Finance Committee Takes Treasury To Task Over Delayed Implementation Of The Accrual Accounting System
Some of the committee members during the session
By PSCU
Worth Noting:
- In a bid to entrench a clear fiscal reporting system in the public sector as a principle of public finance and as envisaged in the 2010 Constitution, in 2014 Kenya adopted International Finance Reporting Standards (IFRS) for Commercial organizations and International Public Sector Accounting Standards (IPSAS) for non-commercial public sector entities which encompasses MDAs at the National level and County governments at the devolved level. This however is yet to be implemented.
- Cash accounting system is the elementary accounting that recognises revenues and expenditures only when the funds are received, and expenditures paid out.
- This system though straightforward, falls short of giving the full picture of an organization’s financial status at any specific time.
The Members of the Departmental Committee on Finance and National Planning have expressed their concerns over the delayed implementation of migration from the cash accounting system to the accural accounting system.
The legislators sought to know why the National Treasury had failed to ensure the implementation of the migration despite the committee having allocated KSh450 million in the current financial year for the transition.
The members raised the concerns during a meeting with the officials of the National Treasury led by the Chief Executive Officer, Public Sector Accounting Standards Board (PSASB) CPA Fredrick Riaga, and the Director, Accounting Services, National Treasury CPA Wala Jonah.
The officials had appeared before the committee to apprise the lawmakers on the status of implementation.
In a bid to entrench a clear fiscal reporting system in the public sector as a principle of public finance and as envisaged in the 2010 Constitution, in 2014 Kenya adopted International Finance Reporting Standards (IFRS) for Commercial organizations and International Public Sector Accounting Standards (IPSAS) for non-commercial public sector entities which encompasses MDAs at the National level and County governments at the devolved level. This however is yet to be implemented.
Cash accounting system is the elementary accounting that recognises revenues and expenditures only when the funds are received, and expenditures paid out.
This system though straightforward, falls short of giving the full picture of an organization’s financial status at any specific time.
On the other hand, the accrual accounting system recognises income and expenditure transactions in the period they are earned or incurred rather than at the time when payments are received or made. The advantage of this system is that it generates a balance sheet that communicates an entity’s net worth.
Pressed by members led by the committee chairman Kimani Kuria to explain why the implementation has delayed, CPA Riaga told the legislators that the Board was awaiting Cabinet approval for the migration. The lawmakers were however dissatisfied with this response .
They noted that since the migration had already been approved by dint of an Act of Parliament, there was no room for Cabinet Approval in rolling out the system.
The Treasury officials also cited some of the challenges they envisage in the implementation of the transition .
These include the current IFMIS system as configured as it is yet to be synchronized with the accrual system, and the capacity of officers to roll out the transition.
The advantages of the accrual process include its ability to maintain complete records on assets and liabilities, its ability to better manage risks associated with assets such as loss due to theft or damage. It would also assist government agencies to make more informed decisions about the feasibility of financial services entities wish to provide to the citizens.
The system if implemented, is also expected to provide information on the impact of existing liabilities on future resources, aid in planning for future funding requirements of asset maintenance and replacement, as well as allocate responsibility for the management of all liabilities.
The committee has since directed that the transition be implemented by end of November and scheduled a meeting within next month to receive a status update on the matter.
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