The National Treasury has approved the valuation of all assets that Kenya owns as part of an on-going process to shift the government’s operations to a new financial reporting plan by 2027.
Kenya has set a three-year (2024/2025 - 2026/2027) roadmap towards fully shifting its financial transactions to an accrual basis of accounting from the current cash-based system, with an aim of consolidating the State’s total assets and liabilities onto a single balance sheet that provides the government’s true financial position and help save on exorbitant cost of foreign loans.
By disclosing the assets and liabilities of the government in a balance sheet, the National Treasury says the policy shift will help bolster transparency in the management of public debt and pending bills and help the government negotiate for cheaper loans from foreign lenders to support the government’s budgetary operations.
The National Treasury says the valuation of the assets will be done based on either their historical cost or current value depending with the availability of the financial data.
“The National Treasury approved recognition and valuation models for all public assets both at the national and county levels. The valuation of the assets will be based on both the historical and current values. If historical cost of the asset is not available, then the public entity can use current operational value,” Jonah Wala, the National Treasury’s director-in-charge of Accounting Services told The EastAfrican in an e-mailed response.
“A rigorous capacity building for accounting officers and accountants will commence in March 2025. The National Treasury will issue a formal circular to all accounting officers, detailing what needs to be done, the need to form steering committees, the need to identify and value all assets, the valuation models (historical cost or current operational value) to be ready before July 1, 2025.”
The National Treasury has identified several asset classes for valuation including land, natural resources, roads and rail infrastructure, electricity generation and distribution, water infrastructure and intangible assets.
Buildings will include government offices, schools, hospitals, police stations and courts.
Disputed assets will be reviewed and cleared by the National Assets and Liabilities Department at the National Treasury.
So far, the whole of the national government has shifted to accrual accounting with effect from July 1 2024, implying that the financial statements of all ministries, State departments, independent offices and agencies in quarter 1 and quarter 2 of the current financial year (2024/2025) were done on accrual basis.
The shift from cash-based system to accrual system of accounting seeks to provide full disclosures on public debt whose legitimacy and usage of proceeds have become a matter of public concern
Kenya’s cash accounting which has been in force for the last 10 years exclusively focuses on cash that has been received, meaning that only transactions where money has been received are recorded in government books.
This is contrary to the accrual accounting system which paints a more comprehensive picture of the government’s financial health.
Accrual accounting recognises revenues which have already been earned and expenses which have been incurred, irrespective of the actual cash movement.
In August last year (2024) the National Treasury assembled a steering committee chaired by the Principal Secretary Chris Kiptoo to oversee the smooth transition of the government’s financial operations from the current cash-based accounting system that has been in use since 2014 and which only recognizes transactions involving an exchange of cash.
Fixed assets
Under the current cash-based accounting system not all fixed assets and liabilities are recorded in government books and things like public debt liabilities and pending bills are not found in government books because of cash accounting.
Currently, pending bills, pension liabilities and public debt are not recorded in government books but in separate registers, a move that has, for instance, made it difficult to relate public debt to particular projects, according to National Treasury
The project which is supported and supervised by the Bretton Woods institution (World Bank and the International Monetary Fund) seeks to ascertain the correct state of affairs of the government’s financial position on quarterly and annual basis by identifying and valuing the assets and liabilities of the government. Under the cash accounting system, the balance sheet cannot be prepared since there are no assets and liabilities
The total project cost is estimated at Ksh3.1 billion ($24 million) for both national and county governments with most of the funds going towards valuation of the assets and enhancing ICT equipment and servers.
The project is financed by the World Bank and the Government of Kenya which has allocated Ksh1.2 billion ($9.3 million) in the 2024/2025 fiscal year.
Chart of accounts
Within the three-year period (2024/2025 to 2026/2027) the National Treasury will focus on the identification and valuation of the government’s fixed assets, total overhaul of the Integrated financial management information system (Ifmis) to a new version compatible with the accrual accounting system and conversion of standard chart of accounts (government expenditure codes) from cash system to accrual system.
Other areas of focus are development of a dual ledger where the budgeting system remains on the cash basis while accounting transactions move to accrual basis to ensure financing commitments remain on cash-basis and capacity building where all 6,000 government accountants will be retrained.
Kenya joins Tanzania and Uganda in the implementation of accrual accounting while Rwanda is at the end of completing the transition process. Uganda is operating both cash and accrual system of accounting on a 50-50 basis.
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