POWERS OF THE NATIONAL TREASURY

Powers of the National Treasury

1.The Cabinet Secretary may generally give to the National Treasury such powers as are necessary
to facilitate the Cabinet Secretary and national government to exercise their powers in the .
With prior notification to the entity, access any system of public financial management
and control of national government entity;
2.
where reasonably necessary in the execution of its functions, access the premises of any
national State Organ or other public entity and inspect the entity's records and other
documents relating to financial matters after giving notice;
3.
require national government entities to comply with any specified applicable norms or standards regarding accounting practices and budget classification systems;
4.
require any public officer in the national government to provide information and if
necessary, explanations with respect to matters concerning public finance:
Provided that a person providing information shall not be liable if at the time of providing
the information that person, in writing, objected to providing such information on
grounds that the information may incriminate him or her;
5.
Provide any County Treasury with any information as it may require to carry out its
responsibilities under the Constitution; and
6.
Perform any other act as the Cabinet  Secretary  may  set

RESPONSIBILITIES OF NATIONAL TREASURY IN KENYA

formulate, implement and monitor macro-economic policies involving expenditure and
revenue;
2.
manage the level and composition of national public debt, national guarantees and other
financial obligations of national government within the framework of this Act and
develop a framework for sustainable debt control;
3.
formulate, evaluate and promote economic and financial policies that facilitate social and
economic development in conjunction with other national government mobilize domestic and external resources for financing national and county government
budgetary requirements;
5.
design and prescribe an efficient financial management system for the national and
county governments to ensure transparent financial management and standard financial
reporting as contemplated by Article 226 of the Constitution:
6.
Provided that the National Treasury shall prescribe regulations that ensure that operations
of a system under this paragraph respect and promote the distinctiveness of the n consultation with the Accounting Standards Board, ensure that uniform accounting
standards are applied by the national government and its entities;
8.
develop policy for the establishment, management, operation and winding up of public
funds;
9.
within the framework of this Act and taking into consideration the recommendations of
and county levels of government; e Commission on Revenue Allocation and the Intergovernmental Budget and Economic
Council, prepare the annual Division of Revenue Bill and the County Allocation of
Revenue Bill;
10. strengthen financial and fiscal relations between the national government and county
governments and encourage support for county governments in terms of Article 190(1) of
the Constitution in performing their functions; and
11. Assist county governments to develop their capacity for efficient, effective and
transparent financial management in consultation with the Cabinet Secretary responsible
for matters relating to intergovernmental relations.

Contents of development plans.. Public finance

Every county government shall prepare a development plan in accordance with Article 220(2) of
the Constitution, that includes—

a. strategic priorities for the medium term that reflect the county government's priorities and
plans;
b. a description of how the county government is responding to changes in the financial and
economic environment;
c. programmes to be delivered with details for each programme of—
i. the strategic priorities to which the programme will contribute;

BUDGET PROCESS BY COUNTY AND NATIONAL GOVERNMENT IN KENYA

tages in county government budget process

The budget process for county governments in any financial year shall consist of the following
stages—

a. integrated development planning process which shall include both long term and medium
term planning;
b. planning and establishing financial and economic priorities for the county over the
medium term;
c. making an overall estimation of the county government's revenues and expenditures;
d. adoption of County Fiscal Strategy Paper;
e. preparing budget estimates for the ounty government and submitting estimates to the
county assembly;
f.
approving of the estimates by the county assembly;
g. enacting an appropriation law and any other laws required to implement the county
government's budget;
h. implementing the county government's budget; and
i.
accounting for, and evaluating, the county government's budgeted revenues and
expenditures;
The County Executive Committee member for finance shall ensure that there is public
participation in the budget process.

Process of developing County government finance bill

PROCESS OF DEVELOPING COUNTY GOVERNMENT FINANCE BILL

County Treasury to prepare County Fiscal Strategy Paper

The County Treasury shall prepare and submit to the County Executive Committee the County
Fiscal Strategy Paper for approval and the County Treasury shall submit the approved Fiscal
rategy Paper to the county assembly, by the 28th February of each year.

The County Treasury shall align its County Fiscal Strategy Paper with the national objectives in
the Budget Policy Statement.

In preparing the County Fiscal Strategy Paper, the County Treasury shall specify the broad
strategic priorities and policy goals that will guide the county government in preparing its budget
for the coming financial year and over the medium term. he County Treasury shall include in its County Fiscal Strategy Paper the financial outlook with
respect to county government revenues, expenditures and borrowing for the coming financial
year and over the medium term.

In preparing the County Fiscal Strategy Paper, the County Treasury shall seek and take into
account the views of—

a) the Commission on Revenue Allocation;
b) the public;
c) any interested persons or groups; and
d) any other forum that is established by legislation. ot later than fourteen days after submitting the County Fiscal Strategy Paper to the county
assembly, the county assembly shall consider and may adopt it with or without amendments.

The County Treasury shall consider any recommendations made by the county assembly when
finalising the budget proposal for the financial year concerned.

The County Treasury shall publish and publicise the County Fiscal Strategy Paper within seven
days after it has been submitted to the county assembly.

County Treasury to prepare a County dget Review and Outlook Paper

A County Treasury shall—

a) prepare a County Budget Review and Outlook Paper in respect of the county for each
financial year; and
b) Submit the paper to the County Executive Committee by the 30th September of that year.

In preparing its county Budget Review and Outlook Paper, the County Treasury shall specify—

a) the details of the actual fiscal performance in the previous year compared to the budget
appropriation for that year;
b) the updated economic and financial orecasts with sufficient information to show changes
from the forecasts in the most recent County Fiscal Strategy Paper;
c) information on—

i. any changes in the forecasts compared with the County Fiscal Strategy Paper

ii.
how actual financial performance for the previous financial year may have affected
compliance with the fiscal responsibility principles, or the financial objectives in the
County Fiscal Strategy Paper for that financial year; and
easons for any deviation from the financial objectives in the County Fiscal Strategy
Paper together with proposals to address the deviation and the time estimated for doing
so.

The County Executive Committee shall consider the County Budget Review and Outlook Paper
with a view to approving it, with or without amendments, within fourteen days after its
submission.

Not later than seven days after the County Budget Review and Outlook Paper is approved by the
County Executive Committee, the County Treasury shall— rrange for the Paper to be laid before the County Assembly; and

b)
as soon as practicable after having done so, publish and publicise the Paper.

Banking arrangements for county government and its entities

The County Treasury is responsible for authorising the opening, operating and closing of bank
accounts for the county government and its entities, except as otherwise provided by other
legislation and in accordance with regulations made under this Act. s soon as practicable, each County Treasury shall establish a Treasury Single Account at the
Central Bank of Kenya or a bank approved by the County Treasury through which payments of
money to and by the various county government entities are to be made.

The Treasury Single Account shall not be operated in a manner that prejudices any entity to
which funds have been disbursed.

An accounting officer for a county government entity shall not cause a bank account of the entity
to be overdrawn beyond the limit authorised by the County Treasury or a Board of a county
government entity, if any. County Treasury shall keep complete and current records of all bank accounts for which it is
responsible under the Constitution, this Act or any other legislation.

Criteria to be taken in to account when determining the equitable shares in national and county legislation

The following criteria shall be taken into account in determining the equitable shares provided
for under Article 202 and in all national legislation concerning county government enacted in
terms of this Chapter—

i.
the national interest;

ii.
any provision that must be made in respect of the public debt and other obligations

iii.
the needs of the national government, determined by objective criteria;

iv.
the need to ensure that county governments are able to perform the functions
allocated to them;
v.
the fiscal capacity and efficiency of county governments;

vi.
developmental and other needs of counties;

vii.
economic disparities within and among counties and the need to remedy them;

PRINCIPLES of public finance

PRINCIPLES OF PUBLIC FINANCE

The following principles shall guide all aspects of public finance in the Republic—
1.There shall be openness and accountability, including public participation in financial
matters;

2. The public finance system shall promote an equitable society, and in particular—
i.
the burden of taxation shall be shared fairly;
ii.
revenue raised nationally shall be shared equitably among national and county
governments; and
iii.
expenditure shall promote the equitable development of the country, including by making
special provision for marginalised groups

3.
The burdens and benefits of the use of resources and public borrowing shall be shared
equitably between present and future generations;
4.
public money shall be used in a prudent and responsible way; and
5.
financial management shall be responsible, and fiscal reporting shall be clear
Equitable sharing of national revenue

Revenue raised nationally shall be shared equitably among the national and county governments.

County governments may be given aditional allocations from the national government’s share of the revenue, either conditionally or unconditionally.

Ways of managing earnings . Esther Nyamai

manager can manage its earnings through various techniques which are:

i. Timing sales of securities that have gained value: The company can sell a portfolio security that has an unrealized gain and can report the gain as operating earnings if it is required

ii. Timing sales of securities that have lost value: If the manager wants to show lower earnings then he can sell the security that has an unrealized loss and report the loss in operating earnings.

iii. Change of holding intent, write-down “impaired securities

Management can manage earnings through change of its holdings from available to sale securities to trading securities and vice versa. T
anage earnings through change of its holdings from available to sale securities to trading securities and vice versa. This would have the effect of moving any unrealized gain or loss on the security to or from the income statement

iv. Write-down “impaired securities: Securities that have an apparent long term decline in fair market value can be written down to the reduced value regardless of their portfolio classification. 

v. “Throw out” a problem child:
To increase the earnings of future period, the company can sell the subsidiary which is not performed well i.e. “the problem child” subsidiary may be “thrown out”. Earnings can be managed through sell the subsidiary, exchange the stock in an equity method subsidiary and spin off the subsidiary.
A gain or loss is reported in the current period statement when a subsidiary is sold.

TECHNIQUES OF EARNINGS MANAGEMENT.. ESTHER NYAMAI

. TECHNIQUES OF EARNINGS MANAGEMENT
 
Earnings management techniques  include.

i. “Cookie jar reserve” technique:
The cookie-jar technique deals with estimations of future events.  According to GAAP, management has to estimate and record obligations that will be paid in the future as a result of events or transactions in the current fiscal year based on accrual basis.
But there is always uncertainty surrounding the estimation process because future is not always certain.
There is no correct answer; there may be reasonably possible answers. 
Management has to select a single amount according to GAAP so there is a chance of taking the advantage of earnings management.  Under the cookie-jar technique, the corporation will try o overestimate expenses during the current period to manage earnings.
If and when actual expenses turn out lower than estimates, the difference can be put into the "cookie jar" to be used later when the company needs a boost in earnings to meet predictions.
examples of estimation to manage earnings  are: sales returns and allowances, estimates of bad debt and write-downs; estimating inventory write downs; estimating warranty costs; estimating pension expense; terminating pension plans and  estimating percentage of completion for long term contracts etc. 

ii. “Big Bath” Techniques:

Although a rare occurrence, sometimes corporations may restructure debt, write-down assets or change and even close down an operating segment. In these instances, expenses are generally unavoidable. If the management record estimated charge (a loss)
ainst earnings for the cost of implementing the change then it will negatively affect the cost of the share price. But the share price may go up rapidly if the charge for restructuring and related operational changes is viewed as positively. According to Big bath technique, if the manager have to report bad news i.e., a loss from substantial restructuring , it is better to report it all at once and get it out of the way. 

iii. “Big Bet on the Future” technique: 
When an acquisition occurs, the corporation acquiring the other is said to have made a big bet on the future. Under Generally Accepted Accounting Principles (GAAP) regulations, an acquisition must be reported as a purchase. This leaves two doors open for earnings management. In the first instance, a company can write off continuing R&D costs against current earnings in the acquisition year, protecting future earnings from these charges.  This means that whe he costs are actually incurred in the future, they will not have to be reported and thus future earnings will receive a boost. The second method is to claim the earnings of the recently acquired corporation. When the acquired corporation consolidated with parent company earnings, then immediately receive a boost in the current year's earnings. By acquiring another company, the parent company buys a guaranteed boost in current or future earnings through big bet technique.  

iv. “ Flushing” the investment portfolio:

To achieve strategic alliance and invest their excess funds, a company buys the shares of another company. Two forms of investment are trading securities and available for sale securities. Actual gains or losses from sales or any changes in the market value of trading securities are reported as  operating income  where as any change in market value of available for sale securities during a fiscal period is reported in “other comprehensive

Factors resulting to earnings management.. Esther Nyamai

FACTORS RESULTING TO EARNINGS MANAGEMENT.(Burgstahler, D. and I. Dichev. 1997)
a. Window dressing
Refers to the company's decision to dress up the financial statements for potential investors and creditors. The goal of window dressing r is to attract new supporters by having financial statements that look like the company is doing great. The company needs to appear to have a history of being profitable, even if it means lowering profits in the accounting period to increase profits in another. That is, spreading the amount evenly over a specific time period.

b. Internal targets
Often times, the company has set its own internal goals such as departmental budgeting and wants to be sure to meet those goals. no department wants to be the one to blow the proposed budget; so earnings management balances this out.

c. Income smoothing
It comes into play here; because potential investors like to invest in companies that have a continuous growth pattern. Smoothing out income generated, when there maybe spikes at certain times and drops at others, allow it to appear like the company has that smooth growth pattern.

d. External expectations
They come into play when the company has made projections as to what their profits would be and investors now expect that exact amount of profits or more. Management may therefore feel the need to shift revenue from one accounting period to another in order tom meet the projected goal. Earnings management, quite simply, takes advantage of the different ways that accounting policies and procedures can be applied to financial reporting.

Earning management

1. INTRODUCTION

Earnings  refers to the profits of a company which is represented by the bottom line of the income statement and a summary item in financial statements.
Importance  of  earnings  management.

1.Earnings are the vital item in financial statement because it represents to what extent the company engaged in value added activities.

2.Earnings also indicate the signal of direct resource allocation in capital market. Investors and analysts look to earnings to determine the attractiveness of a particular stock. The company’s stock is measured by the present value of its future earnings. Companies with poor earnings prospects will typically have lower share prices than those with good prospects. A company’s ability to generate profit in the future plays a very important role in determining its stock’s price.