Accounting in the Public Sector — full notes
Paper No. 1: Financial Accounting · Accounting in the Public Sector
Accounting in the Public Sector
1. Public sector vs private sector
| Private sector | Public sector | |
|---|---|---|
| Objective | Profit | Service delivery and public accountability |
| Funding | Trading revenue, investment | Taxes, budgetary allocations |
| Ownership | Shareholders/owners | The state, accountable to Parliament/County Assembly and citizens |
| Performance measure | Profit | Value for money, service delivery outcomes against budget |
2. Structure of Kenya's public sector
National Government (ministries, departments, agencies). County Governments (Kenya's 47 counties). State Corporations (parastatals). Departments and Agencies.
3. Regulation and oversight
| Body | Role |
|---|---|
| IPSASB | Sets IPSAS globally |
| PSASB | Kenya's own body for adopting and applying public sector accounting standards |
| National Treasury | Overall fiscal policy and public finance management oversight |
| Director of Accounting Services | Technical accounting oversight |
| Parliamentary Committees | Scrutinise public spending |
| Accounting Officers | Individually accountable for their entity's finances |
4. Objectives of public sector financial statements
Accountability for public resources entrusted. Demonstrating compliance with the approved budget. Informing oversight bodies and the public. Not primarily aimed at investors or shareholders.
5. Accounting techniques in the public sector
| Technique | What it means |
|---|---|
| Cash accounting | Recorded only when cash actually moves |
| Accrual accounting | Recorded when transactions occur, matching private-sector approach |
| Commitment accounting | An obligation recorded as soon as a purchase order is issued, before goods arrive |
| Fund accounting | Resources segregated into distinct funds for specific purposes |
| Budgeting | The approved budget has legal authority in the public sector |
6. Budget variance - a light computational touch
Expenditure variance = Budget - Actual (positive = favourable)
Revenue variance = Actual - Budget (positive = favourable)
Example: a county department budgets KES 5,000,000 and spends KES 4,650,000. Variance = 350,000 favourable - though a large favourable expenditure variance can also mean planned services were not fully delivered.