2.1 Primary Objectives

Public sector accounting and reporting serve two fundamental purposes:

Objective 1: Accountability

Definition: Demonstrating that public funds have been used lawfully, efficiently, and for approved purposes.

How it works:

• Financial reports compare actual spending and revenue to budgeted amounts
• Shows whether public officers adhered to authorized budgets and financial plans
• Enables stakeholders to assess how public money was obtained and spent

Example: If Kiambu County budgeted Ksh 500 million for road construction but only spent Ksh 350 million, the financial statements must show this Ksh 150 million variance and explain why (e.g., procurement delays, project postponements, or savings achieved).

Objective 2: Decision-Making

Definition: Providing information that guides future actions and resource allocation.

How it works:

• Helps legislatures decide on budget allocations
• Enables managers to adjust programs based on financial performance
• Provides accurate picture of finances including assets, liabilities, revenues, and expenses

Example: The National Treasury uses financial reports from all ministries to determine which sectors need more funding in the next budget. If the Ministry of Health shows high absorption of development funds (spent 95% of allocation) while Education spent only 60%, Treasury might allocate more to Health in the next cycle.

2.2 The IPSASB Conceptual Framework

According to the IPSASB’s Conceptual Framework:

“The objective of financial reporting by public sector entities is to provide information about the entity that is useful to users of financial statements for accountability purposes and for decision-making purposes.”

This means financial reports should enable users to:

• Assess how public money was obtained and spent
• Determine whether resources were used as intended
• Evaluate the entity’s financial position at period-end

2.3 Constitutional Basis in Kenya

Article 201 of the Constitution of Kenya 2010:

(a) “There shall be openness and accountability, including public participation in financial matters”

(e) “Financial management shall be responsible, and fiscal reporting shall be clear”

These principles directly align with the objectives of public sector accounting.

2.4 Broader Scope than Private Sector

Public sector financial reporting goes beyond traditional financial measurement to include:

1. Compliance Reporting
   • Adherence to budget limits
   • Compliance with spending conditions
   • Following procurement laws
2. Stewardship Reporting
   • Management of assets held for public benefit
   • Protection of public resources
   • Long-term sustainability

Example of Comprehensive Reporting: Mombasa County’s Annual Financial Statements include:

• Statement of Financial Position (what the county owns and owes)
• Budget vs Actual comparison (showing compliance with county assembly’s approved budget)
• Cash Flow Statement (showing sources and uses of cash)
• Notes explaining pending bills to suppliers (accountability for obligations)
• Asset register showing all public buildings and infrastructure (stewardship)