Ican Journal March 2015

March 2015
Vol. 17 No. 3
P A
ICAN
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Contents
(Quarterly Journal of The Institute of Chartered Accountants of Nepal)
Editorial Committee
CA. Narendra Bhattarai
CA. Prakash Lamsal
CA. Shrijana Bastola
CA. Chhetra Gopal Pradhan
CA. Ramesh Kumar Dhital
RA. Dev Bahadur Bohara
RA. Shankar Gyawali
Mr. Binod Neupane
Chairman
Vice -Chairman
Member
Member
Member
Member
Member
Secretary
Editorial
President's Message
Nepal PFM Performance Assessment 2014
18
Mr. Binaya Paudel
Editorial Support
Professionalisation of Public Financial Management
23
CAPA Conference-2015
The Institute of Chartered Accountants of Nepal

Satdobato, Lalitpur, P O Box 5289, Kathmandu, Nepal
Tel. No. 5530832, 5530730, 2030021, Fax: 977-1-5550774
E-mail: ican@ntc.net.np, Website: www.ican.org.np
Public Expenditure and Financial Accountability

Assessment
43
SAI Performance Measurment Report, 2014
46
Branch Office Biratnagar

Tel: 021-471395, Fax: 021-470077, E-mail: icanbrt@ican.org.np
Observance of Standards and Codes on Accounting &

Auditing in Nepal
49
Branch Office Butwal

Tel: 071-543629, E-mail: icanbtl@ican.org.np
Description of the Eight KeyElements
56
Branch Office Birgunj

Tel: 051-522660, E-mail: icanbrj@ican.org.np
Branch Office Pokhara
Tel: 061-537679, E-mail: icanpkr@ican.org.np
Branch Office Nepalgunj
Tel: 081-525916, E-mail: icannpj@ican.org.np
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ACCOUNTING
Accounting Professionals to Improve Governance &
Financial Management System in Corporate and Public
Financial Management Sector
- CA. Pradeep K. Shrestha
57
ECONOMY
Excess Liquidity: Its Impact and Consequences in the
Nepalese Context
- Dr. Basudev Sharma
News
Notices
Contributors
Vianet Communication
Nabil Bank Ltd.
Triveni Bikas Bank Ltd.
Himalayan Bank Ltd.
Sipradi Trading Pvt. Ltd.
66
72-76
48,55,70
Editorial
It is the recognized fact that the sound economic policies and financial governance are
essential for the achievement of desired reduction in poverty and improvement in economic
growth. Good Public Financial Management (PFM) is thus important for economic, efficient,
effective and equitable utilization of scare national resources of a country. It is the obligation
of the every government to ensure that the scare national resources have been used for the
welfare of the citizen through better financial management. The Government of Nepal (GON)
has undertaken various initiatives to improve public financial management system of the
country in the past particularly after the restoration of democracy in 1990. Undoubtedly the
quality of PFM Sytem has been improving however, the scale of improvement is still essential
to be intensified. The PFM reform agenda mainly started with conducting Public Expenditure
Financial Assessment (PEFA) for the first time in Nepal in the year 2006/07 with the support
of the World Bank and produced the assessment report in 2008. The Government of Nepal
constituted Steering Committee in 2008 and subsequently set up PEFA Secretariat to coordinate the PFM reform systems and processes
.
Based on the PEFA- Development Action Plan (DAP) the Government of Nepal has taken
initiatives in collaboration with Development Partners (DPs) to strengthen the PFM system
and processes. In this connection, the major reform initiatives of the government include
budgetary system reform, treasury system reforms, accounting and reporting reforms,
development of PFM capacity etc. Introduction of Treasury Single Account (TSA) in the
country has facilitated the government to obtain real time information about budget execution
and status of Consolidated Fund every day. It has also helped in effective cash management,
timely preparation of financial statement and reducing the amount of overdraft from the
central bank. Similarly the government adopted and implemented Nepal Public Sector
Accounting Standard (NPSAS) in two ministries in pilot basis from 2014- 15 and it is expected
that the consolidated financial statement shall be prepared based on NPSAS and the process
shall be rolled out in all the ministries. Likewise, the government has also introduced Integrated
Financial Management Information System (IFMIS) to strengthen system of control and
functionality in PFM. There are number of PFM reform initiatives underway that include
development of new Charts of Accounts and economic classification in line with Government
Financial Statistics (GFS), strengthening of internal and external audit, reforms in public
procurement system and so on. Despite this scenario there are various challenges faced by
government in the implementation of these initiatives. The main challenges are the shortage
of skilled man power and lack of commitment from the concerned entities which are very
crucial to augument reform agenda. The national repeater PEFA assessment is at the stage
of finalization and initial draft for discussion has already come up. Similarly, the Sub-National
Government (SNG) PEFA assessment (Local Bodies) is also being conducted with the support
of DPs.
ICAN
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In the view of above, ICAN is organizing two days international conference on Public Sector
Financial Management with the purpose of sharing views and experience in relation to Nepal's
ongoing initiatives to improve PFM System and share best practices being followed around
the world for better governance and development. The conference will definitely provide a
platform to exchange the experience and knowledge among participants of various countries
and presentation and discussion among the high profile experts will eventually increase the
sense of awareness among the participants and concerned authorities. Undoubtedly, the
outcome of the conference will guide to concerned authorities in Nepal in policy formulation
and priority setting to put forward PFM reform agenda to improve governance which is the
need of the day.
ACCOUNTING
Dear Professionals,
President's
Message
I am dedicating this issue of the Journal for Public Financial

Management. I believe that when this Journal will reach to your
hand we shall be busy in discussion on PFM in the Roundtable
and PFM Conference in Kathmandu or we will have the
experience of both the events.
Improving governance and accountability is an important
objective of governments, and a robust public financial
management system is central to achieving this. The effective
public financial management system is very crucial for the
development and growth of the economy. In the context of
allocation of the scare resources to meet the unlimited needs
and demands of the country, the citizens of the country expect
their public finances get value for money. They also expect that
the scare resources is allocated effectively and used to deliver
quality services and provide a secure and stable environment
in which society may exist and prosper. If such expectations
are not met, it can have grave consequences resulting low
investment including foreign investment, high cost of debts,
difficulty to attract donor funds, reduction in employment, low
economic growth and low level of standard of living.
Are we really developed?

Hundred years ago the bureaucratic model of public
administration meant something positive, rational, efficient and
superior model of public management. As characterized by the
hierarchical system, rational-legal authority and functional
specialization, bureaucratic model of public administration had
made possible to run the undertaking of large and complex tasks
of government effectively. Despite the advancements in many
sectors and technology during the last part of the 20th century
and first part of the 21st century a lot of challenges have been
witnessed in public financial management in both developed,
developing and underdeveloped countries.
U.S. Government's 2014 Financial Report - Why

Disclaimer Report?
U.S. Government's 2014 Financial Report has underscored
continuing financial management and fiscal challenges. The
federal government's serious material internal control weaknesses,
along with significant uncertainties, and other limitations
continued to prevent the U.S. Government Accountability Office
(GAO) from rendering an opinion on the federal government's
consolidated financial statements. Three main obstacles prevented
The Nepal Chartered Accountant
June 2013
35
GAO from rendering an opinion on the accrual-based

consolidated financial statements for fiscal year 2014 is:
Serious financial management problems at the
Department of Defense (DOD) that made its financial
statements un-auditable;
The federal government's inability to adequately account
for and reconcile intra-governmental activity and
balances between federal entities;
The federal government's ineffective process for
preparing the consolidated financial statements.
Nepalese Context - Why High Fiduciary Risks

and Qualified Audit Report?
Strengthening Public Financial Management has been
accepted as one of the key elements of the GON's strategy
for improving the overall governance, optimizing outputs
from public resources and ensuring inclusive and broadbased development. Poor planning, ever increasing
indiscipline in budget execution, ineffective expenditure
control and lack of transparency mainly in public
procurement pose significant fiduciary risks to almost all
development projects both at center and local level and
the Office of the Auditor General of Nepal (OAGN) has
been issuing qualified report for the last many years.
Correlation between Right and Duties - Are

we advocating only for right?
In this context I want to quote letter of Mahatma Gandhi
to the first Director General of UNESCO Dr. Julian S.
Huxley regarding the idea of a universal declaration of
human right on May 25, 1947 under the heading 'Correlation
between Right and Duties'. Mahatma Gandhi wrote 'Very
right to live accrue to us only when we do the duty of
citizenship of the world.'
Why Keynes prediction went wrong?

In 1930 Keynes predicted that, within a century, per capita
income would steadily rise, people's basic needs would be
met, and no one would have to work more than fifteen
hours a week. Clearly, he was
wrong: though income has increased as he envisioned, our
wants have seemingly gone unsatisfied, and we continue
to work long hours.
Keynes believed that ''purposeful money-makers'' would
achieve a state of economic abundance where people would

be able to get rid of ''pseudo-moral principles'' (avarice,
exaction of interest, love for money)-that have characterized
capitalistic societies-and devote themselves to the true art
of life. Capitalism- however detestable it might look-has
the advantage that with its marvelous mechanism of
compound interest it will take humankind toward the good
society.
Blaming abolition Gold Standard for Financial

Crisis- Is it right?
Some economists opine that Nixon's colossal error to
abandon gold standard was the cause of all financial crisis.
Some research papers on the causes of the financial crisis
have laid much of the blame for that catastrophe on the
doorstep of the international gold standard.
Determining role of Capital - Is globalization

weakening financial management system?
Among the traditional four factors of production, in the
context of globalization only the Capital has become the
matter of attraction and mobility which has made the
financial system more vulnerable. Mobility of other factors
of production like labor and entrepreneurship has the
limited scope. The Thomas Piketty's "Capital in the TwentyFirst Century" has sparked widespread debate over the
causes and consequences of rising inequality. Piketty's
main assertion is that the leading driver of increased
inequality in the developed world is the accumulation of
wealth by those who are already wealthy, driven by a rate
of return on capital that consistently exceeds the rate of
GDP growth. Is Piketty's analysis mere fodder for
professional economists, or will it move policymakers to
act?
Creation of Credit Economy - Is it responsible

to increase risk?
Because of the credit economy and use of the electronic
currency in the international financial market, the number
and volume of transaction has been increased resulting
risk on financial management.
Roundtable
The Institute jointly with World Bank and the Confederation
of Asian and Pacific Accountants (CAPA) is organizing
Roundtable on Public Sector Financial Management on

March 28, 2015. The purpose of this Roundtable is to
engage in discussion with relevant stakeholders to share
views and experiences in relation to Nepal's ongoing
initiatives to improve public sector financial management
system and how international experience and best practices
could be beneficial to Nepal to improve her PFM System.
This Roundtable is featuring about 18 key high ranking
government officials and experts from Nepal and about 22
international speakers.
There shall be 5 sessions in the Roundtable covering all
the elements of the PFM Supply Chain.
SESSION 1: Overview of PFM System and Practices - Ice
Breakers to initiate discussion In this session 'Eight Key
Elements of PFM Success' and Macro overview of PFM
reform initiatives in Nepal - SWOT Analysis shall be
presented.
SESSION 2: PFM Reform Initiatives in Nepal - Macro
Economic Management
There shall be a presentation and discussion on upstream
PFM which include planning and budgeting process,
resource management: internal and external, budget deficit,
allocation of resources and resource prioritization, growth
projection - achievements, challenges and way forward
SESSION 3: PFM Reform Initiatives - Treasury
Management and Financial Reporting In this session there
shall be sharing of PFM reform initiatives and success
stories of Treasury Single Account and NPSAS
Implementation;
SESSION 4: PFM Reform Initiatives - Audit and Assurance
There shall be sharing of OAG initiatives and challenges
in strengthening quality and impact of financial and
performance audit and PAC's role and initiative as an
oversight parliamentary committee to enhance the impact
of audit.
SESSION 5: PFM Reform Initiatives in Nepal - Role of
Professional Accountants in PFM Reform Role of PAO in
pronouncing accounting standards, auditing standards and
other guidelines and the role of accounting professionals
in PFM reform initiatives shall be discussed. Feedback
from the global and regional perspective shall also be
shared- how the international and regional experience and
good practice could be beneficial to Nepal to increase role

of the accounting professionals for PFM.
In each session initial presentation shall be made by high
ranking government oggicials and experts and feedback
from the global and regional perspective shall be sought
from the regional and international resource persons - how
the regional and international experience and good practice
could be beneficial to Nepal to improve PFM to bring
about resilience for better governance and economic
development.
PFM Conference
Our Institute jointly with World Bank and CAPA is
organizing an exclusive international conference on
'PFM Reform for Nation Building - Global and
Nepalese Perspective' on March 28 - 29 , 2015. The
purpose of this Conference is to engage in discussion with
relevant stakeholders to share views and experiences in
relation to Nepal's ongoing initiatives to improve public
sector financial management system and how international
experience and best practices could be beneficial to Nepal
to improve her PFM System to bring about resilience
for better governance and economic development. This
Conference, featuring key high ranking government
officials and experts from Nepal and international
speakers, will discuss the challenges in reforming and
improving public financial management both globally
and in Nepal, with an aim of contributing towards
current and future development programs.
Four Technical Sessions are planned in the Conference for
March 29, 2015.
Technical Sessions 1 - Improving PFM Globally - Recent
Developments It is generally believed that that the attention
given to high-quality PFM has been inadequate, and
governments need to address key issues of financial
accountability and transparency in the same way
government place high expectations on the private sector.
This session has been planned to look at some key
developments, challenges and successes.
There shall be 3 presentations in this session.
The first presentation shall be on an overview of the public
sector accounting landscape, particularly following the
recent period of sovereign debt crisis, and improvement
initiatives from the accountancy profession.

The second presentation shall be on how can public financial
management be improved and capacity strengthened in
developing countries and emerging economies and need
to explore and understand the common issues, learn the
lessons and secure effective practice.
The third presentation shall be on how the Governments
tend to look at public finances in the short-term with
spending decisions sometimes political driven - decisions
of today effect tomorrow's generations and an understanding
of long-term commitments are important to enable the
right decisions to be made for sustainable public finances.
Technical Session2: Improving PFM in Nepal - Recent
Initiatives, Achievements & Challenges Public Financial
Management Reform is a gradual and long-term process
that requires strong political will and commitment from
the stakeholders. A sound public financial management
system contributes to reducing fiduciary risks and improving
transparency and accountability of public expenditures.
Strengthening Public Financial Management System has
been accepted as one of the key elements of the GON's
strategy. The GON's recent ongoing initiatives such as
Financial Administration Reform Program, Strengthening
PFM Project, Strengthening the Office of the Auditor
General of Nepal, Government Financial Statistics (GFS)
based new codes and classification of revenues and
expenditures, implementation of Treasury Single Account
(TSA) system, strategy to implement International
Accounting and Reporting Standards (NAPSAS), Public
Expenditure and Financial Accountability (PEFA) initiative
and other capacity building measures for PFM reform have
resulted some positive results.
The first presentation shall be on Sharing of Initial Findings
of PEFA Assessment 2014.
The second presentation shall be on the recent initiatives
undertaken by GON on PFM reform including Treasury
Single Account and NPSAS Implementation Initiatives.
The third presentation shall be on recent initiatives
undertaken by OAGN including Peer Review Report
prepared by SAI India based on Performance Measurement
Framework of INTOSAI.
The fourth presentation shall be on Initial findings of Nepal

ROSC Assessment - 2014.
SESSION 3: The Future - Developments in the Public
Sector Reporting Supply Chain The financial reporting
supply chain refers to the people and processes involved
in the preparation, approval, audit, analysis and use of
financial reports. The chain in the public sector has some
differences to the private sector, plenty of similarities, and
also some unique elements.
The first presentation shall be on public sector accountability
- more than just reporting the financials. A focus on
performance requires setting expectations with elected
government ministers, monitoring performance, and
measuring outcomes. A case study from a NZ government
agency explains how it works.
The second presentation shall be on 'A look at the recently
introduced requirements in New South Wales for
government agencies to maintain organizational
requirements which provide additional assurance,
independent of management, on internal audit and risk
management'.
The third presentation shall be on how the consolidated
accrual-based public sector accounts address the notion of
a single bottom-line figure for debt and assets - experience
from five OECD countries.
SESSION 4: The Future - The Role of Professional
Accountants in Improving Governance The accounting
profession is well placed to take the lead in improving
public sector financial management, including all matters
associated with governance, accounting, financial reporting
and auditing. Developed countries have strong relationship
between the government and the accountancy profession.
On the one hand, the accountancy profession is committed
to protecting the public interest and encouraging
accountability and transparency around the world. And on
the other, it has a number of significant roles to play in
PFM, whether as advisor to governments or as designer,
implementer, executer, reporter, reviewer or assurer. What
needs to be done, and what needs to change?
There are 2 presentations in this session.
The first presentation deals with the matter that there are
more similarities than differences between the public and
private sectors. Good FM applies in all sectors and having
key finance professionals at the top of government providing
strategic financial leadership to help drive through reforms
and good PFM is essential. A look at what the UK and
other governments are putting into place - The CFO at the
Cabinet Table and what GON needs to do to take the
service of Accounting Professional to improve governance
in her development endeavour.
The second presentation shall be on CIPFA's experience
in professionalising the PFM functions in governments
around the world. The presentation will draw on the work
done by CIPFA, and funded by the UK's DFID, to define
what is meant by professionalization and how it might be
a c h i e v e d , b a s e d o n C I P FA ' s e x p e r i e n c e o f
professionalization around the world. It will conclude with
a summary of key points and lessons that ought to be taken
into account in any scenario where the intention is to create
a professional cadre of PFM staff.
Let me also share some of the other initiatives taken by
the Institute.
18th Anniversary Program of the Institute

The Institute marked its 18th Anniversary on 31 January
2015 by organizing special programs. Program was formally
inaugurated by the Hon. Finance Minister Dr. Ram Sharan
Mahat. Annual report of fiscal year 2070/71 was also
presented. The first President of ICAN CA. Komal Bahadur
Chitracar was felicitated for his contribution to the
accounting profession.
Council Member of ICAI CA. V. Murali had presented the
keynote address on "Code of Ethics-Enhancing Professional
Value and Social Faith". Hon. Finance Minister Dr. Ram
Sharan Mahat, Hon. Auditor General Mr. Bhanu Prasad
Acharya and Hon. Chairperson of Public Accounts
Committee Mr. Janardan Sharma addressed the gathering
on the occasion..
ICAN Summit - 2015

The Institute of Chartered Accountants of Nepal organized
the ICAN Summit-2015 on the theme "New Dynamics in
the Accounting Professions" on 1 February 2015. Summit
was organized focusing to the members of the Institute
with a view to bring the entire professionals in a platform

and to share contemporary issue and challenges the
profession is facing while serving the public interest and
way forward to drive the profession towards offering ideas,
solutions and strategies. Summit was conducted in four
technical sessions. Different papers were presented during
the summit.
Council Member of ICAI V. Murali presented a paper on
'New Dynamics of Accounting Profession- Drivers of
Change and its Impact' in the first session of the summit.
He stressed on new dynamics of accounting professions
to adopt timely to be a successful professionals and to
minimize professional threats.
ICAN Past President CA. Pradeep Kumar Shrestha
presented a paper on 'Accounting Professionals to Improve
Governance and Financial Management System in
Corporate and PFM Sector' in the second session. He
emphasized on the role of accounting professionals to
establish the governance in corporate and public financial
management sector.
In the third session of the program two papers were
presented. The first one was on 'Foreign Aid ManagementProfessional Accountant Prospective' and second paper
was on 'Areas of other Value Added Services for
Professional Accountant' which were presented by
Immediate Past President of ICAN CA. Mahesh Kumar
Guragain and Council Member of ICAN CA. Suresh
Devkota respectively.
CA. Nanda Kishore Sharma, Past Chairperson of AuSB
presented paper on 'Audit Expectation Gap and its Impact
on Accounting Profession' in the fourth session. Paper was
commented by Joint Secretary of Nepal Government
Mr. Suresh Pradhan and Assistant Auditor General Mr.
Baburam Gautam. It has been discussed that there is need
to work by accounting professional on public interest to
garner reputation in the society and to erase the questions
which have been raised towards accounting profession.
Interaction Program on Income Tax and VAT

The Institute organized half day interaction program on
Income Tax and VAT to collect policy level suggestions
from the members for the improvement in administration
and enforcement of the Act and compile the suggestions
to forward to High Level Tax System Review Commission.
Shifting of ICAN Office in New Building

The Institute shifted its office from rented building at
Babarmahal to its own building at Satdobato, Lalitpur on
second week of Falgun 2071. The Institute has started its
regular operations from its newly constructed building.
Information System Audit (ISA) Course

The Institute organized ISA course with the technical
collaboration of the Institute of Chartered Accountants of
India (ICAI) from 1 February to 12 February, 2015 for 12
days. The aim of the course was to enhance the professional
skills of Chartered Accountants in the field of information
system audit. Thirty Chartered Accountants participated
in the course.
Minimum Remuneration and Auditing Fee for

the Members in Practice
A distinguishing mark of the accountancy profession is its
acceptance of the responsibility to act in the public interest.
Therefore, a professional accountant's responsibility is not
exclusively to satisfy the needs of an individual client. In
acting in the public interest a professional accountant
should observe and comply with the ethical requirements
of this Code and is required to comply with the fundamental
principles of integrity, objectivity, professional competence
and due care, confidentiality and professional behavior. In
order to render the service to the expectation of stakeholders
within the framework of the fundamental principles and
Code, professional accountant in public practice must be
paid appropriate remuneration so that there will be no
difficulty to perform the engagement in accordance with

applicable technical and professional standards. There is
no any specific yard stick to determine the appropriate
remuneration for the accounting professional in practice.
The Institute has fixed the minimum remuneration for the
members in practice in consideration of the quality and
type of service to be rendered and the cost to be involved
for that purpose. In fixing the minimum remuneration the
ICAN Council considered to increase the remuneration so
that (a) accounting profession may be able to attracts,
retains, develop and motivates young accounting
professionals in practice (b) the remuneration is consistent
with the remuneration of other professionals and members
in business (c) cost of providing professional accounting
services (d) integrity of the remuneration- respectful and
to be believed by the society at large.
The minimum remuneration shall be applicable for all
appointments on or after the first day of the next fiscal
year but we encourage applying for earlier appointments
as well.
I humbly urge to all the Council Members and Members
of ICAN to provide necessary inputs and feedback in
carrying out the activities of the Institute and matters related
to the accounting profession. We will continue to keep
abreast of ICAN's development activities in the next issue
of our Journal.

President
March 28, 2015
CAPA Conference - 2015
About
About ICAN
About the CAPA Conference 2015
ICAN is established under an act of Parliament, the Nepal

Chartered Accountants Act, 1997 to enhance social
recognition and faith in accounting profession by raising
public awareness towards the importance of the accounting
profession, towards economic and social responsibility of
the accountants and towards economic development of the
country through the development of awareness among the
professionals about their responsibility towards the
importance of accountancy in order to develop, protect
and promote the accounting profession.
The Institute of Chartered Accountants of Nepal (ICAN),

The World Bank and the Confederation of Asian and Pacific
Accountants (CAPA) are proud to present an exclusive
international conference on PFM Reform for Nation
Building - Global and Nepalese Perspective on March
28th - 29th, 2015.
Improving governance and accountability is an important
objective of the government and a robust public financial
management system is central to achieve this.
The purpose of this Conference is to engage in discussion
with relevant stakeholders to share views and experiences
in relation to Nepals ongoing initiatives to improve public
sector financial management system and how international
experience and best practices could be beneficial to Nepal
to improve her PFM System to bring about resilience for
better governance and economic development.
This Conference featuring key high ranking government
officials and experts from the relevant field from Nepal
and international speakers, will discuss the challenges in
reforming and improving public financial management
both globally and in Nepal, with an aim of contributing
towards current and future development programs.
March 2015
Roundtable on
Public Sector Financial Management

Programme Schedule
March 28, 2015
10 The Nepal Chartered Accountant
March 2015
March 2015
11
International Conference on
Public Sector Financial Management

Programme Schedule
March 28-29, 2015
12
March 2015
Brief Profile of
Keynote Speaker
Rameshwor Khanal is former Finance Secretary of the Nepal Ministry
of Finance, a position he held for nearly three years before retirement.
During his tenure, he led the team to introduce reforms in the
government accounting and reporting, public procurements, tax policy
and administration. He also led Nepalese delegations in a number of
bilateral economic cooperation consultations with foreign governments.
Mr. Rameshwor Khanal

Formor Finance Secretary
He was the Alternate Governor for Nepal in the World Bank and
Asian Development Bank, and was Political Focal Point for Nepal
Global Environment Facility. He is presently a Professor in the South
Asian Institute of Management in Nepal. He is also honorary Economic
Advisor to the Prime Minister of Nepal and a member of the World
Bank's South Asia Chief Economist's Economic Advisory Council
since August 2011.
March 2015
13
Brief Profile of
Session Chair
Sujeewa is CAPA President for 2013-2015. He was President of the
Institute of Chartered Accountants of Sri Lanka from 2010-2011, having
served in the Council since Dec 1999. He served on several regulatory
bodies including the Securities & Exchange Commission and the Sri
Lanka Accounting & Auditing Standards Monitoring Board. He is the
Chairman of the Sri Lanka Accounting Standards Committee, a member
of the Auditing Standards Committee, and the Financial System Stability
Consultative Committee of the Central Bank of Sri Lanka. Sujeewa
qualified as a Chartered Accountant in 1991, and is a Fellow of CIMA
and ACCA. He is currently a Partner at PricewaterhouseCoopers Sri
Lanka having previously worked at large public listed companies in Sri
Lanka and overseas.
Mr. Sujeewa Mudalige

President, CAPA
Brief Profile of
Paper Presentor
Mr. Brian Blood

Chief Executive, CAPA
14
Brian has been CAPA Chief Executive since September 2009 and was
previously Australia's representative on the CAPA Board for two years.
He was with global Big 4 accounting firms for 27 years in the UK and
Australia, including 16 years as a Partner. As an audit partner he worked
with many large, multi-national corporations. In the last ten years, he
worked increasingly with public sector clients, in both an audit and
advisory capacity. He is currently an independent chair/member on a
number of Australian public sector audit and risk committees. Brian was
the President of CPA Australia in 2002. In 2003, he was honoured with
a Centenary Medal for services to the accounting profession in Australia.
March 2015
Brief Profile of
Paper Presentor
Ms. Gillian Fawcett

Head of Public Sector,
ACCA (Global)
Brief Profile of
Paper Presentor
Ms.Sumita Shah
Regulatory Policy Manager,
ICAEW
Gillian is responsible for developing international policy on technical

matters affecting finance professionals in public services. Previous
roles include: Senior Fellow working with the Office for Public
Management, Head of Policy at the UK Audit Commission; Specialist
Advisor on audit policy to a House of Commons Ad Hoc Committee
and Communities and Local Government Parliamentary Select
Committee; Vice Chair of the Macro Economic Committee for the
European Centre of Employers and Enterprises providing Public Services
(CEEP) and a non-executive of the Legal Action Group (UK). In 2005
she was seconded to the UK Parliament as Head of Finance of the
Scrutiny Unit. Gillian is a member of the public sector committees of
the Federation of European Accountants(FEE) and the Confederation
of Asian & Pacific Accountants (CAPA).
Sumita is responsible for ICAEW's policy on public sector financial

management issues. Sumita works with key stakeholders within the UK,
Europe and internationally. She has assisted the Cypriot Government
in developing a framework to meet one of the terms of its bailout
agreement. She has provided written and oral evidence to select
committees. Sumita authored ICAEW's 'A CFO at the Cabinet Table?',
the recommendations of which have, to an extent, been taken up by the
UK government. She is currently developing a publication on 'a whole
of government approach to investment and infrastructure planning'. She
is also leading ICAEW's development of its role as a regulator of public
sector audit. Sumita is author of numerous technical publications and
articles, and was previously technical editor of ICAEW's publications
'Audit & Beyond' and 'By All Accounts Public Sector Supplement'. Her
career included 10 years as apublic sector auditor and 3 years advising
on technical policy before joining ICAEW in 2001. She is a qualified
ACA and CIPFA member, and a fellow member of AAT.
March 2015
15
Brief Profile of
Session Chair
On May 8, 2013, Bhanu Prasad Acharya has been appointed Auditor
General of Nepal. Mr. Acharya has Master's degree in commerce and
Bachelor's degree in Law.
His prior positions include Secretary in the of Ministry of Finance and
Ministry of Industry, Commerce and Supplies, Acting Financial
Comptroller General, Director General of Department of Industry and
Chief Custom Officer.
Mr. Acharya hopes to build a more transparent public administration
and promote good governance in the country through a transparent and
accountable public sector financial management. Moreover, he has
emphasized to promote SAI Nepal's professional integrity and strengthen
bilateral and multilateral co-operation with other SAI's as well.
Mr. Bhanu Prasad Acharya

Auditor General of Nepal
Brief Profile of
Paper Presentor
Mr. Shankar Prasad Adhikari has been Financial Comptroller General of

Government of Nepal since May 2014. Before that, Mr. Adhikari was
Regional Administrator of Home Ministry, Government of Nepal.
Mr. Adhikari, a Nepali national, holds MBA , MPA and Bachelor in Law
from University of Northampton, UK; and Tribhuvan University, Nepal.
His other appointments have included: Joint Secretary, Deputy Director
General, Chief Tax Administrator, Joint-Financial Comptroller under
Ministry of Finance.
His additional work experience includes: Chairman, Board of Directors
of Citizen Investment Fund and Agricultural Tools Factory Nepal; Board
of Directors, Employee Provident Fund, National Trading Limited, Nepal
Agricultural Research Centre, Nepal Food Corporation, Nepal Tea and
Coffee Development Board and Civil Services Hospital, Nepal.
Mr. Shankar Prasad Adhikary

Financial Comptroller
General of Nepal
16
Mr. Adhikari has written on public administration, leadership development

and management issues. He led Nepalese delegation to International
Social Security Association, South Korea in 2005.
Similarly, he led delegation to Denmark, Cambodia, Thailand, Hong Kong
and India. He also led Nepalese delegation to China on establishing Asian
Infrastructure Investment Bank in 2014.
March 2015
Brief Profile of
Paper Presentor
Mr. Babu Ram Gautam

Assistant Auditor General
Mr. Babu Ram Gautam has been serving as an Assistant Auditor General
in the Office of the Auditor General of Nepal. He has been in Service as
Government Auditor for 20 years. Mr. Gautam holds two academic
degrees of Bachelor of Law and Masters in Business Administration. He
holds Registered Auditor Membership from the Institute of Chartered
Accountants of Nepal (ICAN) and effectively working as a member in
Disciplinary Committee of ICAN. Mr. Gautam is training specialist
certified by INTOSAI - IDI and course designer on ASOSAI participants.
Mr. Gautam has designed courses on Audit of privatization in Philippines,
Audit of Public Debt in Australia and China and Quality Assurance in
the Financial Audit in Mongolia. He has conducted training on SAI
Performance Measurement Framework (SAI PFM) and also providing
effective service as a member of PEFA Working Committee. Mr. Gautam
is serving as Project Manager of Strengthening of Office of the Auditor
General Project Supported by MDTF.
Brief Profile of
Paper Presentor
Mr. Subedi isDeputy Financial Comptroller General, FCGO; and Member
Secretary of Public Expenditure and Financial Accountability Secretariat,
Ministry of Finance, Nepal. Currently he has been coordinating in Public
Financial Management Reform Programs and also coordinatedvarious
other programs.
Mr. Babu Ram Subedi
He is master in economics and master in public administration from Nepal

and also obtained executive education program of PFM course from
Harvard Kennedy School of Government, Harvard University. He has
obtained different trainings on PFM area. He has published a book,
different research papers and articles. He attended the various national
and international seminars and conferences.
Member Secretary,
PEFA Secretrait
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Brief Profile of
Session Chair
Mr. Young-Jin Park

Vice Chairman, KPMG Korea
& Vice President, Korean
Institute of Certified Public
Accountants
Young-Jin Park has been attached to KPMG Korea since 1977 and
became Vice Chairman in 2012 after his 3-year term as Managing
Partner. He is a member of the Korean Institute of Certified Public
Accountants (KICPA) and served as a member in its Auditing and
Assurance Standards Committee. He served also as a member of the
Korea Accounting Standards Board. Young-Jin won several awards and
merits including the recognition of outstanding achievement as a CPA
by the Financial Supervisory Service in 2007. He is currently KICPA's
Vice President of International Affairs and represents KICPA on the
CAPA Board and Public Sector Financial Management Committee as
Chair.
Brief Profile of
Paper Presentor
Gill was a Partner of Deloitte for 25 years; initially in audit and later
in the areas of financial and strategic consulting. He was President of
the New Zealand Institute of Chartered Accountants (NZICA) in
1992/93. Gill is now a professional director and currently serves on
the Boards of a number of significant public sector and private sector
business organisations, and not for profit organisations. Gill was made
an Officer of the New Zealand Order of Merit in 2013 for his services
to business.
Mr. Gill Cox

Chartered Accountant &
New Zealand
Representative on CAPA
Board
March 2015
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Brief Profile of
Session Chair
Mr. FilySissoko has assumed his responsibility as the Manager, Financial
Management Unit for World Bank South Asia Region effective April 1,
2013. Mr. Sissoko, an Ivoirian national joined the Bank in 2002. He has
worked for the Caribbean in the Latin America, and Caribbean Region
and the Africa Region.
He has significantly contributed in strengthening countries' capacities
in public financial management and corporate financial reporting through
policy and strategic framework.
Mr. Fily Sissoko

Manager, South Asia Financial
Management, The World Bank
Brief Profile of
Paper Presentor
Gordon is a Public Financial Management (PFM) expert with particular
experience and expertise in professionalisation of PFM and in the
design, development, and evaluation of competency frameworks and
certificated PFM qualification frameworks, acquired in more than 15
countries. He led CIPFA's widely acclaimed work on its Whole System
Approach to PFM, and also on its approach to professionalization of
the PFM function in government. Gordon leads the CIPFA team that
provides certificated training to a growing number of United Nations
agencies, including UNDP, UNICEF, UNFPA, UNESCO, and the
World Health Organisation. He is also Curriculum Design expert on
CIPFA's project to professionalise PFM in the Philippines. Gordon has
been a Qualified Accountant member of CIPFA since 1977.
Mr. Gordon Ferrier

Head of Global Membership,
CIPFA
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Brief Profile of
ICAN President
CA. Bhattarai is the Fellow Member of ICAN and Associate
Member of ICAI. He was the Lecturer in Central
Department of Management for 16 years and had been
involved in teaching and professional research in financial
Management and allied areas.
CA. Bhattarai opted to take the challenge of the practical
management as the Management Practitioner and joined
banking sector. Within a span of few years, he became the
Chief Executive Officer of Nepal Bangladesh Bank as the
nominee of the Foreign Partner: IFIC Bank, Bangladesh.
He was honored by "Manager of the Year Award' in 1999
by Management Association of Nepal for steering Nepal
Bangladesh Bank effectively. He became the Chief
Executive Officer of 2 banks for more than 10 years. He
was also the President of Nepal Bankers' Association for
4 years. He was the Board Member of Securities Board of
Nepal (SEBON) for the term 2013-14.

President ICAN
CA. Narendra Bhattarai, MBA, FCA has been elected

President of the Institute of Chartered Accountants of
Nepal (ICAN) for the year 2014-15. CA. Bhattarai is a
senior chartered accountant with the bright academic career.
Post graduated in Management with distinction from
Tribhuvan University Kathmandu. CA. Bhattarai was
awarded two gold medals for securing highest marks in
MBA.
CA. Bhattarai was elected as a Council Member for the
Fifth Council (2009-2012) and Sixth Council (2012-2015).
He was also the President of the Association of Chartered
Accountants of Nepal (ACAN) for the term 1991-1992.
CA. Bhattarai is also the chairperson of the Education
Committee, Professional Development Committee and
Research and Development Committee of ICAN. Currently
he is the member of the Committee on Professional Ethics
and Independence & Task Force on BASEL-II
Implementation in SAFA. He was also the member of
Committee on Professional Accountants in Business of
SAFA for the term 2011-12.
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March 2015
Since November 2006 CA. Bhattarai is in full time practice

and has been working as freelance consultant. During this
period he worked for UNDP, UNFPA, UNICEF, WFP,
SDC, LGCDP, EPF, CIT, BPKIHS, NEAT, COWATER,
Practical Action Nepal etc. basically on the area of Public
Financial Management (PFM). At present, he has been
involved in 'Strengthening of the Office of the Auditor
General of Nepal Project' as a part time National Consultant
in association with Cowater International, Canada.
CA. Bhattarai has participated in many training and seminars
as resource person and participant organized by national
and international organizations. He was also involved in
the joint project funded by International Centre for
Economic Growth, Asia Foundation, and IRIS centre at
the University of Maryland USA in the area of industrial
strategy. He is the Co-author of the book entitled "Strategy
for the Development of Industrial Sector in Nepal" and
published many research articles, feature articles and
technical and seminar papers.
CA. Bhattarai is a Rotarian and he is the Past President of
Rotary Club of Bagmati. He has widely travelled in and
out of country.
Public Expenditure and Financial

Accountability Assessment
Integrated assessment of PFM performance

Nepal has made substantial progress in deepening the
structures and processes of public financial management
(PFM), particularly in the use of information technology
in PFM processes. Investment efficiency gains have been
achieved despite the political transition period (2006-2010),
a period when reform was not a priority. If these
improvements are linked and catalyze reforms in all phases
of PFM, it would increase the chances of Nepal's graduation
to middle income status and help in reducing poverty.
The commitment to change and reform to PFM systems
and process by the Government of Nepal has produced
results. Among 28 performance indicators, 16 indicators
improved, 10 indicators remained unchanged and 2
indicators deteriorated. However, compared to 2008, with
improved systems, data availability has assisted to fine
tune the assessment and downgrade the Rating of an
indicator to reflect the current system. Recognizing the
absence of the parliament, during the assessment period,
another indicator's Rating was downgraded.
Key Findings:
Credibility: Budget credibility is internalized, budget
outturns compared to original is stable and monitoring of
budget, especially arrears, has improved with the
implementation of TSA.
Comprehensiveness: Budget comprehensiveness is the
hallmark of the country's PFM system driven by technology
aiding systemic changes. Enforcement of financial reporting
rules to autonomous bodies, state-owned enterprises and
local governments can reduce overall fiscal risks.
Budget formulation process: Multi-year budget planning
has assisted to maintain sound macro fiscal aggregate.

Costed sector strategies can lend to formulation of realistic
procurement plan and overall improve budget
implementation.
Budget Execution: Rules and regulations guide budget
execution but weak enforcement of these rules have impeded
gains made in upstream budget process improvement.
Linking payroll to personnel records and enforcement of
rules that discourage non-competitive methods of
procurement can improve budget execution.
Accounting and reporting: Country has made impressive
strides in budget coverage, comparability and its timely
reporting. Weak technical capacity in the analysis of
financial statements has lowered efficiency in public
expenditure. Reconciliation of revenue accounts is an issue.
Audits: Audit coverage and quality has improved. But,
non-enforcement of corrective measures against flagged
irregularities has lowered meaningful behavioral changes.
Performance auditing coverage and involvement of civil
society in auditing performances is expected to strengthen
overall performance auditing.
Donors: Donors predictability of budget support, financial
reporting and greater use of national procedures has
improved.
The following paragraphs summarize the main PFM
findings on the six critical dimensions.
Credibility of the budget (PI 1-4)

At the aggregate level, the budget, both expenditure and
revenue (PI-1 and 3), is credible and credibility has become
internalized. One weak spot is the composition of
expenditure (PI-2). Budget variance, although declining
March 2015
43
with the return of political stability, has resulted from a

combination of poor budgets where execution require reallocation during the year, and, some budget indiscipline,
evidenced by the number of votes that spend more than
the authorized budgets, in particularly public investment
by the Ministry of Finance (MOF). The contingency fund
is not large. And because of the Treasury Single Account
(TSA) and Financial Management Information System
(FMIS), payments are more prompt and better monitored
compared to the last assessment (PI-4). The implementation
of activity level budget coding is expected to strengthen
program budgeting, help monitor budget implementation
and reduce expenditure variances.
Comprehensiveness and transparency (PI 510)

Budget information has become more transparent (PI-5
and 6) after the implementation of Government Finance
Statistics (GFS) classification and the Treasury Single
Account (TSA). The public's access to fiscal reports is
good (PI-10). However, the fiscal reports are not
comprehensive and many autonomous government agencies
and donor projects operate outside the TSA/FMIS
framework (PI-7).
Fiscal relations between central government and local
bodies are complex (PI-8). Even though there are allocation
formulae for unconditional block grants - the major source
of revenue to the local bodies - they are not being followed.
The timing of release of grants is also unpredictable. A
review of the grant system is planned.
Local bodies and public enterprises regularly submit their
financial statements to the center, but their consolidation
is delayed. Further there is no comprehensive assessment
of fiscal risk to the Government, despite major accumulated
losses in some public enterprises (PI-9).
Policy-based budgeting (PI 11-12)

Fiscal prudence at the aggregate fiscal level, facilitated by
a rolling medium-term expenditure framework (MTEF),
is a strong feature of Nepal's PFM (PI-11). But, in the
absence of costed sector strategies within an aggregate
fiscal framework and lack of capacity for preparing sectorial
business plans, there is much room for aligning budgets
more closely to development plans (PI-12). Expansionary
44
March 2015
investment plans are constrained by lack of implementation

capacity, especially on the capital expenditure side.
Procurement plans are not prepared as part of Annual Work
Program Budgets, so the budgets are not realistic. Coupled
with late approval of the budget and cumbersome spending
procedures, very little of the year's development budget is
spent in the first four months, and there always is a rush
to spend in the last four months. This is mitigated to some
extent by extremely flexible virement rules.
Predictability and control in budget execution

(PI 12-15)
The legal and process framework for determining tax
liabilities is clear and minimizes discretionary power of
tax officers. This is reinforced by a transparent tax appeals
mechanism (PI-13). Taxpayer registration and assessments
have also been improved (PI-14). However, there are issues
in the accounting for assessments and collections, and tax
arrears have continued to mount each year: there is
insufficient attention to clearing old arrears (PI-15).
The Parliament does not approve budget until well into
the end of the first trimester of the fiscal year. Pending
approval, Ministry Departments Agencies (MDA) are
authorized to spend up to four months of the previous
year's budget (at least for ongoing priority projects), but
new programs and projects are delayed and subject to
political interference outside the formal budget approval
process. Information technology has been used to reach
out to stakeholders - on the revenue side to taxpayers, and
on the expenditure side, to resource users. This has increased
efficiency in tax collection and budget management. The
rollouts of the TSA and the FMIS to all 75 districts have
provided reliable and up-to-date information on budget
execution (PI-16).
The Treasury surplus of the past years has eased cash and
debt management (PI-17). The payroll is still managed
largely manually, and it is not linked digitally to personnel
records (PI-18).
Since 2007, the legal and regulatory framework for
procurement has been based on international standards.
Most procurement is through open and competitive bidding,
but there is lack of central data for justifying non-competitive
methods of procurement, and the compliance with rules
(PI-19).
The developmental impact of spending has been reduced

by widespread irregularities and non-enforcement of rules.
Commitment control is weak, despite the existence of rules
and regulations (PI-20). Internal audit is beset by conflicts
of interest as internal auditors also function, from time to
time, as accounts officers. The audit is not focused on
internal control systems and their risks but is oriented to
identifying transactional irregularities, which reduces its
effectiveness (PI-21).
Accounting, recording and reporting (PI 2225)

The roll out of the TSA has strengthened cash-based
accounting practices and transparency. Expenditure cash
reports are generated, and the mid-year reporting is
comprehensive, except for the omission of several
autonomous government agencies and donor project
accounts. Reconciliation of revenue accounts is still an
issue. Progress has been made in piloting the international
financial reporting standard (cash IPSAS) at the ministry
level. But there are technical capacity issues in the recording
and analysis of financial statements, as the result of overstretched account personnel and limited refresher training
to update personnel on systemic and accounting standards
changes (PI-24 and 25).
External scrutiny and audit (PI 26-28)

The Office of Auditor General (OAG) conducts financial
and regularity audits on a majority of government revenues
and expenditures, using International Organization of
Supreme Audit Institutions (INTOSAI) standards, and
submits audit reports through the President within four
months of submission of the financial statements. Nonenforcement of corrective measures against flagged
irregularities and lack of progress on recommendations of
the OAG have contributed to the weakening of PFM
governance. A high-level committee is following this up.
When in session, the focus of scrutiny from the Public
Accounts Committee (PAC) has been on issues other than
budget execution, and this has weakened directives by the
legislature to the executive to improve budget execution
performance (PI-26 to 28).
March 2015
45
SAI Performance Measurement Report, 2014

Office of the Auditor General of Nepal
1. At the request of the Office of the Auditor General

Nepal (OAGN) in 2013, a peer review team of the
Comptroller & Auditor General of India assessed the
performance of OAGN with reference to the
Performance Measurement Framework prepared by
the INTOSAI Working Group on the Value and Benefits
of SAIs. The present SAI Performance Report is a
result of the assessment conducted under the SAI
Performance Measurement Framework by the team.
As agreed between the two SAIs, this SAI Performance
Report includes an assessment on all the seven domains
under the SAI Performance Measurement Framework
and covers the period 2013-14, i.e. audit work on the
accounts of Financial Year 2012-13.
2. The Interim Constitution 2007 has given a constitutional
status to the Auditor General (AG) of Nepal and the
Audit Act of 1991gives a wide range of powers to the
AG. He submits an Annual Report (AR) to the President,
who causes it to be submitted to the Legislature
Parliament through the Prime Minister. The Annual
Report is placed in the public domain immediately
after it is submitted to the President and a press briefing
is held. The Annual Report is referred to the Public
Accounts Committee(PAC) for discussion which also
monitors progress reports on budget implementation.
Due to the absence of a Parliament, there was no PAC
for the last two years and the AR could not be laid in
the Parliament, nor were the AR for the last three years
discussed in the PAC.
3. There has been significant improvement in the
timeliness of submission of the AR to the President
during the last three years. We feel that this is an

opportune moment for the OAGN to muster support
and get the required statutory backing to publish more
than one AR while the Constituent Assembly deliberates
on the future constitutional set up of the country. There
is also sufficient scope to improve the contents and
layout of the AR, given the efforts of the OAGN to
reach a wider audience. Deciding on an appropriate
materiality level would definitely make it more incisive,
focussed and compact.
4. The OAGN conducts financial and performance audits.
However, the financial audit is essentially a compliance
audit whose key characteristic is the assessment of
whether a subject matter is in compliance with the
authorities which govern the audited entity. The scope
and extent of financial audit is limited to expression
of an opinion only in few cases like the Consolidated
Fund Account, State Owned Enterprises and financial
statements of the controlling entities and some donor
funded projects.
5. OAGN has prepared a risk based audit plan, which is
a positive development. Yet, it covered all the entities
for audit during the year, as it has interpreted the Interim
Constitution to imply that it is mandatory to audit all
the entities under its statutory powers. Thishas an
impact on the quality of audit. The audit plan runs
from mid August to mid February during which most
of the staff remain in the field for audit. Subsequently,
the entire staffremains at headquarters at Kathmandu
from mid February to mid August to finalise the AR
and perform other activities. There have been issues
This summary of SAI Performance Measurement Report, 2014 of Office of the Auditor General of Nepal is
Contributed by OAGN. This assessment has been conducted based on INTOSAI SAI -PFM Pilot Verson -2013)
46
March 2015
on monitoring the implementation of the annual audit

plan.
6. Though the AG is required to conduct finalaudit of the
financial and other activities of the offices and bodies
and to submit his AR to the President, significant audit
observations included in the AR were based on the
provisional financial statements of State Owned Entities.
7. The Interim Constitution empowers the AG to conduct
Performance Audits (PAs). Every year the SAI conducts
20-25 PAs under the PA Directorate and the summary
findings are included in the Annual Report under the
respective ministry. OAGN has conducted 22 PAs in
the period of our assessment, out of which three PAs
were conducted as pilot audits. The PA teams also
conduct Financial Audit of the entities. The Performance
Audit Reports are not published separately, nor is a
separate chapter incorporated in the AR. We feel that
the PA work may be managed by the respective
directorates for more effective results, as the latter has
specific domain knowledge of the entities selected for
PA.The OAGN has also carried out some value added
services such as IT Audits and one Environmental
Audit. It also proposes to conduct gender based audit
in future.
8. There is no exclusive follow up division/ directorate
in the OAGN, neither is there any institutional
mechanism to systematically track follow up action
on the audit recommendations and observations as
well as those made by the PAC. Follow up starts only
when the entity furnishes reply to OAGN.
9. There is appropriate and effective constitutional and
statutory legal framework which ensures a sufficiently
broad mandate, access to information, right and
obligation to report. However, the OAGN does not
have autonomy on financial and human resources
management. While the annual budget adheres to the
ceiling imposed by the National Planning Commission,
there have been persistent cuts in both charged and
voted budgets. The human resource requirements are
dependent upon the Public Service Commission and
the OAGN has no powers to appoint staff and regulate
their service conditions. The sanctioned staff strength
(449) has remained stagnant for the last twenty years
while the number of audited entities has increased.
10. There is a good quality assurance (OA) system in the

form of a QA Handbook, a QA Committee and a QA
Directorate. There is a system for annual quality review
of 50 audit files. However, this is only a post quality
review and the results of this review are presently not
communicated to the HR and the concerned audit
directorates.
11. OAGN has put in place a Code of Ethics for the staff
in line with ISSAI 30. It contains a declaration to be
signed by each auditor requiring him to observe
integrity, maintain independence, professional secrecy
and competence.
12. The internal control system within OAGN is not robust.
There is no system to ensure that the audit process has
followed the laid down quality standards. The OAGN
has a half year audit plan during which almost the
entire office goes out in the field for audit.
The half year audit plan and the burden of mandatory
regularity audits affect the quality of audit. Teams are
saddled with a large number of audits which are neither
adequately supervised nor completed as per schedule.
The sectional work at Headquarters remains relatively
neglected during mid August to mid February. As a
result, the replies of the entities are not adequately
monitored and quality control on audit files cannot be
ensured. There is no robust second level review of
audit files and the audit observations included in the
AR are often incorporated without the final replies of
the department/ ministry.
13. Professional development of staff requires more
attention. There is limited induction training to the
new recruits. The recruitment, promotion and welfare
is guided by the Civil Service Regulations. There are
capacity constraints in the existing infrastructure. A
Communication Strategy is being developed in
assistance with the Consultant and the OAGN is
enthused about reaching to a wider audience on its
value and benefits. The OAGN has held interaction
with Chief Accounting Officers and Chief Executive
officers of State Owned Enterprises(SOEs) and has
also conducted a stakeholder survey to assess its
effectiveness. The AR has received good media
coverage and there is ample scope to leverage radio
March 2015
47
services to disseminate its value and benefits, given

the severe and frequent electricity outages in the
country.
14. OAGN has benefitted from continuous donor support.
It has received 2.3 million USD from the Multi Donor
Trust Fund (MDTF) during the last four years as part
of a project to strengthen the Office of the Auditor
General, Nepal.
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March 2015
15. The SAI is at a crucial stage in its evolution. Its strategy

coupled with sustained Government and donor support
would provide a sound base for sustained development
and future improvements. It urgently needs to rally
support for more statutory powers while the Constituent
Assembly(CA) deliberates on the new Constitution.
Observance of Standards and Codes on

Accounting and Auditing in Nepal
Background
1.
This report provides an assessment of accounting,

financial reporting and auditing requirements and
practices in Nepal.
The report uses International Financial Reporting
Standards (IFRS) and International Standards on
Auditing (ISA) as benchmarks and draws on
international experience and good practices in the
field of accounting and audit to assess the quality of
financial reporting and make policy recommendations.
2.
3.
The recommendations also have a direct bearing on

State owned enterprises.
4.
The ROSC Accounting & Auditing (ROSC A&A)

addresses two strategic objectives in the Country
Partnership Strategy FY14-FY18 (poverty reduction
and shared prosperity). The report aims to support
Government of Nepal (GoN) in preparing a country
action plan aimed at further enhancing the quality of
corporate financial reporting to facilitate improvement
of business climate, attract foreign direct investment,
and foster business development.
Financial transparency and disclosures enhance a
country's ability to attract foreign investment.
Empirical evidence and several studies made during
the last decade show that there is an inverse
relationship between financial transparency and
disclosure and market risk; the lower the quality of
financial transparency and disclosure the higher the
market risk and the higher the cost of capital.
Improving accountability and transparency is one of
the GoN highest priorities and is an area of focused
support for the private and financial sectors,
underpinning development and sustainable economic
growth.
The policy recommendations also target Small and

Medium enterprises that form the backbone of Nepal's
economy.
There are 239 companies listed on the Nepal Stock

Exchange (NSE) with an approximate market
capitalization of US $ 9.27 billion as of June 12, 2014,
which represents 46% percent of gross domestic
product.
As of June 2014, there were 30 commercial banks
operating in the Nepalese banking system, of which
the five largest commercial banks held some 37 percent
of the total banking assets (US $ 7.83 billion). Nepal's
banking sector has had mixed fortunes in the last few
years. For instance, the sector faced a liquidity crunch
a few years ago but now has the converse problem of
excess liquidity. As a result of the recent political
instability, Nepal's economy in general and the banking
sector has seen a period of difficult times.
5.
All the key economic sectors in Nepal, including the

financial sector, rely on high quality financial
information, which requires high quality private sector
accounting and auditing.
As Nepal moves towards further reforms, liberalization
and deregulation to enhance their business
environment, enhanced financial transparency and
improved accounting and auditing practices must
support this. High quality of financial reporting could
be a factor in attracting both foreign and domestic
This summary draft report is contributed by the World Bank which is in the process of discussion
March 2015
49
investments. Continuing the strengthening and

development of financial reporting, accounting and
auditing, and the regulatory framework that governs
them, will bring benefits to Nepal and its citizens.
Statutory Framework
6.
The Companies Act of 2006 provides the basic

requirements relating to financial reporting for all
companies incorporated in Nepal.
The Companies Act requires the preparation,
presentation, publication, and disclosure of financial
statements; and an audit of all companies by a member
of the Institute of Chartered Accountants of Nepal
(ICAN) holding a certificate of practice. All registered
companies, about 125,000 in total, are required to
prepare and audit their financial statements following
accounting standards pronounced by the competent
body under the prevailing law.
7.
The NEPSE operates as the sole stock exchange in

Nepal under the Securities Act of 2007.
The main function of NEPSE is to provide a trading
platform for trading securities. The Securities Board
of Nepal (SEBON) acts as the apex regulator for the
Securities Markets in Nepal under the Securities Act
of 2007.
8.
The Bank and Financial Institutions Act (BAFIA) of

2006 regulates banks and financial institutions.
The Act requires that banks and financial institutions
be incorporated as a public limited company with the
Office of the Company Registrar (OCR); and obtain
approval from the central bank - Nepal Rastra Bank
(NRB) - prior to carrying on financial transactions
pursuant to the Act. The audit of financial institutions
should be conducted by an auditor appointed by the
annual shareholder general meeting from amongst
those auditors enlisted by the NRB. The NRB has
full powers to regulate and systematize the functions
and activities of banks and financial institutions,
which include financial reporting, in accordance with
NRB directives. The Insurance Board (IB) is the
Insurance Regulatory Authority of Nepal constituted
to systematize, regularize, develop and regulate the
50
March 2015
insurance business in Nepal under Insurance Act,

1992.
9.
The Audit Act of 1991 requires State Owned Entities

(SOEs) to follow accounting standards as directed by
the Auditor General.
The Auditor General is required to conduct audit of
wholly owned SOEs. The auditor of substantially
owned SOEs (defined as those where the GoN owns
more than fifty percent of the shares or assets) is to
be appointed in consultation with the Auditor General
to conduct an audit in accordance with the prevailing
laws relating to such a body.
Accounting and Auditing Profession

10. The Institute of Chartered Accountants of Nepal
(ICAN), established as an autonomous body by the
GoN, under the Nepal Chartered Accountants Act of
1997, regulates and monitors the accounting and
auditing profession in Nepal.
One of the objectives of the ICAN is to pronounce
Nepal Financial Reporting Standards (NFRS) drafted
by Accounting Standards Board and Nepal Standards
on Auditing (NSA) that are drafted by Auditing
Standards Board. The ICAN has two types of
professional membership allowed under the law:
Chartered Accountant and Registered Auditor. There
are approximately 750 Chartered Accountants (CA)
licensed by ICAN, of which approximately 270 are
in public practice. Chartered Accountants are those
who have completed the three levels in Chartered
Accountancy Education and have passed: the Chartered
Accountancy Examination, offered by ICAN twice a
year in June and December; and have completed 3years practical experience under the mentoring of a
Chartered Accountant in public practice. Registered
Auditor are those that were licensed by the office of
the Auditor General prior to the enactment of the
Nepal Chartered Accountants Act of 1997. There are
approximately 7,000 registered auditors licensed by
ICAN.
11. The independence of auditors in Nepal is partly
prescribed by the Companies Act of 2006.
Section 111 restricts auditors from being appointed
for more than three consecutive one year term in
performing the audit of a public company, and Section

112 describes all instances in which an auditor would
be disqualified from acting.
12. The Institute of Chartered Accountants of Nepal
adopted the Code of Ethics for Professional
Accountants issued by the International Ethics
Standards Board for Accountants (IESBA) of the
IFAC in 2010.
The ICAN has constituted a Peer Review Board to
regulate the profession of Chartered Accountants and
has issued a Statement on Peer Review with an
intention to further enhance the quality of professional
work of practicing Chartered Accountants. The Nepal
Chartered Accountants Act requires ICAN to enforce
compliance by professional accountants and auditors
with the prevailing standards and laws through a
Disciplinary Committee.
Accounting Education and Training
statements will be applicable with effect from July

16, 2014, (except for NFRS-9 (Financial Instruments),
which will be applicable from July 16, 2015), in
phased manner.
15. To deal with the development of auditing standards,
the Auditing Standards Board (AuSB) was constituted
by the Government of Nepal in March 2003 under
the Nepal Chartered Accountants Act, 1997.
The AuSB, to date, has formulated 32 Nepal Standards
on Auditing based on International Standards on
Auditing, 3 guidance notes, 1 practice statement and
the Nepal Framework for Assurance Engagements.
ICAN adopted the Nepal Standards on Quality Control
(NSQC 1) developed in line with International
Standards on Quality Control (ISQC 1) and a voluntary
system of Peer Review was implemented.
16. Most businesses in Nepal, approximately 99%, are
SMEs.
13. An average of 25 chartered accountants qualify from

ICAN in a year.
The ASB is in the process of developing NFRS for

SMEs.
Another 35 from other countries obtain ICAN

membership. These numbers are substantially short
of meeting the market demand for trained accountants
by audit firms, private industry, banking and financial
sector and government institutions. The Universities
in Nepal do not offer many courses on accounting
and auditing due to a lack of interest by students in
these disciplines. The curricula, textbooks and
instructors are not updated to meet the global changes
in accounting and auditing.
Enforcing Accounting and Auditing Standards
Accounting and Auditing Standard-setting

14. The Accounting Standards Board (ASB) is an
independent statutory body with the responsibility to
set accounting standards for the preparation and
presentation of financial statements in Nepal.
The ASB is primarily responsible for setting
accounting and financial reporting standards for
business enterprises in line with International Financial
Reporting Standards (IFRSs). The ICAN has
pronounced on September 13, 2013, that 40
NFRS/NAS, 8 Standard Interpretation Committee
(SIC) statements and 15 International Financial
Reporting Interpretation Committee (IFRIC)
17. The Office of the Company Registrar (OCR) has a

range of powers under the Companies Act of 2006
and is primarily responsible for its enforcement.
However, due to a lack of resources, the OCR only
compiles the audited financial statements which are
submitted by registered companies and performs no
reviews or investigations to ensure compliance with
the standards and Law. SEBON is mandated by the
Securities Act to regulate and investigate noncompliance with the standards, laws, and regulations
of listed companies but, due to lack of resources no
investigation or enforcement actions are taken to
ensure compliance. For financial institutions, the NRB
has the mandate under the BAFIA 2006 to regulate,
investigate and enforce compliance with relevant
standards, laws, and regulations. NRB requires that
management of banks and financial institutions submit
drafts of the financial statements for approval by the
NRB prior to issuance of the final report. The IB has
the mandate under the Insurance Act 1992 to
systematize, regularize, develop and regulate the
March 2015
51
insurance business. The IB requires the management

of the insurance company to submit the audited
financial statements along with the directors' report,
internal audit report, preliminary audit report,
management's response and the long form audit report
for its approval.
Key challenges
Statutory Framework
18. According to the Companies Act of 2006, all registered
companies, about 125,000 in total, are required to
prepare and audit their financial statements following
accounting standards pronounced by the competent
body under the prevailing law.
Such a comprehensive requirement has an adverse
impact on the quality of the financial statements and
the audits performed, given the capacity constraints
in ability to prepare such financial statements and
audit them.
19. Small and Medium-sized Enterprises (SMEs) do not
have separate standards to be followed for preparing
financial statements.
As a result, SMEs in Nepal currently face a relatively
greater financial reporting burden.
20. Many of the directives issued by the NRB are in
conflict with generally accepted accounting principles,
including IFRS/IAS and NFRS/NAS.

21. ICAN has limited capacity particularly when faced
with challenge of effective implementation of NFRS
roll-out, meeting IFAC membership obligations and
ensuring the members are adequately trained.
22. There is no enforceable Quality Assurance System
for audit.

23. An average of 25 chartered accountants qualifying
from ICAN in a year is substantially short of meeting
the market demand for trained accountants by audit
firms, private industry, banking and financial sector
and government institutions.
52
March 2015
This has created and continues to perpetuate a serious

capacity shortage and knowledge gap of accounting
professionals in Nepal, which affects Nepal's economic
development.
24. The Universities in Nepal do not offer many courses
on accounting and auditing due to a lack of interest
by students in these disciplines.
The curricula, textbooks and instructors are not updated
to meet the global changes in accounting and auditing
due to a lack of resources and students interested in
these subjects. As the economy develops in Nepal the
demand for trained accountants and auditors will
continue to grow; under the present system the capacity
gap is not likely to improve, but may get worse.

25. Most businesses in Nepal, approximately 99%, are
SMEs.
However, there are not separate standards for SMEs.
26. The Companies Act requires all companies
incorporated and registered under the Act to be audited.
A great number of these companies are not active and
may not have maintained accounts as required under
the Act. Audit of these entities under AuSB standards
is not economically feasible.
27. NFRS roll-out has begun in a phased manner.
It will be a major challenge ensuring success of the
roll-out.
28. The regulators (OCR, SEBON, NRB and IB) have
limited capacity to regulate and investigate noncompliance with the standards.
Key policy recommendations

29. The principles-based policy recommendations result
from the review and discussions held with stakeholders
by the ROSC team.
They are rooted in international good practices and
take into account the country context. The principal
objective of this ROSC assessment is to assist the
authorities and other stakeholders in strengthening
the financial and non-financial sectors' financial
reporting and auditing practices, as a means to support

relevant strategic and economic objectives for Nepal.
Without attempting to provide a detailed tactical
design for reforms, this report lays out the policy
recommendations to enhance the quality of corporate
financial reporting. This report provides a road map
which, if implemented, will result in helping to
improve the business environment and investment
climate through enhanced financial transparency and
improved accounting practices compatible with the
international accounting and auditing standards and
codes.
Statutory Framework
30. The provisions of the Companies Act should be
reviewed to include a threshold for companies required
to have their financial statements audited.
The law currently requires all companies, irrelevant
of size, to be audited. The threshold should establish
that companies that all Public Interest Entities (PIEs)
and non-PIEs above a certain size should be audited
and those below the threshold should present financial
statements in a format of a compilation (as described
in the Nepal Auditing Standards).
31. The financial reporting and auditing provisions and
requirements are different under different laws
(Companies and Audit Act) and regulations (NRB,
IB directives) of the regulatory bodies.
These requirements should be made uniform and
consistent for all companies under the regulatory
bodies.
32. The Nepal Rastra Bank and Insurance Board currently
have regulatory requirements that conflict with the
preparation of financial statements under NFRS/NAS.
Financial statements should be prepared by banks
and insurance companies following NFRS/NAS, with
reconciliations in the notes to the financial statements
to regulatory requirements, if required. In addition to
the auditor's opinion on the general purpose financial
statements, regulators may choose to require an opinion
on regulatory compliance to be issued by the auditors.
33. Establishing an enforceable Quality Assurance System

for audit.
A system of mandatory Quality Assurance for audit
firms that audit listed companies, insurance companies,
banks and financial institutions should be established
under the direction of ICAN and under the oversight
and supervision of a Board formed by ICAN, Nepal
Rastra Bank, Insurance Board, the Office of the
Auditor General, the Securities Board of Nepal and
the Office of the Company Registrar.
34. Strengthen the capacity of the Institute of Chartered
Accountants of Nepal.
The ICAN capacity needs to be strengthened to ensure
effective implementation of NFRSs roll-out, enhancing
its training program for members and meeting IFAC
membership obligations. There may be a case for a
twinning arrangement with a more advanced
Professional Accountancy Organization (PAO).

35. Closing the capacity and knowledge gap.
ICAN should take a lead in working with universities
to revise their curricula in line with IFAC's Education
Standards, utilizing up-to-date materials to train
professionals in auditing and accounting and prepare
graduates for Chartered Accountancy. This will, over
time, help to bridge the knowledge and capacity gap.
The ICAN should also enhance its monitoring on the
accreditation of institutes providing CA tuition course.
It should ensure that such institutes are providing
quality education and facilities to the aspiring students.
ICAN should also look at the possibility of upgrading
the skills of the over 7000 registered auditors to enable
them to provide services as chartered accountants. A
study should be carried out to assess demand/supply
gap of present and future requirements of qualified
accountants in the country. Based on this study, the
strategy should be developed to meet the requirements.

36. Strengthen the capacity of the Accounting Standard
Board and Auditing Standard Board.
The ASB and AuSB capacity needs to be strengthened
March 2015
53
to ensure an effective standard setting process and to

be able to review the international standards being
revised or developed. They also need to keep the
standards current with the changes made in IFRS and
ISA. The members of these Boards work only on
part-time basis and these bodies suffer from resource
constraints. These hindrances restrict the timely
adoption of new standards, including the revision of
standards.

37. Strengthen the capacity of the regulators.
Ineffective regulatory regimes provide a false sense
of security to stakeholders, which is why it is important
to strengthen the capacity of the regulators. Capacity
building should focus on technical personnel, practical
training of reviewers, administrative support and the
necessary logistics support. It is recommended that
the Office of Company's Registrar, NRB, Insurance
Board and Securities Board of Nepal recruit
professionally qualified and experienced personnel
and retain trained staff to effectively deal with
accounting and financial reporting-related issues
involved in the supervision of regulated entities.
38. Ensure better coordination among regulatory bodies
for improving compliance practices.
The regulatory bodies in Nepal need better
54
March 2015
coordination in order to function cohesively and

together ensure sustainable, high-quality corporate
financial reporting. The GoN could undertake this
leadership role to promote and coordinate coordination
within the regulatory bodies.
These recommendations require a holistic, multidisciplinary approach. Their implementation will
require the cooperation of a wide range of stakeholder
groups including the Government, regulators, private
sector preparers and the accountancy profession, and
should be led by the GoN. Nepal should establish a
multidisciplinary National Steering Committee (NSC)
to coordinate the above accounting and auditing
reforms. The NSC should advise policymakers and
regulators regarding the implementation of the
recommendations. Based on the successful experience
of other countries, this report recommends that the
NSC develop a detailed Country Action Plan which
clearly sets out the key actions and allocates
responsibilities for implementing the necessary
reforms. The plan should include an itemized budget
indicating the resources necessary for successful
implementation and the government, policymakers
and development partners should work together to
secure those resources so as to achieve the common
goal of enhancing the quality of corporate financial
reporting in Nepal.
March 2015
55
CAPA PFM, 8 Key Elements - 2013 - Final Version Page No. 8
56
March 2015
ACCOUNTING
Accounting Professionals to Improve Governance and Financial

Management System in Corporate and Public Financial
Management (PFM) Sector
Corporate governance refers to the

mechanisms, processes and
relations by which entities are
controlled and directed in order to
improve long term owner value by
enhancing corporate performance
and accountability taking into
consideration also the interest of
other stakeholders. Governance is
the combination of processes and
structures implemented by the
board in order to inform, direct,
manage and monitor the activities
of the entity toward the
achievement of its ultimate
objectives.
CA. Pradeep K. Shrestha

CA. Shrestha is Past President of ICAN
The Professional Accountants are

accountants who have qualified
through examination conducted by
professional accounting bodies and
are maintaining required expertise
through continuing professional
education or development.
Professional accountants are
recognized by different designations
around the world for example,
Chartered Accountant (CA), Certified
Public Accountant (CPA), Chartered
Professional Accountant (CPA),
Certified Accountant, Chartered or
Certified Management Accountant
(CMA), Expert Comptable, or
Contador Publico. Professional
accountants refer to all those members
of the profession who work as
employee in commerce, industry,
financial services, education, and the
public and not-for-profit sector,
consultants, auditor and self-employed
owner of their organizations at various
levels and performing wide range of
job functions. Professional accountants
may be auditors, financial and
management accountants, business
leaders, employees at various level in
public and private sector, corporate

financiers, and business advisers.
A Professional Accountants have to
meet the standards of their
professional accounting bodies which
are defined as:
Having skills, knowledge and
expertise that is tested by
conducting examination and
continuously developed through
continuing professional education
or development in a structured and
monitored context,
Committed to the values of
accuracy, honesty, integrity,
objectivity, transparency and
reliability, and
Subject to oversight by a body with
disciplinary powers.
Corporate Governance
The Report of the Committee on the
Financial Aspects of Corporate
Governance (the Cadbury report)
defined corporate governance as "the
system by which organizations are
directed and controlled". It identified
the three fundamental principles of
March 2015
57
ACCOUNTING
corporate governance as: (1) openness; (2) integrity; and

(3) accountability. These principles are relevant to private
as well public sector entities. These principles of governance
are interlinked and apply equally to all public sector entities,
irrespective of whether governing bodies of the public
sector entities are elected or appointed, and whether or not
they comprise a group of people or an individual.
Corporate governance refers to the mechanisms, processes
and relations by which entities are controlled and directed
in order to improve long term owner value by enhancing
corporate performance and accountability taking into
consideration also the interest of other stakeholders.
Governance is the combination of processes and structures
implemented by the board in order to inform, direct, manage
and monitor the activities of the entity toward the
achievement of its ultimate objectives. Governance
processes specify the procedures to be followed to set and
achieve goals and objectives within the prevailing legal
and business environment. Governance structures identify
the distribution of rights and responsibilities among the
board of directors, managers, shareholders, creditors,
auditors, regulators, and other stakeholders of the entity
and includes the rules, policies, directives and procedures
formulated for taking decisions. Governance mechanisms
include supervision and monitoring the activities and
decisions of entities and their agents to ensure adherence
to prevailing laws, policies, regulations, directives and
decisions of higher authority.
Principles of Corporate Governance

Major principles of corporate governance recommended
by the Cadbury Report in 1992, Organization for Economic
Co-operation and Development (OECD) in 1998 and
revised in 2004 and Sarbanes-Oxley Act 2002 are:
Rights and equitable treatment of shareholders: Entity
should equally treat all shareholders, honor their rights
and maintain transparency by providing required
information to them.
Interests of other stakeholders: Entity should be
accountable to all other stakeholders like employees,
investors, creditors, suppliers, customers, government,
regulatory authorities, and general public because of
legal, contractual, and social obligations.
Role and responsibilities of the board: The board
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March 2015
should act ethically and in good faith, with due

diligence and care, caution, wisdom, and efficiency
as a reasonable and prudent person exercises to fulfill
their responsibilities in the best interest of the entity
and the owners (shareholders). They should ensure
establishment and enforcement of appropriate internal
control systems, maintain integrity in accounting and
financial reporting systems, issue annual report
including their independent audit and fulfill other
responsibilities entrusted by the prevailing laws,
articles of association and annual general meeting.
Integrity and ethical behavior: The entity should
develop code of conduct for their directors, executives
and employees to maintain integrity and promote
ethical behavior.
Disclosure and transparency: The entity should disclose
its policies, the roles and responsibilities of board and
management, financial information and reports to
provide stakeholders with a level of accountability.
The OECD is currently reviewing the principles of corporate
governance to ensure their continuing high quality, relevance
and usefulness, taking into account recent developments
in the corporate sector and capital markets.
Principles of Good Governance in the Public

Sector
The "public sector" refers to national governments, regional
governments (e.g., state, provincial, territorial), local
governments (e.g., district, municipalities, village
development committees, city, town), related governmental
entities (e.g., corporate bodies, authorities, agencies, boards,
and commissions) and government business enterprises
(GBEs).
According to "The International Framework: Good
Governance in the Public Sector" developed jointly by the
Chartered Institute of Public Finance and Accountancy
(CIPFA) and the International Federation of Accountants
(IFAC) in July 2014 with an objective to promote the
development of robust governance in public sector entities
by establishing a benchmark for good governance,
"principles for good governance in the public sector are:
(a) Governance comprises the arrangements put in place
to ensure that the intended outcomes for stakeholders
ACCOUNTING
are defined and achieved, and

(b) The fundamental function of good governance in the
public sector is to ensure that entities achieve their
intended outcomes while acting in the public interest
at all times."
The Entities while Acting in the Public

Interest Requires:
A. Behaving with integrity, demonstrating strong
commitment to ethical values, and respecting the rule
of law.
B. Ensuring openness and comprehensive stakeholder
engagement.
In addition to the above principles for acting in the
public interest, the following effective arrangements
are also required to achieve good governance in the
public sector:
C. Defining outcomes in terms of sustainable economic,
social, and environmental benefits.
D. Determining the interventions necessary to optimize
the achievement of the intended outcomes.
E. Developing the entity's capacity, including the
capability of its leadership and the individuals within
it.
F. Managing risks and performance through robust
internal control and strong public financial
management.
G. Implementing good practices in transparency, reporting,
and audit, to deliver effective accountability.
The various principles described above for good
governance in the public sector relate to each other.
Principles C to G are linked to each other via the so
called "plan-do-check-act" cycle which is a
management process from planning to decision making
based on result monitoring on a continuous basis to
ensure good governance by improving overall
management processes. Hence, the entity should
improve governance being dynamic on a continuing
basis through a process of evaluation and review.
Responsibility of Governance
The International Auditing and Assurance Standards Board
has defined "those charged with governance" in the
International Standard on Auditing (ISA 260) as "the
person(s) or organization(s) with responsibility for

overseeing the strategic direction of the entity and
obligations related to the accountability of the entity. This
includes overseeing the financial reporting process. Those
charged with governance may include management
personnel, for example, executive members of a governance
board of a private or public sector entity, or an ownermanager." According to this definition, the board of directors
and management of corporate entities are responsible for
governance. ISA 260 has defined the management as "the
person(s) with executive responsibility for the conduct of
the entity's operations. Management includes some or all
of those charged with governance, for example, executive
members of a governing board, or an owner-manager."
According to the International Standards of Supreme Audit
Institutions (ISSAI) 1260, governance responsibilities may
exist at several organizational levels as well as in several
functions (i.e. vertically or horizontally) in the public sector
and hence several distinct groups may be identified as
those charged with governance.
The executives controlling the entities or agencies are
normally responsible to ensure that appropriate governance
arrangements are applied in all such controlled entities. In
public sector, government is the ultimate controlling entity
but the governing bodies of such controlled entities are
primarily responsible to ensure governance of the entities
under their control.
The Chief Officer and Chief of Financial Administration
Section of the concerned office, the Chief of the
Constitutional Body and Entity, Secretary of the Ministry,
Minister, Prime Minister and Council of Ministers are
those who are charged with governance in the Government
of Nepal and they are responsible to ensure good
governance.
The boards of directors of the corporate entities are
responsible for the governance and they are accountable
to the shareholders and also the other stakeholders. The
board of directors are responsible to strengthen corporate
governance by setting the entity's strategic plan, goals and
objectives, formulating required policies and working
procedures, devising appropriate internal control system,
taking appropriate business decisions, providing the
leadership to the management to achieve goals and
March 2015
59
ACCOUNTING
objectives, supervising and monitoring the functions of

the management and reporting to shareholders, regulatory
authorities and other stakeholders as per prevailing laws,
regulations and the decision of the general meeting of their
entities.
The executive of the management of the entities are also
responsible for governance and they have to maintain good
governance by carrying out the activities of the entities
complying with the prevailing laws, regulations, policies,
directives, contractual and social obligation, and decisions
of the Board.
Financial Management of Corporate and

Public Sector
Financial management of corporate sector includes
planning, budgeting, organizing, directing, controlling,
procurement, utilization of funds, internal control system,
accounting, financial reporting and auditing of the entity
with the aim of managing entities' financial resources to
achieve objectives, maximize returns and ensure good
governance.
CIPFA has defined Public Financial Management as "the
system by which financial resources are planned, directed
and controlled to enable & influence the efficient and
effective delivery of public service".
Public financial management (PFM) includes planning,
the budgetary process, generation, allocation and utilization
of resources, prioritization of programs, efficient
management of resources, exercising controls, procurement,
internal control system, accounting, financial reporting,
internal audit, external audit and external scrutiny by
oversight agencies to ensure that public resources have
been allocated, controlled and delivered in a systematic,
transparent and legitimate manner and also to ensure good
governance.
The financial management systems of corporate and public
sector are almost same except in use of accounting
standards, motive of providing service and financial
procedures. The corporate sector follow accounting
standards pronounced for profit making entities while
public sectors except government entities functioning as
business entities follow Public Sector Accounting Standards.
The corporate sectors work with profit motive while public
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March 2015
sectors work for service motive.

PFM Aims to: (1) manage limited resources to ensure
economy & efficiency in the delivery of outputs, (2) achieve
aggregate fiscal discipline, (3) develop a predictable,
transparent and accountable financial governance system,
and (4) institutionalize the financial good governance
practices.
Sound and effective PFM systems are prerequisite to
implement annual approved plan, complete projects within
targeted period, take appropriate decision, reduce cost
overrun caused by delay in project implementation, and
ensure good governance required to mitigate corruption.
Internal control systems and internal audit help to mitigate
fraud and waste of resources. Good information and
accounting systems enable timely and reliable budget and
provide financial information across government and help
to strengthen financial control and management of public
funds. Good PFM system not only allocates resources
effectively but also provides effective service delivery,
maintains fiscal discipline with timely reporting on resource
mobilization and utilization and reduces transaction cost.
A sound PFM allows government to make best use of its
resources to improve quality of life in the society and is
a vital component to maintain good governance.
The Institutional Arrangements for PFM and

their Role in Nepal are:
(a) Legislature - review and approve the annual budget,
scrutiny the auditor's annual audit report by Public
Accounts Committee.
(b) Ministry of Finance - Resource allocation, mobilization
and budgetary control.
(c) National Planning Commission - Advisory body for
planning and policy development and formulate annual
plan.
(d) Line Ministries - execute and spend budget allocated
for implementation of approved work plan.
(e) Financial Comptroller General Office - Accounting
of expenditures and revenue including debt and grant,
overseeing all government expenditure against budget,
tracking revenue collection and other receipts and
preparation of consolidated financial statements of
the government.
ACCOUNTING
(f) Office of the Auditor General - audit of all

constitutional bodies, budget entities and spending
units of the Central Government, down to the district
level and wholly owned corporate bodies in the manner
determined by law, with due considerations given to
the regularity, economy, efficiency, effectiveness and
the propriety thereof.
Nepal has taken some initiative in recent years to reform
overall PFM system. Nepal has adopted Financial Reporting
under the Cash Basis of Accounting - Nepal Public Sector
Accounting Standards (NPSAS) in September 2009 but it
is being piloted in two line ministries from FY 2014/15.
Treasury Single Account has been implemented in all 75
districts since July 16, 2013. The new chart of account of
expenditures based on Government Finance Statistic Manual
(GFSM) 2001 and revenue are developed in FY 2010/11
and implemented from FY 2011/12. The GFSM 2001
includes a functional classification of expenses as defined
by the Classification of Functions of Government
(COFOG). The Public Procurement Act 2007 and
Regulation were enacted. The Financial Procedure
Regulation 2007 replaced Financial Administration
Regulation 1999. The office of the Auditor General is
conducting audit using risk based auditing standards. The
Line Ministry Budgeting Information System (LMBIS)
was used for preparation of budget of FY 2014/15. The
PFM system is currently being reformed under Multi Trust
Donor Fund.
The Public Expenditure and Financial Accountability
(PEFA) assessment was conducted to assess public financial
management system of Nepal based on Public Expenditure
and Financial Accountability framework in 2005 in six
critical dimensions of: (1) credibility of the budget, (2)
budget comprehensiveness and transparency, (3) policy
based budgeting, (4) control in budget execution, (5)
accounting, recording, and reporting, and (6) external
scrutiny and audit. The assessment is again reviewed in
2014. The assessment of accounting and auditing standards
and practices in a public sector with comparison to the
international standards was carried out in 2006 by the
World bank in active collaboration with the Government
of Nepal and various stakeholders to appraise existing
status and recommend action plan in order to move towards
international standards.
Role of Regulatory Authorities

The Regulatory Authorities of the respective countries
have developed corporate governance principles and codes
to maintain good governance in the entities. The importance
of governance has been increased in recent years because
of collapses of a number of large entities (Enron, WorldCom,
AOL, Global Crossing, Tyco, HIH, One Tel, Parmalat,
etc.) due to financial fraud, poor governance and also
because of recent financial crisis of 2008/09 in USA and
European countries.
The collapses of entities because of corporate scandals do
affect the shareholders and employees and also to
government, various stakeholders and public at large. As
a result, regulatory authorities, various stakeholders and
public are interested to know corporate governance of the
entities. Because of collapse of big entities and Arthur &
Anderson, an auditing firm in USA, the U.S. Federal
Government passed the Sarbanes Oxley Act in 2002 making
stringent provisions to restore public confidence in corporate
governance.
In Nepal, there are some legal provisions in the prevailing
Companies Act, Insurance Act and Bank and Financial
Institutions Act relating to corporate governance principles
which have to be adhered to by the board of directors and
management of the entities. Apart from legal provisions
in the various Acts, the Nepal Rastra Bank (NRB) has
issued directive relating to good corporate governance to
be followed by the directors, chief executive officer,
employees, members of the audit committee, board secretary
and auditor of the bank and financial institutions. There is
specific provision relating to code of conduct and good
governance in the NRB directive. According to the directive,
(a) the banks and financial institutions have to formulate
and enforce code of conduct in their respective institutions
according to spirits of the Good Governance Act, (b) good
governance unit has to be created and status of good
governance should be monitored on a monthly basis, and
(c) the issues raised in the inspection report by the NRB
should be implemented without delay.
The Insurance Board has also issued directive for issuance
of long form audit relating to good corporate governance
of the insurance company specifying (a) whether or not
plan, policies and directives have been prepared in
March 2015
61
ACCOUNTING
accordance with the nature of business and implemented,

(b) whether there is code of conduct for directors, chief
executive and other employees of the company or not, and
(c) whether there is appropriate mechanism to identify
person or entity related to the promoters, directors and
higher executives of the company.
There are serious concern over good corporate governance
in Nepal. In recent years, many development and finance
companies, namely Nepal Bikas Bank, Samjhana Finance,
United Development Bank, Crystal Finance Limited and
Himalayan Finance Limited, have collapsed and they are
in process of liquidation even though Nepal Rastra Bank
has issued directive relating to Good Corporate Governance.
There are also governance issues in public sector in Nepal.
The annual report of Auditor general has reported that the
amounts of irregularities are increasing every year. The
amounts of irregularities in million rupees including
advances as per fifty first annual report of Auditor General
in the last three fiscal years and their percentage of amounts
audited are as follows:
There are also many corruption cases being filed by the

Commission of Investigation and Abuse of Authority in
recent days which indicates weakness in implementation
of public financial management and existence of weak
governance in public sector.
Roles and Responsibility of Professional

Accountants
The professional accountants in business have to comply
with the accounting standards and code of ethics applicable
to their jurisdiction while professional accountants in public
practice as auditors have to adhere to the auditing standards
in addition to accounting standards and code of ethics.
The professional accountants in public practice should (a)
obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement,
whether due to fraud or error, thereby enabling the auditor
to express an opinion on whether the financial statements
62
March 2015
are prepared, in all material respects, in accordance with

an applicable financial reporting framework; and (b) express
an opinion on the financial statements, and communicate
as required by the ISAs, in accordance with the auditor's
findings.
The roles and domain of the professional accountant in
business have been mentioned in the information paper
published in 2005 by the Professional Accountants in
Business Committee of the IFAC. According to information
paper, the main activities that professional accountants
perform are:
The generation or creation of value through the
effective use of resources (financial and otherwise)
through the understanding of the drivers of stakeholder
value (which may include shareholders, customers,
employees, suppliers, communities, and government)
and organizational innovation,
The provision, analysis and interpretation of
information to management for formulation of strategy,
planning, decision making and control,
Performance measurement and communication to
stakeholders, including the financial recording of
transactions and subsequent reporting to stakeholders
typically under accounting standards applicable to
their jurisdiction,
Cost determination and financial control, through the
use of cost accounting techniques, budgeting and
forecasting,
The reduction of waste in resources used in business
processes through the use of process analysis and cost
management, and
Risk management and business assurance.
The overall activities of the professional accountants in
business may be grouped under the following main four
categories:
developing strategies for sustainable value creation;
supporting the governing body and senior management
providing required information for taking decisions;
managing asset and liability, managing risk in relation
to setting and achieving the organization's objectives,
and implementing and monitoring effective internal
control systems; and
ACCOUNTING
ensuring relevant and useful internal and external

business reporting.
The professional accountants in business perform various
roles providing strategic support, business assurance,
business accounts, shareholder communications, financial
reporting, internal control, corporate finance, information
technology, treasury, project management, risk management,
stakeholder communications, management information &
analysis, governance, and business, finance and information
strategy. They hold job designations like chief financial
officer (CFO), finance director, financial controller, financial
analyst, treasurer, chief information officer, investor relations
officer, planning manager, strategy analyst, chief accountant,
management accountant, cost accountant, financial
accountant, consolidation accountant, internal auditor,
compliance officer, project manager, and program manager.
The professional accountants in business assist in developing
business, finance and information strategy, management
information system, and internal control system to achieve
goals and objectives, provide information required for
decision making to the board, mitigate risk and ensure
good governance. Professional accountants working as
chief financial officer supervise all financial transactions,
maintain strong financial management system and ensure
financial integrity and timely reporting. Professional
accountants in the capacity of the board directors work in
the interest of the owners of the entity and undertake other
activities as specified in the prevailing law, Articles of
Association and decision of general meeting. Professional
accountants in the capacity of internal auditor provide
independent assurance to management that internal control
system is operating effectively and policies, procedures
and provisions of prevailing laws are complied with to
ensure good governance and provide recommendations to
strengthen internal control system. Professional accountants
in public sector assist in strengthening overall public
financial management and ensuring good governance.
Professional accountants whether working in corporate or
public sector maintain professional standards and play key
role to guide others to act ethically.
The professional accountants have to comply with the
professional standards such as accounting standards,
auditing standards and code of ethics applicable to their
jurisdiction, continuing professional development
requirements, and corporate governance regulations

(Companies Act, Bank and Financial Institutions Act,
Insurance Act) while performing their roles in various
capacities and discharging responsibilities depending on
nature of work they perform. The professional accountants
of Nepal have to adhere to accounting standards and
auditing standards developed by the respective Boards of
Nepal and pronounced by the Institute of Chartered
Accountants of Nepal (ICAN) apart from code of ethics.
The professional accountants are monitored by the
respective regulators for regulatory compliance and
professional bodies for adherence to professional standards
and disciplinary actions are taken for non-compliance.
They are also subject to external review by a legally
empowered third party of the reports, returns,
communications or information produced by a professional
accountant.
A professional accountant's responsibility ranges from
providing services to satisfy the needs of the employer or
individual client to acting in the public interest by observing
and complying with the fundamental principles set out in
the code of ethics which are integrity, objectivity,
professional competence and due care, confidentiality, and
professional behavior.
The professional accountants whether in public practice
or service have to report to those charged with governance
if there are serious issues of non-compliance with policies,
directives, and prevailing laws and other matters, material
weaknesses in internal control, questions regarding
management integrity, and fraud involving management
apart from other matters related to audit and accounting.
In case of public sector audits, the auditors are required to
report matters relating to (i) compliance with legislative
or regulatory requirements and related authorities; (ii)
adequacy of accounting and control systems; and (iii)
economy, efficiency, effectiveness and propriety of
programs, projects and activities to those charged with
governance.
The Auditor General (AG) is mandated by the Interim
Constitution of Nepal 2007 to audit the accounts of
government offices including corporate bodies (government
business entities) wholly owned by the government. The
OAG conducts audits of public revenue and expenditures
of the government and wholly owned corporate bodies and
March 2015
63
ACCOUNTING
submits audit report in accordance with the Audit Act 1991,

the Government Auditing Standards, and the International
Standards of Supreme Audit Institutions (ISSAI) issued
by the International Organization of Supreme Audit
Institutions (INTOSAI). The INTOSAI have issued
INTOSAI Guidance for Good Governance (INTOSAI
GOV) relating internal control standards, accounting
standards and internal audit of the public sector.
Role of Professional Accountants in improving

governance
The professional accountants, having knowledge of financial
management of the corporate and public sector and expertise
achieved through practical training, experience and
continuing professional education or development, can
help to resolve and strengthen the financial management
system in the corporate and public sector. As explained
above, the professional accountants provide various
managerial and financial services working at various
capacities as employees and consultants to enhance financial
management. The professional accountants in public
practice also points out weaknesses of the financial
management in the management letter to the management
and provides appropriate recommendation to strengthen
the financial management.
The International Federation of Accountants (IFAC) and
the World Bank in July 2009 emphasized in G20 Summit
in London the need to develop and strengthen the finance
profession in developing and emerging economies to
achieve stable and stronger financial management.
Accountancy bodies and the International Organization of
Supreme Audit Institutions (INTOSAI) have realized that
they need to work collectively to develop both professional
skills in finance and audit capacity and disseminate best
practice. An agreement was signed in October 2009 between
INTOSAI and the donor community to ensure strengthening
and developing Supreme Audit Institutions (SAIs) in order
to build sustainable financial capacity in public services
and improve accountability and transparency in the use of
public funds. These initiatives of the international
organizations clearly indicate that the financial management
can be improved only when people responsible for sound
financial management are having required knowledge of
financial management.
64
March 2015
The professional accountants in public practice require to

conduct audit of corporate and public sector in accordance
with auditing standards pronounced by the respective
bodies. The auditors appointed by the Auditor General as
his assistants to conduct audit of corporate bodies wholly
owned by Nepal Government under Section 6(2) of the
Audit Act have to conduct audit under the direction,
supervision and control of the Auditor General with due
considerations given to the regularity, economy, efficiency,
effectiveness and the propriety thereof. The audit is
conducted with an objective to provide reasonable assurance
that the financial statements taken as a whole are free from
material misstatement and also to report of any weaknesses
in internal control system affecting good governance to
those charged with governance and provide
recommendation for enhancement. This helps the
management to take necessary actions to improve financial
management and governance with an expert advice of the
professional accountants.
One of the responsibility of the professional accountant in
public practice is to evaluate the significance of any threats
and apply safeguards to eliminate them or reduce them to
an acceptable level by securing the client's commitment
to improve corporate governance practices or internal
controls.
Professional accountants working within the corporate and
public sector are concerned with improving overall financial
management including planning and budgeting, adherence
to changes in financial reporting, compliance with prevailing
laws, policies and directives, strengthening internal control
system, improving risk management, mitigating fraud and
corruption and help management to improve governance
and financial management system in corporate as well as
public sector.
Conclusion
Sound and effective financial management system are
required in corporate sector for managing entities' financial
resources efficiently to achieve objectives, maximize returns
and ensure good governance. Whereas, PFM aims to: (1)
manage limited resources to ensure economy & efficiency
in the delivery of putouts, (2) achieve aggregate fiscal
discipline, (3) develop a predictable, transparent and
accountable financial governance system, and (4)
ACCOUNTING
institutionalize the financial good governance practices.
REFERENCES
Good governance in corporate and public sector helps to

maintain transparent and accountable financial discipline
in order to achieve intended objective and maximize returns
by utilizing available resources efficiently for the benefit
of all stakeholders. Hence, it is evident that sound financial
management system in corporate and public sector is
prerequisite to ensure good governance practices, mitigate
fraud and corruption, and enhance credibility.
IFAC Public Sector Committee - Governance in the Public

Sector: A Governing Body Perspective International Public
Sector Study
IFAC- The Role and Expectations of a CFO: A Global Debate
on Preparing Accountants for Finance Leadership
Discussion Paper
IFAC Professional Accountants in Business Committee - The
Roles and Domain of the Professional Accountant in
Business
Chartered Institute of Public Finance and Accountancy (CIPFA)
and the International Federation of Accountants (IFAC)
- International Framework: Good Governance in the Public
Sector
UN Global Compact, Global Forum and the International Finance
Corporation - Corporate Governance The Foundation for
Corporate Citizenship and Sustainable Businesses
Organization for Economic Co-operation and Development
(OECD), 2009 - Corporate Governance and the Financial
Crisis: Key Findings and Main Messages
International Auditing and Assurance Standards Board (IAASB)
- International Standard on Auditing (ISA 260)
International Organization of Supreme Audit Institutions
(INTOSAI) - International Standards of Supreme Audit
Institutions (ISSAI) 1260
INTOSAI - INTOSAI Guidance for Good Governance (INTOSAI
GOV)
Wikipedia, the free encyclopedia - Corporate Governance
OECD, 2004 - OECD Principles of Corporate Governance
Grant Kirkpatrick - The Corporate Governance Lessons from
the Financial Crisis
CRS Report - The 1997-98 Asian Financial Crisis
William J. McDonough - Issues in Corporate Governance
IMF - Government Finance System
Fifty-first (51st) Annual Report of the Auditor General 2070
(2014)
The professional accountants, having required knowledge

of financial management, maintaining required expertise
through continuing professional education or development,
and complying with the professional standards and code
of ethics, are the key personnel to devise, implement and
monitor sound financial management system in the
corporate and public sector. All stakeholders and
international organizations have felt need of professional
accountants for enhancement of financial management and
good governance. The professional accountants can help
to improve the financial management system and enhance
governance whether they are employees working in various
capacities at different levels in the corporate or public
sector or regulatory authorities or internal and external
auditors. Therefore, the professional accountants should
fulfill their responsibilities entrusted to them to strengthen
financial management system and ensure good governance.
March 2015
65
ECONOMY
Excess Liquidity: Its Impact and Consequences in the

Nepalese Context
The excess liquidity is arising due

to the low level of economic
growth and less spending capacity
of the state in long term capital
investment. The large and
persistent excess liquidity is due
to the non-controllable
autonomous factors, like foreign
aid, emigrant's remittances and
foreign investment. These inflows,
associated with low developed
money and public debt markets,
are usual in small and underdeveloped economies. The small
number of banks, related with a
high degree of concentration, is
also a structural factor that explains
this phenomenon.
Dr. Basudev Sharma

Dr. Sharma is Under Secretary, Ministry of
Finance
66
Background
The ability of a firm to convert an
asset into cash as far as quickly is
called liquidity. It is also known as
"marketability." It can be defined as
the degree to which an asset or security
can be bought or sold in the market
without affecting the asset's price.
Liquidity is characterized by a high
level of trading activity. Assets that
can be easily bought or sold are known
as liquid assets. Bank for International
Settlements defines liquidity as the
ability of bank to fund increases in
assets and meet obligations as they
come due, without incurring
unacceptable losses. A firm or a bank
should have optimum liquidity so as
to maintain operational activities and
long term credibility.
One of the main risks that banks need
to manage is the liquidity risk. In order
to meet withdrawals of deposits at any
moment of time banks hold two types
of reserves: required reserves, imposed
by the central bank; and excess
reserves, demanded by precautionary
reasons. It indicates that liquidity is
maintained for precautionary purpose
as well as for voluntary purpose.
Holding reserves entails an
March 2015
opportunity cost but it represents an

insurance against liquidity risk.
Excess Liquidity
Excess liquidity can be defined as
cash held by a bank above the usual
requirement for that bank. Excess
liquidity is the involuntary
accumulation of liquid reserves. That
is, the amounts of reserves in excess
of the statutory requirements, and in
some cases, beyond what banks hold
for precautionary purposes. It can be
said as total bank liquidity minus
required bank liquidity. The required
liquidity (or reserve) ratio is set by
the central bank in the individual
country. A recurrent concern of central
bankers is the possibility that an
abundance of liquidity may hamper
the ability of monetary policy to
influence the level of economic
activity and inflation. For most
financial systems, excess liquidity can
be defined as the involuntary
accumulation of liquid reserves by
commercial banks.
Causes of Excess Liquidity

There are several causes for excess
liquidity. The overall economic
situation of the country, investment
ECONOMY
friendly environment, investor confidence, general business

confidence index and investor sentiment all these causes
are responsible for excess liquidity. However, there are
economies characterized by a persistent situation of excess
liquidity, where excess balances are not only hold by
precautionary purposes, but also for involuntary reasons,
due to the insufficient development of financial markets,
a high degree of risk aversion, or high capital inflows,
among other reasons.
These excess liquidity situations raise concerns about
bank's profitability, inflationary pressures and the
transmission mechanism of monetary policy and its
effectiveness. The causes for precautionary excess liquidity
and the involuntary excess liquidity may be different. The
precautionary balances are those above minimum
requirements, needed to meet the withdrawals of deposits
and other uncertain payments. The balances that are in
excess of these precautionary needs are the involuntary
cash balances.
Various studies classify the determinants of the involuntary
excess liquidity in structural factors due to macroeconomic
and financial development and cyclical factors. One of the
structural determinants of involuntary liquidity is the low
degree of financial development. A low developed interbank
market can be the consequence of a persistent situation of
excess liquidity in the banking sector, that disincentive
lending operations between banks. The transportation of
cash between banks is also referred as cause of excess
liquidity. In Egypt, political violence is the main determinant
of excess liquidity.
The structural determinant of the excess liquidity may be
the high degree of risk aversion that causes banks to demand
a high risk premium and lowers private sector credit
demand. The degree of risk aversion is related with macro
economic instability, thus explaining the long term positive
correlation between inflation and excessive liquidity.
A rise in inflation causes higher volatility in relative prices
and higher uncertainty in the risk degree of investment
projects and in the value of collateral. Thus, banks demand
higher interest rates on loans, the demand of credit decreases
and excess reserves increase.
Another cyclical determinant is the huge capital inflows,
consequence of the oil trade receipts, foreign direct
investment (FDI) associated with liberalization of capital

flows and/or foreign aid,
Finally, a crisis environment, accompanied by a high degree
of uncertainty, causes the accumulation of reserves by
banks, which see lending as a riskier activity. The
accumulation of reserves in Thailand, during the Asian
financial crisis, was the consequence of the decrease of
lending by banks and not the result of lower credit demand.
During the financial crisis of 2007-2008, banks in USA
increased their holdings of reserves and decreased lending,
as a buffer against liquidity shocks.
Causes of Excess Liquidity in the Nepalese

Context
Excess liquidity in Nepal is arises from the long transitional
political phenomena, instability and different ideology of
the leader regarding political, social and economic issues.
The bubble in the financial and real estate market during
2007 to 2011 and slow expansion of economic, industrial
and agriculture activities in the real estate sector. Besides
the reinvention of second phase of liberalization and its
institutionalization is also contributed for excess liquidity.
The excess liquidity is arising due to the low level of
economic growth and less spending capacity of the state
in long term capital investment. The large and persistent
excess liquidity is due to the non-controllable autonomous
factors, like foreign aid, emigrant's remittances and foreign
investment. These inflows, associated with low developed
money and public debt markets, are usual in small and
under-developed economies. The small number of banks,
related with a high degree of concentration, is also a
structural factor that explains this phenomenon. Nepalese
economy is a small economy lies between the two giant
economy of the world. The relation between India and
China and their integration through ASEAN, BRICKS and
other regional and bilateral relation also affects the economic
prosperity of Nepal.
Excess liquidity in Nepal could be defined as necessary
voluntary liquidity and involuntary excess liquidity. These
both type of liquidity are important but risky as they
generate liquidity risk in the banking business. Involuntary
liquidity increase the opportunity cost and reduces the
deposit and lending rate. Deposit rate will be highly affected
as compared to lending rate. Both rate should be optimum
March 2015
67
ECONOMY
to mobilized the financial resources of the country and

capital formation.
At the existing situation Nepalese economy is based on
remittance income and service trade. Industrial base is
weak and use of excess liquidity in the real sector is possible
when the nation get appropriate avenues for real sector
industrial base investment. Excess liquidity is a short term
phenomena in the Nepalese financial market. In fact,
Nepalese financial market is more worried for liquidity
crunch as compared with excess liquidity. Liquidity crunch
in the past was due to the expansion of subprime loan by
the cooperatives. Excess liquidity in Nepal is because of
contraction of ease lending by saving and credit
cooperatives.
Possible Impact of Excess Liquidity in the

Nepalese Economy
Nepal is a small economy lies between two giant economy
of the world. The rule of the world market is that
opportunities arise in the big market as compared to small
one. Similarly economies of scales benefit are possible in
large market as compared to small one. Therefore, the
problem of excess liquidity in Nepal arises from its internal
causes rather than the flow of international financial flow.
The remittance which is mostly used in consumption rather
than in the productive sector could not generate excess
liquidity in the Nepalese context. The past liquidity crunch
situation insist towards the awareness of liquidity but it
does not force to collect involuntary excess liquidity in
the economy.
In the past 10 years, the capital expenditure of the public
sector remained stagnant and did not increase as per the
expectation of the economy. Private investment increased
specially in the sector of land, share, and gold, trading and
other short term business whereas a very little portion was
invested in agriculture sector. Industrial sector and real
sector did not expand in the capacity to mobilize the excess
liquidity of the state. In fact the investment policy and
political instability of the imposing threat in the existing
economic situation. We are not able to solve these
investment anomalies of the past to create an atmosphere
of conducive environment. Following seems to be the
possible impact of excess liquidity in the Nepalese context.
68
March 2015
In the short run interbank rate and short term interest rate
will decreases. Five years before the same was the situation
in our economy where interest rate was in the lower bound.
The repo rate and reverse repo rate both are decreasing. If
IFC immediately issue the Bond it will be a short term
opportunity for banker to invest in short term market but
its volume is so small that it could not response our excess
liquidity problem. As much as excess liquidity increases
it hamper efficiency and profitability of the corporate
sector. Individuals earning capacity decreases investor
confidence loosed and spending capacity of the real tangible
sector suffered. The impact of excess liquidity in the
Nepalese economy could be classified in to two ways.
Short Term Impact

Immediate impact in the economy which is already
happening and the corporate sector and individual household
sector both are suffering from this issue. Their confidence
level is decreasing. They are not able to initiate the new
investment portfolio that is optimum and suitable to them.
Government insisting and emphasizing for the capital
expenditure but it is under consideration. Public expenditure
is a subject of collective benefit as much as confuse, conflict
and misunderstanding among the stake holder and risk
factor is their it will not increase as expected by the
government. Private investment directed towards profit,
efficiency and market share if they got lucrative benefit
outside the country they prefer to get benefit from outside
which create the problem of capital flight. The major short
term impacts in the Nepalese economy through excess
liquidity are:
Instability, in repo, reverses repo and interbank rate
offer by bank.
Decrease the size of deposit and loan portfolio
Reduction in the proportionate size of investment
Loosed investors confidence
Market sentiment turned towards frustration
Deposits rate decreases but spread rate and lending
rate does not increases in the same proportion
Long Term Impact of Excess Liquidity

As we know the long term impact of excess liquidity will
be more expensive and hazardous to Nepalese economy.
The cost of excess liquidity will be visible after few years.
ECONOMY
As much as excess liquidity increases opportunity cost

increased, idle fund reduces the capital and assets
productivity ratio. The trend of investment, gearing hope
and expectations of general and specific investor reduced,
cost of capital increases. Chances of capital flight increases,
the general and business risk increased. The major long
term impact of excess liquidity will be as follows.
The upper trend of investment which is needed in
least developed economy does not motivated,
consequently GDP growth suffer.
Instability in the monetary policy increase, the
aggregate monetary indicators may be in imbalanced
position.
Business confidence index, investor confidence index,
consumer confidence index decreases.
Public and private investment directly impact on
capital formation.
The economic indicators may not be in a position of
stable and sustainable economy.
The overall position and size of economy may be
hampered and does not able to get its expected way.
In the long run it could affect on investment structure
and its velocity
Excess liquidity may affect on corporate solvency,
efficiency, earning capacity, shareholders value
maximization and long-term sustainable strategy in
the competitive market.
Conclusion
Excess liquidity is one of the burning issue in Nepal; it
will affect short term and long term market. The fiscal and
monetary policy actors and regulators should be conscious
to address the liquidity problem otherwise such problem
will repeat again and again as a cycle of the (liquidity
crunch-financial disorder- excessive regulation-tight
monetary policy- high reserve requirement- involuntary
excess liquidity) Unless and until we are not able to solve

liquidity problem with a suitable investment camping it
will provide unnecessary idle fund in the economy. In the
past, many cooperatives expanded their investment activity
in the collaboration of finance companies, development
banks and commercial banks, to some extent individual
money lender also participate in the programme. The
investment diverted to land, housing, gold, share but not
in the expected way of real sector investment. This type
of investment induced a real picture of liquidity shortage
in the economy. Liquidity crunch problem of 2009 turned
towards excess liquidity in 2013. During this period of
five years a lot of upheavals came in the Nepalese financial
sector and this experience will help to policy maker to
solve the problem in exact time.
References:
Acharya, Viral V. and N. Mora (2011), Are Banks Passive
Liquidity Backstops? Deposit Rates and Flows during
the 2007-2009 Crisis, Working paper, New York
University Stern School of Business.
Berrospide, Jose, Ralf Meisenzahl, and Briana Sullivan
(2012), Credit Line Use and Availability in the Financial
Crisis: The Importance of Hedging, Finance and
Economics Discussion Series, 2012-27. Board of
Governors of the Federal Reserve System.
Henry et. al., (2010).The Dynamics of Involuntary
Commercial Bank"s Reserves in Trinidad and
Tobago, 42nd Annual Monetary Studies Conference
Financial Stability, Crisis Preparedness and Risk
Management in the Caribbean.
Ivashina, Victoria, and David S. Scharfstein( 2010), Bank
Lending During the Financial Crisis of 2008,Journal
of Financial Economics vol. 97(3), pp. 319-338.
Gale, Douglas, and Tanju Yorulmazer(2013), Liquidity
Hoarding, Theoretical Economics, forthcoming.
March 2015
69
NOTICE
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n]vf k|fljlw1n]
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;b:on]
?= %,)))
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nfveGbf sd x'g' x'Fb}g .
March 2015
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k|rlnt sfg"g
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x'g' x'Fb}g .
3_ ;+:yfsf k]zfut k|df0fkq k|fKt ;b:ox?n] ;xsf/L ;+:yfx?sf]
n]vfk/LIf0f ubf{ s"n shf{ nufgL jf lgIf]k h'g a9L x'G5
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shf{ nufgL jf lgIf]k /sd ?=
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Go"gtd n]vfk/LIf0f z'Ns ?

%)),)))
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@%,)))
NOTICE
_ ;+:yfsf k]zfut k|df0fkq k|fKt ;b:ox?n] /fli6o tyf cGt/f{li6o

u}/;/sf/L ;+:yfx? tyf cGt/f{li6o ljsf; ;fem]bf/ ;+:yfx?df
n]vfk/LIf0f ubf{, ;f] ;+:yfx?n] gubdf cfwfl/t ljQLo ljj/0f
tof/ ug]{ x'gfn], cg'bfg tyf cGo k|flKtsf] s"n /sdsf]
cfwf/df k|fKt ug'k{ g]{ Go"gtd n]vfk/LIf0f z'Ns b]xfo adf]lhd
lgwf{/0f ul/Psf] 5 .
cg'bfg tyf cGo k|fKt /sd ?=
%) s/f]8eGbf dfly
@) s/f]8eGbf dfly
! s/f]8eGbf dfly
%) nfveGbf dfly
Go"gtd n]vfk/LIf0f z'Ns ?=

%)),)))
@)),)))
!)),)))
%),)))
pk/f]Qm Go"gtd z'Nssf] clwgdf /lx cGt/f{li6"o u}/;/sf/L ;+:yfx?sf]

n]vfk/LIf0f ubf{ k|fKt ug'{kg]{ Go"gtd n]vfk/LIf0f z'NsM ?= !
nfveGbf sd x'g] 5}g .
r_ ;+:yfsf k]zfut k|df0fkq k|fKt ;b:ox?n] :yfgLo lgsfox?sf]
n]vfk/LIf0f ubf{ k|fKt ug'{kg]{ Go"gtd n]vfk/LIf0f z'Ns b]xfo
Go"gtd n]vfk/LIf0f
z'Ns ?=
sf7df8f}+ pkTosf, sfe|], sf:sL afx]s kxf8L
If]qsf ;a} gu/kflnsf
sf7df8f}+ pkTosf, sfe|], sf:sL tyf t/fO{sf
;a} gu/kflnsf
;a} pkdxfgu/kflnsf
;a} dxfgu/kflnsf
!)),)))
!%),)))
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5_ ;b:ox?n] n]vfk/LIf0f tyf cGo sfo{sf] nflu k|:tfj k]z ubf{

ljleGg txsf] Manpower sf] Go"gtd z'Ns tyf Certification
Work sf] Go"gtd z'Ns b]xfo adf]lhd lgwf{/0f ul/Psf] 5 .
c_ Statutory Audit /Internal Audit /Tax Audit &
Accountancy Consultancy Job/ Investigation
/Management Service/Special assignments
sfo{sf] nfluM
Pkm=l;=P= ;b:osf] xsdf

l;=P= ;b:osf] xsdf
cf/=P=aL= ;b:osf] xsdf
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k|ltlbg ?=
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cf_ Certification Work sf] nflu

laBdfg z'Ns
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k|ltsfo{ ?=
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#,))).))
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h_ ?= @) -aL;_ nfveGbf sd sf/f]af/ x'g] k|f=ln=, Psn kmd{,

;fem]bf/L kmd{, ;xsf/L ;+:yf ;/sf/L k|fylds ljBfnox?,
wfld{s ;+3 ;+:yf, ;fdflhs ;+3 ;+:yf, pkef]Qmf ;d'x, ljleGg
lsl;dsf ;ldltx?, 6]8 o'lgog tyf k]zfut ;+3 ;+u7gx?
tyf cGo o:t} k|sl[ tsf ;+3 ;+:yfx?sf] xsdf Go"gtd n]vfk/LIf0f
z'Ns nfu' x'g] 5}g . t/ ljgf kfl/>lds n]vfk/LIf0f ug{ eg]
kfOg] 5}g .
em_ ;+:yfsf k]zfut k|df0f kq k|fKt ;b:on] cfGtl/s n]vfk/LIf0f
ubf{ k|fKt ug]{ z'Ns klg dfly lgwf{/0f ul/Psf] Go"gtd
n]vfk/LIf0f z'Nss} cfwf/df lng'kg]{ 5 . s'g} ljz]if If]q cyjf
s'g} sf/f]jf/df l;ldt /xg] ul/ cfGt/Ls n]vfk/LIf0f ug'{ k/]df
a'bF f g+ 5-c_ adf]lhdsf] k|ltsfo{ lbgsf] nflu tf]lsPsf] Go"gtd
kfl/>ldseGbf sd x'g] 5}g .
`_ ;+:yfsf k]zfut k|df0fkq k|fKt ;b:on] s/ n]vfk/LIf0f tyf
lgodgsf/L lgsfon] dfu u/]sf] ljz]if k|ltj]bg tof/ ubf{ 5'}
z'Ns lng'kg]{ 5 / ;f] z'Ns a'bF f 5_-c_ adf]lhd k|ltsfo{ lbgsf]
nflu tf]lsPsf] Go"gtd kfl/>ldseGbf sd x'g] 5}g .
6_ dfly pNn]v ul/Psf] n]vfk/LIf0f z'Nsdf n]vfk/LIf0f;Fu
;DalGwt cGo vr{x? ;dfj]z ul/Psf] 5}g . n]vfk/LIf0f;Fu
;DalGwt cGo vr{ 5'} x'g]5 .
7_ Go"gtd n]vfk/LIf0f z'Ns lgwf{/0f ug{] k|of]hgsf] nflu n]vfk/LIf0f
ePsf] cl3Nnf] cf=j=sf] ljlQo ljj/0fnfO{ cfwf/ dfGg' kg]{5 .
8_ ;fj{hlgs lgsfox?sf] n]vfk/LIf0f z'Nssf] xsdf dxfn]vfk/LIfssf]
sfof{non] tf]s]sf] adf]lhd x'g]5 .
9_ g]kfn ;/sf/n] ;+:yfsf ;b:onfO{ n]vfk/LIf0fsf] sfo{ tyf
Jofj;flos k|lt:kwf{ afx]ssf cGo s'g} klg sfo{df ;dfj]z
u/fpFbfsf xsdf of] lgb]{zg nfu' x'g] 5}g .
0f_ k]zfut k|df0fkq k|fKt ;b:on] Ps cfly{s jif{df !)) j6f
;Dd dfq n]vfkl/If0f ug{ kfpg] 5 . t/ pQm !)) j6f l;df
;+VofdWo] klJns lnld6]8 sDkgLsf] ;Ldf ;+Vof !) j6feGbf
al9 x'g' x'+b}g . ;fem]bf/L kmd{sf k|To]s ;fem]bf/n] pk/f]Qm
;Ldf;Dd n]vfk/LIf0f ug{ kfpg]5 .
t/, ?= @) -jL;_ nfveGbf sd sf/f]af/ x'g] k|f=ln=, Psn
kmd{, ;fem]bf/L kmd{, ;xsf/L ;+:yf;/sf/L k|fylds ljBfnox?,
wfld{s ;+3 ;+:yf, ;fdflhs ;+3 ;+:yf, pkef]Qm ;d'x, ljleGg
lsl;dsf ;ldltx?, 6]8 o'lgog tyf k]zfut ;+3 ;+u7gx?
tyf cGo o:t} k|s[ltsf ;+3 ;+:yfx?sf] n]vfk/LIf0f dfly
pNn]lvt kmfO{n ;+Vofsf] ;Ldf u0fgf ug]{ k|of]hgsf] lgldQ
;fd]n ul/g] 5}g .
t_ Go"gtd n]vfk/LIf0f z"Ns tyf kmfOn ;+Vof lgwf{/0f k|of]hgsf]
nflu sf/f]af/ /sd eGgfn] g]kfn rf6{8{ PsfpG6]G6\; lgodfjnL,
@)^! sf] lgod %# df pNn]v eP adf]lhd x'g]5 .
March 2015
71
NEWS
News
18th Anniversary Program of the Institute
The Institute of Chartered Accountants of Nepal marked

its 18th Anniversary on 31 January 2015 at Kathmandu
by organizing special program at hotel Soaltee Crowne
Plaza. Program was formally inaugurated by the Hon'ble
Finance Minister of Nepal Dr. Ram Sharan Mahat with
lightning the lamp. In the program ICAN President CA.
NarendraBhattarai presented the annual report of fiscal
year 2070/71 and also mentioned the achievement made
by the institute during the period.
Mr. Ram Kumar Nepal, Mrs. Sabina Maharjan and Mr.

Shivahari Nepal were declared best staffs of the year
2070/71 and felicitated with the letter of appreciation and
cash for outstanding performance in the Institute. Similarly,
Hon'ble Finance Minister of Nepal distributed the prize to
the winner and first runner up of chess tournament organized
on the occasion of anniversary of the institute by the
national employee union of Nepal (NEON/ICAN)prior to
the auspicious occasion of the Institute.
Group Photograph of Merit Holder Students & Best Staff of ICAN with
Guests & ICAN Officials
Hon'ble Finance Minister Dr. Ram Saran Mahat Lightining the lamp
in the Program
The first President of ICAN CA. Komal Bahadur Chitracar

was felicitated by the Hon'ble Finance Minister of Nepal
on behalf of the Institute for his contribution in the field
of accounting profession. Hon'ble Finance Minister of
Nepal Dr. Ram Sharan Mahat gave away the medal and
the certificate to the merit holder students of December
2013 and June 2014 examination.
Council Member of ICAI CA. V. Murali made a presentation

on "Code of Ethics-Enhancing Professional Value and
Social Faith" as a Key Note Speaker in the program. In
the similar way Chief Guest Hon'ble Finance Minister of
Nepal Dr. Ram Sharan Mahat, Guest of honor Auditor
General Mr. Bhanu Prasad Acharya and Chairperson of
Public Account Committee Hon'ble Mr. Janardan Sharma
addressed the gathering on the occasion.
ICAN Officials with Chief Guest & Guests on Dias

ICAN First President CA. Komal Bahadur Chitracar accepting
felicitation
March 2015
NEWS
Speaking on the occasion Auditor General Mr. Bhanu

Prasad Acharya appraise the Institute for the achievement
and also he emphasized the need for proper regulation of
misconduct in the auditing profession and make appropriate
arrangement to increase awareness among its members to
comply with code of ethics while discharging the audit
assignments. He stressed that if the auditors are not
independent to carry out audit in depth, the audit report
cannot be true and fair and difficult to rely on such report.
He also suggested that as a regulatory body the Institute
require to perform professionally for which it is established.
Similarly, speaking on the occasion Chairperson of Public
Account Committee, Hon'ble Mr. Janardan Sharma
suggested the Institute and the accounting professionals
to work for nation, society and public at large.
Chairperson of Public Account Committee, Hon'ble Mr. Janardan

Sharma in Speech.
Addressing on trhe occasion, Chief Guest Hon'ble Finance

Minister Dr. Ram SharanMahat urged to the audit
professionals that the audit report issued by them should
be fair and trust worthy to the general public to make assure
of its cridibility. Foreign Direct Investment is important
for the nations like ours, hence auditor should play the
important rolefor attracting such investments to the nation.
Before closing the program the President CA. Narendra
Bhattarai distributed the Token of Love to the Guest of
Honors and Chief Guest and Vice President CA. Prakash
Lamsal gave vote of thanks to all participants and concluded
the program.
First ICAN Summit - 2015

the First ICAN Summit-2015 in its history on the theme
"New Dynamics in the Accounting Professions" on 1
January 2015. Summit was conducted in four technical
sessions. Different papers were presented during the summit.
The paper presentator, its Topic, commentator and session
Chair has been given below:
Council Member of ICAI V. Murali presented a paper on

New Dynamics of Accounting Profession- Drivers of
Change and its Impact in the first session of the summit.
He stressed on new dynamics of accounting professions
to adopt timely to be a successful professionals and to
minimize professional threats. ICAN Past President CA.
MadhuBirPandeand ACAN Past President commented on
this paper. This session was chaired by the ICAN Past
President CA. Prabhu Ram Bhandary.
Council Member of ICAI V. Murali in the Presentation.
In the second session of the summit, ICAN Past President

CA. Pradeep Kumar Shrestha presented a paper on
"Accounting Professionals to Improve Governance and
Financial Management System in Corporate and PFM
Sector. He emphasized on the role of accounting
professionals to establish the governance in corporate and
public financial management sector. He further said that
March 2015
73
NEWS
lack of good governance in the entities they are incurring

losses. The paper was commented by the Chairman of
SEBON Mr. Baburam Shrestha. In his comment he focused
on the role of the accounting professionals enhancing good
governance. This session was chaired by the first President
of ICAN CA. Komal Bahadur Chitracar.
are being raised in towards accounting profession. Further

he mentioned the necessity to upgrade auditors to meet the
public interest.
The queries raised from the floor were answered by the
paper presenter of the respective sessions and also
Commentators. The chairpersons shared their views on the
respective topics of the session.
Interaction Program on Income Tax and VAT
CA. Mahesh Kumar Guragain in the Presentation.
In the other session of the program two papers were

presented namely Foreign Aid management- Professional
Accountant Prospective and Areas of other Value Added
Services for Professional Accountant by CA. Mahesh
Kumar Guragain and CA. Suresh Devkota respectively.
That session was chaired by Past Chairman AuSB, CA.
Madan Krishna Sharma.
ICAN Officials on the Dais in Interation Program.
CA. Nanda Kishore Sharma in the Presentation.
Shifting of ICAN Office in New Building
In the last session of the program CA. Nanda Kishore

Sharma, Past Chairperson of AuSB presented paper on
Audit Expectation Gap and its Impact on Accounting
Profession. Paper was commented by Joint Secretary of
Nepal Government Mr. Suresh Pradhan and Assistant
Auditor General Mr. BaburamGautam. they suggested that
the auditors need to focus on the public financial accounting.
President CA. NarendraBhattarai chaired the session. As
a chair of the session he highlighted on the why questions
The Institute of Chartered Accountants of Nepal shifted

office from rented building at Babarmahal to its own
building at Satdobato, Lalitpur second week of Falgun
2071. The Institute has started its regular operations from
its newly constructed building.
March 2015

half day Interaction program on Income tax and VAT in
Kathmandu on 10 March 2015. The purpose of the
interaction program was to collect policy level suggestions
from the members on its overall improvement in
administration and inforcement to revenue laws and compile
the suggestions so as to forward to High Level Tax Review
Suggestion Commission. As a regulatory body of auditors,
it is the responsibility of ICAN to collect the suggestion
and forward to the Government relating to Income tax and
VAT as suggestions for improvement in tax regime.
NEWS
Information System Audit (ISA) Course

ISA course with the technical collaboration of the Institute
of Chartered Accountants of India (ICAI) from 1 February
to 12 February, 2015 for 12 days. The aim of the course
was to enhance the professional skills of chartered
accountants in the field of information system audit.
CA. PrakashLamsal- Coordinator,

CA. Mahesh Kumar Guragain - Member,
CA. Achuyt Raj Joshi- Member
RA.Badri Prasad Bhattarai - Member
Mr. BinodNeupane- Secretary
The ICAN Council approved minimum audit fee and
number of file to be audited. The details of minimum audit
fee and number of file to be audited is given in the notice
in this journal.
Membership, Certificate of Practice and

Auditing Firm
The total number of Registered Member, Certificate of
Practice holder and Auditing Firms and the status of renewal
till 24 March 2015.
Group Photograph of ISA Course Participants with ICAN Officials.
The institute believes that chartered accountant requires

the necessary skills in IT systems in the changing scenario
to lower the professional risk to acceptance level. So, The
Institute of Chartered Accountants of Nepal is organizing
such course to provide technical knowledge to its member.
30 chartered accountants participated in the course. The
course covered 100 hrs.
The Institute urged to all practicing members to register

as auditing firm to conduct the audit work.
Limitation of Minimum Auditing Fee and

Number of Audit
Chartered Accountancy Examination of

Different Level Result Published
The Institute of Chartered Accountants of Nepal formed

a five member Working Committee on 4 Falgun 2071to
discuss and collaborate with the Regulatory Bodies
regarding audit fees and numbers of audit to be conducted
by ICAN member. The working committee discussed in
this matter with the heads and concerned officers of the
Regulatory Bodies in the different date. The Committee
discussed with the Governer of Nepal Rastra Bank, Dr.
Yuba Raj Khatiwada, Registrar of Cooperative Department,
Mr. BishnuHariPoudel, Chairman of BeemaSamati, Dr.
FattaBahadur K.C., Company Registrar Mr. Prem Kumar
Shrestha, Auditor General Mr. Bhanu Prasad Acharya and
Joint Secretary of Ministry of Federal Affairs and Local
Development Mr. PurnaBahadurTandukar in different
dates. Based on the study the Committee proposed a
minimum audit fee and number of file to audit.
The result of the chartered accountancy examination

conducted from 1-9 December 2014 was published in 15
February 2015. According to the results, out of 361 students
of CAP III Level 63 (20 in first group, 34 in second group
and 9 in both group) were declared successful. Similarly
out of 1252 students of CAP II Level 186 (81 in first group,
51 in second group and 54 in both group) were declared
successful andout of 692 students of CAP I Level 493
were declared pass in the level.
The five working committee members consist of:
March 2015
75
NEWS
According to the result announced 29 students of CAP III

level were declared successful so as to apply the
membership of ICAN on completing the necessary
requirements mentioned by ICAN. The successful students
of CAP I and CAP II level are eligible to apply in the CAP
II and CAP III Level.
Membership Examination Result Published

The result of membership examination conducted on
December 2014 was published. According to the result 47
candidates of membership examination were declared pass
and eligible for membership of the Institute. Altogether
212 candidates attempted the examination. Membership
examination is mandatory for the qualified chartered
accountant who passed out from the foreign institute.
Foreign chartered accountant degree holder need to pass
two subjects (Advance Taxation and Law) of CAP III level
to be eligible for the membership of ICAN. Result was
published in 15 February 2015.
Staff Promotion
Mr. SanojBhattarai, Assistant and Mrs. Anita Bhandari,
Junior Assistant were promoted to Senior Assistant and
Assistant respectively. The promotion is effective from 16
Magh 2071. Congratulation to both of them for promotion.
Status of Student Enrollment

Chartered Accountancy Course is demanding professional
course for the student interested in accounting and auditing
profession. Growing trend of the students enrolled for CA
education indicates chartered accountancy as a choice of
profession among the youngsters. Fiscal year wise
enrollment status up to the reporting period is as given
under.
Registered Auditor (RA) Upgrading Result

Published
The registered auditor upgrading written examination was
held on June 2014 based on the result published 8 registered
auditor members were upgraded to their respective class.
According to the results 5C class registered auditors
upgraded to B class and 3 D class auditor members were
upgraded to C class.
SAFA Board Meeting, SAFA CommitteesMeeting

and International Conference
A five member delegation of ICAN visited Bangalore,
India from 25-31 January, 2015 to attend the 38 thSAFA
Board Meeting, SAFA CommitteesMeeting and
International Conference on "Accounting Profession:
Building Global Competitiveness;Accelerating Growth".
The International Conference was organized for three days.
The delegation was headed by the ICAN President CA.
Narendra Bhattarai. The other delegates were Past President
CA. Suvod Kumar Karn, Past President CA.
MadhuBirPande, Council Members CA. Achyut Raj Joshi
and RA. Mohan Kumar Parajuli.
Blood Donation
On the joint initiation of Nepal Rastriya Karmachari
Sangathan (National Employee Organization of Nepal)
(NEON) and Nepal Chartered Accountants Student
Organization (NCASA) along with Nepal Red Cross Blood
Transformation Service Center organized a blood donation
program on 12 Magh 2071 at ICAN Premiseson the
occasion of 18th anniversary of the Institute. Altogether
55 pints of blood bags were collected.
Staff members of ICAN and Students donated the blood.
The main motive of the program is to collect the blood to
save the lives of patients. Blood donation program is being
organized continuously as a part of social responsibility
of the Institute, its staffs and students.
The program was formally started with the deliberation of
speech of ICAN President followed by NEON President
and NCASA President.
Enrollment continues throughout the year by separating

the batch for examination.
March 2015

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March 2015

(Quarterly Journal of The Institute of Chartered Accountants of Nepal)

Nepal PFM Performance Assessment 2014

Mr. Binaya Paudel

Professionalisation of Public Financial Management

The Institute of Chartered Accountants of Nepal

Public Expenditure and Financial Accountability

SAI Performance Measurment Report, 2014

Branch Office Biratnagar

Observance of Standards and Codes on Accounting &

Branch Office Butwal

Description of the Eight KeyElements

Branch Office Birgunj

(including courier charges for Organizations)

Rs. 300 (if received by self)

I am dedicating this issue of the Journal for Public Financial

Are we really developed?

U.S. Government's 2014 Financial Report - Why

The Nepal Chartered Accountant

GAO from rendering an opinion on the accrual-based

Nepalese Context - Why High Fiduciary Risks

Correlation between Right and Duties - Are

Why Keynes prediction went wrong?

achieve a state of economic abundance where people would

Blaming abolition Gold Standard for Financial

Determining role of Capital - Is globalization

Creation of Credit Economy - Is it responsible

Roundtable on Public Sector Financial Management on

good practice could be beneficial to Nepal to increase role

initiatives from the accountancy profession.

The fourth presentation shall be on Initial findings of Nepal

18th Anniversary Program of the Institute

ICAN Summit - 2015

with a view to bring the entire professionals in a platform

Interaction Program on Income Tax and VAT

Shifting of ICAN Office in New Building

Information System Audit (ISA) Course

Minimum Remuneration and Auditing Fee for

difficulty to perform the engagement in accordance with

CA. Narendra Bhattarai

CAPA Conference - 2015

About the CAPA Conference 2015

ICAN is established under an act of Parliament, the Nepal

The Institute of Chartered Accountants of Nepal (ICAN),

The Nepal Chartered Accountant

CAPA Conference - 2015

Public Sector Financial Management

10 The Nepal Chartered Accountant

CAPA Conference - 2015

The Nepal Chartered Accountant

CAPA Conference - 2015

Public Sector Financial Management

The Nepal Chartered Accountant

CAPA Conference - 2015

Mr. Rameshwor Khanal

The Nepal Chartered Accountant

CAPA Conference - 2015

Mr. Sujeewa Mudalige

Mr. Brian Blood

The Nepal Chartered Accountant

CAPA Conference - 2015

Ms. Gillian Fawcett

Gillian is responsible for developing international policy on technical

Sumita is responsible for ICAEW's policy on public sector financial