New Rules Push Public Sector to Reveal Full Cost of Services

PSASB Chairman presents an award

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.

PSASB Releases Guidelines on New Accounting Standards

IPSAS

To strengthen financial accountability and transparency in government, the Public Sector Accounting Standards Board (PSASB) has released four guidelines on new accounting standards, applicable to all public sector entities from 1 July 2025.

These new standards issued by the IPSASB will apply to national and county governments, state corporations, public universities, and other public sector entities. These are: 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. The 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 sets out how government entities should account for leased assets such as office buildings, vehicles, and equipment. In the past, such arrangements were often expensed, making it difficult for citizens or oversight bodies to know the actual value of leased assets and obligations. This standard now requires government entities to clearly record leases as either assets or liabilities, showing precisely what the government owes or owns.

“The four are new accounting standards issued by International Public Sector Accounting Standards Board (IPSASB) and adopted in Kenya starting 1st July 2025 as part of the government’s transition to accrual-based accounting. With IPSAS 43, all lease obligations will be recognised, giving a clearer picture of the government’s financial position. IPSAS 44 provides principles for recognizing, measuring, presenting, and disclosing property, plant, and equipment (PPE) used by public sector entities to deliver services. IPSAS 45 will help the government manage assets better, plan maintenance, and avoid wastage; and finally, IPSAS 46 provides a comprehensive framework for how public sector entities should measure assets, liabilities, revenues, and expenses in their financial statements,” PSASB CEO FCPA Georgina Muchai said.

The second standard, IPSAS 44, focuses on non-current assets held for sale. These are government properties, such as land, buildings, or vehicles, that are no longer in use and are earmarked to be sold. The standard provides guidelines for valuing and presenting such assets before disposal.

This is particularly important in a country where idle or abandoned public property often goes unnoticed. IPSAS 44 ensures such assets are properly documented and that any sales benefit the public purse.

Every year, billions of shillings are spent on constructing roads, schools, hospitals, and other public facilities. IPSAS 45 provides a clear framework for the recording, measurement, and presentation of these properties, plants, and equipment.

With this standard, the government will have a more accurate picture of the value of the infrastructure it owns. This is expected to enhance planning, budgeting, and investment decisions, ensuring that public funds are well utilized and assets are maintained responsibly.

IPSAS 46 on measurement is a cross-cutting standard that deals with how assets and liabilities should be valued. It provides clear guidance on the use of fair value, historical cost, and other valuation techniques. This ensures that all public entities use consistent and credible methods to determine asset values, making financial reports more reliable.

The rollout of these standards is part of Kenya’s broader public finance reforms aimed at improving accountability and service delivery. FCPA Georgina added that the standards will enhance the credibility of government financial statements, making them more aligned with international best practices.

“These standards may sound technical, but their impact is efficient,” FCPA Georgina added. “They ensure that every building, vehicle, lease, and investment the government makes is properly recorded and accounted for. And that’s good for every taxpayer.”

PSASB in September conducted virtual sensitisation forums for all four standards. The guidelines are issued with the objectives of assisting preparers and users of financial statements to understand and implement the new standards within the Kenyan context.

PSASB, National Treasury Unveil Internal Audit Manual

Kenyans can now expect more transparency and accountability in the management of public resources following the release of the Public Sector Entities Model Internal Audit Manual. The manual, developed by Public Sector Accounting Standards Board (PSASB) in collaboration with the National Treasury, aims to guide government functions.

The Internal Audit Manual is designed to give internal auditors practical tools, clear procedures, and professional guidance to support better governance, risk management, and internal control across all public entities. It provides a structured way of ensuring that every shilling of public funds is accounted for and spent prudently.

“The manual is a game-changer for public sector accountability. It provides practical tools and professional guidance that will enable internal auditors to deliver more effective oversight and support government institutions to achieve their mandates,” said Ms. Georgina Muchai, CEO of PSASB.

The manual is anchored on the Public Finance Management Act, 2012 and aligns with international best practices through the International Professional Practices Framework (IPPF). It is also consistent with the Constitution of Kenya, relevant regulations, and audit committee guidelines, ensuring a uniform approach to internal auditing in both national and county governments.

Speaking during its unveiling, Ms Georgina emphasised that the manual marks a major milestone in the country’s journey toward more transparent governance.

“This manual will help internal auditors across the public sector to bring a systematic and disciplined approach to auditing. It will strengthen how government institutions manage risk, enhance accountability, and ultimately build public trust,” said Ms. Georgina.

One of the key objectives of the manual is to enhance the quality and effectiveness of internal audit work. It provides clear procedures for planning, conducting, reporting, and following up on audits, ensuring that the function meets international standards. It also acknowledges the unique environment of the public sector and offers practical steps that can be adapted to fit different government institutions while remaining compliant with the law.

Ms. Georgina added that the manual will also serve as a reference document for internal auditors, audit committees, and management teams across the country.

“Internal audit is not just a compliance requirement; it is a strategic function that ensures public funds are used for the intended purposes. This manual will help strengthen internal controls and promote good governance in all government entities,” she said.

The manual was developed by PSASB in collaboration with the National Treasury and Heads of Internal Audit from various public entities and is backed by Section 194 of the PFMA, which empowers PSASB to prescribe internal audit procedures. Its introduction follows Gazette Notice No. 11033 of August 2024, which formally adopted the IPPF for use in Kenya’s public sector.