annual report & financial statements 2018 · 2020. 8. 9. · we have audited the accompanying...

ANNUAL REPORT & FINANCIAL STATEMENTS2019

Your Partner to Prosperity

KIMISITUS A C C O LT D .

ANNUAL REPORT & FINANCIALSTATEMENTS 2018

1 KIMISITU SACCO FINANCIAL REPORT

Cs/4252 Kimisitu Co-operative Savings and Credit Society Limited

Vision“The personal financial solutions provider of choice”

MissionTo empower members economically by providing quality financial services through prudent mobilization of resources and excellent

customer care.

Core ValuesIn all our services to members and customers, we shall be bound by the following values.

• Professionalism

• Respect

• Equality

• Commitment

• Transparency & Accountability

• Integrity

• Customer Focus

• Equity

Motto“Your partner to prosperity

2KIMISITU SACCO FINANCIAL REPORT


TABLE OF CONTENTS03CORPORATE INFORMATION

04REPORT OF THE BOARD OF DIRECTORS

05STATISTICAL INFORMATION

06-07MANAGEMENT DISCUSSION AND ANALYSIS OF STATISTICAL INFORMATION

08STATEMENT OF BOARD OF DIRECTORS RESPONSIBILITIES

09-13REPORT OF THE INDEPENDENT AUDITOR

14STATEMENT FOR PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

15STATEMENT OF FINANCIAL POSITION

16STATEMENT OF CHANGES IN EQUITY

17STATEMENT OF CASHFLOWS

18-47NOTES TO THE FINANCIAL STATEMENTS



CORPORATE INFORMATION

Board Members : Phillip Isaac Oyuko Chairperson : Peter Mutugi Kirimi Vice Chairperson : Evaline Ochieng Hon. Secretary : CPA Jotham Opiyo Treasurer : Isaac Ochieng Director : CPA June Nduku Kivinda Director : Janerose Karimi Mwangi Director : Agunga Chris Duncan Director : Phillip Nzioki Director : Dorobin Agoti (Retired in March 2019) : Nicholas Odhiambo (Retired in March 2019)

Supervisory Committee : Collins Bonyo Chairman : Amos Atuya Secretary : Margaret Wanjiru Member

Registered Office : Woodlands Road, Kilimani : LR No 209/1705/4 : P.O. Box 10454-00100 : Telephone: +254 202 733 601 : Cell +254 724 310 626, +254 735 000012 : Nairobi : Email: [email protected]

Chief Executive Officer : Lwanga Mbeche : P.O. Box 10454-00100, Nairobi : Email: [email protected]

Principal Bankers : NCBA Bank Kenya Limited : Mamlaka Road Branch : P.O. Box 30437-00100 : Nairobi : Cooperative Bank of Kenya Limited : Nairobi Business Centre Branch : P.O. Box 46773-00100 : Nairobi Independent Auditor : Henry Smith and Wilson : Certified Public Accountants (K) : Kalson Towers, 6th Floor : P.O. Box 9937-00100 : Nairobi



REPORT OF THE BOARD OF DIRECTORSThe Board of Directors submit their annual report together with the audited financial statements for the year ended 31st December 2019

IncorporationThe society is incorporated in Kenya under the Co-operative Societies Act, Cap 490 and is domiciled in Kenya.

Principal ActivityTo empower members economically by providing quality financial services through prudent mobilization of resources and excellent customer care. This affords the members an opportunity for accumulating savings and thereby create a source of funds from which loans are made to members for provident and development purposes at fair and reasonable rate of interest.

Results

2019 2018

Kshs.”000” Kshs.”000” Surplus 116,084 107,880 Income tax expense (13,644) (10,147)Net surplus 102,441 97,733 Interest on members’ deposits 454,057 439,985

Dividend/Interest on Members DepositsThe Board of directors recommends payment of interest on members’ deposits of 9 % (2018,11%).

They also recommend dividends of 15% (20%,2018) on the shares held as at 31st December 2019, as set out in the strategic plan.

Board of DirectorsThe Board of Directors who served during the year and to the date of this report are as listed on page 5.

AuditorThe Society Auditor, Henry Smith and Wilson were appointed during the year in accordance with the provisions of the Co-operative Societies Act Cap 490. and have expressed their willingness to continue in office.

BY ORDER OF THE BOARD

____________________________ ___________________

Evaline Akinyi Ochieng DateHon. Secretary

10/02/2020



STATISTICAL INFORMATION FOR THE YEAR ENDED 31ST DECEMBER 2019STATISTIAL INFORMATION FOR THE YEAR ENDED 31ST DECEMBER 2019

2019 2018 2017Number of active members 7,629 7,342 7,238 Defaulters 875 803 752 Deceased 81 67 57 Non-active members 2,790 2,059 1,228 Exmembers 4,856 4,804 4,298 Total 16,231 15,075 13,573 Number of employees 39 35 30

2019 2018 2017Kshs."000" Kshs."000" Kshs."000"

Financial Summary Share capital 334,224 213,154 129,145 Members' Deposits 5,352,622 4,742,891 4,146,792 Statutory reserve fund 99,145 78,657 59,111 Revenue Reserves 161,241 131,189 96,498 Investments 18,596 17,563 11,421 Assets 7,040,808 6,051,505 5,154,850 Current Assets 978,966 979,748 577,602 Current Liabilities 781,110 541,940 549,529 Loans to members 5,321,445 4,806,697 4,326,032 Shareholders' equityTurnover 798,199 705,372 623,435 Liabilities 6,198,766 5,391,797 4,710,180 Net surplus/(deficit) 116,084 107,880 59,528

Statutory Requirement 2019 2018 2017Key Ratios % % % %

Capital Adequacy RatiosCore capital/total assets 10%** 11% 10% 8%Core capital/Members deposits 8%** 15% 13% 10%Institutional capital/total assets 8%** 7% 7% 5%

Liquidity ratiosLiquid assets /Total Deposi 15%** 23% 22% 16%Operational Efficiency ratiosTotal Expenses/Total Revenue 23% 22% 22%Interest on members deposits /Total Revenue 57% 62% 57%Total Deliquency Loans /Gross Loan portfolio 3% 2% 3%Governance Expenses /Revenue 2% 2% 3%Staff Expenses /Revenue 11% 12% 12%

Investment Ratios Land&Buildings/Total Assets 5%* 3% 1% 2%Financial investment s/Corecapital 40%* 2% 3% 3%Financial investment s/Total deposits liabbilities 5%* 0% 0% 0%Non-earning assets/Total Assets 10%* 5% 2% 2%

** Minimum Required * Maximum allowed

2019 2018 2017Number of active members 7,629 7,342 7,238 Defaulters 875 803 752 Deceased 81 67 57 Non-active members 2,790 2,059 1,228 Exmembers 4,856 4,804 4,298 Total 16,231 15,075 13,573 Number of employees 39 35 30

2019 2018 2017

Kshs.”000” Kshs.”000” Kshs.”000”Financial Summary Share capital 334,224 213,154 129,145 Members’ Deposits 5,352,622 4,742,891 4,146,792 Statutory reserve fund 99,145 78,657 59,111 Revenue Reserves 161,241 131,189 96,498 Investments 18,596 17,563 11,421 Assets 7,040,808 6,051,505 5,154,850 Current Assets 978,966 979,748 577,602 Current Liabilities 781,110 541,940 549,529 Loans to members 5,321,445 4,806,697 4,326,032 Shareholders’ equityTurnover 798,199 705,372 623,435 Liabilities 6,198,766 5,391,797 4,710,180 Net surplus/(deficit) 116,084 107,880 59,528

Statutory Requirement

2019 2018 2017

Key Ratios % % % %

Capital Adequacy RatiosCore capital/total assets 10%** 11% 10% 8%Core capital/Members deposits 8%** 15% 13% 10%Institutional capital/total assets 8%** 7% 7% 5%Liquidity ratiosLiquid assets /Total Deposi 15%** 23% 22% 16%Operational Efficiency ratiosTotal Expenses/Total Revenue 23% 22% 22%Interest on members deposits /Total Revenue

57% 62% 57%

Total Deliquency Loans /Gross Loan portfolio

2.75% 2.37% 2.63%

Governance Expenses /Revenue

2% 2% 3%

Staff Expenses /Revenue 11% 12% 12%Investment Ratios Land&Buildings/Total Assets 5%* 3% 1% 2%Financial investment s/Corecapital 40%* 2% 3% 3%Financial investment s/Total deposits liabbilities

5%* 0% 0% 0%

Non-earning assets/Total Assets 10%* 5% 2% 2%

** Minimum Required * Maximum allowed



MANAGEMENT DISCUSSION AND ANALYSIS OF STATISTICAL INFORMATION

1. Income Statement Analysis a) The Sacco’s total income increased by 13% (Kshs. 92.8 million) compared to year 2018

to close at Kshs.798 million in 2019.The growth has been driven largely by income from members at 88.7% interest from banks 11% and other income

b) Interest on members deposits expense increased by 3 % from Kshs.439.9 million the year 2018 to Kshs.454 million in 2019.

c) Administrative expenses increased by 12% Kshs.15.6 million to close at Kshs.43.5 million up from Kshs.127.9 million in 2018. This accounts for 18% of the total turnover

2. Growth in Loans Versus Deposits The Sacco’s loan book grew by 10.7 % from Kshs.4.8 billion in 2018 to Kshs. 5.3 billion in 2019.

The introduction of new partnerships and revamped loan products is expected to improve the loan book in the year 2020.

The Deposits grew by 12.9% to close at Kshs. 5.3 billion up from Kshs. 4.7 billion in 2018. This saw the Sacco close at a net savers position as at December 2019.



3. Growth in Asset Base The Total asset base of the Sacco increased from Kshs.6 billion to Kshs. 7 billion in the year, a growth of 16.3%. This growth is attributed to the growth in loan book, purchase of office space, increase in cash and cash equivalents and growth in reserves.

4. Growth in Members Share Capital The Sacco’s capital based improved in the financial period. The growth in share capital is attributed to

the increase in the minimum share capital held by members which was effected in the year.



10/02/2020

STATEMENT OF BOARD OF DIRECTORS RESPONSIBILITIESThe Kenyan Co-operative Societies Act requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Sacco as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the Sacco maintains proper accounting records that disclose, with reasonable accuracy, the financial position of the Sacco and are also responsible for safeguarding the assets of the Sacco.

The directors accept responsibility for the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error. They also accept responsibility for:

i) Designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements;

ii) Selecting and applying appropriate accounting policies; and

iii) Making accounting estimates and judgements that are reasonable in the circumstances.

The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Sacco as at 31st December 2019 and of its profit/loss and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Cooperative Societies Act.

Nothing has come to the attention of the Directors to indicate that the Sacco will not remain a going concern for at least twelve months from the date of this statement.

Approved by the board of directors on……………………………….and signed on its behalf by:

________________________________

Phillip Oyuko

Chairperson

________________________________

Jotham Opiyo

Treasurer

________________________________

Evaline Ochieng

Hon. Secretary



REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF KIMISITU CO-OPERATIVE SAVINGS AND CREDIT SOCIETY LIMITED (CS/4252)

Report on the financial statementsWe have audited the accompanying Financial Statements of Kimisitu Co-operative Savings and Credit Society Limited, set out on pages 14 to 47, which comprise the Statement of Financial Position as at 31 December 2019, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

OpinionIn our opinion the accompanying financial statements referred to above present fairly, in all material aspects, the financial position of the business for the twelve months ended 31 December 2019 and of its profits and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and the requirements of the co-operative Societies Act cap 490 and the Sacco Societies Act. No. 14 of 2008.

Basis of OpinionWe conducted our audit in accordance with the international standards on auditing (ISA’s). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report.

IndependenceWe are independent of the Society in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). Together with other ethical requirements that are relevant to our audit of the financial statements in Kenya. We have fulfilled our ethical responsibilities in accordance with these requirements. The IESBA code is consistent with the international Ethics standards Board for Accountant’s Board of Ethics for Professional accountants (Part A and B)

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit MattersKey audit matters are those matters that in our professional judgment were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.



Key Audit Matter How our audit addressed the key audit matter

Recognition and accuracy of interest income

The accuracy and completeness of interest income is an inherent risk in the sector due to processing of large volumes of transactions with a combination of several loan products and complete IT systems

We evaluated the relevant IT system and the design of controls, and tested the operational effectiveness of controls over the;

- Capture and recording of loan transactions and rates.

- Approvals, authorization of rates and interest.

- Using data extracted from the Society’s accounting system, we verified the completeness and accuracy of a sample of interest charges.

Based on our work we noted no significant issues on the accuracy of interest recorded in the year.

Information Technology System and Controls

The Society relies heavily on the use of information technology (IT) systems to record transactions of member’s deposits, loans to members, expenses, assets and liabilities of the Sacco; calculate automatically interest income on loans and generate financial reports.

We identified the IT systems as key area of particular interest in our audit approach, for us to rely on controls around the system and the reports generated therefrom.

Entities relying heavily on automated IT systems are highly exposed to attack in various forms from both insiders and outsiders.

We reviewed/tested IT controls which comprised

− Systems access set up with a view to understand the authorizations, restrictions and segregations of various rights to access/perform distinct functions by reviewing the rights/permissions and responsibilities of those given the rights to access the distinct function(s).

− Data capture completeness and accuracy by testing posted transactions to the supporting records.

− We evaluated the security of the IT systems by testing the security installed around the IT such malware detectors, anti-viruses and firewalls.

− We held discussions with the management and they communicated to us they had commissioned a consultancy with an IT system audit expert to identify the vulnerabilities the Society is exposed to, and the measures the management can take to limit the exposure to such risks.

− While the measures the Sacco can take can limit the risk of possible attacks it should be noted that the risks are continuously evolving and the management must always evolve with the risks and continuously keep abreast of the emerging risks.



Impairments of loans

The Sacco has adopted IFRS 9 which introduced an “expected credit loss” (ECL) framework for the recognition of impairment. It sets out how an entity should classify and measure financial assets and financial liabilities. Under IFRS 9’s ECL impairment framework, an entity is required to recognise ECLs at all times, taking into account past events, current conditions and forecast information, and to update the amount of ECLs recognised at each reporting date to reflect changes in an asset’s credit risk.

We observed during the year under review the Sacco recognized impairment on the loans. We identified the amount recognized as impairment to be key audit matter due to the significance of the balance and subjectivity of the estimation.

The disclosure on the provision of the loan loss impairment is detailed on note 17.

We sought to understand the management decision to make provision for impairments and judgment criteria.

The Sacco management adopted IFRS 9 model to compute the provision for expected loans impairment.

− We reviewed the accuracy of the model and the assumptions used by the management. For a sample of loans we assessed whether prudent judgments were applied given the borrowers financial ability to repay i.e. the Society’s assumptions on the expected future cash flows.

− Evaluated the consistent application of controls and operating effectiveness of the verification, approval, recording and management of loans.

− Testing the accuracy and completeness of the loans balances used to compute the amount to be judged impaired and recalculated arithmetical accuracy.

− We assessed whether the disclosure of the impairment had been made appropriately in the financial statements.

We observed that the management of the Society had been prudent in the granting of loans and also on recognizing the credit risk to the assets (loans)

Other InformationThe directors are responsible for the other information. The other information comprises the director’s reports and other statements included within the annual report but do not include the financial statements and the auditor’s report.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated if, based on the work we have performed we conclude the=at there is a material misstatement of this information. We are required to report that we have nothing to report on this regard.



Responsibilities of the Directors and those Charged with Governance.As explained more fully in the statement of director’s responsibilities on page 4, the directors are responsible for the preparation of the Financial Statements and for being satisfied that they give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Kenyan SACCO Societies Act.

In preparing the financial statements the directors are responsible for assessing the society’s ability to continue as a going concern and using the going concern basis of accounting unless management either intends to liquidate the society or to cease operations or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Society’s financial reporting process.

The responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibilityOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error, and to issue an auditor’s report that included our opinion. Reasonable assurance is a high level assurance, but not a guarantee that an audit conducted in accordance with ISA’s will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISA’s, we exercise professional judgment and maintain professional skepticism throughout the audit. We also;

(i) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and to obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

(ii) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Society’s internal controls. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management.

(iii) Conclude the appropriateness of management’s use of going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Society’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosure are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to our auditor’s report. However, future events or conditions may cause the Society to cease to continue as a going concern.



(iv) Evaluate the overall preparation, structure and content of the financial statements including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair preparation.

(v) Obtain sufficient appropriate audit evidence regarding the financial information of the entity or business within the Society to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Society’s audit

We communicate with those charged with governance regarding among other matters, the planned scope and timing of the audit and significant, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationship and other matters that may reasonably be thought to bear our independence, and where applicable, related safeguards.

From matters communicated with those charged with governance, we determine those matters that were most significant in the audit of the financial statements of the current period and are therefore the key audit matters. We describe those matters in our auditor’s report unless the law or regulation precludes public disclosures about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. There wasn’t any matter in this case.

Report on other Legal RequirementsAs required by the Sacco Societies Act No 14 of 2008 and the Co-operative Societies Act Cap 490, we report to you that based on our audit;

i We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii In our opinion , proper books of account have been kept by the Society, so far as appears from our examination of those books;

iii The Society’s Statements of Financial Position and Comprehensive Income are in agreement with the books of account;

Engagement PartnerThe engagement partner responsible for the audit resulting in this independent auditors’ report was CPA Patrick T. Ndegwa, Practicing License No. P/1165.

Henry Smith & Wilson Date: ……………………………Certified Public Accountants

10/02/2020



STATEMENT FOR PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31ST DECEMBER 2019

Note 2019 2018 KSh.”000” KSh.”000”

Revenue Income from loans 7 702,391 636,714 Interest income from deposits 8 90,172 62,188 Total Interest income 792,563 698,902 Interest expenses 9 (457,043) (441,868)Net interest income 335,520 255,050 Other operating income 10 5,635 6,470 Administration expenses 11 (144,690) (127,928)Other operating expenses 12 (36,715) (25,712)Impairment losses on loans 17 (43,666) - Surplus before income tax 116,084 107,880 Income tax expense 13 (13,644) (10,147)Surplus for the year 102,441 97,733 Other Comprehensive Income Gain/Loss on fair Value of investments 18(a) 176 (294)Deferred Tax on fair value of investments 13(b) (53) 88

123 (206)Total Comprehensive Income 102,564 97,527

The notes set out on page 18 to 47 form an integral part of these financial statements



STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER 2019

Note 2019 2018Kshs.”000” Kshs.”000”

Assets

Loans to members 16 5,321,445 4,806,697 Cash and bank balances 14(a) 167,548 142,962 Short term deposits held with financial institutions 14(b) 1,052,240 895,563 Property and equipment 26 319,690 104,049 Prepayments and sundry receivables 15 137,998 77,162 Financial assets 18 18,596 17,564 Intangible assets 19 23,256 7,419 Deferred Tax 13(b) 35 88

Total Assets 7,040,808 6,051,505

Liabilities

Members’ deposits 21 5,352,622 4,742,891 Payables, accruals & Sundry provisions 20 652,498 490,032 Loan loss provision 17 131,923 88,257 Other Member’s Savings 22 54,739 65,011 Income tax payable 13(a) 6,984 5,606 Total Liabilities 6,198,766 5,391,797

Equity

Other Reserves 25(b) 161,241 145,138 Revenue Reserves 25(c) 148,359 131,189 Share capital 23 334,224 213,154 Statutory Reserve 25(a) 99,145 78,657 Credit Risk Reserve 25(d) 48,939 48,939 Proposed Dividends 23 50,134 42,631 Total Equity 842,042 659,708 Total Liabilities and Equity 7,040,808 6,051,505

The financial statements on pages 14 to 47 were approved and authorized for issue by the Board of

directors on…....................………….and were signed on its behalf by:

___________________

Phillip OyukoChairperson

____________________

Jotham OpiyoTreasurer

____________________

Evaline OchiengHon. Secretary

10/02/2020


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STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31ST DECEMEBER 2019

2019 2018

Kshs.”000” Kshs.”000”Cash Flows from operating Activities Interest received from members 7 702,391 636,714

Other income 10 4,405 5,539

Interest on members deposits payments 9 (441,868) (356,731)

Payments to employees and suppliers 11&12 (170,941) (141,674)

Total 93,987 143,848

Increase / (Decrease ) in operating assets Loan to members 16 (514,747) (480,666)

Trade and other receivables 15 (64,693) (31,061)

Increase / (Decrease ) in operating Liabilities

Deposits from members 21 599,460 630,934 Trade and accrued expenses 20 146,167 9,161 Honorarium paid 25(c) (6,400) (3,117)Total 159,787 125,252

Net cash from operating activities before income and taxes

Income tax paid 13 (12,266) (4,823)

Net cash from operating activities 241,508 264,277

Cash flow from Investing activities

Purchase of property and equipment 24 (221,277) (12,383)

Purchase of intangible assets 19 (20,228) -

proceeds on disposal of property and equipment 14(c) 573 -

Purchase of investment securities 18 (400) -

Interest received from term deposits 8 90,172 62,188

Dividends received 10 1,230 932

Net Cash from investing activities (149,930) 50,737

Cashflow from financing activities

Share capital contributions 23 121,070 84,009 Loans & Deposits insurance 25(b) 11,245 7,368 Dividends paid 23 (42,631) (32,286)

Net Cashflow from financing activities 89,684 59,091

Cash and Cash Equivalents at the beginning of the year 1,038,526 664,421

Net Change in Cash and Cash equivalents

181,262 374,105 Cash and cash equivalents at the end of the year 1,219,788 1,038,526



NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2019

1. Reporting EntityKimisitu Sacco Society Ltd (Registration Number CS/4252) is registered in Kenya with its principal place of business and registration office at Kimisitu Sacco Plaza P.O Box 10454-00100 Nairobi.

It is incorporated under the Co-operatives Societies Act Cap 490. It is regulated by the ministry of Agriculture, Livestock. Fisheries and Co-operatives.

Accounting polices The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented unless otherwise stated.

2. Basis of Preparation

(a) Statement of ComplianceThe financial statements have been prepared in accordance with the International Financial Reporting Standards and the Co-operatives Societies Act.

The financial statements are prepared under the historical cost basis expect for fair value of certain assets.

(b) Going Concern Based on the financial performance and position of the Sacco and its risk management policy the directors are of the opinion that the Sacco will be in business for the foreseeable future and as a result the financial statements are prepared on a going concern basis.

(c) Use of Estimates and Judgements The preparation of financial statements in conformity with the international reporting standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements period.

Although these estimates are based on the director’s best knowledge of current events and actions, actual results ultimately may differ from the estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Information about significant areas of estimation and critical judgements in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements are described in the notes.

Certain assumptions have arisen as a result of adopting IFRS 9 such as:

The impairment of financial instruments: Assessment on whether credit risks on the financial instruments has significantly increased since initial recognition and incorporation of forward-looking information the measurement of the expected credit losses.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2019 CONTINUEDCs/4252 Kimisitu Co-operative Savings and Credit Society Limited

(d) Functional and presentation Currency The Financial statements are presented in the Kenyan Shillings, which is also the Sacco’s function currency. All amounts have been rounded to the nearest thousand unless otherwise indicated.

3. Significant Accounting Policies The principal accounting policies adopted in the preparation of these financial policies are as set below;

(a) Revenue Recognition Revenue is derived substantially from Sacco business and related activities and comprises of interest income and non-interest income. Income is recognized on accrual basis in the period in which it is earned.

(i) Interest

Interest income and expense for all interest-bearing instruments are recognized in the profit and loss as it accrues considering the effective interest rate of the asset or any applicable floating rate.

The effective interest rate is the rate that discounts the estimated future cash flows through the expected life of financial asset or liability.

When calculating the effective interest rate for financial instruments other than credit impaired assets the Sacco estimates future cashflows considering all contractual terms of the financial instrument but not expected credit losses.

The calculation of the effective interest rate includes transactions costs and fees and points paid or received that are an integral part of the effective interest rate. Transactions costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

(ii) Dividend Income

Dividend income is recognized once the shareholders right to receive payment has been confirmed. Dividends are presented in other income at fair value through profit and loss.

(b) Members Deposits and Savings Members deposits and savings are stated at their nominal value. Interest payable on members savings are accounted for on accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

(c) Property and Equipment (i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Costs includes expenditures that directly attributable to the acquisition of the asset.

(ii) Depreciation

All property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is calculated using the reducing balance method to write down the cost of each asset to its residual value over its estimated useful life.



The annual Depreciation rates in use are: Asset Rate % Freehold land 0 Buildings 2.5 Office Equipment 12.5 Furniture, Fixtures &Fittings 12.5 Compute and computer accessories 30 Motor Vehicle 25

Depreciation methods, useful lives and residual values are reassessed and adjusted, if appropriate at each reporting date.

(iii) Subsequent Costs

The cost of replacing a component of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Sacco and its cost can be measured reliably.

The costs of the day-to day servicing of property and equipment are recognized in profit or loss as incurred.

(iv) Disposal of property and equipment

Gains and losses on disposal of property and equipment are determined by reference to their carrying amounts and are recognized in the Profit or loss in the year in which they arise.

(d) Intangible Assets -Software’s

Computer software’s licenses are stated at cost less accumulated amortization and accumulated impairment losses.

The cost incurred to acquire and bring to use specific computer software licenses are capitalized. The costs are amortized on a straight-line basis over the expected useful lives using annual rate of 25% and are recognized in the profit and loss.

Costs associated with maintaining the software are recognized as an expense as incurred.

Subsequent expenditure on software assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed when incurred

e) Statutory Reserves Transfers are made to the statutory reserve fund at a rate of 20% of the net operating surplus after tax in compliance with the provisions of section 47(1&2) of the Co-operative Societies Act Cap, 490.

(f) Financial Assets (i) Recognition

The Sacco recognizes the loans, deposits and advances on the date which they originated. All other financial instruments are recognized on the trade date which is the date the Sacco becomes a party to the contractual provisions of the instrument.

All financial Asset or financial liability is measured initially at fair value plus for an item not at fair value through profit and loss transactions that are directly attributable to its acquisition or issue.



(ii) Classification

The Sacco classifies its financial assets into the following categories;

Loans and Receivables

Loans and Receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market.

They arise when the Sacco provides money directly to borrowers (Sacco members). They are recognized at the date the money is disbursed to the borrower.

Amortized cost is calculated using the effective interest rate method. The amortization is included in the interest income.

Held - to- Maturity

These are financial assets with fixed or determinable payments and fixed maturities that the Sacco’s management has a positive intention and ability to hold to maturity.

The sale of a significant amount of held-to maturity assets would taint the entire category leading to reclassification as available for sale. These assets are held at cost.

Fair value through profit and loss

This category has two sub-categories: financial assets held for trading and those designated at fair value through profit and loss at inception.

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so, designated by management Investments held for trading are those which were either acquired for generating a profit from short term fluctuations in price or dealers margin or are securities included in a portfolio which a pattern of short term profit taking exists.

Available-for-sale

Financial assets are initially recognized at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognized in other comprehensive income and cumulated in a separate reserve in equity, fair value reserve, until the financial asset is derecognized. However, interest is calculated using the effective interest method, and foreign currency gains and losses on monetary assets classified as available-for-sale is recognized in profit or loss.

(g)Financial LiabilitiesThe Sacco classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortized cost.

Derecognition

A financial asset is derecognized when the Sacco loses control over the contractual rights that comprise that asset. This occurs when the rights are realized, expire or are surrendered.

A financial liability is derecognized when its contractual obligations are discharged or cancelled or expires.

Held-to-maturity instruments and loans and receivables are derecognized on the day they are repaid in full or when they are transferred by the Sacco to a third party.



Offsetting

Financial assets and liabilities are offset, and the net amount reported on the statement of financial position when there is a legally enforceable right to set-off the recognized amount and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

(h) Identification and measurement of impairment of financial assetsAt each reporting date, the Sacco assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows on the asset than can be estimated reliably.

The Sacco considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment.

All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together financial assets (carried at amortized cost) with similar risk characteristics.

Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Sacco on terms that the Sacco would not otherwise consider, indications that a borrower or issuer will enter Sacco bankruptcy, the disappearance of an active market for a security, would not otherwise consider, indications that a borrower or issuer will enter Sacco bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group.

In assessing collective impairment, the Sacco uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling.

Default rate, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

Estimated cash flows discounted the at the assets’ original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against loans and advances.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial assets and present value of Interest on the impaired asset continues to be recognized through the unwinding of the discount.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.

(i) Impairment for non-financial assetsThe carrying amounts of the Sacco’s non-financial assets, other than deferred tax, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets’ recoverable amount is estimated. An impairment loss is recognized if the carrying generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in profit or loss.

Impairment losses are recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis.



The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(j) Income tax expenseIncome tax expense comprises current tax and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of a previous year.

Deferred tax is recognized on all temporary differences between the carrying amounts of financial assets and financial liabilities for financial reporting purposes and the amounts used for taxation purposes except differences relating to the initial recognition of assets or liabilities which affect neither accounting nor taxable profit.

Deferred tax is calculated on the basis of the tax rates that are expected to be applied to temporary

differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their assets and liabilities will be realized simultaneously.

(k) Employee benefitsThe majority of the Sacco’s employees are eligible for retirement benefits under a defined contribution plan. A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts.

Contributions to the defined contribution plan are recognized in profit or loss as incurred. Any difference between the amount recognized in profit or loss and the Contributions payable is recognized in the statement of financial position under other receivables or other payables.

The Sacco also contributes to a statutory defined contribution pension scheme, the National Social Security Fund (NSSF). Contributions are determined by local statute and are currently limited to a minimum Kshs. 400 per employee per month.

(l) Termination benefitsTermination benefits are recognized as an expense when the Sacco is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.



Termination benefits for voluntary redundancies are recognized if the Sacco has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. The Sacco has not made any such offer in the year.

(iii) Short term employee benefits

Short term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Sacco has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

(m) Cash and cash equivalentsFor the purpose of presentation of the cash flows in the financial statements the cash and cash equivalents include cash and balances with banks available to finance the Sacco’s day-to-day

operations and treasury bills and bonds which mature within 12 months or less from the date of acquisition.

Cash and cash equivalents are carried at amortized cost in the statement of financial position.

(n)Related partiesIn the normal course of business, transactions have been entered into with certain related parties these transactions are at arm’s length.

(o) Contingent liabilitiesLiabilities arising out of legal disputes are accounted for and disclosed as contingent liabilities. Estimates of the outcome and the financial effect of contingent liabilities is made by management based on the information available up to the date the financial statements are approved for issue by the directors. Any expected loss is recognized in profit or loss.

(p) Fiduciary activitiesAssets held for clients in an agency or fiduciary capacity by the Sacco are not assets of the Sacco and have a nil effect in the statement of financial position.

(q) ComparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation in the current period.

(r) Provisions for liabilities and other chargesProvisions are recognized when the Sacco has a present obligation (legal or constructive) as a result of past event, it is probable that the Sacco will be required to settle the obligation and reliable estimate can be made of the amount of obligation.

The amount recognized of the obligation as a provision is the best estimate consideration required to settle the present obligation as at the reporting date taking into account the risks and uncertainties surrounding the obligation.



(i) New standards, amendments and interpretations effective and adopted during the year

IFRS

NEW PRONOUNCEMENT AMENDMENTS EFFECTIVE DATE

IFRS 9

(2014) Financial Instruments

Amendment – Prepayment Features with Negative Compensation. The implementation of this amendment did not have material impact on the Sacco

1 January 2019

IFRS 16

Leases

IFRS 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17. The amendment does not have any impact on the Sacco

1 Jan 2019

IFRS 10 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28. The amendment does not have any impact on the Sacco

IFRS 15

Revenue from Contracts with Customers

Amendment Clarifications to IFRS 15

The implementation of this amendment did not have material impact on the Sacco

1 January 2018

(ii) New Standards and Interpretations

IFRS


Definition of a Business – Amendments to IFRS 3

On 22 October 2018, the IASB issued ‘Definition of a Business (Amendments to IFRS 3)’ aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.

1 Jan 2020

Definition of Material – Amendments to IAS 1 and IAS 8

On 31 October 2018, the IASB issued ‘Definition of Material (Amendments to IAS 1 and IAS 8)’ to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. The amendments are effective annual reporting periods beginning on or after 1 January 2020.

1 Jan 2020

The Conceptual Framework for Financial Reporting

Together with the revised ‘Conceptual Framework’ published in March 2018, the IASB also issued ‘Amendments to References to the Conceptual Framework in IFRS Standards’. The amendments are effective for annual periods beginning on or after 1 January 2020.

1 Jan 2020



IFRS


Interest Rate Benchmark Reform -Amendments to IFRS 9, IAS 39 and IFRS 7

On 26 September 2019, the IASB issued ‘Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)’ as a first reaction to the potential effects the IBOR reform could have on financial reporting. The amendments are effective for annual reporting periods beginning on or after 1 January 2020.

1 January 2020.

Definition of a Business – Amendments to IFRS 3

Key requirements The IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.

The amendments clarify that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output.

They also clarify that a business can exist without including all of the inputs and processes needed to create outputs. That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’ rather than ‘the ability to create outputs. Market participants’ ability to replace missing elements. Prior to the amendments, IFRS 3 stated that a business need not include all of the inputs or processes that the seller used in operating that business, ’if market participants are capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and processes’.

The reference to such integration is now deleted from IFRS 3 and the assessment must be based on what has been acquired in its current state and condition. Assessing whether an acquired process is substantive the amendments specify that if a set of activities and assets does not have outputs at the acquisition date, an acquired process must be considered substantive only if:

(a) it is critical to the ability to develop or convert acquired inputs into outputs; and

(b) the inputs acquired include both an organized workforce with the necessary skills, knowledge, or experience to perform that process, and other inputs that the organized workforce could develop or convert into outputs. In contrast, if a set of activities and assets has outputs at that date, an acquired process must be considered substantive if:

(i) it is critical to the ability to continue producing outputs and the acquired inputs include an organized workforce with the necessary skills, knowledge, or experience to perform that process; or

(ii) it significantly contributes to the ability to continue producing outputs and either is considered unique or scarce, or cannot be replaced without significant cost, effort or delay in the ability to continue producing outputs.

The implementation of these amendment does not have any material impact on the Sacco.



Definition of Material - Amendments to IAS 1 and IAS 8

Key requirements In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition.

The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

The amendments clarify that materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in combination with other information, is material in the context of the financial statements.

Obscuring information The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting or misstating the information. Material information may, for instance, be obscured if information regarding a material item, transaction or other event is scattered throughout the financial statements or disclosed using a language that is vague or unclear.

Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar items are inappropriately disaggregated.

New threshold The amendments replaced the threshold ‘could influence’, which suggests that any potential influence of users must be considered, with ‘could reasonably be expected to influence’ in the definition of ‘material’. In the amended definition, therefore, it is clarified that the materiality assessment will need to take into account only reasonably expected influence on economic decisions of primary users.

The current definition refers to ‘users’ but does not specify their characteristics, which can be interpreted to imply that an entity is required to consider all possible users of the financial statements when deciding what information to disclose. Consequently, the IASB decided to refer to primary users in the new definition to help respond to concerns that the term ‘users’ may be interpreted too widely.

The implementation of these amendment does not have any material impact on the Sacco.

The Conceptual Framework for Financial Reporting

Key provisions: The IASB issued the Conceptual Framework in March 2018. It sets out a comprehensive set of concepts for financial reporting, standard setting, guidance for preparers in developing consistent accounting policies and assistance to others in their efforts to understand and interpret the standards.

The Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. It is arranged in eight chapters, as follows:

• Chapter 1 – The objective of financial reporting• Chapter 2 – Qualitative characteristics of useful financial information• Chapter 3 – Financial statements and the reporting entity• Chapter 4 – The elements of financial statements • Chapter 5 – Recognition and derecognition• Chapter 6 – Measurement • Chapter 7 – Presentation and disclosure• Chapter 8 – Concepts of capital and capital maintenance



Following is a summary of the amendments from the 2015-2017 annual improvements cycle

IFRS 3 Business

Combinations

Previously held Interests in a joint operation

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value.

In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

• An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019. Earlier application is permitted.

IFRS 11 Joint Arrangements

Previously held Interests in a joint operation

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.

• An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019. Earlier application is permitted.

IAS 12 Income Taxes

Income tax consequences of payments on financial instruments classified as equity

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events.

• An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences.

IAS 23 Borrowing Costs

Borrowing costs eligible for capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

• An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments.

• An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted.



(iv) IFRS 16 Leases Key requirements

The scope of IFRS 16 includes leases of all assets, with certain exceptions. A lease is defined as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.

IFRS 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less).

At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments).

The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.

Transition A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. Early application is permitted, but not before an entity applies IFRS 15.

Impact

The standard requires lessees and lessors to make more extensive disclosures than under IAS 17. Given the significant accounting implications, lessees will have to carefully consider the contracts they enter into to identify any that are, or contain, leases. This evaluation will also be important for lessors to determine which contracts (or portions of contracts) are subject to the new revenue recognition standard.

The lease expense recognition pattern for lessees will generally be accelerated as compared to today. Key balance sheet metrics such as leverage and finance ratios, debt covenants and income statement metrics, such as earnings before interest, taxes, depreciation and amortization (EBITDA), could be impacted. Also, the cash flow statement for lessees could be affected as payments for the principal portion of the lease liability will be presented within financing activities.

The application of the standard has no impact on the Sacco. The Sacco is housed on its own premises and has not leased any premises.

4. Use of Estimates and Judgements

(i) Impairment losses on loans and receivables In determining whether an impairment loss should be in the profit and loss the Sacco makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cashflows from a portfolio of loans, before a decrease can be identified with an individual loan in that portfolio.



This evidence may include observable data indicating that there has been an adverse change in the payment status of the borrowers in a Sacco or national or local economic conditions that correlate with defaults on assets in the Sacco.

Management uses estimates based on historical loss experience for assets with credit characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cashflows. The methodology and assumptions are reviewed regularly to reduce any differences between loss estimates and actual cash loss experience.

(ii) Property and EquipmentIn the process of applying the accounting policies, management has made estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year.

Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. These are dealt with below:

The Directors have made critical estimates in determining the useful life of property and equipment and intangible assets based on the intended use of the asset and the economic lives of those assets.

Subsequent changes in circumstances such as technology advances and prospective utilization of the asset concerned could result in the actual useful lives or residual values differing from initial estimates.

(i) TaxationSignificant judgement is required in determining the saccos provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

The Sacco recognizes liabilities for anticipated tax based on estimates of whether additional taxes will be due. Where final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current tax and deferred tax provisions in the period in which such determination is made.

5. Financial Risk ManagementThe Sacco is exposed to various risks, major risks exposures arise due to use of financial instruments and can be categorized as follows:

(a) Credit risk (b) Liquidity risk (c) Market risks

The Sacco is continuously putting measures in place to help manage these risks every day. These measures include setting appropriate strategic and operational objectives, policies and processes geared towards identification and effective management of the risks identified.

Risk management is carried out by the Audit and risk management committee (ARM)of the board under the policies approved by the board of directors.

The ARM identifies, evaluates and manages the financial risks in close co-operation with various departmental heads.

The board of directors has provided the risk management policy written principles for overall risk management as well as written policies covering specific areas such as interest rate risk, credit risk and investment of excess liquidity.



The committee report monthly to the board of directors on all aspects of risks including nature of risks, measures instituted to mitigate risk exposures.

(a) Credit riskCredit risk refers to the chance of loss due to a borrower’s default on their contractual obligations resulting in financial loss to the Sacco, this arises mainly from the Sacco loans and advances to the members.

The board has assessed the credit risk based on prior experience assessment of the current economic environment, The implementation of IFRS 9 has seen the Sacco create a reserve to cushion against foreseeable losses.

(i) Management of Credit risk

The Sacco’s credit policy is to lend to only credit worthy members and obtaining sufficient collateral and guarantors where appropriate as a measure of mitigating risk of financial loss from defaults. The Sacco does not hold any receivable from members or entities that have been declared bankrupt.

(i) Classification of loans to members

Below is the Sacco maximum exposure to credit risk and the expected credit losses based on the IFSR 9 model

IFRS 9 Loan Impairment Table December 2019

Outstanding balance Expected Credit

Loss Category Ksh.”000” Ksh.”000” Stage 1 4,775,541 76,571 Stage 2 252,568 7,123 Stage 3 293,336 48,230 Grand Total 5,321,445 131,924

(iii) Concentration risk

The Sacco does not have any significant credit risk exposure to any single counter party or any counterparties having similar characteristics .

(b) Liquidity Risks Liquidity risk is the risk that the Society will encounter difficulty in meeting obligations of its financial liabilities.

The Sacco manages liquidity risk by maintaining adequate reserves, banking facilities and reserves a borrowing capacity by continuously monitoring forecasting and actual cashflows and matching the maturity profiles of financial assets and liabilities.

(i) Exposure to liquidity risk

The Sacco has currently applied for SASRA licensing, it has therefore highly referenced on SASRA requirements on this financial report. SASRA requires that a sacco holds a minimum of 15% of savings, deposits and short-term liabilities in liquid assets .

For this purpose, liquid assets include notes and coins, balances at institutions licensed under the Banking Act after deducting therefrom balances owed to those institutions, treasury bills and deposits of a maturity not exceeding 90 days.



The table below analyses the maturity profiles of the financial assets and liabilities of the Sacco based on the remaining period as at 31st December 2018. and as at 31st December 2017 as base period to the contractual maturity.

Less than 3 months

3 to 12 months 1 to 5year Total

Kshs. Kshs. Kshs. Kshs.31st December 2019 Financial assets Cash and Bank 167,548 167,548 Fixed & Call Deposits Accounts 701,493 234,303 116,443 1,052,239 Loans to members 1,773,802 1,182,535 2,365,108 5,321,445 Other receivables 137,998 137,998 Total 2,780,841 1,416,838 2,481,551 6,679,230

Financial Liabilities Members Deposits 1,784,207 1,189,472 2,378,943 5,352,622 Provisions for interest on deposits 504,191 504,191 Other Liabilities 714,309 714,309 Total 2,498,516 1,693,663 2,378,943 6,571,122 Net Liquidity 282,325 (276,825) 102,569 108,069

It is highly unlikely that the members will withdraw their deposits within 1-12 months The sacco is able to meet its cash requirements without the need for borrowing

31st December 2018 Financial assets

Cash and Bank 142,962 142,962

Fixed & Call Deposits Accounts 597,042 149,261 149,261 895,564

Loans to members 1,602,232 1,068,155 2,136,310 4,806,697

Other receivables 77,162 77,162

Total 2,419,398 1,217,416 2,285,571 5,922,385

Financial Liabilities

Members Deposits 1,580,964 1,053,976 2,107,951 4,742,891

Provisions for interest on deposits 441,868 441,868

Other Liabilities 560,649 560,649

Total 2,141,613 1,495,844 2,107,951 5,745,408

Net Liquidity 277,785 (278,428) 177,620 176,977



c) Market RisksMarket risk is the risk that changes in market prices, such as interest rates, equity prices, and foreign exchange rates will affect the fair value or the future cash flows of the Sacco’s financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

Management of market risks The Sacco has put in place an investment policy to guide on investment avenues. There is close monitoring of the market on a monthly basis.

(i)Equity price risk

The Sacco is exposed to equity securities price risk as a result of its holdings in listed equity investments, classified as fair value through profit and loss. Exposure to equity shares in aggregate are monitored in order to ensure compliance with the relevant regulatory limits for solvency purposes. Investments held are both listed, and traded on the Nairobi Securities Exchange, and unquoted shares with Sacco APEX bodies. Below are Accounting Classification and fair values.

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Kshs. Kshs. Kshs.As at 31st December 2019Financial Assets measured at Fair ValueInvestments 15,942 2,478 18,420.00 Total 15,942 2,478 - - 18,420.00 Financial Assets not measured at fair valueCash and Cash equivalents 1,219,788 1,219,788 Loans 5,321,406 5,321,406 Other receievables 137,998 137,998 Total - - 6,679,192 - 6,679,192 Financial Liabilities not measured at Fair Value Members Deposits 5,352,622 5,352,622 Provisions for interest on deposits 458,289 458,289 Other Liabilities 714,678 714,678 Total - - - 6,525,589 6,525,589 As at 31st December 2018Financial Assets measured at Fair ValueInvestments 15,085 2,772 17,857 Total 15,085 2,772 - - 17,857 Financial Assets not measured at fair valueCash and Cash equivalents 1,038,526 1,038,526 Loans 4,806,697 4,806,697 Other receievables 77,162 77,162 Total - - 5,922,386 - 5,922,386 Financial Liabilities not measured at Fair Value Members Deposits 4,742,891 4,742,891 Provisions for interest on deposits 441,868 441,868 Other Liabilities 560,649 560,649 Total - - - 5,745,408 5,745,408



6. Capital Risk ManagementThe Sacco manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to members through the optimization of debt and equity balance in implementing the capital requirements the Sacco Act requires each Sacco to maintain,

Core Capital of not less than 10 million,

Core Capital of not less than 10 percent of total assets

Institutional Capital of not less than 8% of total assets

Core Capital of not less than 8% of total deposits

The Sacco has instituted measures to meet this ratio in the strategic plan by having all members at a minimum of share capital of Kshs. 30,000 by the year 2020.

The Capital adequacy ratios as at 31st December 2019 and 31st December 2018 were as follows:

2019 2018Kshs. “000” Kshs. “000”

Total Share Capital 334,224 213,154 Retained Earnings 148,359 131,189 Core Capital 791,908 617,077 Institutional Capital 457,684 403,923 Total Assets 7,040,808 6,051,505 Total Deposits 5,352,622 4,742,891 Core Capital /Total Assets (Statutory requirement 10%) 11% 10%Core Capital /Total Deposits (Statutory requirement 8%) 15% 13%Institutional Capital /Total Assets (Statutory requirement 8%) 6% 7%

7 Income from loans2019 2018

Ksh.”000” Ksh.”000”Interest received from loans 654,714 608,949 Bridging Interest 47,677 27,765

Total 702,391 636,714

8 Interest Income from short term Investments 2019 2018

Ksh.”000” Ksh.”000”

Interest Income from deposits 90,172 62,188

Total 90,172 62,188



9 Interest expenses 2019 2018Ksh.”000” Ksh.”000”

Interest on Holiday Savings 1,602 897 Interest on members deposits 454,057 439,985 Interest on Little Angels 1,370 986 Interest on Wekeza savings 14 Total 457,043 441,868

10 Other operating income 2019 2018

Ksh.”000” Ksh.”000”Entrance Fees 1,255 937 Withdrawal Commissions from members 2,141 2,439 Member Card Replacement costs 98 103 Mobile Banking Income 518 260 Dividends Received 1,230 932 Commissions from partnerships 52 168 Asset Disposal income 127 - Sale of tender 160 123 Disbursement Charge 54 1,508 Total 5,635 6,470



11 Administration expenses2019 2018

Ksh.”000” Ksh.”000”Staff Expenses Salary and Wages 62,129 61,845 Pension Expenses 10,318 11,089 Employer N.S.S.F Contribution 95 82 Staff Travelling 466 416 Staff Training 5,376 5,349 Staff Medical Insurance Exp. 7,379 6,245 Group Life Insurance Expense 1,030 473 Total Staff Expenses 86,793 85,499 Repair and Maintenance 21,768 10,431 General Insurance Expense 300 693 Property Insurance Expense 93 173 Property Maintenance 3,159 2,978 Total Property Maintenance 25,320 14,275 Other Administrative Costs Telephone & Postage 883 606 Bank Charges 1,246 1,984 Printing & Stationery 690 330 Amortization 2,874 3,406 Depreciation 4,846 4,329 Email Expenses 1,478 942 Office Expenses 1,993 2,063 Consultancy 5,096 2,066 Audit Fees 823 548 Licenses and Subscriptions 136 102 Legal Fees 308 412 Debt management fee - 199 Corporate Social Donations 371 940 Advert Marketing & Publicity 11,677 12,211 Loss on Asset write off 156 - Total Other Administrative costs 32,666 29,418 Total Administrative Expenses 144,690 129,912



12 Other operating expenses2019 2018

Members Expenses Ksh.”000” Ksh.”000” AGM Expenses 13,677 7,273 Education to Members 2,000 5,697 Co-op Annual Events 3,009 1,395 Total Members Expenses 18,686 14,365 Governance Expenses Board Sitting Allowance 6,745 4,421 Board Training 4,641 3,423 Board Travel 1,474 1,305 Other Board Expenses 264 574 Strategic Planning 4,905 1,624 Total Governance Expenses 18,029 11,347 Total Other Operating Expenses 36,715 25,712

13(a) Taxation2019 2018

Ksh.”000” Ksh.”000”Total Turnover for the Year 798,199 705,372

Less: Interest from Members’ Loans (702,391) (636,714)

Less: Gross Dividends received (Sec 7(3) (1,230) (932)

94,578 67,726 Gross Interest From Bank

(indicated gross amt in P&L) 90,172 62,188 50%of interest from banks 45,086 31,094

Other Income 394 2,730 Taxable Income 45,480 33,824

Tax thereon @ 30% 13,644 10,147 Add Balance as at beginning

of the period 5,606 281 19,250 10,428

Less Withholding Tax on Bank Interest in the year (3,312) (4,232)

Less Tax paid in the year (5,606) (281)less installment tax paid in the

year (3,349) (309)Tax Liability 6,983 5,606



13(b) Deferred Tax Asset Deferred Tax is calculated using the enacted income tax rate of 30%. The valuation of financial instruments at fair value has given a timing difference in tax and hence the deferred tax.

2019 2018Ksh.”000” Ksh.”000”

Fair Value gain 176 (294)Tax thereon @30% 53 (88)

As at December 35 88

14(a) Cash and cash equivalents 2019 2018Ksh.”000” Ksh.”000”

CBA Current Account 111,205 119,148 Coop Current Account 1,420 1,314 NIC Current Account 28,095 15,441 Mpesa Accounts 26,815 7,048 Cash in hand 13 11 Total 167,548 142,962

(b) Short Term Deposits 2018 2018Ksh.”000” Ksh.”000”

Central Bank of Kenya 153,000 212,470 Co-operative Bank of Kenya 25,216 69,507 CIC Insurance 246,000 265,000 NIC Bank 29,024 65,586 Kenya Commercial Bank - Britam 290,000 283,000 SANLAM Insurance 107,000 - KUSCCO 202,000 Total 1,052,240 895,563

The short-term deposits are deposits with a maturity within 1 year.

(c) Cash on Asset Disposal 2019 2018

Kshs.”000” Kshs.”000” Sale of Toyota Corolla car 452 - Sale of 13 High back leather seats 49.818 - Insurance refund on lost Laptop 70.855 - Total 572.673 -



15 Prepayments and sundry receivables 2018 2018Ksh.”000” Ksh.”000”

Member Contribution receivables Receivable Income 115,572 61,530 Staff Loans 21,348 13,051 Other Receivables 87 87 Prepayments 894 2,397 Deposit Accounts 97 97 Total 137,998 77,162

Included in other receivables is interest income from banks and interest income from member which was due in December but received in January 2020.

16 Loans to Members 2019 2018Ksh.”000” Ksh.”000”

As at 1 January 4,678,851 4,208,793 Issued in the year 3,342,818 2,888,860 Paid in the year (2,828,997) (2,418,802)As at 31st December 5,192,672 4,678,851 Loans on Default As at January 127,847 117,239 Defaulters during the year 150,971 129,852 Recoveries during the year (150,045) (119,245)As at 31st December 128,773 127,846 Total loans as at 31st December 5,321,445 4,806,697

17 Impairment Losses on loans 2019 2018

Ksh.”000” Ksh.”000” As at 1st January 88,257 137,196 Movement in the year - To P&L 43,666 - Transfer to credit reserve (48,939)Total provision for the year 131,923 88,257

The Sacco adopted the requirements of IFRS 9 to provide for impairment on loans from 2018. There has been an increment of Kshs. 43.6 million in the provisions This is due to increase in the loan book. The same has been provided in the income statement as the buffer was fully exhausted in 2018.



18 Financial Assets 2019 2018

(a) Unquoted shares at Cost Ksh.”000” Ksh.”000” KUSCCO (20,027 ordinary shares of Kshs 100 each) 2,079 2,079 C.I.C GROUP (1,348,440 Ordinary Shares of Kshs. 3.5 pers share) 4,720 4,720 CIC Sacco Shares (450,000 shares @3.50 per share) 1,575 1,575 COOP Bank Holdings (480,917 Class A [email protected] share) 4,568 4,112 Kimisitu Investment Company Ltd (KICL) Shares (240,000 ordinary shares of Kshs 10 each. Rights Issue exercised for 24,000 shares at Kshs. 16.65) 3,000 2,600

15,942 15,086

(b) Quoted Shares at fair Value through profit & Loss 2019 2018

Ksh.”000” Ksh.”000” COOP Bank (168,000 Class B shares market price as at 31st December 2019 Kshs. 15.8) 2,478 2,772 Fair Value Gain (Loss) 176 (294)

2,654 2,478

19 Intangible assets 2019 2018 Ksh.”000” Ksh.”000”

As at 1st January 18,510 12,702 Additions 1,953 2,930 Software’s Written off (2,205) 746 Reinstatement of Nav. 2,131 Work in progress 18,275 - Amortization Opening Balance (11,091) (6,939)Write off 688 (746)Charge for the year (2,874) (3,406)

As at 31st December 23,256 7,419



20 Accounts Payables and provisions 2019 2018 Kshs.”000” Kshs.”000”

Creditors 162,869 13,276 Other payables 8,771 15,116 Accrued expenses (17) 2,209

171,623 30,601 Payable to members Interest on deposits 454,057 439,985 Other member payables 10,519 5,241 Interest on Savings 6,496 4,314 Insurance paid on loans 9,891 9,891 Total Payable to members 480,963 459,431 Total Payables 652,587 490,032

21 Members Deposits 2019 2018 Ksh.”000” Ksh.”000”

As at 1st January 4,742,891 4,146,792 Deposits during the year 1,265,108 1,219,375 member offsets, refunds and recoveries during the year (655,377) (623,276)As at 31st December 5,352,622 4,742,891

Members Deposits are deposits that are not withdrawable unless upon cessation of membership and requires at least 60 days’ notice an interest of 9 % has been proposed for the year 2019. This will include payment to dormant accounts.



22 Savings Deposits 2019 2018 Kshs.”000” Kshs.”000”

Holiday accounts As at 1st January 17,525 14,756 Deposits in the year 43,967 34,366 Withdrawals in the year (38,518) (31,596)As at 31st December 22,974 17,526

Little Angels Accounts As at 1st January 18,295 11,455 Deposits in the year 21,325 22,429 Withdrawals in the year (18,104) (15,589)As at 31st December 21,516 18,295

Disbursement accounts As at 1st January 25,761 3,964 Deposits in the year 216,988 123,956 Withdrawals in the year (237,130) (102,159)As at 31st December 5,619 25,761

Wekeza accounts As at 1st January 3,429 - Deposits in the year 6,897 20,911 Withdrawals in the year (5,697) (17,482)As at 31st December 4,629 3,429

Total Savings Accounts 54,739 65,011

23 Share Capital 2019 2018 Kshs.”000” Kshs.”000”

As at 1st January (1.951m shares @ Ksh.100 per Share) 195,143 116,064 Contributions in the year (1.185m [email protected] per Share) 118,541 79,079 Ex. Members Share Capital - - These represents shares for members who have with-drawn from the Sacco, deceased members capital 20,540 18,011 (0.205 million shares @100 per Share) - Total Share Capital 334,224 213,154

The Sacco has proposed a dividend payout on members share capital at 15% (50.1m) 2018, 20%(42.6m) This is in line with the Sacco’s 2016-2020 strategic plan .



24 Related Party transactions

Parties are deemed related if one party has the ability to control the other party to exercise significant influence in making financial or operational decisions. Loans to members as at 31st December 2018 and 31st December 2017 include loans to Directors and staff. All transactions with related parties are at an arm’s length in the normal course of business and on terms and conditions similar to those applicable to other customers

(a) Loans Directors Staff 2019 2018 2019 2018

Kshs.”000” Kshs.”000” Kshs.”000” Kshs.”000” As at 1st January 18,378 27,676 32,056 39,298 Net Movement in the year 9,351 (9,298) 9,056 (7,242)As at 31st December 27,729 18,378 41,112 32,056

(b) Deposits

Directors Staff 2019 2018 2019 2018

Kshs.”000” Kshs.”000” Kshs.”000” Kshs.”000” As at 1st January 14,013 17,086 11,875 11,974 Net Movement in the year 3,548 (3,073) 2,411 (99)As at 31st December 17,561 14,013 14,286 11,875

(C) Directors Payments 2019 2018

Kshs.”000” Kshs.”000” Directors allowances 12,860 11,347 Honorarium 6,400 6,400

19,260 17,747

25 Reserves

(a)Statutory Reserve

Statutory reserve fund at a rate of 20% of net operating surplus after tax in compliance with the provisions of section 47(1&2) of the co-operatives Society Act Cap 490

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 78,657 59,111 Transfer of 20% 20,488 19,547 As at 31st December 99,145 78,657



(b) Other Reserves

(i) General Reserve

General reserve, comprises of 5% transfer of the net operating surplus as per the Sacco’s by laws

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 61,690 57,781 Transfer of 5% 4,098 3,909 As at 31st December 65,788 61,690

(ii) Revaluation reserve

This represents the difference in carrying value and acquisition cost of Sacco’s revalued assets

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 35,918 35,918 Additions in the year 180

36,098 35,918

(iii) Insurance reserve

This is reserve in which members contribute for insurance on loans and deposits. The funds are non-refundable

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 39,085 31,716 Addition in the year 11,245 7,369

50,330 39,085

(iv) Investment Reserve

This represents the fair value gains and losses on shares owned by the Sacco both on private and quoted investment

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 8,445 2,215 Dividend Capitalized on Kuscco shares - Fair Value Loss on quoted investment 123 (206)Revaluation gain on unquoted investment 457 6,436 Total Investment Reserve 9,025 8,445 Total Other Reserves 161,241 145,138



(c) Revenue reserves

The retained earnings balance represents the amount available after appropriations and forms part of the saccos reserves

2019 2018 Kshs.”000” Kshs.”000”

As at 1st January 131,189 96,498 Appropriation Balance 21,321 25,246 Proposed Honorarium 6,400 6,400 Paid Honorarium (6,400) - Prior year adjustments (4,151) 3,045 As at 31st December 148,359 131,189

(d)Credit Risk Reserve

Where impairment losses required by legislation or regulations exceed those calculated under international financial reporting Standards (IFRS), the excess is recognized as a statutory credit risk reserve and accounted for as an appropriation of retained profits. These reserves are not distributable

2019 2018 Kshs.”000” Kshs.”000”

Provision Buffer as at 1st January 48,939 137,196 Additions in the year - - Less IFRS 9 required provision - (88,257)Transfer to Credit reserve 48,939 48,939

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90



27. Fair Value

The directors consider that there is no material difference between the fair values and the carrying

value of the Sacco’s financial assets and liabilities, where fair value details have not been provided.

28. Contingent Liabilities

There are no significant contingent liabilities as at 31st December 2019.

29. Events After Reporting Period

There are no significant events after the reporting period which have been reported in these

financial statements.

Email: [email protected]

CALL CENTER0709 136 000

Email: [email protected]

Woodlands Road, Off Lenana Road, KilimaniP.O. Box 10454 - 00100, Nairobi - Kenya

Call Center Number: 0709 136 000Email: [email protected]

Website: www.kimisitusacco.or.ke

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