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KASNEB The Professional Journal of KASNEB Issue No. 1, January - March 2016
KASNEB NEWSLINEEDUCATIVE INFORMATIVE ENTERTAINING
TOPICS FEATURED
STRATEGIC IMPORTANCE OF CAPITAL MARKETS DERIVATIVES SAMPLING METHODS
IN AUDITINGINTELLECTUAL
PROPERTYCONCEPTS OF MARKETING
PORTFOLIO ANALYSIS
CONSUMPTION AND SAVING
CODE OF CONDUCT AND ETHICS
CAPITAL MARKETS
THEIR STRATEGIC IMPORTANCE IN DELIVERY OF KENYA VISION 2030
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KASNEB NEWSLINE, Issue No. 1, January - March 2016 1
KASNEB
Editor HonorarisPius M. Nduatih
Editorial TeamStaff members of KASNEB
Circulation OfficeKASNEB Towers
Hospital Road, Upper HillP.O. Box 41362 - 00100
Nairobi - KenyaTel: 254(020) 4923000
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E-mail: [email protected]: www.kasneb.or.ke
KASNEB Newsline is the professional students journal of KASNEB.
The views expressed in this journal are those of the respective authors and do not necessarily reflect
those of KASNEB.
The Editor welcomes contributions from readers especially students and trainers in accountancy, finance,
management, administration, ICT and cognate subjects.
The Editor reserves the right to edit articles for the purposes of clarity and brevity.
Trainers and students are free to photocopy materials contained in this journal for purposes of learning without seeking prior consent from
KASNEB.
Reproduction is allowed without charge as long as prior consent is sought and the source
acknowledged.
Correspondence should be addressed to:
The EditorKASNEB Newsline
Marketing and Corporate Affairs UnitP.O. Box 41362 - 00100, Nairobi
E-mail: [email protected]
CONTRIBUTORS TO THIS ISSUE
Caroline NgugiKellen Kiambati Isaac T. Maina Frederick Nyunja Emlyn J. Ngwiri
15 Derivatives3 Strategic importance of capital markets
60 KASNEB Code of conduct
45 Analysis of consumption and savings
51 KASNEB Experience54 IFA Act57 Updates62 IAESB 66 Pictorial KASNEB is ISO 9001:2008 certified
CONTENTS KASNEB NewslineIssue No.1, January - March 2016
23 Sampling methods in auditing 31 Intellectual property
Abdalla M. Dallu
39 Concepts of marketing
Paul M. MwangiRaymond Kiambati
KASNEB NEWSLINE, Issue No. 1, January - March 20162
From the CEO’s desk
Editor HonorarisPius M. Nduatih
Leadership is about helping others reach for their stars
The Kenya Vision 2030 is anchored on three pillars: Economic, Social and Political. Under the
Economic pillar, financial services are listed among the key drivers to achieve the desired
annual growth in Gross Domestic Product (GDP) of 10%. Specifically, the Kenya Vision
2030 envisages a vibrant and globally competitive financial sector promoting high levels of
savings and financing for the country’s investment needs. This would involve the creation of
an international financial services centre in the country and enhancement of access to capital
through the financial markets.
Granted, financial markets in Kenya have recorded significant growth in the recent past.
However, a lot needs to be done if Nairobi is to be considered in the league of London, Tokyo
and New York, the world’s premier financial centres which are supported by a highly developed
financial, commercial and communication infrastructure.
Taking cognisance of the foregoing, we feature a lead article in this edition of the KASNEB
Newsline whose central theme is the strategic importance of capital markets in delivery of
the Kenya Vision 2030. The writer brings to the fore the critical success factors that underpin
the establishment of a vibrant International Financial Centre. These factors include creating
strong institutions that can support market deepening, establishing a robust alternative
to raising capital to fund infrastructural development and facilitating access to capital by
small and medium sized enterprises (SMEs). The writer further opines that the regulatory
framework will need to be reviewed in order to accommodate emerging instruments in the
regional financial markets, including derivatives and futures in addition to strengthening the
governance structures.
The second article complements the first by spotlighting on derivatives as tools of financial
risk management. The writer navigates readers through the complex mesh of derivatives
instruments, shedding light on the application of futures, forward contracts, swaps and options
in financial risk management. The writer further uses a practical example to assist the reader
bridge the gap between theory and practice.
This edition also features other articles covering varied areas of interest to our readers, including
the importance of intellectual property in value creation for a business and the various marketing
concepts in application today.
We also wish to draw the attention of our readers, in particular KASNEB students and trainers,
to the newly released Code of Conduct and Ethics for KASNEB Students which takes effect from
1 July 2016 and forms part of the features in this edition. Students and trainers are requested to
familiarise themselves with the provisions of the code and to further note that with effect from
1 July 2016, all students will be required to commit themselves in writing to abide by the Code.
Welcome and enjoy your reading.
KASNEB NEWSLINE, Issue No. 1, January - March 2016 3
INTRODUCTION
In 2008, the Government of Kenya
launched a new framework for
national development through
the Kenya Vision 2030, which aims
to create “a globally competitive
and prosperous country with a
high quality of life by 2030.” The
Vision sets an ambitious target for
the economic pillar of 10 percent
compound average annual growth
in gross domestic product (GDP).
Capital markets are a key component
of the financial services sector and
play a critical role in creating a
facilitative environment for the
attainment of the Vision. It is
well recognised that diversified
and liquid capital markets are key
drivers of wealth creation and have
been seen to play a central role in
transformational economies. In this
context, the capital markets provide
the framework for the following core
activities:
• Capital raising for public and
private sectors;
• Promote balance and stability
in the financial system;
• Decrease reliance on donor
funding for priority projects;
• Decrease dependency on short
term funding from the banking
sector;
• Provide alternative options for
savings; and
• Cushion the economy from
adverse impact of fluctuations
associated with fast-flowing
nature of capital.
The 2030 Vision for financial
services is to create a vibrant and
globally competitive financial sector
promoting high-levels of savings and
financing for Kenya’s investment
needs. Further, Kenya intends to
become not only an international
financial services centre but also
the gateway for capital raising
throughout the capital markets in
Africa.
The Kenyan capital market has
grown rapidly in the recent years
with equity market capitalisation
growing from Kshs. 851 billion as at
2007 to Ksh 1.45 trillion in February
2013. The market has also exhibited
enormous capital raising capacity
with some equity issues being as
much as 500% oversubscribed and
raising in excess of Ksh. 430 billion
STRATEGIC IMPORTANCE OF
IN DELIVERY OF THE KENYA VISION 2030CAP TAL MARKETS
The capital market is part of the larger financial service system that facilitates the raising of long term funds for development. It brings together lenders (investors) of capital and borrowers (companies that sell securities to the public) of capital.
Product structure in Kenya
Equity Market
Ordinary Shares
Primary and secondary Market
Debt Market Pooled Funds Derivatives Market
Treasury BondsInfrastructure Bonds
Corporate Bonds Preference Bonds
infrastructure BondsMunicipal Bonds
Asset Backed Securities Mortgage Backed
Securities
REITSCISs (Unit
Trusts)
Financial futures and
optionsCommodity
futuresETFs
Secondary Market
By KELLEN KIAMBATI, Management Consultant
KASNEB NEWSLINE, Issue No. 1, January - March 20164
CAPITAL MARKETS
from equity issuances over the last
decade. Through the debt markets,
the Government of Kenya has raised
approximately Ksh. 1.9 Trillion
domestically over a similar period.
However, the above milestones have
been achieved notwithstanding key
gaps and weaknesses in the structure
and operations of the capital markets
in the country. This realisation
therefore begs the question as to
how much more significant a role
the market could play if a more
conducive environment was in place.
As the nation continues to pursue
middle income status and the heavy
funding needs to drive the Vision’s
programmes, critical attention
needs to be paid to how best the
local markets can be leveraged to
reduce reliance on expensive short
term lending from banks as well as
donor agencies.
In order to create a conducive
environment for the continued
growth and development of the
market, additional focus and
resources must be channeled to
ensure that we have in place truly
world class capital markets that will
be able to intermediate funding
for the Vision 2030 as well as for
the economic development of
the region as a whole. As a case in
point, the size of the Kenyan stock
market compared to GDP is only
46% which is significantly lower than
comparable countries in Africa and
internationally such as South Africa
(261%), India (111.7%), Malaysia
(187%), South Korea (110%) and
the world average of 54%. Similarly,
though the bond market in Kenya has
demonstrated enormous potential,
the turnover ratio (19%) is still low
compared to other jurisdictions
such as South Africa (671%), Nigeria
(32%), Malaysia (110%) and Spain
(561 %). The liquidity of the Kenyan
stock market measured by the
current equity turnover ratio of 44%
falls below countries whose capital
markets we aspire to emulate, such
as Singapore (65%) and Hong Kong
(80%).
Establishment of an International Financial Centre (IFC)
The capital market is strategically
positioned to be one of the key
catalysts to the establishment of
an international financial centre
in Nairobi. As in many other
jurisdictions, the IFC will provide
a secure and efficient platform for
business and financial institutions to
reach into and out of the emerging
markets in Africa and beyond. The
effectiveness of the IFC will depend
on the responsiveness as well as
robustness of the Kenyan capital
market in addition to the quality of
its regulatory framework, supportive
infrastructure and tax regime in
order to make it globally competitive
In order to deliver on this strategic
role in realising the objectives of the
International Financial Centre focus
should be placed on:
(a) Creating strong institutions that can support market deepening and effective supervision
It is critical that the core market
institutions responsible for the fair,
efficient and orderly functioning of
the capital markets are sufficiently
robust to provide investors with
confidence to channel their funds
through the Kenyan markets. This
involves ensuring that:
(i)The capital markets regulator is:
• duly empowered by a clear,
transparent and enforceable
legal framework in line with
international best practice
standards;
• vested with sufficient autonomy
and independence from central
government to ensure that it
is able to remain responsive to
changing market dynamics;
What is an IFC?City or its district (1) that has a heavy concentration of financial institutions, (2) that offers a highly developed commercial and communications infrastructure, and (3) where a great number of domestic and international trading transactions are conducted. London, New York, and Tokyo are the world’s premier financial centers
What is an International Financial Services Centre (IFSC)?An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders.
In financial markets, capital PROVIDERS find capital USERS
PROVIDERS MARKET MAKERS USERS
SpeculatorsCorporate investorsStock shareholders
BondholdersBank depositors
Venture capitalInvestment bank
Mutual fundPension fund
BankTreasury
Startup companiesExpanding companiesProperty developersProperty investorsFamily consumers
Home buyers
KASNEB NEWSLINE, Issue No. 1, January - March 2016 5
CAPITAL MARKETS
• granted sufficient resources to
invest in competitive human
capital as well as systems and
technology to fully execute its
regulatory functions;
• headed by an independent
board with an appropriate mix
of skills and experience as well
as strong awareness of sound
corporate governance ;
• vested with adequate discretion
and flexibility with respect
to determining and applying
budgets for its regulatory
purposes;
• vested with authority to
approve market guidelines
and rules to support responsive
market development and
facilitation of innovation;
• vested with adequate autonomy
with respect to setting market
fees and levies to ensure
flexibility and responsiveness
to market dynamics to promote
competition within the market
as well as competitiveness of
the Kenyan market as against
global markets;
• vested with suf f ic ient
supervisory independence to
allow for ex post as opposed
to ex ante regulation in order
to provide a more conducive
environment for innovation;
and
• vested with suf f ic ient
supervisory and enforcement
powers to ensure compliance
with market rules and conduct
requirements.
(ii) The securities exchange has in
place:
• world class trading systems;
• strong and transparent
governance structures and
clear rules on market access
and competition;
• proactive benchmarking
with competing international
exchange providers to ensure
product diversification, market
inter-connectivity and effective
straight through processing;
and
• adequate regulatory capacity
and resources to operate as
an effective self-regulatory
organization;
(iii)The central depository and
clearing system:
• is compliant with international
best practice standards
on clearing, payment and
settlement systems for financial
markets infrastructure;
• has a robust c lear ing
infrastructure that ensures
stability in the face of
intermediary insolvency;
• provides reliable records
on securities ownership
and realtime records on all
transaction activity;
• provides seamless connectivity
with all relevant trading
p l at fo r m s a n d, w h e re
possible, allows for sufficient
co n s o l i d a t i o n fo r t h e
management of costs; and
• creates confidence for all users.
(b) Providing a robust alternative to raising capital to fund infrastructure development
Infrastructure development is
a pre-requisite for realising the
Vision 2030. Considering the huge
capital expenditure attributed to
infrastructure development, the
capital markets will be the key
avenue for funding which should
see reducing reliance on costly
short term financing from the money
markets (banking sector). In the
face of the changing international
regulation of banks through Basel
III, the availability of traditional bank
capital for long term investments is
expected to be significantly curtailed
thereby demanding the capital
markets to provide appropriate
alternative products for mobilising
long term capital. The key products
that have been identified to support
this include:
FEATURES OF A CENTRAL DEPOSITORY SYSTEM (CDS)
A CDS is an electronic book entry system used to record and maintain securities and their transfer’s registration. In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts.
The system changes the ownership of securities without any physical movement or endorsement of certificates and execution of transfer instruments. In other words, transfer of ownership is done through simple account transfers.
This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.
In Kenya, the Central Depository Systems Corporation (CDSC) acts as the depository of securities traded at the Nairobi Securities Exchange.
KASNEB NEWSLINE, Issue No. 1, January - March 20166
• Asset backed securities (securitisation)
Asset-backed securities (ABS) are
securities which are based on pools
of underlying income generating
assets. These assets, due to their
future flow nature, are usually illiquid
and private in nature. Through
appropriate structuring, these
assets can be leveraged to ensure
immediate access to the long term
revenue while at the same time
making these performing assets
available for investment to a much
broader range of investors.
This product offers a prime
opportunity for infrastructure
financing including components
of LAPSSET, the road development
infrastructure, airport and port
development, power generation and
so on, as well as funding for health,
education and sanitation projects
as they allow for the repackaging
of any revenue generating project
for purposes of securing long term
borrowing.
• Real estate investment trusts (REITs)
The introduction of REITS as a
collective investment product for the
real estate sector will have numerous
benefits to the economy including
the following:
- REITs wil l introduce a
transparent and secure product
to allow Kenyans at all levels of
financial capacity to participate
in the thriving real estate boom
in the country.
- REITs will allow for the effective
pooling of international and
local capital for investment in
large scale real estate projects
like Konza Technopolis and Tatu
City amongst other mega-city
initiatives and resort city
initiatives as envisioned in the
Vision 2030. The estimated Kshs.
600 billion needed to develop
Konza can be effectively raised
through this produc.
- REITs will provide an effective
product to raise capital for
housing development to
meet the housing deficit
in the country and release
critical government funding
for the development of
non-commercially viable low
income segment.
- REITs will introduce additional
capital markets products to
encourage saving.
- REITs will make available
additional capital markets
instruments to both retail
and institutional investors to
invest in and diversify their
risks particularly for the pensions and
insurance sectors.
- Through the use of the capital markets,
REITs will substantially reduce the costs
of capital for real estate financing which
is currently heavily reliant on expensive
short term bank financing.
- REITs will effectively provide an avenue
through which investors will get
exposure to real estate without having
to own real estate assets. Additionally,
REITs for retail investors will be required
to be listed at a securities exchange
(for instance the NSE) and this will
provide access to liquidity from their
investments in real estate properties.
- REITs also tend to perform well as
investment vehicles due to increased
corporate governance checks and
measures that have been included in
the framework.
- REITs also offer transparent real estate
investment structures which improve
tax administration, market disclosure
and reporting requirements and
corporate governance.
Cornerstone investors
Institutional funds
RetailLenders
REIT Manager
Services company (Property manager)
Unit holders
Real estate assets
Ownership Rental income
Distributions(Dividends)
Management feesActs on behalf of unit holders
Property management services
Services fees
Loan/ BondInterest/coupon
Trustee’s fees Management services
Ownership of units
REIT Trustee REIT
HOW THE REIT WORKS
CAPITAL MARKETS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 7
Regional Issuance of debt instruments in the East African Community partner states
This is a key milestone towards the full
implementation of the EAC Common Market
Protocol which came into effect on July
1, 2010. This framework will allow for the
raising of debt funds from across the regional
capital markets through a single issuance.
The increased fund raising capacity that
will be facilitated by this new approach
will significantly reduce the time and costs
involved in financing major infrastructural
development and other commercial
ventures. Due to its regional nature,
this product would be instrumental
for funding the LAPSSET corridor, the
trans-continental standard gauge railway
line and the construction of the regional road
infrastructure amongst others by addressing
the need to raise capital for application
across multiple national borders.
Facilitation of SME’s and venture companies to access public capital
Through the establishment of a Growth
Enterprise Market Segment (GEMS) within
the Nairobi Securities Exchange an avenue
has been created to promote capital raising
and listing of small companies on the Nairobi
Securities Exchange(NSE), thereby also
providing avenues for venture funding and
private equity exits. This is informed by the
Government identification of Micro, Small
and Medium Sized Enterprises (MSME)
sector as one of the key drivers of Vision
2030, destined to play an effective role as
an engine for economic growth, poverty
eradication and employment creation. This
segment also provides a more facilitative
listing framework in order to broaden the
entities able to leverage the capital markets
to raise capital for the growth, innovation
and development critical for job and wealth
creation.
In the context of the new
opportunities in the oil, mining
and minerals sector, this segment,
given that it does not require a profit
history, provides a prime opportunity
for exploration companies to raise
necessary capital through the local
markets and by extension creates
an avenue for communities around
these industries to participate
directly in the long term growth and
profitability of these enterprises by
taking up shares.
BROADENING ACCESS TO THE FINANCIAL MARKETS
One of the key features of
International Financial Centres
the world over is the accessibility
of financial services especially for
potential investors. Financial access,
also known as financial inclusion,
goes substantially beyond access to
credit and includes elements such as
the safe-keeping of money, access
to appropriate savings products,
payment and settlement services
and so on. Successful financial access
therefore implies sustained usage
and offers choice to consumers. It
is therefore important to consider
capital markets access as an important
concept in the Kenyan Vision 2030. The
following are the opportunities for capital
markets access in the proposed IFC.
(i) Introducing Global Depository Notes
As a way of broadening the source of its
long term funding, the Government of
Kenya (GoK) has been having the intention
of issuing a sovereign bond in the foreign
markets. Such a bond will have to be
denominated in major global currencies
such as the dollar or euro. The main driver
for this intention is to pool resources from
the sizeable number of the Kenyans in the
Diaspora as well as to act as a catalyst to
attract foreign direct investment (FDI) to
Kenya.
The government also has a responsibility
to ensure that the domestic borrowing
is maintained at manageable levels to
ensure that it does not stifle private sector
borrowing from the banking sector, which
is a driver in the economic development of
the country. However, due to global financial
crisis in 2007-2009 and the euro-crisis
thereafter, GoK has not been able to actualise
its intention due to the resultant volatility of
the Kenyan Shilling against the major global
currencies. There are also other challenges
associated with issuing financial instruments
The venture capital industry has four main players: entrepreneurs who need funding, investors who want high returns, investment bankers who need companies to sell and the venture capitalists who make money for themselves by making a market for the other three.
HOW THE VENTURE CAPITAL INDUSTRY WORKS
Ideas
Corporations and government
Privateinvestors
Public markets and corporations
Investment bankers
Venture capitalists
Stock
IPOsEntrepreneurs
CAPITAL MARKETS
KASNEB NEWSLINE, Issue No. 1, January - March 20168
in the foreign markets including the need
to comply with the listing requirements in
those jurisdictions and the danger of poor
performance of the issue which may have a
signalling effect to investors.
With continued globalisation, foreign
investors increasingly aim to diversify
their portfolios globally. There are many
obstacles that preclude foreign institutional
and individual investors from purchasing
domestic debt instruments. These include
undependable settlements, regulatory
barriers, and unreliable custody services
for foreign securities, costly currency
conversions, poor information flow,
confusing tax issues and unfamiliar market
practices.
To deal with this dilemma, some countries
around the globe have been able to issue
Global Depository Notes. Good examples are
countries like Peru, United States of America
and Brazil.
A Global Depository Note (GDN) is a
debt instrument created by a depositary
bank that evidences ownership of a local
currency-denominated debt security. GDNs
emulate the terms (interest rate, maturity
date, credit quality, etc.) of particular local
currency-denominated bonds; however, they
trade, settle, and pay interest and principal
in foreign currency.
A GDN enables investors to invest in
domestic securities without concern
for the often complex and expensive
cross-border transactions, and offer
substantially the same economic,
corporate and rights enjoyed by
domestic investors. GDNs are quoted
and traded in foreign currency and
are settled according to procedures
governing the foreign market.
The Global Depository Note (GDN)
is designed to bring incremental
investment capital into a local
market, thereby enhancing liquidity
in the local market. GDNs represent
an enhanced form of local custodial
services, simply enabling off-shore
investors to access local bonds/
local market liquidity without
having to establish a local custody
arrangement. The GDN holder will
have the option to cancel its GDNs
and receive local bonds in the local
market should it desire to become
a holder of the local bonds rather
than the GDNs.
The Government of Kenya may
consider issuance of Global
Depository Notes (GDN) against its
Treasury Bonds as an alternative to
issuing Eurobonds. GDNs will allow
trade in Government Bonds on
foreign markets without the Foreign
Exchange Risk of a Eurobond in
order to increase visibility of Kenya
and enhance liquidity in our capital
markets.
(ii) Supporting the establishment of a derivatives and commodity futures market
The introduction of Commodity
Futures markets offers an
opportunity to transform the Kenyan
commodities market by introducing a
formal, regulated commodity futures
market to allow for more effective
post-harvest crop management and
leveraging a national infrastructure
for warehouse receipting.
HOW A GDN WORKS
Instruct CD to pay issuer
LeadManagerIssuer
Common depository
(CD)
Clearing system
Global note
Confirm receipt of global note
$ for bonds
$ for bonds
Acknowledge receipt of global note
1
3
4
2
5
6
Bond Instructions/ letters Cash flow
INTERMEDIARIES
Underwriters
and then assembles other firms to share in the
underwriting risks of the issue Finally, the management group organises a group of firms to place the bonds with the ultimate investors
The lead management group meets with the issuer to design the issue
size, currency, maturity, coupon, etc.
A Eurobond offering brings together the bond issuer and investor. The process is facilitated by intermediaries.
Selling Group
Bond investor
Bond issuer
Management Group Fiscal agent or
trustee and principal paying agent
STRUCTURE OF A EUROBOND SYNDICATION
CAPITAL MARKETS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 9
In addition to commodity futures contracts
to be settled through physical delivery,
distinct opportunities exist for cash settled
futures contracts for currencies (USD, Euro,
Yen, Kshs etc.), minerals (Gold, Silver, Copper
etc.), energy (natural gas, petroleum, electric
power etc.) and carbon credits.
Through the creation of hedging instruments
in the form of derivative and futures contracts,
local and international investors will be
granted an avenue to manage interest rate
and foreign exchange volatility and thereby
encourage more long term investment in
order to support economic development.
(iii) Granting direct access for commercial banks, insurance companies and fund managers to the bond market
Through granting commercial banks, fund
managers and other institutional investors an
Authorised Securities Dealers (ASDs) licence
they will be able to participate in the bond
market directly. This licence category will
help unlock the potential liquidity of the
debt markets in Kenya and provide increased
opportunities for the Government and
corporates to tap the market for financing
at attractive rates.
ASDs have also been identified as the
licence category that will be contracted by
the Central Bank of Kenya under
the Government Securities Markets
Makers programme developed by
the Central Bank and Treasury.
In order to fulfill the objectives
of increasing liquidity, ensuring
efficiency and lowering costs
of trading and to facilitate the
Government Securities Market Maker
programme necessary changes have
been developed to allow for the
licensing of Authorized Securities
Dealers (ASDs).
(iv) Facilitate price discovery for Initial Public Offers (IPOs) through book building
Book building is a concept for pricing
of IPOs which manages the risk of
an issue coming to market at a price
which is not in line with the markets
own valuation of the security causing
an immediate drop post listing. The
process involves the price being
determined through engagement
with a wide scope of institutional
investors (who have internal research
capacity to independently value the
security) to determine at what price
to offer an IPO based on demand
from institutional investors.
Book building offers an alternative
to the traditional fixed price issues,
and provides a much more efficient
system for determining the level
of market demand. It would be a
crucial tool to allow Government
to maximise its returns through its
privatisation initiatives that target
large pools of investors with different
market outlooks.
Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery.
IPO process
Fixed price method Book building method Combination method
In the fixed price method, the price at which the securities
are offered is fixed in advance
In the book building method, the investors have to bid for shares within a price band specified by the issuer and
the final price is decided after observing the result of the
bidding
In the combination method, components of both the methods are considered
Forward Futures Options Swaps
Calloption
Put option
Interest rate swap
Currencyswap
DERIVATIVES
CAPITAL MARKETS
KASNEB NEWSLINE, Issue No. 1, January - March 201610
(v) Allowing corporate bodies to be Central Depository Agents (CDAs)
Efforts are underway to facilitate the
trading of government securities
through mobile phones to leverage
developments in mobile money as
well as to better tap retail capital.
This is one of the many initiatives
towards increasing accessibility to
as well as liquidity of government
securities. This will be particularly
instrumental in supporting increased
investment at county level following
devolution as well as supporting the
increase of diaspora investment in
government T-Bills. In connection
with this initiative mobile network
operators and money transfer
companies will be required to be
admitted by the Central Depository
as Central Depository Agents.
The establishment of generally
applicable eligibility standards for
admission of a wider spectrum of
corporate bodies to be appointed
as central depository agents will
broaden the scope of access to the
central depository and facilitate
growth in the number of competitive
service providers in the market.
(vi) Creating a gateway to Africa’s
capital markets
In addition to being an IFC, Kenya
needs to increase its profile even
further in order to be recognised
as the gateway to Africa’s capital
markets. We envisage Kenya
providing an avenue for financing
infrastructure through the capital
markets stretching well beyond the
East African Common Market to the
entire continent. To achieve this,
Kenya has to be gobally competitive
in areas such as:
• ease of doing business;
• operational risk ratings;
• city economic growth levels;
• office occupancy costs;
• globally property indices;
• innovation indices; and
• Foreign Direct Investment
confidence levels.
Further, to attain gateway status
Kenya must be able to attract
significant local listings as well as
high profile dual listings and should
have a clearing and settlement
infrastructure that allows a true
Delivery versus Payment (DvP: the
simultaneous transfer of securities
with payments.) This steps will
further need to be supplemented
by ensuring high liquidity in
Kenya’s onshore currency market,
while supporting the emergence
of an offshore currency market
thereby making the Kenya shilling
a currency of note internationally
and increasing the opportunities
for raising capital in Kenya shillings
in multiple global markets.
SUPPORT REQUIRED
Overhaul of the entire capital
markets legal and regulatory
framework.
The capital markets legal and regulatory
framework is comprised of the Capital
Markets Act, Cap 485A, the Central
Depositories Act No. 4 of 2000 and a raft of
subsidiary legislation including Regulations,
Rules and Guidelines.
The Capital Markets Act was lastly
comprehensively reviewed in year 2000.
Since then, and in order to accommodate
the developments in the capital markets
sector, the Act has been subjected to
numerous piecemeal amendments every
year alongside the budget process via the
Finance Bill.
The Capital Markets Authority commissioned
studies as well as assessments by other
securities regulators of international
repute and identified that the overhaul of
the capital markets legal and regulatory
framework as a priority area in 2008. A key
benchmark in the process were principles
of securities regulation as established by
the International Organisation of Securities
Commissions (IOSCO) of which Kenya is a
member.
In the year 2008, the Authority
commissioned a review of the current legal
and regulatory framework and identified
gaps and weaknesses therein and thereafter
a draft legal and regulatory framework
that addresses all the gaps identified and
meets world standards of securities markets
CAPITAL MARKETS
Capital Markets Authority Bill
The Depositories Act
Securities and Investments Bill
International Organisation of
Securities Commissions (IOSCO)
All regulations, agreements, rules and
guidelines
Companies Act
CAPITAL MARKETS LEGAL/
REGULATORY FRAMEWORK
KASNEB NEWSLINE, Issue No. 1, January - March 2016 11
regulation taking into consideration
the findings and recommendations
of all previous assessments was
developed.
Extensive stakeholder consultations
were conducted in the period 2008
to 2011 and this subsequently led
to the drafting of the proposed new
capital markets legal and regulatory
framework; comprised of two new
Bills, that is, the Capital Markets
Authority Bill, and the Securities and
Investments Bill, in addition to a raft
of new regulations to supplement
the new legislation.
The Capital Markets Authority
Bill provides the foundation for
the establishment, functions,
powers, and operations of the
Capital Markets Authority hence
enhancing the Authority’s capacity
and independence in undertaking
its mandate. The Securities and
Investments Bill sets out the key legal
provisions touching on regulated
persons as well as regulated
products.
Through the timely enactment
of these Bills, the Capital Markets
Authority as well as other relevant
market institutions will be in
a stronger position to create a
conducive environment for the
deepening of the capital markets as
an integral part of an international
financial centre.
Encouragement of counties to leverage the capital markets
As a consequence of devolution,
the majority of counties will be
under significant pressure to
establish infrastructure and ramp up
commercial enterprise to respond to
the refocusing of administrative and
commercial activities. In this context,
the revenue allocation arrangements
established under the Constitution
will most certainly not provide the
required levels of funding to support
accelerated county development.
Therefore in setting out the financial
management structures for county
governments, it is critical that
adequate attention be provided
to creating a facilitative framework
for the counties to tap the capital
markets for their funding needs.
This may be achieved through
allowing the county governments
to securitise performing assets
such as road levies, water and
sewerage fees, or even health centre
revenues in order to allow them fast
track the expansion of necessary
infrastructure and services.
In addition to securitisation, counties
should be empowered to act as
promoters of Real Estate Investment
Trusts (REITs) in order to fund the
development of administrative and
commercial premises as well as to
respond to the increased housing
needs arising from the increase of
commercial activity at county level
and the relocation of populations
from the main cities.
With discovery of oil, mining and
mineral extraction opportunities
within certain counties, the capital
markets offer opportunities for local
communities to participate in the
growth and profitability of those
sectors through listing of the relevant
exploration companies. In addition,
Collective Investment Scheme (CIS)
structures can be leveraged to allow
communities to pool investment
to be able to participate in the
ownership of significant companies
in their regions. Where communities
will be entitled to profit shares in
extraction industries, unit trusts
can be set up through which, shares
can be set aside for community even
where they do not have available
cash to participate at the time of a
public offer and then the revenue
share over time can be allocated to
exercising the options to take up the
shares held in trust.
The SMEs that are operating at
county level will also be under
pressure to significantly grow in
order to respond to devolution.
The capital markets and more
specifically the GEMS segment of
the exchange will therefore provide
a critical avenue for these companies
to access the necessary growth
capital to help them not only better
establish themselves at county level,
but also go on to achieve national or
regional prominence.
Privatisation programme
The privatisation of state enterprises
has emerged as a key factor of
tranformative economic growth.
It generates revenues for the
exchequer and helps to distribute
wealth to Kenyans. The Privatisation
Act 2005 embraces the use of the
capital markets as one of the avenues
to dispose of state enterprises, which
is critical in enhancing the supply
of securities in the market and
facilitating the capital markets to
play the role of resource mobilisation
more effectively.
Privatisation through the securities
exchange is not only efficient
and transparent but also attracts
foreign direct portfolio investments.
With the elaborate disclosure and
corporate governance requirements
in place, such privatised enterprises
will be managed better and can
access additional funding through
the securities exchange.
CAPITAL MARKETS
KASNEB NEWSLINE, Issue No. 1, January - March 201612
Pr i v a t i s a t i o n p r o g r a m m e s
undertaken through the NSE
have not only recorded massive
oversubscription but have also
introduced many investors to the
capital markets. For instance, Kenya
Airways offered 235.4 million shares
in 1996 which attracted 112,000
investors and a subscription rate of
194%, KenGen offered 659 million
shares in 2006 attracting 263,891
investors and a subscription rate
of 333%, and Kenya Reinsurance
Corporation offered 240 million
shares in 2007 attracting 152,000
investors and recording a
subscription rate of 330%. Safaricom
IPO billed as the largest in the history
of the NSE was oversubscribed by
532% and attracted over Kshs 200
billion. This demonstrates the huge
potential of our capital markets
to absorb new issues and finance
infrastructure development.
The NSE provides an efficient avenue
for price discovery and encourages
wider distribution of ownership of
such enterprises. Future privatisation
of state owned enterprises should
therefore be implemented as far
as possible by way of public offers
through the Nairobi Securities
Exchange.
Public Private Partnerships (PPPs)
Existence of a vibrant capital market
with a robust policy, legal and
institutional framework that
facilitates sourcing of finance
including infrastructure
bonds is a critical success
factor for PPPs. One of
the key avenues of
attracting PPP
financing is
t h r o u g h
securit isation especial ly i f
the country wishes to attract
international private sector investors.
It is imperative therefore to have in
place an enabling framework for
the creation of Special Purpose
Vehicles (SPVs) and existence of a
reliable credit rating framework
given the importance that potential
international investors in PPP attach
to it, especially on securitisation
transactions. The scope of rating
should be extended to cover Special
Purpose Vehicles (SPVs) set up for
securitization transactions.
It is important to underscore the fact
that there is sufficient absorptive
capacity for bond issues in Kenya
in terms of single offers as well as
Product Development Partnerships
Coordinatingpartnerships
Financingpartnerships
Servicedelivery
partnerships
Facilitative fiscal environment
Providing appropriate tax treatment
measures to ensure that capital
markets products are successfully
introduced in Kenya through
the recognition of tax neutrality
for holding vehicles, stamp duty
exemptions to allow for pooling of
assets through securitization and
REITS, preferential tax treatment
for collective investment vehicles
to encourage retail savings as
well as the pooling for savings for
more effective investment as well;
as preferential tax treatment for
publicly listed or publicly offered
securities and their issuers to
encourage issuers to tap the long
term capital markets as opposed to
short term money markets. Overall,
the Kenyan economy should also
have competitive taxation regime
for it to operate as a gateway to the
capital markets in Africa.
Prompt passage of relevant regulatory frameworks and policies
The Authority has submitted several
legislative amendments to Treasury
in the recent past. The timely
adoption and implementation
of these submissions would be
instrumental in supporting the
creation of a conducive environment
PPP
COMMON INTEREST
aggregate issues as witnessed
by huge subscriptions of
both Government and
N o n - G o v e r n m e n t
bonds.
CAPITAL MARKETS
for the growth of the capital markets and the
establishment of Kenya as an International
Financial Centre. Additional regulations and
amendment to the Capital Markets Act to
facilitate establishment of a Futures and
Derivatives market will be key in rolling out
this market. The Authority also expects that
the amendments and regulations will be
acted upon expediently once submitted to
Treasury.
Full implementation of government policy on consolidation of central securities depositories
In order to strengthen the clearing and
settlement system for securities, currently
ranked amongst the most important
elements of an IFC as well as a gateway to the
capital market, the GoK needs to spearhead
the development of a policy framework for
harmonisation and subsequent
consolidation of the Central Bank of
Kenya’s Central Depository System
with the Central Depository and
Settlement Corporation. It should
further fully support negotiations
for consolidation of the EAC Member
States CDSs under the East African
Monetary Union Protocol. This will
significantly facilitate cross border
securities transactions such as
cross-listing, cross-border securities
trading as well as as cross-border
payments and settlements.
Consolidation of resource and
infrastructure will also ensure the
strengthening of that single CDS
to the level of uncompromised
robustness that will raise investor
confidence which is a pre-requisite
for fund flows through an economy.
Independence and enhanced profile of the Capital Markets Authority
As in other jurisdictions that have either
achieved IFC or Gateway status, the
securities market regulator should possess a
similar profile as Central Banks in terms of its
level of autonomy with respect to decision
making and rule making and remuneration
levels. In addition, the Securities Regulator
must be duly empowered to play its role
as a core advisor to the Government on
financial market operations, stability, access
and policy development. As a first and most
important step, the Capital Markets Authority
should in particular be granted powers to
make rules and regulations, considering the
extremely dynamic structure of the capital
matters, without having to go through the
National Treasury for approvals.
CAPITAL MARKETS
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KASNEB NEWSLINE, Issue No. 1, January - March 2016 15
INTRODUCTION
A firm faces several kinds of risks:
its profitability fluctuates due to
anticipated changes in demand,
selling price, costs, taxes, interest
rates, technology and so on.
Managers may not be able to fully
control this risk but can decide the
risk that the firm should take.
Various strategies are adopted
to reduce their risk exposure by
entering into financial contracts
such as financial derivatives to hedge
various kinds of risks.
The value of financial instruments
like shares keeps fluctuating. So, it
is difficult to fix a particular price.
Derivatives instruments come handy
here.
DERIVATIVESDERIVATIVESTOOLS OF FINANCIAL RISK MANAGEMENT
FINANCIAL DERIVATIVE
This is a financial instrument or security whose characteristics and value depend
upon the characteristics and value of an underlying asset, typically a commodity,
bond, equity or currency. Examples of derivatives include futures, forwards,
swaps and options. Advanced investors sometimes purchase or sell derivatives
to manage the risk associated with the underlying security, to protect against
Derivatives are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.
EARN MONEYWITHOUTPHYSICAL
SETTLEMENT
HEDGING AGAINST PRICE FLUCTUATIONS
ARBITRAGE TRADING
TRANSFER OF RISK
WHY DERIVATIVES?
fluctuations in value, or to profit from periods of inactivity
or decline. These techniques can be quite complicated and
quite risky.
Futures contract
This is a financial contract obligating the buyer to purchase an
asset (or the seller to sell an asset), such as a physical commodity
or a financial instrument, at a predetermined future date and
price. Futures contracts detail the quality and quantity of the
underlying asset; they are standardised to facilitate trading on
a futures exchange. Some futures markets are characterised by
the ability to use very high leverage relative to stock markets.
By ISAAC MAINA (CPA), Lecturer, Excel Institute of Professionals, Thika
KASNEB NEWSLINE, Issue No. 1, January - March 201616
Futures can be used either to
hedge or to speculate on the price
movement of the underlying asset.
For example, a producer of corn
could use futures to lock in a certain
price and reduce risk (hedge). On the
other hand, anybody could speculate
on price movement of corn by going
long or short using futures.
Note: Short selling is the sale of
security that is not owned by the
seller, or that the seller has borrowed.
Short selling is motivated by the
belief that a security’s price will
decline, enabling it to be bought
back at lower price to make a profit.
Short selling may be prompted
by speculation, or by the desire to
hedge to the downside risk of long
position in the same security or a
related one. Since the risk of loss on
a short sale is theoretically infinite,
short selling should only be used by
experienced traders who are familiar
with its risks.
Example: Suppose a wheat farmer
fears a fall in prices of wheat in future.
To protect himself from a potential
fall in the price of wheat, he can
enter into a futures contract today
with the manufacturer who wants to
buy wheat for delivery in future. The
farmer agrees today to sell wheat to
the manufacturer at a specified future
date and at a price agreed upon today.
The manufacturer is in a different
position from this farmer. He is worried
that the wheat price might increase in
the future. He can fix the wheat price
ahead of time and take delivery in the
future. He would agree to buy wheat
at a predetermined price or a specified
due date.
Forward Contracts
These are customised contracts
between two parties to buy or sell an
asset at a specified price on a future
date. A forward contract can be used
for hedging or speculation, although
its non-standardised nature makes it
particularly apt for hedging.
Unlike standard futures contracts, a
forward contract can be customised
to any commodity, amount and
delivery date. A forward contract
settlement can occur on a cash or
delivery basis. Forward contracts do
not trade on a centralised exchange
and therefore are regarded as
over-the-counter (OTC) instruments.
While their OTC nature makes it
easier to customise terms, the lack
of a centralised clearing house
also gives rise to a higher degree
A futures contract is an agreement between two parties – a buyer and a seller – wherein the former agrees to purchase from the latter, a fixed number of shares or an index at a specific time in the future for a pre-determined price.
Assume (carcass weight costs and prices):
June futuresExpected June basisLocalised futures priceBrokerage feeInterest on marginCost of feedingTotalExpected hedge profit
0.150.10
65.0065.25
75.00-3.0072.00
-65.256.75 per cwt
Scenario 1: Prices fall after placing hedge
In FebruarySell June contract
In Junebuy June contract
Futures profitCash price
Futures profitFinal hedge priceCost of feedingBrokerage feeInterest on margin
Actual hedge return
Futures
75.00
70.005.00
Cash
Sell cash $ 67.00
67.00+5.0072.00
-65.00-0.15-0.10
6.75 per cwt.
Scenario 2: Prices rise after placing hedge
In February,Sell June contract
In June,buy June contract
Futures lossCash price
Futures lossFinal hedge priceCost of feedingBrokerage feeInterest on margin
Actual hedge return
Futures
75.00
80.00-5.00
Cash
Sell cash $ 76.00
76.00-5.0071.00
-65.00-0.15-0.20
5.65 per cwt.
Hedge example
Jone has 250 hogs that will be marketed in June. Otieno has decided to hedge one hog contract on the Chicago Mercantile Exchange (40,000 carcass pounds contract or approximately 220 hogs). First, calculate expected profit.
In the first scenario, the actual hedge return is the same as the expected return because (1) the actual basis and the expected basis are the same,(2) the brokerage fee was estimated correctly, (3) interest on margin remained the same as estimated, and (4) the cost of production was accurately estimated.
The hedger would receive a profit of $6.75 per cwt for 220 hogs and only $ 2.00 per cwt for the 30 unhedged hogs ($67.00 cash price - 65.00 cost of feeding = $2.00).
In the second scenario, the actual hedge return is $1.10 per cwt. less than the estimated return ($6.75 - 5.65 = $1.10) because the actual basis ($76 - 80 = $-4) is one dollar more negative than the expected basis, and because of the added interest on margin that was the result of additional funds having to be deposited during the price rise.
FUTURES CONTRACTS
Stock futures
Currency futures
Index futures
Commodities futures
DERIVATIVES
KASNEB NEWSLINE, Issue No. 1, January - March 2016 17
of default risk. As a result, forward
contracts are not as easily available
to the retail investor as futures
contracts.
Swaps
A swap is an exchange of one thing
for another. It is a formal agreement
whereby parties or an organisation
contractually agree to exchange
payment on different terms e.g.
different currencies or interest rate
where one is a fixed rate and the
other a floating rate.
Traditionally, the exchange of one
security for another to change
the maturity (bonds), quality of
issues (stock or bonds), or because
investment objectives have
changed. Recently, swaps have
grown to include currency swaps
and interest rate swaps.
EXAMPLE
If firms in separate countries have
comparative advantages on interest
rates, then a swap could benefit both
firms. For example, one firm may
have a lower fixed interest rate, while
another has access to a lower floating
interest rate. These firms could swap to
take advantage of lower rates.
Types of swaps
Currency swaps
This involves exchange of debt from
one currency to another. The parties
agree to swap equivalent amount of
currency for a period of time. This
effectively involves the exchange of
debt from one currency to another.
Currency swap can provide a hedge
against exchange rate movement for
a longer period of time.
Interest rate swap
This swap involves the same
currency. It is normally used
when two companies can borrow
at different interest rates. One
company at a fixed rate while the
other can borrow at a variable or
floating rate.
Types of risks associated with swaps
Credit risk – This is the risk that the
counter party in swap arrangement
will default before the end of
the swap and fail to carry out his
agreed obligation. This risk can
be reduced by having a reputable
bank as an intermediary to the swap
arrangement.
Market risk – This is the risk that
interest/exchange rates will move
unfavourably against the company
that committed itself in the swap
arrangement.
Sovereign risk - It is the risk associated
with the country in whose currency
a swap has been organised. This
covers political instability, possibility
of exchange rate being introduced
by government and so on.
Forward Futures
Customised
Unregulated Regulated
Standardised
Low counterparty risk
Initial margin payment required
High counterparty risk
No initial payment required
Profit Profit
Loss LossF (O,T) F (O,T)S (T)
S (T)
Long forward Short forward
The long profits if the spot price at delivery, S(T), exceeds the original forward price, F(O,T)
The short profits if the spot price at delivery, S(T), is below the original forward price, F(O,T)
FORWARD CONTRACTS: PAYOFF PROFILES
DERIVATIVES
KASNEB NEWSLINE, Issue No. 1, January - March 201618
Mismatch risk – It is the risk that
the Bank that has been used as
intermediary may not be able to
carry out the obligation of swap
should the third party default.
Benefits of swaps
Swaps are easy to arrange since they
can be arranged in any size and in
any bank that may be willing to act
as counterparty to the arrangement.
Therefore it may not be necessary
to look for another company to
act as counter party. The swap
arrangement can also be reversed by
maturity date of the agreement by
swapping with other counter parties.
Low cost – The transaction cost, such
as fees paid to the banks as well as
legal cost, are usually low owing
to the fact that many banks offer
these services without charging a
commission or premium.
Flexibility – The swaps are not
standardised and as such are tailored
to meet the particular need for a
specific customer.
A company can use swaps to manage
the mix of its fixed and floating
debt obligations without having to
change the underlying loans.
Currency swaps provide means of
reducing exchange rate exposure.
This is because currency swaps are
used to restructure the currency
base of company liabilities. This
is important where the company
is trading overseas and receiving
revenues in foreign currency but its
borrowing is denominated in the
currency of the home country.
Put option
This is an option contract giving
the owner the right, but not the
obligation, to sell a specified
amount of an underlying security at
a specified price within a specified
time. This is the opposite of a call
option, which gives the holder the
right to buy shares.
Put options are contracts giving the
option holder the right to sell the
underlying stock at set price. The
stock price at which the option can
be exercised is called the strike price.
All option contracts have a buyer and
seller. The buyer has the right to
exercise the contract at any time up
until the expiration date. The seller
must buy shares at the strike price if
A is currently paying floating, but wants to pay fixed. B is currently paying fixed but wants to pay floating. By entering into an interest rate swap, the net result is that each party can 'swap' their existing obligation for their desired obligation. Normally, the parties do not swap payments directly, but rather each sets up a separate swap with a financial intermediary such as a bank. In return for matching the two parties together, the bank takes a spread from the swap payments.
Party A is currently paying floating rate, but wants to pay fixed rate. Party B is currently paying fixed rate, but wants to pay floating rate. By entering into an interest rate swap, the net result is that each party can swap their existing obligation for their desired obligation
A BFLOATING
BANK
FIXED
8.65% 8.50%
8.50%
NET: LIBOR + 0.70%
LIBOR + 0.55%
LIBOR + 0.70%LIBOR + 1.50%
NET: 9.60%
A B
FLOATING FIXED
8.65%
8.50%
LIBOR + 0.70%
LIBOR + 1.50%
NET: 9.45% NET: LIBOR + 0.55%
Anatomy of a SwapHere’s a simplified example of how a fund could use a swap to get exposure to a security that is difficult to buy directly
The fund deposits a portion of that $1 million - say, 20% - as collateral at a third party and segregates the remainder as cash in its portfolio.
If the security rises in value, the bank sends money to the collateral manager and ultimately to the fund.
COLLATERAL MANAGER
To replicate a $1 million investment in the security, the fund enters into a swap agreement for that “notional” amount with a bank.
Fund investors get returns, for good or bad, as if the fund had owned the security directly.
If the security falls in value, the bank bank is paid and the fund posts more collateral to get back to 20%.
1
3
4
2
5
DERIVATIVES
KASNEB NEWSLINE, Issue No. 1, January - March 2016 19
the option holder elects to exercise.
The value of put options increases
as the underlying shares price falls.
EXAMPLE
A put becomes more valuable as
the price of the underlying stock
depreciates relative to the strike price.
For example, if you have one Mar 12
Safcom 10 put, you have the right to
sell 100 shares of Safcom at $ 10 until
March 2012 (usually the third Friday
of the month). If shares of Safcom fall
to $5 and you exercise the option, you
can purchase 100 shares of Safcom for
$ 5 in the market and sell the shares to
the option’s writer for $ 10 each, which
means you make $ 500 (100 x ($10-$5))
on the put option. Note that the
maximum amount of potential profit
in this example ignores the premium
paid to obtain the put option.
Call Options
Call options give the option holder
the right to buy the underlying stock
at the strike price. The option buyer
can exercise the option at any time
and the option seller must deliver
the stock at the strike price of the
contract. Call options increase in
value as the underlying stock
increases in price.
PUT CALL PARITY
This is the relationship between
the price of call and the price
of a put for an option with the
same characteristics (strike price,
expiration date, underlying). It is
used in arbitrage theory. If different
portfolios comprised of calls and
puts have same value at expiration,
it is implied that they will have
the same value leading up to the
expiration point. Thus, the values
of the portfolios move in lock step.
Portfolio price equality is calculated
as c+ PV(x)=p+s, where c is the
market value of the call, PV(x) is the
present value of the strike price, p is
the market value of the put, and s is
the market value of the underlying
security. If the two sides of the
equation are not equal, arbitrage
profit could be gained by investing in
the less expensive portfolio. Analysis
of the parity relationship assumes
that other factors such as a dividend
are not taken into account.
This can be summarised as follows;
Po= Co – So + Xo e – rft
Where;
Co – Call price
Po – put price
Xo – Exercise price
So – Current Stock price
r – Risk free rate
t – Time to expiration
e-Exponential component
Buying a CALL gives a purchaser the RIGHT to buy stock from the
seller of option
Buying PUTS gives a purchaser the RIGHT to sell stock to the put
seller at predetermined price.
Selling CALLS forces seller to sell stock to buyer at
predetermined price
Selling PUTS forces seller to buy stock if put buyer
exercises option
PUT SELLER
CALL SELLER
PUT BUYER
CALL BUYER
CALLS
PUTS
The RIGHT (but not the obligation to buy)
The RIGHT (but not the obligation to sell)
The potential OBLIGATION to sell
The potential OBLIGATION to buy
CALL PUTBUYER
SELLER
TYPES OF OPTIONS PUT OPTION EXAMPLE
Buy ABC 930 put option when share price is at Kshs 930
Pay premium of Shs 6,000(Shs 10 x 600 units)
If ABC share price remains above Shs 930, ignore option. Loss of Shs 6,000.
If ABC share price falls below Shs 920, exercise option. No profit at this level due to premium cost.
Profit increases if share price falls below Shs 920.
EXAMPLE
Call Option on stocks
A person purchases a call option on shares of company X.
Strike price of Shs 40Expriration date: 31 July
Option contract: right to purchase 100 shares at price of Shs 40 on 31 July.
When will this right become valuable to exercise?
Only valuable if shares of company X are trading above Shs 40 per share on 31 July.
DERIVATIVES
Max loss at expiration ifstock is = strike price or higher
Ksh 0.00
Stock price
PUT OPTION
Profit increases the lowerthe stock price drops
Break even point is strike price - single option cost
(not contract price)
KASNEB NEWSLINE, Issue No. 1, January - March 201620
Put/Call parity and synthetic position
Option traders should have a
good understanding of one of the
foundations of opinion pricing, the
theory of Put / Call Parity. Put/Call
parity means that the value of call
option implies a certain fair value
for the corresponding put, and vice
versa. To explain why this pricing
relationship always holds, the
entire argument relies on arbitrage.
If the value of puts and calls were
to diverge, arbitrageurs would step
in to eliminate any departure from
put call parity by making a profit on
risk-free traders.
The relationship is strict only for
European–style options but the
concept works for American–style
options after adjusting for dividends
and interest rates. Dividend increases
put values and decreases call values.
If the dividend is increased, the puts
expiring after the ex-dividend date
will rise in value, while the calls
will decrease by a similar amount.
Changes in interest rates have the
opposite effect on put and the calls
will decrease by a similar amount.
Changes in interest rates have the opposite
effect on put and call values. Rising interest
rates increase call values and decrease put
values.
So what happens if the puts and calls for an
asset are not in parity? There are a number
of strategies that can be used for option
pricing arbitrage. The most common are
the conversion and reverse conversion. The
conversion involves having a long position
in the stock while simultaneously buying
a put and selling a call (at the same strike
price). A reverse conversion (often called a
reversal) means you short the stock while
simultaneously selling a put and buying a
call.
Synthetic put option
This is a transaction involving the purchase
of call option on a stock that has already
been shorted. This enables the holder to
protect against an increase in the price
of the underlying stock. If the stock price
decreases, the call is not exercised and the
investor profits minus the premium. If the
stock price increases, the call is exercised and
the investor breaks even minus the premium
and short interest.
Rise in future price?
Buy call option
Fall in future price?
Buy put option
WHEN TO BUY PUT OPTIONS
The long synthetic (left) and short synthetic stock positions are mirror images of each other, created by combining offsetting positions in a call and put option. By establishing these positions, we can take advantage of early exercise.
UNDERLYING PRICE
Long syntheticStock for $ 636.35
Long 635 Call for $2,50
Short 635 Put @ $1.15
630625 635 640 645 650
$15
$10
$5
-$5
-$10
-$15
0
Short syntheticStock @ $ 636.35
Long 635 Put for $1.15
Short 635 Call @ $2.50
UNDERLYING PRICE
630625 635 640 645 650
$15
$10
$5
-$5
-$10
-$15
0
SYNTHETIC POSITIONS
DERIVATIVES
KASNEB NEWSLINE, Issue No. 1, January - March 2016 21
Synthetic call
This is an investment strategy that
mimics the payoff of a call option. A
synthetic call is created by purchasing
the underlying asset, selling a bond
and purchasing a put option. The
strike price on the put option is
equal to the face value of the bond,
which serves as the exercise price of
the synthetic call. A synthetic call
produces the same overall payoff as
a call option. The synthetic call will
finish in the money when the price
of the underlying asset is greater
than the face of the sold bond at
the time of expiration. It will be out
of the money when the value of
the bond is greater than that of the
underlying asset. When the synthetic
call is in the money, the profit is the
difference between the price of the
underlying asset and the face value of
the bond. If the call finishes out of the
money, the put option absorbs the
loss from the underlying assent, with
the exercise price of the put paying
for the bond.
The way it works
Let’s have a look at a real-life example
to get a better handle on the nuts
and bolts of the thing.
Here’s a six-month chart of an actual
stock A: Stock A synthethic long put
straddle.
At the end of July your research tells
you that a long position in stock A
will pay off nicely – and a better than
3% dividend yield never hurt, either.
You buy 100 shares at exactly Shs 114
(red circle) and watch the stock rise
through the beginning of August.
But then the news starts to sour,
and you wonder if you should bail
out. The stock drifts sideways and
rumors abound regarding product
safety litigation and weak forward
earnings estimates. By the middle of
August the stock has again retraced
to Shs114 and you can’t bear the
anxiety. You immediately buy two
at-the-money November puts for
Shs 2.50 each, creating a synthetic
straddle, and breathe a long sigh of
relief (blue circle).
The Breakdown
Should the stock rise to Shs 119 by the
third week in November, the puts will
expire worthless, but you’ll break even
([114 + 2.50 + 2.50] x 100). Anywhere
above that level and you’ll have a profit.
Should the stock remain at 114 or drop,
the maximum loss you’ll sustain is Shs
500 – the initial cost of the two long puts
(2.50 x 2 x 100).
To wit: At the 114 mark, the puts expire
worthless, the stock is worth the same,
and you’re out your initial premium of
Shs 500. Below that – at, say, 104 – the
stock is down Shs1,000, the puts are in
the money Shs10 each (for a gain of Shs
2,000) and the initial cost of the puts is
Shs 500.
Final tally: Shs 2,000 – Shs1,000 – Shs500
= Shs 500 profit.
In the Stock A example above, the stock
closes just a trace above Shs119 (black
circle), putting you in a marginally
profitable position, having weathered
the storm safely and ready to move
forward with confidence.
This nearly risk-free trading system has
been able to turn Shs 330 into Shs3,300.
OPTIONEXPIRES;YOU’VE
WEATHEREDTHE STORM
AND GO “SYNTHETIC”
HERE
YOU MAKE YOUR BULLISH
PURCHASE HERE
122
121
120
119
118
117
116
115
114
113
112
111
110
100
Jun Jul Aug Sept Oct Nov Dec
EXAMPLE OF A SYNTHETIC CALL
DERIVATIVES
KASNEB NEWSLINE, Issue No. 1, January - March 2016 23
WHAT IS AUDIT SAMPLING?
As per ISA 530, audit sampling is
defined as “the application of audit
procedures to less than 100% of
items within a population of audit
relevance such that all sampling
units have a chance of selection in
order to provide the auditor with
a reasonable basis on which to
draw conclusions about the entire
population.”
The standard recognises that
auditors will not ordinarily test all
the information available to them
because this would be impractical
as well as uneconomical. Instead,
the auditor can use sampling as an
audit technique in order to form their
conclusions.
Sampling involves selecting
representative items from a
population (the entire set of data
to be audited), examining those
selected items and drawing conclu-
sions about the population based
on the results derived from the
examination of the selected items.
Auditors must draw conclusions
about populations that are numerous
for every item to be tested. This can
be done by applying the principles
of statistics in selecting a sample that
is a representative of the population.
Sampling is a data collection technique that is used when you want to create a statistically sound conclusion from a subset of a population of data.
SAMPLING TECHNIQUES
Techniques in audit sampling are varied as per Practice Advisory 2320-3. However,
they can be categorised into two main groups;
(i) Judgemental (non-statistical) sampling
(i) Statistical sampling
IN AUDITING
CHOOSING THE BEST
AMPLING METHOD
SAMPLING TECHNIQUES
Non-probability
Convenience Judgment
Simple Random Stratified Cluster MultistageSystematic
SnowballQuota
Probability
Unrestricted Restricted
By ABDHALLAH M. DALLU, Internal Auditor, Guardian Bank Ltd.
KASNEB NEWSLINE, Issue No. 1, January - March 201624
NON-STATISTICAL (JUDGEMENTAL) SAMPLING
Judgemental sampling uses the
auditor’s objective judgement to
determine the sample size and
sample selection. The auditor,
based on his/her experience, is able
to select and test only the items he
considers to be the most important.
It may not be based objectively and,
thus, results of a sample may not be
mathematically supportable when
extrapolated over the population.
The purpose of the test, efficiency,
business characteristics, inherent
risks, and impacts of the output are
common considerations the auditor
will use to guide the sampling
approach.
Advantages of non-statistical (judgemental) sampling
(i) The process can be less
expensive and less time
consuming.
(ii) No special knowledge of
statistics and no statistics
software are required.
(iii) The auditor has greater
discretion to use his/her
judgement and expertise. Thus
if the auditor has substantial
experience, no time is wasted
on testing immaterial items.
Disadvantages of non-statistical (judgemental) sampling
(i) It does not provide a
quantitative measure of
sampling risk, confidence
levels and precision.
(ii) It does not provide a
quantitative expression of
sampled results.
(iii) If the auditor is not proficient,
the sample may not be
effective.
NON-STATISTICAL (JUDGEMENTAL) SAMPLE SELECTION TECHNIQUES
A non-statistical selection technique
includes:
(a) Haphazard selection.
(b) Block selection.
(c) Judgement selection
Haphazard selection
Haphazard selection is “false
random” selection, in the sense of
an individual “randomly” selecting
the items, implying an unmeasured
bias in the selection (e.g. items easier
to analyse, items easily accessed,
items picked from a list displayed
particularly on the screen, and so
on).
Block selection
This method of sampling involves
selecting a block (or blocks) of
contiguous items from within a
population. Block selection is rarely
used in modern auditing merely
because valid references cannot be
made beyond the period or block
examined. In situations when the
auditor uses block selection as a
sampling technique, many blocks
should be selected to help minimise
sampling risk.
An example of block selection is
where the auditor may examine all
the remittances from customers in
the month of January. Similarly, the
auditor may only examine remittance
advices that are numbered 300 to
340.
Judgement selection
Judgement selection is purely based
on the auditor’s discretion, whatever
the rationale (e.g. items with similar
names or all operations related to
a specific domain of research, and
so on.)
STATISTICAL SAMPLING
This involves the use of techniques
from which mathematically
c o n s t r u c t e d c o n c l u s i o n s
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 25
regarding the population can be
drawn. It allows the auditor to
draw conclusions supported by
confidence levels (the percentage
of times the sample will adequately
represent the population) regarding
population of data output. It provides
an objective method of determining
sample size and selecting the items
to be examined. It also provides
means of quantitatively assessing
precision (how closely the sample
represents the population) and
confidence levels.
Statistical sampling helps the auditor
design an efficient sample; measure
the sufficiency of evidence obtained,
and evaluate the sample results on
quantified data.
Advantages of statistical sampling
(i) It provides a quantitative
measure of sampling risk,
confidence levels and
precision.
(ii) It provides a quantitative
expression of sampled results.
(iii) It helps the auditor to design
an efficient sample.
(iv) It provides sample results that
are objective and defensible.
Disadvantages of statistical sampling
(i) It can be more expensive
and time consuming than
non-statistical sampling.
(ii) It requires special statistical
knowledge and training.
(iii) It requires statistical software
l ike Audit Command
Language (ACL) analytics,
Spreadsheets, PSPP, AdamSoft
and so on, which may be
expensive to install for small
business enterprises.
STATISTICAL SAMPLE SELECTION TECHNIQUES
The key element common to all tests
to be evaluated statistically is that
the items to be included in the test
must be chosen at random. There
are several acceptable methods for
selecting a statistical sample;
(a) Unrestricted random sampling.
(b) Random sampling.
(c) Systematic sampling.
(d) Monetary unit sampling.
Unrestricted Random Sampling
The unrestricted random sample is
obtained by the use of a random
number table or computer generated
random numbers. This method is
used to draw individual sample
items from the entire population
without segregating or separating
any portion of the population. By this
method, each and every item in the
population has an equal chance of
being selected as a sample unit. This
is one of the most commonly used
sample selection techniques.
Stratified Random Sampling
Stratified random sampling is
where all items in the population
are divided into sub-populations,
ideally according to similar types
of characteristics (homogeneous
groups); for example, periods,
product lines, customer types,
sales locations, dollar ranges and
so on. Each sub-population is then
sampled independently. After the
results of the individual samples
have been completed, they are
generally combined into one overall
population estimate in terms of a
confidence interval and confidence
level.
An essential concept to understand is
that accounting populations are not
typically evenly distributed; rather,
accounting populations normally
have a skewed distribution. It is also
important to understand that the
purpose of an audit is to cover as
much of the population dollars as
possible in an efficient manner, not
necessarily a certain percentage of
the population invoices. Stratification
is the methodology that allows this
goal to be achieved and is the key to
effectively and efficiently conducting
an examination.
If each member of a population has an equal chance of inclusion into a sample, it is called a random sample (unbiased). If the survey sample is biased, its results are not valid.
The fastest way to know about the marble colour ratio is to blindly transfer a few into a smaller jar and count them.
SURVEYRandom sampling
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 201626
Systematic Sampling
Systematic sampling involves
selecting samples at a given interval
after establishing a random starting
place. The random start is essential
to ensure each unit in the population
has an equal chance to be included
in the sample. This method of
sampling can be the most efficient if
the documents in the population are
not numbered. For instance, invoices
can be selected by physical count
rather than by invoice number.
Systematic sampling is the selection
of every ‘’nth” item following a
random start. In this type of sample,
the size of the interval directly affects
the size of the sample. As a result,
the population and required sample
size should be estimated in order to
determine the interval necessary.
Interval = Population ÷ sample size
Although this method is indeed a
simple method of selecting samples,
the method must be used with
caution since bias can be introduced
into the sample. In general, if there
is any periodic or cyclic arrangement
of the items in the population, a bias
can result. Further, it may not be
apparent from the sample that the
bias exists.
Monetary Unit Sampling
Monetary unit sampling (MUS) is a
value-weighted selection whereby
sample size, selection and evaluation
will result in a conclusion in
monetary amounts. Its objective is to
determine the accuracy of financial
accounts. The steps involved in
monetary unit sampling are to:
(i) Determine a sample size.
(ii) Select the sample.
(iii) Perform the audit procedures .
(iv) Evaluate the results and arrive
at a conclusion about the
population.
MUS is based on attribute sampling
techniques and is often used in test
of controls and appropriate when
each sample can be placed into one
of two classifications – “exception/
Yes” or “No Exception/No”. It turns
monetary amounts into units - for
example; a receivable balance
of Kshs. 50 contains 50 sampling
units. Monetary balances can also
be subject to varying degrees of
exception - for example; a payables
balance of Kshs. 7,000 can be
understated by Kshs. 7, Kshs. 70
or Kshs. 700 and the auditor will
clearly be interested in the larger
misstatements.
1 2 3 4 5
6 7 8 9 10
11 12 13 14 15
16 17 18 19 20
21 22 23 24 25
Each member of the population has equal chance of being selected
Selection by random numbersMembers can be identified uniquely by a number
SAMPLE METHODPOPULATION RESULTING SAMPLE
Put numbers 1-30 in a hat or use technology
Sample of 10
Simple Random Sampling (SRS)
h=10 System start with end
Systematic Sampling
Same street
W street
K street
L street
Cluster Sampling
Sample size of 12“Strata”
Stratified Sampling
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 27
METHODS OF STATISTICAL SAMPLING
There are two main methods used
for statistical sampling:
(a) Attribute sampling.
(b) Variable sampling.
Attribute sampling
In attribute sampling each item in
the population has an attribute of
interest to the auditor, for example,
evidence of proper authorisation.
Thus, attribute sampling is
appropriate for test of controls, that
is, when two outcomes are possible,
(compliance or non-compliance).
attribute sampling is used to
determine the characteristics of a
population being evaluated.
Factors to consider when determining the sample size in attribute sampling
The confidence level
This refers to the percentage of times
that a sample is expected to be a
representative of the population.
The greater the desired confidence
levels, the larger the sample size.
Population size
This refers to the sum of items to be
considered for testing. The larger
the population size, the larger the
sample size should be. However,
for a very large population, the
population size has a small effect
on the sample size. Above a certain
population size, the sample size
generally does not increase.
The expected rate of deviation (Rate of occurrences)
This is an estimate of the deviation
rate in the population. The greater
the population deviation (variability
in the population), the larger the
sample size should be.
Tolerable deviation rate (desired precision)
This is the highest allowable
percentage of the population that
can be in error (noncompliance
rate) and still allow the auditor to
rely on the tested control. The lower
the tolerable error, the larger the
sample size.
As parameter increases Sample must
Confidence levels Increase
Expected deviation rate Increase
Tolerable deviation rate Decrease
Planned precision for an attribute sample
Planned/desired precis ion
(confidence interval) is the range
around a sample value that is
expected to contain the true
population value. It is determined
by subtracting the expected
deviation rate from the tolerable
deviation rate i.e.
Precision = Tolerable Deviation Rate
– Expected Deviation Rate
The population is the entire group being studied. A sample is part of the population being surveyed.
Inference means using observed sample characteristics to estimate population characteristics.Target population
Random samples
Inferences
Calculations
ParametersShapeSpread
Location
StatisticsShapeSpread
Location
Study/research population
Frame error
Chance error
Response error
Response
Sample
Population
Sampling frame
ATTRIBUTIVE SAMPLING
The statistical sampling method most commonly used for tests of controls and substantive tests of transactions is attributive sampling. Used to estimate the extent to which a characteristic exists within a populationGoal: Estimate the rate at which the client’s internal control is failing to function effectively and compare to an allowable level (tolerable rate of deviation)
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 201628
Planned precision and sample size are
inversely related. As the required precision
decreases (tightens), the sample size must
increase.
As precision increases
Sample size decreases
Attribute Sampling Methods
Majorly there are two methods used in
attribute sampling
(a) Discovery sampling
(b) Stop-or-go sampling
Discovery sampling
Discovery sampling aims at auditing cases
where a single error would be critical; it is
therefore particularly geared towards the
detection of cases of fraud or avoidance of
controls. Based on attribute sampling, this
method assumes a zero (or at least very
low) rate of error and is not well suited for
projecting the results to the population,
should errors be found in the sample.
Discovery sampling allows the auditor to
conclude, based on a sample, whether the
assumed very low or zero error rate in the
population is a valid assumption.
Stop-or-go sampling
Stop-or-go sampling comes out of the
frequent need to reduce the sample size
as much as possible. This method aims
at concluding that the error rate of the
population is below a predefined level at
a given confidence level by examining
as few sample items as possible – the
sampling stops as soon as the expected
result is reached. The chief advantage
(objective) of stop-or-go sampling is to
reduce the sample size when the auditor
believes that the error rate in the population
is low. Thus, it may reduce the sample size
because sample items are examined only
until enough evidence has been gathered
to reach the desired conclusion.
Variable sampling
Variable sampling is used for
continuous variables, such as
weights or monetary amounts.
It provides information about
whether a stated amount (e.g.
balances of accounts receivables) is
materially misstated. Thus variable
sampling is useful for substantive
tests. The auditor can determine,
at a specified confidence level, a
range that includes the true value.
In variable sampling, both the upper
and lower limits are relevant (a
balance, such as accounts receivable,
can be either under or over-stated).
It is used to determine the monetary
impact of characteristics of a
population.
Factors to consider when determining the sample size in attribute sampling
The confidence level
The greater the desired confidence
levels, the larger the sample size
should be. If the auditor needs a
more precise estimate of the tested
amounts, he must increase the
confidence level and the sample size.
Population size
This refers to the sum of items to be
considered for testing. The larger
the population size, the larger the
sample size should be.
Tolerable misstatement (precision)
This refers to an interval around the
sample statistic that is expected
to include the true balance of the
population at the specific confidence
level.
For example, an auditor has tested
a variables sample with precision
of + 4% and a confidence level of
90%. The conclusion is that the
true balance of accounts is Kshs.
1,000,000. The precision of + 4%
gives boundaries of computed
ranges. Thus;
Lower limit = 1,000,000 – (4% X
1,000,000)
= 960,000.
Upper Limit = 1,000,000 + (4% X
1,000,000)
= 1, 040, 0000
The auditor can conclude that the
probability is only 10% that the true
balance lies outside this range.
Sampling when used in an audit is to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected.The reason to use sampling is because testing of 100% of population, although would provide most assurance, sometimes it would be impossible to perform, or the cost of testing would likely exceed the expected benefit.
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 29
Therefore the narrower the precision,
the larger the sample should be.
Standard deviation (dispersion/variability).
This refers to the extent to which the
values of items are spread about the
mean. An increase in the estimated
standard deviation increases the
sample size.
As parameter increases Sample must
Confidence levels Increase
Population size Increase
Estimated standard Deviation
Increase
Tolerable misstatement Decrease
Variable sampling methods
Auditors may employ the following
variable sampling techniques:
(i) Mean per Unit (MPU)
(ii) Difference estimation
(iii) Ratio estimation
Mean per Unit (MPU)
This method averages the audited
amounts of sample items. It
multiplies the average by the
number of items in the population
to estimate the population amount.
An achieved precision at the desired
level of confidence is then calculated.
Difference estimation
This method estimates the
misstatement of an amount by
calculating the difference between
the observed and recorded amounts
for items in the sample. This method
is appropriate only when per-item
recorded amounts and their total
are known. Therefore, difference
estimation:
(i) Determines di f ferences
between the audited and
recorded amounts of items in
the sample.
(ii) Adds the difference.
(iii) Calculates the mean difference
(iv) Multiplies the mean by
the number of items in the
population.
(v) Calculates an achieved precision
at the desired level of precision.
Ratio estimation
This method estimates the population
misstatement by multiplying the recorded
amount of the population by the ratio of the
total audited amount of the sample items to
their recorded amount.
Conclusion
While auditors receive training and gain
expertise in applying sampling concepts
and specific sampling methods, they many
times fail to adequately consider whether
a non-statistical or statistical test is most
appropriate for a particular test. When
planning the procedures to be performed
in an audit area, the professional must
first determine whether sampling is
appropriate at all, and then whether to apply
non-statistical or statistical techniques.
Which sampling approach is best, statistical
or non statistical? It depends! It depends
on the type of results required and on
the capabilities of the auditing firm. If an
objectively determined measure of risk is
needed, a statistical approach is obvious.
The professional who prefers to rely on
Judgement would use a non-statistical
method. If the upper error rate or a range
of the dollar amount of error is desired,
the auditor most utilises a statistical
method. A statistical sample is more
appropriate than a non-statistical one if the
population is composed of a large number
of homogeneous transactions generated
under a system of good control. Auditors
not trained in statistical techniques should
use a non-statistical approach. Firms with
computer access and sampling software
would tend to employ statistical methods.
If the population is made up of dissimilar
members or errors are difficult to define in
advance, non-statistical sampling should
be utilised.
AUDIT SAMPLING
Statistical sampling Non-statistical sampling
Non-statistical sampling(Test of controls)
Variable Sampling (Audits of operations)
MUS (PPS)
Difference estimation Ratio estimation Mean per unit
Discovery - Stop or go
SAMPLING METHODS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 31
Intellectual property rights are
aimed at protecting the creativity,
inventiveness and the results of
the human intellect. The primary
function of intellectual property
right under the law is to protect the
creator or owner from any form of
exploitation.
Elements of intellectual property rights
Virtually every company has
intellectual property in the form
of brand names, publications or
literature, unique product designs,
symbols, phrases, music and other
artistic works.
Under the intellectual property
laws, the owners of such property
are granted certain exclusive rights.
The most common intellectual
properties include the following:
• Patents
• Trademarks
• Copyrights
• Registered industrial
design rights
• Trade dress
• Trade secrets or
protection of
undisclosed
information
(a) Patents
This is a form of right granted by
the government to an inventor,
giving the owner rights to exclude
others from making, using, selling,
offering for sale and importing an
invention for a limited period of time,
in exchange for a public disclosure of
the invention.
The patent may be given where one
discovers a new and useful process
or useful improvements in a process,
machine or composition of matter.
(b) Trademarks
A trademark is a word, symbol, name
or a device used in trade with goods
to indicate the source of the goods
and to distinguish them from the
goods of other competitors.
It is a distinguishing sign which
identifies certain good or services
as those produced or provided by a
Intellectual property (IP) refers to creations of the mind, such as inventions;
literary and artistic works; designs; and symbols, names and images used
in commerce.
IntellectualTHE IMPORTANCE OF
IN VALUE CREATION FOR A BUSINESS
Property
INTELLECTUALPROPERTY
INDUSTRIALPROPERTY
LITERARY AND ARTISTIC
PROPERTY
Related rightsCopyrightDesignsTrademarksPatents
By FREDERICK NYUNJA, Enterprise Risk Department, Sidian Bank Ltd.
KASNEB NEWSLINE, Issue No. 1, January - March 201632
specific person or enterprise. It may
be a combination of words, letters
or numerals. They may also consist
of symbols, drawings, shapes and
packaging of goods or colours used
as distinguishing features.
A collective mark may be used by
members a given association to
identify themselves with a certain
level of quality.
Certification marks are given for
compliance with defined standards.
(c) Copyrights
This is a legally protected property
right in the original work which
a person creates. It may subsist in
the form of literature, musical or
other artistic works, whether in
sound recordings, films, broadcast
and publications. The creator of the
work is called the copyright owner.
The copyright owner has the right to
control and exploit the use of their
creation.
These rights give protection for the
expression of an idea and not for the
idea itself.
Example:
An author may write a book on a
certain subject (say about personal
finance), a subject which many
authors have written about. Each
author is however given a copyright
on the book written by him or her,
provided the book is not a copy of
some other book published earlier by
other authors.
It is always important to incorporate
copyright notice for the protection
of literary or artistic works.
(d) Industrial design rights
This is a legal protection of the visual design
of objects that are not purely utilitarian.
It consists of the creation of a shape,
configuration or composition of pattern
or colour or combination of above, which
contain artistic value.
It can be a pattern used to produce a product,
industrial product or handicraft.
Today, we have varieties and brands of the
same product in the market which look quite
different from each other.
A client has a choice to make based on the
price tag or the visual appeal, even though
the products have similar functional features,
for instance, bread, soap or furniture.
(e) Trade secrets or protection of undisclosed information
This is also referred to as confidential
information, that is, keeping important
information secret.
It includes information on formula,
compilation, pattern, device, method,
technique or process.
This form of protection is very important for
industrial works, research and development
companies and other organisations dealing
with intellectual property rights.
The trade secrets may also include a
company’s customer list, complex formula
for a product or process manual.
INTELLECTUAL PROPERTY
A copyright symbol signifies that a creator has the right to make copies,
license and otherwise exploit a literary, musical or artistic work, whether printed, audio, video and so on.
KASNEB NEWSLINE, Issue No. 1, January - March 2016 33
Management of intellectual property
The arrival of the knowledge economy
has created urgency in understanding and
managing knowledge-based assets such as
inventions and other artistic works.
The current economy is being wheeled
by institutions which spearhead in
value creation which leads to customer
satisfaction. Customer satisfaction comes
from value addition generated from
simplifying processes or coming up with new
products to fill gaps in the chain of value
creation or solve problems in the society.
Products or services that solve problems
in the society will generate more revenue
for the firm depending on the extent to
which the problem affects the majority of
the population. A good business product
is one which focuses results on numbers.
Benefits of intellectual property
Intellectual property right is important
in shaping the success of an enterprise,
institution and the government. This is very
important especially in the contemporary
world where the trade environment has
been changing rapidly. These changes
are characterised by global competition
brought about by economic integration,
short product life cycle, rapid technological
changes, high innovation risks and the need
for highly skilled labour. The key benefits of
intellectual property include:
(a) Intellectual property can be used as
a key selling point or competitive
differentiator, giving market advantage
on the basis of a unique product, brand
name or service such as Coca Cola.
(b) Patents can be used as a powerful source
of revenue. This is achieved through
issuing license agreements at a fee.
Many companies around the globe have
enjoyed a significant amount of revenue
from patenting business. Research
indicates that a profit margin
from patenting is estimated at
90%. This is because the costs
associated are minimal.
(c) A company may patent its
business processes. This has
been well demonstrated by Dell
Company as a strategy to retain
a niche of clientele. From their
website, a customer is able to
keep track of the manufacturing
process, testing and shipping
details.
(d) The registration of copyright
helps in the identification of the
ownership of the work.
(e) One can use copyright as a
source of passive income e.g.
one can write a book and sell
his/her books. However, the
author is not protected unless
his/her artistic work is protected.
Only copyrights will act as his/
her insurance. Copyright gives
the creator of the work the right
to reproduce the work, make
copies, translate, sell or give on
hire and communicate the work
to the general public.
(f ) Trademarks provide the owner
exclusive rights to use it to
identify goods or services or
authorise others to use it in
return for some consideration.
Challenges facing intellectual property rights
(i) A number of people have
resorted to infringing the
works of others and reap where
they have not sown, therefore
the owners effort, time and
expenses incurred go in vain.
(ii) Piracy and hacking have
e n c r o a c h e d i n d u s t r i e s
INTELLECTUAL PROPERTY
Intellectual property is just like any other property
PROPERTY VALUE CREATION ACTIVITY RESULTS
Real Product creation Revenue/profits
Personal Investment Employment
Capital Improvement Appreciation
Intellectual Sale Solution of needs
Rent or licensing
KASNEB NEWSLINE, Issue No. 1, January - March 201634
throughout the world. When you
mention the term ‘pirate’ the first thing
that comes to your mind is Somali
pirates. However, the deadliest pirates
are those that kill the human intellectual
development. You may be a pirate but
live in denial of it. They include students
who photocopy entire books, individuals
who engage in film and music piracy
and importers of fake products which
are branded and sold as local products.
This not only kills our industries and
opportunities for job creation but also
leads to unfair competition and poor
standard goods. Today, drugs and
foodstuff have been counterfeited to
such a big extent. Consumer protection
organisations need and must move a
notch higher to curbing this spiralling
menace.
(iii) The emergence and evolution of
complex information technology
around the globe has brought about
the challenge of data protection. No one
is safe from hackers and pirates. This is
because the world has become a ‘global
village’ connected through the internet.
It is this selfsame internet that hackers
use via computers and phones to access
other peoples’ or organisations’ private
databases. The hackers use ‘reverse
engineering’, to analyse and program
these computers or phones to
counter their defense software.
Lawyers have been having
challenges protecting these
intellectual properties.Lack of
moral standards and job scarcity
has pushed many learned
youths, especially from the I.T.
sector, to be involved in illegal
activities - the so called ‘get rich
quick scams’. They will hack into
your computer, steal data and
sell it to the highest bidder or
hack into your account and wire
funds.
(iv) Many products and technologies
are being marketed and utilised
simultaneously across the globe
hence intellectual property has
become vulnerable to violations
leading to loss by the creators
of the ideas.
(v) The infringement of intellectual
properties has led to reduction
in the pace of development
in Kenya. This is because most
of the affected innovators
and inventors whose ideas
have been leaked to social
media and used freely feel
demoralised. Our farmers and
manufacturing industries are
killed by the smuggling of fake
and substandard products
which are eventually sold at
very low prices.
(vi) The dichotomy of the legal systems
across borders has greatly affected
protection of intellectual property rights
as well as the growth of international
trade.
(vii) Poor governance and corruption.
This has seen institutions and leaders
refusing to take responsibility and
accountability for their failure to protect
intellectual property infringements
across the globe. Our leaders who are
being emulated by many youths across
the globe have set a bad example
by being at the forefront of corrupt
dealings. This has been spurred by
extensive greed for wealth among our
leaders.
(viii) Sabotage of the legal system. Lack of
respect to the legal system has caused
the uprising of questionable property
rights and transfer of ownership rights.
In some streets and bus stages, people
are illegally vending products without
permits. Some even vend fake drugs,
yet they are not qualified physicians.
The general society and our institutions
have sabotaged the legal system and
accepted such to be the norm.
(ix) Lack of awareness. There is low
awareness of intellectual property
rights among the majority of the
population. Therefore the perpetrators
take advantage of this to manipulate
the public and earn them stupendous
wealth.
INTELLECTUAL PROPERTY
FORMS AND DURATION OF INTELLECTUAL PROPERTY PROTECTION
PATENT COPYRIGHT TRADEMARK
A set of exclusive rights granted to an inventor by the government in exchange for a public disclosure of the invention. The invention must be useful, novel and non-obvious
A set of legal rights designated by the government to the creator of an original work. Allows creator to use, reproduce and display work and receive compensation
A word, name, symbol or device used with a good or brand to distinguish from other goods or brands
Length of protection: 15-20 years Length of protection: Life of creator + 70 years
Length of protection: Indefinite as long as mark is still in use and owner renews mark every 10 years
Conclusion
Everyday, we wake up to challenges that
require creative genius to solve. These
challenges present numerous opportunities
for inventions and innovations. This is not to
say that these are in short supply. But on the
opposite side, exploiters, hackers and pirates
have been perfecting their games therefore
stifling creativity. Thus, there is growing need
to enlighten the society on intellectual
property rights so as to encourage respect
for these rights and to deter violators.
Whether in business security or privacy of
government, it is of paramount importance
that we pick from where the great inventors
left and push inventions and innovations to
higher levels. Without past inventions, we
would not be enjoying benefits of
convenience, ease of doing things,
faster information processing by
computers, communicating via
phones, better health, faster travel,
cleaner energy sources and many
other important utilities in our daily
lives. Every business challenge
brings about an opportunity to
invent and innovate. The solutions
to these challenges will shape our
future and the society at large.
The human brain has unlimited
power, the power to think and come
up with unprecedented ideas that
will add value and create abundant
job opportunities for generations to
come.
It is therefore important to ensure that
creating, protecting and managing
intellectual property becomes an important
corporate activity just like other vital
business ingredients.
INTELLECTUAL PROPERTY
PATH Institute of Technology and EntrepreneurshipP.O. Box 799 - 00241 Kitengela
Mobile: 0700392770Email: [email protected]
Website: www.pathinstitute.ac.ke
Path Institute of Technology and EntrepreneurshipKITENGELA
COURSES OFFERED:
Hostels available at reasonable rates
KASNEB
KASNEB• Accounting Technicians Diploma (ATD)• Certified Public Accountants (CPA) Parts I - III • Certified Secretaries (CS) Sections 1 and 2• Diploma in Information Communication Technology (DICT)• Certified Information Communication Technologists (CICT)
KNEC/ICM • Certificate/ Diploma in Business Management• Certificate/ Diploma in Sales and Marketing• Certificate/ Diploma in Supply Chain Management• Certificate/Diploma in Information Communication Technology• Certificate/Diploma in Human resources management• Certificate/Diploma in Financial management• Certificate/Diploma in Marketing management• Certificate/Diploma in Business Start-up and Entrepreneurship• Certificate/Diploma in Community Development and Social Work
PITE • Certificate in MS Office, • Certificate in Computerised Accounting, • Certificate in Web Design, • Certificate in Computer Programming, • Entrepreneurship short courses and seminars• Production skills in soap-making, cosmetics, exercise books, paints
and dyes, animal feeds, cakes, juices, yoghurt e.t.c• Languages: Kiswahili, French and English
INTERNATIONAL COMPUTER DRIVING LICENCE (ICDL)ICDL registration every Monday
How will the youth benefit by promoting national cohesion and integration?
THE ROLE OF THE YOUTH
IN NATIONAL COHESION AND INTEGRATION
• Promotion of national cohesion and integration will enable the youth to have equal opportunities in accessing education and training.
• National cohesion and integration will allow the youth to productively participate in socio-economic activities for self advancement.
• The Promotion of national cohesion and integration enables the youth to exercise their freedom of associa-tion and rights of representation.• By promoting national cohesion and integration, youths will be able to participate in decision-making and hold leadership positions.
• The promotion of national cohesion and integration will provide a conducive environment for youths to effectively discuss and explore opportunities and challenges affecting them.
• Promotion of national cohesion and integration will enable youths to successfully initiate interactions and strengthen socio-economic networks that can help them overcome challenges like unemployment and exploit existing opportunities.
• The promotion of national cohesion will encourage the youth to play an active role in conflict prevention.
• National cohesion and integration will facilitate engage-ment of youths in income generating activities across ethnic groups that improve their wellbeing and contribute to the productivity of the country.
• National cohesion and integration will promote understanding and creativity that arise from the interac-tion between youths of different ethnic communities.
• National cohesion and integration facilitates creativity and innovation, hence enhancing the overall economic wellbeing of the youth.
• National cohesion and integration enables the youth to play their roles effectively in national building.
• National cohesion and integration will facilitate improvement of social, economic and political status of the youth which is key to the promotion of national cohesio0n and integration.
• Achievement of sustainable socio-economic and political development which will contribute to renewed hope and assurance for the next generation.
CONTACTS
Ministry of Interior and Coordination of National Government,
Directorate of National Cohesion and National Values
Extelcoms House, 9th & 10th floors
Haile Selassie Avenue
P.O Box 30510-00100 Nairobi
Telephone: 020-2224029 ext 200
Facebook: cohesion.go.ke
Twitter: @CohesionKe
Conclusion
The Kenyan youth cannot be ignored in any endeavor that aims at enhancing or promoting national cohesion and integration in the country. When the young people are empowered and involved, today will be safe and tomorrow will be assured.
KASNEB NEWSLINE, Issue No. 1, January - March 2016 39
Definition of marketing
The word marketing has been
defined in different ways by
several authors and scholars.
Below are some of the definitions.
Marketing is the performance of
business activities that direct the flow
of goods and services from producers
to consumers or users - American
Marketing Association – A.M.A.
(1964).
Marketing is the creation and the
delivery of a standard of living. It
involves finding out what consumers
want, planning and developing a
product or service that will satisfy
these wants and finally determining
the best way to price, promote and
distribute the products or services.
Thus marketing is a total system
of business activities designed to
plan, price, promote and distribute
want-satisfying goods and services
to present and potential customers -
Stanton William J. (7th Edition 1984).
Marketing is a social and a managerial
process by which individuals and
groups obtain what they need and
want through creating, offering and
exchanging products of value with
others. - Kotler Philip (1997).
All the above definitions are
underpinned by one common
denominator: the concept of
exchange. This concept leads to
the need for a space, physical or
otherwise, where this exchange
takes place. This space is called the
market.
Within the market are, on one hand,
those who have (demand) needs and
wants (customers) and on the other
are the providers (companies) of
products (goods and services) that
seek to meet or satisfy these needs
and wants.
Because there are many providers
for each need or want, competition
amongst themselves for customers
invariably arises. Conversely, because
products to satisfy a particular need
or want are many, customers have
to make a choice based on which
product best meets their need or
want.
In this kind of scenario, companies
cannot just sit and wait for customers
to come to them. They have to make
a conscious effort to promote the
exchange. Those who have high
levels of exchange will be the
most profitable. This promotion of
exchange is what you call marketing.
NEEDS WANTSMUST HAVE
WHY WE BUYWHY WE BUY ONE BRAND INSTEAD
OF ANOTHER
NICE TO HAVE
VERSUS
Theoretically, people buy to satisfy certain
needs. But why do we prefer one brand
instead of other brands?
Marketing tells the product’s or
service’s story
Marketing creates connections in people’s brains
Marketing must work with others to define and deliver a
great product or service
CONSUMER
COMPANY
Marketing must deliver profit in the process of satisfying customer needs
C NCEPTSOF MARKETING
By RAYMOND KIAMBATI, Management Consultant
KASNEB NEWSLINE, Issue No. 1, January - March 201640
Concepts of marketing
In the process of marketing, conflicts
are bound to arise between the
needs of the company, the customer
and the community at large. Thus
marketers need guidance regarding
their conduct in the market place.
The need for guidance is what has
spawned different philosophies or
concepts of marketing.
Guidance in marketing revolves
around five competing concepts,
namely;
(a) The production concept.
(b) The product concept.
(c) The selling concept.
(d) The marketing concept.
(e) The societal marketing concept.
How a company manages its
marketing activities depends on
which concept they decide to be
their main focus.
The production concept
This concept holds that “consumers
will favour those products that are
widely available and low in cost.”
Management focuses on high
production efficiency and wider
distribution coverage.
This concept makes sense under the
following circumstances;
• When the product is a basic
necessity.
• The customers are low income
earners.
• When the production costs are
high and have to be brought
down through high production
efficiency.
• When the market is highly price
sensitive.
• When demand for the product
exceeds the supply and some
other means have to be used
to allocate the products to the
customers.
Examples of companies guided by
this concept include:
• City Council primary schools.
• Unilever - for its basic foodstuff.
• City Council health services.
This concept ensures product
availability to the consumers.
However, product quality is
compromised.
MARKETING CONCEPTS
Production conceptConsumers favour products that are available and highly affordable. Minimise costs to lower prices, keep quality high. Improve production and distribution efficiency
Product concept
Consumers favour products that offer the most quality, performance and innovative featuresFocus on making superior products and improving them overtime. Better mousetrap fallacy. This will lead to increased sales and profits
Selling conceptConsumers will buy products only if the company promotes/sells these products
Marketing conceptFocuses on needs/wants of target markets and delivering satisfaction better than competitors
Societal marketing concept
Focuses on needs/wants of target markets and delivering superior value
MARKETING AND EXCHANGE
Marketing is a human activity directed at satisfying needs and wants through exchange processes.Exchange is the core concept of marketing.Exchange is a value-creating process because it leaves both parties better off. There are at least two parties.Each party has something that might be of value to the other party.Each party is capable of communication and delivery.Each party believes it is appropriate or desirable to deal with the other party.The focal point in an exchange is marketing offer combination of products, services, information or experience that satisfy a need or want.
CONCEPTS OF MARKETING
Marketing of a commodity like sugar requires production efficiency and wider distribution coverage
KASNEB NEWSLINE, Issue No. 1, January - March 2016 41
The product concept
The product concept holds that
“consumers favor those products that
offer the most quality, performance
and features. Marketers assume that
consumers will buy those products
of high quality and shun those
products of inferior quality.”
Management focuses on producing
high quality products and improves
on them over time. This concept
may apply under the following
conditions:
• When the market is not price
sensitive.
• In the case of conspicuous
goods.
• Where the customers are
well-off financially.
The concept has been criticised on
the following grounds:
• The idea of a good product is
defined from the company’s
end but not the consumer’s. The
concept thus leads to marketing
myopia [short-sightedness].
There is undue concentration
on the product rather than the
needs of the consumer.
• A company may end up
producing goods that may not
have demand.
• The concept ignores the needs
of the society
Examples of firms practicing this
concept are:
• Those selling jewelleries,
• Private schools and
• Private hospitals
The selling concept
This concept holds that consumers,
if left alone, will ordinarily not buy
a lot of a company’s products.
The organisation must therefore
undertake aggressive selling and
promotion effort. That is, a company
must focus on hard selling. Under
hard selling, consumers are not
willing to buy such products easily.
Examples of products sold under this
concept are:
• Life insurance policies.
• Political campaigns.
• Fund raisings.
• New products.
• Encyclopedias.
• Funeral plots.
• Coffins.
The concept may work under the
following circumstances;
• Where the company is
operating under excess capacity
and wishes to fully utilize its
resources with no regard to the
product’s demand.
• Where the product is new in the
market.
• Where the firm has adequate
machinery for effective
promotion.
• where the products are
obsolete or are slow moving.
The selling concept has some
limitations, namely:
• Consumers may be forced to
buy products that they do not
have real need for.
• It is an expensive concept as it
requires a lot of resources, both
human and financial.
Starting point Focus Means Ends
Factory ProductsSelling and promoting
profits through sales volume
The selling concept
The total product
Packaging Quality
Credit
After sales
service
Delivery
WarrantyIntangible associations
StylingFeatures
Brand name
The essential benefit
The actual product
The core product
The potential product
THE TOTAL PRODUCT CONCEPT
“This is the sixth time you have come here in the last three days. I need to report this as a case of disturbance”
CONCEPTS OF MARKETING
KASNEB NEWSLINE, Issue No. 1, January - March 201642
The marketing concept
The marketing concept holds that
“the key to achieving organisational
goals lies in determining the needs
and wants of the target market and
delivering the desired satisfaction
more effectively and efficiently than
competitors This concept has been
expressed in many colourful ways
such as:
• Find needs and meet them.
• The customer is always right.
• The customer is the king.
• At your service.
• Your problem is our business.
• Have it your way.
• You are the Boss, and so on.
The concept rests on the following
five main pillars:
(a) Market focus: The company
must define the boundaries of
its market. It should know those
customers that are members of
their market. This can be done
through a process known as
segmentation.
(b) Customer focus: The company
should determine the needs
and wants of the customers
from the customers’ point of
view but not the company’s.
Customers’ needs must be
identified and satisfied as this
result into customer loyalty
which is a source of goodwill.
(c) Integrated or coordinated
marketing: When all company
departments work together
to achieve the consumers’
interest, the result is integrated
marketing. It takes place at
two levels, the marketing
function and company-wide
orientation. In the former, the
various marketing functions –
advertising, marketing research,
sales, branding, e.t.c. must work
together. They must be well
coordinated from the customers’
point of view. In the latter,
marketing must be embraced
by other departments. They
must think customer. Marketing
is not a department but much
of a co-wide orientation.
Teamwork must be fostered
among all departments. This
requires the practice of internal
as well as external marketing.
Whereas the latter is directed
at people outside the firm, the
former is the task of hiring,
training and motivating
employees to serve customers
well. Internal marketing must
external marketing. Managers
must consider customers as the
true profit centers hence adopt
a modern organisational chart.
(d) Profitability: The ultimate
purpose of the marketing
concept is to help organisations
achieve their objectives. In the
case of private firms, the major
one is profit. However, they
should aim for profits through
customer satisfaction.
(e) Competition: The concept
recognises the existence
of competition. However a
company should offer superior
customer value. It should
serve customers better than
competitors.
Most companies do not embrace the
marketing concept until driven to
it by circumstances. Various events
MARKETING CONCEPT
EXTERNAL ANALYSIS
POSSIBLE SOLUTIONSPOSS
IBLE
PRO
BLEM
S
Product improvement
Price pressure
Turnover
Process
adjustment
Customer Advertising
INTERNAL ANALYSIS
Starting point Focus Means Ends
Target market
Customer needs
Integrated marketing
Profits through customer
satisfaction
The marketing concept
CONCEPTS OF MARKETING
Customer is king
KASNEB NEWSLINE, Issue No. 1, January - March 2016 43
forcing companies to adopt the
marketing concept include:
• Sales decline: - when sales fall,
companies panic and look for
ways of increasing sales.
• Slow growth in sales forces
some companies to search for
new markets. They realise they
need marketing skills to identify
new opportunities.
• Changing buying patterns –
• Most companies operate in
markets characterised by
rapidly changing customer
preferences. Such companies
need more mar ket ing
know-how if they are to track
buyers’ changing values.
• Increasing competition.
• Complacent companies may
suddenly be attacked by
powerful competitors, e.g.
Kenya Breweries
• Increased market expenditures.
Reasons to embrace the marketing concept
Marketers’ arguments:
• The company assets have little
value without the existence of
customers.
• The key company task
therefore is to attract and retain
customers.
• Customers are attracted
through competitive superior
offerings and retained through
satisfaction.
• Marketing’s task is to develop
a superior offering and deliver
customer satisfaction.
Societal marketing concept
Some people have questioned
whether the marketing concept is
an appropriate philosophy in the
age of environmental deterioration,
resource shortages, explosive
population growth, world hunger
and poverty, neglected social
services among others. The question
now is: are operations of companies
that do the excellent job of satisfying
customer needs also impacting
negatively the long-run interest of
consumers and society at large?
The marketing concept sidesteps
the potential conflicts among
consumers:
• Wants
• Interests
• Long-run societal welfare
Societal marketing
concept
Ethics, environment, do
good, stop doing badMaintai
n and
impro
ve
long-t
erm w
ell-be
ing,
social
resp
onsib
ility
Society (Societal and customer well-being)
Company
(Profi
ts)
Consumers
(Short-term wants)
Product orientation vs. Market orientationCompany Product Market
Kenya Railways We run rail services We move people and goods
Xerox We make copying equipment We improve office productivity
National Oil We sell petrol We supply energy
Columbia Pictures
We make movies We entertain people
The societal marketing concept holds that
“an organisation’s task is to determine the
needs wants and interests of the target markets
and to deliver the desired satisfactions, more
effectively and efficiently than competitors in a
way that preserves or enhances the consumers’
and the society’s well being.”
The societal marketing concept calls
upon marketers to build social and ethical
considerations into their marketing practices.
Ultimately, companies must balance the
conflict criteria of company profits, consumer
needs and public interests.
Differences between the selling and marketing concepts
Selling Concept Marketing concept
Starting Point Factory Market
Focus Products Customer needs
Means Selling and promotion Coordinated marketing
Ends Profits through sales volumes Profits through customer satisfaction
Time horizon (Oriental) Short term Long term
From the definitions and concepts that have been
expounded, several conclusions can be made:
(i) Marketing is a managerial process - a system’s
definition.
(ii) The entire systems of business activities must
be market-oriented or customer-oriented.
Customers’ needs and wants must be recognised
and satisfied effectively.
CONCEPTS OF MARKETING
KASNEB NEWSLINE, Issue No. 1, January - March 201644
(iii) Marketing, as the definitions
suggests, is a dynamic process
– a total integrated process
rather than a fragmented
assortment of institutions or
functions. Marketing is not any
one activity, nor is it exactly the
sum of several, rather, it is the
result of the interaction of many
activities.
(iv) The marketing programme
starts with the product idea
and does not end until the
customers’ needs and wants are
completely satisfied. This may
be some time after the sales are
made.
(v) Customers must be satisfied in
order for a company to make
repeat business. This implies
that the success of a firm is
not profitability per se but
profitability through customer
satisfaction.
(vi) Marketing is not limited to
business. Whenever you are
trying to:
• persuade somebody to do
something;
• donate to the Red Cross;
• save energy;
• vote for your candidate;
• reform from littering the
streets of Nairobi,
you are engaging in business. Marketing has a broad societal meaning. Modern
business marketing activities are, to a large extent, a consequence of societal
marketing.
Relationship marketing
Performance/societal marketing
Internal marketing
Integrated marketing
HOLISTIC MARKETING
Channel Customers Partners
Sales revenue Brand and customer equity
Ethics, Environment Legal, Community
Senior management Marketing department
Other departments
Product and services Communications
Channels
“Can I stress that this method must only be used as a last resort.” “NOT INTERESTED? You answered the door, didn’t you?”
CONCEPTS OF MARKETING
EXAMPLES OF SOCIETAL MARKETING
Body Shop: Body Shop is a cosmetic company found by Anita Roddick. The company uses only vegetable based materials for its products. It is also against animal testing, supports community trade, activates self esteem, defends human rights and overall protection of the planet. Thus it is completely following the concept of Societal Marketing.
Ariel: Ariel is a detergent manufactured by Procter and Gamble. Ariel runs special fund raising campaigns for deprived classes of the world specifically in the developing countries. It also contributes part of its profits from every bag sold to the development of the society.
British American Tobacco Company: BAT is a British based tobacco company. It was found in the year 1902. BAT is involved in working for the society in every part of the world. It conducts tree plantation drives as part of its societal marketing strategy.
KASNEB NEWSLINE, Issue No. 1, January - March 2016 45
does not depend on disposable
personal income, and
(b) Induced consumption which
changes with change in income.
Consumption function is expressed
as follows:
C = α+βy
where
c = Consumption
α = Autonomous consumption
β = Marginal propensity to consume
Y = Disposable personal income
The slope (MPC) of consumption function
is positive indication that as the level
of national income increases, so does
the disposable personal income. The
consumption expenditure also increases.
ANALYSIS OF CONSUMPTION AND SAVINGS
A higher disposable income leads to higher spending and saving
BEFORE AFTER
Consumption function
Consumption is a function of
income, as income increases,
consumption increases and
vice versa. However, the marginal
increase in consumption will be
less than the marginal increase in
income. The marginal increase in
consumption arising from changes in
income is called marginal propensity
to consume represented by
MPC = ∆c
∆y
Consumption function is composed
of two parts:
(a) Autonomous consumption, that
is, the part of consumption that
Disposable income is what is left after tax deduction
CONSUMPTION AND SAVINGS FUNCTION
The level of private disposable income is the chief determinant of private consumption and saving, which in the absence of government is equal to total income,that is, at higher levels of income, the private sectors will both consume more and save more and vice versa. But consumption and saving are determined by many factors in addition to the level of disposable income.
Other important factors that influence the consumption and savings function are stock of wealth, expectations, taxation policy, distribution of income and age composition.
By PAUL M. MWANGI (CPA K, B.Com), Lecturer, Brightstar Institute of Business Studies
KASNEB NEWSLINE, Issue No. 1, January - March 201646
Consumption function can be
illustrated graphically as follows:
When income is 0 i.e. y = 0, there
has to be some consumption that
can be explained by the fact that
consumption does not only depend
on income (y) but also on:
• Transfer payments.
• Savings.
• Unemployment benefits.
• Windfall gains and so on.
The Mpc (B) is the slope of the
consumption function by definition.
It lies between 0 and 1, that is,
0<B<1.
Given the above consumption
function, we can show the
c
c = α+βy
c =α
α
Y
Cons
umpt
ion (C
)
Disposable income (Y)
C=Y
Slope = MPC
Consumption functionC = α + β y
The slope of the consumption function is the MPC or β
Consumption function intersects the vertical axis at the level of
autonomous consumption
450
α
equilibrium income diagrammati-
cally as follows.
The diagram shows that at low levels
of income, to the left of y*, savings
are negative since consumption is
greater than income. At higher levels
of income, to the right of y*, there is
positive saving since consumption
is less than income.
Average propensity to consume
refers to the proportion of disposable
income that is spent on consumption.
Therefore given the consumption
function above, average to consume
can be computed as:
APC =c
=α+βy
=α+β
Y y y
c
y
I = s
C = + α +By
Y*
Saving function
It describes the total amount of
saving at each level of disposable
personal income.
Keynes argued that saving is a
function of income and not interest
rate. He therefore defined saving as
the difference between disposable
income and consumption function
and expressed it as follows.
C =Y-CY-α-βYS = -α+ (1-β)Y= This is the saving function
Illustration
If the consumption function is given
by C = 50-0.4y
Then the saving function can be
derived as follows:
S=Y-C = Y-50-0.4Y = -50 +Y-0.4Y = -50 +0.6Y
This implies that the saving function
is upward sloping which means that
when income increases saving also
increases.
The slope of the saving function
equals the change in savings divided
by the change in personal disposable
income i.e.
CONSUMPTION AND SAVINGS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 47
MPC = ∆c
∆y
(Marginal propensity to save)
Marginal propensity to save is
defined as the change in saving as
a result of a unit change in personal
disposable income.
Average propensity to save APS on
the other hand is the proportion of
disposable personal income that is
saved and represented by S/Y
The mathematical relationship
between the marginal propensity
to save and marginal propensity to
consume can be shown as follows.
MPS + MPC = 1
Income as a determinant of consumption
Income is the major determinant
of consumption. The changes in
income can be analysed through
MPC. Keynesian consumption
theory suggests that consumption
is linearly dependent on income.
Therefore in the short run,
C = α+βy
Cons
umpti
on
Disposable income
SAVING
Consumption schedule
Consumption=Disposable income
Consumption
Break-even point
450
In Keynesian theory saving is
assumed to be a function of income
and investment a function of interest
rate (r).
In the long run consumption will
be wholly dependent on income.
This can be shown in the following
diagram.
Short run consumption function
figure
The autonomous part of the
consumption disappears with
time because its source of funding
becomes scarce e.g. nobody can
dis-save forever nor borrow forever.
In classical economics savings is a
function of interest rate i.e. s=f(r) and
c
c = α+βy
Y
Disappears with time
not a function of income, that is
S = F(r)
If interest rates were high in
commercial banks and other
investment opportunities, people
would save more after deciding on
how much to save the rest will be
available for consumption therefore:
C = Y - S and S = F(r)
In this case, saving is assumed to
be a positive function of interest
rate. Consequently consumption is
a negative function of interest rate.
Whereas in classical theory emphasis
is on consumption as a function of
interest rate. Keynes emphasis on
income as the major determinant
of consumption therefore:
• Consumption is a stable
function of real income.
• On average people increase
their consumption as income
increases, but not as much as
increase in income.
• Short run marginal propensity
to consume is less than long
run marginal propensity to
consume. Once somebody
makes a habit of consumption,
this will always take his first
claim on his/her income,
hence the person will save an
income over and above his or
her habitual expenses.
• In the long run a greater
proportion of income will be
saved as real income increases
hence in the long run the
average propensity to consume
falls with income.
CONSUMPTION AND SAVINGS
KASNEB NEWSLINE, Issue No. 1, January - March 201648
Reconciling the discrepancy between short and long run function
The following hypothesis have been
proposed.
(1) Relative income hypothesis
This was suggested by James Duesenberry
(1949) and assume the following.
(i) Consumption behavior of individual is
interdependent. This implies that the
ratio of income consumed depend on
the individuals absolute income as
well as his relative income. This means
that consumption will depend on his
percentile position in the total Income
distribution within the community.
In any given year an individual will
consume a smaller percentage of his/
her income as his/her absolute income
increases if his percentile position in
the income distribution improves and
vice versa. If is percentile position in
the income distribution remains over
time, he will continue to spend on
consumption the same percentage
of his income as his absolute income
increases.
(ii) Consumption relations are irreversible
overtime. This implies that given a fall
in income during a cyclical downswing
will cause a less than proportionate
fall in consumption patterns
on previous levels of income.
This is sometimes called
previous peak theory in
which people will adjust
their spending. If income
increases consumption will
increase accordingly but if it
falls below the previous peak,
consumption does not fall
proportionately.
(2) Permanent income hypothesis
Friedman suggested this in 1957.
It states that consumption depend
on permanent income which is the
present value of the expected flow
of long term income.
Permanent consumption (CP), that is
(CP = f(yp)
where Cp = Consumption
Yp = permanent income
The ratio of consumption (cp)
to consumption that depend on
income (βYp) is constant regardless
of the level of permanent namely
permanent income (Yp) and
transitory (windfall) income (Yy)
Transitory income refers to a
temporary unexpected rise or fall in
income. This can be represented as
Y=Yp + YT
Measured consumption (c) has two
parts permanent consumption (Cp)
which is planned levels of spending
out of permanent income and
transitory consumption which is the
unplanned, temporary increases or
decreases in consumption spending
represented by
C = CP +CT
(3) Absolute Income Hypothesis
Keynes suggested that consumption
is a function of current level of
disposable personal income. The
aggregate consumption function
is directly but non-proportion-
ately related to the current level
of aggregate disposable income
in both short run and long run.
Therefore, the ratio decreases with
income. The non proportionality
of consumption and income rests
upon the basis that habits are not
persistent among consumers. A full
reaction of consumers to change in
income does not occur immediately
but changes gradually since change
in income may not be permanent.
Thus Ct = α+βYt + dCt-1
This implies that consumption over
time (Ct) is not only dependent
on income overtime (Yt) but also
previous level of consumption
(dCt-1)
(4) Life Cycle Income Hypothesis
Formulated by Modigil iani,
Brumberg and Ando. It is also known
as the MBA hypothesis. It states
that consumption is a function of
the expected stream of disposable
income over a long period of time
“Just this one and then am done!”
CONSUMPTION AND SAVINGS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 49
as well as the present value of wealth. Individuals will therefore spread out the
present value of all future income streams of consumption throughout their
lifetime. Hence consumption is a function of lifespan’s income. This is presented
in the diagram below.
C,Y
Sy>c
C
c > y
Y
c > y
Net saver
Net borrowed
inheritedTime in years
Other determinants of consumption
(1) Rate of interest
This is derived from the classical
economist ’s argument that
consumers will save more and spend
less when interest rates are high.
(2) Relative prices
This will influence consumption
behavior since people will shift from
the relatively expensive commod-
ities to less expensive ones.
(3) Capital gains
Keyness suggested that there is a
possibility of windfall gains or losses
influencing consumption. He argued
that consumption of the wealth
owning group might be extremely
susceptible to unforeseen changes
in the money value of the wealth.
This is true where stock exchange is
composed of speculators.
(4) Wealth
The larger the stock of wealth,
the lower its marginal utility and
consequently the weaker the desire
to add future wealth by curtailing
current consumption. The more
savings an individual has, the weaker
will be the desire to accumulate
more savings at that particular time.
Greater wealth therefore increases
the ability to consume more.
(5) Money Stock (liquid assets)
The possession of liquid assets
influences the amount of savings and
consumption. This is because liquid
assets can be changed into cash very
quickly and used to purchase goods
and services.
CONSUMPTION AND SAVINGS
Where:
C = Consumptin
Y = Income
S = Savings
When:
• C > Y, the individual resources
in order to consume and build
up human capital
• Y >C, the individual is
paying loans and saving for
consumption in the future, for
bequests and for investment.
• C > Y, the individual is
consuming out of savings,
pension and social security
fund.
The implication of the Life Cycle
income hypothesis is that the
average propensity to consume
(APC) is high in the early and later
years. This explains the non-pro-
portionality in consumption and
income relationship in the short
run or across families. However, in
long run, consumption and income
relationship will be proportional.
KASNEB NEWSLINE, Issue No. 1, January - March 201650
(6) The availability of consumer
credit
If credit is more readily available,
and/or its cost is low, consumers are
more likely to borrow and thereby in
the aggregate save less at all levels
of aggregate disposable income.
Therefore, increased consumer
borrowing, holding other factors
constant, causes and upward shift
in of the aggregate consumption
function.
(7) Attitudes and expectations of
consumers
A change in consumer attitudes
will cause a change in behavior.
Expectation about income and
price in future will also affect
consumption. For example in the
face of a price rise, they might expect
further price increases in future and
so they will increase their current
purchases.
(8) Money illusion
Consumption will be affected if
consumers are subject to much
illusion. The phenomenon of money
illusion occurs when despite equal
proportional change in price of
goods and services and their money
incomes, which keeps their real
income unchanged, consumers make
a change in their real consumption.
This is also called pigou or real cash
balance effect. With a change in
nominal money income, people
behave in a way to indicate that
their real income has gone up. If for
example, the price level and money
income increases by 10 per cent, the
families that regard their real income
unchanged and therefore do not
suffer from money illusion will not
change their consumption. While
those consumers that are subject
to money illusion will increase their
spending and consumption will rise.
CONSUMPTION AND SAVINGS
“Do not save what is left after spending but spend what is left after saving”. Warren Buffet
(9) Distribution of income
A change in income distribution affects the
level of aggregate consumption if income
recipients do not have the same average
propensity to consume and marginal
propensity to consume. If, for example, the
marginal propensity to consume among the
poor is high, then redistribution of wealth
from the rich to the poor will lead to high
consumption. Therefore redistribution of
income may cause a shift in the aggregate
consumption function or a combined shift
and change in the slope of the function.
(10) Composition of population
The composition of the population in
terms of sex, age and class will determine
consumption. If, for example, there are more
children, then consumption of children
related items, holding other factors constant,
might be high.
Money illusion affects many different aspects of the economy, especially wage contracts, debt contracts and accounting. According to natural rate theory, all labour contracts should contain cost-of-living adjustments (COLAs) while in reality only 19% of all labour contracts do, and for that 19%, the COLAs only kick in after a specific amount of inflation has occurred, with no adjustments to wages before that point. Individuals also resist having their wages cut, even if the inflation rate is negative, because of money illusion. It does not matter that they can buy more with their money; it is the actual nominal dollar amount that matters to them.
KASNEB NEWSLINE, Issue No. 1, January - March 2016 51
CICT: NO REGRETS
It’s a bright morning as I proudly sit
in my office and start reminiscing
about my journey to here; a
self-employed CICT graduate.
In this fast lane of information
communication technology, where
things change at the twinkle of
an eye, one may easily forget
the humble beginnings and the
challenges that lined the path to
here. How did it all begin? Could my
story be an inspiration to someone
out there who is at the beginning?
You never know!
“Now that you have successfully
finished high school, what are your
plans? What do you want to do or
what do you want to be in future?”
Those are the questions that my
father asked me countless times.
To be honest, I had no clear-cut
idea of what I really wanted. I
had postponed answering those
nagging questions all along. But
now, fourth form was behind me
and the moment of truth was before
me. I was sure I wanted to take a
professional course that could put
me into the job market, but which
one, I didn’t know. My dad had
tossed up ideas for me to toy with,
as any parent would do, but none
seemed to excite me.
One day, my elder sister came home
with some brochures which she had
picked at an event. She asked me to
carefully look at them. They had
descriptions of an array of courses
that she wanted me to consider. One
common thing with the brochures
As there were not many colleges
offering KASNEB courses back then,
especially upcountry, my sister
suggested that I look for one in
Nairobi. I could stay with her as I
attended the college. I was doubly
excited because apart from coming
to a new environment, an interesting
course was lined up ahead of me.
“This bus stop is called Kencom“ said
my sister as we hurried to catch a
number 7C bus that would take us
was a big word on all of them:
KASNEB. Perhaps this was a college
that I had not heard of. Innocently,
I asked her if KASNEB was a school
she wished me to attend. “Don’t be
silly”, she answered while laughing
amusedly.
” KASNEB is an examinations body
that offers quality professional
examinations in accounting,
finance, credit, management
and information communication
technology”, she explained.
Before this moment, I had never
heard of KASNEB. From her
explanation, I sort of got interested
and decided to seriously go through
the brochures to see what they had
to offer. I had always trusted my
sister and knew that she meant
well for me. Because she demanded
that I choose at least one course,
I gravitated towards CICT. It had
something to do with computers
and these machines fascinated me.
Back then, the word “computer”
was a big name. I decided to
give it a shot.
By CAROLINE NGUGI, CICT GRADUATE
KASNEB NEWSLINE, Issue No. 1, January - March 201652
to the offices of KASNEB. Our mission
was for me to go and register for the
CICT course and formally start my
relationship with KASNEB. I was very
anxious and though the ride from
the city centre to KASNEB is not long,
it seemed like eternity.
“Karibieni mlango,” shouted the
conductor as we neared KASNEB.
We alighted right at the entrance.
I first soaked in the sight of the
brick-red building called KASNEB
TOWERS. This is the building, my
sister had told me, that had produced
some of the best corporate brains
in Kenya. Could I also become one
of them? “Who knows? Perhaps,” I
thought to myself as we walked
down towards the building.
As we were about halfway, a long
queue came into view. It was snaking
its way around a parking area in front
of the building and continued along
the right side of the building down
towards a second parking area.
Current students are indeed lucky as
they don’t have to queue at KASNEB
to register or pay for examinations.
I realised right then that I was not
alone in this quest for a professional
course. The queue was jammed with
eager-looking youth, thirsty for
professional careers.
We went direct to the reception to
enquire about the requirements and
the procedure. We were received
by a very kind lady who was very
willing to help. She gave me all the
paperwork I needed and directed
me to a small hall where I could
complete the forms.
As I joined the long queue thereafter,
I was not concerned about its length.
What mattered is that I was here
and I was embarking on a life-long
journey. Nothing else mattered.
After spending almost two and half
hours on the queue, I was attended
to and issued with my registration
number. The journey had begun in
earnest.
There was no time to waste. I
registered for classes at a college
by the name Cornerstone Training
Institute. Perhaps its name was
prophetic. As days went by, the
more I understood what CICT was
all about, and the more I became
fascinated with it.
Five months later, I received my
examination timetable. The time to
prove what had stuck in my head
from the many lessons was nigh.
I stepped up the gear in revision,
sacrificing all the time I could. I didn’t
intend to be caught by surprise by
any exam question or develop any
butterflies in the stomach when the
time came.
“God, please help me to remember
everything I have learnt,” I whispered
to myself as the invigilator
distributed the question papers
in what was to be my first KASNEB
examination sitting. The first paper
was “Introduction to Computing”,
comprising five questions. Three
days later, the examination period
was over. I had overcome the first hurdle
of the many that were to come. I waited
anxiously for the results.
After about a month, a friend of mine
informed me that the results were out. Those
days, we had to go to the post office to get
the transcripts containing the results unlike
today. Thanks to technology. Students can
now conveniently check their results on a
mobile phone or simply log onto the KASNEB
website from the comfort of their homes.
My whole body was shaking as I opened the
brown envelop. REFERRAL AND FAIL were
the most feared words, and I hoped that I
would not be a recipient of any. As fate would
have it, I had passed in two papers and had
a referral in one. I was disappointed but not
deterred.
One of my philosophies in life was never to
give up. I resolved to try again. It wasn’t until
the third examination sitting that I crossed
the Section One barrier. I could not hide my
elation.
KASNEB examinations, I realised, required
good and adequate preparation for one to
pass. If they were just a walkover, I reasoned,
we would have graduates with substandard
skills and who would be unable to compete
on a global job market. The import of the
motto “Providing globally competitive
professionals” now made sense to me. I had
to up my game if I had to pass the remaining
sections. And oh boy, that I did!
From where I stand now, I can confidently
say it was worth it. The relevance of CICT in
today’s world cannot be overstated. Almost
every facet of life is slowly falling into the
internet of things and God only knows what
lies ahead given the rapid pace of innovation.
As a result of the increasing application of
ICT in education, for instance, new ways of
learning have emerged. Words like E-books,
E-learning, virtual schools and so on are no
longer strange words.
KASNEB exams, I realised, required good and adequate preparation for one to pass. If they were just a walkover, I reasoned, we would have
graduates with substandard skills and who would be unable
to compete on a global job market.
KASNEB EXPERIENCE
KASNEB NEWSLINE, Issue No. 1, January - March 2016 53
Keen to keep its examinations in
tune with new developments in
the market, KASNEB called for a
breakfast meeting with the CICT
graduates towards the end of 2015
to deliberate on how to improve
on the curriculum issues affecting
students at college level.
Issues on how to provide students
with requisite skills to pursue
life-long learning with the support
of ICT were discussed. Students
were also encouraged to engage in
collaborative learning.
At the meeting, hastening of
issuance of certificates, among
others, was raised. KASNEB assured
that it was one of the key areas that
was being looked into.
Some graduates raised concern
that CICT as a course was not
well marketed and that one had a
difficult time trying to explain to
employers what CICT is all about.
That is however no longer the case
as KASNEB had risen up to the
challenge. While KASNEB cannot
sit on its laurels, there is no doubt
that awareness on its examinations
and related careers has grown
tremendously.
The most thrilling part of the
meeting was the coming up with a
resolution to establish a CICT body
similar to ICPAK. The association will
form a region-wide network and
promote the role of the profession
in the fields of information
communication technology. This will
definitely enhance the goodwill and
recognition of CICT graduates.
From my exper ience and
observations, CICT gives one
a platform with many career
paths, such as web developers,
techpreneurs, system analysts,
programmers and so on.
After my last paper in Section Six,
I undertook a project to develop
a fully functional database
system called SCHOOL KITCHEN
MANAGEMENT SYSTEM using
different programming languages.
This served as my launching pad into
self employment.
As I go about serving my clients now,
I can look back and proudly say: CICT,
NO REGRETS. To others who may
be where I was at the beginning,
I encourage you to take your pick
from KASNEB’s menu of professional
courses and run the full course. As
Zig Ziglar would say, “let us meet at
the top”.
KASNEB EXPERIENCE
KASNEB
Examination Syllabus Commencement date: July 2015
Certified Information Communication Technologists
Providing globally competitive professionals
CICT
Providing globally competitive professionals
KASNEB Towers, Hospital Road, Upper HillP.O. Box 41362 - 00100, Nairobi - Kenya
Tel: 254(020) 4923000 Cellphone: 0722-201214/0734-600624 Fax: 254(020) 2712915E-mail: [email protected] Website: www.kasneb.or.ke
KASNEB is ISO 9001:2008 certified
ISBN: 978-9966-1878-2-6KASNEB
Examination Syllabus Commencement date: July 2015
Diploma in Information Communication Technology
Providing globally competitive professionals
DICT
Providing globally competitive professionals
KASNEB Towers, Hospital Road, Upper HillP.O. Box 41362 - 00100, Nairobi - Kenya
Tel: 254(020) 4923000 Cellphone: 0722-201214/0734-600624 Fax: 254(020) 2712915E-mail: [email protected] Website: www.kasneb.or.ke
KASNEB is ISO 9001:2008 certified
ISBN: 978-9966-1878-6-4
The Diploma in Information Communication
Technology equips the candidates with the technical
know-how and skills necessary to work in the dynamic
ICT industry as technicians in systems development,
systems programming, internet and networking,
administration and maintenance.
Certified Information Communication Technologists
are skilled and competent system developers and
programmers, network administrators, system
engineers, ICT consultants and practitioners.
KASNEB NEWSLINE, Issue No. 1, January - March 201654
The Institute of Certified Investment and Financial Analysts (ICIFA) was started
in 1997 with the specific mandate of spearheading the development of the
requisite institutional and operational framework for the promotion and
enhancement of professionalism in the regional financial markets.
Institute of Certified Investment and Financial Analysts (ICIFA)
The Institute of Certified Investment
and Financial Analysts (ICIFA), formerly
the Institute of Certified Securities
and Investment Analysts (ICSIA), is the
professional body for holders of the Certified
Investment and Financial Analysts (CIFA)
qualification which is offered by KASNEB.
The CIFA qualification is benchmarked
with similar qualifications offered by other
international examination bodies of repute.
ICIFA is an affiliate member of the Association
of Certified International Investment
Analysts (ACIIA), which is based in Zurich,
Switzerland and is the international umbrella
body for national and regional associations
of investment professionals representing
over 100,000 portfolio managers, investment
analysts and advisers, asset managers, fund
managers, pension scheme managers and
related professionals. These professionals
are spread throughout Asia, Europe, Central
and South America, the Middle East and
Africa and encompass a wide variety of
languages, cultures and business customs.
ICIFA is the regional resource and advocacy
body for the finance and investment
profession, providing regional wide network
and promoting the role of the profession in
the fields of securities analysis, investment,
pension funds, asset management, corporate
finance, financial planning and financial
application development. ICIFA provides
highly skilled professionals that are rated
highly within the finance and investment
sector.
INVESTMENT AND FINANCIAL ANALYSTS (IFA) ACT (NO. 13 OF 2015)
The Institute’s secretariat was initially set
up at Nairobi Securities Exchange (NSE)
offices and was then known as Association
of Financial Analysts (AFA). The Institute
then moved to Red Cross offices next to
Professional Centre building and changed its
name from Association of Financial Analysts
(AFA) to Institute of Investment Professionals
(IIP) E.A. and in 2009 to the Institute of
Certified Securities and Investment Analysts
(ICSIA), a process which was made necessary
due to the major review of syllabuses that
was done by KASNEB in 2009.
The Institute at the time was run by a
Governing Council made up of a Chairman,
Vice-chairman, Secretary, Vice-secretary,
Treasurer, Vice-treasurer and five committee
members. The Institute’s committees
comprised of the Membership and
Publicity Committee, Education and
Training Committee, Finance and Strategy
Committee, Champions Committee and
Advocacy and Development Committee.
A stakeholders workshop that was held
in 2013 necessitated the need to change
the name of the Institute as well as the
examination. A Council meeting was held
early in 2014 to approve the proposed
changes which would later be read in
a report by the Chairman at the
Annual General Meeting (AGM) that
was held on 13 May 2014. During
the AGM, the following resolutions
relating to the change of name of
the Institute and examination were
passed by members:
(1) “that the name of the Institute
be changed from Institute
of Certified Securities and
Investment Analysts (ICSIA)
to Institute of Certified
Investment and Financial
Analysts (ICIFA) with effect from
15 May 2014.”
(2) “that in consultation with
K A S N E B ( t h e I n s t i t u t e’s
examinations board), the name
of the examination be changed
from Certified Securities and
Investment Analysts (CSIA)
examinations to Certified
Investment and Financial
Analysts (CIFA) examination
with effect from 1 July 2015.”
Following the approval of the above
resolutions, the Institute’s offices
moved to KASNEB Towers at Upper
Hill where it is currently situated.
By EMLYN JAMES NGWIRI
RESEARCH ANALYST, SUNTRA INVESTMENT BANK
KASNEB NEWSLINE, Issue No. 1, January - March 2016 55
The Investment and Financial Analysts (IFA) Act 2015
The Institute’s agenda was informed by the
desire to have a professional qualification
for the Finance and investment industry
that was recognised and appreciated by
all stakeholders. The regulation of finance
and investment professionals who engage
in financial and capital market operations,
financial analysis, financial modeling,
real estate investments, pension funds
management, investment, securities analysis
and investment banking, and other related
industries in the investment sector arose
from the need to have a legislative backing
so as to ensure that the professionals within
the finance and investment profession are
bound by a code of ethical principles. A
further expectation was to ensure strong
enforcement of Continuous Professional
Development (CPD) and professional ethics
among financial and investment analysts.
The search for the IFA Act has been on for
close to seven years with the collaborative
efforts from KASNEB, ICIFA Council and
Members of the Institute producing the
first draft in 2009. Later, three stakeholder
engagements were done in order to seek
views from the public which were considered
and adopted. The Bill was then presented to
the Finance, Planning and Trade Committee
of the National Assembly and the first
reading was done on 3rd June 2014. The
subsequent readings (second and third) were
done towards the end of 2014 and mid 2015
respectively with the president assenting to
the Bill on 11August 2015. The Act came into
operation on 8 December 2015.
The Act has six parts as follows:
Part I – Covers preliminary issues such as
short title and interpretations.
Part II – Is concerned with the
establishment of the Institute as
well as membership, Chairperson,
committees of the institute and
composition of the Registration
Committee.
Part III – Spells out registration,
licensing, qualification, issuance of
practicing certificates and annual
licenses to practicing investment
analysts.
Part IV – Relates to disciplinary
provisions, professional misconduct,
the disciplinary committee, appeals
procedures on registered members
under this Act .
Part V – Addresses the financial
provisions, financial year, annual
estimates and audit of the accounts.
Part VI – Deals with miscellaneous
issues relating to staff, offences
appointment of interim managers
and other regulations.
Supporting the above parts are
various schedules;
First Schedule -Provisions relating
to the Institute.
Second Schedule - Provisions
relating to the Council.
Third Schedule – Provisions relating
to the Registration Committee.
Fourth Schedule – Provisions
relating to the Disciplinary
Committee Proceedings on Inquiry.
Fifth Schedule – provisions relating
to the Interim Manager.
CIFA QUALIFICATION
The CIFA qualification comprises 18
papers structured in 3 parts as follows:
PART I
SECTION 1
No. Paper
CF11 Financial Accounting
CF12 Financial Management
CF13 Entrepreneurship and Communication
SECTION 2
No. Paper
CF21 Economics
CF22 Financial Institutions and Markets
CF23 Public Finance and Taxation
PART II
SECTION 3
No. Paper
CF31 Regulation of Financial Markets
CF32 Corporate Finance
CF33 Financial Statements Analysis
SECTION 4
No. Paper
CF41 Equity Investments Analysis
CF42 Portfolio Management
CF43 Quantitative Analysis
PART III
SECTION 5
No. Paper
CF51 Strategy Governance and Ethics
CF52 Fixed Income Investments Analysis
CF53 Alternative Investments Analysis
SECTION 6
No. Paper
CF61 Advanced Portfolio Management
CF62 International Finance
CF63 Derivatives Analysis
For more details please visit www.icifa.co.ke and download the IFA Act.
IFA ACT
NOTICE TO THE PUBLIC AND ALL AFFECTED PARTIES
We wish to notify the public
and players in the finance and
investments sector that the
Investment and Financial Analysts
Act (No 13. of 2015) came into
operation on 8 December 2015.
This is an “Act of Parliament to provide
for the establishment, powers and
functions of the Institute of Certified
Investment and Financial Analysts;
to provide for the examination and
registration of Certified Investment
and Financial Analysts and for
connected purposes”.
We therefore wish to advise
members of the public, employers,
all players and regulators in the
financial markets in Kenya to take
note of the following provisions in
the Act:
(1) Section 20: No person
shall practice as a Certified
Investment and Financial
Analyst unless the person is
registered by the Institute;
(2) Section 21: Any person
practicing as an Investment and
Financial Analyst in Kenya must
register with the Institute and
pass the fit and proper test as
per section 8 of the Act;
(3) Section 16 (1-3): A person is
qualified to be registered if:
(a) The person has sat and
passed the final part of the
Certified Investment and
Financial Analysts (CIFA)
examination, including its
earlier designations, examined
by KASNEB;
(b) Holds a qualification approved
before the commencement of
this Act and was registered at
the time of commencement of
the Act to act as an investment
and financial analyst or be
deemed to be registrable by
the Institute’s Registration
Committee. To this end the
Council will publish rules for
registration of persons who
are not registrable under (a)
above.
(c) The person has satisfied the
requirements of Chapter Six
of the Constitution
(4) Any person who does not
qualify under item 3(a) and (b)
above and has other qualifi-
cations that the person would
like to be recognized by the
Institute is advised to apply to
the Institute pursuant to Section
15 and 16 of the Act.
Interested parties are requested
to familiarise themselves with
all provisions of the Act and any
subsequent rules and guidelines as
may be published by the Institute.
All queries and clarifications about
the Act should be addressed to the
Institute.
FA. (Dr) Wakah George Odhiambo
Chairperson
NOTICEs
With Kenya, being an investment destination, ICIFA’s mission is to develop a talent pipeline for Investment & Financial Analysts in developing economies within the Sub-Saharan Africa.
Being an ICIFA member provides an opportunity for networking, gaining more knowledge in financial markets, professional growth through trainings and many more.
ICIFA as a professional body is now recognised under the Investment and Financial Analysts Act of 2015 ( No. 13 of 2015) and is dedicated to regulating professionals in financial markets in an effort to protect investors wealth.
We invite eligible members to join our membership under the Full Membership category. Membership is open to all CIFA graduates.
Registration fee is Kshs 6,000.
Yearly subscription is Kshs. 6,000.
Affiliate member of ACIIA and APSEA
INSTITUTE OF CERTIFIED INVESTMENT AND FINANCIAL ANALYSTSP.O. Box 48250-00100 NAIROBI,
KASNEB TOWERS, Hospital Road Upperhill, Nairobi Kenya. Mobile: 0726498698 Email: [email protected] Website: www.icifa.co.ke
KASNEB NEWSLINE, Issue No. 1, January - March 2016 57
I. HOW TO CREATE A STUDENT ACCOUNT ON THE KASNEB STUDENT PORTAL
All students are required to open a
student account on the KASNEB website.
To open the account, follow the steps below:
1. Click on the student login link then
choose the student icon or proceed
to click the student icon if you use the
direct link (http://online.kasneb.or.ke )
to the student portal.
2. Click on create account and select
whether you have a Student Registration
Number or not and proceed to provide
names, preferred email address and a
strong password (which will be used
for future access to self information)
and click save.
3. Provide the email address and password
used when creating the account and
click unlock to login in.
4. Select the “Registration Details” tab.
5. Access the “Course Choice” tab.
6. Select the examination from the
dropdown box, click on the “Yes”
checkbox and provide the registration
number without the prefix (e.g. if
your registration number is
NAC/68148, provide 68148 as
the registration number) and
click save.
Benefits
You will be able to:
• Download authority to sit for
examination/timetable
• Result summary.
Once the website upgrade is finalised in the
near future, you will be able to:
• Edit your contact address
• Check payment status
• Book for examinations.
Students are hereby advised to ensure they have active student accounts given that moving forward, timetables, result summaries and other individualised communication will only be channelled through the student accounts.
II. CALLING ON KASNEB STUDENTS WITH DISABILITIES
We are in the process of enhancing disability
mainstreaming at KASNEB. This is in an effort to
improve our service delivery to our students with
disabilities.
In this connection, KASNEB wishes to invite any
student with a disability to forward the following
details to KASNEB:
• Full name and National Identification/Passport
Number.
• KASNEB registration number.
• Current email, telephone number and
postal address.
• Nature of disability.
• Whether registered with the National
Council for Persons with Disability and
if so, details of the registration.
Students with disability are encouraged to
register with the Council. Further details on
the Council are available on the Council’s
website www.ncpwd.go.ke
s
KASNEB NEWSLINE, Issue No. 1, January - March 2016 58
III. KASNEB STUDENT FEE COLLECTION ACCOUNTS WITH BANKS
Students, trainers, parents/guardians/sponsors, employers and other stakeholders
are hereby informed that KASNEB operates student fee collection accounts with the
following banks:
(a) National Bank of Kenya Ltd. (NBK)
Account Number: 01001031572601
(b) Equity Bank Ltd.
Account Number: 0170299238025
(c) Kenya Post Office Savings Bank (Postbank)
Account Number: 0744130009246
(d) Co-operative Bank of Kenya Ltd.
Account Number: 01129128535900
The bank accounts are already operational.
Students are required to complete the appropriate KASNEB forms and relevant fee
deposit slips (except for Postbank which does not use deposit slips). The students will
be issued with one copy of the deposit slip and a computer generated slip for their
records. However, for Postbank only a computer generated receipt will be issued.
Upon payment of the requisite fees to the bank, a cash deposit receipt will be issued
to the payee. The completed KASNEB forms will be left with the bank for onward
transmission to KASNEB together with one copy of the deposit slip.
Students are advised that payment of fees at KASNEB offices will soon be phased
out and therefore they should utilise the available channels through the banks.
Note: Students should ensure that all documents requiring certification, such as copies
of academic and professional certificates and identity card/passport are certified
before being handed over to the bank.
IV. BANNING OF MOBILE PHONES FROM THE EXAMINATIONS ROOM
All students are hereby informed that mobile phones
were banned from the examinations room with effect
from the November/December 2014 sitting.
Students are further required to note that disciplinary
action will be taken against any student found in
possession of a phone in the examination room,
regardless of whether the phone was in use or not at
the time of its detection.
s
KASNEB NEWSLINE, Issue No. 1, January - March 2016 59
s
V. KASNEB SERVICES NOW AVAILABLE AT HUDUMA CENTRES
We are pleased to inform our stakeholders that KASNEB services are now available at the following Huduma Centres:
HUDUMA CENTRE KASNEB OFFICER IN CHARGEKASNEB MOBILE NUMBER
EmailSAFARICOM AIRTEL
Kibera, Nairobi Anne K. Wandeto 0701698149 0737018536 [email protected]
Nyeri Anthony M. Kimani 0701698213 0737256315 [email protected]
GPO, Nairobi Caroline M. Makutwa 0701699013 0737315992 [email protected]
Meru Christine M. Ndwiga 0701699017 0737422739 [email protected]
Kisumu Collins M. Okomo 0701699026 0737492586 [email protected]
Mombasa Edith A. Were 0701699078 0737516847 [email protected]
Kisii Egrah K. Masese 0701711465 0737543023 [email protected]
Makadara, Nairobi Maurice O. Gwaye 0701713039 0737618421 [email protected]
Eldoret Timothy K. Rotich 0701713366 0737831524 [email protected]
Note: KASNEB services will be available at the Nakuru Huduma Centre effective from Monday, 20 June 2016.
The services offered at the KASNEB counters at the Huduma Centres
include:
(a) Inquiries
(b) Fee payment at the Huduma Centre using Post Pay
(c) Student registration
(d) Examination entry
(e) Exemptions
(f ) Registration renewal
VII. KASNEB CONTACTSVI. DEFERMENT OF EXAMINATIONS
Students are reminded that deferment of examinations is
only considered under the following:
• Medical cases.
• Job transfers or postings outside the country where
no examination centres exist.
• Clashing of university examinations and those of
KASNEB.
Students are further required to note that all applications
of deferment:
• MUST be accompanied by supporting evidence.
• MUST be received not later than 30 days before the
examination date, except for medical cases.
All applications for deferment that do not meet the above
conditions will NOT be considered.
+254 - (020) 4923000 www.kasneb.or.ke
072220121407742012140780201214073460062407920006380792002351
KASNEBOfficial
[email protected] @KASNEBOfficial
KASNEB Towers, Hospital Road, Upper Hill
P.O. Box 41362 - 00100 Nairobi - Kenya
KASNEB NEWSLINE, Issue No. 1, January - March 201660
Introduction
This code of conduct
and ethics (herein-
after referred to as “the
Code”) is intended to establish
the minimum standards of
ethical conduct and behaviour
of KASNEB students in different
environments and circum-
stances. The Code is expected
to provide guidance to students
for purposes of adhering to
the fundamental principles
of law, national values and
ethics, while safeguarding the
integrity and dignity of the
student and KASNEB.
The Code further aims at
ensuring that registered
KASNEB students not only
uphold the core values
of KASNEB which include
integrity, professionalism,
equity, teamwork and innova-
tiveness, but are also seen to
actively promote the values.
PART I – PRELIMINARY
Citation
(1) This Code may be cited as the Code
of Conduct and Ethics for KASNEB
Students.
Interpretation
(2) In this Code, unless the
context otherwise requires –
“Board” means the Board of KASNEB.
“Chairman” means the Chairman
of the Board of KASNEB.
“Chief Executive Officer” means the
Chief Executive Officer of KASNEB.
“Country” means the country
in which a student is resident.
“Student” means a person
duly registered by KASNEB to
undertake any of its examinations.
“Trainer” means a person engaged
by a training institution to offer
tuition for any of the examinations
administered by K ASNEB.
“Training institution” means an
institution so registered to offer
tuition for KASNEB examinations.
Application and scope of the Code
(3) This Code shall apply to all registered
KASNEB students. The students will
be required to read, understand and
sign an undertaking to abide by the
Code.
PART II – REQUIREMENTS
General conduct
(4) A student shall observe the principle
of integrity in his/her conduct and
interactions with other persons.
Upholding integrity requires the
student to be honest, trustworthy and
generally conduct himself/herself in a
manner that upholds the dignity of the
student, the examination, the relevant
profession(s) and KASNEB.
(5) A student shall observe the laws of the
country in which he/she is resident.
Submission of documents and other information
(6) A student shall ensure that all documents
and information submitted to KASNEB
including copies of certificates,
transcripts, identity documents,
passport photos, testimonials, receipts
and other documents for purposes of
registration, exemption or any other
purpose are genuine and accurate.
(7) A student shall ensure that any
document or other information that he/
she submits purporting to be issued by
KASNEB; to either a university or other
institution of higher learning, employer/
potential employer, government agency
or any other institution for whatever
purpose, is genuine and originates from
KASNEB.
CODE OF CONDUCT AND ETHICS FOR KASNEB STUDENTS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 61
(8) A student shall ensure that any person
certifying documents to be submitted
to KASNEB is duly authorised to do so
under the guidelines issued by KASNEB
for certification of documents.
Conduct in a training institution
(9) A student attending tuition in a training
institution shall abide by the rules and
regulations issued by the training
institution to govern the conduct of
students.
(10) Notwithstanding Clause 9 above, a
student shall treat fellow students,
trainers and management of a training
institution with courtesy and respect
and shall not engage in any activity
that is likely to bring himself/herself,
the training institution or KASNEB into
disrepute.
Examination rules and regulations
(11) A student shall abide by the KASNEB
examination rules and regulations at
all times whether or not the student is
sitting for the examination.
(12) The examination rules and regulations
shall form part of this Code.
Posting and sharing of information/comments on social and other media
(13) A student shall observe the general rules
of integrity and decorum in posting
information or making comments on
social and other media. In particular:
(i) A student shall not post or circulate
information purported to be from, or
relating to KASNEB on social or any
other media before reliably confirming
the accuracy and completeness of the
information.
(ii) A student shall not make derogatory,
abusive or otherwise offensive
comments against KASNEB, other
students, trainers or any other person
or institution.
(iii) No student shall create any
website, blog or social media
page purporting to be that
of KASNEB for whatever
purpose.
(iv) A student shall not hold
himself or herself as
representing KASNEB in any
capacity unless with the
express authority of the Chief
Executive Officer which shall
be in writing.
PART III: BREACH OF THE CODE
Reporting breaches of the Code
(14) All suspected cases of breach of
the Code should be reported in
writing to the Chief Executive
Officer. The suspected breach
should be reported within
reasonable time to facilitate
ef f ic ient and effec t ive
investigations.
(15) Any available evidence should
be attached when reporting
cases of breach of the Code.
(16) All information received shall be
treated in strict confidentiality.
Action for breach of the Code
(17) All reported cases of breach of
the Code shall be referred to
the Examinations Committee,
or any other Committee that
the Board may decide based
on circumstances of each case.
(18) Action shall be taken in
confirmed cases of breach of
the Code in accordance with
the laid down rules and regula-
tions of KASNEB, the provisions
of Section 42 of the Accountants
Act. No. 15 of 2008 and/or any
other applicable law.
(19) Action for breach of the Code shall
include but not limited to:
(a) Deregistration as a student.
(b) Cancellation of examination results.
(c) Prosecution as provided for under the
Accountants Act. No. 15 of 2008 and/
or any other applicable law.
Appeals
(4) All cases of appeal shall be forwarded in
writing within 30 days of notification of
action for breach to the Chief Executive
Officer.
Enquiries and clarifications
(5) All enquiries or requests for clarification
shall be directed to the Chief Executive
Officer.
Revision of the Code
(6) KASNEB shall review the Code from time
to time as appropriate for relevance and
validity.
(7) The review of the Code shall be
undertaken through a consultative and
participatory process.
KASNEB NEWSLINE, Issue No. 1, January - March 201662
THE INTERNATIONAL ACCOUNTING EDUCATION STANDARDS BOARD – AN OVERVIEW
What is the IAESB?
The International Accounting Education
Standards Board (IAESB) is an independent
standard-setting body that serves the public
interest by strengthening the worldwide
accountancy profession through the
development and enhancement of education.
Through its activities, the IAESB enhances
education by developing and implementing
International Education Standards, which
increases the competence of the global
accountancy profession - contributing to
strengthened public trust.
What Does the IAESB Do?
The offices of the IAESB are based in New York,
United State of America (USA). The vision of the
IAESB is to work in the public interest to develop
high-quality accounting education standards
and guidance that are adopted and applied
internationally.
The IAESB is focused on developing the
professional knowledge, skills, values, ethics,
and attitudes of the accountancy profession.
It develops and issues publications on
pre-qualification education and training of
professional accountants, and on continuing
professional education and development for
members of the accountancy profession. These
publications include: International Education
Standards (IESs), International Education Practice
Statements (IEPSs), International Education
Information Papers (IEIPs), and support material,
such as toolkits or interpretation guidance. The
IAESB also acts as a catalyst in bringing together
the developed and developing nations, as
well as nations in transition, and to assist in
the advancement of accountancy education
programs worldwide, particularly where this
will assist economic development.
Who Comprises the IAESB?
The IAESB consists of a Chairman, a Deputy
Chairman, and 16 members comprising
accounting academics, practitioners in
public practice, accountants in business,
the public, and other individuals with an
interest in its work. These members are
equally balanced between practising
auditors and accountants and those
not in practice, along with three public
members. A complete list of IAESB
members, along with their biographies,
is available on the IAESB website.
Each year, the International Federation
of Accountants (IFAC) issues a call for
nominations to the IAESB as well as the
other boards and committees it supports.
The recruitment process is competitive
with interviews being conducted
by the Nominations Committee. All
appointments are approved by the Public
Interest Oversight Board (PIOB).
Why is Accountancy Education Relevant?
Enhancing education through
developing and implementing IESs
should increase the competence of
the global accountancy profession and
contribute to strengthened public trust.
To meet the continual challenges facing
the global economy, the accountancy
profession needs to ensure that
individuals who become professional
accountants achieve an agreed level of
competence, which is then maintained.
Competence is developed and sustained
through initial education and practical
experience, followed by continuing
professional development. The
profession, therefore, needs to set and
meet high educational standards in these
three areas. Enhancing education serves
the public interest by contributing to the
ability of the accountancy profession to
meet the needs of decision makers.
Why International Education Standards?
The IESs assist professional accountancy
organisations, regulators, employers, academics,
and students by prescribing principles for the
learning and development of professional
accountants. They provide IFAC member bodies
and stakeholders interested in accounting
education with a common reference point
or benchmark. Globally accepted standards
should minimise differences among countries
and jurisdictions, thus reducing international
differences in the requirements to qualify and
work as a professional accountant. In addition,
they should increase the opportunity for
mobility of labour and in doing so, contribute
to the global economy.
How Does the IAESB Set Global Education Standards?
The IAESB follows a rigorous due process,
including an international exposure and
consultation process that ensures that the
views of the public and all those affected by its
standards are considered.
Transparency is an essential component of
the standard-setting process. IAESB’s quarterly
meetings are open to the public. Proposed
standards are also available for public comment
as exposure drafts on the IFAC website.
How is the IAESB Related to IFAC?
The structures and processes that support the
operations of the IAESB are facilitated by IFAC,
the global organisation for the accountancy
profession. IFAC is comprised of 175 members
and associates in over 130 countries and
jurisdictions, representing approximately
2.8 million accountants in public practice,
education, government service, industry and
commerce.
For more information on the IAESB and its
activities, please visit the IFAC website at
www.ifac.org.
By CPA Isaac Muchiri Njuguna: Examinations Director, KASNEB and Board Member, International Accounting Education Standards Board (IAESB)
KASNEB NEWSLINE, Issue No. 1, January - March 2016 63
FULLY ACCREDITED TRAINING INSTITUTIONS AS AT 31 MARCH 2016
1. Achievers College of Professionals - Embu
2. African Institute of Research and Development Studies
- Eldoret
3. African Institute of Research and Development Studies
- Kisumu
4. Alphax College - Eldoret
5. Bartek Institute - Eldama Ravine
6. Bartek Institute - Kabarnet
7. Catholic University of Eastern Africa, Main Campus - Nairobi
8. Century Park College - Machakos
9. College of Human Resource Management - Nairobi
10. Dedan Kimathi University of Technology, Nyeri Town
Campus - Nyeri
11. East Africa School of Management - Nairobi
12. Eldoret Polytechnic - Eldoret
13. Elgon View College, Eldoret Campus - Eldoret
14. Embu College - Embu
15. Excel Institute of Professionals - Thika
16. Fomic Business School, Buea - Cameroon
17. Graffins College - Nairobi
18. Gusii Institute of Technology - Kisii
19. Institut Polytechnique De Byumba, Byumba - Rwanda
20. Institut Professionnel De Certification - Douala,
Cameroon
21. Jaramogi Oginga Odinga University of Science and
Technology - Bondo
22. Jomo Kenyatta University of Agriculture and Technology,
Main Campus - Nairobi
23. Jomo Kenyatta University of Agriculture and Technology,
Nakuru CBD Campus - Nakuru
24. Kabete Technical Training Institute - Nairobi
25. Kaiboi Technical Training Institute - Eldoret
26. KCA University Kisumu Campus - Kisumu
27. KCA University, Main Campus - Nairobi
28. Kenya School of Credit Management - Nairobi
29. Kenya School of Government - Mombasa
30. Kiambu Institute of Science and Technology - Kiambu
31. Kibabii University College - Bungoma
32. Kigali Institute of Management, Kigali - Rwanda
33. Kirinyaga University College - Kerugoya
34. Kisumu Polytechnic - Kisumu
35. Kitale Technical Training Institute - Kitale
36. Maaron Business School, Douala - Cameroon
37. Machakos Institute of Technology - Machakos
38. Machakos University College - Machakos
39. Masai Technical Training Institute - Kajiado
40. Meru Technical Training Institute - Meru
41. Michuki Technical Training Institute - Kangema
42. Mombasa Aviation Training Institute - Mombasa
43. Mombasa Technical Training Institute - Mombasa
44. Mount Kenya University, Nkubu Campus - Nkubu
45. Murang’a University College - Murang’a
46. Mwangaza College - Nakuru
47. Nairobi Institute of Business Studies - Ruiru Campus
48. Nakuru Counseling and Training Institute - Nakuru
49. NEP Technical Training Institute - Garissa
50. Nishkam Saint Puran Singh Institute - Kericho
51. Nkabune Technical Training Institute - Meru
52. Nyandarua Institute of Science and Technology - Nyahururu
53. NYS Technical Training College - Mombasa
54. NYS Technical Training Institute - Naivasha
55. Ol’lessos Technical Training Institute - Lessos
56. PC Kinyanjui Technical Training Institute - Nairobi
57. Pinnacle Business School - Nairobi
58. Ramogi Institute of Advanced Technology - Kisumu
59. Riara University - Nairobi
60. Rift Valley Institute of Science and Technology - Nakuru
61. Rift Valley Technical Training Institute - Eldoret
62. Rongo University College - Rongo
63. Rware College of Accounts - Nyeri
KASNEB NEWSLINE, Issue No. 1, January - March 201664
64. Shamberere Technical Training Institute - Kakamega
65. Sigalagala Technical Training Institute - Kakamega
66. St. Paul’s University, Main Campus - Limuru
67. St. Paul’s University, Nairobi Campus - Nairobi
68. Star College of Management Studies - Nairobi
69. Strathmore University - Nairobi
70. Summit Institute of Professionals - Nairobi
71. Thika Technical Training Institute - Thika
72. Times Training Centre - Mombasa
73. University of Eastern Africa, Baraton - Kapsabet
74. University of Rwanda, College of Business and Economics, Kigali - Rwanda
75. Vision Institute of Professionals, Mombasa Campus - Mombasa
76. Vision Institute of Professionals, Nairobi Campus - Nairobi
you are doubting the quality of training you are getting at your college,
THEN it probably is NOTaccredited by KASNEB
Before you enroll, ask if the college is accredited by KASNEB
IF
NOTE: Information on other training institutions in the process of accreditation is available on the KASNEB website: www.kasneb.or.ke
ACCREDITED TRAINING INSTITUTIONS
KASNEB NEWSLINE, Issue No. 1, January - March 2016 66
Taking services closer to the peopleKASNEB at Huduma Centres
PICTORIAL
Kisii
Universities and Colleges Fair for High School Students at Senior Chief Koinange High School, Kiambu County on Sunday, 6 February 2016 organised by Edu-World Wide
Business talk organised by Chuka University Accounting Students Association, Chuka on Friday, 6 November 2015
Eldoret
GPO, Nairobi
KisumuMakadara, Nairobi Meru Mombasa Nyeri
Kibera, Nairobi
KASNEB NEWSLINE, Issue No. 1, January - March 2016 67
Rewarding excellencePrize Award Ceremony for the May 2015 Examination sitting held on Friday, 8 April 2016 at the Hilton Hotel, Nairobi
KASNEB NEWSLINE, Issue No. 1, January - March 2016 68
Laying of the foundation stone on Tuesday, 12 April 2016 at KASNEB Towers, Nairobi
A milestone of progressKASNEB TOWERS II
PICTORIAL
KASNEB NEWSLINE, Issue No. 1, January - March 2016 69
PICTORIAL
KASNEB NEWSLINE, Issue No. 1, January - March 2016 70
Sensitisation workshops
Sensitisation workshops for KASNEB and Kenya National
Library Services (KNLS) help desk officers held in various parts of the country on Saturday, 2 April 2016
Bontana Hotel, NakuruMombasa Beach Hotel, Mombasa
Green Hills Hotel, Nyeri
Bontana Hotel, Nakuru Mombasa Beach Hotel, Mombasa
Green Hills Hotel, NyeriSunset Hotel, Kisumu
KASNEB held workshops for County Directors of Education, County Education and Examination Officers, Chief Invigilators in various parts of the country on Friday, 1 April 2016
Minimum entry requirements for diploma qualifications:Kenya Certificate of Secondary Education (KCSE) with a mean grade of at least grade C- (C Minus) or equivalent qualifications.
Providing globally competitive professionals
FOR MORE INFORMATION CONTACT:KASNEB Towers, Hospital Road, Upper Hill, P.O. Box 41362 - 00100, Nairobi - Kenya Tel: 254(020) 4923000, Cellphone: 0722-201214/0734-600624, Fax: 254(020) 2712915 E-mail: [email protected], [email protected] , Website: www.kasneb.or.ke
Facebook:KASNEBOfficial, Twitter: @KASNEBOfficialKASNEB IS ISO 9001: 2008 CERTIFIED
DIPLOMA QUALIFICATIONS
Minimum entry requirements for professional qualifications:(a) Kenya Certificate of Secondary Education (KCSE) with a mean grade of at least grade C+ (C plus)
provided the applicant has obtained a minimum of grade C+ (C plus) in both English and Mathematics or equivalent qualifications.
(b) A degree or diploma from a recognised training institution.
PROFESSIONAL QUALIFICATIONS
Accounting Technicians Diploma
(ATD)
Diploma in Credit Management
(DCM)
Diploma in Information Communication
Technology (DICT)
Certified Credit Professionals
(CCP)
Certified Public Accountants (CPA)
Certified Investment and Financial
Analysts (CIFA)
Certified Information Communication
Technologists (CICT)
Certified Secretaries (CS)
The mandate of KASNEB is
the development of syllabuses, conduct of professional, diploma and technician examinations and certification of candidates in accountancy, finance, credit, governance and management, information technology and related disciplines; the promotion of its qualifications nationally and internationally and the accreditation of relevant training institutions.
Why pursue a KASNEB qualification
• Internationally recognised• Highly rated by employers • International mobility• Membership to professional institutes of
repute• Credit transfers with institutions of higher
learning
KASNEB invites eligible applicants to register for the above qualifications. Exemptions will be granted to holders of relevant degrees and diplomas from recognised universities, institutions of higher learning and other examination bodies.
It pays to advertise in the
Contact the Marketing and Corporate Affairs Unit through: P.O. Box 41362 - 00100 Nairobi Tel: 254(020) 4923000 Cellphone: 0722-201214/0734-600624 E-mail: [email protected] or [email protected]
KASNEB NEWSLINE
KASNEB Newsline is one of the most widely read journals in Kenya. It is produced four times in a year. Over 50,000 copies are printed for each issue.
The Newsline is distributed free of charge within and outside Kenya through secondary schools, Kenya National Library Services branches, training institutions, universities, government ministries, Kenyan Embassies and High Commissions.
The Newsline is also available on the KASNEB website.
Grow your business by advertising in the KASNEB Newsline. Call us, book for space and watch your institution or business grow.
KASNEB NEWSLINE, Issue No. 1, January - March 2015 1
KASNEB The Professional Journal of KASNEB Issue No. 1 January - March 2015
KASNEB NEWSLINEEDUCATIVE INFORMATIVE ENTERTAINING
TOPICS FEATURED
ENVIRONMENTAL ANALYSIS IN STRATEGIC
MANAGEMENTCROSS LISTING
DEBTORS TRAITS EXTERNALITIES
CRITICAL SUCCESS FACTORS IN FILE
CONVERSION
EXTRAORDINARY BOSSES
REVISED SYLLABUSES
ENVIRONMENTAL ANALYSIS
KASNEB NEWSLINE, Issue No. 2, April - June 2015 1
KASNEB The Professional Journal of KASNEB Issue No. 2 April - June 2015
KASNEB NEWSLINEEDUCATIVE INFORMATIVE ENTERTAINING
TOPICS FEATURED
BUSINESS VALUATION FOR MERGERS AND
ACQUISITIONS
RISK MANAGEMENT FOR CLOUD
COMPUTING
THE EQUITY VALUATION
PROCESS
IMPLEMENTATION OF TQM IN BUSINESS
PUBLIC FINANCE
THE DIGITAL ECONOMY REVISED SYLLABUSES
KASNEB The Professional Journal of KASNEB Issue No. 3 July - September 2015
KASNEB NEWSLINEEDUCATIVE INFORMATIVE ENTERTAINING
TOPICS FEATURED
INTEGRITYIN LEADERSHIP
TURNAROUND STRATEGIES
INFORMATIONSECURITY
EQUITY VALUATION
BUILDING A TEAM
POWER OF THE TONGUE
STUDENT-CENTERED E-LEARNING
REVISED SYLLABUSES
SPECIMENSPECIMEN
SPECIMEN
INTEGRITY IN LEADERSHIP
?
KASNEB The Professional Journal of KASNEB Issue No. 4 October - December 2015
KASNEB NEWSLINEEDUCATIVE INFORMATIVE ENTERTAINING
TOPICS FEATURED
EFFECTIVE PERFORMANCE APPRAISAL
ISLAMIC FINANCE
INTERNET OF EVERYTHING
PROFESSIONAL SKEPTICISM
STANDING OUT
PERSONAL APPEARANCE
QUALITY ASSURANCE IN INTERNAL AUDITING
TECHNICIAN TO DIPLOMA TRANSITION
PERFORMANCE
APPRAISAL
KASNEB COURSES OFFERED
�Accounting Technicians Diploma (ATD)
�Certified Public Accountants (CPA)
�Certified Investment and Financial
Analysts (CIFA)
�Certified Secretaries (CS)
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KNEC COURSES
Certificate and Diploma in:�Business Management
�Human Resource
�Supply Chain Management
�Sales and Marketing
MODE OF STUDY
Computer Courses�Certificate in Computerized
Accounting (Quickbooks,Sage,
Pastel, etc)
�Certificate in Graphics Design
�Certificate in Web Design
�Certificate in Computer Programming
�Certificate in computerized
Programming
�Certificate in Microsoft Office
�Certificate in Computer Repair (A+)
�Certificate in Networking (N+)
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KISM COURSES
�APS-K
�CPSP-K
�Full Time: (Mon-Fri) 8:30am- 4:00pm�Evening: 5:30pm - 7:30pm�Early Morning: 6:30am - 8:00am�Weekend ONLY Classes: (Sat & Sun) 8:30am - 4:00pm