For financial information to achieve the objectives of accountability and decision-making, it must possess certain qualities. The IPSASB Conceptual Framework identifies six qualitative characteristics.

Think of these as quality standards: Just as we expect clean water to be free from contaminants, we expect financial information to be relevant, faithful, understandable, timely, comparable, and verifiable.

4.1 Relevance

Definition: Information is relevant if it is capable of making a difference in users’ decisions or in fulfilling their accountability needs.

Information has relevance when it possesses either or both:

Confirmatory Value

Information confirms or changes users’ past expectations or evaluations.

Example: Information showing actual spending versus budget has confirmatory value—it confirms whether funds were used as intended. If Kisumu County budgeted Ksh 200 million for water projects but only spent Ksh 150 million, this confirms or challenges expectations about the county’s development program execution.

Predictive Value

Information helps users predict future outcomes or conditions.

Example: Information on outstanding public debt and future debt service obligations has predictive value—it helps assess whether a government can sustain current service levels. If Kenya’s debt-to-GDP ratio continues rising, this predicts potential future fiscal challenges requiring either service cuts or revenue increases.

Materiality

Materiality is tied to relevance. The framework states: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the discharge of accountability by the entity, or the decisions that users make on the basis of the entity’s GPFRs.”

Example: A contingent liability like a Ksh 5 billion lawsuit against the Ministry of Transport over a road construction contract is material and must be disclosed, even if the outcome is uncertain. Its resolution could significantly impact government finances.

Example: Disclosure of pending bills by county governments is highly relevant because it highlights obligations that affect future budgets and service delivery capacity. If Garissa County has Ksh 800 million in pending bills, this is material information for understanding the county’s true financial position.

4.2 Faithful Representation

Definition: Information must faithfully represent the economic and other phenomena it purports to describe. The depiction should be complete, neutral, and free from material error.

Faithful representation is attained when the depiction is:

Complete

All information necessary for understanding is included, including descriptions and explanations.

Example: When reporting infrastructure assets, a complete representation includes:

• The total value of roads, bridges, and public buildings
• The valuation method used (cost, depreciated replacement cost, fair value)
• The depreciation policy and useful lives
• The condition of assets
• Major classes of infrastructure
• Factors that might affect future use

Without this context, the numbers alone would not faithfully represent the entity’s infrastructure holdings.

Neutral

Information is presented without bias—not intentionally selected or presented to achieve a predetermined result.

The framework states: “Neutrality in financial reporting is the absence of bias. It means that the selection and presentation of financial and non-financial information is not made with the intention of attaining a particular predetermined result.”

Example: A county government should not understate its budget deficit to make financial performance look better (bias toward favorable presentation), nor should it overstate liabilities to create an impression of crisis (bias toward pessimism). Both violate neutrality.

The Role of Prudence

Neutrality is supported by the exercise of prudence. The framework explains: “Prudence is the exercise of caution when making judgments under conditions of uncertainty. The exercise of prudence means that assets and revenue are not overstated, and liabilities and expense are not understated.”

Example: When estimating revenues from property tax arrears, a prudent approach would only recognize amounts expected to be collected based on historical collection patterns, avoiding overstatement of resources. If Nakuru County has Ksh 300 million in outstanding property taxes but historically collects only 40%, faithful representation would recognize approximately Ksh 120 million as collectible, not the full Ksh 300 million.

Free from Material Error

Information should be as accurate as possible, though absolute precision may not always be achievable.

The framework acknowledges: “Free from material error does not mean complete accuracy in all respects.”

Example: Cash transactions can be precisely measured—the exact amount paid for office supplies is Ksh 45,750.00. However, the estimated useful life of a county office building (40 years? 50 years?) requires professional judgment. These estimates are free from material error if:

• Based on best available information (structural assessments, comparable buildings)
• The amount is clearly described as an estimate
• The estimation method is explained
• No material errors exist in applying the chosen method

4.3 Understandability

Definition: Information should be presented clearly and concisely so that users can comprehend its meaning.

The framework states: “Understandability is the quality of information that enables users to comprehend its meaning.”

How to Achieve Understandability:

• Use clear language and avoid unnecessary jargon
• Present information in logical structures with clear headings
• Include graphs, charts, and summaries where appropriate
• Provide glossaries of technical terms
• Explain complex items in plain language

Example: National Treasury publishes a “Citizen’s Budget”—a simplified version using plain language, infographics, and visual aids to help ordinary Kenyans understand government revenue and spending plans. Similarly, some counties prepare simplified annual reports alongside the detailed technical IPSAS-compliant reports.

Important Balance

The framework acknowledges that users are assumed to have reasonable knowledge: “Users of GPFRs are assumed to have a reasonable knowledge of the entity’s activities and the environment in which it operates, to be able and prepared to read GPFRs, and to review and analyze the information presented with reasonable diligence.”

However, even technical information must be included: “Information should not be excluded from GPFRs solely because it may be too complex or difficult for some users to understand without assistance.”

Example: Actuarial valuations of pension obligations are complex and technical. However, they must be included in financial statements for completeness, with explanations of:

• What the obligation represents
• The key assumptions used (discount rate, salary growth, mortality rates)
• How changes in assumptions would affect the valuation
• The sensitivity of results to assumption changes

This allows both technical readers and general readers (who may need assistance) to access the information.

4.4 Timeliness

Definition: Information should be available to users in time to influence their decisions.

The framework states: “Timeliness means having information available for users before it loses its capacity to be useful for accountability and decision-making purposes.”

Why Timeliness Matters

Outdated information loses relevance. If financial reports are produced too long after the reporting period ends, their value for holding officials accountable and informing budget decisions diminishes.

Legal Requirements in Kenya

The Public Finance Management Act sets specific deadlines:

• National Government must submit financial statements to Auditor-General within 2 months after year-end
• Auditor-General must complete audit within 6 months and submit to Parliament
• County governments have similar timelines for County Assemblies

Example: When Parliament debates the 2024/25 budget allocations in May/June 2024, they need the audited results for 2022/23 (ended June 30, 2023) to inform decisions. If those results aren’t available until late 2024, Parliament must allocate resources without knowing how effectively the previous budget was executed.

Trade-offs

The framework recognizes: “There can be a trade-off between timeliness and the provision of reliable information.”

Sometimes providing information sooner requires using estimates that may later be revised. The optimal approach might be:

• Issue preliminary unaudited figures within 2 months (timely but less verified)
• Follow with audited statements within 6 months (verified but less immediate)

This balances timeliness with verifiability and faithful representation.

4.5 Comparability

Definition: Information is more useful if it can be compared across different entities and time periods.

The framework states: “Comparability is the quality of information that enables users to identify similarities in, and differences between, two sets of phenomena.”

Types of Comparison:

Across Time (Trend Analysis)

Comparing Nakuru County’s 2023/24 results to its 2022/23 results to identify:

• Is revenue collection improving or declining?
• Are development projects accelerating or slowing?
• Is the wage bill growing faster than total revenue?

Across Entities (Peer Analysis)

Comparing Nakuru County’s fiscal performance to Uasin Gishu County’s:

• Which county has higher revenue per capita?
• Which county has better development fund absorption?
• Which county has more sustainable debt levels?

Across Jurisdictions (International Comparison)

If Kenya, Uganda, and Tanzania all use IPSAS, their national government reports can be meaningfully compared on:

• Debt sustainability
• Revenue mobilization efficiency
• Service delivery cost-effectiveness

How to Enhance Comparability:

Consistent Accounting Policies

Use the same accounting methods from year to year unless a change improves the quality of reporting.

Common Reporting Frameworks

Kenya’s PSASB requirement that all public entities use IPSAS enables comparability:

• Between ministries, departments, and agencies
• Between the 47 county governments
• Between national and county levels

Disclosure of Policies

Explain the accounting policies used so readers can understand what’s being compared.

Example: If Kiambu County and Nyeri County both report under accrual IPSAS using consistent policies for depreciation and revenue recognition, stakeholders can meaningfully compare:

• Revenue collection efficiency (own-source revenue per capita)
• Development spending levels (development expenditure as % of total)
• Infrastructure holdings (road kilometers per capita)
• Fiscal sustainability (pending bills as % of annual revenue)

Comparability vs. Uniformity

The framework clarifies: “Comparability differs from uniformity. For information to be comparable, like things must look alike and different things must look different. An over-emphasis on uniformity may reduce comparability by making unlike things look alike.”

Example: If County A operates extensive water utilities while County B contracts water services to private providers, forcing both to use identical accounting treatments for “water services” might make unlike things look alike, actually reducing meaningful comparability.

4.6 Verifiability

Definition: Verifiability means that knowledgeable and independent observers can reach consensus that information faithfully represents what it purports to represent.

The framework states: “Verifiability is the quality of information that helps assure users that information in GPFRs faithfully represents the economic and other phenomena that it purports to represent.”

In simpler terms: the information is supported by evidence that can be checked and confirmed.

Types of Verification:

Direct Verification

Checking the information itself:

• Counting cash in the county treasury
• Observing physical existence of 50 new county vehicles
• Confirming bank balances directly with commercial banks
• Inspecting completed road construction projects

Indirect Verification

Checking inputs and recalculating outputs:

• Verifying depreciation by checking the asset cost, useful life, and recalculating using the stated method
• Verifying inventory value by checking quantities counted and costs paid, then recalculating using FIFO method
• Verifying actuarial pension liability by examining the assumptions and recalculating using the same model

Application in Kenya

Public sector financial reports are subject to audit by the Auditor-General, providing independent assurance:

Example: If Kakamega County reports infrastructure assets worth Ksh 12 billion, this is verifiable if:

• The county maintains a detailed asset register listing all roads, buildings, bridges, and equipment
• Professional valuers have assessed these assets using recognized methods
• The valuation reports document the methods, assumptions, and calculations used
• Auditors can examine the valuation reports, test the calculations, and verify the asset existence

Strong verifiability underpins credibility. When the Auditor-General certifies that Kakamega’s infrastructure asset value is fairly stated, users can rely on that Ksh 12 billion figure in assessing the county’s stewardship.

Verifiability of Prospective Information

The framework acknowledges that some information cannot be verified immediately:

“GPFRs of public sector entities may include financial and other quantitative information and explanations about key influences on the entity’s performance during the period, the anticipated future effects or outcomes of service delivery programs undertaken during the reporting period, and prospective financial and non-financial information. It may not be possible to verify the accuracy of all quantitative representations and explanations of such information until a future period, if at all.”

Example: If Turkana County projects that its new irrigation scheme will increase agricultural output by 30% over three years, this projection cannot be fully verified until those three years pass. However, it can be made more verifiable by:

• Disclosing the assumptions underlying the 30% projection
• Explaining the methodology used
• Providing baseline data
• Describing factors that could affect the outcome

This transparency allows users to assess the reasonableness of the projection even before it can be verified by actual results.

4.7 Constraints on Information

While striving to achieve all qualitative characteristics, preparers face certain constraints:

Cost-Benefit Constraint

The framework states: “Financial reporting imposes costs. The benefits of financial reporting should justify those costs.”

The costs include:

• Collecting and processing information
• Verifying information through audit
• Disseminating information to users

The benefits include:

• Better accountability and reduced corruption
• Improved decision-making and resource allocation
• Enhanced transparency and public trust
• More accurate pricing of government debt

Example: Conducting professional valuations of all government land parcels across Kenya would provide very precise asset values but might cost hundreds of millions of shillings and take years to complete. Would this cost be justified by the benefit to users?

A more cost-effective approach might be:

• Value land parcels above a certain size threshold
• Use mass valuation techniques for smaller parcels
• Update valuations on a rolling basis over several years

This balances faithful representation with practical resource constraints.

Balancing Characteristics

The framework acknowledges: “In some cases, a balancing or trade-off between qualitative characteristics may be necessary to achieve the objectives of financial reporting.”

Common trade-offs:

Timeliness vs. Faithful Representation

Waiting for complete information improves faithful representation but delays reporting, reducing timeliness.

Example: A county might issue preliminary financial statements 2 months after year-end (timely but using some estimates), then issue audited statements 5 months after year-end (more verified but less immediate).

Understandability vs. Completeness

Making reports highly accessible might require extensive explanatory material, but essential technical information shouldn’t be omitted just because it’s complex.

Comparability vs. Relevance

Maintaining consistent policies improves comparability, but changing to a more relevant policy might be appropriate even if it temporarily disrupts comparability.

Professional Judgment Required

The framework states: “The relative importance of the qualitative characteristics in each situation is a matter of professional judgment. The aim is to achieve an appropriate balance among the characteristics in order to meet the objectives of financial reporting.”