Nepal

Member Organizations

Member Organization Associate

  Institute of Chartered Accountants of Nepal

Legal and Regulatory Environment

• Overview of Statutory Framework for Accounting and Auditing

  The Companies Act of 2006 provides the basic requirements relating to financial reporting for companies. In accordance with this Act, all companies are required to prepare and audit their financial statements following accounting and auditing standards pronounced by the relevant bodies under the prevailing laws. Under the Nepal Chartered Accountants Act of 1997, as amended, accounting and auditing standards are established by the Accounting Standards Board (ASB) and the Auditing Standards Board (AuSB), respectively.

  Accounting Framework

  The ASB developed the Nepal Financial Reporting Standards (NFRS), which are aligned with the 2012 version of IFRS. Mandatory application of NFRS has been phased out. Beginning in July 2014, listed multinational manufacturing companies and listed state-owned enterprises (SOE) with minimum paid up capital of 5 billion Nepalese Rupees (excluding banks and financial institutions under the Banks and Financial Institutions Act of 2006) has been required to comply with NFRS. Effective July 2015, commercial banks and all other SOEs must apply the standards. Finally, commencing in July 2016, all other financial institutions must prepare financial statements in accordance with NFRS. The ASB indicated plans to develop NFRS for SMEs by December 2016, although no further information is presently available on this initiative.

  Auditing Framework

  The Companies Act 2006 requires all companies to be audited and audits must be conducted by a member of the Institute of Chartered Accountants of Nepal. The AuSB developed Nepal Standards on Auditing based on the 2012 ISA, which are to be applied in all audits.

• Regulation of Accountancy Profession

  Under the Nepal Chartered Accountants Act of 1997, as amended in 2004, the accountancy profession is regulated by the Institute of Chartered Accountants of Nepal (ICAN).

  ICAN’s responsibilities include, but are not limited to (i) determining initial professional development and continuing professional development; (ii) conducting professional examinations; (iii) issuing Chartered Accountant Membership Certificates and Certificates of Practice; (iv) developing and maintaining a separate registry for each class of members; (v) operating an investigative and disciplinary system; (vi) ensuring compliance with accounting and auditing standards developed by the Accounting Standards Board and the Auditing Standards Board; (vii) issuing guidance; and (viii) setting rules of professional conduct.

  Article 16 of the Nepal Chartered Accountants Act 1997, as amended in 2004, protects the designations of Chartered Accountant and Registered Auditors. Both categories of professional accountants must be members of ICAN.

  In order to use the designation of Chartered Accountant and offer accountancy services, individuals must pass ICAN’s examination and complete three years’ practical experience before obtaining the Chartered Accountant Membership Certificate issued by ICAN. Alternatively, individuals who pass the Chartered Accountancy Course from the Institute of Chartered Accountant of India (ICAI) and fulfill practical experience as stipulated by ICAI can also apply for membership and obtain the Chartered Accountant Membership Certificate to practice in Nepal.

  In order to offer auditing services as a Registered Auditor, Chartered Accountant members must obtain a Certificate of Practice from ICAN. Candidates for the Certificate of Practice must have (i) acquired a Chartered Accountant Membership Certificate and (ii) completed at least three years of practical training in auditing under a qualified Chartered Accountant with a Certificate of Practice. Those who were licensed by the Office of the Auditor General prior to the enactment of the Nepal Chartered Accountants Act 1997, as amended in 2004, are also entitled to practice as auditors and are referred to as Registered Auditors.

  Prior to the amendments of the Nepal Chartered Accountants Act 1997 in 2014, ICAN was responsible for carrying out quality assurance (QA) reviews for practicing professionals. Since 2014, ICAN indicates that an independent Quality Assurance Board (QAB) was formally formed to replace ICAN’s Peer Review Board in carrying out the QA review system in Nepal; however, it is unclear whether QAB has become operational.

• Audit Oversight Arrangements

  There are no independent audit oversight arrangements in Nepal. Auditors are regulated by the Institute of Chartered Accountants of Nepal (ICAN) under the Nepal Chartered Accountants Act 1997, as amended in 2004.

  The ICAN’s responsibilities as related to auditors include (i) determining initial professional development and continuing professional development; (ii) conducting professional examinations; (iii) issuing Chartered Accountant Membership Certificates and Certificates of Practice; (iv) developing and maintaining a separate registry for each class of members; (v) operating an investigative and disciplinary system; (vi) ensuring compliance with the auditing standards developed by the Auditing Standards Board; (vii) issuing guidance; and (viii) setting rules of professional conduct.

  Prior to the amendments of the Act in 2014, ICAN established a voluntary peer review system for its members. Since 2014, ICAN indicates that an independent Quality Assurance Board (QAB) has been formally responsible for QA reviews; however, it is unclear whether QAB has become operational.

• Professional Accountancy Organizations

  Established under the Nepal Chartered Accountants Act of 1997, the Institute of Chartered Accountants of Nepal (ICAN) is the only professional accountancy organization in Nepal. Its responsibilities include, but are not limited to (i) determining initial professional and continuing professional development; (ii) conducting professional examinations; (iii) issuing Chartered Accountant Membership Certificates and Certificates of Practice; (iv) developing and maintaining a separate registry for each class of members; (v) operating an investigative and disciplinary system; (vi) ensuring compliance with accounting and auditing standards developed by the Accounting Standards Board and the Auditing Standards Board; (vii) issuing guidance; and (viii) setting rules of professional conduct. Membership in ICAN is mandatory for all professional accountants in the jurisdiction.

  In addition to being a member of IFAC, ICAN is a member of the South Asian Federation of Accountants and the Confederation of Asian and Pacific Accountants.

• Projects or Other Information

  The Government of Nepal has been working closely with development partners in the design and implementation of public financial management (PFM) reform initiatives at the country and sector level. The United Kingdom, for example, supported the Government of Nepal’s efforts to reform its central-level PFM systems and processes by providing funding through a World Bank Multi-Donor Trust Fund in 2010 with January 31, 2016 as the end date. This program involved specialized work in terms of (i) public accountancy; (ii) banking and other fund handling systems; and (ii) human resource training and management incentives for Government staff.

Adoption of International Standards

• Quality Assurance

  In 2015, the Nepal Chartered Accountants Act 1997 was amended to mandate the establishment of an independent Quality Assurance Board (QAB) that would be responsible for supervising and carrying out quality assurance (QA) reviews in the jurisdiction.

  Prior to the 2015 amendments of the Nepal Chartered Accountants Act 1997, the Institute of Chartered Accountants of Nepal had adopted the Nepal Standard on Quality Control 1, which is in line with International Standard on Quality Control 1, and established a voluntary peer review system for practicing professionals.

  It is expected that the QAB will replace the Peer Review Board in a phased approach whereby it will first review randomly selected audits of listed companies and subsequently carry out reviews for practice units engaged in attestation services of companies listed in securities exchange, banks, insurance companies and public sector undertakings. For all other engagements, QA reviews will be voluntary and a practicing auditor or firm may apply for the QAB to carry out a QA review.

  While a QA review system appears to have been established for the jurisdiction, it is unclear if it is operational and incorporates the requirements of SMO 1.

  Current Status: Partially Adopted

• International Education Standards

  Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Institute of Chartered Accountants of Nepal (ICAN) is responsible for establishing initial professional development and continuing professional development (CPD) for its members.

  Candidates for the Chartered Accountant designation must fulfill education, practical experience, and examination requirements stipulated by ICAN. In 2014, ICAN reports it revised its curriculum to be in line with IES and verifies compliance with the requirements through its Board of Studies.

  The ICAN reports that it requires members in public practice to complete at least 15 hours of CPD each year and 60 hours in a rolling three-year period, which is not aligned with the requirements of IES 7 and 8.

  Overall, while some of the requirements of IES appear to be incorporated into national educational requirements, the full extent of alignment needs to be clarified.

  Current Status: Partially Adopted

• International Standards on Auditing

  Under the Nepal Chartered Accountants Act 1997, the Auditing Standards Board (AuSB) is responsible for establishing applicable auditing standards to be applied in Nepal. The AuSB developed Nepal Standards on Auditing that are based on the 2012 ISA.

  It is unclear if there are any plans to adopt the 2016 ISA which include significant changes such as the new auditor reporting standards.

  Current Status: Partially Adopted

• Code of Ethics for Professional Accountants

  The Nepal Chartered Accountants Act 1997 provides the Institute of Chartered Accountants of Nepal (ICAN) with the mandate to regulate the profession. With that regulatory power, ICAN developed, and issued, under its own authority, the Code of Ethics for Professional Accountants, which is aligned with the 2014 IESBA Code of Ethics. Some of the provisions of ICAN’s Code of Ethics for Professional Accountants are converged with local regulations and practices. However, ICAN reports that these provisions are more stringent than what is stipulated in the 2014 IESBA Code of Ethics.

  The ICAN reports that it plans to translate the 2014 IESBA Code of Ethics into the local language by December 2016 and is planning to enforce the provisions of the Code through its monitoring committee. As of the date of the assessment, it is unclear if the translation process has been completed. It is also unclear if there are plans for ICAN to adopt the revised 2016 IESBA Code of Ethics.

  Current Status: Partially Adopted

• International Public Sector Accounting Standards

  Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Accounting Standards Board (ASB) is responsible for developing public sector accounting standards. Since 2009, the ASB has been working to develop Nepal Public Sector Accounting Standards (NPSAS) based on cash-basis IPSAS and is reportedly using the 2007 version of IPSAS.

  The Institute of Chartered Accountants of Nepal (ICAN) reports that the Government of Nepal piloted the application of NPSAS in the Ministry of Physical Infrastructure and Transportation, and the Ministry of Women, Children, and Social Welfare. However, as of the date of the assessment, ICAN reported that the Office of the Auditor General has yet to provide its opinion on the results. The Government was planning to implement NPSAS in 16 ministries by the end of 2015. As of the date of the assessment, it is unclear if these plans have been completed.

  Current Status: Not Adopted

• Investigation and Discipline

  Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Institute of Chartered Accountants of Nepal (ICAN) is responsible for establishing an investigation and disciplinary (I&D) system for all professional accountants. To this effect, ICAN established a Disciplinary Committee and Monitoring Committee to enforce compliance with technical and professional standards.

  The Disciplinary Committee has quasi-judiciary power to investigate any complaint filed against a member for violations of practice with respect to professional standards, ethics, and laws and recommend sanctions to ICAN’s Council while the Monitoring Committee monitors possible violations and breaches of professional conduct by ICAN members.

  ICAN completed a self-assessment of its I&D system against the requirements of SMO 6 and identified gaps in the investigative process and public interest considerations.

  Current Status: Partially Adopted

• International Financial Reporting Standards

  Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Accounting Standards Board (ASB) was established to develop Nepal Financial Reporting Standards (NFRS).

  The roadmap to mandatory application of NFRS, which are developed in line with the 2012 IFRS, has been phased out over a three-year period from 2014–2017. Beginning in July 2014, listed multinational manufacturing companies and listed state-owned enterprises (SOE) with minimum paid up capital of 5 billion Nepalese Rupees (NPR) (excluding banks and financial institutions under the Banks and Financial Institutions Act, 2006) must comply with NFRS. Effective July 2015, commercial banks and all other SOEs must apply the standards. Finally, commencing in July 2016, all other financial institutions must prepare financial statements in accordance with NFRS.

  The ASB indicated plans to develop NFRS for SMEs by December 2016; however, as of the date of the assessment, it is not clear if the standard has been issued.

  Current Status: Partially Adopted

• Sources

  Relevant Organizations

  • Accounting Standards Board
  • Auditing Standards Board
  • Institute of Chartered Accountants of Nepal (ICAN)
  • Ministry of Finance of Nepal

  Relevant Legislation

  • Audit Act 1991
  • Banks and Financial Institutions Act, 2006
  • Companies Act 2006
  • Income Tax Act 2002
  • Insurance Act 1992
  • Nepal Chartered Accountants Act 1997
  • Securities Act 2007

  Relevant Publications

  • Asian-Oceanian Standard-Setters Group, IFRS Centre of Excellence Pilot in Nepal, 2014.
  • Deloitte, “Asian-Oceanian Standard-Setters Group (AOSSG),” 2017.
  • Deloitte, “Deloitte Financial Reporting Framework in Nepal,” 2017.
  • Deloitte, “Use of IFRS by Jurisdiction,” 2017.
  • Financial Comptroller General Office, Nepal Public Sector Accounting Standards, 2017.
  • ICAN, SMO Action Plan, March 2018.
  • IFRS Foundation, “IFRS Application Around the World, Jurisdictional Profile: Nepal,” 2016.
  • Institute of Chartered Accountants of Nepal, “Nepal Financial Reporting Standards,” 2017.
  • Institute of Chartered Accountants of Nepal, Strategic Plan 2014/15-2016/17, 2014.
  • World Bank, Report on the Observance of Standards and Codes (ROSC), Accounting and Auditing: Nepal, 2015.

Disclaimer

IFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information.