3.1 The Primary Objective and Its Components

As discussed in Chapter 1, public sector accounting serves two fundamental objectives: accountability and decision-making. The conceptual framework formalizes these objectives and expands on how they apply to financial reporting.

According to the IPSASB 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 objective reinforces the principles established in Chapter 1, but applies them specifically to general-purpose financial reports (GPFRs).

What Makes GPFRs Different:

While Chapter 1 discussed accountability and decision-making broadly, the framework specifies that GPFRs must answer particular questions:

• What did the entity achieve with the resources it had?
• Did it comply with legal budgets and financial regulations?
• What is its financial position and ability to continue providing services?
• What are the risks and uncertainties it faces?

Example: When Mombasa County presents its annual financial statements to the County Assembly, the complete GPFR package enables the Assembly to assess:

For Accountability:

• Whether the county executive complied with the approved budget
• Whether procurement followed legal requirements
• Whether resources were used efficiently and effectively

For Decision-Making:

• Whether to increase or decrease allocations to specific departments
• Whether the county can afford new infrastructure projects
• Whether revenue enhancement measures are needed

3.2 Who Are the Primary Users?

The framework identifies service recipients and resource providers as the primary users of general-purpose financial reports.

Service Recipients

Citizens and residents who benefit from government services:

• Patients using public healthcare facilities
• Students in public schools and universities
• Residents who benefit from security, infrastructure, and other public services

Resource Providers

People and organizations who supply financial resources:

• Taxpayers (individuals and businesses)
• International donors and development partners
• Lenders (domestic and international)
• Investors in government bonds

Critical Characteristic of Primary Users: These users do not have the authority to demand specific information tailored to their individual needs. Unlike oversight bodies that can request special reports, ordinary citizens cannot individually require detailed breakdowns. This is why general-purpose reports exist—to meet the common information needs of this broad group.

The Role of Legislatures

The framework explicitly recognizes that legislatures act as representatives of primary users:

• The National Assembly represents Kenyan citizens and taxpayers
• County Assemblies represent county residents and local taxpayers

When Parliament examines the government’s financial statements through the Public Accounts Committee, they are fulfilling their constitutional role (Article 226) of holding accounting officers accountable on behalf of the people.

3.3 Broader Scope of Public Sector Reporting

Chapter 1 introduced the concept that public sector reporting goes beyond traditional financial measurement. The conceptual framework provides the structure for this comprehensive approach.

To discharge accountability and inform decision-making, the framework recognizes that public sector GPFRs may need to include:

Financial Statements

• Statement of Financial Position
• Statement of Financial Performance
• Cash Flow Statement
• Statement of Changes in Net Assets/Equity
• Comparison of Budget and Actual Amounts

Additional Information

• Compliance reporting (adherence to legal requirements)
• Service delivery achievements and outcomes
• Explanations of variances and significant events
• Information about future plans and commitments

Example: Narok County’s complete annual GPFR includes:

• Financial Statements showing assets of Ksh 8.2 billion and liabilities of Ksh 450 million
• Budget Execution Report showing 85% absorption rate (Ksh 5.1 billion spent of Ksh 6 billion budgeted), with explanations for the Ksh 900 million variance
• Service Delivery Report showing 120 km of roads constructed against a target of 150 km, 8 healthcare facilities upgraded, and 45 boreholes drilled
• Compliance Information demonstrating adherence to procurement regulations and national government guidelines

This comprehensive approach allows the County Assembly, residents, Auditor-General, National Treasury, and development partners to fully assess the county’s stewardship and performance.