use the ACA designatory letters after your name, and leverage worldwide recognition of the ICAEW Chartered Accountant qualification.

As an ICAEW member in Kenya, you can join ICPAK and benefit from the support of the local professional body and access opportunities in the wider East African market.

Holding both qualifications is a guarantee of your professional competence and financial intelligence, and gives you the work experience and skills the business world demands.

Find out how to start studying today.

5612_ICAEW A4 Poster.indd 1 22/06/2012 10:56

Guilders Building,

Moi Avenue

Relevant books

Quiet atmosphere

Trainers in Accountancy

Pinnacle Business School

VISION

To be a leading business training and consultancy firm and a choice provider of quality tertiary and executive

training services.

AWAY FROM BOOKSSampling the beauty

of Kenya

LECTURES IN PROGRESSPlanting the seeds of knowledge

MISSION

To provide the highest quality training in accountancy and business that is relevant to the market and to students and to provide the highest quality accountancy and financial management consultancy to our clients while keeping and enhancing our position as a leading training centre in the

country and in the region.

AWAY FROM BOOKSSampling the beauty

of Kenya

1st Floor, G

uilders Centre , M

oi Avenue, Nairobi (n

ext to Bookpoint B

ookshop)

P. O. B

ox 3963 - 0

0100 Nairobi, Kenya

Landline: 020 - 2222190, 3585400/1 M

obile: 0721471200

Website: w

ww. pinnaclebizs

chool.com

Email: info@pinnaclebizs

chool.com

LECTURES IN PROGRESSPlanting the seeds of knowledge

GRADUATION CEREMONYReaping the fruits of hard work

MISSION

To provide the highest quality training in accountancy and business that is relevant to the market and to students and to provide the highest quality accountancy and financial management consultancy to our clients while keeping and enhancing our position as a leading training centre in the

country and in the region.

Integrity an

d excelle

nce

CORE VALUES

Integrity: To display the highest level of integrity in all that we do.Excellence: To continually pursue excellence in the performance of our duties.Professionalism: To diligently and professionally conduct our business.


Introduction

According to Section 17 (1) of the Accountants Act No.15 or 2008, one of the functions of KASNEB is to make rules with respect to its examinations. In this connection, KASNEB has made and enforced rules, regulations and policies with respect to, among other areas, registration, exemptions and credit retention. It is the policy of KASNEB to revise these rules, regulations and policies from time to time in order to attune them with the ever-changing global environment.

Mid-term review of syllabuses

The policy of KASNEB is to undertake a major review of the examination syllabuses after every five years and a mid-term review after every two and a half years.A mid-term review of the examination syllabuses was undertaken in the financial year 2011/2012 and finalised in June 2012. The mid-term review took into account

views from a wide spectrum of stakeholders including students, trainers, employers, professional bodies, government bodies and departments, non-governmental organisations, examiners, parents and guardians among others.

Examinations under the revised syllabuses will be administered from the May/June 2013 examination sitting.

Changes arising from the mid-term review

Some of the views received from stakeholders during the mid-term review of the syllabuses related to the need for KASNEB to review certain examination rules, regulations and policies. In addition, KASNEB undertook an internal evaluation of existing rules, regulations and policies in an effort to benchmark them with international best practice.

Arising from these initiatives, a number of changes to examination rules, regulations and policies have been introduced. These are summarised below.

CURRENT RULE/POLICY NEW RULE/POLICY1. Processing of results for partially absent students

Currently, a student who is required to sit for two or more papers in a level or section, and who is absent in one or some of the papers in the level or section, is awarded an overall FAIL result regardless of the student’s performance in the papers attempted. Such a student is required to resit all the papers that he had initially been entered.

The credit retention policy has been extended to cover instances of partial absenteeism, in which case a student who is partially absent in a level/section will earn credit(s) for any paper(s) attempted and passed in the level or section during a particular sitting.

Provided that the student must have entered all the papers in the level/section as required and attempted at least one paper in the level/section.

2. Deferment of examination fees to the subsequent sitting

Currently, deferment of fees from one sitting to the next is not allowed. However, students are allowed to withdraw from examinations and claim a refund in particular circumstances, as elaborated below.

•• Students who withdraw from the examination before the closing date specified for late entry to the examinations, that is 15 March and 15 September, are refunded 50% of the examination entry fee. No refunds are made for withdrawals beyond this period for the relevant sitting.

•• Students who are prevented from sitting the examination due to illness are refunded 75% of the examination entry fee subject to production of an authentic medical certificate covering the examination dates.

(a) Deferment of fees shall be allowed subject to the following conditions:

(i) A formal application shall be made by the student for deferment of examination fees to the subsequent sitting.

(ii) Deferment of fees shall only be allowed on the basis of medical reasons, change of work station or similar circumstances as approved by the Secretary and Chief Executive. All relevant evidence shall be required to be attached. Each application shall be treated on its own merit.

(iii) A student shall be allowed to defer fees to the subsequent sitting only once in any particular level or section. The full amount of deferred fees not utilised in the subsequent sitting shall be forfeited to KASNEB

(iv) An administrative charge equivalent to 15% of the applicable examination fees shall be levied as a precondition for the deferment of the examination fees.

(v) An application for deferment together with the administrative charge must be received at least thirty (30) days before the commencement date of the examination, except for medical reasons.

(b) The current policy on withdrawals shall be retained as is.

Changes to examination rules, regulations and policies

KASNEB


Updates

CURRENT RULE/POLICY NEW RULE/POLICY3. Change of registration

Students who have applied and registered for a particular qualification and who thereafter wish to change to another qualification are required to pay registration fees afresh for the alternative qualification selected.

Students who have applied and registered for a particular qualification and who thereafter wish to change to another qualification shall be allowed to do so without paying the applicable student registration fees provided that the following conditions are fulfilled:

(i) The application for the change is made before the date of the late examination entry for the sitting immediately following the date of registration. Such an application must state the reasons for the change and include a request for cancellation of the previous registration.

(ii) An administrative charge equivalent to 15% of the registration fees earlier paid shall be levied at the time of application.

(iii) An application for change of registration shall only be allowed once for each student.

Examination fees paid for the previous qualification shall be transferable to the new qualification, provided that all other rules relating to examination fees shall apply.

4. Remarking of scripts

There is no policy allowing for remarking of scripts.

Remarking shall be allowed on the following conditions:

(i) An appeal for remarking must be received in writing within fourteen (14) days of release of results by KASNEB.

(ii) The appeal must be filed by a student individually.(iii) A remarking fee shall be charged at Sh. 5,000 per paper at

technician level, and Sh. 7,500 per paper at professional level.(iv) The student shall give a commitment to accept the outcome of

the marks review as final.

A refund of the remarking fee, less an administrative charge of 15% shall be made if, after the remarking, the student’s results for the particular paper change from a FAIL to a PASS.

5. Exemption policy

Currently, exemptions are only offered to the following:

(i) KASNEB graduates wishing to pursue other qualifications of KASNEB.

(ii) Graduates of recognised universities for equivalent units undertaken at undergraduate level.

(a) The exemption policy has been broadened to include relevant papers covered in diplomas, higher national diplomas, postgraduate diplomas and postgraduate degrees from recognised universities, national polytechnics and other national institutions such as the Kenya National Examinations Council (KNEC).Exemptions shall however continue to be granted on a paper by paper basis in each case.

(b) The exemption policy shall provide for the following additions:

(i) Holders of diplomas and higher national diplomas from national polytechnics, universities, university colleges, KNEC (and similar recognised institutions based outside Kenya) shall be exempted up to a maximum of 50% of the papers in Part I of the professional examinations, depending on the nature of their qualification.

(ii) Holders of relevant undergraduate degrees who also hold postgraduate diplomas/degrees in related areas shall qualify for exemptions up to a maximum of Part I and 50% of the units in Part II of professional examinations, as applicable in each case.

(iii) Holders of relevant masters degrees but with non-qualifying undergraduate degrees shall be eligible for exemptions on the basis of the masters degree up to a maximum of Part I of the professional qualifications, as applicable.


Updates

Students, trainers, parents/guardians/sponsors, employers and other stakeholders are hereby informed that KASNEB has opened student fee collection accounts with the following banks:

(a) National Bank of Kenya Ltd. (NBK) - Account No.01001031572601.(b) Equity Bank Ltd. - Account No.0170299238025.(c) Kenya Post Office Savings Bank (Postbank)

- Account No.0744130009246.(d) Co-operative Bank of Kenya Ltd. - Account No.01129128535900.

The bank accounts are already operational.

Students are required to complete the appropriate KASNEB forms and relevant fee deposit slips (except for Postbank which does not use deposit slips). The students will be issued with one copy of the deposit

slip and a computer generated slip for their records. However, for Postbank only a computer generated receipt will be issued.

Upon payment of the requisite fees to the bank, a cash deposit receipt will be issued to the payee. The completed KASNEB forms will be left with the bank for onward transmission to KASNEB together with one copy of the deposit slip.

All students are advised to pay their fees through any of the above bank accounts.

Note: Students should ensure that all documents requiring certification, such as copies of academic and professional certificates and identity card/passport are so certified before being handed over to the bank.

KASNEB student fee collection accounts with banks

registration reinstatement fee for a period of three (3) months from 1 April 2013 to 30 June 2013.

All inactive students are advised to take advantage of this one-off waiver by paying their outstanding annual registration arrears (without paying the reinstatement fee) and thereafter book to sit the November/December 2013 examinations.

To all inactive students

Temporary waiver of the registration reinstatement fee

KASNEB is committed to ensuring that all its students complete their examinations and obtain the respective qualifications within a reasonable period.

We are pleased to inform all inactive students that KASNEB has temporarily waived the

KASNEB Newsline, Issue No. 1 January - March 2013 January - March 2013 KASNEB Newsline, Issue No. 144 45 January - March 2013 KASNEB Newsline, Issue No. 1

Holy Rosary College: A brief history

Holy Rosary College is a private Catholic Church sponsored institution in Machakos Diocese. It was started in 1967 in Tala Town. It is situated 75 kilometres on the Nairobi - Kangundo Road, 1.5 kilometres to Tala town. The College was formally known as Tala Secretarial. Holy Rosary College has and is always open to young men and women for the acquisition of secretarial skills, accountancy expertise, modern technology and holistic human development.

The College has developed immensely. In 2001, the college was affiliated to Jomo Kenyatta University of Agriculture and Technology (JKUAT). The college offered IT and Business courses at certificate and diploma levels.

In 2010, KASNEB approved the college as an examinations centre. In 2012, the college was issued with an Interim Accreditation Certificate and approved to offer KASNEB courses at technician and professional levels. The college is in the process of being fully accredited.

We are blessed with a huge compound, quiet and conducive for studies. The classrooms are large and well ventilated. Our teachers are qualified for all the courses offered at

the school. The school has the capacity to accommodate up to 500 boarding students. Our boarding facilities are excellent and there is space to put up new structures if the need arises.

We offer quality accommodation for holiday activities such as meetings, seminars, those who mark exams, retreats and camping activities at reduced prices.

Holy Rosary College is fully registered to offer external examinations incuding KNEC Single and Group with new syllabus; KASNEB courses; Primary Teacher Grade 1 Certificate and Diploma and Early Childhood Development Education.

Our fee is very moderate and greatly subsidised. There is room for more fees subsidy to very intelligent but poor young men and women. The college is open for regular and part-time classes. Proficiency examinations are offered for those whose credits do not meet the minimum requirements but who wish to pursue certain courses at the college.

We also offer counseling sessions for interested young men and women on Fridays.

Typing lab

Female hostel

Male hostel

Library

INTAKES KASNEB: JANUARY AND JUNE 2013SECRETARIAL: JANUARY, MAY AND SEPTEMBERP1: SEPTEMBER 2013ECDE: JANUARY AND HOLIDAY TIMES

Contacts:Holy Rosary CollegeP.O. BOX 55 - 90131Tala - Kangundo RoadTel: 020-3593505Email: [email protected]

Computer lab

College profile

Students of KASNEB, parents, sponsors, guardians, training institutions and other stakeholders are hereby notified of the following important dates and information.

1. Examination dates for May/June 2013 examinations are as follows:

(a) ATC, ICTT, IST and CMT Levels I and II - Tuesday, 28 May 2013, Wednesday, 29 May 2013 and Thursday, 30 May 2013

(b) CPA, CPS, CSIA, and CCP Part I - Friday, 31 May 2013, Tuesday, 4 June 2013 and Wednesday, 5 June 2013

(c) CPA, CPS, CSIA and CCP Parts II and III - Thursday, 6 June 2013, Friday, 7 June 2013 and Monday, 10 June 2013 (d) CICT

(i) Part I - Friday, 31 May 2013, Tuesday, 4 June 2013, Wednesday, 5 June 2013 and Thursday, 6 June 2013

(ii) Part II - Wednesday, 5 June 2013 ,Thursday, 6 June 2013, Friday, 7 June 2013 and Monday, 10 June 2013

(iii) Part III - Thursday, 6 June 2013, Friday, 7 June 2013 and Monday, 10 June 2013

(e) Foreign Accountancy Qualifications (FAQ) - Friday, 7 June 2013 and Monday, 10 June 2013

2. Examination brochures and forms are obtainable on request, free of charge: (a) In Kenya either in person at the offices of KASNEB or through the post. The examination brochures and forms are also

available at any branch of the Kenya National Library Service (KNLS) countrywide or training institutions.

(b) Outside Kenya either in person at the offices of KASNEB, through the post or at the following offices in Eastern and Central Africa:(i) In Uganda at DMK Associates, Crown House Building - Umeme offices, first floor, suite 2, Bombo Road - Kampala,

Makerere University Business School (MUBS) - Nakawa, Kampala International University - Kansanga, Busoga University - Iganga, and Bugema University, Kampala Campus - Bombo Road.

(ii) In Rwanda at Kigali Institute of Management - Rimera, School of Finance and Banking, Gikondo - Kigali and Institut Polytechnique De Byumba.

(iii) In Burundi at the East Africa Centre for Professional Studies (EACPS), Boulevard de L’OVA Quartier Industriel QL6284/C and Kim-PAC, Rohero 2, Avenue Moso, No.28 - Bujumbura.

(iv) In Cameroon at Maaron Business School 10, Rue, Joffre, Akwa – Douala and Fomic Business School, Buea, Cameroon.

(v) In South Sudan, at the University of Juba.

3. Method of payment of fees Attention of students is drawn to the “Guide to the May/June 2013 examinations” regarding secure methods of paying fees

to KASNEB. (a) In Kenya Students are advised to pay through any branch of the National Bank of Kenya Ltd. (NBK), Equity Bank, Kenya

Post Office Savings Bank (Postbank) or Co-operative Bank of Kenya. Students may also make payment in person at KASNEB offices in cash, by cheques/bankers cheques/drafts drawn in the name of KASNEB or through the post.

(b) Outside Kenya Students are advised to pay the applicable fees in dollars at any branch of KCB in their countries to KASNEB KCB collection account number 1123096465, domiciled at Capital Hill Branch, Nairobi. Thereafter, students should submit their documents to KASNEB together with a copy of the bank deposit slip. Students are individually and personally responsible for ensuring that fees are paid to KASNEB. Consequently, students who pay fees through third parties should ensure that such parties are honest and reliable and will therefore remit the fees to KASNEB without delay. Bankers Cheques/Drafts should be drawn payable to KASNEB and Inter-State Money Orders should be payable at City Square Post Office - Nairobi. Examination entry/annual registration renewal forms and remittances which are sent by post should be posted at least one week before the closing date to ensure that they are received in time.

4. All students of KASNEB are required to update their annual registration renewal position by 1 July of each year. All inactive students are advised to take advantage of the temporary waiver of the registration reinstatement fee to reactivate their studentship registration and book for examinations. Further details on this waiver are available on page 44 of this journal under the "KASNEB UPDATES".

5. Closing dates for applicants wishing to be registered as students in order to be eligible to enter for the November/December 2013 examinations are as shown below:

Normal Registration: Friday, 31 May 2013 Late Registration: Friday, 28 June 2013

EXAMINATIONS NOTICE - MAY/JUNE 2013 EXAMINATIONS

EXAMINATION DATES

K ASNEB PictorialK ASNEB Pictorial

Workshop for trainers of KASNEB courses held on Friday, 18 January 2013 at Laico Regency, Nairobi . A number of training institutions were awarded full and interim accreditation certificates.

Senior management training workshop on leading change held at the Sportsman's Arms Hotel, Nanyuki from Monday, 18 February 2013 to Friday, 22 February 2013.

KASNEB staff team building training held in Oloitoktok from Monday, 11 February 2013 to Friday, 15 February 2013.

Dr. Michael F. Fossung, (centre) Director - Fomic Business School, Cameroon with some members of staff of KASNEB. Dr. Fossung, a recent CPA graduate had visited Kenya to register as a member of ICPAK.

KASNEB Newsline, Issue No. 1 January - March 2013 January - March 2013 KASNEB Newsline, Issue No. 1PB 49

TECHNICIAN EXAMINATIONS

ACCOUNTING TECHNICIANS CERTIFICATE (ATC) EXAMINATION

ATC LEVEL II

TAXATIONSome candidates did not perform well in the following questions:

Question No. 1. Part (a) (i) required candidates to briefly explain the tax position in respect to turnover tax. The following were some expected points:• Turnover tax was introduced by the Finance Act

2006 with effect from January 2007.• It is a tax applicable to any resident person whose

turnover from business exceeds Sh.500,000 but does not exceed Sh.5,000,000 during any year of income.

• No expenditure or capital allowances shall be granted against turnover tax.

• Turnover tax is charged at the rate of 3% of gross sales which is final tax.

Part (a) (ii) required candidates to outline four forms of income on which turnover tax is not applicable. The expected answers included:• Employment income.• Annual income from business that does not

exceed Sh.500,000.• Rental income.• Limited companies income.• Professional or management or training fees.

Parts (b) (i) and (ii) required candidates to use the information provided to calculate the taxable income and tax payable for a non-Kenyan citizen working in Kenya. This following approach was expected:

Mr. Barry SnowIncome tax computation for the year ended 31 December 2011

Sh. Sh.Basic salary (80,000 x 12) 960,000Housing benefits 204,400Less: Rent paid (80,000 x 8 x 2%) (12,800) 191,600Medical bills 500,000Swimming pool attendant (12000 x 8) 96,000Pension contribution: Lesser of:

Actual 360,000Set limit 240,000 (30% x 2,103,600) 631,080 (240,000)

Car benefit: Higher of:2% x 12 x 1,200,000 288,000Prescribed rate 86,400 288,000Other income:Professional fees 100,000Dividends 100,000 Total taxable income 1,995,600

Examinations

The following are extracts from examiners’ comments and remarks on performance of candidates in certain papers in the various examinations of KASNEB during the November/December 2012 sitting. Emphasis has been placed on the examination papers in which some candidates did not perform well. Where applicable, guidelines have been given on how candidates were expected to approach particular questions. The information provided here below is purely for general guidance to trainers and students and should not be used for any other purpose.

NOVEMBER/DECEMBER 2012 EXAMINATIONS


purchased.• Unit price.• VAT rate charged.• VAT amount paid.• Date and time of issue of receipt.

Part (c) required candidates to calculate the output tax, input tax and VAT payable or refundable.The following approach was expected:(i) Output tax Analysis of output tax Sh. Sales 417,600 x 16

11657,600

Credit notes issued 18,560 x 16 116

(2,560)

Cash sales 324,800 x 16 116

44,800

Exports 360,000 x 0% 0 Exempt 200,000 -

99,840

(ii) Input tax Sh. Purchase 649,600 x 16 89,600 116 Electricity 26,880 x 12 2,880 112 Credit notes received 13,920 x 16 (1,920) 116 Audit fees 55,680 x 16 7,680 116 Repairs 4,800 103,040

Tax payable Sh. Sh.

Taxable income = 1,995,6001st (121,968 x 0.1) + (114,912 x 0.6) 81,144Excess (1,528,896 x 0.3) 458,669

539,813

Less: PAYE (12,800 X 12) 153,600 Personal relief 13,944 Insurance relief 14,400Withholding tax (professional fees and dividend) 25,000 (206,944)Tax payable 332,869

Part (b) (iii) required candidates to comment on any information not used in the computation of taxable income. This was expected to include: • Passages paid were tax exempt because he

was a non-Kenyan citizen.• Medical bills of up to Sh.1 million were exempt

from taxation because he was a non-whole time service director.

• Loan to purchase house would attract a fringe benefit tax, payable by the employer.

• Pension income from USA of Sh.600,000 did not accrue in Kenya and therefore not taxed.

Question No. 2. Part (a) required candidates to outline five tax incentives available to landlords, which include:• Industrial building allowances on the cost of

construction.• Wear and tear allowance on machinery and

equipment as per the second schedule of the Income Tax Act.

• Personal and insurance reliefs as per Section 30 and Section 31.

• Home ownership savings plans for individuals as per Section 15.

• Mortgage relief for owner occupier as per Section 15.

Part (b) required candidates to identify the contents of electronic tax register receipts which include:• Tax payer’s name and address.• Tax payer’s PIN and VAT number.• Description and quantity of goods or services

Examinations feedback


(ii)VAT payableValue of taxable supplies: Sh.

Standard rate 624,000

Zero rate 360,000

984,000

Non taxable supplies 200,000

Deductable

input tax

Value of taxable supplies x input tax Total supplies

Total supplies

1,016,000 x 103,040 = Sh.86,093

1,216,000

VAT payable = 99,840 – 86,093 = Sh.18,195

INVESTMENT AND SECURITIES TECHNICIANS (IST) EXAMINATION

IST LEVEL I

ENTREPRENEURSHIP AND COMMUNICATION

Examiners noted that candidates had difficulties in responding to question nos. 1 and 7.

Question No. 1 (a) required candidates to explain the term “E-sourcing”. Electronic sourcing is a new method of sourcing for goods, products and services through the internet.

Part (b) required candidates to distinguish between the following terms:(i) Indigenous entrepreneur and exotic entrepreneur An indigenous entrepreneur is a local person

who finds a solution to existing challenges and out of that creates a business opportunity and turns to a business.

An exotic entrepreneur is a person resident in one country but identifies a business need and provides a solution to that business need in another country.

(ii) Short-term business goals and long-term business goals

Short-term goals are operational in nature and are to be accomplished within a short period of time, usually less than one year.

Long-term goals are achievable in more than one year.

(iii) Credit policy and customer service charter Credit policy refers to the company’s laid down

procedures on how credit is given and recovered, to whom it is given, when, why and for how long.

Customer service charter spells out the company’s expectations of its customers and at the same time explaining to customers their expectations from the company.

Part (c) (i) required candidates to identify the following benefits of telecommunicating to an entrepreneur:• Better control An inside sales force can be supervised more

easily than field staff.• Lower commissions and expenses Commissions and expenses incurred by the

telemarketers are significantly lower than those of field sales people.

• Receptiveness Most prospects are more receptive to telephone

calls than to contact.• Impressions First impressions, although often biased, can

affect sales success. The telephone can help reduce many of the prospect biases.



• More presentations A conscientious field salesperson may obtain

one high-quality prospect out of four contacts, while a telemarketer may reach only one high quality prospect out of eight calls. However, a telephone salesperson can make up to 30 to 40 calls per hour, resulting to four or five presentations.

• Unlimited geographic coverage Telephone salespeople can penetrate markets

anywhere in the world where phones are available.

• Better time management The average field salesperson spends only

three out of eight hours actually selling. The rest of the time is occupied travelling or waiting for appointments.

• Immediate feedback Telemarketing is a quicker means of assessing

new sales strategies and allows them to be readily tested, adjusted and retested before they are applied in the field.

Part (c) (ii) required candidates to highlight five factors that could motivate people to become entrepreneurs. These include:• Unemployment People who fail to secure salaried employment

after education and training are retired or laid off are by circumstances forced into business to support their families or to survive.

• Supplement income from salary Family demands exceed the income from

salary and therefore one opts to do business for additional income.

• Not satisfied with salaried engagement Individuals finding employment boring choose to

do business instead.• Availability of funds To avoid squandering surplus funds arising from

family share or employment income, individuals invest in business.

• Application of professional or technical skills

Feeling of potential under-utilisation drives somebody to engage in business while in employment.

Question No. 7 (a) required candidates to identify four modes of upward communication. These include:• Open-door policy. • Complaints and suggestion boxes.• Social gatherings.• Direct correspondence.• Reports.• Counselling.

Part (b) required candidates to identify six factors that an entrepreneur could consider when selecting an appropriate media for communication. These include:• Cost effectiveness of the communication.• Urgency of the message.• Need for future reference.• Confidentiality of the message.• Sensitivity of the message.• Need for feedback.• Availability of the media.• Reliability of the media.

Part (c) (i) required candidates to define the term “house organ” - it is a periodic publication usually distributed free among the employees to inform them, educate them as well as entertain them.

Part (c) (ii) required candidates to summarise eight objectives of house organs. These include:• To keep employees well informed about

products, services, activities and achievements of the organisation.

• To inform employees about any new development or diversification plans.

• To counteract rumours that often spread through grapevine.

• To counter harmful propaganda from anti-business sources.

• To instill a sense of discipline among the employees in order to prevent waste.

• To explain to the employees the financial structure and operations of the organisation.

• To reduce absenteeism and increase productivity.• To acquaint employees with the achievements of

the organisation and breed in them a sense of pride and belonging.



PROFESSIONAL EXAMINATIONS

CERTIFIED PUBLIC ACCOUNTANTS (CPA) EXAMINATION

CPA PART II SECTION 3

FINANCIAL MANAGEMENT


Question No. 3 (a) required candidates to convert the provided ratios into figures and prepare the income statement and condensed statement of financial position. The following was expected:

Chepe Ltd.Income statement for the financial year ended

30 November 2012 Sh.Sales 1,904,000Less: Cost of sales (1,332,800)Gross profit (30% of sales) 571,200Operating expenses (476,000) 95,200Interest 29,750 65,450Tax (40%) 26,180Net profit 39,270

Chepe Ltd.Statement of financial position as at

30 November 2012 Sh. Sh.Non-current assets 340,000Current assets 1,020,000Less: current liabilities (600,000) 420,000

760,000Equity 304,000Debt 456,000

760,000

Part (b) required candidates to use the information provided to advise a company on whether or not to abandon a project.

If the project was used over its entire life, the NPV was negative.

NPV = (4,000 X 0.9091) + (3,750 X 0.8264) + (3,500 X 0.7513) – 9,600

= 3,636.4 + 3,099 + 2,629.55 – 9,600

= –235.05 X 1000

= –235,050

If the project was abandoned after one year:NPV = (4,000 x 0.9091) + (6,000 x 0.9091) – 9,600 = 3,636.4 + 5,454.6 – 9,600 = –509 x 1,000 = –509,000

If the project was abandoned after two years the project was:NPV = (4,000 x 0.9091) + (3,750 x 0.8264) + (3,800 x 0.8264) – 9,600 = 3,636.4 + 3,099 + 3,140.32 – 9,600 = 275.72 x 1,000 = 275,720

Advice: Project X should be abandoned after 2 years as its net present value is maximised.

Question No. 4 (a) required candidates to use the information provided to calculate the gearing ratio using book values and also market values. Candidates were also required to calculate the weighted average cost of capital (WACC).The following was expected:(i) Gearing ratio using book values Book values Fixed charge capital Sh. ‘000’ 9% loan notes 8,000 7% preference shares 1,000 9,000 Equity Ordinary share capital 2,000 Share premium account 1,100 Retained earnings 6,550 9,650 Gearing ratio = 9,000 x 100% (9,000 + 9,650) = 9,000 x 100% = 48.257% 18,650



(ii) Gearing ratio using market values Fixed charge capital Sh. ‘000’ 9% loan notes @Sh.0.8 6,400 7% preference shares @ Sh.0.77 770 7,170 Equity Ordinary shares @ Sh.1.35 10,800 Gearing ratio = 7,170 x 100 = 39.9% 7,170 + 10,800

(iii) Weighted average cost of capital Cost of equity Ke = D0 (1 +g) +g P0

= 0.1(1+0.09) + 0.09 1.35 = 17.1% Cost of preference shares Kp = 0.07 x 100% = 9.1%

Cost of loan notes Kd = i(1 – t) P0

= 9(1 – 0.3) x 100% = 7.9% 80WACC= 17.1 X 10,800 + 9.1 X 770 + 7.9 X 6,400 17,970 17,970 17,970

In part (b) candidates were required to evaluate the financial benefits of two strategies of working capital management and advise the management on the viable strategy to implement. The following was the expected approach:(0.25 x 32) + (0.6 x 50) + (0.15 x 80) = 50 daysCredit sales x average period 360540m x 50/360 = Sh.75 million

After adoption of strategy A32/360 x 540m = Sh.48 million

Reduction in investment = Sh.(75 – 48) = Sh. 27 million

Sh. Sh.Reduction in expenses (4,125,000 x 12) 49,500,000Decrease in bad debts 2,700,000Reduction in working capital (15% x 27,000,000) 4,050,000 56,250,000Less: Expenses (discount)2% x 60% x 900,000,000 x 0.5 5,400,0002% x 40% x 900,000,000 7,200,000 (12,600,000) 43,650,000Strategy BAverage current debtors 75,000,000Average debtors after adoption (30,000,000) 45,000,000Financial effectsBad debts saved (2.5% x 0.6 x 900,000,000) 13,500,000Saving on debts administration (2,100,000 x 12) 25,200,000Saving on investment (15% x 45,000,000) 6,750,000 45,450,000Less: CostsFees charged (2% x 540,000) 10,800,000Interest 540m x 0.9 x 1.5% 7,290,000 (18,090,000)

27,360,000

(ii) The preferred strategy is to introduce cash discount since this strategy has the highest net benefit.



CPA PART II SECTION 3

FINANCIAL REPORTING


Question No. 2 (a) required candidates to differentiate between “taxable temporary difference” and “deductible temporary difference”:

Taxable temporary differences are temporary

differences that will result in taxable amounts in determining taxable profit (loss) of future periods when the carrying amount of the asset or liability is recovered or settled while deductible temporary differences result in amounts that are deductible in determining taxable profit (loss) of future periods when the amount of asset or liability is recovered or settled.

Part (b) required candidates to calculate taxable profits, temporary differences and prepare a deferred tax account from the information provided.

(i)Taxable profit:2008/2009 2009/2010 2010/2011 2011/2012

Sh. Sh. Sh. Sh.Reported profits 800,000 900,000 950,000 850,000Depreciation 1,000,000 1,000,000 1,000,000 1,000,000Wear and tear (1,600,000) (1,200,000) (800,000) (400,000)Taxable profit 200,000 700,000 1,150,000 1,450,000

(ii)Temporary differences: 2008/2009 2009/2010 2010/2011 2011/2012

Sh. Sh. Sh. Sh. Reported profits 1,600,000 1,200,000 800,000 400,000Depreciation (1,000,000) (1,000,000) (1,000,000) (1,000,000)Temporary differences 600,000 200,000 (200,000) (600,000)Tax rate 30%Deferred tax 180,000 60,000 (60,000) (180,000)

(iii) Deferred tax account 2008/2009 2008/2009 Sh. Sh.30/6/2009 Balance carried down 180,000 30/6/2008 Income 180,00030/6/2010 Balance carried down 240,000 1/7/2009 Balance brought down 180,000 1/7/2009 Income 60,00030/6/2010 240,000 240,000 2010/2011 2010/201130/6/2011 Income 60,000 1/7/2010 Balance brought down 240,00030/6/2011 Balance carried down 180,000 240,000 240,000 2011/2012 2011/201230/6/2012 Income 180,000 1/7/2011 Balance brought down 180,000



Part (c) required candidates to prepare a budget out-turn statement. Ministry of finance

Budget out-turn for the fiscal year ended 30 June 2012Receipts: Budget Actual Over/under

estimatesSh. ‘billion’ Sh. ‘billion’ Sh. ‘billion’

Revenue from taxes 180,000 165,600 (14,400)Donations and grants – IMF 24,000 18,000 (6,000) Other agencies 18,000 19,200 1,200Borrowings – Local 120,000 84,000 (36,000) Multilateral agencies 48,000 96,000 48,000Revenue from trading activities 72,000 90,000 18,000

462,000 472,800 10,800Payments:Education 180,000 160,800 19,200Health 84,000 72,000 12,000Housing 54,000 66,000 (12,000)Defence 36,000 24,000 12,000Internal security 72,000 90,000 (18,000)Other payments 48,000 72,000 (24,000)

474,000 484,800 (10,800)Net surplus/deficit (12,000) 12,000 0

Stake Group Ltd.Group statement of cash flows for the year ended 31 October 2012

Question No. 3 (a) required candidates to explain the circumstances under which an entity is permitted to change its accounting policies. These are:• The change is required by an

IFRS.• The change results in the

financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

• The change is required by statute.

Part (b) required candidates to prepare a group statement of cash flows for a group of companies from the income statement and statement of financial position provided.

Cash flows from investing activities Sh.

‘million’ Sh.‘million’

Proceeds on sale of property,plant and equipment 70Acquisition of property, plant and equipment (163)Dividends from associate company 18Net cash used in investing activities (75)Cash flow from funding activitiesDividends paid By holding company (150) Non controlling interest (40)Repayment of bank loans (90)Net cash used in financing activities (280)Net increase in cash and cash equivalents 202Cash and cash equivalentsbrought forward (117)Cash and cash equivalents carried forward

85

Cash flows from operating activities Sh.

‘million’ Sh. ‘million’

Profit before tax 402 AdjustmentsDepreciation 265Impairment of goodwill 13Profit on disposal (70 – (100 – 47) (17)Interest expense 8Share of profit tax in associate company (35) 636

Changes in working capitalIncrease in inventories (98)Decrease in receivables and prepayments

16

Increase in payables and accruals 131Cash generated from operations 685Interest paid (8)Tax paid (120)Net cash received from operating activities

557



CPA PART III SECTION 5

ADVANCED FINANCIAL MANAGEMENT

Candidates experienced difficulties in question nos. 1 and 5.

Question 1 (a) required candidates to examine four statutory protections available to shareholders in mitigating against negative consequences of the agency problems arising between them and managers.These include:• Qualifications and appointment of directors - the

Companies Act prescribes who may become a director for instance a person convicted of certain economic crimes is not eligible for appointment as a director.

• Removal of directors by shareholders - shareholders can utitilise their power of voting by which means they can elect or dismiss directors.

• Fiduciary duties of directors - a director stands in a fiduciary relationship to the company. As such, a director is statutorily bound by the Act to discharge his duties and exercise his powers for the benefit of the company, not his own.

• Convening of members’ meetings - every public listed company is obliged to convene a statutory meeting where directors present a statutory report. These meetings help in advancing corporate governance and reducing the agency conflict as they assist in bridging the information asymmetry existing between shareholders and managers.

• Annual reports and other disclosures - the management of a company is required to lay the company’s accounts signed by two directors at an annual general meeting of members. An external auditor’s report should also be annexed to such accounts. This promotes accountability.

Part (b) of the question related to the evaluation of investment projects in the context of a fixed budget. Part (b) (i) required candidates to recommend the projects that should be undertaken in the order of their priority.

The priority was to maximise overall net present value (NPV) and therefore projects are ranked using the profitability index. The project with the highest profitability index is given priority, then the next and so on.

Project Rank InvestmentSh “million”

NPV Sh “million”

Internal rate of return (%)

PI Cumulative investment

Sh “million”E 1 24 3.8 17 0.1583 24B 2 128 13.8 13 0.1078 152A 3 124 11 16 0.0887 276C 4 48 4 15 0.0833 324F 5 80 5.8 15 0.0725 404D 6 200 14 13 0.0700 604

Since project A cannot be varied, it should either be promoted in ranking and undertaken in its entirety or dropped.



Project B should be scaled down since the budget is Sh. 240 million and implementing project B in its entirety would require a total of Sh. 276 million.

*Thus, proportion = 240 – 148 x 100 128 = 92 x 100 = 71.875% 128

The corresponding NPV should also be adjusted accordingly;71.875 x 13.8 = 9.92 100

Thus, the company should undertake project E, A and 71.875% of project B.

The net present value (NPV) for the projects undertaken is Sh.24.7 million. The internal rate of return can be obtained by trial and error.

NPV at 14% = 2.4NPV at 18% = –17

IRR = 14 + 2.4 x 4 2.4 + 17 = 14.5%Part (iii) of the question required candidates to estimate and advise on the maximum interest rate to be paid to finance all the remaining projects. This was a short-term rationing problem and the profitability index would give the NPV of each shilling invested for the projects not covered in the plan.

((( (

Project A is promoted in ranking and undertaken in its entirety

Project Rank Project NPV

Sh “million”

Internal rate of return (%)

PI Cumulative investment Sh “million”

NPV Sh “million”

E 1 3.8 17 0.1583 24 3.8A 3 13.8 13 0.0887 276 9.92*B 2 11 16 0.1078 148 11.0C 4 4 15 0.0833 324F 5 5.8 15 0.0725 404D 6 14 13 0.0700 604

Total 24.72

Project 2012Sh “m”

2013Sh “m”

2014Sh “m”

2015Sh “m”

2016Sh “m”

2017Sh “m”

2018Sh “m”

* B(Balance) (36) 4.5 6.75 11.25 11.8125 23.625 (1.6875)C (48) 24 24 12 2 - -F (80) 49 50 - - - -D (200) 60 100 50 58 - -

(364) 137.5 180.75 73.25 71.8125 23.625 (1.6875)X PVIF(10%) .909 .826 .751 .683 .621 .564

124.99 149.3 55.01 49.05 14.7 (0.95)

* Project B figures are obtained by multiplying by 0.28125 (or 1 – 0.71875)

NPV = 392.1 – 364 = 28.1Profitability index = 28.1 = 0.0772 364



The projects could support a maximum additional finance change as follows:

Additional finance = 0.0772 x 364 million = Sh.28.1 million

Question No. 5 (a) required candidates to explain the terms open-end funds, closed-end funds and balanced funds.

Open-end funds stand ready to sell new shares to the public and to redeem their outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio. The price is based on net asset value (NAV) as given below:

NAV = Market value of portfolio – Liabilities Number of fund shares outstanding

Closed-end funds are mutual funds with a fixed number of shares (or units). Closed-end funds do not redeem their shares. The price per share is determined by the market and is usually different from the underlying value or net asset value (NAV) per share of the investment held by the fund.

Balanced funds are funds that combine a stock component, bond and sometimes money market component in a single portfolio.

Part (b) was on interest cap rates. There was no pay-off to the cap if the cap rate exceeded 3-months treasury bill rate. For quarters 2 and 3, there was no pay-off because the 3-month treasury bill rate was below the cap rate. For quarters 1 and 4, there was a pay-off which was determined as follows:

15,000,000 x (3-month treasury bill rate – cap rate) ÷4

Quarter 3-month treasurybill rate

Payoff Sh.

1 8.7% 2,625,0002 8.0% 03 7.8% 04 8.2% 750,000

Part (c) (i) required candidates to explain the term “market segmentation” in the context of capital markets whereas part c (ii) required candidates to describe six main causes of capital market segmentation.

Capital market segmentation is a financial market imperfection caused mainly by government constraints, institutional practices and investor perceptions.

The following are some of the causes of capital market segmentation:• Asymmetric information between domestic and

foreign-based investors.• Lack of transparency.• High securities transaction costs.• Foreign exchange risks.• Corporate governance differences.• Regulation barriers.

CPA PART III SECTION 6

ADVANCED FINANCIAL REPORTING

Examiners noted that candidates experienced difficulties in question nos. 1 and 5.

Question No. 1 required candidates to use the information given to prepare a group statement of comprehensive income and a group statement of financial position. Candidates were expected to prepare the group financial statements and the supporting workings as follows:



Hunga Limited Group statement of comprehensive income for the year ended 30 June 2012 Sh “million” Sh “million”Revenue (8,000 + 2,250 + 3,000 – 500) 12,750Cost of sales (3,000 + 1,000 + 1,000 – 500 + 50) (4,550)Gross profit 8,200Other incomes: Negative goodwill in Shujaa Ltd. (W1) 600Share of profit after tax in Shika Ltd. (Associate) (W2) 140

8,940Expenses: Distribution costs (1,200 + 300 + 400) 1,900 Administration expenses (1,800 + 400 + 600) 2,800Loss on sale of investment in Shika Ltd. (W3) 480Finance cost (200 + 50 + 50) 300 (5,480)Profit before tax 3,460Income tax expense (600 + 150 + 250) (1,000)Profit for the year 2,460Attributable to: Holding company 2,215Non-controlling interest (W4) 245

2460

Hunga Limited Group statement of financial position as at 30 June 2012

Sh “million” Sh “million” Non-current assetsProperty, plant and equipment (6,800 + 3,000) 9,800Investment in Associate (Shika Ltd.) (1,300 + 140) 1,440 11,240Current assetsInventory (1,500 + 1,200 – 50) 2,650Receivables (4,000 + 3,400 – 300) 7,100Cash (1,000 + 600) 1,600 11,350Total assets 22,590

Ordinary share capital 6,000Retained profits (W5) 6,515

12,515Non-controlling interest (25% x 3,500) 875Shareholders fund 13,390

Non-current liabilities10% loan stock (2,000 + 1,000) 3,000Current liabilitiesTrade and other payables (2,500 + 3,300 – 300) 5,500Current tax (300 + 400) 700 6,200

22,590



Workings: Sh “million” Sh “million” 1. Negative goodwill in Shujaa Limited Purchase consideration 1,800 Less: Net assets acquired 75% x (1,000 + 1,500 + 6/12 x 1,400) (2,400)

(600)2. Profit after tax in Shika Limited Profit after tax from 1 January to 30 June 2009 350 Share of Hunga @ 40% 140

3. Loss on disposal of Shika Limited Fair value of consideration received (cash proceeds) 1,500 Fair value of remaining investment 1,300

2,800 Less: Net assets sold [(80% x (1,000 + 2,850)] 3,280 200 3,280

4804. Profit attributable to non-controlling interests Shika Limited profit after tax: 700 x 6/12 x 20% 70 Shujaa Limited after tax: 1,400 x 6/12 x 25% 175

2455. Retained profits (statements of financial position) Retained profits in Hunga Limited 5,500 Less: Unrealised profit (50) Add: Negative goodwill inShujaa Limited 600 Add: Share of post acquisition profits in Shika Ltd. 140 Add: Gain on revaluation of Shika Limited (1,300 – 1,200) 100 Add: Share of post acquisition profit on Shujaa Limited 75%[2,500 – (1,500 + 700)] 225

6,515

Question No. 5Part (a) required candidates to explain what integrated reporting entails. Candidates were expected to answer as follows:

Integrated reporting refers to the integrated representation of a company’s performance in terms of both financial and non-financial results. Integrated reporting provides greater context for performance data, clarifies how sustainability fits into operations of a business and may help embed sustainability

into the company decision making process. Some companies that report in an integrated manner also report additional sustainability information for specific stakeholder groups.

Part (b) of the question required candidates to prepare a group statement of cash flows in accordance with the requirements of IAS 7 (Statement of Cash Flows)

Candidates were expected to prepare the group cash flows as follows:



Techno group Statement of Cash flows for the year ended 31 October 2012Cash flow from operating activities Sh “million” Sh “million” Profit before tax 5,655Adjustments:Other incomes (600)Finance cost 450Depreciation (W1) 975Profit on sale of plant (300)Share of PAT in associate (1,050) 5,130Change in working capital:Increase in trade and other receivables (1,641)Increase in inventory (2,829)Increase in trade payables 456Cash generated from operations 1,116Interest paid (W2) (300)Income tax paid (W3) (750)Net cash received from operating activities 66Cash flows from investing activities:Purchase of subsidiary (W4) 294Purchase of PPE (W5) (3,255)Proceeds on sale of plant and equipment 1,500 Dividends from investment (600 – 135) 465Dividends from associates (W6) 750Net cash used in investing activities (246)Cash flow from financing activities: Issue of ordinary share capital 7,359Issue of loan notes 2,760Capital payment of finance leases (810)Dividends paid: Parent (3,735 + 7,500 – 10,335) (900)Non-controlling interest (144)Net cash received from financing activities 8,265Net increase in cash and cash equivalents 8,085Cash and cash equivalents brought forward 5,460Cash and cash equivalents carried forward 13,545

Workings Sh “million”

1. Depreciation: Buildings (6,600 – 6,225) 375 Plant (3,600 – 3,300 + 300) 600

975

Sh “million”2. Interest Interest brought forward 90 Expenses 450 Discount (amortised) (120) Accrued interest (120) Paid 300



Workings Sh “million”

3. Tax paid Operating balance (651 + 39) 690 Income statement 1,485 On acquisition 15 Closing balance (1,350 + 90) (1,440)

750

4. Purchase of subsidiary Cash received on acquisition 336 Cash consideration (42)

294

5. Purchase of machinery/plant Balance carried forward 9,000 Balance brought forward (4,200)

4,800 Disposal 1,500

6,300 On acquisition (495) Leased (2,250) 3,255

WorkingsSh

“million”Sh

“million”6. Dividends from associate Opening balance 3,000 Share of profit 1,485 Tax (435) 1,050

4,050 Closing balance (3,300)

750

CERTIFIED PUBLIC SECRETARIES (CPS) EXAMINATION

CPS PART I SECTION 2

FINANCIAL ACCOUNTING


Question No. 1 required candidates to explain ways in which the accounting profession is regulated.

Examiners expected the following answers:• Accounting Standards They provide the guidelines on how transactions

and other events should be accounted for and be presented in the financial statements.

• National law The law such as the Companies Act provides

additional regulations regarding the preparation of financial statements and presentation of the financial statements to members in an annual general meeting.

• Professional bodies Professional bodies provide the means by which

accountants should conduct themselves and ensure that if one is a member, then the member remains competent, honest and can be trusted.

• Regulations The regulations like those of the Nairobi Securities

Exchange and Capital Markets Authority provide the requirements to be complied by companies that are quoted.

• Regional bodiesOther regional bodies like the United Nations and International Monetary Fund may require that companies and countries adopt accounting standards and also disclose them in their reports.



Part (b) required candidates to prepare a group consolidated statement of financial position from the information. The following approach was expected:

Hexto GroupConsolidated statement of financial position as at 30 June

2012 Sh.‘000’ Sh.‘000’Non-current assets:Property, plant and equipment (5,760 + 600) 6,360Current assets:Inventory (1,500 + 360 + 240) 2,100Trade receivables (1,950 + 120 – 300) 1,770Cash and cash equivalents (1,170 + 105) 1,275

5,145Total assets 11,505

Equity and liabilities:Ordinary shares of Sh.100 each 6,000Reserves 1,716

7,716Non-controlling interest (20% x 900) 180

7,896Current liabilities:Trade payables (2,730 + 90) 2,820Dividends payable 300Non-controlling interest 24Income tax (390 + 75) 465 3,609Total equity and liabilities 11,505

Question No. 5 (a) required candidates to explain the functions of the public accounts committee and committee of ways.

(i) Public accounts committeeIt is a select committee established to examine accounts showing the appropriation of the sum voted by the house to meet the public expenditure and other accounts laid before the house. It consists of a chairman and less than ten other members nominated by the sessional committee at the commencement of every session.(ii) Committee of ways and meansIt is composed of the whole house for the purpose of debate on the annual estimates which are laid on the table of the house by the minister of finance not later than 20th June each year.

Part (b) required candidates to explain the following accounting concepts:(i) Substance over formThis entails the transactions and other events which are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The legal form of a transaction can differ from its real

substance. Where this happens, accounting should show the transaction in accordance with its real substance which is basically, how the transaction affects the economic situation of the business.(ii) Money measurementUnder this concept, the financial statements are prepared by including only those items which have a monetary value. Financial accounting can only deal with items which are capable of being expressed in monetary terms. Part (c) required candidates to evaluate four indicators of impairment of an asset. These include: • Evidence is available that the asset is obsolete

or physical damage has occurred to the asset. • Evidence is available from internal reports that

the economic performance of the asset will be

worse than expected. • The carrying amount of the net assets of the entity is

more than its market capitalisation. • Market interest rates have changed which affect the

discount rate used in calculating an assets value in use and recoverable amount materially.

• Significant changes in technology, economy or legal environment have taken place in which the entity operates or in the market to which the asset is dedicated.

• The asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use.

Part (d) required candidates to critique the statement “employees always experience greater satisfaction from working in a computerised environment”.



There are many negative impacts of computerisation on individuals. One is that computers and software can have faults that make it frustrating to use them. Another is boredom. A job that may have been interesting previously because it involved searching about information may become boring and routine, therefore less interesting.

TAXATION, THEORY AND PRACTICE


Question No. 2 Part (a) required candidates to discuss the following four principles of taxation advocated by Adam Smith:

• EqualityTo be equitable and just, the tax paid should be proportional to income earned. However, this equitability has been expanded to include proportional tax, regressive tax and progressive tax.

• CertaintyThis principle requires that the amount of tax to be paid should be known in advance by both the payee and the tax collector. It should not be left at the mercy of the tax collector to decide the amount of tax to collect, as this may allow favouritism and discrimination.

• ConvenienceTax should be arranged in a manner that the collection is convenient. Taxes should be collected at the most convenient point which will reduce the cost of collection where there is non-payment and in a manner which is simplified.

• EconomicThe tax system should be in such a way that the cost of collection should not be more than the revenue it is supposed to generate. When the purpose of taxation is to raise revenue rather than to prevent some particular act such as the tax imposed to check consumption of alcohol or tobacco and the cost of collection is more than the revenue expected, then it is uneconomical and tax should be abandoned.

Part (b) required candidates to utilise information given on taxable and non-taxable supplies to compute the following:• Total input tax.• Total output tax.• VAT payable or refundable.• Comment on the results obtained and any information

not used.The following approach was expected:

Analysis of input taxSh.

Imported goods: (240,000 x 120% x 16%) = 46,080Purchases (290,000 x 16/116) = 40,000Electricity bill (28,000 x 12/112) = 3,000Consultancy services (58,000 x 16/116) = 8,000Purchases (116,000 x 16/116) = 16,000Repair of motor vehicles (non-deductible) = -Catering services (non-deductible) -

113,080 Analysis of output tax Sh.Exports Southern Sudan 400,000 x 0% = 0Sales standard rate 406,000 x 16/116 = 56,000Sales standard rate 240,000 x 16% = 38,400Exempt supplies 150,000 = -Debit notes 27,840 x 16/116 = 3,840Exports – Zambia 180,000 x 0% = 0

98,240

VAT payable (refundable)Value of taxable supplies Sh.Zero rate exports 580,000Standard rate (433,840 – 59,840) 374,000Exempt 150,000Standard rate sales (processed goods) 240,000

1,344,000Deductible = 1,194,000 x 113,080 =100,459.46 1,344,000VAT payable (refundable) 98,240 – 100,459 (2,219)

• The amount obtained is VAT refundable and the firm will apply for refund or set off against future VAT payable. Input tax in respect to repairs of motor vehicles and catering services are not deductible.



Question No. 3 Part (a) required candidates to identify the following instruments on which stamp duty is chargeable:• Transfer of immovable

property/conveyances on sales or title deeds.

• Lease agreements.• Agreements such as

partnership deeds.• Mortgage arrangements.• Insurance policies.• Memorandum of association,

articles of associations.• Instrument relating to

settlement and trusts.

Part (b) required candidates to make a distinction between the tax treatment of rent income on resident individual and non-resident individual as follows:• Rent income received by

resident individuals is taxed at a graduated scale rate. It is added to other incomes for the year. Expenses incurred in earning the rent income are tax deductible.

• Rent income received by non-resident individuals is taxed at a withholding tax rate of 30% which is final tax. No expenses incurred in earning the rent income are tax deductible, that is taxed gross.

Part (c) required candidates to utilise information given relating to capital expenditure of a processing company to compute capital allowances.

Candidates were expected to compute some of the items as follows:

Majani Processing Company Ltd.Computation of Capital Allowances

Investment deduction (ID)Nature of assets Qualifying Cost ID @ 100%Building 14,600,000 14,600,000Plant and machinery 9,500,000 9,500,000

24,100,000 24,100,000

Wear and tear allowance (WTA) Class I II III IV

37.5% 30% 25% 12.5%Written down value (WDV)

- - - -

Addition:3-Saloon cars 6,000,000RTractor 6,000,0002-lorries (2tonnes@) 4,900,000Furniture and fittings 1,080,000Computers 420,000Milking machinery 840,000Lorry (5 tonnes) 4,500,000Disposals-saloon car (1,500,000)

10,500,000 420,000 9,400,000 1,920,000WTA (3,937,500) (126,000) 2,350,000 (240,000)W.D.V 6,562,500 294,000 7,050,000 1,680,000

Farm work deduction (FWD)Nature of farm work Qualifying cost (FWD 100%) Sh. Sh.Drainage 210,000 210,000Fencing 560,000 560,000Farm house 2,500,000 2,500,000Labour quarters 3,600,000 3,600,000Irrigation system 900,000 900,000Cattle dip 960,000 960,000

8,730,000 8,730,000

Diminution in value:Farm house tools and implements = 129,000 x 331/3% = 43,000



CERTIFIED INFORMATION COMMUNICATION TECHNOLOGISTS (CICT) EXAMINATION

CICT PART I SECTION 1

COMPUTER APPLICATIONS (THEORY)


Question No. 1. Part (a) required candidates to explain the steps to follow in inserting a movie from a video camera into a presentation.

The steps to be followed are:• Creating

Before you can place a video file in a presentation, it must be digitally encoded using a video encoder.When encoding a video, you must use a compression scheme or codec. Codecs are types of compression schemes. After encoding your video, you must make sure the file has a suffix of .mor or .qt for windows machines.

• SavingWhen saving your files, create a new folder in which to place all of your encoded media files that will be used in the presentation.Save the presentation to the same folder.

• Inserting video into the presentationSelect insert menu then movies and sounds. Click on movie from file option. Find the movie file in your folder and double click on it.

Part (b) of the question required candidates to describe an action button and highlight its two uses as used in presentation programs.

The examiners expected the following responses:• Action buttons – these are ready made buttons

that can be inserted into a presentation. They enable one to perform actions upon clicking or moving the mouse over the buttons.

• Uses of action buttons – action buttons act as a link and allow the creator to open an image, video hyperlink or link to another slide within the same or another presentation.

• Action buttons let you navigate quickly and efficiently within a slide show.

Part (c) of the question required candidates to state the use of “print to file” command in a presentation program. The command creates a file instead of a print copy so that you can print a document or a picture on another printer or using a different computer.

Part (d) of the question required candidates to discuss four types of animation effects in presentations.

These types of animation effects are:- Entrance effects - they change the way objects

arrive onto a slide. Text can be made simply to appear, or may have exciting effects such as crawl or fly in.

- Emphasis effects - they can be applied to objects that are already on the slide. Emphasis effects bring attention to an item without actually moving its location. For instance, text can be made to spin in position.

- Exit effects - it changes the way objects leave a slide. The effects applied are similar to entrance effects.

- Motion paths - motion paths can be used to make objects move along a certain trajectory for instance down, up and spiral.

Question No. 3. Part (a) required candidates to explain six aspects of a word processor document that could be changed while in print preview mode.

These aspects are:

Print options - a dialogue box appears when you click on options. The dialogue box allows you to change printing options.Margins - allows users to select margin sizes for the entire document or the current section.

Orientation - switches page between portrait and landscape layouts.

Page size - allows selection of the paper size for the current section.



Zoom - quickly enlarges or zooms the document. You can zoom the document to 100% or other percentage size. At times you can zoom the document into two or specific page width.

Show ruler - when you check show ruler check box, horizontal and vertical rulers are displayed. The rulers are used to measure and line up objects in the document.

Part (b) of the question required candidates to distinguish between “option buttons” and “check boxes” using an illustration.

The examiners expected the following responses:

Option buttons - they allow a user to make one choice among two or more options.Option buttons frequently appear in dialogue boxes.

Example:Flip or rotate

O Flip horizontal �Flip vertical

O Rotate by angle

In the above example, the user has selected the second option button.

Check boxes• Check boxes allow a user to select one or more

independent options.• Unlike option buttons which restrict a user to

one choice, check boxes allow a user to choose multiple options at the same time.

Animation sounds and moves ; Display animations � Play sounds � Play movie ; Display animation with sound

Part (c) of the question required candidates to define the term “gutter” and explain the importance of setting gutters in the context of word processing.The examiners expected the following responses:

Gutter - this is an additional margin added to a page layout to compensate for the part of the paper made unusable by the binding process.

Gutter prevents text in the inside margins from being hidden after binding.

Part (d) of the question required candidates to describe the procedure of automatically inserting two different footers in a fifty paged document.

The examiners expected the following responses: • Place the cursor at the end of the last line of

page 25. • On page layout tab, select breaks option then

next page type of section break. • Double click on the footer area of page 25 and

type “Introduction”. • Scroll to page 26 and click on the footer area. • Disable the tool “link to previous” by clicking it. • Type the word “Review” and click on close

header and footer command.

CERTIFIED SECURITIES AND INVESTMENT ANALYSTS (CSIA) EXAMINATION

CSIA PART II SECTION 3

FINANCIAL STATEMENTS ANALYSIS


Question No. 2 (a) required candidates to outline two types of information which could be obtained from a proxy statement, corporate press release and annual reports to regulators. The following answers were expected:

(i) Proxy statements- Voting procedure and information.- Background information about the company’s

nominated directors.- Board compensation.- Executive compensation.



(ii) Corporate press release- Recent financial statements released and

key performance.- Any new important information like change

of management, new products or strategies.

(iii) Annual reports to regulators- Mergers, consolidation, acquisition and

similar matters.- Financial statements.- Audited accounts and reports.

Part (b) required candidates to prepare the following statements from the information provided and comment on the performance of the two divisions.

Zedrock LimitedCommon size income statement for the year ended 30 June 2012

Alpha division Beta division% % % %

Sales 100 100Cost of sales (75) (80)Gross profit 25 20Expenses:Distribution cost 5 2.5Administrative expenses 7.25 4.16Finance cost 0.25 (12.5) 6.67 (13.33)Gross profit 12.5 6.67Income tax expenses (3) (1.50)Profit after tax 9.5 5.17Dividends paid 3.75 (1.67)Retained profit for the year 5.75 3.50

Zedrock LimitedCommon size statement of financial position as at 30 June 2012

Alpha division

Beta division

% % % %Non-current assets:Land and buildings 38 63.5Furniture and motor vehicles 19 12.6

57 76.1Current assets:Inventory 12.8 10.2Trade receivables 27.0 9.5Financial assets 3.2 2.9Cash and bank - 43 1.3 23.9

100 100Equity and liabilities:Ordinary share capital 31.7 20.3Retained profits 14.3 34.1

46 54.4Non-current liabilities:Bank loan 15.9 38.1Current liabilities:Trade payables 34.3 7.5Bank overdraft 3.8 38.1 - 7.5Total equity and liabilities 100 100

Based on the income statement, Alpha division appears to be better than Beta division in terms of gross profit, net profit margin and profits retained.

Based on the statement of financial position, Beta division seems to be better because it has more capital than Alpha and its non-current asset base is better.

Question No. 4 (a) (i) required candidates to explain the rationale behind providing deferred tax based on temporary differences.

Deferred tax arises because of differences in the way the government and accountants treat some income and expense items. In order to comply with the matching concept, then it is important to report

the possible tax that will be paid or settled in the future in the current financial statements.

Part (a) (ii) required candidates to compute temporary differences for the year based on the information provided, as follows:

Computation of temporary differences



Assignment tableAircraft Route Cost (Sh. “million”)A R 17B P 8C S 34D T 32E Q 12Minimum total costs 103

Carrying amount

Tax base’ Temporary difference

Taxable/deductible

Sh.‘million’ Sh.‘million’ Sh.‘million’ Sh.‘million’Property, plant and equipment 1,200 1,000 200 TaxableIntangible assets 60 0 60 TaxableAvailable for sale financial assets 20 22 (2) DeductibleFaire value through profit and loss 10 12 (2) DeductibleInventory 780 800 (20) DeductibleTrade receivables 500 480 20 TaxableTrade and other payables (900) (910) (10) TaxableDeferred tax balance carried down at 30% 79.8Deferred tax balance brought forward 100Decrease in deferred tax 20.2

Part (b) required candidates to prepare extracts of the income statement and statement of financial position of a company from the information provided.

Tedcomp LimitedIncome statement (extract) for the year ended

30 September 2012Sh. ‘000’

Current service cost 4,800Interest cost (6% x 42,000) 2,520Recognised actuarial losses 180Less: Expected return on plan assets (5% x 36,000)

(1,800)

5,700

Tedcomp LimitedStatement of financial position (extract) as at

30 September 2012 Sh. ‘000’

Estimated benefit obligation 49,800Estimated plan assets 39,000Unrecognised losses (10,740)Net benefit obligation 60

CSIA PART II SECTION 4QUANTITATIVE ANALYSIS

Some candidates did not perform well in the following questions:

Question No. 3. Part (a) required candidates to explain the difference between an assignment problem and a transportation problem. An assignment problem requires the number of tasks to be equal to the number of facilities. Each task can only be assigned to one facility. In a transportation problem, the requirement is that the total supply must be equal to the total demand and the number of sources need not be equal to the number of destination.

Part (b) required candidates to apply the assignment model to arrive at an optimal flight schedule of the aircraft. The optimal assignment table was expeceted to be as follows:

RouteAircraft

P Q R S T

A 0 1 0 3 6B 0 0 5 3 6C ⊗ 3 4 0 1D 3 6 2 ⊗ ⊗

E 1 0 6 7 4



Part (c) tasked candidates to prepare an opportunity loss matrix and optimal profit from four different machines which were assigned to three road construction projects. The examiners expected the following solutions:

Opportunity loss matrix:

Candidates were supposed to insert a dummy project and subtract 1,000 from all payoff profit to obtain the following matrix:

ProjectMachine P1 P2 P3 DummyM1 800 200 0 0M2 600 400 400 0M3 400 400 400 0M4 0 800 600 0

To obtain the optimal profit, the above matrix was solved by subtracting the largest element from each column.

ProjectMachine P1 P2 P3 DummyM1 0 -600 -600 0M2 -200 -400 -200 0M3 -400 -400 -200 0M4 -800 0 0 0

Number of lines covering zero’s = 3 which is less than 4 hence not optimal.

ProjectMachine P1 P2 P3 DummyM1 ⓞ -600 -600 200M2 0 -200 ⓞ ⓞ

M3 -200 -200 0 ⓞ

M4 -800 ⓞ 0 -200Number of lines = 4, hence optimal.

Assign Project Payoff Assign Project Payoff M1 P1 200 M1 P1 200M2 P2 600 M2 Idle 0M3 Idle 0 M3 P2 600M4 P3 200 M4 P3 200

Optimal profit = 200 + 600 + 200 = 1,000 (thousands of shillings).

Question No. 5. Part (a) required candidates to use Monte Carlo simulation to get the average profit of a company. Candidates were expected to assign random numbers for selling price (S.P), variable cost (V.C) and sales volume (S.V) in units. The profit was arrived at as follows: (S.P – V.C). S.V – fixed cost from the simulation table with 12 trials, the total profit was Sh.42,000,000 and the average profit was: Sh.42,000,000 = Sh.3,500,000. 12

Part (b) required candidates to use the expected net present value (ENPV) of cash flow to advise a company on whether to commission a market survey. The key part to note was that candidates were expected to draw a decision tree to capture the three scenarios, that is launch, no launch and survey. From the decision tree:

Expected NPV without survey = (0.75 x 120 x 830) + (0.25 x 43,788) = Sh.101,569

Expected NPV of continuing with old range of products = Sh.85,935.

Expected NPV with survey:Using PV’s for: High/High = Sh.187,340 High/Low = Sh.77,043

To obtain ENPV we first determine P(high) and P(high/high) where P(high) = Probability forecast will be high and P(high/high) = P(demand is high given forecast is high).

∴ P(high) = P(high/high) x P(high) + P(high/low x P(low) = (0.7 x 0.75) + (0.2 x 0.25) = 0.575P(low) = 1 – 0.575 = 0.425P(high/high) = 0.7 x 0.75 = 0.913 0.575P(low/high) = 1 – 0.913 = 0.087 ENPV if forecast is high:= Sh.(0.913 x 187,340) + 0.087 x 77,043) – 15,000= Sh.162,744ENPV with survey was (0.575 x 162,744) + (0.425 x 85,935) + 2,000 = Sh.118,101



Advice: The company should commission the market survey since the EPNV of cash flows with the survey is higher than the ENPV of cash flows without survey.

CSIA PART III SECTION 5

ASSET MANAGEMENT

Some candidates did not perform well in question nos. 1 and 4.

Question No. 1. Part (a) required candidates to explain six major ranges of collateralised mortgage obligations (CMO) structure. This include: sequential pay tranches where each class of bond is retired sequentially; accrual tranche where at least one tranche does not receive current interest which is accrued and added to the principal balance. The current interest is used to pay off the principal balance of earlier tranches; floating rate tranches which are created from any fixed rate tranche, a floater and an inverse floater combination. Some tranche will receive fixed rate while others receive floating rate which will be capped and have a floor; structured interest only tranches which receive interest only, here the coupon rate is set below the collaterial’s coupon rate so that excess interest is generated which is used to create one or more structured interest only tranches; planned amortisation class tranches which provides protection against both extension risk and contraction risk; support tranches which provides protection for the planned amortisation tranches.

Part (b) required candidates to determine the size of the rebalancing trade from an individual investor with Sh.800,000 cash and Sh.1.2 million in real estate index fund.

Candidates experienced difficulties in obtaining the following values:

Initial portfolio value Sh.2,000,000Initial portfolio allocation: Total value Sh.2,000,000

Less: Floor Sh.1,000,000Cushion Sh.1,000,000

Real estate allocation: Cushion Sh.1,000,000 Multiplier 130%

1,300,000Cash allocation 700,000End of quarter:Value of cash 700,000Real estate index: Sh.1,300,000 x 1.08 1,404,000Total portfolio 2,104,000Current portfolio allocation = Total value – floor = Sh.1,104,000Real estate allocation = Sh.1,104,000 x 130% = Sh.1,435,200Size of purchase = Sh.1,435,200 – Sh.1,404,000 = Sh.31,200

Question No. 4. Part (a) required candidates to discuss four challenges faced by fund managers. These are: lack of liquidity, unethical behaviour among stock brokers, high stock brokerage costs, inhibitive regulations, competition, limited investment products among others.

Part (b) provided the candidates with market expectation data from where they were required to describe how cover portfolios arise and to compute the group investment return. Cover portfolios arise from a mean-variance optimisation in which asset class weights are constrained to be non-negative. They are minimum variance in which an asset weight changes from zero to positive or vice versa along the minimum variance frontier.

The investment groups return is obtained as

(1.035)(1.0225)(1.00436) – 1.0 = 0.06290 or 6.29%This result contrasts to an additive return requirement of 3.5% + 2.25% + 0.436% = 6.19%, whichever is less.

Candidates were then required to recommend the strategic asset allocation review. From the corner portfolio theorem, it follows that

6.29 = 7.55 + 5.03 (1 – w)



We find that the weight on corner portfolio 3 is W = 0.500 and the weight on corner portfolio 4 is 1 – w = 0.5. Therefore;Weight of local equities = 0.5(53.22%) + 0.5(0.00%) = 26.61%Weight of offshore equities = 0.5(37.23%) + 0.5(24.7%) = 30.97%Weight of local bonds = 0.5(0.00%) + 0.5(43.3%) = 21.65%Weight of real estate = 0.5(9.55%) + 0.5(32%) = 20.78%As an arithmetic check, 26.61 + 30.97 + 21.65 + 20.78 = 100%

CSIA PART III SECTION 6

VALUATION AND ANALYSIS OF DERIVATIVES

Candidates did not perform well in question nos. 1 and 3.

Question 1 (a) (i) required candidates to use the information given to calculate the stock price as at a certain date. Part (ii) required candidates to justify why the options price would not fall below its intrinsic value and part (iii) required candidates to advise an option holder on whether to exercise the call option prior to the ex-dividend date.

(i) The stock price on 13 November 2012 would be calculated as the stock price on the previous day less the dividend paid. This would be Sh.(44.20 – 5.60) = Sh.38.60.

(ii) On 13 November 2012, everyone knew that the stock price would fall to around Sh.38.60 and that the option’s intrinsic value would also fall with certainty. On one day, their option was worth Sh.14.20 and on the next day, they knew that it would have a lower minimum associated with having to pay the exercise price of Sh.30 on 13 November 2012 rather than on 26 January 2013.

(iii) The dividend payout was 5.60 x 100 = 12.5%. 44.20

With the rate of interest of 14%, the option holder would be better advised to exercise the call option prior to the ex-dividend date.

Part (b) of the question required candidates to use the given information to value a call option. A d1 value of 0.46 had been given in the question. This question called for the use of the Black – Schole’s

option pricing formula as follows:C = S N (d1) – Xe–rt N(d2)

Time to maturity = 90 = 0.25 360d2 = d1 – ∂√T d2 = 0.46 – 0.3 √0.25 = 0.46 – 0.15 = 0.31

C = 60(0.6772) – 53(0.6217) e–(.14)(0.25)

= 40.632 – 53 (0.6217) e–0.035

= 40.632 – 31.817 = 8.815

Part (c) required candidates to summarise six steps they would follow in the process of insuring a portfolio with options. These steps would be as follows:

1. Determining which stock index most accurately reflects the composition of the stock portfolio.

2. Put options on indexes that will increase in value as the index declines.

3. Calculate how many put option contracts will be required to equal the value of the stock portfolio.

4. Determine an appropriate strike price for the put option contracts. If the chosen stock market index falls below the strike price, the put options will be “in the money” increasing in value as the index value falls. Options with a strike price near the current value of the index are “at the money” and will start generating immediate profits to offset losses in the stock portfolio if the market moves downward.

5. Option contracts have a specific expiration date. If you believe that the market is going to have a near-term decline, select put options with a one to two months expiration date.

( (

( (



6. Purchase the value of your stock portfolio and the stock index on which the put options are based.

Question 3 (a) required candidates to explain the meaning of vertical option spreads, horizontal option spreads and diagonal option spreads.

Vertical option spreads are spreads involving options of the same underlying security, same expiration month, but at different strike prices. They are also called money spreads.

Horizontal option spreads are created using options of the same underlying security, same strike prices but with different expiration dates. They are also called calendar spreads.

Diagonal option spreads are constructed using options of the same underlying security but different strike prices and expiration dates. They are called diagonal spreads because they are a combination of vertical and horizontal option spreads.

Part (b) required candidates to indicate how they could speculate in the spot and forward markets given certain information in the question and to state which of the two markets an investor should speculate in.

Speculating in the spot marketUse the US $100,000 today to buy SF 170,910.96 spot at US$ 0.5851/SFUS $ 100,000 ÷ 0.5851 = SF170,910.96

Hold the SF 170,910.96 indefinitely. Although the Swiss Franc is expected to rise to the target value in six months, he is not committed to that time horizon.

When the target exchange rate has been reached, sell SF 170,910.96 at the new spot rate of US$ 0.6000/SF to receive;

SF 170,910.96 x 0.6000 = US$102,546.57 with a resultant profit of US$ 2,546.57

Speculating in the forward marketToday, buy SF 173,611.11 forward six –months at the forward rate of US $ 0.5760/SF (NB: No cash outlay like in the spot market).

In six months time, fulfill the forward contract, receiving SF 173,611.11 at US $0.5760/SF for a cost of US $ 100,000.

Simultaneously sell SF 173,611.11 in the spot market at the expected future spot rate of US $ 0.6000/SF receiving SF 173,611.11 x 0.6000/SF = US$ 104,166.67

The resultant profit is US $ 4166.67

Since profit is higher in the forward market, the speculation should be in the forward market.

CERTIFIED CREDIT PROFESSIONALS (CCP) EXAMINATION

CCP PART I SECTION 1

INTRODUCTION TO LAW

Some candidates did not perform well in the following questions:

Question No. 2 in which candidates had difficulties in outlining four ways in which constitutions might be classified. The four ways include:• Written and unwritten.• Monarchial and Republican.• Presidential and parliamentary.• Rigid and flexible.The candidates were further required to explain three rules of natural justice. The rules, among others include:• No one should be penalised by a decision of

a court or tribunal unless he has been given prior notice of the charge or case and a fair opportunity to answer the case.

• An adjudicator should not act as a judge and a prosecutor in the same case.

• Justice delayed is justice denied.• Justice should not only be done it should be

seen to have been done.



Candidates were also provided with a case scenario and asked to advise an assignor on the rights and obligations of an assignee. The advice would therefore be:• She is entitled to receive the share of profits

which the assignor was entitled.• She receives the share of the assignor in case of

dissolution of the partnership.• She is not personally liable for the debts of the

firm if she is a minor.• She is entitled to attend meetings of the firm but

not to contribute in the deliberations.• She is not entitled to inspect the books of account

in the partnership.• She is not entitled to interfere with the

management of the firm.

Question No. 3 in which candidates had difficulties in discussing the general rule in the performance of a contract.

Divisible contracts – some contracts are by their nature divisible and performance of a part thereof entitles the performer to payment for work done.

Substantial performance – if a party has substantially performed its part of the contract, it is entitled to payment for work done.

Partial performance is accepted if a party to a contract has expressly or by implication agreed to pay for partial performance. The party performing is entitled to payment for work done.

Prevented performance – if a party who is ready and willing to perform part of the contract is prevented from doing so by the other’s fault, such a party is entitled to payment on quantum meruit.

Frustration of contract – a contract is frustrated when performance of the obligations become impossible, illegal or commercially useless by reason of extraneous circumstances for which neither party is to blame.

The forms of qualified acceptance include: • Partial acceptance where the drawee undertakes

to honour only part of the sum ordered to be paid.• Local acceptance involves the place where the

bill must be honoured.• Qualification as to time where the drawee

attempts to extend the time for acceptance and payment.

• Conditional acceptance where the drawee inserts some condition about the charges and costs in connection with the bill.

• Failure of one drawee to sign where one of the drawees named refuses or fails to sign the bill.If the holder agrees to accept the signature of others, it amounts to qualified acceptance.

CCP PART II SECTION 3

MANAGEMENT INFORMATION SYSTEMS


Question No. 3 part (a) required candidates to describe the five steps of waterfall information systems development model.

The five steps of waterfall information systems development model are:System conceptualisation – this refers to the consideration of all aspects of the targeted business function or process, with the goals of determining how each of these aspects will be incorporated into the system.System analysis – which is the gathering of system requirements, with the goal of determining how these requirements will be accommodated in the system.System design – once the requirements have been collected and analysed, it is necessary to identify in detail how the system will be constructed to perform the necessary tasks. This is the design stage.Coding – this steps involves the creation of the system software. Requirements and systems specifications from the system design step are translated to machine readable computer code.Testing – this is performed to ensure the system is working correctly and efficiently.



Part (b) of the question required candidates to analyse five factors to consider in developing an effective information system policy. These factors include:Dissemination (distribution) - the organisation must be able to demonstrate that the relevant policy has been made readily available for review by employees.Review (reading) - the organisation must be able to demonstrate that it disseminated the document in an intelligible form, including versions for illiterate, non-English speakers and impaired employees.Comprehension (understanding) - the organisation should be able to demonstrate that the employees understood the requirements and content of the policy.Compliance (agreement) - the organisation should be able to demonstrate that the employees agreed to comply with the policy through act or affirmation.Uniform enforcement - the organisation should be able to demonstrate that the policy has been uniformly enforced, regardless of employee status or assignment.

Question No. 6. Part (a) of the question required candidates to analyse six data warehousing principles.

These principles are:- Data is an enterprise asset. It has often

been reviewed as if data belong to particular individuals or as simply part of an application. This means data ought to be shared effectively.

- The business is the guardian of data. This means that data assets should have owners in the business. These owners are known as data guardians.

- Data should be secured based on risk analysis and appropriate level of security should be implemented for each data element within the enterprise.

- Data should be stored in fewer databases since it is better to maintain a few large multi-subject area databases, rather than many application specific databases.

- Limit dependence on physical data structure and ensure that business logic is insulated from the details of database structures.

- Single point for data manipulation implies there should be a single application, function library or component that manages all manipulation of data that is stored in systems records.

Part (b) of the question required candidates to discuss four policy considerations which could assist in creating an enabling environment for the development of e-commerce.

These policy considerations are:- Encryption and decryption techniques which

would provide authentication, authorisaton, confidentiality and integrity to services, including increasing security of e-commerce transactions.

- Digital signature and electric contracts should be relevant, for instance, in cases of dispute between trading partners in an e-commerce transaction.

- Certification authority would secure electronic transactions and act as trusted third parties to verify information about parties.

- Consumer protection – in an electronic market place it is not easy for consumers to identify and localise suppliers, so it is necessary to provide a protection mechanism.

- Electronic payments – online payment using credit cards is a missing component of African business environment, which is often cash based. Electronic payment systems would involve banks and other trade and financial institutions.

- Copyright and intellectual property rights – registration and intellectual property rights on the internet is still in its infancy stage, and uncertainty about such registration contributes to inhibiting e-commerce investment.

CCP PART III SECTION 6

DEBT RECOVERY




Question No. 1. Part (a) of the question required candidates to evaluate the circumstances under which the court could refer proceedings to mediation. These circumstances can be summarised as follows:• On the request of the parties concerned. The

parties here shall select a mediator whose name appears in the mediation register.

• When it deems appropriate to do so in such case the mediation shall be conducted in accordance with mediation rules.

• Where the law so requires and directs that any dispute presented before it be referred to mediation.

Part (b) of the question required candidates to describe the circumstances when the court might decline to grant orders for an application to amend pleadings. The examiners expected the following responses:• When the amendment is not necessary in

determining the real question of controversy between parties.

• When the effect of the amendment will introduce a totally different or new and inconsistent case.

• Where the amendment will cause injustice to the opposite party which cannot be adequately compensated in monetary terms.

• Where the effect of the amendment is to deprive the defendant of any legal right which has accrued to him as a result of lapse of time.

• Where the amendment seeks to add a new claim or cause of action which is already time-barred as at the date of amendment.

• Where the amendment has the effect of displacing fully the case of the plaintiff.

• Where the application for amendment is not made in good faith.

Part (c) of the question required candidates to highlight the provisions of the Limitation of Actions Act in relation to recovery of debts. These provisions are as follows:• Actions must be brought within six years from

the date the cause of action arose.• When the plaintiff is under a disability at the time

debt is contracted. Time begins to run when the disability ceases.

• Where a state-barred debt is acknowledged, a cause of action arises from the date of acknowledgement.

• Where the cause of action is based on fraud, time begins to run from the date of discovery of the fraud.

• The court may grant leave to sue for recovery of debt out of time upon reasonable grounds being advanced.

• Limitation begins from the moment the breach occurs, as a general rule.

Question No. 3. Part (a) of the question required candidates to describe the rules governing service of court process documents to parties to a suit. These were to be described as follows:• Parties must be served in person.• Service must be effected during business hours.

For a company service must be at its registered office.

• Leave of court may be granted to serve the parties through alternative means.

• Service through the local dailies may be allowed by court.

• If any party served does not appear in court, the court will proceed with its deliberations.

• The party serving must file return of service through an affidavit.

Part (b) of the question required candidates to discuss the rules governing proceedings and order on a creditor’s petition. The examiners expected the following responses:• A creditor’s petition shall be verified by affidavit

to the creditor, or of some person on his behalf having knowledge of the facts and served in the prescribed manner.

• At the hearing the court shall require proof of the debt of the petition creditor, of the service of the petition and of the act of bankruptcy.

• If the court is not satisfied with the proof of the creditor's debt, or of the act of bankruptcy, or of the service of the petition or that other sufficient cause no order ought to be made the court may dismiss the petition.

• When the act of bankruptcy relied on is non-compliance with bankruptcy notice to pay,



secure or compound for a judgement debt, or sum order to be paid, the court may stay or dismiss the petition.

• A creditor’s petition shall not, after presentment be withdrawn without the leave of the court.

• Where the debtor appears on the petition and denies that he is indebted to the petitioner, the court, on such security (if any) being given, may instead of dismissing the petition, stay all proceedings on the petition for such time as may be required for trial of the question relating to debt.

CCP PART III SECTION 6

CORPORATE LENDING


Question No. 1. Part (a) (i) required candidates to explain the term “bond”. This was to be explained as follows:

A bond is a third party guarantee in which the bank acts as a guarantor for a “principal” and provides the guarantee for a “beneficiary”.

Part (a) (ii) of the question provided a scenario to candidates and required them to analyse it and advice the customer on three types of bonds they could use as a form of the bank's undertaking to the buyer. The examiners expected the following responses.A performance bond - this would be a guarantee to the beneficiary that should the borrower fail to perform in accordance with the contract, then either the beneficiary may claim redress for her losses up to the amount of the bond.

An advance payment bond – by providing an advance payment bond, Vyuma Ltd. can obtain an advance payment from Tanzania Express Ltd. to finance the export contract. At the start of the export contract, Tanzania Express Ltd. will make an upfront payment to Vyuma Ltd. in advance of receiving the goods.A retention monies bond – a retention monies bond

gives Tanzania Express Ltd. a guarantee that if Vyuma Ltd. fails to carry out her post, the bank will pay compensation to the buyer.

Part (b) required candidates, based on the case study provided in part (a) to evaluate the risks that Vyuma Ltd. might be exposed to from the provision of the bonds by ACB Bank Ltd. These risks could be summarised as follows:(i) If ACB Bank Ltd. issues bonds to Vyuma Ltd.,

Tanzania Express Ltd. will be required to sign a counter indemnity.

(ii) As Tanzania Express Ltd. may require unconditional bonds, Vyuma Ltd. faces two main risks namely;• That it will fail to perform in accordance with

the contract and so risk being debited in respect of a fair call.

• That it will perform all its obligations, but risk being debited in respect of an unfair call.

Part (c) required candidates to describe any other services that Vyuma Ltd. could obtain from non-banking sources.

These were to be described as follows:- Export Credit Guarantee Department (ECGD)

Services - Can offer insurance services to Vyumat Ltd. against unfair calling of bonds raised, without direct ECGD support.

- Foreign exchange contracts endorsement would be available - This would provide the company with some protection against foreign currency risk.

- ECGD can issue an indemnity to the bond given (bank) - Under its indemnity, ECGD would be unconditionally liable to reimburse ACB Bank in full for the amount of any call under the bond.

Question No. 5: Candidates were provided with financial statements of a competitor company (Cawaka Ltd.) in which another company (Tawaka Ltd.) was considering purchasing an interest in.In part (a) candidates were required to comment on the overall performance of Cawaka Ltd. in terms of sales, gross profit, operating profit and return on capital employed.



The examiner expected the following responses:- Sales had increased at a steady rate of 5% per

annum over the three year period.- In contrast, the gross profit percentage had

increased from 42% in 2010 to 45% in 2011 before dropping back to 40% in 2012.

- Similarly, operating profit as a percentage of sales was 26% in 2010, 28.5% in 2011 and 25% in 2012.

- This may indicate some misallocation of cost between 2011 and 2012 and should be investigated or it may be indicative of a longer downward trend in profitability.

- Return on capital employed has shown a similar pattern with an increase in 2011 and a subsequent fall in 2012 to a level below that of 2010.

Part (b) of the question required candidates to comment on the debt ratios. These can be commented on as follows:

Debt and liquidity• The debt ratio measures the ratio of a company’s

total debt to its assets. Although we have no information as to the norm of the industry as a whole, the debt ratio appears reasonable. However, it should be noted that is has risen steadily over the three years period.

• When reviewing Cawaka Ltd.’s liquidity the situation has improved over the period. The current ratio measures a company’s ability to meet its current liabilities out of current assets. A ratio of at least 1 should be expected. Cawaka Ltd. did not meet this expectations in 2010 and 2011.

• Current ratio can be misleading as stock is included in current assets, because stock can take some time to convert into liquid assets. A second ratio, the quick ratio is evaluated which excludes stock.

• The quick ratio although improving is slow and this shows that current liabilities cannot be met from current assets if stock is excluded.

• A major part of current liabilities is the bank. The company is obviously relying on the bank’s continuing support with short-term funding.

• It would be useful to find out the terms of the bank funding and the projected cash flow requirements for future funding.

Part (c) required candidates to comment on efficiency ratios. The examiner expected the following responses:

The efficiency ratios - debtors ratio and stock turnover gave a useful indication of how the company was managing its current assets.

As can be seen from the appendix the debtor’s collection period had increased over the three years from 29 days to 58 days. This may indicate that the company was failing to follow up its debts efficiently or it had given increased credit terms to some or all its customers.

Looking at the stock turnover, this had also risen from 62 to 122 days. This may be an indication of overstocking, stocking up on the expectation of substantial sales increase or the holding of obsolete or slow moving stock items which should be written down.

More investigation needs to be done on both debtors and stock.

The financing of additional debtors and stock had been achieved mainly through the bank overdraft as the trade creditors figure had not increased significantly.

Part (d) required candidates to advise Tawaka Ltd. whether they should acquire an interest in Cawaka Ltd. The examiners expected the following advice:

The review of the three year financial statements for Cawaka Ltd. had given rise to a number of queries which needed to be resolved before a useful conclusion could be reached on the financial position of Cawaka Ltd. It was also useful to compare Cawaka Ltd.’s ratios to those of other companies in the same industry in order to obtain some idea of the industry norms.


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Tawaka Ltd. board of directors should have suspended the acquisition of an interest in Cawaka Ltd. until comparison was done with other companies in the same industry and the concerns raised in financial statement analysis resolved.

Workings:

Appendix to the memorandum2010 2011 2012

% turnover increase - 5% 5%Gross profit % of turnover 42% 45% 40%Operating profit % of turnover 25.5% 28.5% 25%Return on capital employedProfit before interest and tax

Capital employed4,586 -104

14,334+5,0005,387-215

1,5313+50004,959 - 450

1,5584+500023% 25.5% 21.9%

Debt ratio

Total debtTotal assets x 100%

4,187 + 500020,356+3265

5,804+5,00021,144+4976

6,184+5,00020,211+7,214

38.9% 41.4% 43.2%Current ratio

Current assetsCurrent liabilities

3,2654,187

4,9765,804

7,2146,714

0.78:1 0.86:1 1.06:1Quick ratioCurrent assets – stockCurrent liabilities

3,265 – 1,775 4187

4,976 – 2,6635,804

7,214-3,9956,814

0.36:1 0.40:1 0.47:1Debtors ratioTrade debtorsSales x 365 days

1440 x 36518,000

2260 x 36518,900

3,164 x 36519,845

29.2 days 43.6 days 58.2 daysStock turnover

Stock x 365 daysCost of sales

1,775 x 36510,440

2,663 x 36510,340

3,995 x 36511,890

62 days 94 days 122.6 days


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