Kenya to Begin Valuing Public Assets from July 1 Under New Accounting Standards

Transition to Accrual Accounting Begins

Kenya’s National Treasury will commence the valuation of public assets on July 1, 2024, as part of its transition to a new financial reporting standard. This shift recognizes income after it is earned and expenses that have already been incurred, regardless of actual cash movement. The transition follows the completion of public consultations on two key regulatory frameworks: the asset valuation policy and the accounting policy.

The policies are expected to be enacted into law within two weeks, establishing a legal framework for assessing assets owned by government ministries, departments, and agencies (MDAs) on behalf of taxpayers. Jonah Wala, the director-in-charge of Accounting Services at the National Treasury, stated that the asset register in the Integrated Financial Management Information System (IFMIS) has been finalized, categorizing national assets and liabilities into 17 and nine groups, respectively.

The IFMIS is designed to enhance public financial management across national and county governments. Wala emphasized that the asset valuation policy will encompass a broader scope, while the accounting policy will focus specifically on which assets are to be valued. The initiative aims to ensure that accounting officers recognize and measure these assets beginning July 1.

Objectives and Implications of the New Policies

The transition to accrual accounting, approved by the Cabinet on March 7, 2024, is expected to improve transparency in managing public debt and pending bills. This move will facilitate better negotiations for lower borrowing costs from foreign lenders. Currently, Kenya’s cash accounting system, in place for the past decade, records only transactions with actual cash inflows, limiting the government’s financial visibility.

The new framework aims to consolidate all government assets and liabilities into a single balance sheet by June 30, 2027, providing a clearer picture of the state’s financial position. The National Treasury plans to record all borrowings and disclose critical details, linking loan proceeds to specific projects. This approach addresses public concerns regarding the legitimacy and use of public debt proceeds.

The project, estimated to cost Ksh3.1 billion (approximately $24.03 million), is supported by the World Bank and the International Monetary Fund. Treasury principal secretary Chris Kiptoo has directed accounting officers to establish cash-to-accrual transition committees within their entities to oversee the implementation of these changes.

Moving Forward with Implementation

The establishment of transition committees is crucial for the successful implementation of the new accounting standards. These committees will comprise members from various departments, including accounts, finance, public works, human resources, international audit, ICT, and asset management. Their role will be to facilitate the shift from cash-based accounting to accrual accounting, ensuring that all public assets are accurately valued and recorded.

As Kenya prepares for this significant financial overhaul, the National Treasury aims to enhance the integrity and transparency of public financial management. By bringing previously unrecorded assets into the government’s financial statements, the country seeks to establish a more accountable and sustainable fiscal environment.

Frequently Asked Questions

What is the purpose of Kenya’s new asset valuation policy?

The policy aims to enhance transparency in public financial management by accurately valuing government-owned assets.

When will the asset valuation begin?

Asset valuation will commence on July 1, 2024.

How does accrual accounting differ from cash accounting?

Accrual accounting recognizes income and expenses when they are earned or incurred, while cash accounting only records transactions when cash is received.

What are the expected benefits of this transition?

The transition is expected to improve financial transparency, facilitate better loan negotiations, and provide a clearer picture of the government’s financial health.

Who is overseeing the implementation of the new policies?

The National Treasury, with support from the World Bank and IMF, is overseeing the implementation of the new asset valuation and accounting policies.