The National Treasury has commenced the transition from cash-basis accounting to the International Public Sector Accounting Standards (IPSAS) accrual-based system.
In a statement on Thursday, October 3, 2024, Treasury PS Chris Kiptoo said the transition will affect the National Government, County Governments, and their respective entities.
He said it would ensure greater transparency and accountability in financial reporting.
The Cabinet approved this transition on March 7, 2024, following recommendations from the National Treasury and the Public Sector Accounting Standards Board (PSASB).
The transition was subsequently gazetted on August 30, 2024 (Gazette Notice No. 11033). A steering committee, appointed by the Cabinet Secretary for the National Treasury and Economic Planning, will oversee the process, with the inaugural meeting chaired by Kiptoo, held on Thursday.
“This shift from cash to accrual-based accounting represents a milestone in Kenya’s efforts to align its financial reporting with global standards. Under cash accounting, financial transactions are recorded only when cash is exchanged, which, while straightforward, limits the government’s ability to present a comprehensive view of its financial position,” Kiptoo added.
“Accrual accounting addresses this by recognizing revenues and expenses when they are earned or incurred, regardless of when cash is exchanged. This approach provides a clearer picture of the government’s financial health by requiring the recognition of assets, liabilities, revenues, and expenditures, delivering vital data for informed decision-making.”
Transition to accrual-based accounting
Kiptoo says the transition will unfold over the next three years, under the guidance of the steering committee.
The accrual basis was effected on July 1, 2024, with the first accrual-based financial statements expected for the financial year ending June 30, 2025.
“The Treasury will support this transition by providing guidance on asset and liability valuation, enhancing the Integrated Financial Management Information System (IFMIS), and building capacity among public sector personnel,” he adds
“This reform is essential to improving financial management and enhancing the accuracy of public sector financial reports. It will allow the government to present a fuller picture of its financial position, including key obligations such as pending bills, pension liabilities, and public debt, alongside its receivables, fixed assets and natural resources.”
The shift is expected to face challenges such as the requirement for a detailed review of existing financial processes, revision of the Standard Chart of Accounts (SCOA), and reengineering of the IFMIS system.
Also, public entities will need to develop and adopt accrual-based financial statement templates.
“However, with the support of the steering committee and key stakeholders, these challenges will be navigated successfully. The National Treasury is committed to ensuring the success of this transition, which will support sustainable economic growth and bolster public sector accountability. In collaboration with international and domestic partners, the government will work to enhance openness and accountability, as outlined in Article 201 of the Constitution,” Kiptoo added.
