The National Treasury has announced a significant shift from cash-basis accounting to the International Public Sector Accounting Standards (IPSAS) accrual basis, representing a crucial advancement in public financial management reform. In a statement, National Treasury Principal Secretary Dr. Chris Kiptoo noted that this transition will impact the National Government, County Governments, and their respective entities, aiming to enhance 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 the Principal Secretary taking place today.
This move to accrual accounting signifies a milestone in Kenya’s efforts to align its financial reporting with international standards. Under cash accounting, transactions are recorded only when cash changes hands, which, while simple, limits the government’s ability to provide a complete picture of its financial status,” he explained.
Dr. Kiptoo added, “As public finances become more complex, these limitations become more pronounced. Accrual accounting addresses this by recognizing revenues and expenses when they are earned or incurred, irrespective of cash transactions. This method offers a clearer view of the government’s financial health by necessitating the acknowledgment of assets, liabilities, revenues, and expenditures, thus providing essential data for informed decision-making.”
He noted that this reform builds on a decade of progress since the 2010 Constitution introduced the Public Financial Management (PFM) Act in 2012 and the establishment of the PSASB in 2014. During this period, Ministries, Departments, Agencies (MDAs), and County Governments have enhanced their financial accounting capabilities, positioning them well for this transition. “The adoption of cash-basis accounting, initially intended as a temporary measure, has prepared public entities for the transition to a more comprehensive accrual basis.
The shift will occur over the next three years, guided by the steering committee. The effective date for the accrual basis is set for July 1, 2024, with the first accrual-based financial statements expected for the fiscal year ending June 30, 2025. The Treasury will support this transition by providing guidance on asset and liability valuation, improving the Integrated Financial Management Information System (IFMIS), and enhancing the capacity of public sector personnel,” Dr Kiptoo added.
He emphasized that this move is crucial for improving financial management and increasing the accuracy of public sector financial reports. It will enable the government to provide a more comprehensive overview of its financial position, including obligations such as pending bills, pension liabilities, and public debt, alongside receivables, fixed assets, and natural resources. However, the transition will not be without challenges.
“Transitioning from cash to accrual accounting requires a thorough review of existing financial processes, revisions to the Standard Chart of Accounts (SCOA), and reengineering of the IFMIS system. Public entities will also need to create and adopt accrual-based financial statement templates. Nevertheless, with the support of the steering committee and key stakeholders, these challenges can be effectively managed,” he stated.
“The National Treasury is committed to ensuring the success of this transition, which will promote sustainable economic growth and enhance accountability in the public sector. In collaboration with both international and domestic partners, the government will strive to improve transparency and accountability as outlined in Article 201 of the Constitution,” the Principal Secretary added.
This initiative marks the first major change under National Treasury Cabinet Secretary John Mbadi since he took office and is part of a broader plan to transition from the Integrated Financial Management System, scheduled for implementation by July next year, as the government aims to close loopholes that have led to the loss of public funds.
