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Kenya’s public financial management is on the cusp of a major transformation. For years, the government has operated under cash-basis accounting, a method that only captures transactions when real money is exchanged.
While this system has served its purpose, it has its limitations, particularly as the nation’s financial landscape becomes more complex. Now, in a major reform, Kenya is set to transition to the International Public Sector Accounting Standards (IPSAS) accrual basis—a change that promises to enhance transparency, accountability, and decision-making in public finance.
Both the national and county governments, as well as their respective entities, will be impacted, signalling a comprehensive overhaul of how Kenya manages and reports its financial resources.
While the cash-basis system is simple, it presents a skewed picture of Kenya’s financial health. It overlooks key elements such as unpaid bills, pension obligations, and infrastructure investments, leaving decision-makers with an incomplete view of fiscal realities.
Take, for instance, pending bills. Under cash accounting, these liabilities remain invisible until payments are made, which can cause budget surprises or delays. Similarly, public debt obligations and pension liabilities don’t appear in financial reports until the moment they are paid. In an era where financial commitments are increasing and becoming more complex, this system is no longer adequate.
Accrual accounting changes everything. It records financial transactions when they are incurred, not when cash is exchanged. This means that the government will now recognise assets, liabilities, and obligations in real time, offering a fuller, more accurate picture of its financial position.
For example, pension liabilities—previously hidden until payments were due—will now be clearly recorded, giving both the government and the public a transparent view of long-term fiscal obligations.
The same applies to assets such as public infrastructure and natural resources, which will now be accounted for in financial reports. This shift will equip policymakers with better data for planning and budgeting, ultimately leading to more responsible financial management.
This move to accrual accounting is not a sudden shift but part of a broader journey that began over a decade ago. The enactment of the Public Financial Management (PFM) Act in 2012 and establishment of the Public Sector Accounting Standards Board (PSASB) in 2014 laid the foundation for this reform.
Over the years, public entities have been strengthening their financial management systems, making them better prepared for this transition.
The advantages of adopting IPSAS accrual are manifold. First, it will vastly improve the accuracy and reliability of government financial statements, enhancing accountability.
By recognising long-term obligations like pensions and pending bills, stakeholders will have a clearer view of fiscal commitments, reducing the risk of financial surprises.
Moreover, by accounting for assets like infrastructure, Kenya will gain a better understanding of its wealth and how to manage it. This comprehensive financial reporting will make it easier to prioritise projects and allocate resources effectively.
Kenya’s adoption of IPSAS accrual also aligns the country with global financial reporting standards. As fiscal transparency becomes increasingly important in attracting global investment and fostering economic stability, this reform positions the nation as a leader in public financial management in the region.
Of course, this transition will not be without challenges. Shifting to accrual accounting requires substantial adjustments to existing financial processes, including revising the Standard Chart of Accounts (SCOA), reengineering the Integrated Financial Management Information System (IFMIS), and developing new templates for financial reporting.
Public sector personnel will also need extensive training to adapt to the new system. However, the National Treasury, guided by a steering committee appointed by the Cabinet Secretary, has developed a three-year transition plan.
This reform is not just a technical upgrade—it is a fundamental change that will reshape how Kenya manages its public resources. By providing a complete and accurate view of the country’s financial standing, accrual accounting will enable the government to plan more effectively, manage public funds responsibly, and ensure taxpayer money is used efficiently.
By addressing the shortcomings of cash accounting, the government will be better positioned to manage its resources, meet its fiscal obligations, and deliver on its development goals.
As Kenya embraces this bold step, the benefits of accrual accounting will be felt for years to come.
Dr Kiptoo is the Treasury Principal Secretary
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