New accounting standards board timely

It is critical for taxpayers to understand the full impact of government decisions on financial performance and position as well as cash flows.

On 28 February 2014, the National Treasury Cabinet secretary, in accordance with the Public Finance Management Act, made appointments to the Public Sector Accounting Standards Board.

We congratulate the minister for actualising the requirements of the Act by constituting the board.

The newly appointed board members have their work cut out for them.

In accordance with the Act, the functions of the board are to provide frameworks and set generally accepted standards for the development and management of accounting and financial systems by all State organs and public entities, standards that take into account any relevant factors, including the best international accounting practices and the capacity of the relevant entity to comply with the measures.

The board is also expected to monitor the adherence to the standards by all State organs and public entities as well as promote transparency and other constitutional values and principles to ensure efficient management of the revenue, expenditure, assets, and liabilities of the institutions to which these standards apply.

But the question is, why the excitement about the Public Sector Accounting Standards Board? Ministries, State departments, parastatals both commercial, educational, the Women’s and Youth funds, and donor-financed projects are currently using IFRS’s, IPSAS accrual and IPSAS as the basis for accounting and financial reporting framework. This depends on whether the reporting entity is a parastatal, fund, donor financed project, or central government institution respectively.

The recent global economic crisis and severe fiscal constraints experienced the world over has underscored the need for governments to transparently report all their assets and liabilities.

Moreover, some public financial statements have been qualified by the Auditor General due to lack of a defined accounting framework in their preparation.

LARGEST PUBLIC SECTOR ENTITY

As a matter of fact, in Kenya as is the case with many other jurisdictions, the government remains the largest public sector entity.

In Kenya, for example, several government entities use IFRSs, IPSAS accrual, and IPSAS as the basis for accounting and financial reporting framework.

However, some entities are still operating without a defined internationally recognised public sector accounting framework popularly known as the International Public Sector Accounting Standards (IPSAS).

IPSAS are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements.

These standards emphasise the accountability of governments to citizens, voters, their representatives, and the public.

The quest for transparency in government has necessitated the implementation of public sector accounting standards in over 120 countries globally. Countries that have reformed their accounting and financial systems include Australia, Canada, New Zealand, United Kingdom, and the United States.

In Africa, Algeria, Ghana, and South Africa have implemented far-reaching reforms in public sector accounting and financial reporting.

Other African countries like Nigeria, Rwanda, Tanzania, and Uganda are at various stages of implementing IPSAS. In Rwanda, for example, the government has been able to prepare IPSAS-based consolidated financial statements.

Public sector accounting standards are expected to bring completeness of reporting undertaken by all government entities both at national and county level.

Indeed, the internal benefits to compliance with accounting standards are significant, key of which is more reliable financial information that promotes better decision-making and improved accountability.

ROLE OF NEW BOARD
Public sector accounting standards will provide better information regarding systemic risks associated with government debt and liabilities.

It is critical for taxpayers, investors, and the public to understand the full impact of decisions made by governments with respect to their financial performance and position and cash flows. As the stewards of taxpayer funds, governments must be accountable for and transparent

These standards underpin financial performance and allow comparisons to be made between compliant public bodies and for individual organisations to measure their progress over time.

The writer is the chairman of the Institute of Certified Public Accountants of Kenya (ICPAK).