Government shifts to accrual-based accounting to boost transparency in public finances

The National Treasury has started transitioning from cash-basis accounting to the International Public Sector Accounting Standards (IPSAS) accrual-based system.

The move is set to affect both the National Government and County Governments, along with their associated entities.

In a statement on Thursday, Treasury Principal Secretary Chris Kiptoo said the switch is aimed at improving transparency and accountability in financial reporting across public institutions.

The decision to adopt the accrual-based system was approved by the Cabinet on March 7, 2024, following recommendations from the National Treasury and the Public Sector Accounting Standards Board (PSASB).

The transition was formally gazetted on August 30, 2024, under Gazette Notice No. 11033. A steering committee has been set up to oversee the process, with its inaugural meeting held on Thursday under the chairmanship of Kiptoo.

“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 only recorded when cash is exchanged, which limits the government's ability to present a comprehensive view of its financial position,” Kiptoo said.

He further explained that accrual accounting addresses this limitation by recognising revenues and expenses when they are earned or incurred, regardless of cash flow.

“This approach provides a clearer picture of the government’s financial health by requiring the recognition of assets, liabilities, revenues, and expenditures. It delivers vital data for informed decision-making,” Kiptoo said.

He added that the transition, which officially began on July 1, 2024, will be implemented over the next three years. The first accrual-based financial statements are expected for the fiscal year ending on June 30, 2025.

To support the reform, the Treasury will provide guidance on asset and liability valuation, upgrade the Integrated Financial Management Information System (IFMIS), and focus on building capacity among public sector employees.

“This reform is essential to improving financial management and enhancing the accuracy of public sector financial reports,” Kiptoo said.

He noted that this system will allow the government to better account for key obligations, such as pending bills, pension liabilities and public debt, alongside receivables, fixed assets, and natural resources.

However, the shift is expected to face some challenges, including the need to review current financial processes, revise the Standard Chart of Accounts (SCOA), and reengineer the IFMIS system. The PS said public entities will also need to adopt new templates for accrual-based financial statements.

“With the support of the steering committee and key stakeholders, these challenges will be successfully navigated,” Kiptoo said.

He highlighted that the National Treasury is fully committed to ensuring the success of the transition, which will support sustainable economic growth and strengthen public sector accountability.

He also reiterated the government's commitment to enhancing openness and accountability in line with Article 201 of the Constitution, through collaboration with both domestic and international partners.