NAIROBI, Kenya – In response to the escalating issue of unpaid bills, the Public Sector Accounting Standards Board (PSASB) has announced a strategic shift to the accrual accounting system for both national and county governments. This move, endorsed by the Cabinet, is expected to address the longstanding challenge of pending payments that have significantly impacted various government sectors and small businesses.
According to Kenya News Agency, the transition to accrual accounting marks a crucial step toward rectifying the current financial reporting system’s deficiencies, which have contributed to the accumulation of pending bills. Unlike the traditional cash-based approach, the accrual system recognizes transactions at the time they occur, providing a more accurate financial picture and facilitating better management of public resources.
The shift aims to improve transparency and accountability within government financial practices by including all liabilities, such as outstanding bills, on balance sheets. This method is anticipated to enhance the process of recording, verifying, and settling financial obligations, thereby benefiting various stakeholders, including contractors and small business owners affected by payment delays.
During a recent sensitization event for accounting officers, Nduatih highlighted the significance of this reform in addressing the persistent issue of pending bills, which undermines the country’s economic stability and the viability of small enterprises. He also emphasized that the new system would facilitate more effective oversight by allowing timely audits and reviews by the Auditor General and parliamentary committees.
The implementation of accrual accounting is also set to standardize financial reporting across government entities, encouraging investment by providing a clearer fiscal picture to domestic and international investors. PSASB CEO Georgina Muchina noted that prioritizing pending bills under this system is expected to restore confidence in government financial reporting.
As part of the initiative to ensure a smooth transition, several measures are being undertaken, including updates to financial management information systems and asset valuations. Tana River County’s Executive Member for Finance, Brenda Mokaya, endorsed the new system, acknowledging its potential to alleviate the burden of accumulated bills at the county level and enhance fiscal responsibility.
The adoption of accrual accounting in Kenya represents a significant reform intended to address the critical issue of pending bills, aiming to foster a more accountable and efficient public sector financial environment.