Taxpayers are gaining more leverage to hold the government accountable for the use of public funds, a critical development that emerged from this year’s Financial Reporting Excellence (FiRe) Award held in Nairobi last week. This aligns with Article 201 of the Constitution, which establishes the fundamental principles of public finance, emphasizing openness, accountability, and the prudent use of public funds by all state organs.
The landmark shift from cash-based accounting to accrual-based accounting across public sector entities marks a significant milestone in the public sector’s financial reporting landscape. It provides a transparent slate through which citizens can scrutinise how their money is being spent. It further promotes accountability, the completeness of financial information, and comparability, which in turn improve the quality of decision-making in the public sector.
Cash-based accounting operates similarly to a restaurant’s cash register. It recognises revenue only when money is received physically and expenses when the money leaves the till. In contrast, accrual accounting provides a more realistic gauge of performance and profitability. It recognises revenue when it is earned and expenses when they are incurred, regardless of when the physical money changes hands. It also recognizes all assets and liabilities in the balance sheet, which greatly provides a clear picture of things.
“This year’s FiRe award marked the end of the evaluation of cash-based financial statements by the National Government MDAs, County Governments, and their related entities. The awards also came at a time when a significant number of MDAs (66%) obtained an unmodified audit opinion for FY 2023/2024 financial statements, indicating the maturity for these entities to transition to accrual accounting. PSASB is looking forward to evaluating the first set of transitional financial statements for entities transitioning from cash to accrual accounting over a three-year transition period. PSASB and public sector entities have used the evaluation as a yardstick to improve the quality of financial reporting over the years,” PSASB CEO FCPA Georgina Muchai said, during the award ceremony at the Safaripark Hotel, last week.
This year’s public sector engagement in the FiRe Award has increased significantly, with participation by government entities rising by 37%. Overall participation in the evaluation process was 1,397 public sector entities, up from 1,020 in 2024. This year, we also considered new categories, such as public hospitals and municipal boards. Additionally, there was an overall public sector entity award, which recognized the best public sector entity across the various evaluation categories. This was scooped by the Ministry of Defence. PSASB congratulates all the entities that were feted in the just concluded award ceremony and urges them to continuously improve and champion other entities to follow in their footsteps.
The increased participation is a testament to the value that public sector entities have continued to accrue from the award over the years since their first participation in 2015. It also signifies the desire of public sector entities to enhance transparency and accountability, and to provide information relevant to the primary users of the financial statements for decision-making purposes.
“PSASB extends its sincere gratitude to the Capital Markets Authority (CMA), Institute of Certified Public Accountants of Kenya (ICPAK), the Nairobi Securities Exchange (NSE), and the Retirement Benefits Authority (RBA) for their sustained support as promoters of the Financial Reporting (FiRe) Award,” FCPA Muchai said.
To support non-commercial public sector entities in their transition to IPSAS accrual reporting, the PSASB develops guidelines on all newly issued IPSASB standards. These guidelines are essential for entity application, as they include local examples that ensure the standards are easy to understand and apply.
FCPA Georgina stated that PSASB has released four new accounting guidelines based on IPSAS standards, which apply to the Kenyan public sector entities as of July 1, 2025. These guidelines are based on IPSAS 43 on Leases, IPSAS 44 on Non-Current Assets Held for Sale, IPSAS 45 on Property, Plant, and Equipment, and IPSAS 46 on Measurement, and can be obtained from the PSASB’s website at www.psasb.go.ke. These standards are expected to improve financial reporting, strengthen accountability for public resources, and promote more prudent decision-making by government institutions.
“IPSAS 43 on Leases guides on the accounting for the right of use of assets like office buildings, fleets of vehicles, when they are leased, rather than purchased outright. IPSAS 44 governs how public entities display and disclose non-current assets that are no longer in use but are actively being marketed for an imminent sale. IPSAS 45 is the rulebook for reporting the value of the state’s most important, long-lasting physical assets: Property, Plant, and Equipment. The new standard replaces IPSAS 17 and provides additional guidance on infrastructure assets and heritage assets, which are prevalent in the public sector. Think of national hospitals, major roads, schools, government headquarters, and crucial machinery. IPSAS 46 is an overarching standard designed to ensure uniformity in the measurement of all other assets and liabilities across the public sector,” FCPA Georgina said.