The Accountant March-April 2016

JOURNAL OF THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF KENYA
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MARCH - APRIL 2016
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SECURITY
ANALYSIS FOR THE
LAY INVESTOR
IP PORTFOLIOS
AND FINANCIAL
REPORTING
WHICH
GENERATION DO
YOU BELONG TO?
Your attitude
determines
your altitude
The
aftermath
fraud
Working with law enforcement agencies,
the criminal justice system and moving on

ICPAK
PREMIER EVENTS
2016
TABLE OF CONTENTS
Annual Chapter
Seminar
6th-8th May 2016
Johannesburg,
South Africa
32nd Seminar of
Accountants
17th-20th May 2016
Mombasa
Venue: Sarova
Whitesands Hotel
34
GOVERNANCE
Challenges facing devolved
institutions in kenya
6
MANAGEMENT
Succession planning
C-Suite Seminar
28th - 30th
September 2016
Singapore
Executive Seminar
22nd - 25th
December 2016
Kuala Lumpar,
Malaysia
55
HEALTH
Schizophrenia
30
COVER STORY
The aftermath of fraud
66
Continental Board
Accountability
Seminar
6th - 8th July 2016
Livingstone, Zambia
Annual Chapter
Seminar
5th - 7th
October 2016
London, United
Kingdom
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The Accountant is published every 2 months by the Institute of Certified Public Accountants of Kenya. Views expressed in the journal do not necessarily reflect those of the institute, authors
firms or employers. Reproduction of any article in this journal without permission is prohibited. The editor reserves the right to use, edit or shorten articles for accuracy, space and relevance.
MARCH - APRIL 2016 1
TRAVEL
A city that runs
like a swiss
watch

YOUR VIEWS
EDITORIAL
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Email to accountant@icpak.com
Readers Feedback Corner!
WHICH TEACHERS?
In the November/December ’15 issue of The Accountant, Jim McFie
points to the dearth facing Kenyan employers in recruiting staff in the
modern work-place. He says surveys reveal interviewees with little or
no skills in problem-solving, team working or communication skills. A
literal reading of the article would ordinarily point to the teachers in
our academic institutions. Academic instructors do not however teach
in a vacuum: guided as they are, by diverse curricula among other
things to say nothing of our collective social expectations. We require
them to impart skills, not necessarily for industry, but that it becomes
useful to the learners throughout their lives.
The writer, an educationist of repute and of many years in this country,
has naturally, sensibilities towards citizens of his domicile. What is
evident to some is the fact that we probably have become inured to
the status quo and thus do nothing about it. We talk of corruption as
a matter of course and stop after ascribing a monetary attribute to it.
We institute bodies to run after the assumed the people who receive or
give bribes. Anti-corruption authorities hardly diagnose the cause of
this giving or receiving. Any speaker of many of our native languages
will confess that many speakers to so to emit sound rather than
meaning. The same happens in our official and national languages. The
latter neither falls under the purview of our institutional teachers nor
indeed our anti-corruption agency! We seek for instance good schools
for our children without thought what constitutes good schools:
parenting, nurture of disciplined childhood and good teachers. Our
view has become, good just sprouts! The writer does remind us how
his mother would get angry at his use of the phrase “leave alone”
instead of the correct ‘let alone’. Who says we could be effective let
alone efficient if we are unable to correctly infer meaning ourselves?
Our daily newspapers will rarely contain a page free of either spelling,
grammatical or syntax error. The very same could be said of our video
and audio media! What then must be asked is: which teachers? It then
appears to include all of us: starting with the first teachers who happen
to be our parents, at our work places, academic, at our religious places
and at all organizations in society. It simply does not wash to simply
point fingers lamenting how our children cannot express themselves
in either our official or national languages. We have to all ‘bell the cat’!
My people the Gikuyu have the adage ‘Ngemi ciumaga na mucii’
literally translating into “Charity begins at home.” As I ruminated
over Dr. McFie’s article and over the results we celebrate annually:
the performance of our children at the end of their primary or
secondary education, it occurred to me that some results are withheld
on allegations of cheating. I reasoned that pupils at either primary
or secondary school would not, on account of their tender years
and experience, have the motive to commit the felony of cheating.
Their parents and teachers would. It also occurred to me that if one
were a thief or robber, he would be most unlikely want to share the
information of his profession with anyone- spouse included! If this
be so, what would dishonesty in a national examination imbue a
child with? Is it possible that our consciences are so blunted that we
teach that indolence pays. Common Kiswahili parlance says ‘ukitaka
cha mvunguni, sharti uiname’. That we have come far in terms of
development, literacy and numeracy needs no gainsaying. What may
not be evident is that ‘indolence’ and lack of a culture of merit could
drive this nation to self-destruct! Laying fibre optic cables throughout
the country to inform within the fastest possible time is all very well.
What is not is unintelligible data or that the users of the data are
incapable of using it. A people that cannot communicate cannot be
taught. An educated populace will prosper a country, produce goods
and services for the market place. A country decays if it just consumes;
or just builds cities with a view to industrialize, or is unable/unwilling
to manufacture simple items. Its vision must remain that: a bad
dream.
By Lawrence Tykon Maingi
via email
Fighting Fraud
on multiple fronts!
Fraud has become
a chief concern today; consider this
scenario, what would you do if you were
to discover a fraud in your organization;
and you want to establish the cause of the
swindle and how you can recover the lost
assets? How do you involve the relevant
law enforcement agencies, the criminal
justice system and then ‘move on’? What
do you need to consider before engaging
law enforcement organizations? Forensic
investigators or internal auditors may be
required to work with law enforcement
agencies at some point. Law enforcement
agencies could include the local police,
Criminal Investigations Department
(CID), Ethics and Anti-Corruption
Commission (EACC) or Central Bank
Investigative units. Law enforcement
agencies may not be limited to local
agencies but could include outfits from
other countries such as the Federal Bureau
of Investigation (FBI), the New Scotland
Yard among others. This may happen when
the matters involved cover more than one
jurisdiction or in cases where foreign laws
apply.
An understanding of how law
enforcement agencies operate
and their objectives is
important for any investigator
or auditor. In most cases, law
enforcement agencies have a
wide experience in handling
court proceedings and complex
criminal cases, while forensic
accountants have the technical skills
required to understand technical
accounting and financial issues. It is
therefore important and advisable that
by working together, the objective should
be to realize the synergies of the two teams
working together. Bank reconciliation
statements have traditionally served as
an important control tool in detecting
anomalies either in the cash book and or
the bank statements. Whereas there may
exist a number of anomalies in the cash
book maintained by the company, there
are usually few (or no) anomalies in the
bank statement. In the writer’s experience
with a number of corporate frauds, bank
reconciliations have in most cases been
least useful in tracking where fraudulent
activity could have started. This author
has encountered companies that have had
to do with “cooked” bank reconciliation
statements for over two years. This period
is enough to defraud the company of a
significant amount of money without
anyone noticing. As an accountant, you
may be “perfect” in preparing “perfectly
reconciling” bank reconciliation. However,
are you aware that those bank statements
you have been provided with by your
superior or boss could be fictitious? Are
you also aware that the bank statement
copy you have might be having incorrect
outstanding amounts? To make it worse,
are you aware that the general ledger
entries have hidden reversals which may
be for unallocated or unapplied receipts
or payments? The fading role of bank
reconciliation in fraud prevention and
detection is the title of this article; These
intriguing topics shape our cover story
this time.
In Kenya today, there are
a number of reports on
procurement challenges. Just
recently, journalists were
questioned over reporting
bad procurement
challenges in
government
ministries. In the
private sector
similar tales are being heard both in social
and public media. As a matter of fact, it is
not that there is more corruption in Kenya
as might be perceived but there is more
press freedom as enshrined in the Kenya
Constitution 2010. This freedom has led
to the emergence of whistle blowers. This
has been assisted by the availability of
social media which has accelerated the
speed of information inter-change. At
corporate level, good corporate governance
should ensure that timely and accurate
disclosures of all material information
regarding the corporation are made to the
stakeholders. This is information should
help investors make reasonable decisions
concerning a company where they have
invested or intends to invest in. The
audited report and information should be
in a reasonably understandable format. It
should be sufficient to assist a reasonable
investor make informed decisions. It needs
to include but not limited to information
on financial situation, performance,
ownership and governance. Disclosure
should include material information on
company assets, liabilities and other related
risks. You will find this feature titled;
corporate governance whistle blowers in
the governance segment.
In the travel section, read about an
interesting City. The ancient Swiss city of
Zurich, the biggest in the country, as well
as the leading financial centre, is nestled
at the northern end of the narrow lake of
the same name, and is a startling contrast
to the chaotic urban environment that
African visitors are used to back home.
It is a pristine metropolis that runs like
a Swiss watch. The people of Switzerland
do not wear watches as bracelets, but as
essential tools to managing their time.
While travel timetables in Kenya could
often take honours in the Man Booker
Prize for Contemporary Fiction, in Zurich
the timetables mean what they say.
When you read the Accountant this time,
you will realize that it has become more
diverse; it has your regular features plus
much more.
Mbugua Njoroge
Editor
2 MARCH - APRIL 2016
MARCH - APRIL 2016 3

FINANCIAL REPORTING AND ASSURANCE
FINANCIAL REPORTING AND ASSURANCE
By Jim McFie, a Fellow of the Institute of Certified Public Accountants of Kenya
INTERNATIONAL
FINANCIAL REPORTING
STANDARD (IFRS) 16:
LEASES
IFRS 16 Leases was issued on
13 January 2016; it replaces IAS
17 Leases. The new Standard is
effective from 1 January 2019: early
application is permitted, provided the
recently issued revenue Standard, IFRS 15
Revenue from Contracts with Customers
is also applied. IFRS 16 requires all leases
to be reported on a company’s balance
sheet as assets and liabilities.
For IASB, the issuance of IFRS 16
Leases, completes a convergence project
that resulted in similar conclusions in
some areas of lease accounting, but some
differences in accounting for lessees. The
US Financial Accounting Standards
Board’s (FASB’s) leases standard is also
complete and is in production, with
publication expected in February.
Both boards agreed to substantially
carry forward the existing accounting
requirements for lessors. But for lessees,
IASB decided on a single model for all
lease recognition, while FASB has decided
on a dual model.
Under FASB’s model, lessees will
account for most existing capital leases as
finance leases, recognizing amortisation
of the right-of-use asset separately
from interest on the lease liability, while
most existing operating leases will be
accounted for by lessees as operating
leases, recognising a single total lease
expense. IASB’s model requires lessees
to account for all leases as finance leases,
with amortisation of the right-of-use asset
recognised separately from interest on the
lease liability.
IFRS 16 defines a lease as a contract
that conveys to the customer, the lessee,
the right to use an asset for a period of time
in exchange for consideration. A company
assesses whether a contract contains a lease
on the basis of whether the customer has
the right to control the use of an identified
asset for a period of time. The requirements
relating to the definition of a lease in IFRS
16 have been changed somewhat from
those in IAS 17 in response to feedback
received. However, those changes are
not expected to affect conclusions about
whether contracts contain a lease for the
vast majority of contracts: in other words,
a lease under IAS 17 is generally expected
to be a lease under IFRS 16.
IFRS 16 substantially carries forward
the lessor accounting requirements in
IAS 17. Accordingly, a lessor continues
to classify its leases as operating leases or
finance leases, and to account for those
two types of leases differently.
For lessees, IFRS 16 states that all
leases result in the lessee obtaining the
right to use an asset at the start of the
lease and, if lease payments are made over
time, also obtaining financing. IFRS 16
eliminates the classification of leases as
either operating leases or finance leases for
a lessee, asis required by IAS 17. Instead
all leases are treated in a similar way to
finance leases applying IAS 17: IFRS
16 introduces a single lessee accounting
model. Applying that model, a lessee
is required to recognise: (a) assets and
liabilities for all leases with a term of more
than 12 months, unless the underlying
asset is of low value, for example, a lease of
a personal computer; and(b) depreciation
of lease assets separately from interest on
lease liabilities in the income statement.
IFRS 16 does not require a company
to recognize assets and liabilities for
leases of 12 months or less. Leases are
‘capitalised’ by recognising the present
value of the lease payments and showing
them either as lease assets (right-of-use
assets) or together with property, plant
and equipment. If lease payments are
made over time, a company also recognises
a financial liability representing its
obligation to make future lease payments.
For companies with material off balance
leases, IFRS 16changes the nature of
expenses related to those leases – that is, in
the books of the lessee. IFRS 16 replaces
the typical straight-line operating lease
expense for those leases applying IAS
17 with a depreciation charge for lease
assets (included within operating costs)
and an interest expense on lease liabilities
(included within finance costs). This
change aligns the lease expense treatment
for all leases. Although the depreciation
charge is typically even (that is, if the
straight line method of depreciation is
used), the interest expense reduces over the
life of the lease as lease payments are made.
This results in a reducing total expense as
an individual lease matures. The difference
in the expense profile between IFRS 16
and IAS 17 is expected to be insignificant
for many companies holding portfolio
of leases that start and end in different
reporting periods.
The changes in accounting required by
IFRS 16 do not change the amount of cash
transferred between the parties to a lease.
Consequently, IFRS 16 will not have any
effect on the total amount of cash flows
reported. However, IFRS 16is expected to
have an effect on the presentation of cash
flows related to former off balance sheet
leases.
IFRS 16 is expected to reduce operating
cash outflows, with a corresponding
increase in financing cash outflows
(as required by paragraph 32 of IAS 7
Statements of Cash Flows) compared
to the amounts reported applying IAS
17. This is because,
applying IAS 17,
companies presented
cash outflows on
former off balance
sheet leases as
operating activities:
applying IFRS 16,
principal repayments
on all lease liabilities
are included within
financing activities.
Interest payments can
also be included within
financing activities,
depending on the
way the company has
chosen to classify this
line item.
IFRS 16 does not
change accounting
for services. Although
leases and services are
often combined in a single
contract, amounts related to
services are not required to
be reported on the balance
sheet. IFRS 16is required
to be applied only to leases,
or lease components of a
contract.
FASB and the IASB
agreed on the key issue of
bringing leases onto balance sheets, on
the definition of a lease, and how lease
liabilities should be measured. The boards
initiated the project to improve lease
accounting in response to concerns about
a lack of transparency about companies’
lease obligations.
In 2005, the US Securities and
Exchange Commission estimated that
US public companies may have had
approximately $1.25 trillion of off-balancesheet
leases. IASB estimates that listed
companies around the world currently
have around US$3.3 trillion of lease
commitments, that is future payments that
have to be made in respect of leases, and
that over 85% of those commitments do
not appear on companies’ balance sheets.
IASB estimates that almost half the listed
companies using IFRS or US GAAP
will be affected by these lease accounting
changes: analysis of some retailers that
have gone into liquidation or through a
reorganization shows that the value of off
balance sheet leases was almost 66 times
the value of on balance sheet debt.
“These new accounting requirements
These new accounting
requirements bring lease
accounting into the 21st century,
ending the guesswork involved
when calculating a company’s
often-substantial lease obligations
bring lease accounting into the 21st
century, ending the guesswork involved
when calculating a company’s oftensubstantial
lease obligations,” IASB
Chairman Hans Hoogervorst said. “The
new standard will provide much-needed
transparency on companies’ lease assets
and liabilities’, meaning that off-balancesheet
lease financing is no longer lurking
in the shadows. It will also improve
comparability between companies that
lease and those that borrow to buy.”
FASB’s leases standard will take effect
for public companies for fiscal years, and
interim periods within those fiscal years,
beginning after 15 December 2018. For
private companies, FASB’s standard will
take effect for annual periods beginning
after 15 December 2019.
IASB points out that the biggest change
introduced by IFRS 16 is that leases
will be brought onto companies’ balance
sheets, increasing the visibility of their
assets and liabilities. IFRS 16 removes the
classification of leases as either operating
leases or finance leases, for the lessee -
the lease customer - treating all leases as
finance leases.
IASB claims that
the benefits of the new
standard are that there
will be a more faithful
representation of a
company’s assets and
liabilities, there will be
increased transparency,
there will be improved
comparability between
companies that lease and
companies that borrow
to buy assets and the new
IFRS removes the need
for most investors, credit
rating agencies and others
to make adjustments to
balance sheets - analysis
shows that commonpractice
adjustments
often over-estimate, but
sometimes under-estimate,
the value of off balance sheet
leases.
IASB received over
1,700 comment letters on
the one Discussion Paper
and the two Exposure Drafts
that it published during the
standard-setting process.
IASB indicates that some
industry sectors will be
more affected by the new Standard than
others. Airlines, retailers and travel and
leisure companies are expected to be most
affected: it was found that future payments
of off balance sheet leases in these
industries equate to almost 30% on average
of the total assets on balance sheets. At
the moment, there are also considerable
variations between companies within
an industry sector: for some airlines, the
value of their off balance sheet leases is
equivalent to more than 100% of the value
of the airline’s total assets.
You have plenty of time to adjust to the
new thinking of IFRS 16 Leases.
4 MARCH - APRIL 2016 MARCH - APRIL 2016 5

MANAGEMENT
MANAGEMENT
STEP 4: Develop Succession
Strategies
This phase involves three key steps as
listed below;
1) Identifying recruitment
strategies
(e.g., bonuses)
• Realizing development/learning plans
(e.g., planned job assignments)
• Communication planning
• Determining and applying measures of
success
By Victor S Mutindah, vinivini48@yahoo.com, Photo: vistage
Succession
Planning
Succession planning is being
a systemic approach in
meticulously identifying
potential successors, developing
their strengths and enhancing
their leadership skills in order to create
a talent pool that ensures continuity of
leadership within an enterprise. Moreover
Effective succession planning (2005,
p. 10), “is perhaps best understood as any
effort designed to ensure the continued
effective performance of an organization,
division, department, or work-group by
making provision for the development,
replacement, and strategic application
of key people over time.” William J.
Rothwell, SPHR.
This seeks to focus resources on the
talent development aspect of a business,
hence producing valuable employees,
who in return yield the company greater
profits. The development process works
to tap into individual skills that would
benefit the enterprise.
This approach towards enterprise
development springs from the known-fact
that some jobs within the organization are
vital for smooth and efficient running of
various processes, therefore they cannot
be left vacant or handed to employees
who are not up to the task. If done well,
succession planning which is critical to
the success of a business indeed creates
a full proof procedure which recognizes,
develops and retains leadership talent in
the enterprise.
1.2 SUCCESSION PLANNING
PROCESS
Factors to consider when performing
succession planning initiatives;
• Top management is personally
involved and is held responsible for the
growth of future leaders in the business
and senior leaders form a partnership with
human resources.
• People with leadership competencies
are chosen, and are in charge of their own
self development during the process.
• Succession is associated with strategic
ground-work and investment in the future.
It addresses challenges such as diversity,
recruitment and retention of personnel.
• The success of the process is based on
long-term needs which the company has,
to enable the talent pool to be identified
and nurtured early in good time.
1.2.1 EFFECTIVE SUCCESSION
PLANNING
There are forces at work, elbowing
organizations to try out some form of
succession planning as part of their talent
management strategy. Namely: the aging
of the workforce; and a shortfall in the
skills possessed by those available for
recruitment. Therefore, it is prudent to
have a step by step process put in place to
ensure these forces don’t end up being a
liability to the business.
The diagram below is a graphical
representation of a six step process for
effective succession planning.
STEP 1: Link Strategic and
Workforce Planning Decisions
The first phase of the process involves
identifying long-term goals of the
enterprise and its vision. This enables
future requirements to be analyzed and
incorporated into the planning process for
necessary products and services.
In this step, the organization uses already
obtained data to evaluate and make
choices for the good of the business.
The linking of planning decisions allows
for connecting succession planning to the
values of the organization, while keeping
in mind the needs and interests of top
management.
STEP 2: Analyze Gaps
In this step senior management identifies
core competencies relating to the
enterprise and corresponds them with
their requirements. The supply of required
skills is matched with the anticipated
demand, both long and short-term, in
order to determine where the company
stands in terms of filling gaps that may
arise.
This step enables the leaders to come
up with a business
plan based on long-term
talent needs instead of position
replacement which is part of
Replacement Planning.
Replacement planning
assumes that the organization
chart will remain unchanged over
time. It’s a procedure that mainly
picks out “backups” for top-level
ranks, as outlined on the chart, and stops
there. A replacement chart usually lists
about 3 people as “backups” for each toplevel
position and describes how prepared,
in terms of skills-set and achievements,
required of each individual meant to take
up the role of the current job incumbent.
Succession planning, in contrast, focuses
on developing people rather than merely
‘naming’ them as replacements, hence it not
only nurtures but also enables enterprises
to combat continuity issues within the
hierarchy of work.
STEP 3: Identify Talent Pools
A talent pool is a group of people
being “groomed” for more challenging
responsibilities concerning a business.
Individuals to be placed in talent pools
may be surfaced by various means such as;
• Asking managers to assess and nominate
people within their taskforce.
• Another approach is to apply objective
assessment methods e.g. a multi-rater fullcircle
assessment to identify those who
are worth-while to build up for future
responsibility.
• Analyzing external sources of talent.
In most cases, talent pools are filled from
bottom up since managers are encouraged,
at all levels, to regard talent in any part of
the organization as a possible successor for
positions immediately above them.
•
Recruitment
and relocation bonuses
• Special
programs
• Up to standard
allowances
• Room for employee growth
• Talent management
2) Establishing retention strategies
• Salary increments and holiday bonuses
• Quality of work-life balance programs
3) Implementing development/learning
strategies
• Planned job assignments
• Formal development
• Coaching and mentoring
• Assessment and 360˚ feedback
• Action learning projects
• Communities of practice
• Shadowing
STEP 5: Implementing
Succession Strategies
This phase of succession planning
involves:
• Implementing recruitment strategies
(e.g., recruitment and relocation
bonuses)
• Putting into action retention strategies
• Linking succession planning to HR
processes through;
• Performance management
• Compensation
• Recognition
• Recruitment and retention
• Workforce planning
• Implementing strategies for
maintaining senior level commitment.
STEP 6: Monitor and Evaluate
This final step entails tracking the progress
of potentials’ from talent pools. It relies
on listening to feedback from leaders on
the success of internal talent growth of
employees, and also analyzing satisfaction
surveys from customers, employees
themselves, and other stakeholders.
Once monitoring and evaluation is
complete, management can assess
responses and change to suit requirements
and needs.
6 MARCH - APRIL 2016 MARCH - APRIL 2016 7

MANAGEMENT
MANAGEMENT
According to Lockett (1992),
performance management
aims at developing individuals
with the required commitment
and competencies for working
towards the shared meaningful objectives
within an organizational framework.
Performance management frameworks are
designed with the objective of improving
By Raymond Kiambati,
raymondkiambati@gmail.com
Photo: halogensoftware, incontact
PERFORMANCE
MANAGEMENT
AND TRAINING
both individual and organizational
performance by identifying performance
requirements, providing regular feedback
and assisting the employees in their career
development. Performance management
aims at building a high performance culture
for both the individuals and the teams so
that they jointly take the responsibility
of improving the business processes on a
continuous basis and at the same time raise
the competence bar by upgrading their
own skills within a leadership framework.
Its focus is on enabling goal clarity for
making people do the right things in the
right time. It may be said that the main
objective of a performance management
system is to achieve the capacity of the
employees to the full potential in favour of
both the employee and the organization,
by defining the expectations in terms of
roles, responsibilities and accountabilities,
required competencies and the
expected behaviours. The main goal of
performance management is to ensure
that the organization as a System and its
subsystems work together in an integrated
fashion for accomplishing optimum results
or outcomes.
Stages of Performance
management
Performance management is a continuous
self-renewing cycle involving Performance
agreement, managing performance
continuously and reviewing and assessing
performance.
1. Performance and
Development agreements
They form the basis for development,
assessment and feedback in the
performance management process. It
involves:
a) Role Profile
Sets out role requirements in terms of
key result areas and the competencies
required both technical and behavioral
for effective performance. It provides
the basis for agreeing objectives and
methods of measuring performance
and assessing the levels of competency
reached. It incorporates and performance
improvement plans that may be necessary
and personal development plans.
b) Contract or agreements
After an analysis of role requirements
and the performance review, a contract or
agreement emerges. An assessment of past
performance leads to an analysis of future
requirements.
c) Setting objectives
Objectives or goals describe something
that has to be accomplished. This is on
what the role holder has to achieve. It
defines expectations and forms the point
of reference for performance reviews.
Objectives will be on:-
• Ongoing role or work objectives – key
result areas in a role profile
• Target – quantifiable results as output,
throughput, income, sales, levels of service
delivery, cost reduction
• Tasks/projects – set the completion of
tasks or projects by a specified date or to
achieve an interim result.
• Behavioral – These are set out generally
in competency frameworks but may also be
defined individually under the framework
headings.
The objectives set should be smart.
d) Measuring Performance in
achieving objectives
It can be the measuring of output or
outcomes. Output is the quantifiable
results, while outcomes are the qualitative
visible effects not necessarily measured in
quantifiable terms.
Inputs should also be considered in terms of
the degree of knowledge and skill attained
and behavioral that is demonstrably in line
with the standards set out in competency
frameworks and statement of core values.
e) Personal Development
Planning
This provides a learning action plan
for which individuals are responsible
with the support of their managers and
organizations.
2. Managing Performance
This involves implementation of agreed
performance action plans. It is conducted
throughout the year. It requires active
support and encouragement of top
management who must make it clear that
performance management is regarded
as a vital means of achieving sustained
organization success.
3. Performance monitoring
evaluation and review
Should be done once or twice a year to
form a focal point for the consideration of
key performance and development issues.
This can be done formally or informally
through performance assessments by the
managers with their employees. They
should discuss any challenges faced by the
employee and suggest ways of dealing with
each situation.
Criteria for assessment
• Achievement in relation to objectives
• Levels of knowledge and skills possessed
and applied
• Behavior in the job
• The degree to which behavior upholds
the core values of the organization
• Day to day effectiveness
Links between Performance
Management and Training
1) Performance management provides
the basis for self-development but also
ensures support and guidance people need
to develop and improve is readily available.
2) Training actually achieves the purpose
of helping people perform their work to
required standards.
3) Performance Management and training
both seek to enhance effectiveness of an
employee, the team or the organization.
4) Performance management directs
attention to development priorities and
help in the determination of training
needs according to priorities. Helps to
identify training gaps.
5) Performance management challenges
people to bring their knowledge and skills
to bear to increase their chances of success.
2. ROLE OF PERFORMANCE
MANAGEMENT AND TRAINING
1) To enable the employees towards
achievement of superior standards of work
performance.
2) To help the employees in identifying
the knowledge and skills required for
performing the job efficiently as this would
drive their focus towards performing the
right task in the right way.
3) Boosting the performance of the
employees by encouraging employee
empowerment, motivation and
implementation of an effective reward
mechanism.
4) Promoting a two-way system of
communication between the supervisors
and the employees for clarifying
expectations about the roles and
accountabilities, communicating the
functional and organizational goals,
providing a regular and a transparent
feedback for improving employee
performance and continuous coaching.
5) Identifying the barriers to effective
performance and resolving those barriers
through constant monitoring, coaching
8 MARCH - APRIL 2016 MARCH - APRIL 2016 9

MANAGEMENT
MANAGEMENT
and development interventions.
6) Creating a basis for several
administrative decisions strategic
planning, succession planning, promotions
and performance based payment.
7) Promoting personal growth and
advancement in the career of the
employees by helping them in acquiring
the desired knowledge and skills.
3. ROLE OF PERFORMANCE
MANAGEMENT IN
DEVELOPMENT
Your employees are an integral and
indispensable part of running your
business smoothly and efficiently. That’s
why, keeping in mind the crucial role of
your employees, a recent trend known as
Performance Management has come into
practice. Using performance management,
you can ensure that your employees not
only fulfill their responsibilities, but do so
to the best of their abilities and up to your
expectations.
Performance management allows
you to tap the full potential of your
staff. In short, it can be described as a
comprehensive process starting from
monitoring and developing the desired
traits to rating their progress and
rewarding them for their achievements.
Involve Employees in the
Planning Stage
The mere making of plans alone will not
help you to run your business successfully.
You must also focus on the appropriate
ways to get business tasks done. One
way of doing this efficiently is to involve
your employees in the planning process.
This will not only boost their morale
and confidence, but also help you avoid
any communication gaps in the process.
Additionally, it will also help in providing
them with a clear picture of what you
expect from them and what they need to
accomplish.
Monitoring the Progress of
Your Employees
Just as revision of business plans is
sometimes necessary for the success of
your business, measuring the performance
of every employee is also important. This
ensures that tasks are efficiently completed
on time and on or under budget. It also
points out to you any shortcomings
of either your staff or business plans,
and helps you to take the appropriate
corrective actions.
Ensuring All Around
Development of Employees
Performance management gives you the
tools to instill the desired qualities in
your employees in order to get the job
done. Development is not limited to only
individuals in your workplace, but also
addresses the performance of the team as a
whole. All around employee development
not only ensures the personal and
professional growth of your employees,
but also the expansion and improvement
of your business.
Evaluation of Individual
Performance
Evaluating and rating the performance of
your employees on an individual basis is
essential. This gives them a clear picture
of where they presently stand, areas that
they need to work on and what they are
good at. This way, they can focus more on
their weaknesses and work to strengthen
those areas.
You should make it company policy to
issue performance reviews while providing
your employees with the feedback that
they need to perform better at their
jobs. Remember - just as it is important
to point out your employees’ weaknesses
and shortcomings, it is also essential to
commend them on their strengths.
Rewarding Your Employees
Rewarding and appreciating your
employees’ efforts ensures that their level
of their performance and consequently
the performance of your business is
not compromised. It ensures optimum
productivity, performance and maximum
profitability. Rewarding your staff for
a job well done not only enhance their
performance but also serves as a tool
to keep them motivated. Therefore,
performance management is an effective
system that allows you to achieve the
financial goals of your small business.
4. IMPROVING EMPLOYEE
PERFORMANCE
Everything you ever needed to know
about enhancing the productivity of your
staff is actually contained in a few simple
techniques that are guaranteed to increase
the efficiency of your practice.
Certainly, some form of training or
coaching is needed, but so often this
is viewed as a large expense and not an
investment which invalidates the overall
need. So, below are several easy training
tactics that managers can use today,
without spending a lot of time or money.
1) Genuinely listen to your team,
individually - When was the last time
you had a one-on-one conversation with
each of your team members? If you do
not do this, start now. Find out what their
struggles are, areas of concern, and what
they enjoy contributing to the team. You
will find out more in five minutes from
these more intimate conversations than
you have in team meetings in the past six
months.
2) Plan strategically on expanded
roles - Because so many businesses and
teams are downsizing, now is the time
to think and plan strategically how all
of your team members will continue to
contribute and in which ways. And if you
were paying attention to your one-on-one
conversations with each team member, you
will discover how each individual member
is capable of contributing that perhaps
was overlooked before. For example,
say you are a Marketing Manager that
discovers one of your team members has
a public relations background. Because
this position was cut due to the recent
downsizing of the business, this discovery
naturally leads to a potential fill of the
void.
3) Get visual, and get hands on -
Whatever new role your team members
are fulfilling be sure to support them in
as many ways as possible. Our example in
the previous tactic was someone who has
experience with a task they are being asked
to perform, but what if there isn’t anyone
with experience? Well, someone will have
to do the work and need guidance from
you as the manager. So whatever the task,
you as the manager are their greatest
lifeline to learn and succeed. And because
80% of learning is done visually, be sure
to communicate in ways that people will
absorb information more quickly. Use
visuals, walk through the process step-bystep,
and discuss progress in your one-onone
conversations.
4) Motivation - Every staff member
is unique; therefore, the motivation to
perform better will be different for each
person. Identify the motivator for each
staff member and provide opportunities
that encourage their interest and
performance.
5) Setting Goals - Make sure you have
a vision for how you want your practice
to operate now and in the future.
Communicate your vision to staff so that
they are directing their energies toward a
common goal. They will feel like they are
a part of the practice and this will enhance
performance.
6) Praise - Take advantage of big and
small opportunities to praise your staff
for work well done. Your recognition of
their performance means a lot and it is
important that you acknowledge their
efforts.
7) Feedback - Be lavish with praise
but selfish with criticisms - but do offer
kind words of constructive feedback that
makes your staff feel respected and valued.
8) Management - Be available as a
resource to your staff. They should
feel comfortable to approach you with
questions and concerns and not feel as
if they are imposing on your time. They
should be able to depend upon you for
guidance and as a model of what excellent
performance is all about.
Performance management aims at building a high
performance culture for both the individuals and the teams
so that they jointly take the responsibility of improving the
business processes on a continuous basis and at the same
time raise the competence bar by upgrading their own
skills within a leadership framework.
10 MARCH - APRIL 2016 MARCH - APRIL 2016 11

MANAGEMENT
BUSINESS PRACTICE AND DEVELOPMENT
By Dominic Ooko, ooko@ca.go.ke
Photo: ACCA South Africa Blog
By Joseph Kariuki, Audit Partner
jkariuki@kpmg.co.ke
Photo: coindesk
Why your
strategy needs
an open mind
The basic rule for most
organizations nowadays is
to put a few top people in a
room to brainstorm or find
a solution to a problem or
develop a product. Usually, the tone has
been set at the top and it would take a lot
of courage to deliver a contrary verdict on
its viability. This approach tragically leads
to sloppiness in testing the feasibility of
the product or solution on its acceptance
and value to the customers. Generally, it’s
not easy to predict what’s most valuable
to customers in the future, but the cost of
groping in the dark maybe suicidal to the
organization. This lesson is learned from
Roald Amundsen’s book the Last Place on
Earth that chronicled his conquest of the
South Pole.
Twelve days before embarking on the
expedition, on Friday, September 8th,
1911, the Norwegians led by Amundsen
left Framheim heading south in pursuit of
the South Pole. By Monday, less than 40
miles out of the base camp on the Ross
Ice Shelf in Antarctica, the thermometer
sank to minus 60 degrees. The winds were
gusting up to 100 miles per hour and the
men had to build Inuit-style igloos to keep
out the storm. The next day, the liquid in
the compasses froze solid.
The men were completely exhausted,
and after 12 continuous hours of merciless
struggle against the cold and wind, all the
men arrived back safely to their base camp.
Five of the sledge dogs had died and most
of the men were blistered and frostbitten.
The next morning, most of the men agreed
that the whole idea of starting so early for
the Pole had been a mistake.
The retreat had exposed critical
weaknesses in their equipment and these
were subsequently corrected in readiness
for their actual conquest of the South
Pole 12 days later, delivering the ultimate
defeat of the British team by arriving 34
days earlier on December 14th, 1912. In
tragic contrast, the Amundsen expedition
team of 19 men all made it to South Pole
and returned safely to Norway, while
the British team led by Naval captain
Robert Falcon Scott lost 5 men out of a
team of 65 men including the expedition
leader himself! For no apparent reason,
the final British 5 man team arrived in
South Pole hauling 14kg of rock samples
for geological souvenirs but without food
rations for the long way back nearly
300 miles to the nearest food and fuel
station. They all perished. Had they had
equivalent weight of sea seals they would
have survived.
This experience from the Last Place
on Earth suggests that an entity should be
prepared to undertake thorough testing of
its product or solution and not be afraid
to quit a project albeit in the interim.
Richard Dawkin called it the Concorde
fallacy where the stakeholders perceive
the sunk cost as too expensive to abandon,
after the Concorde plane promoted by the
British and French governments despite
knowledge that it was not economically
viable.
An entity should readily undertake
a self-internal reflection on the viability
of a project and not be afraid to quit or
pause. It’s a fact that most times there’s no
sufficient evidence to deliver the contrary
view of quitting and indeed there’s no
magic bullet. The proposed solution is that
management needs to think differently,
a bit more, including considering a
temporary setback or retreat.
The Writer is a Finance Manager –
Communications Authority of Kenya
New lease accounting
standard brings added
transparency to the
balance sheet
The new lease accounting
standard published on
13 January 2016 by the
International Accounting
Standards Board (IASB) brings
added transparency to the balance sheet,
according to KPMG International.
The new standard requires companies
to bring most leases on-balance sheet,
recognising new assets and liabilities. At
present, many analysts adjust financial
statements to reflect lease transactions that
companies hold off-balance sheet.
Commenting on the new standard
following the release, Kimber Bascom,
KPMG’s global IFRS leasing standards
leader, said: “All companies that lease
major assets for use in their business will
see an increase in reported assets and
liabilities. This will affect a wide variety
of sectors, from airlines that lease aircraft
to retailers that lease stores. The larger the
lease portfolio, the greater the impact on
key reporting metrics.”
Companies are currently required to
disclose details of their off-balance sheet
leases and analysts use this information
to adjust published financial statements.
Bascom continued: “Current lease
accounting requires financial statement
users to adjust for off-balance-sheet leases.
The key change will be the increase in
transparency and comparability. For the
first time, analysts will be able to see a
company’s own assessment of its lease
liabilities, calculated using a prescribed
methodology that all companies reporting
under IFRS will be required to follow.”
The impacts are not limited to the
balance sheet. There are also changes in
accounting over the life of the lease. In
particular, companies will now recognise
a front-loaded pattern of expense for
most leases, even when they pay constant
annual rentals. And the new requirements
introduce a stark dividing line between
leases and service contracts – the former
will be brought on-balance sheet, while
service contracts will remain off-balance
sheet.
The new standard takes effect in
January 2019. Before that, companies will
need to gather significant additional data
about their leases, and make new estimates
and calculations that will need to be
updated periodically. Brian O’Donovan of
KPMG’s International Standards Group
commented: “The new requirements are
less complex and less costly to apply than
the IASB’s earlier proposals. However,
there will still be a compliance cost. For
some companies, a key challenge will be
gathering the required data. For others,
more judgemental issues will dominate –
for example, identifying which transactions
contain leases.”
The accounting changes do not affect
cash flows directly. However, given the scale
of the accounting change, KPMG expects
that companies will be keen to understand
the size of the lease liabilities arising from
transactions they enter into between now
and 2019. O’Donovan continued: “No one
wants to see accounting drive business
behaviours – the tail shouldn’t wag the dog.
But if accounting consequences are in the
mix when a company is considering a deal,
then the mix will change. For example,
this standard essentially kills sale-andleaseback
as an off-balance-sheet financing
proposition.”
Some key impacts cannot yet be
quantified. O’Donovan continued:
“Companies won’t have the full picture
until other accounting and regulatory
bodies have responded. For example, the
new accounting could prompt changes
in the tax treatment of leases. And a key
question for the financial sector is how the
prudential regulators will treat the new
assets and liabilities for regulatory capital
purposes.”
The US Financial Accounting
Standards Board (the FASB) will publish
a new US GAAP standard on lease
accounting shortly. Although the IASB
and FASB worked together on lease
accounting for years, their final standards
feature different lessee accounting
models. Bascom concluded: “It’s ironic
that the outcome of this long- running
convergence project will be divergence
in accounting for common lease types.
The new IFRS and US GAAP standards
will introduce differences in the profile
and presentation of annual lease expense
where none currently exist, reducing
comparability between the two major
accounting frameworks.”
About KPMG East Africa
Our East Africa practice comprises of
Kenya, Uganda, Tanzania and Rwanda.
KPMG East Africa has 21 partners
and over 1000 professional staff. The
Nairobi office serves as the regional
coordinating office providing the
required networking and support
to facilitate delivery of services on
a timely basis to meet and exceed
our clients’ expectations. KPMG East
Africa provides services in Eastern
Democratic Republic of Congo, South
Sudan, Burundi, Somalia as well as
Ethiopia
12 MARCH - APRIL 2016 MARCH - APRIL 2016 13

BUSINESS PRACTICE AND DEVELOPMENT
BUSINESS PRACTICE AND DEVELOPMENT
By Dr. Erick Outa, otxeri001@gsba.uct.ac.za, Photo: SeminarFest
BUSINESS AND
ACCOUNTING
ETHICS
What happens to leaders and
what can they do to improve
standards of ethical behavior?
A
story is told based on Oliver
Stone’s Wall Street popular
movie, which portrays
unscrupulous dealings of
people involved in securities
trading based on non-public information.
A corporate raider character, by actor
Michael Douglas, in a dramatic scene says,
“Greed is good!” The implication is that
greed is an acceptable motivation and that
business people will do anything to make
money, including engage in unethical
behavior. In reality, greed is unacceptable,
and unethical behavior will destroy a firm’s
ability to make money. Although the goal
of any firm should be to increase its owners’
wealth, to do so requires the public’s trust.
In the long run, that trust depends on
ethical business practices.
What then is ethics and why does it
matter? Ethics business dictionary.com
describes ethics as the basic concepts and
fundamental principles of decent human
conduct. It includes study of universal
values such as the essential equality of all
men and women, human or natural rights,
obedience to the law of land, concern for
health and safety and, increasingly, also for
the natural environment. A google search
says the purpose of ethics in business is to
direct business men and women to abide
by a code of conduct that facilitates,
public confidence in their products
and services. Companies with good
ethics attract customers to the
firm’s products, thereby boosting
sales and profits. In Kenya, the
Code of Ethics for Professional
Accountants includes the entire
IFAC (International Federation
of Accountants) code together
with specific requirements under
Kenyan context.The IFAC code
of Ethics establishes ethical
requirements for professional
accountants. While this code
conspicuously appears on the
ICPAK website, no research
has been undertaken to tell the
extent to which it is used and how
it has impacted the accounting
profession and the general Kenya
public. Many ICPAK registered
accountants serve in the country
in various capacities and sometimes
it is worth knowing how they coexist
with ethical issues in their
environments.
Companies with sound ethical
standards make employees want to stay
with the business, and therefore increase
productivity, attract more employees
wanting to work for the business, reduce
recruitment costs and enable the company
to get the most talented employees and also
attract investors and keep the company’s
share price high, thereby protecting the
business from takeover. Unethical behavior
or a lack of corporate social responsibility,
by comparison, may damage a firm’s
reputation and make it less appealing to
stakeholders. Profits could fall as a result.
While adequate research has not been
undertaken in Kenya to provide evidence
on the relationship between applying
ethics and the resultant benefits, the
general belief around the world
shows that ethical behavior
in organizations are quite
beneficial.
Michael
Josephson, a
speaker and
lecturer on
the subject
of ethics
notes in
Chapter
1 of
Ethical
Issues
in the
Practice of Accounting, 1992, the “Ten
Universal Values” as “honesty, integrity,
promise-keeping, fidelity, fairness, caring,
respect for others, responsible citizenship,
pursuit of excellence, and accountability”.
The question is, how practical are these
values in the very complex society where
we live and how comes there is a perception
that they are missing in society?
In George Washington’s farewell
address to public life, September 17, 1796,
he said that the survival of freedom on
American soil would have nothing to do
with him, and everything to do with the
character of its people and the government
they would elect. What is it about
character of a people to behave ethically
and elect ethical leaders?In considering the
impact of ethical values on a society, Dr.
Katherine and Murphy Smith indicated
Chuck Colson’s response, “Societies are
tragically vulnerable when the men and
women who compose them lack character.
A nation or a culture cannot endure for
long unless it is under girded by common
values such as valor, public-spiritedness,
and respect for others and for the law;
it cannot stand unless it is populated by
people who will act on motives superior
to their own immediate interest”. Chuck
Colson was described as US President
Richard Nixon“dirty tricks” man and an
architect of the Watergate scandal. He
acted against the advice of his lawyers, by
pleading guilty to obstruction of justice, a
step that he depicted as “a price I had to
pay to complete the shedding of my old
life and to be free to live the new”.
The Role of Education and
Professional Institutions
There are bits and pieces of ethics in the
education and professional institutions
covering ethics and so the question is
whether these institutions have a role to
play in ethics and if so how comes ethics
is so much questioned in our society.
Specific responsibilities of the
accounting profession are expressed in
the various codes of ethics promulgated
by professional accounting institutes.
In the US, AICPA’s first principle of
professional conducts states: “In carrying
out their responsibilities as professionals,
members should exercise sensitive
professional and moral judgments in all
their activities.” In Kenya, “Professional
Accountants are required to apply the
conceptual framework to identify threats
to compliance with the principles,
evaluate their significance and apply
safeguards to eliminate them or reduce
them to an acceptable level” according
to Erick Kimani who once chaired the
disciplinary committee of ICPAK. Dr.
Smith’s assertion is that “the main reason
for having ethical guidelines is not to
provide a cookbook solution to every
practice-related problem, but to aid in the
decision-making process for situations that
involve ethical questions. Business persons
will encounter novel situations in their jobs
and will need ethical guidelines to handle
them effectively”.On a practical basis, for
example the Institute of Management
Accountants recently established an
“ethics hotline” to help members resolve
ethical dilemmas. Ethics counselors offer
confidential advice, solace, and comfort to
management accountants who may have
no other place to turn for help.
How Do You Measure Success?
In Kenya, there are allegations of
corruption across the board while the
courts have struggled to prove such cases,
many times without success, but the
question that remains is that some people
are richer and powerful than their incomes
or status permit. Can we consider rich and
unethical people as successful even in the
absence of “wrong doing” charges against
them?
Dr. Smith narrates a popular story of
a meeting that may have taken place at
the Edgewater Beach Hotel in Chicago in
1923. There is some debate as to whether
the meeting in fact occurred, but what is
not in question is the actual rise and fall
of the men featured in the story, who were
nine of the richest men in the world at
the time: (1) Charles Schwab, President
of the world’s largest independent steel
company; (2) Samuel Insull, President
of the world’s largest utility company;
(3) Howard Hopson, President of the
largest gas firm; (4) Arthur Cutten, the
greatest wheat speculator; (5) Richard
Whitney, President of the New York Stock
Exchange; (6) Albert Fall, member of
the President’s Cabinet; (7) Leon Frazier,
President of the Bank of International
Settlements; (8) Jessie Livermore, the
greatest speculator in the Stock Market;
and (9) Ivar Kreuger, head of the company
with the most widely distributed securities
in the world. Twenty-five years later, (1)
Charles Schwab had died in bankruptcy,
having lived on borrowed money for
five years before his death. (2) Samuel
14 MARCH - APRIL 2016 MARCH - APRIL 2016 15

BUSINESS PRACTICE AND DEVELOPMENT
GOVERNANCE
Insull had died virtually penniless after
spending some time as a fugitive from
justice. (3) Howard Hopson was insane.
(4) Arthur Cutten died overseas, broke.
(5) Richard Whitney had spent time in
Sing-Sing (Sing Sing correctional facility
is a maximum security prison operated
by the New York State Department of
Corrections and Community Supervision).
(6) Albert Fall was released from prison so
he could die at home. (7) Leon Fraizer,
(8) Jessie Livermore, and (9) Ivar Kreuger
each died by suicide. Measured by wealth
and power these men achieved success, at
least temporarily.
In a paper by Dr. Outa on the New
International Financial Architecture,
examples of what happens to leaders
when unethical behavior crystalizes in an
organization is presented. The CEO of the
collapsed WorldCom responsible for the
loss of $11 billion was jailed for 25 years
while the CEO of Tyco International
and his associates were jailed for 8-25
years and were asked to repay $72M-
$167 M. The Enron CEO was sent to 24
years in prison while his CFO was jailed
for 10 years and the treasurer 5 years. A
former CEO of Guinness Stout, Ernest
Sanders, described as a high flier who flew
too high, close to the sun until his wings
melted. He was hired with a simple Job
description to reverse the falling fortunes
of Guinness. One of his actions was to
acquire United distillers and he thought
it would help if his company’s shares were
worth considerably more than those of
Distillers. So he and others bought up
Guinness shares, artificially ramping up
their value.He was charged with false
accounting, conspiracy, and theft and jailed
for 5 years. A UK department of trade and
industry report described him as a man
who did “unjustifiable favors for friends
and himself ”. Away from the individuals,
career loses and disappearance of great
brands comes along with situations of
ethical failure. In many cases come broken
individuals, shattered homes, divorce for
the individuals, loss of friends and social
networks.
The Kenya market is complicated
because most unconcluded cases cannot
be cited but one of the painful cases has
been CMC Motors where great corporate
icons found themselves with court rulings
and revelations that destroyed many years
of hard and genuine work.The most recent
case yet to reach the courts is the Imperial
General Norman Schwarzkopf led
the desert storm war to drive Saddam
Hussein from Kuwait in 1991.
bank where it is suspected that over ksh
38 billion has disappeared from the bank.
Of course there are many professionals in
these business chains including the Central
bank, but the question that still remains
unanswered is what are their characters?
It appears no one saw anything coming.
On a positive note, a very successful listed
company in Kenya-Safaricom has been in
the news for terminating 58 employees
in 2015 and 56 in 2014 for unethical
behavior including asset misappropriation,
fraudulent expense claims and corruption
cases. The company requires its employees
to undergo ethical training at least once
every year. How does it happen in your
organization? Are ethically practices
“practicalised?”
What can we do as individuals?
“If you occupy a position of leadership ,
your actions profoundly influence those
who follow your example”. Considering
the many qualities that are necessary for
successful leadership, General Norman
Schwarzkopf who led the desert storm
war to drive Saddam Hussein from
Kuwait in 1991 in one of his famous
quotes said: “Leadership is a potent
combination of strategy and character. But
if you must be without one, be without
the strategy.”Chuck Colson suggested
that other virtues such as keeping the law,
respecting human life and property, loving
one’s family, fighting to defend national
goals, helping the unfortunate, paying
taxes-all these depend on the individual
virtues of courage, loyalty, charity,
compassion, civility, and duty.
Are you ethical?
Finally, Dr. Tom Lickona (Character
Matters(www.Amazon.com)), suggests
8 questions that can help us make good
ethical decisions in many situations:
1. The Golden Rule Test:Would I want
people to do this to me?
2. The Truth Test:Does this action
represent the whole truth and nothing
but the truth?
3. The What-If Everybody-Did-This
Test:Would I want everyone to do this
(lie, cheat, steal, litter the school, etc.)?
Would I want to live in that kind of
world?
4. The Parents Test:How would my
parents feel if they found out I did this?
What advice would they give me if I
asked them if I should do it?
5. The Religion Test:If I have religious
beliefs, how do they apply to this action?
What would a respected member of my
religion advise? Are there any religious
texts that I could draw on for guidance?
6. The Conscience Test:Does this go
against my conscience? Will I feel guilty
afterwards?
7.The Consequences Test:Might this
action have bad consequences, such as
damage to relationships or loss of selfrespect,
now or in the future? Might I
come to regret doing this? Jailed?
8.The Front Page Test:How would I feel if
my action were reported on the front page
of my hometown paper?
Additional Resources
1. Arthur Andersen & Co.,
“National Commission Fraudulent
Financial Reporting, Summary of
Recommendations,” Accounting News
Briefs, Vol. 13, No. 2 Supplement, April/
May 1987.
2. Outa, E. (2012), “The New International
Financial Architecture: a Comparative
Analysis of Lessons and Experiences from
Africa”. Presented at Catholic University
of Eastern Africa and published by Ad
Minister, an International peer reviewed
journal of Universidad EAFIT, Columbia,
Latin America.
http://publicaciones.eaf it.edu.co/index.
php/administer/article/view/2506/2556#.
VSQFReGH
By Nelson Korir, cpanelson@nfassociates.co.ke
REFORMATION
OF KENYA’S
BUDGETORY
PROCESS
The cracks emerging from
unreconciled data relating to
EURO BOND accountability
by National Treasury has
provided a window of
opportunity for this country to take
another look at its budgetary process
which is now auditable under Public
Audit Law 2015. Those entrusted with
budgetary process require support
and adequate investment and systems
infrastructure from national, county and
other agencies to handle trillion spending.
We have read about the agitation to
have the two senior officials sacked as if
there will be immediate solution to the
current woes. This is not time to shed
blood at the Treasury. The answer lies in
investment in people and systems and
placing holders of budgetary position in
the hands of members of ICPAK from
national to counties. This is the starting
point in financial control.The payoff
is huge and makes sense now that the
budget process is auditable under Public
Audit law.
It is surprising to see treasury officials
justifying payments of third parties through
third parties circumventing collection of
withholding taxes, a key docket of KRA.
Nobody talks about it. Even the law was
amended to accommodate this fraudulent
process to deny KRA its rightful revenue.
The answer is dead silence, although the
constitution forbids this process.
As we consider reforming Kenya’s
Budgetary Process, we wish to take cue
from former treasury officials who were
role models in the financial management
of public coffers some of whom are still
with us. Nicholas Nganga, the late John
Michuki, Harry Mule, Leonard Kibinge
and Charles Mbindyo come to people’s
minds. Their tenure was supported
by financial control systems that were
adhered to by all from national to district
treasuries. The responsibility to report
on compliance or noncompliance was
left to the then Controller and Auditor
General (CAG). The financial orders
were a semblance of the ISA we have
today in auditing discipline. Remember
we did not have IFAC or ICPAK.
These financial orders issued by national
treasury were examinable in government
training institutions and serve as a
window for promotion to the next level.
Where are we today? We have a public
Finance Management Act that is hardly
understood or poorly implemented,
amended at will without considering
anchors in constitution.
First things first. Reform country
budgetary system, long overdue to stop
those baying for officials’ blood and anger
at the treasury corridor. These are my
thoughts and I hope they will provide
right light fittings and other gears for the
nation to thrive.
16 MARCH - APRIL 2016 MARCH - APRIL 2016 17

BUSINESS PRACTICE AND DEVELOPMENT
BUSINESS PRACTICE AND DEVELOPMENT
Emotional conversations should not take place via email.
If an emotionally charged email is received, it is best not
to respond via email, but to call the sender and discuss
the situation offline, regardless of who is copied on the
email. In the case of an ongoing audit, it is best not to
communicate significant findings via email.
Audit
Communication
The Missing Piece
Career progression in any field
is dependent on many factors,
including skill and experience
and, often, being in the right
place at the right time. In the
audit and risk management profession,
there are many high-quality people vying
for the same roles. Additionally, the
progression of many managers up the
proverbial audit ladder is stymied due
to one significant distinguishing factor:
communication skills.
In the audit world, some auditors
tend to use fear, uncertainty and doubt as
methods of enforcement. When speaking
By CPA Derrick Majani, majani35@gmail.com, Photo: hrinasia
to non technical oriented team members,
it is easy to generate fear, which may
inadvertently lead to rumors that can
damage the credibility of the auditors and/
or the audit departments. Such negative
methods by auditors will not contribute to
success in building long-term relationships
with auditees.
For auditors, the focus is on oral and
written communication. To be successful,
auditors must establish face-to-face
relationships with auditees and develop
a level of trust. Furthermore, complete
and accurate work papers in addition to
compelling audit reports are important
throughout
the audit process.
Auditing skills and ability are
extremely important; however, without
a high level of communication, all
ability is for naught. It has been said that
interpersonal skills are more important
than auditing skills in this profession.
Internal audit is comparable to the
sales group inside an organization,
in that, audit must constantly sell its
value and role. The need for auditors to
constantly sell their value highlights the
importance of refined communication
skills. Some best practices and key areas
of communication include:
• The 7 C’s of communication
• Professionalism
• Miscommunication
• Mode of communication
• Conflict management
• Active listening
The 7 C’s of Communication
Communication, via emails, meetings,
phone conversations and instant
messaging, for example, is the
foundation of all business. The 7 C’s
of communication provide a checklist
for making sure that all forms of
communication, including meetings,
emails, conference calls, reports and
presentations, are well constructed and
clear.
The 7 C’s of communication are:
1. Clarity/coherence—this may
seem obvious, but clear and coherent
communication is not as easy as it
seems. Communication should be
focused—
with no
question about the intention
or the objective. Irrelevance should be
eliminated, and logic must be embraced.
2. Concise—many people are familiar
with people who like to use long words
and sentences to project intelligence,
often producing the opposite effect.
The elimination of space killers and a
focus on useful words is key. Concise
communication keeps audiences engaged
and interested.
3. Complete/correct—Communication
is a fine art; it is important to paint
a complete picture so that all facts
and circumstances are understood.
Communication should be accurate and
honest. It is okay for people to admit that
they do not know something—admit
it, attempt to find the answer and move
forward.
4. Captivating—Communication
must be interesting and engaging at all
times. Comprehension and listening
significantly decrease if people do not see
how they are personally involved in the
communication. Compelling language
that encourages action should be utilized.
This commands more attention and better
responses.
5. Conversational—An adult’s
comprehension tends to decrease
significantly (during training) when
a speaker talks to the audience rather
than with the audience. People must be
engaged and feel comfortable enough to
speak
6.Courteous—Communications are
most effective when they are two-way,
not one-way. Communication should be
professional, but friendly and approachable.
7. Concrete—One should communicate
with specifics and certainty, eliminating as
m u c h
ambiguity as possible and
keeping communications direct and to the
point.
Professionalism
One of the major issues with inter office
communication is the separation of
personal and professional points of view.
Emotion tends to weigh down healthy
and straight forward communication
and the comprehension of what is being
communicated. Communication should
be kept at a professional level; personal
feelings should not affect communication.
It is important to remember that
communication should not be taken
personally in the workplace. In certain
instances, auditees may take audit findings
or recommendations personally. For
auditors, communication must be kept
on a professional level and emotion must
be eliminated as much as possible. The
auditor should remain focused on the issue
and the root of the problem.
Miscommunication
Miscommunication is the number-one
cause of unnecessary conflict. Assumptions
can take on a world of their own. People
who assume let the assumption take
over the conversation and, thus, do not
fully comprehend the communication.
Auditors must not assume anything, must
keep an open mind and must be open to
conversations. Many miscommunications
are bred from assumptions and are affected
by the mode of communication.
Auditors should ensure that
communications to auditees are clear, and
they should avoid miscommunication as
much as possible.
Mode of Communication
The mode of communication can
significantly change the tone and meaning
of communication. Generation Z3 is well-
18 MARCH - APRIL 2016 MARCH - APRIL 2016 19

BUSINESS PRACTICE AND DEVELOPMENT
BUSINESS PRACTICE AND DEVELOPMENT
Oskar Gröning
is a German
former SS junior
squad leader who
was stationed
at Auschwitz
concentration
camp.
By CPA Charles Kai Mwangudza,
charleskai140@hotmail.com
THE ACCOUNTANT OF
AUSCHWITZ
The Auschwitz trial held in
Krakow, Poland was among
the trials held after the Second
World War to bring to account
those who bore responsibility
for crime committed during the Holocaust.
The following is an excerpt from the jury
decision which saw a verdict of 23 death
sentences and 17 imprisonments ranging
from life sentences to 3 years. “Torturing of
prisoners already tormented to the extreme
is the evidence of inhuman savagery
perpetrated by the defendants who as a
result of the trial were sentenced to death.
The listed violent crimes committed by
named defendants, who all took a smaller
or larger part in the mass murder of
prisoners also reveal that the accused were
involved in acts of killing for pleasure and
not pursuant to orders of their superiors. If
it were not for expressed desire to kill, they
would have otherwise displayed elements
of sympathy for the victims or at least
show indifference to their plight but not
torture them to death.”
April, 2015 saw the commencement of
the trail of 93 year old Oskar Groening.
Oskar was at the time of the war a 21,
year old junior non-commissioned
officer of the SS. Oskar is being tried
on 300,000 counts of accessory to murder
related to Hungarian Jews at Auschwitz
in 1944. Interesting for me is not the
duration it took to bring him to trial
rather it is the fact that Oskar was not a
guard, he was a book keeper, in today’s
era probably a CPA. Groening was not a
violent participant in genocide, he was not
one of those who clubbed, beat and shot
Jews, all he did was count the money the
Nazis stole from the Jews. Groening was
indicted under a new line of German legal
reasoning that anyone who helped a death
camp function can be accused of being an
accessory to murder without evidence of
participation in a specific crime.
What parallels can we draw from
the man the German press dubbed the
‘Auschwitz accountant’ with present
day members of the institute both in
public and private sector? As reports
of misappropriation, mismanagement
and outright theft continue to gain
prominence in the media almost on a daily
basis, one must ask the question how many
accountants are just like Groening ‘just
collecting and tallying money stolen from
new camp arrivals and sending it to Berlin’.
From the happenings at Kenya Airways
and Uchumi in the private sector to
NYS and most recently Communications
Authority in the Public Sector, how many
accountants are efficiently processing
illegal payments on account of doing
their duties? It is only when accountants
are found to have personally benefited or
are found to have been negligent is action
taken against them.
Anthony Smith-Meyer the Editor-in-
Chief, Journal of Business Compliance
states the following with regards to the
matter of ethics. “Ethical choice only
happens when there is a disruption to the
balance of values that determine our moral
consciousness, introducing an anguish,
anxiety, disdain or disgust over a personal
choice or an observed situation/behaviour.
Ethics only exists when there is a clash of
values requiring a rebalancing of choice
between what is, or was considered, right
or wrong”.
The Accountant code of ethics while
emphasising on confidentiality, provide
circumstances where professional
accountants are or may be required to
disclose confidential information or
when such disclosure is appropriate,
“………Where disclosure is required
by law such as disclosure to appropriate
Public Authorities of infringements of
the law that come to light”. The Internal
Auditors code of ethics makes similar
demands as regards confidentiality,
“Internal auditors respect the value and
ownership of information they receive
and do not disclose information without
appropriate authority unless there is a legal
or professional obligation to do so. This
section of the code should be read together
with the Public Finance Management
Regulations 2015 which provide for
Reporting material breaches and persistent
material breaches. “When indications
of fraud, material breaches and wasteful
expenditure have been identified in a State
Organ, or any other national government
entity in sections 92 of the Act, the head
of the internal audit unit shall immediately
notify the Cabinet Secretary”.
The Internal Auditing Standards
provide further guidance on this matter.
Internal Audit Practice Advisory 2440-2
on communicating sensitive information
within and outside the chain of command.
It provides guidance on possession and
communication of such information which
include fraud, waste and mismanagement,
illegal activities, abuse of power,
misconduct that endangers public safety or
other wrong doings.
There have been recent reports of
supermarkets having a variance between
display prices and till prices. There is
probably a ‘management accountant’ who is
responsible for providing sales projections
and reporting on variances. You may also
have another ‘accountant’ in charge of
reconciling store balances and this would
include verification of shelf prices. In this
modern era of enterprise management
systems that include palm held devices
for us in stock take it is surprising that
it takes public outrage on social media
for supermarkets to acknowledge these
facts. What of the internal auditor who
as part of risk based auditing would be
auditing the internal controls regarding
change of pricing? What may be even
scarier are rumours that some supermarket
outlets alter the expiry date of products
to continue engaging in their sale to the
detriment of the health of unsuspecting
Kenyans. The month of June 2015 saw the
anti-counterfeiting agency raid a palatial
home in Nairobi where fake goods worth
millions of shillings were discovered.
Again one would seek to ask in this era
of bar codes and supplier identification in
the enterprise resource planning system,
should these goods find their way to our
supermarkets, who is responsible for
controls with regards to supplier sourcing
and auditing controls of the same?
What do you do know? Ethical issues
face by Charted Accountant, a book
published by the Institute of Chartered
accountants of Scotland presents an
interesting perspective on what it refers to
as ‘Guardian’ and ‘Commercial’ perceptions
with regards to ethical responsibilities.
This perspective broadly refers to the
accountants’ dual responsibility to the
commercial interest of the institution as
well guard the stakeholders by providing
a true and fair representation of the
financial status of an entity. When faced
with a scenario where an entity requires
the accountant to falsify quarterly
management accounts in order to ensure
the company meets it covenant with its
financiers, the accountant is faced with
the commercial interest of ensuring the
company meets its funding conditions to
the bank where failure to do so results in
dire consequences for the firm’s survival.
On the other hand, the ‘Guardians’ role is
that the accounts must represent a true and
fair representation of the firm’s financial
position and performance that would be
in the interest of the creditors. Another
perspective would be the question whether
to falsify accounts in order to maintain an
audit client or express a qualified opinion
that could lead to winding up of a company
and loss of employment for many.
Oskar Groening was on the 15th of
July 2015 sentenced to serve 4 years in jail,
70 years after the liberation of the Nazi
concentration camp. On the first day of his
trial, Groening said he felt morally guilty
for his work at Auschwitz. To conclude,
I believe that appreciating the duality
of the role of the accountant in securing
the ‘commercial’ interests of the entity as
well as the ‘guardian’ role of protecting
public interest will provide a useful lens
through which ethical dilemmas facing the
accountant can be viewed and interpreted.
In this modern era of enterprise management
systems that include palm held devices
for us in stock take it is surprising that it
takes public outrage on social media for
supermarkets to acknowledge these facts.
20 MARCH - APRIL 2016 MARCH - APRIL 2016 21

BUSINESS PRACTICE AND DEVELOPMENT
BUSINESS PRACTICE AND DEVELOPMENT
versed in communicating via smartphone
and social media (e.g., LinkedIn, Facebook,
Twitter); however, the focus on these new
modes of communication has decreased
Generation Z’s in-person communication
skills. There are many different modes of
communication, but nothing can replace
face-to-face conversation.
Emotions and sarcasm are difficult to
interpret via email and on smartphones.
All employees should be guarded
when communicating via smartphone.
Technology has enhanced the speed of
communication, but it has also decreased
the effectiveness of communication.
Generation Z relies heavily on text
messaging and emails, but many
conversations are better conducted in
person or over the phone. Email and texting
are sometimes used as modes to avoid inperson
conversations. Communications
that involve back-and forth conversation
should be done in person rather than
via email. Many employees, especially
in younger generations, tend to use the
wrong form of communication. Email
is overused, and not all conversations are
effective via email.
Emotional conversations should not
take place via email. If an emotionally
charged email is received, it is best not to
respond via email, but to call the sender
and discuss the situation offline, regardless
of who is copied on the email. In the
case of an ongoing audit, it is best not
to communicate significant findings via
email. Anything that could be significant
or construed as personal should be
communicated in person.
Conflict Management
Confrontation can be a healthy exercise
when the parties in conflict are transparent
and honest. In most cases, discussions
of audit findings will have some form of
confrontation. Proper management of this
communication can determine the success
of an audit.
Most people inherently do not like
confrontation. The points outlined below
can be applied to any type of conflict.
Confrontation—due to any conflict,
including those within the audit group,
between audit and management, or among
auditors and auditees—can be optimized
by undertaking the following steps:
• Personally confront the issue—Lack
of transparency breeds distrust. When
issues are avoided, assumptions arise. As
discussed previously, assumptions can
take on a world of their own. Confronting
issues head-on breeds confidence and
trust in management. When discussing
an audit issue, lay out the facts and be
straightforward.
• Make the initial statement, then stop
talking—When confronting an issue,
make an initial statement and then stop
talking. This is against human nature;
during confrontation, many want to state
their case and not stop until they believe
they have sufficiently made their case.
On the other hand, the other party in the
conflict feels that they are being railroaded
and belittled. Conflict is healthy when
there is two-way communication. Oneway
communication will never resolve an
issue. After the initial statement is made,
give ample opportunity for the other
parties to discuss the statement and give
their viewpoints. This creates a back-andforth
communication that is more effective
in resolving a confrontation.
• Avoid arguing during the confrontation—
No matter what is said during a
confrontation, regardless of how personal
a statement is, arguing is never valuable or
effective. Silence is preferable.
• Know the desired resolution prior to
the confrontation— Many pointless
confrontations occur because the parties
do not know before the confrontation what
resolution they want. Without a known
resolution, confrontation is meaningless
and tends to be emotional. The best
way to convince auditees that change is
necessary is to present the idea as theirs.
Via significant dialogue with the auditees,
and through showing an understanding
of their perspective and ideas, the auditor
can lead auditees in the direction of the
recommendation.
• Focus on the real issue of the
confrontation—Many confrontations
become emotional when there is a lack of
focus on the real issue. It becomes a blame
game with a multitude of excuses. If the
conversation deteriorates into a blame
game, take a break or a deep breath and
eliminate blame. Refocus on the primary
objectives of resolving the issue and
alleviating concerns that the issue will
reoccur at a later date.
Active Listening
Listening is a major part of communication.
It takes effort to listen and comprehend.
Auditors must be good listeners and must
focus on the content and meaning of a
conversation.
When participants lack strong listening
skills, audit interviews lose their value.
The following points can enable more
optimized listening:
• Ignore phone calls during a conversation,
and abstain from multitasking; ensure
that the conversation is the primary focus.
Conversations can become relatively
meaningless and devalued when combined
with multitasking.
• Look at the other person, and focus on
the words and meanings. Eye contact
is important because it breeds trust and
confidence. Maintaining eye contact keeps
the focus on the conversation at hand.
• Avoid interruptions.
• Resist jumping to conclusions. It can be
difficult not to jump to conclusions. The
listener may hear something that takes
comprehension away from the remainder
of the conversation. Regardless of what is
said, keep an open mind and follow up on
any concerns when the opportunity arises.
• Concentrate on the flow and backand-forth
of the conversation rather than
focusing on bits of information or past
parts of the conversation.
Conclusion
Communication is key to an organization’s
success. In general, audit skills and talents
are very important, and not everyone
is capable of becoming a good auditor.
On the other hand, interpersonal and
communication skills are as, or more,
important than general audit capabilities. If
an auditor cannot effectively communicate
a finding or recommendation, the solution
will fall on deaf ears. All the internal and
IT audit talents in the world are deemed
relatively useless when the auditor lacks
the ability to effectively communicate the
goals and findings of an audit.
Auditors who strive to advance
into managerial roles need strong
communication skills to take the next step.
This is the missing piece for many auditors,
but it can be achieved with training and
effort. Auditors must become optimized
communicators, and should not assume
that the people with whom they interact
are not optimized communicators.
The Writer is member of the Youth and
Affairs Sub-Committee ICPAK
Internal Auditor – Bandari Sacco Msa
By Sylvia Nyokabi Karaba, snkaraba@yahoo.com
Audit Work
Papers
In Internal Audit
Assignments
IIA defines internal audit as an
independent, objective assurance and
consulting activity designed to add
value and improve an organization’s
operations. It helps an organization
accomplish its objectives by bringing
a systematic, disciplined approach to
evaluate and improve the effectiveness of
risk management, control, and governance
processes.
The IIA attribute standard 2300 on
performing the engagement requires
internal auditors to identify sufficient,
reliable, relevant, and useful information
to achieve the engagement’s objectives.
This translates to sufficient information
being factual, adequate, and convincing so
that a prudent, independent person would
reach the same conclusions as the auditor.
Reliable information is the best attainable
information through the use of appropriate
engagement techniques. Relevant
information supports engagement
observations and recommendations and
is consistent with the objectives for the
engagement.
The documentation of work papers
therefore becomes a critical part of any
audit assignment as they are proof of
work done by the auditors. Work papers
are the connecting link between the work
done and the final report. Audit work
paper documentation should provide a
permanent and detailed audit trail of the
work performed for reference by a third
party. For typical audit assignment this
starts at planning stage to report issuance
and indeed to the point that all the audit
issues raised are closed by management.
There are many stakeholders who depend
on the work done performed by the internal
auditors and thus the need to ensure that
the work papers done are of high quality.
The work papers can be reviewed by third
parties who may include the regulators or
even investigators in case of investigations.
Thus the need to ensure that the work
papers are sufficiently detailed and of high
quality and any opinions reached can be
admissible in a court of law.
The main objective of work papers is to
document the planning, performance, and
review of audit work. Audit documentation
provides written support for planning and
scoping decisions, testing methodologies
and results, and evidence of review and
completion of audit program work steps.
They document what has been done, why
it has been done, and how to re-create
what has been done.
Auditors should ensure that the work
papers;
• Show exactly what work was carried
out to support the opinion
• Include the auditor’s name and date of
preparation
• Should have evidence of review
• Cross referencing to the source should
be done as necessary
• State a conclusion or opinion
• Show significant findings that form
the basis of the report
• Contain summaries that draw together
findings from several test areas
• Sufficient for a third party to carry out
the same work performed, and once reperformed,
the same conclusions
would be reached
• Should be written close to the time
of the audit – preferably onsite or
shortly thereafter
Work papers characteristics
To attain the set objectives, the work
papers should have certain characteristics
which include;
• Completeness: work papers should
be self standing and self explanatory.
Any reader should be able to identify
the purpose, work done and the results
based on the information provided per
single work paper.
• Objective: the work papers should not
be biased i.e. they should be fact based
as the information reviewed should be
sufficient and appropriate (relevant
and reliable)
• Clear and concise: work papers should
not be ambiguous and should be
written using simple language. They
should also be specific on the time
period covered say 6 months ( January
2015 to June 2015)
• Comprehensive; the work papers
should be well detailed in support of the
conclusion reached. Indicating the
items tested in relation to the total
population. Also ensuring nature
and extent of exceptions identified
is also documented. Any assumptions
or inferences made should also be
documented for review by the audit
reviewers.
• Timely: its best to complete the work
papers as the fieldwork testing is being
completed as required by ISA 230.
This helps to enhance the quality of the
audit and facilitates the effective review
and evaluation of the audit evidence
obtained and conclusions reached
before the auditor’s report is finalized.
22 MARCH - APRIL 2016
MARCH - APRIL 2016 23

FINANCE AND INVESTMENT
FINANCE AND INVESTMENT
MANAGING
TRANSACTION
EXPOSURE
By CPA William Irari, williamirari@gmail.com
Long before the 19th century,
many countries and regions
traded with each other through
commodity exchange or what
was referred to as barter trade. As
the number of transactions increased and
traders’ appetite for wider geographical
area grew, it became practically impossible
to settle trade with delivery of the
commodity and soon after, currency
became the ultimate unit of exchange.
Currency is a globally acceptable means
of exchange and being sanctioned by any
government, it becomes a legal tender
and cannot be refused for settlement of
any debt. In order to carry out businesses
beyond a country’s border, the relative
values of the different currencies must
be determined by trading them between
nations in foreign exchange markets.
These markets are the focus of this study
as there are myriad of challenges that face
the trading partners since as
the case may be,
one currency
w i l l
inevitably be stronger or weaker than the
other.
Like any other market, the foreign
exchange market is exposed to economic
factors prevailing in a certain economy
where market forces of demand and
supply determine to a large extent the
rate of exchange (spot or forward rate). A
country that imports more than it exports
tend to have a depreciating currency
and this is inversely true for the country
that exports more. A firm that relies on
imports for its production stands the risk
of incurring further costs due to volatility
and fluctuation of its host currency. And
what better example to give if not mention
about the losses that Kenyan businesses
are going through since the beginning
of the year as the shilling continues to
suffocate under the strengthening green
back (US Dollar). By July 31st 2015, the
Kenyan shilling had fallen to an all time
l o w
of KES 102.50/USD representing a
whopping 12.5% depreciation against the
dollar as it had stood at KES 91/USD at
the beginning of the year. Needless to say
the increased transaction costs have upset
the fortunes of these firms. It is against
this backdrop that I try to explore ways
on how this transaction exposure can
be managed with an emphasis on the
multinational companies (MNCs).
As mentioned above, a firm doing
international business can make use of
derivatives to mitigate some of the losses
that arise as a result of foreign exchange
fluctuations. If the firm decides to hedge
part or all its transactions exposure, it
can select from the following hedging
techniques as explained below:
“In some cases the firm may opt not
to hedge its exposure to exchange rates
movements. The decision as to whether
to hedge a portion to a forward contract
or to keep it unhedged can be made by
comparing the now results of hedging
to possible consequences of
remaining unhedged. Simply put,
it’s all about opportunity costs”.
1 Futures Hedge
Currency futures can be used
by firms that desire to hedge
transactions exposure by;
(a) Purchasing currency
futures – in order to hedge a
payment on future payables
in a foreign currency, the
firm may purchase a currency
futures contract for a currency
it will need in the near future,
thus locking the amount of home currency
required to make payments.
(b) To hedge against receivables, a firm
may sell currency future contract it will
receive after converting the foreign
currency receivable into its own currency
thereby insulating itself against fluctuation
of receivables.
2. Forward
Hedge
Like futures,
forwards can be
used to lock in the
future exchange
rate at which a
firm can buy or
sell a currency. A
firm that needs a
foreign currency
can negotiate
between the firm
and the commercial
bank and specify
the currency, the
exchange rate and
the date of forward
transaction. Firms
in these cases can
negotiate to lock
in the currency in a
buy/sell depending
on the need.
In some cases
the firm may
opt not to hedge
its exposure to
exchange rates
movements. The
decision as to
whether to hedge a
portion to a forward
contract or to keep
it unhedged can be
made by comparing
the now results of
hedging to possible
consequences
of remaining
unhedged. Simply
put, it’s all about
opportunity costs.
3. M o n e y
Market Hedge
A money market
hedge involves
taking a money
market position
to cover a futures
payable or a receivables position. If a firm
has excess cash, it can create a short term
deposit in the foreign currency that it will
need in the future and hence cover itself
against any potential currency fluctuations
with returns of the deposit. On hedging
receivables, if a firm expects receivables
from a certain country, it can hedge this
position by borrowing the currency now
and convert it into its home currency and
when the receivables are realized, they’ll be
used to pay off the loan. Let me illustrate
this; supposing a company resident in
Kenya expects to receive Tanzanian TSH.
24 MARCH - APRIL 2016 MARCH - APRIL 2016 25

FINANCE AND INVESTMENT
FINANCIAL REPORTING AND ASSURANCE
In some cases the firm may opt not to hedge
its exposure to exchange rates movements. The
decision as to whether to hedge a portion to a
forward contract or to keep it unhedged can be
made by comparing the now results of hedging to
possible consequences of remaining unhedged.
Simply put, it’s all about opportunity costs”.
500,000/= in 90 days from now. Instead
of the firm borrowing money locally, it
can borrow in Tanzania shilling from a
Tanzanian Bank and convert the TSH into
KES for use. Assuming the annualized
rate is 12% or 3% over 90 days the
amount of TSH to be borrowed to hedge
on future receivable is 500,000/1.03, i.e.
TSH 485,437/=. If the firm converts the
borrowed TSH.432,437/= to KSH, it can
use the receivable to pay the Tanzanian
loan in 90 days (i.e, KES 500,000/=
which includes the principal plus accrued
interest).
4. Currency Option Hedge
An option can be defined as a contract
between two or more parties where a
party to the contract has a right but not
an obligation to exercise the contract upon
the occurrence of a specified favorable
event, otherwise the party exercising the
option would just let the contract lapse.
The ideal hedge would insulate the firm
from adverse exchange rate movements
but also at the same time allow the firm
to benefit from favorable exchange rate
movements.
The firm can make use of its receivables
and payables as described below:
(i) Hedging receivables with currency
put options. If the existing spot rate of
the foreign currency is above exercise
price, when the firm receives the foreign
currency, the firm can sell the currency
received at the spot rate and let the option
expire.
(ii) Hedging payable with currency call
option. A currency call option provides
the right to buy a specified amount of a
particular currency at a specified price
(exercise price) within a given period of
time. The firms lock in the maximum price
and also have the flexibility to the let the
option expire and obtain the currency at
existing spot rate when the currency is to
be payable in settlement.
Apart from the four major hedges
discussed above to cushion firms from
exposure to diverse exchange rates, there
are other alternative hedging techniques
that a firm can employ. As explained
here below, these strategies have more to
do with restructuring of the company’s
operations;
a) Leading and Lagging
This technique involves adjusting the
timing of a payment request/disbursement
to reflect expectations about future
exchange rates movements. Leading is
paying earlier than the due dates to take
advantage of favorable rates while lagging
is delaying settlements until the exchange
rates normalize. It’s important to analyze
the foreign exchange market keenly for
this to succeed as well as accessible to
favorable terms with the suppliers.
b) Cross-hedging
This is hedging an open position in one’s
currency with a hedge in on another
currency that is highly correlated with the
first currency. This happens mainly when
for some reason, the traditional hedging
techniques cannot be applied to the first
currency. It becomes more sensible to
apply this method if the movements of
the two currencies are perfectly negativecorrelated.
c) Currency diversification
A firm can opt to structure its investing
strategy by making use of more than one
currency. This may cushion the firm from
exposure from fluctuations as compared to
the loss it would incur if it only applied a
single currency.
It is important for the finance manager
or CFO to understand that there are many
methods on which derivatives can be
applied to deal with exchange fluctuations
and there is no stereotype prescription
which can be applied even to firms in the
same industry. Some methods are shortterm
while others are more long lasting. An
example of a short term technique is the
use a triangular arbitrage. Let me explain;
supposing a firm wants to purchase dollars
to say facilitate imports. Instead of buying
dollars directly, it can buy British pounds
and then convert them to dollars. This can
only work if one can identify discrepancy
in the cross-exchange rate between two
currencies.
In conclusion, it is worth noting that
use of derivatives and particular hedges
is not a walk in the park. Some of these
instruments are very risky if handled
without calculated strategies and can
ultimately lead to massive losses and as the
saying goes, fire is a good servant but a bad
master.
CPA William is a holder of MBA (finance),
CPAK and a member of the Institute of
Certified Investment & Financial Analysts
(ICIFA)
By Seno Namwandi, seno_moe@yahoo.com
IP PORTFOLIOS
AND FINANCIAL
REPORTING
Intangibles are taking over financial
reports of companies. The knowledge
era has brought about a significant
change in how assets are reported.
This is because companies are now
valuing their know-how more than their
physical assets or that their physical assets
(which are few in number in comparison)
are a direct reflection of their expertise,
which can be accounted for as an intangible
asset. Factories and specialized machinery
are treated as tangible assets, which istypical
in accounting practice as the standards
used are tailored for tangible assets;
however, knowledge cannot be treated the
same way. For instance, with the emphasis
of Research and Development (R&D) in
companies, auditors are forced to account
for the high resource activity involved on
the balance sheets. This poses a problem,
as traditionally, resources involved in
R&D would be costed to the company as
expenditure because in essence, a company
spends its human capital, equipmentand
time in order to innovate, but this is not
an accurate depiction of R&D. In dealing
with intangible assets, one has to make an
ex ante projection of what the output of
R&D could bring into the company. An
investment in R&D has the potential to
bring in capital gains at a later stage and
this should be depicted as such. This is just
one example of how accounting standards
have had to transform to not only
report the current situation but include
financial forecasts. This is typical nature of
intangible assets and causes a challenge for
accounting practices..
Intellectual Property (IP) is an
intangible asset that is growing in
company operations. IP tends to come
in bundles i.e. a company will have an
IP mix of trademark(s), copyright, trade
secrets and possibly patents depending
on the line of business; this generates a
portfolio. IP portfolios like others need
accurate management to ensure that they
are exploited to the full benefit of the
company.
The management of IP portfolios has
Image:
WikiLeaks releases
the final negotiated
text for the TPP
(Trans-Pacific
Partnership)
Intellectual
Property Rights
Chapter.
an influence on the overall valuation of a
company because of the nature of IP rights
(IPRs). IP is an investment i.e. it requires
that financial resources to obtain and this
investment varies widely depending on
what type of IP protection the company
seeks and thereafter the scope of protection
(how many countries does the company
seek protection in). IP protection has the
potential for capital gains in licensing
agreements i.e. patents can be licensed
out and that acts like a revenue stream for
the company. As previously mentioned,
R&D can also be placed as a potential
revenue stream if the output is taken into
consideration.
With the introduction of IAS 38 in the
countries using the IFRS, it changed the
way intangibles are treated on the financial
reports. The accounting standards for
intangibles have characterised them based
on the following criteria:
1. Identifiability
2. Capacity to control the asset especially
with respects to a past event.
3. Future economic benefit expected.
The management of IP portfolios
especially taking care of the renewal fees
and ensuring the various revenue streams
are duly paid is particularly relevant to
future events for the company.
This requires that accounting
professionals are brought up to speed
concerning the nature of intangible assets
particularly that of IP and the difference in
reporting style.On the African continent,
accountants have been confronted with
goodwill for the longest time however,
companies are now diversifying their
intangible assets sources to include IP
and human capital; this demands a an
understanding of IP and its unique
interaction with the company’s resources.
The writer is an IP practitioner based in
Windhoek Namibia
26 MARCH - APRIL 2016 MARCH - APRIL 2016 27

FINANCE AND INVESTMENT
FINANCE AND INVESTMENT
By CCP. Wasilwa Miriongi, wmiriongi@gmail.com
Image: Nutrilite Products Inc.
Part2
Multi-Level
Marketing a Real
Business for THE
21 st Century
The first part of this series was in
the September/October 2015
issue. Welcome to part two of
this interesting Business model.
Quoting Professor Mark
Yarnell & Rene Reid Yarnell
in the their book My first
year in Network Marketing
“the fascinating thing
about Network Marketing is that in most
instances survival, i.e staying in existence
after others leave the business is precisely
what leads to dramatic wealth. Attrition is
a considerable factor in our business. Yet we
have rarely met who has worked steadily in
Network Marketing who doesn’t eventually
achieve success. And those individuals
who do not achieve success are their own
worst enemies, constantly reinventing the
wheel and complicating the simplest path
to prosperity in the history of capitalism”
The Yarnell’s acknowledge that
priorities vary as widely as do people.
While some choose Network Marketing
as a means to an end (wealth) others just
enjoy it for its own merits.
History shows that Network
Marketing has its roots to the 1940s
when the Nutrilite Products Inc. launched
the sale of supplement products and ten
years later Amway introduced the sale of
household products. Over the past 50 years
the industry has matured into a legitimate
and efficient channel of distribution ideally
suited for the next wave about to break in
the world of business. With milestones
being achieved from 1990s when it leapt
from leaps and bounds.
If you may have heard of the economic
meltdown that hit most of western world
as from 2009 where so many people lost
their jobs, how do you think they survived?
The answer is they took up Network
marketing with lots of success.
In Kenya it is thanks to about 150
companies that have opened shop and
many others are opening shop the latest
being space Global that is about to launch
a supermarket chain where everything sold
therein will generate income to shoppers
on a multi-level basis.
Network Marketing provides a number
of benefits that would surely interest you
as a reader! According to the book Hidden
Riches there are eight benefits of network
marketing these are:
• Small amount of risk
It obviously involves an amount of risk
whenever you make a choice to become an
entrepreneur. The risks in this business is
losing money, wasting time and not being
in profit right away. Look at a traditional
business the mere costs of starting up a
business is what holds people back from
becoming creators of their destiny. The
main benefit of a networked business
is you take a small risk to get started by
raising just a minimum capital by joining
the company of your choice.
• A huge demand for quality products
Whenever you consider which company
to get involved in, the following questions
should be clear to you;-
• Would you still consume these products/
services if there were no opportunities to
market them?
• Do these products bring any benefit to a
consumer besides the opportunity to make
money?
• Would you bring “value” to your
customers if they consume these products
Every business no doubt needs return
customers. It is the huge demand for
products supplied that keeps the network
growing; hence enabling the distributors
to earn beyond their dream
• Residual/Passive income
The biggest plus for Network Marketing
Model is that it gives one an opportunity
to enjoy residual income just like the
companies do. Whenever the process of
getting a new customer is completed, one
enjoys the residual part of that business
relationship. In a Network Marketing
business, residual income is the key thing,
the most attractive aspect. One does not
need to make a direct sale every day, but
continuously earn from the sales done by
their down lines.
• Unlimited income potential
In this model, there is no ceiling as to how
much one can generate. In the normal
corporate jobs, the big limitation is that
regardless of how hard one works for
these companies his income is tied to the
market value/standard for someone with
their level of skills and qualifications.
Once one has undergone the training
to become a marketer, he can market
anything he chooses and generate the
income he desires.
• No employees to hire
A Network Marketing program is
a business of people independently
working together. Without any employee,
it is possible to build a business right
from home or wherever convenient.
• Low operating costs
This model makes it possible to run a
business at low costs compared to any
business model where they have to pay
overheads like rent and salaries.
• The power of Leverage
Since a network marketing business is a
people’s business, business of appointments,
business of helping consumers find what
they need and helping others create their
own business. The reward is pegged on
leveraging on the efforts of those one
helped to create their own incomes. This
develops a collective mindset that promotes
win-win relationships. It is certainly not
so in the other forms of employment and
business models.
• The attainable freedom
No doubt it is not just the money, but
the fulfillment of a lifestyle that makes
network marketing affiliate program the
best business to get in and ones passion is
what makes it happen,
Now, why Network Marketing? When
you look at traditional business they merely
deliver products to end consumers via a
variety of third parties (Middlemen) such
as dealers, wholesalers and retailers, the
network marketing business model delivers
the products from the manufacturer
directly to the end consumers. This
passes the full benefits to end consumers
besides improving efficiency and feedback
communication between the consumer
and the manufacturer.
Having understood what benefits are
enjoyed by a participant in the Network
Marketing business, you have also
known why the myths that are usually
peddled exist then you may need to ask
yourself what are the secrets of Network
Marketing? Of course leadership plays a
key role for success in this business but to
answer this question well I have followed
one network marketing Guru Randy Gage
and these are the secrets:-
• Lead a large group of people to constantly
do a few simple actions over a sustained
period of time. You will definitely need a
large critical mass for this business to be
sustainable
• Have these people perform only a few
actions and to keep these actions simple
enough that everyone in the large group
can duplicate
• This has to happen over a sustained
period of time. This will happen if you
adapt a two to five year plan
This networking business survives on
the key principle of duplicity otherwise it is
not different from any other conventional
business such that whatever you do the
people you recruit or your success lines
must replicate even better. One quote we
have always been asked by our trainers in
this program is “If you went away for some
time say one year, would you still earn what
you have been earning and even more?” if
the answer is yes! Then you are on your way
to success in network marketing.
Network Marketing doesn’t happen in
grandiose ways: it occurs one by one as you
touch lives of other people. Because of its
exponential growth of the industry, before
one knows it will have transformed the
spirits of hundreds of millions of people.
You will surely need to learn and engage in
it part; Part iii follows in the next issue!
The writer works at Space Global (Formerly
DIPEK) Distributor
28 MARCH - APRIL 2016 MARCH - APRIL 2016 29

COVER STORY
COVER STORY
The
aftermath
fraud
By: CPA David Mathuva and Kennedy Waituika, CFE
Photo: malaysia sme loan
Introduction
You have just unearthed that “major”
fraud in your organization. You now want
to establish the underlying causeof the
fraud and how you can recover the lost
assets. Question is:how do you involve
the relevant law enforcement agencies,
the criminal justice system and then ‘move
on’? What do you need to consider before
engaging the law enforcement agencies?
Forensic investigators or internal auditors
may be required to work with law
enforcement agencies at some point of their
career. Law enforcement agencies could
include the following: The local police,
Criminal Investigations Department
(CID), Ethics and Anti-Corruption
Commission (EACC) or Central Bank
Investigative units. Law enforcement
agencies may not be limited to local
agencies but could include agencies from
other countries such as the Federal Bureau
of Investigation (FBI), the New Scotland
Yard among others. This may happen
when the matters involved cover more
than one jurisdiction or in cases where
foreign laws apply. For example if a listed
American company is involved in bribery
or corruption allegations in Kenya, an
investigator could end up dealing with the
Kenya police, the EACC, the Securities
and Exchange commission investigators
and the FBI, just to mention but a few.
An understanding of how law
enforcement agencies operate and their
objectives is important for any investigator
or auditor. In most cases, law enforcement
agencies have wide experience in handling
court proceedings and complex criminal
cases, while forensic accountants have the
technical skills required to understand
technical accounting and financial issues.
It is therefore important and advisable that
by working together, the objective should
be to realize the synergies of the two teams
working together.
Understanding roles,
mandates and objectives of
law enforcement agencies
Working with law enforcement agencies
requires an understanding of the roles,
mandates and objectives of the parties
involved. Ideally, law enforcement agencies
and investigators should complement each
other. Differences may arise due to the
following:
Different mandates
Investigators may have a narrower mandate
and law enforcement
agencies may not
want to share
all the relevant
information.
S h a r i n g
information on
investigation
mandates
may prevent
duplicity of
roles.
Time
constraints
Drawing from
experience, law
enforcement
agencies
seem to have
unlimited time
to investigate a
case. For example,
in Kenya, once
the CID present
suspects in court,
they may request a number of
months to complete investigations.
This sometimes affects the work of
forensic investigators who work with
definite timetables.
Access to information
Each team of investigators or law
enforcement agencies may have access
to privileged information that the other
should not access due tosome reasons.
Understanding this is important for court
purposes. For example, if investigators
are reviewing loss of funds and want
to trace proceeds, they may have
difficulties obtaining the bank accounts
of the suspect, however, these can be
obtained easily by law enforcement
agencies. If the information is shared
with investigators, they may be able to
use it in drafting their reports, as they
cannot prove thatthey obtained the
information legally.
Sharing of documents
It is important to maintain chain
of custody.This is to avoid loss
of evidence pertinent to the
investigation. Maintaining a
chain of custody ensures that
the investigator can “tell” the
story based on evidence and
not rumours or hearsay.
The use of confessions
Be careful not to use confessions obtained
by law enforcement agencies as part of the
report.
Working culture
It is important to appreciate the different
working cultures of the different groups
and their reporting hierarchy. Public sector
working culture is fundamentally different
form private sector.
Benefits of working with law
enforcement agencies
Some of the benefits of working with the
law enforcement agencies include:
• They have access to resources not available
to the public – e.g. Bank accounts, phone
records, mobile money, etc.;
• They can go to high risk areas since they
are armed and well trained to operate in
hostile environments which are adversarial
in nature;
• They can easily get a court order to search
the suspects residence and other relevant
places with a view to obtaining additional
evidence or for recovery purposes;
• They apply a street-smart approach.
Law enforcement officers apply a streetsmartapproach,
which adds value to the
investigation. Law enforcers may also be
in a position to cover a wider jurisdiction.
Points to bear in mind
when working with law
enforcement agencies
While working has its benefits, it is
important to bear in mind the following:
• Law enforcement agencies will only
be interested in certain aspects of an
investigation report. They will not read
the entire forensic investigation or audit
report. Therefore, ensure that the report
is not prone to misinterpretation and
most importantly, let the report be factual.
Remember that once the case goes to
court, you have to share any investigation
or audit report with the defendant(s);
• In certain jurisdictions, law enforcement
agencies are susceptible to bribery or other
forms of misconduct, which may have farreaching
implications on the success of
criminal or civil proceedings.
Points to note when
presenting evidence in court
Once investigations are concluded
and court proceedings commence, the
following tips may be useful during the
court process:
• Document the source of evidence.
Make sure you get the evidence through
the right channels. Otherwise,it won’t be
admissible in court;
• Scan the evidence and preserve
the originals in evidence bags to avoid
contamination;
• Index the evidence to allow easy
reference and retrieval;
• In case of signatures, always state that
you are not a handwriting expert when
alleging a suspect signed the document.
Obtain a copy of signature from the
human resource file and get the suspect’s
colleagues to attest that the signature is his
or hers. This adds weight to your claim;
• Where possible, try to schedule
an interview with the suspect obtain
explanations regarding the suspicious
transactions. This is useful in illustrating
that you are objective and independent as
an investigator;
• Ensure that all the minutes and/
or consultation notes are signed by the
interviewees and those present during the
interview (as witnesses);
• Be aware of the strong and weak points
in your report. That is, know or understand
your report by heart;
• Explain the technical issues in a
language that the judges understand and
avoid jargon;
• Remember, when testifying, your
credibility is on the line, be factual as
much as possible. In most cases, you will
be a witness of fact and not an expert
witness. Unless the judge prompts you to
provide your opinion, the evidence you
present should be factual and supported by
evidence.
Concluding remarks
Working with Law enforcement agencies
can enrich an investigation if the two
teams understand that they bring different
skill sets and/or resources. As noted above,
there are a number of aspects to consider in
ensuring a successful working relationship,
which will result to a conviction and/or
possible recovery stolen assets.
David Mathuva is a Lecturer at
Strathmore Business School. He can be
reached at dmathuva@strathmore.edu
Kennedy Waituika is a Forensic and Internal
Audit Consultant based in Nairobi. He can
be reached at kenneddy86@gmail.com
30 MARCH - APRIL 2016
MARCH - APRIL 2016 31

COVER STORY
COVER STORY
By CPA David Mathuva, ACFE, dmathuva@strathmore.edu, Photo: infinit accounting
The fading
role of bank
reconciliation in
fraud prevention
and detection
Introduction
Bank reconciliation statements have
traditionally served as an important control
tool in detecting anomalies either in the
cash book and or the bank statements.
Whereas there may exist a number of
anomalies in the cash book maintained
by the company, there are usually few (or
no) anomalies in the bank statement. In
my experience with a number of corporate
frauds, bank reconciliations have in most
cases been least useful in tracking where
fraudulent activity could have started. I
have encountered companies that have had
to do with “cooked” bank reconciliation
statements for over two years, that is, 24
months! This period is enough to defraud
the company a significant amount of
money without anyone noticing.
As an accountant, you may be “perfect”
in preparing a “perfectly reconciling” bank
reconciliation. However, are you aware
that those bank statements you have been
provided with by your superior or boss
could be fictitious? Are you also aware that
the bank statement copy you have might
be having incorrect outstanding amounts?
To make it worse, are you aware that the
general ledger entries have hidden reversals
which may be for unallocated or unapplied
receipts or payments? And to sum it up, do
you know that a carefully crafted scheme
may have been put designed, thanks to
collusion, to cover up everything such that
you, the bank reconciler, are the only one
without this knowledge? These are some of
pertinent issues that any accountant in any
organization should be aware of and address
when preparing or reviewing any bank
reconciliations. However, from experience,
this has not always been the case. There
has been some laxity in preparing and even
reviewing bank reconciliations.
Fraud antics in bank
reconciliation statements
Traditionally, the bank reconciliation is
used as a control tool in most organizations.
The aim of the reconciliation is to primarily
confirm that ledger balances correspond
with bank balances. Any causes of the
difference needs to be addressed during
the bank reconciliation process. In this
article, I discuss two antics that may be
used to conceal irregularities in the bank
reconciliation process.
Collusion
This is where the cashbook accountant,
who prepares bank reconciliation, colludes
with other staff members to beat controls
around the cash book function. This
may involve falsifying cash book entries
through reversal of some entries. For
instance, if there was a debit in the cash
book, making a counter-reversal either
wholly or partially to reduce the debit
entry to nil. Alternatively, the scheme
could be perpetrated through a reversal
of a credit entry in the cash book, wither
fully or partially. Some of these reversals
or improper postings could be made in
complex accounts such as control, posting
master, unapplied receipts or suspense
accounts. Collusion comes in handy when
the employee making postings in the
general ledger needs to get a fraudulent
payment or receipt approved. Through
collusion, funds that were never paid
into the bank account may end up being
confirmed as though they were actually
received and recorded in the accounting
system. Interestingly, the ledger and bank
balances reconcile perfectly without these
entries being highlighted!
Falsifying bank statements
and providing incorrect bank
balances
This whereby the person who is authorized
or has access to bank statements, either
from the bank itself or from the online
banking platform uses software converters.
Through the software, the fraudster is able
to convert bank statements into editable
soft copy, mainly in Excel format. In this
way, the fraudster is able to manipulate
entries in bank statements by deleting
and/or inserting entries to cover up any
fraudulent withdrawals from the bank.
Dealing with bank reconciliation fraud
Below are some tips for dealing with bank
reconciliation fraud.
Preliminary reconciliations
The first tip would be to perform a
“bank statement to bank statement
reconciliation”. This practice involves ad
hoc reconciliation of bank statements
provided by your superior to those obtained
directly from the bank (if possible, without
your superior’s knowledge). How you will
do this, you may need more help from
higher authority especially since you may
be a junior member of staff.
Next, a detailed cash book to bank
statement (do not overlook the petty cash
float) reconciliation may be prepared. This
may seem tedious but it saves a lot since
you are assured of the authenticity of all
the entries in the cashbook and petty cash
before performing the bank reconciliation.
Surprise bank reconciliations
This involves performing surprise bank
reconciliations (on a sample basis) through
special audits (just like surprise stock
counts!). This could take the form of an
agreed upon procedure with the client
which will be guided by the requirements
in ISRS 4400: Engagements to Perform
Agreed-Upon Procedures Regarding
Financial Information.
Cash book audits
As an alternative to surprise bank
reconciliations, calling for surprise
cashbook audits from independent
auditors (preferably not your external
auditor) because you risk calling for just
another “external audit”, yet this is not the
objective.
Special audits
Invite special audits to check on the
authenticity of bank reconciliations. I
have encountered companies who have
had to do with wrong bank reconciliations
for the last 24 months! This amounts to
wasted efforts and payment for services
not rendered.
Job rotation
Job rotation
can help although it may not work if there
is collusion among the staff being rotated.
It is advisable to rotate but do not retain
for long.
Use of forensic technology
tools
Technological innovations, particularly the
use of information technology has created
a more complex environment that requires
increasing awareness and special skills to
cope with fraudulent activities. Using
complex software such as Caseware IDEA
tool, it is now possible to:
• Perform GAP Analysis to identify
and inconsistencies in transactions being
processed.
• Checking for duplicate entries in
payments. The IDEA tool does check for
duplicate transactions in a way no other
data analytic software or tool can ever
do. This helps in identifying cases where
fraudsters commit a payment scheme
fraud by making multiple payments on a
valid invoice.
• Performing Benford’s test on
transactional data: Benford’s Law is
a powerful tool in detecting fraud
since is allows fraud examiners to test
numbers against recognized norms. By
so doing, one is able to identify patterns
in transactional data and trace it to
establish its authenticity. IDEA has that
functionality to automatically detect
fraud in transactional data on
the first, second, third and
fourth digits seamlessly. I
recommend
that corporations subject their
transactional data occasionally to detect
possible anomalies from time to timesay
quarterly. This helps in reducing the
magnitude of the fraud, if any is occurring.
Conclusion
As fraudulent schemes become more
complex and more concealed, the
IDEA Caseware tool is one sure way of
identifying and following up on fraudulent
transactions, which could be voluminous
and difficult to trace one-on-one.
Remember, with fraud running at endemic
levels, using advanced technology helps
match the complexity of fraud in today’s
environment. Technology helps to prevent
and detect fraud and can provide positive
impact on the corporation’s operating
performance and profitability by curtailing
the effects of fraud early.
32 MARCH - APRIL 2016 MARCH - APRIL 2016 33

GOVERNANCE
ORU took
part in the II
Devolution
Conference,
the national
meeting of the
47 counties in
Kenya, where
the current
situation of the
Devolution
initiated in
2013 was dealt
with.
CHALLENGES
FACING DEVOLVED
INSTITUTIONS
IN KENYA
Inadequate/Misused
Financial Resources
1.Low HR Capacity
2.Poor community links
Political wrangles/ wars
1.Bureaucracy
2.Weak/poor Mgt styles
Kenyan Counties were created
to provide a wide variety
of devolved services after
the enactment of a new
Constitution in 2010. Most of
them replaced the local authorities which
had been mandated to do this. These
By CPA Joseph Zachary Abuta, abuta.joseph@yahoo.com
services include the provision of water,
sewerage and drainage facilities, housing,
street lighting, fire-fighting services,
markets, estate roads, basic educational,
and public health among others.
Many local authorities (LAs) were
however, unable to efficiently provide these
Poor Service delivery
Low development
Low Satisfaction
services to the citizens living within their
jurisdiction. This had been attributed to a
number of factors, including, inadequate
financial resources, lack of trained
human resource, political interference
and bureaucracy. The fulfillment of these
functions by the new outfits, now called
County Governments
would mainly depend on
efficient governance on
one hand and the adequacy
of financial resources at their disposal
on the other hand.
Kenyan Counties were created to
provide a wide variety of devolved services
after the enactment of a new Constitution
in 2010. Most of them replaced the local
authorities which had been mandated
to do this. These services include the
provision of water, sewerage and drainage
facilities, housing, street lighting, firefighting
services, markets, estate roads,
basic educational, and public health
among others.
Many local authorities (LAs) were
however, unable to efficiently provide these
services to the citizens living within their
jurisdiction. This had been attributed to a
number of factors, including, inadequate
financial resources, lack of trained
human resource, political interference
and bureaucracy, The fulfillment of these
functions by the new outfits ,now called
County Governments would mainly
depend on efficient governance on one
hand and the adequacy of financial
resources at their disposal on the other
hand.
Services such as education, health,
and social services are delivered at the
local level and affect the average common
citizen and therefore directly impact on
the performance towards achieving the
National goals. Stronger accountability
and increased oversight provides a
better institutional framework for
effective delivery of such public services
(Most researchers and writers on local
governments suggest that African nations
inherited systems of modern governance
from their former colonial masters. Prior
to this period, the indigenous communities
had their own systems of governance.
In Kenya, the most significant
development prior to independence
was the establishment of Local Native
Councils (LNC’s) in 1924. The LNCs
provided basic services such as cattle
dips, rural roads, and public health. The
Local Government Act was promulgated
in 1963 by the Government. Since then
Local Authorities ( LAs) have added
useful component of governance in Kenya.
Their significance has been summed
up in the presumption that local people
have a superior capacity to understand
and conduct their own affairs since they
know the locality well and are likely to
understand its needs better than others.
This is because each locality
has its own unique economic,
social and physical features and
dynamics. These special features
and dynamics must be given a
local touch through the creation
of local structures.
Consequently, Kenya has
been reforming its systems
of governance for enhanced
devolution. This is a new concept
in Kenya which may definitely
take time to implement with
such challenges including
insufficient local revenue
generation and funding from
the central government.. The
main aim of such reforms has
been to strengthen the capacity
of Local Authorities (LAs) to
deliver services to its residents.
The previous weak financial base
of many LAs have now been
considerably strengthened as a
result of the huge transfers made
by the National Government to
under the provisions in the new
Constitution, 2010.
However, real and lasting
improvements will occur if/when
Counties fully involve their residents
in decision about how resources are
generated and used, and are accountable
as guided by the Public Finance
Management Act (PFM)As witnessed
in the last three years of their existence,
many of these devolved institutions are
not able to adequately serve their mandate
due to various factors; inadequate financial
resources, inadequate human resource,
politics and bureaucracy,. resulting in
inability to enhance public accountability,
poor governance, and unsatisfactory
management of resources for efficient
service delivery.
Issues of finance management at
county levels consist essentially of two
fundamental aspects, namely, the raising
of adequate revenue and the expenditure
of the revenue received/raised. What
distinguishes government public finance
from that of the private sector is the
fact that local government focuses at
supporting and maintaining public goods
and services but lacks both adequate
resources and the power to raise sufficient
revenues to carry out these functions...
Therefore local government must acquire
sufficient own funds and rely less on
external sources.
34 MARCH - APRIL 2016 MARCH - APRIL 2016 35

GOVERNANCE
INFORMATION TECHNOLOGY
This is because local government
funding and service needs are inherently
bound together and are influenced by
economic, social, demographic and
technological trends. Public service
delivery involves a complex combination
of public and private delivery alternatives.
Devolved governments such as Counties
can therefore create PPP corporations as a
more flexible form of market engagement
They can use the market in a dynamic
framework and contract out and back in as
done in Europe and Portugal in particular,
some years back with significant growth
in municipal corporations which are styled
function entities whose revenues derive
from user fees (not taxes) and which have
independent corporate status.
The other major factor that often
hampers effective performance of County
Governments and related institutions
is ineffective resource mobilization and
poor management of financial resources.
This may due poor planning,, limited
strategic financial management skills and
corruption resulting in extravagant and
unbudgeted expenditure.. Public financial
management entails effective management
of the collection and expenditure of funds.
of financial resources.
The strategic importance of the
development of human resource
capacity, for example was raised at the
African leadership forum held in1990
in Nigeria.. Lack of necessary skills was
seen as a priority to be included in every
development activity in Africa because of
Table1.Finance factor vs Service Delivery in a select County
Factor Count % Ranking
Corruption and theft of funds//resources 552 23.0 1
Lack adequate funds to meet County obligations 462 19.0 2
Misuse of resources, positions, overstaffing, facilities, general etc 430 18.0 3
Inability to collect high user charges, levies and taxes 151 6.0 7
Delays and strict conditions by National government 190 8.0 6
Poor planning, budgeting and coordination 353 15.0 4
Inability to mobilize potential revenue sources 262 11.0 5
Total count/ per cent 2400 100.0
REFERENCES
1. Kenya Public Finance Management Act 2012-Part IV
2. The County Government Act
3. Reforming Local Authorities for Better Service Delivery in
Developing Countries
4. Factors affecting Service Delivery in Local Authorities in
its implication for management and good
governance
The World Bank noted that” the
Africa’s future is in its people .and must
solve its current human development crisis
if it is to claim the 21st century. Africa’s
future economic growth will depend less
on its natural resources, which are getting
depleted fast and are subjected to long run
price decline and more on its human skills
and its ability to accelerate a demographic
transition” (World Bank 2000). This is
truly the case in most of our Counties and
other devolved institutions in Kenya and
needs to be addressed through building
capacity of county officials and staff for
effective administration and management.
Political wrangles in many
counties do affect service
delivery and development
County Assemblies and County executive
continue fighting over funds and projects.
They are not simply bureaucratic edifies;
they are also elected directly by the
citizenship, and party-politics plays an
important role in municipal governance.
Councilors are elected to represent the
citizenship. As political scientists will
testify, “Representation” is a complex
and often difficult activity. Several
consequences flow from this basic fact of
municipalities as polities.
Bureaucracy practices do
affect service delivery by
devolved entities
Kenya- J Z ABUTA
5. Increasing Revenue Streams: & Innovations BY EThekwini
Municipality, Natal,S.A
The writer is a Public Finance Advisor
According to change experts in South
Africa, many municipalities in that nation
have experienced serious difficulties
in adjusting to the “new demarcation
and the new requirements of 1990”
These difficulties are because various
role players (particularly at national
level) are directing diverse, and often
contradiction, mandate and requirement
at municipal governments, at a time
when municipalities are still reeling from
the consequences of restructuring Same
scenario is being witnessed in Kenya as
many County Governors are at war with
National Government officers and this
affects service delivery to the citizens at
the County.
Conclusions
Lack of, or inadequate, finance available
to counties lead to poor services delivery,
lack or minimal development projects,
widespread unemployment and low
living standards by residents. These often
account for many cases of disaffection
by residents with county governments.
One solution is to expand the revenue
base through for instance, identification
of untapped revenue sources, realistic
budgeting processes and the installation
of efficient revenue collection and
management systems .Another is to curb
excessive/unbudgeted spending/wastage,
theft/and corrupt practices rampant
in most counties as shown in a recent
research finding shown below.
By Ritah Munyiva, rjmunyiva@gmail.com
Important
social media
platforms
and their use
Towards the end of the 20th
century, a whole new form of
communication was gripping
the world as the World Wide
Web was taking shape. The use
of e-mail and instant messaging of was
the talk as it made it easy to communicate
globally. With endless numbers of web
sites to navigate, one might have thought
the world had reached the top of the
technological mountain.
Then came the beginnings of web 2.0
whose ability to design a website included
the ability for users to interact with
other users or change the content. It was
the beginning of the social media wave
which today has made it easier to interact,
connect, promote and market our goods or
services.
From fan favorites such as Instagram
and Facebook to newcomers like Google+,
here is a look at most commonly used
social media platforms that help users of
all nature to stay relevant in business not
to mention take advantage of as channels
of communicating.
1. Facebook: Mark Zuckerberg, the
founder of Facebook has continued to
make it easy for billions of people to
find and connect with family and friends
floating around…even those you last
spoke to centuries ago. Every other day,
users are still clicking the ‘be friends with/
follow buttons’. Although Facebook is
mainly centered on sharing photos, links,
and quick thoughts of a personal nature,
individuals can also show their support to
brands or organizations by becoming fans.
2. WhatsApp: With more than 700
million users worldwide, this platform
social media experts rank it just below
Facebook. This simple, send text-style
message has made it easy to communicate
and seems to replace the mobile phone’s
short message service (SMS).
3. Twitter: Apparently social media
experts pass it as the simplest of all social
media platforms. For those who think
they could write a whole story using this
platform, this is the wrong one as messages
here are limited to 140 characters or less.
Well, the 140 words are exclusive of
posting a link, sharing an image or even
trade thoughts with your favorite celebrity
or influencer. Twitter’s interface is easy to
learn and use, and setting up a new profile
only takes minutes.
4. LinkedIn: This is probably the only
mainstream social media site that’s
actually geared towards business, LinkedIn
is to cyberspace what networking groups
once were to local business communities.
It’s great for meeting customers, getting
in touch with vendors, recruiting new
employees, and keeping up with the
latest in business or industry news. If it
matters to your company or career, you can
probably do it on LinkedIn.
5. Google+: This platform combines
the best of Facebook and Twitter into
one site – and backing it by the power of
the world’s largest search engine, Google
giving users a social site that has a little
something for everyone. You can add new
content, highlight topics with hashtags,
and even separate contacts into circles. A
G+ profile only takes a few minutes to get
set up.
6. Tumblr: This platform is different
from many others in that it essentially
hosts microblogs for its users. Individuals
and companies, in turn, can fill their blogs
with multimedia such as images and
short video clips. The fast-paced nature
of Tumblr makes it ideal for memes and
other forms of fun or viral content.
7. Pinterest: This platform has made
a huge impact on social media in the last
few years. It has proved popular among
women and the do-it-yourself crowd, it
lets users share pictures, creative thoughts,
or (especially) before-and-after pictures
of projects that others can pin, save, or
duplicate.
8. YouTube: As a video sharing service,
YouTube has become so popular that its
catalog of billions and billions of videos
has become known as “the world’s secondlargest
search engine” in some circles. The
site boasts of everything from first-person
product reviews to promotional clips and
“how-two” instruction on virtually any
topic or discipline. Users have the ability
to share, rate, and comment on what they
see.
9. Instagram: Looking for a quick,
convenient connection between the
camera feature on your smart phone and all
your social profiles, then Instagram is the
answer. This platform allows users to share
via Twitter, Facebook, and the Instagram
website, choosing from a variety of photo
filters and invite friends to comment on
the photos or ideas.
36 MARCH - APRIL 2016
MARCH - APRIL 2016 37

ECONOMY
ECONOMY
By CPA Charles Okeyo Owuor,
nyakwarogara@gmail.com
Photo: hack busters
SECURITY
ANALYSIS FOR THE
LAY INVESTOR
“Whether Eurobond or common stock”
An investment is the current
commitment of money
or other resources in the
expectation of reaping future
benefits. For example an
individual might purchase shares of stock
anticipating that the future proceeds from
the shares will justify both the time that
her money is tied up as well as the risk of
investment.
In the selection of investments, we must
address our minds to the following two
questions:-
i) What are the primary tests of safety of
a corporate bond or preferred stock?
ii) What are the chief factors influencing
the valuation of a common stock?
Execution of investment is done through
securities markets which play an important
role in facilitating the deployment of
capital resources to their most productive
uses. But for markets to effectively serve
this purpose there must be an acceptable
level of transparency that allows investors
to make well-informed decisions.
Why do Individuals invest?
i) They invest to earn a return from
savings due to their deferred consumption.
ii) They want a rate of return that
compensates them for the time, the
expected rate of inflation, and the
uncertainty of the return.
How does security differ from
a bond?
Bond refers to an official document given
by any institution to show that you have
lent them money that they will pay back
to you at a particular interest rate.
Security refers to a legal representation
of the right to receive prospective future
benefits under stated conditions. Security
may include; Treasury Bills, Eurobond,
long term Government bonds, corporate
bonds and common stocks.
For purposes of this paper, the above
types of securities are described as
hereunder:-
Treasury bills: Treasuries are fixed-income
instruments used by any government in
raising money by selling the bills, notes
or bonds to the public. Investors buy
the bills at a discount from the stated
maturity value. At the bill’s maturity, the
holder receives from the government a
payment equal to the face value of the bill.
Specifically, bills mature in one year or less,
notes in over one to 10 years and bonds in
more than 10 years from time of issue.
Eurobond: Eurobond is an International
bond denominated in a currency other than
that of the country in which it is issued. For
example, a dollar-denominated bond sold
in Britain would be called a Eurodollar
bond. Similarly, investors might speak
of Euro-yen bonds, Yen-denominated
bonds sold outside Japan or Euro shilling
(Kenya) bonds, shilling-dominated bonds
sold outside Kenya. Because the European
currency is called the euro, the term Eurobond
may be confusing. It is best to think
of them simply as international bonds. In
contrast to bonds that is issued in foreign
countries but in the currency of the
investor. For example, a Yankee bond is a
dollar-dominated bond sold in the United
States by a non-US issuer.
Corporate bonds: Corporate bonds are
fixed-income securities issued by industrial
corporations, public utility corporations or
railroads or private firms to raise funds
to invest in plant equipment or working
capital. These bonds are similar in structure
to treasury issues – they typically pay
semi annual coupons over their lives and
return the face value to the bond holder
at maturity. They differ most importantly
from Treasury bonds in degree of risk.
Default risk is a real consideration in the
purchase of corporate bonds.
Common stocks: Common stocks also
known as equity securities or equities,
represents ownership shares in a
corporation. Owners of the common stock
of a firm share in the company’s successes
and problems. Each share of common
stock entitles its owners to one vote or
any matters of corporate governance that
are put to a vote at corporation’s annual
meeting and to a share in the financial
benefits of ownership. Common stock
represents a commitment on the part of a
corporation to pay periodically whatsoever
its board of directors deems appropriate
as a cash dividend. Although the amount
of cash dividends to be paid during the
next year is subject to some uncertainty,
it is generally relatively easy to accurately
predict. However, the amount for which
a stock can be bought or sold varies
considerably, making the annual return
difficult to accurately predict.
What Security Analysis
The investment process describes how an
investor should go about making decisions
with regards to what marketable securities
to invest in, how extensive the investment
should be, and when the investment
should be made.
A five step procedure for making these
decisions forms the basis of the investment
process:-
i) Set investment policy
ii) Perform security analysis
iii) Construct a portfolio
iv) Revise the portfolio
v) Evaluate the performance of the
portfolio
It would be useful to think of security
analysis as limiting itself pretty much
to the examination and evaluation of
stocks and bonds, whereas financial
analysis would comprise that work, plus
the determination of investment policy
(portfolio selection), plus a substantial
amount of general economic analysis.
The security analyst deals with the past,
the present and the future of any given
security issue,
• he describes the business,
• he summarizes its operating results and
financial position.
• he sets forth its strong and weak points,
its possibilities and risks
• he estimates its future earning power
under various assumptions, ‘or as a best
gress.’
• he makes elaborate comparisons of
various companies or of the same company
at various times.
• Finally, he expresses an opinion as to
the safety of the issue, if it is a bond or
investment-grade preferred stock, or as
to its attractiveness as a purchase, if it is a
common stock.
The security analyst develops and
applies standards of safety by which we
can conclude whether a given bond or
preferred stock may be termed sound
enough to justify purchase for investment.
These standards relate primarily to past
average earnings, but they are concerned
also with capital structure, working capital,
asset values, and other matters.
Bond Analysis
The most dependable and hence the most
respectable branch of security analysis
concerns itself with the safety or quality
of bond issues and investment-grade
preferred stocks. The key criterion used
for corporate bonds is the number of
times that total interest charges have been
covered by available earnings for some
years in the past. In the case of preferred
stocks, it is the number of times that bond
interest and preferred dividends combined
have been covered. Let us consider the
following factors in the analysis of bond.
a) Size of the Enterprise
There is a minimum standard in terms
of volume of business for a corporationvarying
as between industrial utilities and
rail roads.
b) Stock/Equity ratio
This is the ratio of the market price of the
stock issue to the total face amount of the
debt, or the debt plus preferred stock. This
factor includes the market’s appraisal of
the future prospects of the enterprise.
c) Property value
The asset values, as shown on the balance
sheet or as appraised were considered the
main security and protection for a bond
issue. Experience has shown that in most
cases safety resides in the earning power,
and if this is deficient the assets lose
most of their reputed value. Asset values,
however retain importance as a separate
test of ample security for bonds and
preferred stocks in three enterprise groups;
public utilities (because rates may depend
largely on the property investment), real
estate concerns and investment companies.
Common-Stock Analysis
The ideal form of common-stock analysis
leads to a valuation of the issue which can
be compared with the current price to
determine whether or not the security is an
attractive purchase. This valuation, in turns,
would ordinarily be found by estimating
the average earnings over a period of years
in the future and then multiplying that
38 MARCH - APRIL 2016 MARCH - APRIL 2016 39

ECONOMY
ECONOMY
Shark Tank investors
in an American
reality television
series where budding
entrepreneurs get the
chance to bring their
dreams to fruition
estimate by an appropriate “capitalization
factor (the total value of a company’s
shares)”
Pricing the future
From the foregoing, we must address our
minds to a question on how to put a price
on the future which question midwifes to
the following questions:-
i) Which factor determines how much
you should be willing to pay for a stock?
ii) What makes one company worth 10
times earnings and another worth 20
times?
iii) How can you be reasonably sure that
you are not overpaying for an apparently
rosy future that turns out to be a murky
nightmare?
To respond to the above questions,
we need to look at the consideration that
enters into the divergent multipliers in the
security analysis, namely:
• The company’s “general long term
prospects”
• The quality of its management.
• Its financial strength and capital
structure.
• Its dividend record and its current
dividend rate
The Long term prospects
No one really knows anything about what
will happen in the distant future, to find
out company’s prospects, you need to
comb through the financial statements,
gather evidence so as to answer these two
overriding questions:-
• What makes this company grow?
• Where do (and where will) its profit
come from
In the course of addressing these
(above) questions you must take into
account the following problems or red
flags:-
a) The company is a “serial acquirer.”
An average of more than two or three
acquisitions a year is a sign of potential
trouble. For example, if the company buys
the stock of other business than invest
in its own you should take the hint and
look elsewhere too. Check the company’s
track record as an acquirer. Watch out for
corporate bulimics- firms that wolf down
big acquisitions only to end up vomiting
them back out.
b) The company is an OPM (Other
People’s Money) addict
This is whereby a company borrows
debt or sells stock to raise boatloads of
other people’s money. These fact infusions
of OPM are labeled “cash from financing
activities” on the statement of cash flows
in the annual report. These ‘cash from
financing activities: can make a sick
company appear to be growing even
it’s under underlying businesses are not
generating enough cash.
To determine whether a company is an
OPM addict read the “statement of cash
flows” in the financial statements. This page
breaks down the company’s cash inflows
and outflows into “operating activities,”
“Investing activities,” and “financing
activities.” If cash from operating activities
is consistently negative, while cash from
financing activities is consistently positive,
the company has a habit of craving more
cash than its own business can produce
and you should not join the “enablers” of
that habitual abuse.
c) The company is a Johnny-One note
This is whereby a company is relying on
one customer (or a handful) for most of
its revenues.
d) The company has a wide “moat” or
competitive advantage.
Like castles, some companies can easily
be stormed by marauding competitors,
while others are almost impregnable. The
following forces can widen a company’s
moat;
i. A unique intangible asset (think of
Coca-Cola, whose secret formula for
flavoured syrup has no real value but
maintains a priceless hold on consumers)
ii. A monopoly or near monopoly on the
market.
iii. Economies of scale, or the ability to
supply huge amounts of goods or services
cheaply (consider Gillette, which churns
out razor blades by the billion)
iv. A resistance to substitution (most
businesses have no alternative to electricity,
so utility companies are unlikely to be
supplanted anytime soon).
e) The company is a marathoner, not a
sprinter.
By looking back at the income
statements you can see whether revenues
and net earnings have grown smoothly
and steadily over the previous 10 years. For
example, the fastest growing companies
tend to overheat and flame out. If earnings
are growing at a long term rate of 10%
pretax (or 6% to 7% after tax), that may
be sustainable. But the 15% growth hurdle
that many companies set for themselves is
delusional. And an even higher rate or
a sudden burst of growth in one or two
years – is all but certain to fade, just like
an inexperienced marathoner who tries
to run the whole race as if it were a 100
meter dash.
f ) The company sows and reaps
No matter how good its products
or how powerful its brands, a company
must spend some money to develop new
business. While research and development
spending is not a source of growth today,
it may well be tomorrow – particularly if a
firm has a proven record of rejuvenating its
business with new ideas and equipments.
In the long run, a company that spends
nothing on R&D is at least as vulnerable
as one that spends too much.
The quality and conduct of
management
A company’s executives should say what
they will do, then do what they said.
Check their past annual reports to see
what forecast the managers made and if
they fulfilled them or fell short. Manager
should forthright admit their failures
and take responsibility for them, rather
than blaming all purpose ‘scapegoats’
like ‘the economy’, ‘uncertainty’, or ‘weak
demand’. Note to check whether the tone
and substance of the chairman’s letter stay
constant, or fluctuate with the latest facts
on the security market (Nairobi Security
Exchange) (pay special attention to boom
years).
The following questions may help you
determine whether the people who run
the company will act in the interest of the
people who own the company.
• Are they looking out for number one
A firm that pays its CEO over Kshs.
100million in a year had better have a very
good reason. Otherwise, this suggests that
the firm is run by the managers, for the
managers.
• If a firm re-prices (or ‘re-issues or
“exchanges”) its stock options for insiders,
stay away. Any established company that
re-prices options – as dozen of high tech
firms have – is a disgrace. And any investor
who buys stock in such a company is a
sheep begging to be sheared.
Repeated big sales are a bright red flag.
A manager cannot legitimately be your
partner if he keeps selling while you are
buying.
• Are they managers or promoters?
Executives should spend most of their
time managing their company in private,
not promoting it to the investing public.
Ask whether the company’s accounting
practices are designed to make its
financial results transparent or opaque.
If ‘non recurring’ charges keep recurring,
‘extraordinary’ items crop up so often that
they seem ordinarily, acronyms like EBIT
take priority over net income, or ‘proforma’
earnings are used to cloak actual losses,
you may be looking at a firm that has not
yet learned how to put its shareholders
long term interest first.
Financial strength and capital
structure
The most basic possible definition of a
good business is this: - it generates more
cash than it consumes. Good managers
keep finding ways of putting that cash to
productive use. In the long run, companies
that meet this definition are virtually
certain to grow in value, not matter what
the stock market does.
Embark on reading and or studying the
statement of cash flows in the company’s
annual report. Check whether cash from
operations has grown steadily throughout
the past 10 years.
“If you owned 100% of a business, how
much cash would you have in your pocket
at the end of the year?”
Finally, look at the company’s capital
structure. Check the balance sheet and
see how much debt (including preferred
stock) the company has; in general, long
term debt should be under 50% of the
total capital. In the notes to the financial
statements, determine whether the longterm
debt is fixed rate (with constant
interest payment) or variable (with
payment that fluctuates which could
become costly if interest rates rise).
A substantial amount of anecdotal
evidence, in fact, suggests that Managers
who talk about “enhancing shareholder
value” seldom do. In investing as with life
in general, ultimate victory usually goes to
the doers, not to the talkers.
The writer is ICPAK Vice Chairman
Central Rift
40 MARCH - APRIL 2016
MARCH - APRIL 2016 41

WORK PLACE
WORK PLACE
By Kellen Kiambati, kellenkiambati@gmail.com, Photo: Steve Jobs
APPLICATION OF
PRODUCT LIFE
CYCLE MODEL
Apple
1998
Apple
2015
3.0 INTRODUCTION STAGE
Characteristics
When the new product is first
commercialised, it enters the introduction
stage of the life cycle. This stage is
characterised by a slow sales growth and
profits are usually negative because of
the high costs of marketing associated
with the introduction. Many buyers are
unaware of the product and sales are
limited to a category of buyers known as
innovators. These buyers tend to be more
affluent, venturesome and from upper
social classes. Mobile phone innovators
include company chief executives, sales
representative, and tradespersons. These
adopt the product for business use while
others may buy it as a status symbol.
Regardless, these buyers will be influential.
There usually is no or little competition at
this stage.
Primary Objectives
The main objective here for the pioneer
is market expansion by stimulating
primary demand, i.e., demand for the
product category. For example, Apple has
taken upon itself to market its innovative
personal MP3 player. Sony did likewise
with its personal stereo, the Walkman, in
the late 1970s. The marketing objective at
this stage is, therefore, to create product
awareness and encourage trial.
the early adopters. The innovators, as
opinion leaders, serve to “legitimise”
the innovation through product use
and social interactions. The arrival of
major competitors and their combined
marketing strategies fuel sales growth
and industry profit rises. These events
necessitate different marketing objectives.
Primary Objectives
Facing competition, perhaps for the
first time, the pioneering company and
other leaders will need to maximise their
market shares by emphasising selective
demand, i.e., demand for a particular
brand. Here, the brand’s product features
and performance are stressed by extensive
promotion to both the trade and customers.
Stability of market shares of mainstream
brands is a characteristic of the next stage,
maturity. Therefore, the size of the market
share gained in the growth stage will tend
to persist in the maturity stage, the longest
and most competitive stage of the life
cycle. A brand with a small share at the
end of the growth stage will
find it hard to
survive
i n
the next phase.
Strategic Emphases
The competing brands are priced to
penetrate the now mainstream market,
both to secure intensive distribution and
build customer preference. The target
market is broader in demographic terms
and the product range, therefore, has to be
expanded to cater to the diverse needs of
the market.
The companies that enter at this stage
of the PLC are often large and formidable
competitors with similar access to the
core/basic technology. Technological
advancement is pursued vigorously
for product superiority. This leads to
improvements to a product’s form and
function, i.e., the physical attributes of a
product that can be evaluated objectively.
Examples include frost-free refrigerators,
digital mobile phones, ABS brakes and
stereo video cassette recorders.
5.0 MATURITY STAGE
Characteristics
This is, perhaps, the most
important turning
point of a
market.
1.0 INTRODUCTION
Many will be familiar with this timeless
model which not only describes the
stages in the sales pattern of a product
or product category, but also offers some
strategic directions for each stage. This
model is concerned with the sales pattern
& strategic directions for each stage of
a product’s life cycle. It is important to
differentiate between a product’s life
cycle (home loans), a product category’s
life cycle (variable, fixed, no-frill) and a
brand’s life cycle (Westpac, St. George’s,
BankWest, ANZ). With matured markets,
the life cycle model, for strategic planning,
is appropriate at the product category
level where one normally finds different
categories/variants at different stages of
the cycle.
2.0 APPLICATION OF THE
MODEL
The model can be used for analysis as
well as for strategy formulation. We shall
examine the former first. The PLC concept
attempts to provide managers with an
understanding of the characteristics of
each stage of the life cycle and, therefore,
can be used to predict future sales and
profit patterns.
Underlying the PLC concept is the
theory of diffusion of innovation, which
identifies categories of buyers (adopters)
of the innovation. By understanding
these buyers, marketers can plan for the
appropriate target market strategies. The
early buyers of a new product are called
innovators. The numbers are very small
because the new product has to prove
itself. If the product is satisfactory, it will
attract the next category of buyers, early
adopters. Later, mainstream buyers, early
and late majority, will start adopting the
product. Over time, the market becomes
saturated and sales come mainly from
product replacements. Eventually, sales
decline as new products appear and the
original product becomes obsolete. This
phenomenon gives rise to the distinct
S-shaped pattern of a typical product life
cycle.
The PLC concept provides a
framework for developing marketing
strategies in each stage of the product life
cycle. Bear in mind that these strategies
are appropriate for market leaders whose
behaviour parallel the industry. Lesser
competitors may need different strategies
to compete. In some ways, the PLC model
can be used as a forecasting or predictive
tool. It can enable marketers to forecast
the market characteristics of subsequent
stages as well as predict the strategies of
the leading competitors. This, of course,
assumes that the life cycle exhibits the
traditional pattern. Later, we will realise
that many life cycle patterns are more than
traditional, and the stages are of varying
duration. In the following section, we shall
examine the use of the PLC model both as
an analytical tool and as a planning tool.
These will be divided into characteristics,
objectives, and strategies for each stage of
the PLC.
Strategic Emphases
With innovators as the target market,
the pioneering company would
emphasise customer education/
trial through advertising and sales
promotion; and “push” for trade
acceptance (distribution
support). The product
design and function are
usually very basic because
of the new technology
involved. Price is often
cost-based and tends to
be very high reflecting the
“newness” of the innovation
and its associated R&D and
marketing costs. Potential
competitors, meanwhile,
monitor the market closely for
signs of customer acceptance.
4.0 GROWTH STAGE
Characteristics
This stage is characterised by
rapidly rising sales as the product
receives wide acceptance amongst
Steve Jobs
- American
information
technology
entrepreneur
and inventor
42 MARCH - APRIL 2016 MARCH - APRIL 2016 43

WORK PLACE
WORK PLACE
Its potential indefinite duration, together
with its dynamism, makes this stage
the most difficult to predict or plan for.
Consider the digital camera market. In
the early days, they were targeted as a
computer multi-media accessory and as
a status symbol. Today, they are marketed
as a replacement of the conventional
film-camera for anyone and everyone. Is
the market now still growing or reaching
maturity? Technically, a product matures
when the market has been saturated and
further sales are mainly from replacements.
In other words, most potential customers
already have one. Who are these potential
customers?
Some indicators of maturity may be
helpful to analyse the market:
Sales growth and market saturation —
maturity is evident when sales growth
declines because the number of potential
first-time buyers is decreasing. The market
is said to be saturated, or fully penetrated,
and sales level is maintained mainly
because of replacement purchases.
Lower prices and profitability —
oversupply and intense competition force
prices to fall resulting in lower industry
profitability.
Technological maturity and product parity
— the core technology
used has matured and
this leads to
mainstream brands all having similar
product form and functions. There are
very little physical differences among
the competing products’ key features.
Products are usually differentiated on
brand name, image and perceived quality,
i.e., subjective dimensions.
Buyer knowledge — over time, buyers gain
experience in the use and evaluation of
the product. They may eventually accept
the reality of product parity and will buy
on price or convenience (economic-driven
buyers) or simply on brand name (statusdriven).
Primary Objectives
The main objective for most competitors
is market share protection. Because the
industry does not recognise the notion
of a given market share starting point for
each competitor, any marketing strategies
can be construed as either offensive
or defensive. In a sense, market share
protection is a misnomer.
An aggressive competitor can claim
that it is merely rebuilding lost market
share (on the defence) where, in fact, it
could had lost share previously by letting
its guard down.
Also, pro-competitive legislation may
prevent businesses from having too high a
market share especially through corporate
takeovers. These quasi-monopolists or
functional monopolists will always be
under the scrutiny of the Trade Practices
Commission because of their ability to
control the market.
Strategic Emphasis
For the reasons mentioned above, it
would be difficult to generalise marketing
strategies especially for the early maturity
stage. The marketing mix strategies
adopted in the growth stage tend to persist
in the early maturity stage but with greater
intensity.
However, product strategies would
usually involve multi-branding and an
increased number of product variants/
models to appeal to an even broader market.
The intention is to revitalise or prolong the
maturity stage through product quality
improvements, functional improvements,
or style/design improvements. Recall that
this stage can last indefinitely.
Strategies in the late maturity/decline
stages will be presented in the next section.
6.0 DECLINE STAGE
Characteristics
This stage is characterised by declining
sales and profits. However, the contributing
factors need to be identified and analysed
so that the business can decide on the best
course of action.
It is important to note that we are not
concerned here with the decline stage of
a brand’s life cycle. A brand may decline
due to poor marketing, etc. Rather, we are
concerned with the fate of the product
category’s decline such as those evident in
the case of dial-up internet connections,
floppy disks, CD players, CRT TV sets,
etc.
These products and others have
declined because of obsolescence. There
are even products or models with planned
obsolescence, being replaced with new
models. Products become obsolete because
of substitutes and forward-planning
companies are usually prepared for with
these product substitutes.
Buyers of these products are known
as laggards. They tend to be older, more
conservative and from lower socioeconomic
backgrounds. Their numbers
are usually very small. Competition is less
intense as some players are quick to exit
the market (industry shake-out).
Primary Objective
Since many businesses may have a sizeable
infrastructure investment in the product,
e.g., plant and machinery, a quick exit
may not be the best solution. The more
usual move is to reduce expenditure and
milk (harvest) the product. Therefore, the
primary objective is to maximise cash or
profit generation as quickly as possible.
Another option is to maintain in, and
dominate, the market when others are
The competing brands are priced to penetrate the now
mainstream market, both to secure intensive distribution and
build customer preference. The target market is broader in
demographic terms and the product range, therefore, has to
be expanded to cater to the diverse needs of the market.
exiting—“a big fish in a small pond”. There
are also situations where a business can
attempt to revitalise the market to create
growth.
Strategic Emphasis
Some options are available at this stage.
Exiting the market involves either selling
the business (divestment) or liquidating
existing assets such as plant and equipment.
Sometimes there could be ready overseas
buyers for outdated equipment especially
for third world or developing countries.
This should be seen as a last resort
especially when milking or harvesting is
not feasible. Harvesting attempts to milk
the business of all available profits or cash.
This is usually possible when there is still a
loyal, but small, group of buyers (laggards)
to maintain sufficient sales to generate
profits. All marketing and overhead
expenses are kept at a bare minimum in
order to manage profitability and cash flow.
The marketing of typewriters is a classic
example. If exit barriers exist, the business
may be motivated to continue businessas-usual.
This suggests allowing enough
investment to maintain the business and
sending a message to the competitors of
its determination. An industry shakeout,
typical at this stage, will allow the
surviving businesses to reap additional
market share and profits from the industry.
Of course, depending on the nature of
the decline stage, this strategy may not be
durable. Finally, a more positive strategy
would be to revitalise the market. This can
be achieved by creating new uses for the
product (Teflon in paints), targeting new
markets (baby shampoo for adults) and
product modifications/variants (breakfast
cereal redeveloped and repackaged as
snack bars).
7.0 CRITIQUE OF THE MODEL
The model is not without its critics. The
major criticisms of the concept can be
summarised as follows:
External versus internal
impact on the life cycle
The model assumes that the pattern of a
product or brand’s life cycle is influenced
by the chosen strategies (internal) of
the business. There is enough empirical
evidence to suggest that many companies
fail miserably in meeting forecast sales.
We can only conclude that environmental
forces (external) can play an important role
in shaping the sales pattern of the product
or brand.
Consider this. An unexpected turn in
the environment may, in the short term,
cause the sales of a product to decline.
Adhering to the PLC concept a manager
may misread it as the decline stage of the
product’s life cycle and act accordingly.
Marketing support gets withdrawn and
this will surely kill off the product. This
creates a self-fulfilling prophecy that the
brand is at the end of its life.
It is, therefore, not clear how much
influence a firm’s strategy has on the life
cycle. One way of resolving this argument
is to consider whether pattern follows
strategy or strategy follows pattern. The
former assumes that the chosen strategy
is the primary influence on the life
cycle pattern. This is typical of proactive
companies, which attempt to prolong both
the growth and maturity stages through
some of the aggressive marketing strategies
discussed earlier.
Lesser competitors tend to be more
reactive by accepting the pattern as given.
They have lesser control over environmental
and competitive forces. They respond by
adopting strategies appropriate for each
stage. In this case, strategy follows pattern.
Other PLC patterns
Not all products or brands exhibit the
traditional S-shaped pattern.
Styles are common in clothing, home
design and passenger cars. A style such as
blue jeans may last for decades, going in
and out of vogue.
Fads come as quickly as they decline.
They have a steep introduction stage
followed by a rapid decline and are found
in toys and paraphernalia associated with
hit movies.
Scalloped or staircase life cycles exhibit
a series of upward growth-maturity stages.
This occurs when new applications of the
product are found, as in nylon, Teflon, and
ScotchGuard.
Varying duration
So far it is not surprising to learn that life
cycles do not have a fixed pattern and that
the duration of each stage varies. Also, it is
not always evident when the turning point
(from one stage to the next) occurs. Only
a sales history can provide the evidence.
By then, it may be too late for strategy
development.
Within a product category life cycle,
the product form and brand life cycles
can exhibit contrasting patterns. Brands
tend to have the shortest life cycle with
the exception of “classics” such as Levi’s,
Colgate, Coca-cola, Hill’s hoist, Speedo,
etc. Product forms are prone to style
patterns. Moreover, there may be no
clear delineation among product forms,
which could result in a strategic planning
nightmare. For example, should pre-brush
mouth rinses be separate from traditional
mouthwashes for analysis and strategy
formulation? Should product forms of
passenger cars be based on price range,
engine capacity (1.5 litres), body style
(sedans), or body types (sports)?
Despite these limitations, the PLC
model remains one of the most widely
used (and misused or abused) strategic
tools. The concept is simple and many of
its limitations can be minimised or totally
avoided through proper market definition,
understanding of key environmental
forces, and careful dealing of exceptions.
After all, there is no known model that can
predict the dynamic and erratic marketing
environment.
44 MARCH - APRIL 2016 MARCH - APRIL 2016 45

OPINION
OPINION
The Multinational
Working for a
multinational company
(MNC) can either
be an overwhelming
experience or a once in
a lifetime and to be savored lifetime trip
depending on your mindset. With many
foreign countries having had set shop in
By Okana Ouma, okanaouma@gmail.com
Experience
the country, it is not a farfetched thought
to expect that more and more Kenyans
will find themselves working as MNC
employees at one point in their working
lives.
So, what is to be expected in a MNC
environment? The most important thing
is to keep an open mind, always. Rid
your mind off all the ethnic stereotypes
you may be holding onto because in
this environment, you are simply your
country’s ambassador. Nobody cares about
your surname nor will they connote it to
anything other than it just being your
name as opposed to if you were in a
different environment. Your colleagues will
care more for your actual work proficiency
more than any other prowess that is
alluded to your tribe.
The multicultural environment will
bring the world into the palms of your
hand, and quite literally so. Without
having your passport stamped and paying
exorbitant plane tickets you will on a daily
basis interact with different nationalities
depending on your organization’s
diversity depth. Some companies span
across countries of a region say the
Americas, Schengen, Sub Saharan Africa
or even East Africa. There are the other
companies which span which operate
across continents having a presence in all
corners of the globe. It is not uncommon
for example to find that you are in country,
while reporting to a French boss and
having team members from different
countries. It is imperative in this context
to have an international demeanor so as to
cohesively work with your team.
Your working experience at an MNC
can definitely double up as a learning
experience as well since you can take this
chance to learn from your diverse colleagues
a thing or two about their cultures. Most
of us heard about the Egyptian revolution
some years back and the famous Tahrir
square in the country where these protests
were being held. Working for a MNC
presents you with the golden opportunity
to get more facts of this historical event
from your Egyptian counterpart. So you
have heard that in America they bleach
their tripe? Isn’t this your moment to
confirm this with your country manager
who just happens to be American over
tea break? In the same breathe, you will
dispel / confirm various different notions
that most of your colleagues will be
having about your country. As stated at
the beginning of the article – you are your
country’s Ambassador. You might be the
only person from your country that many
of your international colleagues may
interact with closely. So that team mate
of yours sitting in the Russia office and
asking you how many lions you have in
your backyard is an opportunity for you to
educate him, and humorously so.
Sometimes you will find that some
of your colleagues have traversed across
many different countries in the course
of working for the company. They are
encyclopedias of knowledge for the
different countries they have been to and
are more often than not only too willing
to share their cultural experiences. All you
have to do is ask.
Your experience in a MNC
environment will most probably transcend
across religious boundaries. If you have
never bothered to understand any other
religion other than yours maybe due to
lack of opportunity then this is it. Carpe
diem. Chances are you will find yourself
on a daily level interaction with a blend
of colleagues professing and practicing a
different religion from yours. Have you
always seen foods marked as ‘Halal’ and
wondered exactly what that meant? Have
a chat with your Muslim colleagues and
beat the ignorance. You will be surprised
just how much you can learn without
having to take any additional religious
classes outside of your requisite education.
If you have always been curious about
Buddhism, keep the banter up with your
colleagues and you just might find one or
two in your midst. Generally, people abhor
ignorance especially because it makes
people close minded and hold wrong
perceptions of people different from them.
Thus you will find that many people are
only too willing to share with others the
facts pertaining to their religions, cultures,
lifestyles if only to dispel ignorance.
If you have ever hoped to be
multilingual then working for a MNC
is the perfect environment to bring this
dream to fruition; or at least close. It’s not
unusual to find most foreigners bending
over backwards to at least learn the local
equivalent of greetings, salutations and
gratitude expressions. However, it is in
very rare occasions that the locals will
reciprocate this gesture by trying to learn
their guest’s dialect as well.It is only
when most of us become foreigners in an
environment that isn’t our usual one that
we actually bother to learn a word or two
of a language different from ours. It doesn’t
have to be that way though. If you’re in a
multi-cultural environment, it doesn’t cost
you a dime to pick a word or two from
the different nationalities crossing your
path often. In fact, if you have already
taken some lessons for a foreign language,
you can get free practice by talking to a
colleague who speaks it as a first language.
Many may look at the chance to work
for an MNC as an opportunity to enjoy
the perks that may come with this
position. However, there are numerous
other benefits of working for an MNC
that will not necessarily be spelt out in
your employment contract. You need to
take the initiative once you are in there
to grab the opportunity presented to
you by the universe.An opportunity to
learn about different cultures, languages,
cuisines, histories and anything else you
can think of that’s outside your defined
familiar environment. You get to define
your syllabus and be a teacher as well to
universal students. So next time you get
that call to work for that newly set up
MNC in town and are pondering if you
should take the leap, go on. And enjoy the
ride while at it.
46 MARCH - APRIL 2016 MARCH - APRIL 2016 47

PUBLIC POLICY
PUBLIC POLICY
The Kenya Revenue Authority
had its foot heavy on the
accelerator this year towards
enhancing tax collection
through its revolutionary
rollout out of the iTax system. Taxpayers
were on their toes to beat the 30th June
CPA Martin KetienyaCheruiyot, marketien@gmail.com
Closing the gaps in
iTax
deadline of filing returns and the usually
snaking line at the KRA headquarters
at Times Towers was noticeably shorter
this time. The advent of iTax has made
it a lot easier to file returns, register for a
personal identification number (PIN) and
obtain a tax compliance certificate. What’s
more? The system automatically notifies
taxpayers amounts owed to the taxman
including interests and penalties accruing
owing to delays in settling tax dues.
Perhaps this is the magic elixir that would
spur the economy to the next level.With
better intelligence, tax compliance auditors
at KRA might just turn the tables to rake in
more than anticipated.
The 2015/2016 revenue target of KES
1.25 trillion is an ambitious target indeed.
The taxman is looking to seal all revenue
collection loopholes ranging from netting
all taxpayers in its tax base to mitigating
fraud at collection points. There are
ongoingconsiderations into taxing the
informal or ‘jua kali’ sector including
thetaxation of the ‘mitumba’, the second
hand clothing industry .Among the
anticipated milestones will be the review of
the Income Tax Act in 2016 and the split
of the Kenya Revenue Authority into two
semi-autonomous but inter-dependent
agencies namely; the Inland Revenue
Agency (IRA) and the Customs and Border
Protection Agency (CBPA). The National
Treasury, in its Budget Policy statements
for the 2015/2016 period reported that
In 2015, the National Treasury will
commence the process of making the
agencies operational, including developing
a framework for entrenching competency
and integrity into the two organizations.
The iTax system, however, was
not without its weaknesses. A myriad
challenged faced the taxpayer when filing
returns. The fact that KRA held numerous
training sessions to train taxpayers
countrywide way before the deadlines
was beyond laudable. An acute slowdown
in online processing of returns a few days
to the deadline was another challenge.
This was occasioned bya last minute rush
by taxpayers who, despite having between
January and June to file their returns, chose
to do so three days to the closing date.
This warranted an extension by KRA to
accommodate laggards.
The real elephant in the room is a
loophole in tax legislation entrenched in
the Income tax Act.The Income Tax Act
of 2012 does not provide for restriction
of personal relief for employment
incomes earned for less than 12 months
of a calendar year. It only provided for
restrictions when an individual arrives in
Kenya with the intention of being resident
after the beginning of the year and death
or permanent departure from Kenya before
the year end at KES 1162 per month.
Tax payers filled an excel workbook that
captured expected and actual tax deducted
among other details of income. The end
result of this computation was either a tax
due or refund due figure. A problem came
when a taxpayer earned an income for a
part of the year and iTax awards personal
The real
elephant in
the room is a
loophole in
tax legislation
entrenched in
the Income
tax Act.
relief for the 12 months. The return form
captured annual rather than monthly
income and a taxpayer could not indicate
the number of months in employment. This
is an undoing of iTax that was not present
in the previous online system.
Let’s use an example of an employee
who worked and earned a salary for 7
months between June and December for
a gross salary of KES 30,000. Assuming
that this particular employee had an
allowable deduction of KES 200monthly
(or KES 1,400 annually) for pension and
has no other income apart from the salary.
Thiswould translate to an annual taxable
income of KES 208,600 and an annual tax
deductible of KES 25,191 using the annual
graduated scale rates of tax.
This is how the calculation would look
like in the computation of net tax by the
iTax return form;
An employee, when filing the return
would rely on a P9A form provided by the
employer. Note that the P9A form will
show a total personal relief of KES 8,134
since it will only contain summative data
for months worked and paid for.
The P9A form would have the following
information:
The difference in net taxes between the two
assessments of KES 3,908 (KES 197,353-
193,445) would then appear as a tax
refund in the tax return because iTax has
awarded a full year’s personal relief while
the employee has prorated it to months
in employment and secondly because
computation of gross taxes annually and
monthly gave different results.iTax notified
individuals who indicated taxes due on their
returns and not who indicated nil (matched
taxed payable to tax paid) to pay up what
they owed including interest and penalties
(Note that the payment of self-assessment
income tax was due by April). Those who
indicated a negative figure (refund) were
prompted on validation of the computation
to provide bank account details to facilitate
the refunds.
The real challenge is that taxpayers
might actually be refunded, not from
overpaid taxes, but from unduly awarded
personal reliefs. It would amount to a
payout emanating from an incentive which
might be against the cannon of economy.
This cannon recommendsthat the cost
of collection tax should be the minimum
possible both to thegovernment and the
taxpayer.This is against a backdrop of
delayed Value Added Tax Refunds by KRA
amounting to KES 19.2 billion as at the
end of 2013. The national treasury resorted
to converting these claims to government
bonds due to inability to allocate funds to
the exercise in 2014.
Perhaps what KRA should do is first,
review section 29 of the Income Tax Act
then structure the return form(sheet
F-employment income) to list individual
months as form P9A does so that both
the taxman and the taxpayer read from
the same script. Otherwise, it would be a
serious oversight that would leave a gaping
hole in revenue collection.Secondly KRA
shouldrun a similar campaign in April to
notify taxpayers of the self-assessment
income tax payment deadline of April so
that taxpayers do not mistake the June 30th
deadline for payment of taxes.
All in all, a state cannotrun a democracy
well without taxation and a taxation system
cannot berun well without democracy.
Quoting Oliver Wendell Holmes, “Taxes
are what we pay for civilized society.”
48 MARCH - APRIL 2016 MARCH - APRIL 2016 49

INSPIRATION
INSPIRATION
POWER POSING
When our words fail to convey adequately
all that we feel and would like to express,
non-verbal communication or body
language takes place.
J. Maurus
When comedian Charlie Chaplin was
starring those many years ago, his movies
were mainly silent. For that reason, anyone
would watch them and follow them. Today,
a number of those movies are classics that
many people still find incredibly thrilling.
Moreover, most machines that make work
easier for us today had not been invented
consequently, workers got used to using
their hands and even feet to physically
perform most tasks at the factory. In one
popular scene, Charlie Chaplin is seen
endlessly mimicking what he had been
doing at his work place during the day; the
message he was conveying by doing this,
was that, that kind of work made one’s
body spontaneously make such movements
even when not at work.
The reason for this anecdote is that
we are discussing posture; which is a
non verbal communication. This kind of
communication can be powerful. Posture
is a kind of body language. Posture refers to
the way you move your body while sitting
or standing; it can convey a message,
By Angela Mutiso, cananews@gmail.com
A GOOD POSTURE
BOOSTS PRODUCTIVITY
communicate your mood, and reveal your
position on a situation more accurately
than you can imagine. But more than
anything, it has both health and (work)
productivity benefits. A good posture
makes you happier, livelier, and more
successful. You must therefore be aware of
your posture at all times.
High and low power
Uprightpose.com explains that one Amy
Cuddy famously reported that in ‘Power
Posing.’ open, expansive postures reflect
high power while narrow, closed postures
reflect low power. These poses not only
display power, but can actually produce
it. People with high power poses have
increased feelings of dominance, risktaking,
and power as well as reduced
anxiety. It further explains that: Good
posture is critical to reducing back and
neck pain. The Cleveland Clinic notes
that people who suffer from back pain
experience positive changes when they
improve their posture. Being upright does
wonders for your appearance. You look
taller, slimmer and more successful when
you sit and stand tall. It is imperative to
making a good first impression. Slumped
participants are unsure of themselves while
those with a better posture feel and appear
confident. Good posture also helps you to
lose weight. Chiropractor James Emmett
explains that this is because by carrying
yourself better, you are “taking tension off
the whole body and everything starts to
flow better.”
By sitting upright we extend the mid
back, which leads to a neutral spine that
allows the pelvis to position itself in a way
that the core muscles can activate better.
Keeping an upright posture also helps
open up the airways and ensure proper
breathing. This allows more oxygen to
flow through the cardiopulmonary system.
The blood is then able to carry sufficient
oxygen to the whole body and ensure
that your nervous system, organs and
other tissues function effectively. Also, a
study conducted by Indiana University
focused on how words and memories are
linked to posture and found that babies’
learning ability are in fact affected by
their posture. Being upright improved
their ability to map new experiences and
remember things. Upright pose explains
that Erik Peper carried out a range of
experiments to test how posture affects
energy level and the ability to generate
positive and negative thoughts. He found
that participants who were upright and
dynamic felt more energetic, happier and
positive. By contrast, those who slouched
reported feeling sad, lonely and isolated.
It also helps to reduce your stress it
notes that stress not only causes poor
posture, but also actually perpetuates it!
A recent study compared different seated
postures to evaluate how each affected
emotions in the face of stress. Results
found that adopting an upright posture
when stressed can maintain self-esteem,
reduce negative mood, and increase
positive mood compared to a slumped
posture. Therefore, sitting upright might
be a simple strategy to help build resilience
to stress. Sitting upright makes you more
alert, concentrated, and productive. In
conclusion, uprightpose.com says; Good
posture, keeps your body properly aligned,
helps keep your spine straight, energizes
you, reduces possibilities of back ache and
gives you an attractive appearance.
Many people are embracing it
As we have noted, a good posture makes
you breathe better therefore boosts your
health, makes you concentrate better,
enhances your self esteem, and makes you
appealing and assertive. You can be more
productive if you have enough oxygen
because our brains need 20 percent of
oxygen to work well. This in turn will
enable us to think better and be more
effective as we perform our duties. You
should have a comfortable chair to work
with if you spend most of your time
working on a computer or writing. When
reading, watching television or working,
always maintain a good posture. Use a
good pillow always; good cushions on your
chair are helpful. Body massage especially
for your back and neck and exercises are all
good for your posture. Yoga is preferable
because it keeps your airways open.
If you work on your computer a lot, give
your eyes an occasional break, also stand
up and stretch every half hour and try to
keep your breasts and shoulders broad.
In most cases, drooping shoulders could
represent unhappiness, discouragement,
apprehension, despair or fatigue. So
having and maintaining an upright
posture touches almost every aspect of our
lives, from our appearance, our health and
our productivity; practice it. But a good
posture does not just imply standing or
sitting in an upright position, it means
attitude, bearing, position and stance.
Non verbal communication
Body language is a very broad subject.
In his book; the art of communicating
effectively, J. Maurus the prolific author
says psychologists have found that our
communication is 85 percent nonverbal.
That is, we communicate a good
30 percent through symbols; clothes,
hairstyle, cosmetics, jewelry, gifts; and
most importantly a good 55 per cent
through actions of the body; gestures, facial
expression, a hug, eye contact, tics. He notes
that body language is more impressive than
words. An adequate knowledge of nonverbal
behavior will enhance our ability
to understand more fully what transpires
during interaction. Therefore, knowledge
of body language is of utmost importance,
for the communication may be saying
one thing and non-verbally telling you
something else.
The whole idea of communication
is to get your ideas and feelings across
to others clearly and simply. You should
learn the meaning of the expressions you
make and can make and how they can be
interpreted by your target audience. And
as you go on practicing, you will discover
that each day your verbal ‘vocabular’ will
grow. This will augment your interests in
life and many doors will open for you.
In fact, when you understand non-verbal
communication, you will discover that you
can communicate very well with people
who do not understand your language
and with animals as well. Being quiet
and by yourself at times enables you to
communicate with your inner self, to be in
touch with yourself, and to silently listen to
what your body is telling you; for instance,
are you sick, are you happy? Is your
heartbeat fine? If you have expressions you
can use, but fail to do so, those expressions
will be of no use. But if you choose to
use them, as you should, you will have
unlimited means to express yourself; you
can use them to show love, gratitude, pain,
disgruntlement, joy and even acceptance
among many more.
Maurus quotes Jacquelyn B. Carr
who says in her book communicating
and relating that: we need practice
and suggestions about communicating
acceptance. We can learn for example,
that praising and reassuring can be as
threatening as criticism. The mother who
says ‘good boy’ implies that her son is good
as long as he behaves the way she wants
him to behave. Accepting communication
simply says: “I am listening.” I understand.”
“I am interested.” “Tell me more about
it.” “I am here with you.” He writes
simply about how to develop your body
language; the saying ‘men lie with their
lips, but not with their bodies,’ means
that the ear is the organ for receiving the
verbal communication, and the eye for
receiving the non-verbal or body language.
He explains that Reuel L. Howe says,
“Listening, then, is done with both the eye
and the ear. The function of the eye and the
ear is to programme our communications,
to furnish the data to which our responses
are to make a reply.” In developing body
language, this same author says we begin
by broadening our listening to include the
signals of body behavior and studying its
meaning in ourselves and others.
Finally, you can use your eyes and hands
to ask about something non-verbally.
When you want something to be done for
you for example; remember the golden rule
that it is a great piece of skill to know how
to guide your luck even while waiting for
it. And it can well be done non-verbally.
Cartoons excite children who cannot
even talk well because of their non-verbal
language. Additionally, postures are used
here to great advantage, so children begin
to understand how to react to situations,
and to express themselves to their family
without having to explain themselves
(this is debatable of course) Just looking
at a picture for instance, can enable you
to know through their poses, the mood of
those captured on the photograph.
Remember when using body language, to
do things that are socially acceptable. Things
can go terribly wrong for you if you use it
badly. Basically, remember the importance
of etiquette in communications; let good
taste and elegance be your by word. Good
posture, believe it not, can lead to financial
success and personal happiness; attributes
which to some degree, everyone has or can
develop.
50 MARCH - APRIL 2016 MARCH - APRIL 2016 51

SOCIETY
SOCIETY
For quite some time now, I have
been thinking and asking myself
this question “Why are some
people more successful than
others?” This is a mind intriguing
question that we all have pondered at a
certain time in our life. I think/am of the
opinion that it all lies in our attitude. In
the words of Denis Waitley, an American
inspirational speaker and writer, “Your
attitude is either the lock on or key to the
door to your success!”
Success starts in the mind, when we
envisage what we anticipate to happen,
then we strategize how we would like to
accomplish it, then we get down to action
and make it happen. That moment when
we build in our minds what we desire,
it still remains as a dream. People have
different magnitudes of dreams depending
on how they view their ability to achieve
them. It calls for self-confidence, positive
attitude and a bigger vision.
Positive attitude is the engine that
drives the urge to dream and look at a
wish or anticipation as a reality. Napoleon
Hill once said that, “whatever your mind
can conceive and believe, the mind can
achieve regardless of how many times
you may have failed in the past.” Every
advance in our lives begins with some idea
of some kind, and since we have unlimited
idea generation ability, we are our only
limits. Successful people are very creative.
By Bernard Ouya, bernuya@gmail.com
YOUR
ATTITUDE
DETERMINES
YOUR
ALTITUDE
They constantly seek opportunities and
brainstorm on better, faster, cheaper
and easier ways of providing a service or
producing a product.Their desires are
driven by some strong passion which is
unstoppable. Successful people can only
always see possibilities in any avenues of
endeavor, where other people only see
bottlenecks and impossibilities, they see
opportunities where other people see
threats. It’s all about training the mind
to be positive.When the Wright Brothers
(Wilbor and Orville) dreamt of flying,
they could only see possibilities, they
tried it, and today we have the aeroplane,
courtesy of the two brothers who dared
their dream!
When we dream, we can only visualize
how and what we wish for can look like.
To bring forth this into reality requires
well-thought and formulated plan and
strategy. Successful people draw up clear
road-maps to their destination, they plan
well how they would like to achieve those
goals. They have the attitude of goal setting
and execution. Successful people normally
know exactly what they want, they have
targets to achieve, they pellucidly plan
their way there and courageously pursue
it. They adhere to their tracks, not veering
off. This is an attitude they have developed
overtime. All successful people “think on
paper”. Putting down thoughts in writing,
gives it a chance to germinate, you also get
to gather more ideas. After doing the whole
architecture of what you want to achieve
then you get down to execute it according
to the plan. Execution is the most critical
stage in the achievement of a desired goal.
Successful people know this and they take
a keener interest here. Discipline, accuracy,
to details, good time management and
constant flow of communication are
prerequisite characteristics at this stage.
The instincts and knowledge of riskreturn
trade off is key to any investor or
successful person. It’s a choice that helps
to distinguish successful people from the
others. Many a times we are called upon
to decide on an investment opportunity
which is either very risky or less risky. Less
risky investments are more conservative
in nature, and tend to bear low returns.
The reverse is true for risky investments.
But the questions is, which one is viable?
We wouldn’t wish to invest in low return
investments, would we? Whilst we
wouldn’t wish to put our resources and time
either in high risky investments, right?
A balance strike of both risk and return
is called for, it begs for some instincts,
knowledge or unique attitude. Attitude of
wit and being able to make hard decisions,
of wits like Richard Branson.The success
story of Richard Branson, the founder and
architect of The Virgin Atlantic Airways is
too familiar to all and sundry. A man who
from scratch sculptured the Virgin Brand
through his risk-taking instincts and
flamboyant personality of negotiations.
Out of all odds and against sound advice
took a bold step in investing in the very
risky Virgin Atlantic Airways, a business
venture which to date is admired by many
and depicts a typical success story.
It cannot go without saying that
successful people have inculcated in
them the attitude of persistence and
perseverence. The “two Ps”are critical for
any successful person. “The strength of a
man is measured not by where he stands in
the times of comfort but where he stands
in times of hardship and adversities”, in
the words of Martin Luther King Junior.
Success normally comes with myriads of
challenges, which does not need a faint
heart. Even the sages once said that a faint
heart never won a fair lady.You need to
wear the helmet of the “two Ps” trudge on
despite the challenges faced a long the way.
It takes positive thinking, strong heart,
passion and discipline in whatever you do
to succeed.
The one thing that I am most certain
about successful people, the great local
and global business leaders, is that they
never stop to learn! They learn from
others as well besides their own past
experiences. They know too well the
importance of making contacts and
networking. They establish a network
circle around them, with their peers in
the industry, including their competitors,
in the political arena, their clients and
the government.They know none is so
great enough to have all the knowledge
and the experience, even a specialist in
a particular field needs to consult. The
attitude of learning from others, sharing
ideas and exchanging advice is key to any
prospective successful person, regardless
of path of endeavour. Unfortunately some
people have misconstrued consultation to
mean “a lack of knowledge”. That thinking
Sir Richard Charles
Nicholas Branson is an
English businessman
and investor.
The strength of a
man is measured
not by where he
stands in the times
of comfort but
where he stands in
times of hardship
and adversities -
Martin Luther King
is misleading! No one is all knowing,
except God, that’s why we consult. The
habit of benchmarking with best practices
and standard settings is a common
phenomenon with successful people. It
helps them to gauge by how much they
have veered off the main track and what
corrective measures needs to be done
early enough. It also helps them to rank
themselves with the best, and determine
their position.Successful people have the
habit of doing all the right little things
repeatedly.
Attitude determines to a great extent
how far we go with our advances in
life because from it we develop an idea,
conceptualize them, make choices and
action on our plans. And this is a whole
process not an event that needs other cooperant
factors, the ones mentioned not all
inclusive. As Donald Trump puts it in his
book, “How to Get Rich”, the buck does
not just stop but starts with us.
52 MARCH - APRIL 2016 MARCH - APRIL 2016 53

HEALTH
HEALTH
By Dominic Ooko, ooko@ca.go.ke, Phote: emaze
SCHIZO
Splitting of mental functions
Has anyone ever told
you s/he is hearing
voices which you
never hear? Such
a person may well
be suffering from schizophrenia.
Schizophrenia means a splitting
of mental functions reflecting the
presentation of the illness. It is a
mental disorder often characterized
by atypical social behavior and
inability to recognize what is real.
It has also been described as a persistent,
severe, and disabling mental illness which
affects men and women equally. Genetics
and early environment, and psychological and
social processes, appear to be important contributory
factors. Common signs include false beliefs, unclear or
confused thinking, auditory hallucinations, reduced social
engagement and emotional expression; sufferers of this
ailment also lack motivation. A doctor usually seeks to know
reported experiences of a person and observes behavior to
aid diagnosis. Some recreational and prescription drugs
appear to cause or worsen symptoms.
The word schizophrenia—which translates roughly as
“splitting of the mind” and comes from the Greek schizein
“to split”) and phren- ( “mind”) was coined by Eugen
Bleuler in 1908 and was intended to describe the separation
of function between personality, thinking, memory and
perception. American and British interpretations of Beuler
led to the claim that he described its main symptoms as 4
A’s: flattened Affect, Autism, impaired Association of ideas
and Ambivalence. Bleuler realized that the illness was not
a dementia, as some of his patients improved rather than
deteriorated, and thus proposed the term schizophrenia
instead. Treatment was revolutionized in the mid-1950s
with the development and introduction of chlorpmazine
(Wikepedia).
Patients suffering from this ailment need a lot of support,
understanding and empathy from friends, associates and
family. They can be very difficult to live with to and to cope
with. With schizophrenia, the person’s inner world and
behavior change notably. Behavior changes might include;
PHRENIA
Social withdrawal, Agitation or anxiety,
Depersonalization (intense anxiety
and a feeling of being unreal), they
can also suffer from lack of appetite,
bad hygiene, beliefs completely not
based on reality, hearing things with are
not actually present and a sense of being
controlled by outside forces. They need to
feel valuable and loved and should be
allowed to do things that relax them,
that make them happy and not stressed.
A person with schizophrenia may
not have any outward appearance of being
ill. In other cases, the illness may be more
apparent, causing bizarre behaviors. They try to
do things they believe stop bad forces from entering
their brains, and it is hard to dissuade them when they
are convinced about some strange behavior they have.
Therefore if it is something you can live with, it is better
to adjust what you can about it and live with what you
cannot change. People with schizophrenia differ widely
in their attitude as they grapple with an ailment beyond
their control. In active stages, they may say things that
do not make sense or react with uncontrolled anger or
violence to a perceived threat. People with schizophrenia
may also experience strange stages of the illness where
they seem to have a bland personality, to appear immobile
and lack emotion (also called a flat affect). These extremes
may vary. Their behavior may or may not be predictable.
To really understand schizophrenia, the concept of
clusters of symptoms is often used. Therefore people
with schizophrenia can experience a warning sign
that may be grouped under the following categories:
paranoid type; delusions or auditory hallucinations are
present, but thought disorder, disorganized behavior, or
affective flattening are not. Delusions are persecutory
and/or grandiose, but in addition to these, other themes
such as jealousy, religiosity, or somatization may also
be present. Disorganized type; where thought disorder
and flat affect are present together. Catatonic type;
here, the subject may be almost immobile or exhibit
agitated, purposeless movement. Symptoms can include
catatonic stupor and waxy flexibility; Un-differentiated
type; Psychotic symptoms are present but the criteria
for paranoid, disorganized, or catatonic types have not
54 MARCH - APRIL 2016 MARCH - APRIL 2016 55

HEALTH
been met. Residual type; where positive
symptoms are present at a low intensity
only. There is also Post-schizophrenic
depression: A depressive episode arising
in the aftermath of a schizophrenic illness
where some low-level schizophrenic
symptoms may still be present. Then there
is simple schizophrenia which is Insidious
and progressive development of prominent
negative symptoms with no history of
psychotic episodes. (Wikipedia)
People suffering from schizophrenia
may feel like they are hearing voices, can
be very suspicious and imagine someone
is constantly watching them. They may
be unable to feel pleasure and can appear
to be lazy. They can find it hard to
understand their surrounding and can be
easily depressed and suicidal. They may
also find it difficult to have and keep close
relationships and may seem cold and aloof.
They do suffer hallucinations: and may
have strong sensations of objects or events
that are real only to him or her. These may
be in the form of things that they believe
strongly that they see, hear, smell, taste,
or touch. It’s usually like their minds are
playing tricks on them. They at times
appear to be out of touch with reality. They
may even ‘see’ shadows and think they
are seeing real people. Their disorganized
behavior may disrupt normal activities,
such as showering, dressing, and preparing
meals. Schizophrenia is also prevalent in
people with disabilities.
What causes schizophrenia?
In Wikipedia we find information that a
combination of genetic and environmental
factors plays a role in the development
of schizophrenia. People with a family
history of schizophrenia who have a
transient psychosis have a 20–40%
chance of being diagnosed one year
later. Genetically, the greatest risk for
developing schizophrenia is having a first
degree relative with the disease If one
parent is affected the risk is about 13%
and if both are affected the risk is nearly
50%. Environmental factors associated
with the development of schizophrenia
include the living environment, drug use
and prenatal stressors. Parenting style
seems to have no major effect, although
people with supportive parents do better
than those with critical or hostile parents.
Childhood trauma, death of a parent, and
being bullied or abused increase the risk of
psychosis .Living in an urban environment
during childhood or as an adult has
consistently been found to increase the risk
of schizophrenia by a factor of two, even
after taking into account drug use, ethnic
group and size of social group. Other
factors that play an important role include
social isolation and immigration related
to social adversity, racial discrimination,
family dysfunction, unemployment, and
poor housing conditions. About half of
those with schizophrenia use drugs or
alcohol excessively. Alcohol abuse can also
lead to it as can cannibas.
Some facts about schizophrenia
• Symptoms of schizophrenia in children
and younger teenagers are less common
since this form is not as common as
adult-onset schizophrenia. Children
with this illness tend to have a more
chronic course of symptoms, more
cognitive (thinking) problems, more
negative symptoms, and more severe
social challenges than people with
adult-onset schizophrenia.
• Schizophrenia and other mentalhealth
disorders have fairly strict
criteria for diagnosis. Time of onset
as well as length and characteristics of
symptoms are all factors in establishing
a diagnosis. The active symptoms of
schizophrenia must be present at least
six months, or only one month if
treated.
• Statistics about how many people are
diagnosed with this disorder vary.
However, it affects about 1% of the
population. More than 2 million
Americans suffer from schizophrenia
at any given time, and 100,000-
200,000 people are newly diagnosed
every year. Fifty percent of people
in hospital psychiatric care have
schizophrenia.
• Schizophrenia is usually diagnosed in
people 17-35 years of age.
• The onset of the illness appears to be
earlier in men (in the late teens or early
twenties) than in women (who tend to be
affected in the 20s to early 30s).
• Many of those affected are disabled.
• They may not be able to hold down
jobs or even perform tasks as simple
as conversations. Some may be so
incapacitated that they are unable to do
activities most people take for granted.
• Many are homeless.
• Some recover enough to live a life
relatively free from assistance.
• Schizophrenia can affect anyone
• John Nash, an American mathematician
and joint winner of 1994 Nobel Prize for
Economics had schizophrenia. His life was
the subject of the 2001 Academy Awardwinning
film ‘A Beautiful Mind’.
So as we can see, it is not all gloom
and doom for those suffering from
schizophrenia. There have been several
success stories. Moreover, the impact of
the disease on individuals varies from
one person to another and severity is
not always associated with every case.
If you are living with a schizophrenic, it
would help if for you were to take time to
understand the patient well, know his/her
dark moods and what kind of treatment
they should get. Understand what agitates
them most and try to avoid such situations.
Create as happy an environment for them
as you possibly can and you will find many
reasons to be happy rather than stressed
when they share your life.
Health Tips
• Try to avoid refined
carbohydrates.
That means sugar in all forms,
particularly white sugar and all
foods and drinks containing it. It
also means white floor and all
foods made with it. Avoid aerated
soft drinks, fruit flavoured
squashes and all bottled fruit
drinks…Doris Grant and Jean Joice
• Natural unprocessed fresh food is
the basis of good health.
• It is important to eat a good
variety of nutrients everyday.
• Fish oil is good for keeping cancer
at bay and retarding cancer
growth
• Garlic irritates existing cancer.
• Executives are under less stress
because they have learned to
delegate.
• Having yoghurt or a fruit can give
your brain a big boost late in the
afternoon, when you are feeling
tired.
• Smoking and excessive alcohol
can lead to bone loss.
• Try millet flakes with sliced
bananas and milk for breakfast.
• Mix grated beetroot and carrot
together with celery, then pour
over some sour cream, add
pepper for seasoning (optional).
Service Charter
The Service Charter defines
ICPAK’s service standards
and provides information of
nature of service, the person
responsible, applicable fee if
any and the expectation from
stakeholders and customers.
Please visit www.icpak.com
for more information
56 MARCH - APRIL 2016

MEMORABLE QUOTES
TID BITS
“Mr. President, since you can’t run again
for another term,” “Is there any way that
we as a group can talk the first lady into
running?”
“No!” “Let me tell you, there are three
things that are certain in life: Death,
Taxes. And Michelle is not running for
president; that I can tell you.”
“We found the old video from our wedding,
and we’ve been married 23 years now…I
looked like a teenage; Michelle, she looks
identical!”
The lighthearted exchange got some
roaring laughs from the crowd at
McKinley Senior High School, as the
president (Obama) continued saying
that while he has certainly aged in his
past seven years as president; his wife’s
“If I get any sleep on Christmas Eve it’ll
be good! George will be bouncing around
like a rabbit. So that will be two children,
one who suddenly appreciates Christmas,
which could be quite challenging. But I’m
looking forward to it”.
Prince William speaking, just before
Christmas- Yahoo news
“It is very important that as a business
we really ensure that we continue to be
relevant to consumers and customers,”
Nathan Kalumbu, President Coca-Cola
Eurasia & Africa Group. Across the
continent; Coke has about 3,000 small
distribution centers. This information
explains the secret of Coca-cola’s success;
out of over 100 drinks that Coca-Cola
produces in Africa, many are tailored to
local taste. The approach in each city may
Shopkeeper Monica Mwathethe; saying
that the cost of many vegetables is getting
too high.
“The design will be in line with the culture
of the dominant Mjikenda community.
From the attire, one will be able to tell
ones origin.”
Kilifi Governor Amason Kingi; announcing
that his county is designing an official
county attire.
‘As to the first cause of the Universe, in
the context of expansion, that is left for
the reader to insert, but our picture is
incomplete without Him.’” “Divine will
constituting Nature from nothingness.”
British theorist, Edward Milne, wrote a
mathematical treatise on relativity which
concluded by saying the above.
World Bank predicts a tough year for
Africa
The development lender forecasts a perfect storm as
a slowdown in BRICS, the largest emerging market,
meets with lower commodity prices, decreasing
growth in international trade and financial market
volatilities. The last time all the countries in this bloc
slowed down at the same time was during the 2009
recession. The bank forecasts that global growth will
this year only recover to 2.9% after falling short of
expectations in 2015 to only come in 2.4%. With
Africa increasingly integrated to world markets,
these are the 10 highlights of the report linked to the
continent’s prospects this year.
Source: Mail & Guardian Africa
Senegalese will decide on
presidency age
The news that Senegalese will vote
in referendum in April to peg the
age of presidential candidates at age
75 has been a topic of discussion
for sometime since it was proposed.
This proposal is reported to be in
a constitutional reform proposal
submitted by President Macky Sall
to the country’s lawmakers in January.
President Sall said the changes are
meant to strengthen the rights of the
citizens and state institutions.
Can this little black box solve Africa’s connectivity
problems?
Kenyan start-up BRCK has secured $3 million in funding for an invention
that hopes to change the face of internet connectivity across Africa. Founded
in 2013, the tech innovators are the brains behind a tough-as-nails modem
designed for harsh environments with limited connection and power. What
makes the BRCK noteworthy is that it can hop between Ethernet, Wi-Fi
and 3G or 4G networks, and it has eight hours of battery to keep going
during blackouts.
Source: CNN
appearance hasn’t changed.
differ, but the company’s strategy is the
same everywhere: a Coke product should
”Although he called himself an agnostic,
The question had been asked by a town-
always be within reach. Source: New
Jastrow was compelled by the evidence to
hall attendee. (Yahoo news)
Africa Business News
admit, “Now we see how the astronomical
evidence leads to a biblical view of the
“To defeat the culture of fatalism,
Kenya must do the following key things.
First, restore dignity to the teacher the
foundation of any civilization. Second,
rethink the entire education system. Whose
values are we teaching? Third, re-think
what’s African. Fourth, make ethics the
cornerstone of Kenya’s renaissance. Fifth,
re-engineer Kenya as a nation not a
collection of tribes. Sixth, punish without
pity corruption, tribalism, and impunity.
Finally, create an economy of opportunity,
not opportunism. These must be individual
and collective national obligations. “
Makau Mutua a columnist in the
standard under the heading; let’s reshape
our society and not be tied down by
“I wanted to create a commercial platform
for artists based here to provide increased
opportunities so they don’t feel they have
to move abroad to pursue their careers.”
With his opening of Gallery 1957,
Ghanaian businessman, Marwan Zakhem,
aims to put Accra on the map as hotbed
for contemporary art. The gallery will
open its doors on March 6, Ghana’s
Independence Day, with an inaugural
exhibition of work by the emerging artist
Serge Attukwei Clottey. Source: Artnet
“We used to buy four or three tomatoes
for sh20 but now we have to fork out
sh10 for only one; Onions too have become
pricey, with one going for sh10, compared
to the earlier average of sh20 for three.”
origin of the world.” “Science is unable to
tell us what or who caused the universe to
begin. But some believe it clearly points to
a Creator. “
Johannesburg tipped to be
the biggest city in Africa in
2030
Research conducted by Oxford
Economics shows future trends and
market opportunities in the world’s largest
750 cities, and forecasts what the global
urban landscape could look like in 2030.
The report takes into account population
size, age and income per capita, and
includes South Africa’s two biggest cities,
Johannesburg, and Cape Town. In Africa,
Johannesburg will be the biggest city in
terms of GDP, contributing $196 billion,
followed by Cairo ($168 billion), Luanda
($138 billion), Lagos ($76 billion), and
Cape Town ($73 billion). In terms of
population in Africa, Lagos in Nigeria
will have as 25 million people in 2030,
followed by Kinshasa (16.7 million), Cairo
(14.1 million), Luanda (9.8 million), and
Dar es Salaam (9.4 million).
Source: Business Tech
Will your job still be around in Africa In 2020?
Industry observers believe that we are on the cusp of a Fourth Industrial
Revolution. A report from the World Economic Forum estimates that 65
percent of children entering primary school today will ultimately end up
working in completely new job types that don’t yet exist. The jobs most at
risk are concentrated in routine white collar office functions, such as office
and administrative roles – expected to account for two-thirds of job losses.
Source: Mail & Guardian Africa
culture.
58 MARCH - APRIL 2016
MARCH - APRIL 2016 59

BOOK REVIEW
Reviewed by Angela Mutiso, cananews@gmail.com
Title: Getting Things Done: The Art of
Stress-Free Productivity
Author: David Allen
Category: Business
Publisher: Penguin
ICPAK
UNIVERSITY
Scholarship
The author, veteran coach and
management consultant David
Allen says in this captivating
book that in today’s world,
yesterday’s methods just
don’t work. He shares modern methods
for stress-free performance that he has
introduced to thousands of people.
Allen’s argument is this: our productivity
is directly proportional to our ability to
relax. Only when our minds are clear and
our thoughts are organized can we achieve
effective productivity and unleash our
creative potential.
In “Getting Things Done,” (GTD)
Allen shows how to: Apply the “do it,
delegate it, defer it, drop it” rule to get
your in-box to empty; Reassess goals
and stay focused in changing situations;
Plan projects as well as get them unstuck;
Overcome feelings of confusion, anxiety,
and being overwhelmed; Feel fine about
what you’re not doing. This book can
transform the way you work, showing you
how to pick up the pace without wearing
yourself down. Since it was first published,
David Allen’s Getting Things Done
has become one of the most influential
business titles of its era, and the book on
personal organization (Google Books).
The GTD style is based on the idea
of moving planned tasks and projects out
of the mind by recording them externally
and then breaking them into actionable
work items. This allows one to focus
attention on taking action on tasks, instead
of on recalling them. Mental blocks
we encounter are caused by insufficient
‘front-end’ planning. This means thinking
in advance, generating a series of actions
which can later be undertaken without
further planning. Time management, as
we all know defines our work and plans
our days, this book presents a timemanagement
method that you will find
quite useful.
Allen is a renowned productivity
consultant; he first demonstrates stress
reduction from the method with a certain
exercise, centered on something that
has entered your life that has an unclear
outcome or where the next action is not
defined. (Allen calls these sources of stress
“open loops,” “incompletes,” or “stuff.”)
Pick an “incomplete”: What most annoys,
distracts, or interests you? Write down a
description of the successful outcome in
one sentence. What is your definition of
“done”? Write down the next action to
move toward the desired outcome; Notice
how you feel after the exercise compared to
before it. The system in GTD requires you
have within easy reach an inbox, a trash
can, a filing system for reference material,
several lists, and a calendar. These tools can
be physical or electronic as appropriate
(e.g. physical in tray or email inbox). As
“stuff ” enters your life. The GTD workflow
consists of five stages: capture, clarify,
organize, reflect, and engage. Empty your
inbox or inboxes daily or at least weekly
(“in” to empty). Don’t use your inbox as
a “to do” list. Don’t put clarified items
back into the inbox. Emptying your inbox
doesn’t mean finishing everything. It
just means applying the “capture, clarify,
organize” steps to all your “stuff.” Allen
recommends reflection from six levels or
“horizons-current actions; current projects;
areas of responsibility; 1–2 year goals; 3–5
year goals; Life. Unlike some theories,
which focus on top down goal-setting,
GTD works in the opposite direction.
Allen argues that it is often difficult for
individuals to focus on big picture goals
if they cannot sufficiently control the dayto-day
tasks that they frequently must
face. By developing and using the trusted
system that deals with day-to-day inputs,
an individual can free up mental space to
begin moving up to the next level.
He recommends scheduling a weekly
review, reflecting on the different levels.
The perspective gained from these reviews
should drive one’s priorities at the project
level. Priorities at the project level in turn
determine the priority of the individual
tasks and commitments gathered during
the workflow process. During a weekly
review, determine the context for the tasks
and put each task on its appropriate list.
An example of grouping together similar
tasks would be making a list of outstanding
telephone calls, or the tasks/errands to
perform while out shopping. Context lists
can be defined by the set of tools available
or by the presence of individuals or groups
for whom one has items to discuss or
present.
About the author: David Allen is
president of The David Allen Company
and has more than twenty years experience
as a consultant and executive coach for
such organizations as Microsoft, the Ford
Foundation, L.L.Bean, and the World
Bank. His work has been featured in Fast
Company, Fortune, Atlantic Monthly, O,
and many other publications.
HELP OTHERS REACH THEIR PEAK!
The Institute of Certified Public Accountants of Kenya (ICPAK) will award merit based
scholarships that would enable bright young students from financially disadvantaged families
to pursue their dreams. ICPAK plans to sponsor 3 scholars every year to enjoy a full 4-year
university education in the field of Accounting and Finance.
Appeal: You can support the Scholarship Fund by making a donation or adopting a scholar. To
donate or adopt a scholar please log on to our website www.icpak.com
60 MARCH - APRIL 2016

STAR OF THE MONTH
STAR OF THE MONTH
Interviewed by Angela Mutiso, cananews@gmail.com
Star: CPA Joshua Kamwere Wanjiku
DOING MY
BEST
The accounting profession has Bachelor of Commerce (Accounting
evolved tremendously and Option)-First Class Honors-Catholic
today calls for accountants to University of Eastern Africa (CUEA)
play a more prominent role C.P.A. (K) - Rware College of Accounts
in the management of the
organizations they work for.
CPA Joshua Kamwere Wanjiku 31 is the
Finance Manager of Crown Healthcare
Other Courses
• 2015 East Africa Regional Leaders
Conference, Kigali-Rwanda
Limited. With ten years working • 2014 Annual Leaders Conference
experience in finance he has a lot to offer
this profession. He has also over the years
discovered that the demand for the various
skills accountants offer companies has
risen tremendously.
Looking at his Curriculum Vitae,
you can be excused for thinking that
CPA Kamwere has worked for much
longer than this. You also discern as
soon as you start speaking to him that he
derives a lot of pleasure from his work. In
addition and by his own admission, he is
a highly motivated person, ambitious, and
committed to excellence. He believes it is
these qualities that have propelled him to
the top and enabled him to develop a great
CV within the first decade of his working
life.
• Corporate Governance Training
• Accountant’s Annual Seminar
• Budgeting Formulation,
Implementation, Monitoring
Management and Control
• Credit Administration
and Debt
Management
• Tax
Compliance,
planning and
Management
• Consolidation
Workshop
• Financial
Reporting
Workshop
• Inaugural
First Job: Finance Officer with Tax Forum
Industrial Development Bank SACCO
in 2006. His job entailed marketing, book
keeping, credit appraisal and liquidity
management and financial reporting.
• Fire Training
and Safety
• Customer
care efficiency
and
Academic Qualifications
effectiveness
Masters in Business Administration • 10th Internal
(Strategic Management Option) - Auditors Conference
University of Nairobi
Professional membership
• ICPAK- Member in good standing
• Institute of Internal Auditors-Member
in good standing
• Chairman- ICPAK Youth & Students
Affairs Committee: From August 2015
to date
• Member- ICPAK Members Services
Committee: From August 2015 to date
• Member- IIA Kenya Nomination
Committee: From March 2014 to date
• Member- ICPAK Finance & Strategy
Committee: From August 2013-July
2015
Work Experience
• September 2015 to date
• Consulting Finance Manager
• Industry: Health Care (Medical
Equipment & Consumables
Distributor)
• Crown HealthCare Ltd (with
operations in Kenya, Rwanda,
Uganda, Tanzania and Nigeria)
Responsibilities and
Experience
Management Accounting;
• Managing of day to day accounting
processes
• Reconciling monthly activities and
generating end-year reports
• Approval of invoices and purchase
orders
• Debt collection from customers within
the credit period
• Ensuring compliance with statutory
financial and administrative
requirements;
• Interpretation of financial reports and
ensuring that monthly financial results
are produced accurately and timely
• Designing and implementing internal
control procedures and production of
reports on all financial transactions
• Preparing daily bank reconciliations
• Product costing and advising on the
recommend product-selling price
• Preparation of Final Accounts;
• Preparation of accounts in accordance
with the IFRS
• Computation monthly and annual tax
obligations
Budgeting
• Preparing the budget
• Ensuring propriety and regularity of
expenditure within budget
• Ensuring that appropriate accounting
procedures are followed
• Providing advisory support to all cost
centers on the performance of their
vote heads and general accounting
matters
Treasury/Cash flow
Management:
• Advising the Group COO on weekly
cash position
• Preparing weekly, monthly and
quarterly cash flow projections
• Coordination of final audit in
accordance with International
Financial Reporting standards;
• Liaising with the Board in the selection
of the auditors
• Being the lead contact person during
the audit period
• Responding to any audit queries and
management letter in consultation
withthe Group COO
• Any other role that may be allocated by
the Group Managing Director
Achievements
• Successfully implemented system
change over from manual to Quick
books ERP for one of the subsidiaries
in Kenya
August 2014 to August 2015
Atom Group; Group Finance Manager
Industry: Business Consultancy, Financial
Services and Retail Sectors
Achievements
• Timely and accurate financial reporting
Conducted Forensic audit of USD
100,000
August 2011 to August 2014
• Tescom Group of Companies (with
operations in Kenya, Rwanda,
Uganda, South Sudan and Zambia)
Group Finance
• Industry: Telecommunication and
Real Estate Sectors and
Administration Manager
Responsibilities and
experience
• Head of finance, administration,
procurement and human resource
functions
• Reporting to the Group Managing
Director
• Strategic Management
Achievements
• Development of procurement manual,
Financial Management policy and
human resource policies;
• Reduction of cost by 30% within my
first year of employment
• Member of OSHA, Events and
procurement committee
March 2010 to July 2011
• Kimisitu Sacco Limited
• Head of Internal Audit
• Industry: Finance and Banking Sectors
Responsibilities and
Experience:
• Head of Internal Audit department
• Reporting to the Board of Directors
Achievements
• Starting up the internal audit
department
• Preparation of internal audit charter,
annual audit plans, internal audit
manual and risk management policy
• Initiated the use of bulk filing system
• Increased compliance and effectiveness
of the Sacco operations and procedures.
• Preparation of Kimisitu Sacco Strategic
Plan 2011-2015
February 2010
• Makeni/Mutua Certified Public
Accountants (K)
• Audit Manager
• Industry: Consultancy and Audit
Achievements
• Increasing the firm’s portfolio
• Promoting competency, integrity and
professionalism in the firm
He also worked for Industrial
development bank Sacco Ltd as a Finance
and Operations Manager and as a
Finance Officer. During his time here, his
responsibilities included:
Overall in charge of the Sacco operations;
Reporting to the Board of Directors;
Preparation of Payments and receipts
and Statutory returns; Preparation of
Management accounts, budgets, cash flow
projections and Financial statements;
Preparation and Reconciliation of various
accounts e.g. Shares, deposits and Loans,
Bank Reconciliation; Debt collection;
Payroll processing and Loans processing.
He also worked at the Postal
Corporation of Kenya: Industrial
Attachment (Finance & Accounts
Department).
In the Sacco sector for example,
when he joined Kimisitu, it was a great
62 MARCH - APRIL 2016 MARCH - APRIL 2016 63

STAR OF THE MONTH
INSTITUTE NEWS
moment; because laws requiring Saccos
to have internal audit functions had just
been passed. And he was in charge of
creating and operationalising the internal
audit function; he had to come up with an
internal audit manual as well as an internal
audit chart. And to ensure that there was
value for money on the transaction of
the sacco. This was one of the greatest
highlights of his job.
Below are excerpts from the interview
What made you become an
accountant?
When I was in class four, our head teacher
in our afternoon home science lesson told
us that the reason why the price of a bread
had increased drastically from Kes 10 to
about Kes 15 was because of corruption;
it was just about the time the Goldenberg
scandal was a major topic. She also pointed
out that in every theft like this one, there
is an accountant involved. I felt if the price
of bread could move up as quickly as that,
I could become an accountant and help
solve such problems.
afford, to make me succeed.
Now my inspiration comes from my
wife and children. They always called me
professor when I was doing my Masters
and that has pretty much helped me to
pursue that line. I have now decided I must
become a professor.
What do you want to tell the
young accountants?
To follow the ICPAK credo; credible,
professional and accountable; If they can
live up to these ideals, we can go very far
as a country.
Hobbies?
I spend 80% of my free time with my
family either indoors or outdoors. I also
like mentoring as a way of showing my
appreciation for what I have gained. I am
the Treasurer at Kimisiti Sacco. I am also
Vice Chair of the board of management
of Maragima Secondary School. I loved
playing golf when I had time, but since I
started working on Saturdays, I hardly get
time to play, but I hope to play again some
day.
the government to detect malpractices in
the private sector, corruption would be
much reduced.
What are your hopes for the
accounting profession in
Kenya?
1. We need to make our members satisfied
because they are the people who recruit
and market the profession.
2. Review of the Accountants Act needs to
be hastened. This will enable us to address
emerging issues in the profession which
are quite a number; they include student
membership, we need to review penalties
which are too lenient at the moment; we
should have a variety of practicing licenses;
e.g. tax consultants, financial management
and assurance among others, we can also
have associate members who are not CPAs.
3. The public sector accountant is
disadvantaged if you compare with other
professions such as advocates/doctors who
enjoy non-practicing allowances.
4. Continuous strengthening of ICPAK
Branches
5. More and more advocacy by ICPAK
ICPAK MEMBERS CARD
On 11.12.2015 at the Chairman’s Ball, ICPAK in
partnership with National Bank unveiled the ICPAK
members’ VISA Card. The co-brand relationship means that
ICPAK will issue its members with FREE members VISA
cards in 2016. The membership card will be a prestigious
identification card exclusively issued to ICPAK registered
CPAs in Kenya. It will bear members’ information
hence it will also be an access card to ICPAK
organised events and trainings.
In order to add value to ICPAK members, National
Bank as a partner bank have embedded a VISA
payment wallet into the member ID cards. This
will enable members to pay for their membership
fees and training fees remotely via the internet or at
ICPAK offices using their ICPAK cards. The wallet
will also be used to grant ICPAK members card
loans hence members who would like to borrow
and pay for their membership and training fees will
be able to get an easy credit line from the bank and
pay back in easy instalments. Spend on the card is
not limited to ICPAK payments, members will be
able to use the card at their favourite stores, any
other merchant outlet in Kenya and across the world and
earn regular rebates, pre-negotiated discounts and reward
points.
For more information please contact
memberservices@icpak.com
What has been the most
challenging part of your job?
To clean up books of one of our subsidiaries,
updating books which had been operating
for two years with incomplete records; I
worked with various departmental staff
to be able to compile the data. I was given
three months to do the job but was able to
complete it in two months.
Happiest moments?
When I do something and my bosses
appreciate. If I am able to add value, I am
happy.
Who inspires you?
I can divide this into three categories;
I was quite fond of my late grandfather
Samuel Kanyari, who always had valuable
advice for me. I remember when I just
started working, I went to see him; when
he noticed that my shoes were very well
polished, he told me that if I was able to
polish my shoes and maintain the shine,
then I could be able to maintain anything
I want in this world. He kept encouraging
us to work hard, and always topped up our
savings.
The second is my loving mother. Before
I got married, she always encouraged me
to do my best in everything I undertook.
She also gave me all the support she could
Is the accounting profession
headed in the right direction?
Definitely Yes! I would like to see a large
number of young people taking up various
leadership roles at ICPAK. As young
accountants, we need to involve ourselves
much more than we are currently doing.
Youth currently form a big membership
at ICPAK - over 40% is youth. However,
when you check their involvement, you
realize that very few are actually showing
such interest.
What changes would you like
to see at ICPAK?
ICPAK needs to communicate more to
members. It does so much but members
are not even aware and more so on
advocacy. Yet as an outsider you can’t see
effort. They also need to engage the private
sector stakeholders like KEPSA and
KAM as opposed to skewed engagement
with government. They should involve
the private sector so that more CPAs are
engaged by the private sector.
At the moment even the highest
office is complaining about corruption in
the private sector. I feel that if ICPAK
approached the government and explained
to them that by employing members of
ICPAK, they will be able to check this, and
find an entry point, which will then help
What is the hope you can give
to young accountants and
students as the Chairman of
ICPAK Youth and Students
Affairs Committee?
The committee is one of the youngest at
ICPAK and we are working with my team
members to ensure we deliver results to
our constituent, Let me highlight a few
of many activities that the committee is
undertaking:
1. Profiling of young accountants to
enable us understand their needs, we
expect this exercise to complete
by Q3 of 2016
2. Availing opportunities for internship/
attachments, and in this regard we
expect Council to approve Internship
and Mentorship Policy in Q2 of 2016
3. Engaging students pursuing business
courses through their associations in
their respective colleges and universities
4. We are also currently running a pilot
programme of 100 trainee accountants
where we have identified mentors/
trainers for them under a framework
called TAPEF (Trainee Accountants
Practical Experience Framework). We
intend with Council approval to make
this programme a lifetime project from
July 2016.
AWARD OF HONORARY FELLOWSHIP
OF ICPAK - HCPA
In recognition of the
outstanding support to the
accounting profession and
the Institute of Certified
Public Accountants of Kenya,
the Institute conferred the
First Honorary Fellowship
of the Institute of Certified
Public Accountants of
Kenya to H.E. Mwai Kibaki,
C.G.H., the 3rd President of
the Republic of Kenya, on
11th December, 2015.
H.E. Mwai Kibaki, C.G.H., the 3rd President of the
Republic of Kenya, has walked with the Institute of Certified
Accountants of Kenya (ICPAK) from its conception to
inception and into maturity.
• In October 1970, as the Minister of
Finance, H.E. Mwai Kibaki, set up
a committee to see into the establishment of
the registration of accountants and to come up with
an Institute that would regulate professional activities of
accountants.
• In 1978 H.E Mwai Kibaki, then the Finance Minister,
sponsored a bill in Parliament that created the Institute of
Certified Public Accountant of Kenya (ICPAK) through the
Accountant Act 531 of 1978.
• On November 17, 1978 H.E. Mwai Kibaki (by then Vice
President) presided over the Inauguration of ICPAK at
KICC.
• In 1978, during the inauguration ceremony, H.E. Mwai
Kibaki gave a cheque of Ksh.120,000 to the Institute to meet
its initial set up costs.
• In 2007, President Kibaki graced the ICPAK’s 15th
Economic Symposium.
• In 2008, as President of the Republic of Kenya H.E Mwai
Kibaki signed the bill that reviewed the Accountants Act 531
and replaced it with the Accountants Act No. 15 of 2008.
• In August 2010, H.E. inaugurated the current National
Constitution whose Chapter 6 reserved leadership of key
public offices for appropriate professionals, namely, The
Auditor General, The Controller of Budget.
• In 2011, H.E. graced the opening ceremony of the 1st Africa
Congress of Accountants hosted by the Institute – a
continental event that was inaugurated in Kenya under the
aegis of Pan African Federation of Accountants and
rotationally hosted by member Institutes across Africa.
64 MARCH - APRIL 2016
MARCH - APRIL 2016 65

TRAVEL
TRAVEL
By Clive Mutiso, clivemutiso@gmail.com, Photos: Zurich
A CITY THAT
RUNS LIKE A
SWISS WATCH
The ancient Swiss city of
Zurich, the biggest in the
country, as well as the leading
financial centre, is nestled at
the northern end of the narrow
lake of the same name, and is a startling
contrast to the chaotic urban environment
that African visitors are used to back home.
It is a pristine metropolis that runs like a
Swiss watch. The people of Switzerland
do not wear watches as bracelets, but as
essential tools to managing their time.
While travel timetables in Kenya could
often take honours in the Man Booker
Prize for Contemporary Fiction, in Zurich
the timetables mean what they say. It is
possible to plan a journey to the city and
all the way through it using airline, train,
and tram timetables that are timed to the
minute. The schedules are published, and
can be relied on. Departure intervals vary
from every 10 to every fifteen minutes,
depending on the time of the day, but the
airport to the Central Railway Station
(Hauptbanhof ) takes exactly 11 minutes.
From the Hauptbanhof, there are
scheduled tram services to every part of
the city, which run exactly on time, and
the tram is the ideal way of getting around
the city. Buy your prepaid tram travel card
before you board the tram, and swipe it on
the way your destination, because there
are regular
checks along
the way that
travellers have paid their fare.
Even the Presidents of Switzerland, an
office which is held for a year at a time,
usually take the trains and trams to travel
to work, or move around the country on
official duties. There are no motorcades, no
bodyguards, no fanfare, and no vast public
expenditure on VIP treatment.
Before leaving the Hauptbanhof, it
is well worth taking a quick tour of the
extensive ShopVille shopping centre
that is an integral part of the station
complex, open for extended hours 365
days a year, and offering a range of shops,
restaurants, takeaways, pharmacies and
mini-supermarkets. The prices, in Swiss
Francs, might seem high at first, but the
visitor soon gets used to the fact that the
Swiss Franc is strong and steadily getting
stronger, and that prices are pretty uniform
wherever you go, irrespective of the type of
outlet where you go exploring. There are
not many bargains to be had – the Swiss
shopping experience is about quality, not
rock bottom prices, which is why the Swiss
brand has spawned up market shopping
centres as far apart as London and Kuala
Lumpur.
Rents, wages, and other costs are high
i n
Switzerland,
and these factors are
reflected in the prices of even
soft drinks and snacks at street outlets, so
a full meal in a hotel or restaurant can
be much better value than a snatched
meal on the run. Feel free to ask advice
or directions from Swiss strangers on
the street. The country has four official
languages – French, German, Italian,
and the unique Romansch tongue, and
most Swiss are fluent in them all, as well
as English, which many of them speak
more grammatically than the English
themselves. The Swiss are proud of their
country, and are happy to guide visitors on
where to go and what to see.
Wherever you stay in Zurich, whether
it is the one of the magnificent five-star
properties like the baroque Dolder Grand
Hotel, or the distinctive, artistic, Widder
Hotel, in the city centre, or a two-star
or three-star establishment in the same
vicinity, you can count on standards of
service and value for money that have
made Zurich a prime tourist destination
for more than a century. A visitor is spoiled
for choice in the three-star category, and
can expect to pay between $200 and
$350 a night for a double room with
breakfast, depending on the season.
Most visitors to Zurich combine
a business trip to one of the discreet
private banking houses with shopping
for luxury goods, of which there is an
almost limitless array in the shops and
boutiques around the city centre. Every
major Swiss brand of watch is available in
almost infinite variety, with most brands
having showrooms of their own, with
their full range on display. The ageless
beauty of the hand-crafted timepieces
– and the exclusive prices – will take
your breath away. But you can get a real
Swiss watch, for a fraction of the price
of one of the traditional prestige brands,
if you opt for a plastic-cased Swatch –
the quality fashion accessory that can
be had for just a few Dollars. There is a
comprehensive collection on offer at the
Swatch Shop on the Bahnhofstrasse,
just down the road from the Central
Train Station.
Almost any part of the city is a great
vantage point from which to view the
lake, and almost any part of the lake is
a great place from to view the city with
its mountain backdrop of the snowcapped
Alps. There are all sorts of lake
trips to choose from, all boarded from
the dock on the city centre end of the
lake. You can choose from short round
trips, point-to-point trips across the
lake, dance boats, a breakfast boat, a
brunch boat, a barbeque boat, a cheese
fondue boat, a Chinese fondue boat,
or a party boat. Eating and drinking
are an important part of the Zurich
experience.
That is one of the reasons why no
visit to Zurich is complete without
at least one meal at the Restaurant
zumKropf, in the heart of the city,
which has been renowned for its
traditional Bavarian-Swiss cuisine since
the 19th Century. Restaurant zumKropf
effortlessly re-creates the ambience of a
Bavarian beer hall, and the restaurant
offers filling specialties and classics that
are especially welcome when there is a
chill wind sweeping across Lake Zurich
or plunging down from the surrounding
Alps. In keeping with modern tastes,
there is a light menu, but it is not really
a place for dainty nouvelle cuisine – it is
where you go when you are hungry and
are looking for a filling feast. You will
not find nyama choma, but who would
want it when there is the option of
Choucroutegarnie, the spectacular meat
meal imported from the Alsace border
region of France? The dish comprises
a bit of pickled cabbage, from which
it takes its name, but the sauerkraut is
usually buried under a pile of artisan
sausages, pickled meats and roasted
cuts. If eaten regularly, it is especially
recommended for gout or heart attacks
– not curing them, but causing them.
Crusty Bürli bread rolls, with
lashings of fresh butter, are served
throughout the meal on every table.
Specialties of the house are boiled beef,
legendary sliced veal Zurich style with
Rösti hashed brown potatoes, or Pork
shank with potato salad. If you love
meat, Restaurant zumKropf is just the
place for you – veal, or pork, sausages
and homemade liver dumpling soup are
served and the portions are meant for
serious eating, not sampling. The wine
list is well suited to the hearty, homestyle
cooking and offers high-class wines
at reasonable prices, also available by the
glass. With its fascinating wall paintings,
unique ambiance, and wide selection of
food and drinks, the place invites you for
a relaxing visit, or a daily feast.
And how about the nightlife in this
modern city? A big seller in the tourist
shops is the classic postcard “Zurich
By Night.” It has those words, in neon
colours, and nothing else at all, on a
pitch black background. As the sun goes
down, time runs down, and the stolid
Calvinistic burgers of Zurich are tucked
up in their beds. While there is plenty
to do and see during the day, the main
activity at night is sleeping to plan an
early start the next morning.
66 MARCH - APRIL 2016
MARCH - APRIL 2016 67

ACCOUNTABLE RECIPES
ACCOUNTANTS Puzzle
On the go
Breakfast cups
Overnight
Mango &
Coconut Oats
By CPA Derrick Majani
Break the ICE!
1 2 3 4 5 6
7
8
9 10
11
12
13. 14 15
16
17 18 19
20 21
22 23
With everyday hustle and bustle, rushing out of bed
then into the shower and out the door. Room to put
together a meal especial breakfast is the last thing
on your mind. As breakfast is the most important
meal of the day. A simple yet satisfying spread to
start a fresh and keep you fuelled through the day.
Interesting fact,’’ The first breakfast meal consisted
of Oats , boiled over a fire. Oats come in all types
from rolled, instant and oat bran.
Rolled oats that have been dehusked and crushed
lightly, the least-processed form on our shelves
therefore preserving more fiber. It is under
appreciated grain but dull not at all.
Forget the usual oats mush, made over a stove in
a pot boiling for an hour or so. A quick mix and
refrigerated overnight.
Overnight Mango and Coconut Oats
Serves 1
• 1/2 cup Rolled Oats
• 2 Tbsp Desiccated Coconut
• 1 Tbsp Brown Sugar
• 1 cup Natural Yoghurt
• 1/2cup Mango, Cubed
Method
• Mix the Oat, Desiccated coconut and sugar into a
snack box.
• Add the yoghurt and mango cubes and mix well.
• Drizzle honey over, seal and refrigerate overnight.
• Serve with fresh fruit.
By Sharon Gatonye, Sgatonye@outlook.com, The Black &White Kitchen
Full breakfast in your hand.
Bake and save in the fridge for when you do not
have time to prepare Breakfast.
Breakfast cups
Makes 8
• 8 slices of Brown Bread
• 2 Tbsp(30ml) butter
• 2 slices of Ham, cubed
• 2 tomatoes, cubed
• 1 green pepper, cubed
• 1 red onion, wedges
• 3 eggs
• 100ml milk
• Salt and pepper
Method
• Preheat oven to 180°C and prep your muffin
tray.
• Cut crusts off bread slices and discard.
• Roll bread slightly thinner using a rolling pin or
wine bottle.
• Spread butter and shape into rough squares.
• Place a square into each cup of the 8-cup muffin
tray, butte-side down.
• Divide the ham, tomatoes, green peppers and
Red onion among the cups.
• Whisk eggs, milk together and season with salt
and pepper.
• Divide egg mixture among the cups.
• Bake for 30-35 minutes until set and golden.
24 25
26 27 28 29
30 31 32
Across
1. Professional organization that regulates the activities of all
Certified Public Accountants
5. Important certification for Accountants
7. Penalize for an offence
9. _____ files; they don’t provide full accounting of user activity.
10. Joint initiative award of the Institute of Certified Public
Accountants of Kenya (ICPAK) to strengthen financial
markets and attract investment, business entities
would have to make disclosure of their activities to enable
a wide range of stakeholders use such information in making
economic decisions.
11. Love and respect deeply
13. Throw forcefully in a specified direction;
14. Review financial statement of an organization
16. Put food in the mouth and chew and swallow
Across
17. Present time at the moment
18. Set of accounting standards adopted for use by Public
sector entities
20. All in place
21. Key executive, for short
22. Oval object laid by a female bird
26. To transfer file
28. First Honorary Fellowship of the Institute of Certified
Public Accountants
30. Internet phone, acquired by Microsoft
31. Opposite of female
32. Assume a horizontal position
Down
1. Terrorist group making cyber threats
2. A person registered as an accountant under the provisions of
section 24 of Accountants Act
3. Reflecting the latest information and practices, 3 words
4. Data
6. It’s on the plus side of the ledger.
Down
8. Experimental program
12. Current chairman of the Institute
15. An amount of space between two things or people
19. Institute legal proceeding against
23. Reduce something or grind
24. Actuary’s concern
25. A color intermediate between green and violet
27. Point or direct
29. Whole entity of a particular group
Find your answers in the next issue
68 MARCH - APRIL 2016 MARCH - APRIL 2016 69

PEN OFF
PEN OFF
By Jim McFie, a Fellow of the Institute of Certified Public Accountants of Kenya
Photos: odyssey, dreamstime
WHICH
GENERATION DO
YOU BELONG TO?
The Americans love putting 4 million were born every year from 1954 and divorce. This is the cohort with the
people into pigeon holes. until 1964, when the boom finally tapered lowest voting participation rate of any
Recently, I watched a video off. By then, there were 76.4 million “baby generation. Newsweek described them as
about the US National Security boomers” in the US. They made up almost “the generation that dropped out without
Agency (NSA), situated in Fort 40 percent of the nation’s population. ever turning on the news or tuning in to
Meade, forty kilometres from Washington
DC. The narrator of the documentary
refers constantly to the “adversary” –
whoever that may be. It is clear from the
documentary that the NSA knows exactly
what happened to the Malaysian airliner
MH370; it is strange that the US, which
is so liberal in giving out “assistance” all
over the world, does not inform us of what
happened to MH370. But that is another
interesting line of enquiry.
World War II ended in Europe on 8
May 1945, called Victory in Europe Day,
or V-E Day, after Gen. Alfred Jodlof the
They were, and still are, classified as the
“baby boomers”. Some people introduce
a further division of the “baby boomers”
into “Boomers I”, born in 1946 to 1954
inclusive, and “Boomers II” or “Generation
Jones”, those born between 1955 and
1965 inclusive: the argument for the
distinction between the two groups is that
life experiences were completely different;
attitudes, behaviour and society were vastly
different. The first “Boomer” segment was
bounded by the Kennedy and Martin
Luther King assassinations, the Civil
Rights movements and the Vietnam War.
the social issues around them.” They have
high levels of skepticism, a “what’s in it for
me” attitude (just like “leaders” in Kenya)
and a reputation for some of the worst
music to ever gain popularity. “Generation
X” is possibly the best educated generation
with 29% obtaining a bachelor’s degree
or higher (6% higher than the previous
cohort) – many people, including many
in the US, think that everyone in the US
goes to university – you can see that this
is not the case. “Generation X”, with that
education and growing maturity, form
families with a higher level of caution
German High Command signed the “Boomers I” were in or protested the War. and pragmatism than their parents
unconditional surrender of all German
forces. Adolf Hitler had committed suicide
in a bunker fifteen metres below the
Chancellery in Berlin on 30 April 1945.
V-J Day, the day the war ended in Japan,
did not occur until 14 August 1945, after
two atomic bombs had been dropped on
Japan earlier in the month of August.
Almost exactly nine months after
World War II ended, “the cry of the baby
was heard across the land,” as historian
Landon Jones described the scene in the
US. More babies were born in 1946 than
ever before: 3.4 million, 20 percent more
than in 1945. This was the beginning
of the so-called “baby boom.” In 1947,
another 3.8 million babies were born; 3.9
million were born in 1952; and more than
“Boomers II” or the “Jones Generation”
missed, or were too young, to witness
all these events. “Boomers I” had good
economic opportunities and were largely
optimistic about the potential for the US
and their own lives. Generation “Boomers
II” lost much of its trust in government
and the optimistic views Boomers I had.
Economic struggles, including the oil
embargo of 1979, reinforced a sense of
“I’m out for me” and narcissism and a focus
on self-help and skepticism over media
and institutions became representative of
attitudes of this cohort.
“Generation X” came next: they
were born between 1966 and 1976. They
are sometimes referred to as the “lost”
generation, exposed to plenty of daycare
demonstrated. Concerns run high over
avoiding broken homes, over children
growing up without a parent around and
over financial planning.
Next comes “Generation Y”, the
“Echo Boomers” or the “Millennials”.
They were born between 1977 and 1994:
there are seventy one million Americans
in this cohort, the largest since the “Baby
Boomers”: the high number of members
of “Generation Y” is because of the large
number of “Boomer” parents. “Generation
Y” members are known as incredibly
sophisticated, technology wise, immune
to most traditional marketing and sales
pitches...as they not only grew up with it
all, they have seen it all and been exposed
to it all since early childhood. They are
“Generation Z”, or “iGen” or “Post-Millennials”,
are the cohort of people born after the “Millennials”.
The generation is generally defined with birth years
ranging from the mid-or-late 1990s to the 2010s. A
significant aspect of this generation is its widespread
usage of the internet from a young age.
much more racially and ethnically diverse
and they are much more segmented as an
audience aided by the rapid expansion
in cable TV channels, satellite radio, the
Internet, e-zines, and so on. They are
less brand loyal and the speed of the
Internet has led the cohort to be similarly
flexible and changing in its fashion, style
consciousness and where and how it is
communicated with. They were often
raised in a dual income or a single parent
family. They have been more involved
in family purchases...everything from
groceries to new cars. One in nine “Gen
Yers” has a credit card co-signed by a
parent.
“Generation Z”, or “iGen” or “Post-
Millennials”, are the cohort of people
born after the “Millennials”. The
generation is generally defined with birth
years ranging from the mid-or-late 1990s
to the 2010s. A significant aspect of this
generation is its widespread usage of the
internet from a young age. Members of
“Generation Z” are typically thought of
as being comfortable with technology
and interacting on social media websites
accounts for a significant portion of their
socializing. Members of “Generation
Z” have been affected by growing up
through the so called September 11
terrorist attacks and the 2008 Great
Recession, with some commentators
suggesting that these events have given
the cohort a feeling of unsettlement
and insecurity. One commentator has
described “Generation Z” as “innovative,
entrepreneurial, and highly conscious
of their futures and the challenges they
face”.
Now the first wave of “Generation
Z” is leaving university. “Generation Z”
would like a job: the newest section of
the workforce – a recent subject of media
curiosity and marketing consternation
– constitutes about one-quarter of the
US population, according to census
data. With them come the new habits
of a digitally networked, post-recession
world. It is enough to make a hiring
manager reconsider interview questions.
Internships are a big thing in the US –
especially in politics: I recommend you
watch a film called “Hillary” on You
Tube to give you an insight into the
phenomenon and an idea of what to
expect from the next President of the
US. Will the hiring process remain the
same or will a new set of questions have
to be asked? Pundits have made a few
suggestions:
(i) “What can we do for you?” Given
that they are roughly 20 years old and
younger, “Generation Z” may appear first
for internships. They are looking for new
skills (92%), work experience (81%), and
personal connections (72%), according
to a global online survey by Millennial
Branding and Randstad in 2014.
(ii) “Do you work well alone?” The new
workforce may be team players. About
84% of university students prefer to work
collaboratively, rather than autonomously,
according, a human resources consulting
firm, and Enact us, a leadership-focused
not-for-profit.
(iii) “How are you with people?”
“Generation Z” may be glued to five
screens, but they still have real-life
skills. Only 15% of older teenagers
prefer to interact with friends via social
media, according to a 2014 survey by
Northeastern University. About half of
16- to 20-year-olds like to hear from
70 MARCH - APRIL 2016 MARCH - APRIL 2016 71

PEN OFF
COMPLEX
TO LET
Available for letting:
• BANKING HALLS
• OFFICES
• RESTAURANTS
managers face to face, Millennial Branding
and Randstad found last year. Similarly,
Robert Half reported that 71% of a slightly
older demographic preferred face-to-face
communication.
(iv) “What are your sources?” “Generation
Z” relies on the internet for research.
Google, Wikipedia, and social media
sites topped the list in 2012, according
to a Pew Research Center survey. About
one-quarter are online “constantly,” Pew
found separately. Only 25% said students
were “very likely” to use major news
organizations, and books fared even worse.
In focus groups, those teachers reported an
increasingly blurred line between “formal”
and “informal” writing styles.
(v) “What kind of experience do you
have?” “Generation Z” may have a hole
in its Curriculum Vitae: summer jobs are
getting quite rare for teenagers in the US.
The 16-to-19-year-old employment rate
was only 31% in the summer of 2014,
down more than 10 percentage points from
2004, according to federal data interpreted
by Pew. Some applicants have replaced
that work with internships and community
service.
(vi) “Where do you see yourself in 40
years?” About 77% of Generation Z
respondents think they will have to work
harder than past generations, according to
Robert Half. They expect to work for four
companies, on average, and only 17% think
they will retire by 60.
Some people state that a child born
today is a member of “Generation Z”.
Now that we have run out of letters of
the alphabet, maybe the next generation
will be called “Generation AA”, just
like the number plates of cars in Kenya.
A number of youngsters in Kenya are
definitely similar in their habits, likes and
behaviour to their American counterparts:
whether they are ready to work harder than
past generations is a difficult question to
answer: current employees have to lead
by example: one Kenyan “Generation Y”
accountant told me, when he took up his
present job, that he could work harder and
produce output much more effectively than
any “Generation Zers”: I wish the same
could be said of all the current members of
ICPAK.
Structure
• Eleven storey office tower.
• Basement parking facilities.
• Adequate washrooms with a povision for
executive washrooms & superbly fitted kitchen
facilities on each floor.
• High-speed service lifts.
• Spacious lift/staircase lobbies.
• Office suites available in flexible sizes.
• Generous floor heights allowing for suspended
ceilings, facilitating the installation of air conditioning if required
72 MARCH - APRIL 2016
Please contact Lloyd Masika Property Agents and Valuers
Tel: 0722 481 504, 0733 597 050

FCPA Wycliffe
Oparanya,
Kakamega
Governor
CPA Philip Kinisu,
Chairman of
the Ethics and
Anti-Corruption
Commission
FCPA Dr. Martin Luke
Oduor-Otieno.
ICPAK Chairman
(1997-1999)
FCPA Billow
Kerrow,
Senator,
Mandera
County
FCPA Michael
Waweru,
Former KRA
Commissioner
General
FCPA Mrs.
Agnes
Odhiambo,
Controller of
Budget
ICPAK walked with them in their careers. Don’t walk alone! Take
advantage and save up to 50% on membership registration
before 31st May 2016. Contact us on +254 20 230 42 26/7,
memberservices@icpak.com or log on to www.icpak.com
BECOME AN
ICPAK
MEMBER