The Effect of Adoption of International Public Sector Accounting Standards on Financial Reporting in the Public Sector in Kenya

Abstract

The main purpose of the study was to establish the effect of adoption of International Public Sector Accounting Standards on financial reporting in the public sector in Kenya. The study was grounded on a theoretical foundation based on the stakeholder‟s theory, organization theory of the firm and the positive accounting theory. The study employed a descriptive survey research design. The population of study was public institutions that had adopted accrual based IPSASs. A total of 196 non-commercial public sector institutions were to adopt IPSASs accrual as per the data from Public Sector Accounting Standards Board. Using simple random sampling, 32 public sector institutions were selected for this study. Before processing the responses, the completed questionnaires were edited for completeness and consistency. The data was then coded to enable the responses to be grouped into various categories. Data for this study was both quantitative and qualitative hence both descriptive and content analysis techniques were employed. Data analysis used Microsoft excel, percentages, tabulations, means and other central tendencies measures. Tables were used to summarize responses for further analysis and facilitate comparison. The study established that the adoption of IPSASs was widespread in public sector institutions in Kenya in compliance to the PFM Act 2012. The study found out that as a result of adoption of IPSASs by the public sector entities there is improvement in accountability, asset management and transparency on financial reporting in public institutions. Hence this has brought about consistency in financial reporting, enhanced decision making and has improved internal control systems. However, the adoption of IPSASs has experienced many challenges as the implementation cost of the system was expensive, lack of trained staff on IPSASs, resistance to change and complexity of accrual accounting systems were among the identified challenges experienced. The respondents were articulate in providing the measures for mitigating the challenges experienced in adopting IPSASs. The measures included involvement of all stakeholders in the preparation of the financial statements, sensitization of the users for better adoption of IPSASs; training of the staff on the relevant skills as far as adoption of IPSASs is concerned among other suggested measures. The study made recommendations that all public institutions should adopt IPSASs for better management, accountability and transparency of financial reporting. IPSASs prescribes a manner in which general purpose financial statements should be prepared to ensure comparability both with the entity‟s financial statements of previous periods and with the financial statements of other entities. It was concluded that adoption of IPSASs by the public sector institutions has enhanced availability of timely, relevant and reliable financial information that has enhance decision making in the public sector.