2.1 What the Framework Does

The conceptual framework serves three essential purposes:

Purpose 1: Foundation for Standard-Setting

The framework provides a blueprint that standard-setters like IPSASB use to develop International Public Sector Accounting Standards (IPSASs) and Recommended Practice Guidelines (RPGs) in a coherent way.

Example: When IPSASB develops a new standard on how to account for taxes, they refer to the framework’s principles about what constitutes an asset, a liability, revenue, and expenses. This ensures the new standard aligns with the fundamental concepts rather than being arbitrary.

Purpose 2: Enhancing Consistency

By articulating core concepts such as the objectives of financial reporting, the definition of financial statement elements, and the qualities of useful information, the framework ensures that individual IPSAS standards work together harmoniously rather than contradicting each other.

Purpose 3: Supporting Professional Judgment

When accountants encounter novel transactions not covered by existing standards, they can look to the framework’s definitions and principles to make informed judgments about how to report these transactions.

Example: Suppose Kiambu County Government enters into an innovative public-private partnership arrangement that doesn’t fit neatly into existing IPSAS standards. The county’s accountants can consult the conceptual framework’s definitions of assets and liabilities to determine:

• Should this be recognized as a county asset?
• Does it create a liability for the county?
• How should it be measured?

This approach ensures consistency with IPSAS principles even when dealing with unique situations.

2.2 The Framework’s Authority

Critical Understanding: The conceptual framework does NOT override or supersede specific accounting standards.

Its authority is that of a guide rather than a legally binding rule. The framework itself states: “The Conceptual Framework does not establish authoritative requirements for financial reporting by public sector entities that adopt IPSASs, nor does it override the requirements of IPSASs or RPGs.”

What This Means in Practice:

• Authoritative requirements (for example, how to recognize or measure revenue) are set out in actual IPSASs, not in the framework.
• When a conflict exists between an IPSAS standard and the framework, the IPSAS standard prevails.
• When no standard exists for a particular issue, the framework provides guidance to ensure judgments made are consistent with the spirit of IPSAS.

Example: IPSAS 23 prescribes specific requirements for how to account for revenue from non-exchange transactions (like taxes and grants). If there’s any perceived inconsistency between IPSAS 23 and the framework, IPSAS 23’s requirements take precedence. However, the framework’s principles about revenue recognition informed the development of IPSAS 23 in the first place.

2.3 Why Public Sector Needs Its Own Framework

The public sector has unique characteristics that distinguish it from private businesses:

• Focus on service delivery over profit maximization
• Prevalence of non-exchange transactions (taxes, grants) rather than commercial sales
• Importance of approved budgets as a key accountability mechanism
• Services provided for collective benefit (national security, public health, education)

Kenya’s public finance context, with its constitutional emphasis on openness and accountability (Article 201), resonates perfectly with the framework’s goals. The framework ensures that all stakeholders—from Treasury officials to county accountants to ICPAK auditors—speak the same conceptual language when preparing or reviewing financial reports.

Summary: The conceptual framework is a reference point that guides and harmonizes accounting standards and practices without being a standard itself. It provides the philosophical foundation that makes the entire system of public sector financial reporting coherent and credible.