CAHARTERED

CCOUNTANT
T H E

N E P A L

Journal of the Institute of Chartered Accountants of Nepal

September 2015
Vol. 18 No. 1

September 2015
Vol. 18 No. 1

CA. Prakash Lamsal

CA. Mahesh Khanal
CA. Nil Bahadur Saru Magar
CA. Hemanta Pokharel
CA. Sanju Adhikari
CA. Shraddha Singh Shrestha
RA. Dev Bahadur Bohara
RA. Surendra Keshar Amatya
RA. Dharanidhar Adhikari
Mr. Binod Prasad Neupane

Chairman
Vice-Chairman
Member
Member
Member
Member
Member
Member
Member
Secretary

Editorial

President's Message

Auditing
Internal Audit: An Effective Tool to Augment Public Financial Management

- Mr. Dev Bahadur Bohara

15

Emerging Concepts of Public Sector Auditing

- Mr. Iswar Raj Shrestha

Banking
20

Basel III: A Global Capital Regulatory Framework

- CA. Mukunda Subedi

Economy
24

The Systemic Reform of National Pension System in India

(NPS) and Lessons for Nepal
- CA. Yuba Raj Pandeya

Management
Organizational BehaviorAlmost Missing Module in Nepali Corporate

27

- Mr. Bhuwan R Chataut

Taxation
VAT on Duty Meal Supply to Hotel Staffs : An Overview and an Analysis

31

- CA. Kaushelendra Jha

Other
Walking in Two Different Heels

34

Amendments Made by Finance Act, 2072 in Value Added Tax (VAT)

40

- CA. Sanju Adhikari

Global Nepal Printing Press Service Pvt. Ltd.

Tel: 4102772

- CA. Surya Bhakta Pokharel

- CA. Bishnu Prasad Bhandari

News
Notices
Contribution
Citizen Investment Trust
Civil Bank Limited
Sunrise Bank Limited
Ncell Pvt. Ltd.

44-49
30,33,50,53

The monetary policy aims to help achieve the GDP growth and inflation targets, and to
maintain balance of payments stability. The Governor of Nepal Rastra Bank made public
announcement of a new monetary policy on 2072.04.07.The monetary policy for 2015/16
aims at maintaining price as well as financial stability along with achieving balance of
payments surplus so as to support the overall economic development of the country. It
primarily focuses on supporting the economy and buttress the post-earthquake reconstruction
process through a competitive, inclusive and production oriented financial development.
The fiscal year 2015/16 is considered to be important in devising the long-term development
course of the country. This is followed by the promulgation of new constitution along with
the efforts to rejuvenate the earthquake embattled economy with an estimated loss of Rs.
666 billion, as per the preliminary analysis of Post Disaster Need Assessment Report.
Considering the domestic economic situation, the GDP growth remained lower in 2014/15
compared to the previous year because of the contraction in the growth rate of agriculture
sector due to delayed monsoon and the negative impact of the earthquake of 25th April, 2015
and subsequent aftershocks. According to the preliminary estimates of the Central Bureau
of Statistics (CBS), the real GDP grew by 3.0 percent at basic price and 3.4 percent at
producers' price in the review year.
As far as financial market is concerned, financial access has been widened due to branch
expansion as well as an expansion of some products such as mobile banking and branchless
banking, despite the decline in the number of Banks and Financial Institutions (BFIs) as a
result of merger and acquisition.
BFIs credit exposure to the industrial production, construction, wholesale and retail trade
shows a remarkable growth in the review period. Similarly, deposits at BFIs increased by
15.4 percent in the review period.
The central bank has been using Open Market Operations (OMOs) as a major instrument
for maintaining monetary aggregates and interest rates at a desired level, through deposit
auction; reverse repo auction and outright sale auction. BFIs managed short-term liquidity
through interbank transactions and standing liquidity facility (SLF) provided by the bank
during the year 2014-15.
Monetary Policy and Financial Sector Programs for 2015/16 have mainly focused on the
economy that is in need of mobilizing huge resources for reconstruction and rehabilitation
to recover human and physical losses caused by the earthquake. Equally important is to
consider the possible effect emanating from the expansion of loans and advances along with
the increased government spending on macroeconomic stability.
Similarly, a special policy provision will be made in order to provide the license for the
establishment of a national level infrastructure bank. BFIs will be required to increase
the minimum paid up capital in order to promote the financial stability and mobilize the
resources needed for the long-term development.
The Financial Sector Reform, Regulation and Supervision activities are helpful in attaining
financial stability, expanding financial access and inclusion, enhancing competition and
promoting corporate governance. The financial literacy and awareness program will be
taken to avoid the duplication of micro-finance services. New micro finance institutions
(MFIs) will be licensed only in the financial service deficient areas. Similarly, MFIs will be
permitted to expand their branches only in the unbanked areas or where presence of such
institutions is low. Moreover, setting up of economy and monetary targets, management of
foreign exchange attributes to maintain macroeconomic stability and supporting the revival
of the earthquake devastated economy.
Cooperation and support from the Banks and Financial Institutions (BFIs) as well as other
concerned stakeholders will be crucial in the successful implementation of the policy
provisions.

Dear Colleagues,
Pursuant to Nepal Chartered Accountant Act, 1997 and related
Rules the election for 7th Council of the Institute of Chartered
Accountants of Nepal (ICAN) was successfully held on June
12, 2015. I feel honored to assume the high office as the 19th
President of ICAN and bow to the past Presidents for their
untiring efforts to bringing our Institute and profession to its
present status. I express thanks to the Council members for
bestowing their trust by giving me the opportunity to serve as
President. I would also like to thank all the members of the
Institute for electing me to the Council for second consecutive
time since 2012.
As we know ICAN was established as an autonomous body
in 1997 with the aim to promote, develop and regulate the
accounting profession in the country. Its vision is to establish
it as Credible Professional Accounting Body.
In the view of the legal mandate, the Institute has made some
significant achievement in establishing it as a recognized
body of professional accountants in the country. Although it
is challenging in making the Institute more professional and
competitive in the global accounting fraternity for which we
need to demonstrate our leadership ability to run the Institute
in effective, accountable and responsible manner. Considering
this fact, last year ICAN prepared and approved its maiden
Strategic Plan (2014-15 to 2017-18) to undertake its activities
in a strategic manner in line with vision of our Institute.
In the capacity of President this is my first message and would
like to take this opportunity to update entire membership with
regards to some major activities performed and initiatives that
we plan to undertake during 2015/16 based on Strategic Plan.

Student, Education and Educational Plan

Since accounting is a professional education which requires
qualified professional /technical persons for conducting
educational activities. Hence staff with appropriate
qualification will be recruited to update and revise the study
materials in line with course of studies for its effectiveness.
Our leadership will make continued effort to seek support in
the form of subsidy for conducting crash course; publish study
material and students registration etc. which is being availed
in pursuing professional course study like engineering and

medical sciences from the government.

Similarly, Institute will not leave any stone unturned
in obtaining the ICAN examination IFAC recognized.
Examination Questions Quality Framework will be
prepared for making CA qualification more credible by
introducing the practice of questions auditing. With the
motive of enhancing the quality of Final level (CAP III)
examination, foreign subject experts will be invited as
and when basis.
Programs will be undertaken by holding interaction
and counselling activities to encourage students in
maintaining discipline among them.
The Institute is making necessary efforts for MRA with
some foreign professional accounting bodies. I am fully
hopeful that this year we will be able to sign mutual
agreements with CPA Australia and ICAEW England for
mutual recognition. I believe in two way recognition. Our
team will rethink on the policy of one way recognition of
the ICAN with other organizations.
Continuity will be given to attract the deserving and
meritorious students for pursuing CA education. In
this connection, we plan to conduct career counseling
in minimum of 25 districts by distributing brochure,
pamphlet, question answer book, and audio visuals.
We plan to increase the student enrolment rate by 25%
annually with an average registration of 1200.

for undertaking various developmental and promotional

activities related to CA education in Nepal. Hence
attempts will be made to utilize the available infrastructure
and facilities by managing it by professional expert of
respective sector.
Initiation will be taken to conduct a study to review the
existing system of examination of Accounting Technician
education in line with the global practice and out look
so as to form a long term perspective plan and submit
it to the government for coordination. This will help to
carry out AT education in a well-managed way by the AT
Board.

Members and Professional Capacity Development

We all know that as per the decision of Council taken
on 2071.11.04 the minimum audit fee and maximum
number of audit files have been revised with effect from
2072.04.01 and notified to the members by the Institute.
The Institute has instructed its member to follow the
minimum audit fee criteria while providing the audit
services. The Institute has been started monitoring to its
members and action will be taken against those who fail
to comply with the instructions.
Monthly interaction will be conducted targeting new
members on contemporary issues related to audit through
study circle mechanism. The participation of Female CA
member in ICAN activities will be encouraged.

Computer training will be made more practical by

adding Information System Audit as a training module.
Furthermore, course level, timing and length of training
will also be revised accordingly.

Necessary arrangement will be made for members and

students of the Institute to provide suggestions to ICAN
President, Vice President and high level officials through
interaction program

It is felt that the number of scholarship needs to be

increased to provide further access to deprived and
deserving student in CA education. Subsidies arrangement
for students coming from devastating earthquake areas
of 25 April and 12 May, 2015 will be made in the fee
structure of CA education.

Potential service opportunities will be explored and

generated by identifying the different sectors of economic
activities. In this context, adequate homework and
dialogue will be initiated with the concerned government
officials in making provisions in the related legislation to
recruit ICAN member as Chief Finance Officer (CFO) at
least in the listed companies and also in the companies
whose transactions exceeds certain amount.

The Institute has shifted from rented building to its own

building at Satdobato, Lalitpur. The newly constructed
building has adequate space and facilities to run Online
Library, Information Technology Training and Online test

Capacity of RA members will be enhanced to make

local level auditing more credible and professional.

In this context, dialogues and consultations process

will be initiated for cooperation and coordination with
the Ministry Federal Affairs and Local Development,
Ministry of Education, Department of Cooperatives,
Internal Revenue Department and Office of the Company
Registrar and other government bodies regarding the
audit of schools, cooperatives, Consumers Organizations,
tax audits etc. to maintain the professionalism and
integrity of audit. In this connection, the Institute will
pledge to seek support of Honorable Auditor General
in getting access and persuade the government officials.
RA Capacity Enhancement Program will be broadened
across the country.
NFRS for SMEs will be made effective to Small and
medium level company in consultations with Accounting
Standard Board.
We know that NFRSs have been implemented in phased
manner in selected companies. NFRS materials will be
used for making trainings, workshops, seminars and CPE
programs effective. Online CPE practice will be launched.
Implementation of NFRS is one of the major challenge
that we have to deal with, so a interaction program
will be held among CEOs and BOD of banks for the
implementation of NFRS in Banks which we plan to
organize jointly with NRB.
We all are aware of the fact that a good audit function
requires various practice guidance. I would like to inform
our members that we already formed a Task Force
with a clear cut terms of reference of developing audit
guidelines for the audit of banks, insurance companies,
NPOs, cooperatives for the application of members and
framing formats of financial statements for NPOs and
cooperatives. The Task Force has started its work on as
per the terms of reference.
Presently, Institute has implemented man one profession
approach on gradual basis in the domain of auditing.
Considering the shortage of auditors in remote areas of
the country, the Institute has permitted its RA members
to provide audit services for a short period even to the
full time employees serving in various government and
private organizations. Therefore, appropriate arrangement

will be in place for monitoring of implementation of one

man one profession.
I would like to mention that ICAN is committed to take
disciplinary action against the members without any
discrimination for non-adherence with Rules, Regulations,
Directives and Code of Ethics for creating professional
environment in auditing and accounting profession. So
that no questions can be raised in the credibility and
challenge the autonomy of the Institute. Monitoring
Committee will be made more efficient, effective and
managed similar to other regulators in the country. In this
connection, the scope of Monitoring Committee will be
expanded further and equipped with adequate rights and
engage experts in conducting monitoring activities.
I take this opportunity to inform members that the
Institute is assessing the volume or number of clients that
need audit services and the numbers of auditors required
in the remote as well as rural area of 75 districts of the
country. This is a sort of demand analysis and appropriate
policy decision will be made by reviewing the assessment
report prepared.
We all know that as a member of IFAC, WTO, CAPA and
SAFA it is the responsibility of the Institute to enhance
the competence of its members and maintain professional
integrity as well as quality of service delivery. The
main goal of the Institute is to elevate the professional
standards of our members at globally acceptable level to
get recognized from the accounting bodies of the world.

Institutional and Human Resource Development

The Institute is committed to create conducive
environment and the increase career opportunity in order
to generate sense of ownership among the ICAN staff
rather than being treated as simply the staff of ICAN.
With increased volume of work and activities it has been
felt that the existing organizational structure need to be
restructured to deal with the current operational scenario.
With this in view, technical and managerial staff will
be recruited to transform the Institute well managed,
strengthened and function more effectively.
Initiation will be taken to review existing benefits and

facilities to motivate the staff and keep their moral high

so as to enable them to perform their responsibilities with
full perseverance.

taxation and monetary policy to the Government. I assure

to give continuity to this established practice in near
future.

Necessary steps will be taken for exploring career

development opportunities of the staff similar to practices
of other regulatory bodies. Likewise, attempts will be
made to create conducive working environment by
discussing and obtaining views and suggestions from the
ICAN staff.

We feel that still some of our external stakeholders are

unaware of the roles and function of the Institute. With this
in view, necessary arrangement for interaction program
will be organized to disseminate role and responsibilities
of the Institute to its valued stakeholders.

With objective of increasing accessibility of the members

and students, Institute has opened its branches outside
Kathmandu valley. In this connection, initiation will be
taken to seek support from government and members to
construct at least one office building outside Kathmandu
as we received for the construction of ICAN building
in three years before. Such initiation will be useful in
strengthening the branches and improve service delivery.
The necessary deliberation and consultation process will
be initiated with the stakeholders to establish on line
voting system for 8th Council election. So appropriate
legislative arrangement will be made to hold next Council
election through online voting system.
I would like to bring the notice of the membership that
Government of Nepal has approved amendment in the
Nepal Chartered Accountant (NCA) Regulation for
setting up Board of Studies and Auditing & Assurance
Board and we are in the process of formation of Boards.

International Relation
As usual we will continue to maintain and strengthen
our links with international and regional organizations
like IFAC, CAPA, SAFA and accounting bodies of other
countries. Similarly, effort will also be continued for
mutual agreement especially in SAFA Level. In particular,
major responsibilities of the Institute is to get international
recognition, with respect to professional quality and its
credibility. It is the responsibility of current and future
leadership as well management to carry out this activity
on consistent basis.
I wish once again, to place on record my sincere gratitude
for the confidence reposed on me to serve the Institute
and seek support and cooperation from member and
stakeholders to discharge my responsibilities.
I assure you to keep you abreast of activities as well as
important developments within ICAN via subsequent
issue of our Journal.

Similarly, we will initiate the process of amending NCA

Act for inserting the contemporary provisions in making
the Institute more practicable and professional for the
sake of further development of accounting profession.

Finally, on the auspicious occasion of Dashain,Tihar and

Chhat festival I wish to extend my greetings to all ICAN
members, members of Council and staff of Institutes and
their families.

Relation with the Government

Best wishes

As per the Section 11 of Nepal Chartered Accountants Act,

2053, the Functions, Duties and Authority of the Institute
is to render advice and suggestions to Government for
improvement in prevailing laws related with industry,
commerce, finance, revenue and accounting profession.
In course of implementation of this provision ICAN
already has established the practice of submitting various
suggestions with regards to different sectors like budget,

CA. Prakash Lamsal
President

AUDITING

Internal Audit:
An Effective Tool to Augment Public Financial Management

1. Background:
The main role of internal audit
is to ensure management that
official controls are being
applied in effective manner. The
role and responsibility and scope
of the internal audit depend up
on legislative mandate given to
it.

Mr. Dev Bahadur Bohara

Mr. Bohara is Committee Member of ICAN.
He can be reached at
dbohara55@gmail.com

The public sector internal auditors

are called upon to assist organizations
in improving their operations. The
public sector internal audit function
is foundation of strong public
sector governance. Most public
sector internal auditors play vital
role in their entitys accountability.
In Nepal, internal audit is being
conducted by Financial Comptroller
General Office as mandated by
Financial Procedure Act, 1999
(FPA) and Financial Procedure
Regulation, 2007 (FPR). The main
objective of internal auditing in
public and private sector is to assist
management in order to discharge
financial responsibility effectively.
Traditionally, internal auditing
was more focused on reporting
deficiencies of the management,
such as checking of documents,
counting and reporting of financial
irregularities, however, now it is
moving towards providing regular
feedback on the performance of
internal control systems. Internal
audit of the government is being
conducted by 75 District treasury

Controller Offices. These offices

cover about 4500 entities every year.
DTCO are required to conduct the
audit in trimester basis. Such audit
is conducted on the basis Financial
Procedure Rules and Internal Audit
Directives promulgated by FCGO
for the internal auditors

2. Role of Internal Audit:

Internal auditing has become a
factor of the new accountability and
control era. The main role of internal
audit is to ensure management
that official controls are being
applied in effective manner. The
role and responsibility and scope
of the internal audit depend up on
legislative mandate given to it.
Particularly in in our country the
importance of internal auditing is
being felt due to various factors such
as:

Increased volume of government

budget and its implementation
complexities.

Strengthen the internal control

function of the government.
Timely correction of mistake
occurred in financial transaction.

The Nepal Chartered Accountant

September 2015

AUDITING

Huge amount of irregularities identified by external

audit.

The financial statement gives true and fair view of

transaction, and

Support external audit to focus on result based or

performance audit.

The internal control is effective etc.

Helping timely preparation of financial statements of

government entities.

Use of external resources and imposition of

conditionality by fund providers.
In present day the role of internal audit is not
confined to check the arithmetical accuracy of
financial statement and legal compliance of financial
transactions but also it can check the accountability
aspects in use of public finds by the public authorities.

3. History of Internal Audit in Nepal:

In public sector, internal audit got recognized in 1976
with the implementation of Account Strengthening Project
which was initiated to make it effective. Furthermore, it is
strengthened with the establishment of 75 District Treasury
Controller Office (DTCO) in 1982 across the country and
mandated to carry out the internal audit of Appropriation,
Revenue and Deposit of government office. The existing
Financial Procedure Act (FPA), 1999 authorizes FCGO
to conduct the internal audit of government offices across
the country. The FPA and Rule of 96 Financial Procedure
Regulations, 2007 states that the responsible offices are
required to ensure the areas as stated in FPR with regard
to financial transactions. In line with the same DTCOs
undertake internal audit by focusing the areas applying the
process prescribed in Internal Audit Directives of FCGO to
confirm whether or not
The accounting of income and expenditure of the
office have been made as determined by laws,

The financial resources are used economic, efficient

and effective manner,

The achievements have been made as per the

approved annual program,

The Nepal Chartered Accountant

September 2015

The extant legislation provides very broad term of

reference for internal audit. No restriction is imposed
by legislation on internal audit. If we look at the
Financial Procedure Rules it imposes responsibilities
on the competent authority that sanctions or spends the
government fund by considering the matters from the
viewpoint of regularity, economy, efficiency, effectiveness
and propriety. For this purpose the Rule (45) of Financial
Procedure Rules has specified 19 points to be followed
while spending the government funds. Some of the main
points to be examined are as follows:
The amounts approved under different heads and
Sub-heads to be expended for the service and works
pursuant to the yearly Appropriation Act have been
expended for that very purpose within the limit
approved for those service and works.

Financial transactions are in accordance with the

prevailing law and items of income and expenditure
are supported with evidence

The organization, management as well as job

description of the Office is ample and proper, and
business is being operated accordingly.

No work is being performed by different employees

or bodies leading to unnecessary duplication nor is
necessary work omitted to be performed.

Available resources, means and properties are

being utilized properly, and proper arrangement for
maintenance and protection is made in a manner to
prevent them from loss and damage.

This means the competent authority is responsible to

establish system and practices to provide reasonable
assurance about proper use of public funds. The internal
audit has to check the compliance of the provision.

AUDITING

4. Key Areas of Internal Audit Activity

DTCOs the process is depicted in the matrix below.

The key areas of internal audit activities are as

follows:

Analysis and verification of above activities covers

entire financial management of an entity. These activities
are also specified by the Financial Procedure Rules to be
considered while conducting the internal audit but the
compliance with these activities by the internal auditors
is not reflected from the audit working papers.

5. Performance of Internal Audit Work:

Based on the stipulation of the Financial Procedure
Rules, 2007 generally internal audit is conducted on
trimester basis but it depends on the availability of
auditors and volume of transaction of the entity. Mostly
Internal audit is performed at entitys offices where
books of accounts and records are kept. As suggested
in the Internal Audit Directives and as practiced by the

In case of audit steps mentioned in the matrix above,

with some exceptions the step wise records of the same
are rarely maintained in documentary form. There is no
practice of maintaining the audit files of audited entities.
However, copies of internal audit report and attested
financial statements of audited entities are kept by DTCOs.
In general, it took 3-15 days to complete the entire audit
process although it depends on the volume of budget,
accounting and condition of documentation in the entity.

6. Effectiveness of Internal Audit:

The role of internal auditing has evolved from an
administrative procedure with a focus on compliance, to
an important element of good governance. In many cases
the existence of internal auditing is mandatory. Institute
of Internal Auditors (IIA) has identified nine elements
to measure the effectiveness of internal audit. Attempts

The Nepal Chartered Accountant

September 2015

AUDITING

have been made to see to what extent we meet the criteria

of IIA and present situation of internal audit which has
been discussed in the subsequent paragraphs.
6.1 Organizational Independence
Characteristic: Organizational independence allows
the audit activity to be conducted or be perceived
to be conducted without interference by the entity
under audit.
Current Situation: The FCGO is a central level
controlling entity of the government however the task
of internal audit entrusted which is not independent
legally and administratively. The personnel involved
to maintain account and conducting audit are of same
civil service group. These are the case of conflict of
interest which violate the principle of independence.
In the absence of independence it has been unable to
provide value added services in financial management
due visible and invisible from concerned government
officials.
6.2 A Formal Mandate
Characteristics: The audit activitys powers and
duties should be established by the public sectors
constitution, charter, or other basic legal document.
Among other topics, this document would address
procedures and requirements of reporting and the
obligation of the audited entity to collaborate with
the auditor.
Current situation: Pursuant to Financial Procedure
Act, 1999 and Financial Procedure Rules, 2007 there
is clarity in audit mandate for internal audit which
is to large extent similar to Office of the Auditor
General (OAG). The FCGO has yet to perform the
task of internal audit to meet the requirement as
stipulated in its mandate. But the legislation is silent
about how internal audit is to be undertaken or how
the function is to be organized.

10

The Nepal Chartered Accountant

September 2015

6.3 Unrestricted Access

Characteristics: Audits should be conducted with
complete unrestricted access to employees, property,
and records as appropriate for the performance of
audit activities.
Current Situation: The extant legislation particularly
Financial Procedure Act, 1997 and Rules thereon are
silent about the access to records or information to
FCGO in undertaking the internal audit. Nevertheless
the entities to be audited are made responsible to
submit required documents to the internal auditors
for performing the audit. In practice no issues
have been raised by FCGO or District treasury and
Controller Office (DTCO) where the entities have
denied submitting the documents for internal audit
purposes. However, the internal auditor does not
have power to conduct the audit of taxpayers file.
6.4 Sufficient Funding
Characteristics: The audit activity must have
sufficient funding relative to the size of its audit
responsibilities. This important element should not
be left under the control of the organization being
audited, because the budget impacts the audit
activitys capacity to perform its responsibilities.
Current Situation: In case of budget requirements,
the FCGO has also to follow the same procedure
which applies to other government establishments.
The Ministry of Finance (MOF) fixes budget
ceiling based on the advice of NPC to FCGO for
its operation. No separate budget is earmarked for
internal audits only. The initiation of budgetary
process should be routed through National planning
Commission (NPC) and MOF. Since FCGO is the
arm of MOF hence it is presumed that the budget
would have been allocated based on its requirements
but may be inadequate. There no dispute with MOF
on inadequacy of appropriation of budget to FCGO.

AUDITING

The absence of practice of formulating the budget

by determining the cost of internal audit may be the
reason behind this.
6.5 Competent Leadership
Characteristics: The leader should be knowledgeable
of applicable audit standards, professionally qualified
preferably certified and competent to oversee and
manage an audit activity. Moreover, the Chief Audit
Executive (CAE) should be an articulate public
spokesperson for the audit activity.
Current Situation: As per the organogram of FCGO
Internal Audit Section which is headed by Under
Secretary level staff at the Head Quarter whereas
in DTCOs Accounts Officers lead the internal audit
Section/Unit. Heads of the internal audit Section/
Unit are designated on the basis of the post rather
than the qualification or skill. It is worth to note that
the leadership must display personal qualities such as
insight to identify major issues, ability to command
respect and gain cooperation, constructive and
innovative approach etc. to demonstrate the effective
leadership. In the absence of specific qualification or
skill for conducting internal audit naturally there will
be lack of tone from the top for proper conduct of
internal audit. In practice, audit is not the primary
responsibility of the chief of DTCO.
6.6 Objective Staff
Characteristic: Audit staff must have impartial
attitudes and avoid any conflict of interest.
Current Situation: There is risk of non-application of
impartial attitude and situation of conflict of interest
to conduct internal audit among the internal auditors.
The reason behind this situation is due to deputing
the staffs with dual responsibility of accounts
keeping and conducting the internal audit by the
same staff. In such situation there is possibility of
biasness in conducting the internal audit of books of

accounts that are maintained by the colleagues. The

job description of staff also does not mention the
nature of task to be performed rather than it mentions
the list of task of a particular post. This has impacted
the objectiveness of staff.
6.7 Competent Staff
Characteristic: The audit activity needs a professional
staff that collectively has the necessary qualifications
and competencies to conduct the full range of audits
required by the mandate. Auditors must comply with
minimum education requirements established by their
relevant professional organizations and Standards.
Current Situation: It is said that no audit can be better
than who conducts it. Therefore the credibility of
internal audit depends upon the competence of those
performing the work. It is therefore,for the efficiency
and effectiveness of internal auditmanagement the
auditors should have desired level of knowledge
and skill to perform the task effectively. There is
shortage of adequate trained and skilled staff to
carry out the task of internal audit in FCGO. So
far as the professional qualification in accounting
profession (CA, CPA, ACCA etc.) is concerned
there is not a single staff in the contingent of about
4500 various levels of accountants in FCGO. There
is neither any specific criterion for deputing the
staff for internal audit nor any specific knowledge
or skill is required to perform that task effectively.
The designation or level is sufficient for deputing
the staff to undertake the internal audit. The Auditor
Generals Annual reports have also highlighted the
requirement of competent staff in carrying out the
internal audit function in professional manner.
There are least opportunities available in- house
and/or international training to every level of staff
in FCGO. The staff deputed for internal audit
hardly could get any audit related training. Lack
of capacity building activities within or outside

The Nepal Chartered Accountant

September 2015

11

AUDITING

the organization, non-selection of staff based on

the qualification required for proper conduct of
internal audit appears to be few reasons behind this
situation.
6.8 Stakeholders Support
Characteristics: The legitimacy of the audit activity and
its mission should be understood and supported by a
broad range of elected and appointed public sector
officials, as well as by the media and involved citizens.
Current Situation: In PFM system the top management,
appointed authorities and other stakeholders have
yet to recognize internal audit as aid to management.
Internal audit can be used as a tool controlling the
potential risk in financial operations of entities in
timely manner but this is rarely happening. Even
the internal audit reports are neither responded by
the management nor taken seriously. The remedial
actions on the recommendation are rarely taken on
such reports. Similarly, observations are perceived
as criticism to the management and not taken in a
positive way. However, publication of report and
involvement of media is also lacking.
6.9 Professional Audit Standards
Characteristics: Professional audit standards, such as
the International Professional Practices Framework
(IPPF) promulgated by The IIA, support the
implementation of the previous elements and provide
a framework to promote quality audit work that is
systematic, objective, and based on evidence. Audit
activities should conduct their work in accordance
with recognized standards.
Current Situation: In modern days the audit should be
conducted on the basis of Standards Guides, Practice
Statements etc. pronounced by the standards setting
national and international bodies. In the absence of
standards/operating manual, guides, the situation

12

The Nepal Chartered Accountant

September 2015

emerges when two persons are doing the same

job in different ways. To overcome this situation
Auditing Standard/Guides/Manuals become a useful
instrument for better work performance. In our
case, we are conducting internal audit merely on the
basis of Internal Audit Directive issued for the first
time in 2055 (BS) and updated in 2068 for second
time. This Directive is also not comprehensive
for proper conduct of internal audit in recognized
and professional manner meeting the spirit of the
legislation. Internal auditors are also not adequately
trained. In the absence of internal audit standards and
guides, risk based approach has not been adopted;
planning the audit is remained only in the directives,
supervision and quality control procedures are not
followed. Thus, it is difficult to maintain the quality
and credibility of the internal audit conducted.
Hence, this is the area where we have to focus
more on developing the auditing standards and
guides to enhance the quality of internal audit. Such
arrangement can only contribute or adding value to
management of audited entity.
In the above back drop there are many areas where we
need improvements in the internal audit by initiating
appropriate legal and administrative measures to add
value in PFM system.

7. Evaluating the Internal Audit

The Auditing Standards for external auditors suggest
evaluating the work of internal auditor to determine
the risk of misstatement. In the internal audit planning
documents information such as the objectives and
functions of entity to be audited should be mentioned.
The audit objectives, scope of audit and limitation need
to be identified in audit planning document. The criteria
applied in performing audit and the evidence gathered by
the internal auditor including materiality considerations
applied for evaluating the audit findings should be
documented in the audit file. Similarly, there should

AUDITING

be logical links between the findings, conclusion and

recommendation. The supervision and quality assurance
procedure should be applied to ensure that the audit
work met appropriate performance standard. However,
the performance standard has not been determined and
audit files are not maintained by DTCOs, it is difficult
to evaluate the entire process of performance of internal
audit. Hence individual audit files are required to be
maintained to ensure the entire process of performing
internal audit.

control is the primary response to risks. Due to effective

internal audit the reliance on financial statements will
be enhanced in terms of ensuring compliance and its
accuracy.

8. Main Challenges Internal Audit:

Like other developing countries Nepal is also facing

similar identical challenges faced by others. Some of the
major challenges in the field of internal audit of public
sector can be listed as:
Inadequate Legislation- lack of Independence to
internal audit, Limitation on the scope of audit,
access to information etc.

Lack of Internal Auditing Standards and Auditing

Guides,
Lack of Resources (Physical, Human Resources,
Information Technological system etc.), and

Non- responsiveness of audited entities towards

internal audit reports.
The challenges listed above deserve to be mitigated
strategically to establish internal audit as important tool
of improving public financial management systems.

9. Taking Advantage of coordination and

cooperation between SAI and Internal
Audit:
We know that audit starts when accounting ends. Internal
auditors can be a valuable advisory resource on internal
control, but the internal auditor should not be a substitute
for a strong internal control system. A system of internal

INTOSAI GOV 9150 Coordination and cooperation

between SAIs and Internal Auditor in the Public Sector
has mentioned a range of benefits may be obtained from
coordination and cooperation between SAIs and internal
auditors, including:
An exchange of ideas and knowledge;

Strengthening their mutual ability to promote

good governance and accountability practices,
and enhancing management understanding of the
importance of internal control;

Promoting a clear understanding of respective audit

roles and requirements,

Better informed dialogue on the risks facing the

organization leading to a more focused audit and,
consequently, more useful recommendations,
Better understanding by both parties of the results
arising from each others work which may have an
impact on their respective future work plans and
programs;
Better coordinated internal and external audit
activity resulting from coordinated planning and
communication,

Refined audit scope for SAIs and internal auditors;

Reducing the likelihood of unnecessary duplication

of audit work (economy);

Minimizing disruption to the audited entity;

Improving and maximizing audit coverage based

on risk assessments and identified significant risks;
and
Mutual support on audit recommendations which
may enhance the effectiveness of audit services.

The Nepal Chartered Accountant

September 2015

13

Considering this fact no additional resources shall be used

to SAI for assessing the internal control mechanism of
entities. Some of the areas where SAI can take advantages
of internal auditing which can be:

To take the advantage of the above issues initiation should

be taken from both side for coordination and cooperation.
In the present context, FCGO has to come forward to
seek the support from national auditor to establish the
credibility of internal audit.

many constraints and challenges which internal audit is

facing but the main impediments of internal audit are lack
of skilled manpower and functional tools (standards and
practice guides). The number of staff available appears
sufficient compared to OAGN but audit knowledge and
skill is the main constraints. The available staff with
different qualifications are performing internal audit and
most of them do not have sufficient training in audit.
In terms of number of staff available with various level
are engaged in internal audit function which appears to
be sufficient in commensurate to the size of the public
sector however it may have difficulty in meeting the
requirement of the legislation for internal audit. The
most important weakness in internal audit is the noncompliance of the internationally accepted auditing
principles. Planning the audit, adoption of risk based
audit approach, proper supervision and quality control
and documentation are the primary requirement of each
audit. However, internal audit conducted in public sector
it requires massive improvement to maintain the quality
of audit. In this context, internal audit has to perform as
junior doctor and final audit as specialist doctor in making
financial operations of the country lawful, transparent
and accountable.

10. Conclusion

References:

In audit profession internal audit is in the front line

activity of government entity and its effectiveness is
critical in public financial management. Internal audit
can contribute by identifying and communicating the
operational deficiencies of the entity and recommend
the management to initiate timely corrective action to
address the errors and deficiencies in accounting and
financial operations which eventually help preparing
financial statements timely and accurately. So far as the
internal audit mandate is concerned it appears sufficient
and about 700 staff is also available for conducting
internal audit and clear mandate to conduct the audit
are some positive aspects for FCGO. Presently,there are

Financial Procedure Act, 1999 and Financial Procedure

Rules 2007,

SAIs can focus their effort more in performance

based audit rather in compliance audit,

Expression of Audit Opinion on Consolidated

Financial Statement can be efficient,

Compliance audit can be jointly conducted by SAI

and internal auditor or conducted in the supervision
of SAI or be designated to Internal Audit,

Review of action taken by management in internal

audit report which can help external auditor to assess
significant issue for detail review and

14

SAI may get better understanding about the internal

control mechanism of government entities on the
basis of Internal Audit Report.

The Nepal Chartered Accountant

September 2015

INTOSAI GOV 9150, INTOSAI GOV 9140 and

INTOSAI GOV,
Nine Elements Required for Internal Audit Effectiveness
in Public Sector, A Global Assessment Based on the IIAs
2010 Global Internal Audit Survey, (Research Report),
Auditor Generals Annual Reports,

AUDITING

Emerging Concepts of Public Sector Auditing

Introduction
In general, public-sector audits
can be categorised into three
main types: financial statements
audit, compliance audit and
performance audit. However,
many audit approaches have
been developed to supplement
those main categories audits.
New audit approaches such as
IT audit, environmental audit,
concurrent audit, risk-based
audit, integral audit, social audit
etc. have been promulgated.

Mr. Iswar Raj Shrestha

Mr. Shrestha is Former Deputy Auditor
General of Nepal. He can be reached at
iswarraj@yahoo.com

Governments have major roles in

maintaining governance system
and promoting the welfare of
people. Good governance and
accountability have been prime
concerns of all democratic
governments.
Public
entities
are engaged to implement the
policies and programmes of the
governments. While implementing
public policies and programmes,
public officials exercise the
conferred powers, authorities and
responsibilities remaining within
prevailing laws, standards and
directives. Transparency, financial
discipline
and
accountability
are sought in every public fiscal
affair.
Supreme Audit Institutions (SAIs)
are constituted as an independent
oversight bodies to carry out the
audit of governments financial
transactions and performances.
The nature of institutional structure
of SAIs and scope of audits to be
carried out by these institutions
may vary in accordance with the
constitutional provisions of specific

country. Government auditing has

been accepted as a cornerstone
for promoting the public sector
governance. Government audit
provides the basis for an independent
assessment of governments policy
reforms and corrective actions
of governance system. Auditors
are supposed to report on noncompliance, misuse, inefficiencies
and ineffectiveness in use of public
resources.
As per Nepalese constitution,
the Office of the Auditor General
(OAG)
is
an
independent
constitutional body that has the
mandate for carrying out the final
audit of all government offices and
state-owned enterprises. Auditor
Generals (AG) reports has been
taken as a basis for ensuring the
prudent use and stewardship of
public resources by its stakeholders
including the parliamentarian, civil
society, media, developing partners
and other oversight bodies. This
article highlights on the emerging
concept of public sector auditing
along with the developments in
Nepal.

The Nepal Chartered Accountant

September 2015

15

AUDITING

Mandate
SAIs are empowered with necessary mandates, normally
with the constitutional mandate, to ensure sufficient
independency and power of discretion in carrying out
public sector audits. As per international practices,
SAIs are mandated to carry out financial, compliance,
performance audits and other engagements. The
mandates of SAIs define their general responsibilities
in the field of public-sector auditing and provide
further prescriptions concerning the audits and other
engagements to be performed. They are normally
empowered to report unauthorized expenditures, waste
of public resources, non-compliance of existing statutes,
violation of financial procedures resulting misuse or
loss of public funds.
The organizational structures of SAIs may differ along
with their legal mandates. SAIs may be mandated to
perform various types of audit engagements according to
the legislated mandates and organization independency.
SAIs may be an institution headed by a single person (Westminister Model), or a Commission or Board (Collegiate
Model), or a court or tribunal (Judicial Model). The single
person model is also popular in two forms-i.e. Auditor
General and Comptroller & Auditor General. The post
of Auditor General is found in countries- Nepal, China,
Pakistan; whereas the post of Comptroller and Auditor
General is practiced in the countries India, Bangladesh,
United Kingdom. In collegiate model, SAIs are headed
by a group or team of persons instead of a single person.
Collegiate models have existed in countries like- Japan,
Korea, and Philippines etc. In court model, SAIs are
composed of judges and empowered to take decision on
irregularities and financial implications, which is popular
in European countries- Netherlands, Spain, Belgium etc.
In all above forms, SAIs are generally made independent
to reports on their audit findings.
In Nepal, the Interim Constitution of Nepal 2063 (2007)
has provisioned the post of Auditor General (AG) as a

16

The Nepal Chartered Accountant

September 2015

constitutional body along with the functions, powers and

duties of AG. As per the provisions of the constitution, the
AG is appointed by the president on the recommendation
of constitutional council. The AG in empowered to
conduct audit of the accounts of all courts, government
offices including constitutional bodies, parliament,
security organizations on the basis of regularity,
economy, efficiency, effectiveness and propriety thereof.
The AG is to be consulted while appointing of auditors
in corporate body that the government owned more than
50 percent of shares or assets. The AG and his assistants
have access to any public document. However, AG has
limited autonomy in mobilization of financial and human
resources as such issues are subject to review and scrutiny
under government departments. The annual report of AG
is submitted to the President and the President through the
Prime minister put such report to Legislative- Parliament,
which is discussed in Public Accounts Committee of
the parliament. The AGs annual report is regarded
as a credible document for parliamentarian, citizens,
developing partners, media etc.

Role of Auditing
SAIs play significant role in promoting public sector
accountability and transparency. SAIs audits provide with
information and independent and objective assessments
concerning the performance of government policies,
programmes or operations. SAIs provide the basis of
credibility and objectivity through the use of specialized
expertise knowledge on government business, use of
commonly accepted international professional audit
standards and procedures, and unbiased report on public
affairs. SAIs serve as important pillars of their national
democratic systems and governance mechanisms and
play an important role in enhancing public-sector
governance by emphasising the principles of transparency,
accountability, governance and performance. By
conducting independent assessments of the management
of public resources and its performances, the SAIs

AUDITING

help public sector organizations to achieve accounting

integrity, improve operations, and build up confidence
among citizens and stakeholders.
The role to be played by a SAI is determined by various
factors. It varies country to country as per political,
social and economic situation. The role to be played
by a SAI may also depend upon the conditions such as
the statutory mandate, organizational independence,
access to information, budgetary supports by executive,
cooperation of various stakeholders etc. The role is also
influenced by the intrinsic factors within a SAI like: the
organizational leadership, competency of audit staffs,
audit standard and guide being followed, audit quality
review system etc.
In public sector governance system, the role of public
sector auditing can primarily be divided into three
major roles namely-oversight, insight and foresight as
described under:
Oversight role is related to making an assessment of
accountability in public organizations. Oversight role
addresses whether public sector entities are doing
what they are supposed to do and assists to detect noncompliance with laws and standards, irregularities
and malpractices in financial performance. This role
also includes detecting and deterring or reducing
public corruption and misuse of power and resources
entrusted to government authorities.
Insight role is concerned to making an
independent
assessment
of
government
programs, policies, operations and results and
contributing to enhancing the operations of a
government. Audit provides insight views to
decision makers the implementation aspects of
policies and programmes and assist in sharing
benchmarking information. Audit activity helps
in institutionalizing organizational learning by
providing ongoing feedback to adjust policies.

Foresight role relates to identifying and

recommending the trends and emerging challenges.
Auditors help organizations in looking forward by
identifying risks, challenges and opportunities arising
out of the changing various demographic, social,
economic and political situations. By focussing on
risks, the audit provides public officials the foresight
views on trends and challenges and helps in making
decisions on future course of actions.

Government auditors use different audit tools and other

services to accomplish each of the above roles. SAIs
role have been changing along with the changes in the
thrust of public governance and development. Many
new issues such as environmental degradation, poverty
& hunger, social conflict & injustice, have emerged
as a threat to developments. Being an integral part of
public governance, SAIs have attempted to address on
the emerging trends and the global challenges and the
recommendations on how they could be resolved.

Audit Objectives
The primary objective of financial audit is to obtain
reasonable assurance about whether financial statements
are free from material misstatement due to fraud or error
and express an opinion on the true and fairness of financial
statements. In public sector, mostly in developing
countries issues like: waste of resources, frauds and
corruptions in use resources are apparent, people seek
assurance from the auditors for prudent use of public
resources. Government auditors are supposed to report
on the non-compliance with legislation in the exercise of
powers by the public authorities and the usefulness and
effectiveness in use of public resources.
The objectives of public-sector audit may differ
depending on the type of audit to be conducted i.e.
financial, compliance and performance. Traditionally,
SAIs have the primary role in preventing and detecting
corruption as the administrative authorities and/or an

The Nepal Chartered Accountant

September 2015

17

AUDITING

anticorruption agencies. General public still believe that

SAIs have major role in detecting fraud and corruption.
Legislators and stakeholders have more concerns about
the matters related to fraud and corruptions. However,
detecting fraud and corruption is not a prime objective
of SAIs financial audit. Nevertheless, SAIs, on the basis
of audit examination, play important role in identifying
and preventing the cases of fraud and corruption by
highlighting risk areas for which further investigations
are necessary.
The basic objective of public sector auditing is to ensure
that whether the accounts and financial statements of
public entities are appropriately prepared and financial
operations are operated complying with the government
standards, laws & rules. SAIs provide the basis of the
assurance that public funds are properly utilized for the
benefits of people. With the growing public concerns on
the utilization of public resources, public-sector auditing
should provide the information and independent and
objective assessments concerning the stewardship and
performance of government policies, programmes or
operations. They must contribute to governance system
by providing independent and reliable information,
conclusions or opinions based on sufficient and appropriate
evidence relating to public entities emphasising the
principles of transparency, accountability, and ethical
behaviour.

Auditing Standards
The International Organization of Supreme Audit
Institutions (INTOSAI), was founded in 1953 as an
umbrella organization of SAIs along with 34 SAIs.
At present, it has 192 full members and 5 associated
members. The INTOSAI is an autonomous, independent
and non-political organisation with special consultative
status with the Economic and Social Council (ECOSOC)
of the United Nations. It provides an institutionalised
framework for SAIs to promote development and transfer
of knowledge, improve government auditing worldwide

18

The Nepal Chartered Accountant

September 2015

and enhance professional capacities of member SAIs

in their respective countries. The INTOSAI has seven
regional working groups namely- Organization of Latin
American and Caribbean SAIs (OLACEFS) , African
Organization of SAIs (AFROSAI), Arab Organization
of SAIs (ARABOSAI), Asian Organization of SAIs
(ASOSAI), Pacific Association of SAIs (PASAI),
Caribbean Organization of SAIs (CAROSAI), and
European Organization of SAIs (EUROSAI).
The INTOSAI has been taking initiative to develop and
promote the globally accepted auditing standards in
public sector. In this respect, the INTOSAI has presently
developed audit standards in line with the International
Standards on Auditing (ISAs) issued by the International
Federation of Accountants (IFAC). The ISAs constitute
an indivisible set of standards for the ISSAIs. SAIs have
options to choose a single standard-setting document, a
series of such documents or a combination of standardsetting and other authoritative documents. SAIs should
declare auditing standards they apply when conducting
audits. They should make such declarations in audit
reports.
INTOSAIs Framework of Professional Standards
has four levels. Level 1 contains the frameworks
founding principles. Level 2 (ISSAIs 10-99) has set
out the prerequisites for the proper functioning and
professional conduct of SAIs in terms of organisational
considerations that include independence, transparency
and accountability, ethics and quality control. Levels
3 and 4 address the conduct of individual audits and
include generally-recognised professional principles
that underpin the effective and independent auditing of
public-sector entities.
The Fundamental Auditing Principles at level 3 (ISSAIs
100-999) draw and elaborate on ISSAI 1 The Lima
Declaration and the ISSAIs at level 2 and provide
an authoritative international frame of reference

AUDITING

defining public-sector auditing. Level 4 translates the

Fundamental Auditing Principles into more specific
and detailed operational guidelines that can be used
in conducting audit. This level comprises General
Auditing Guidelines (ISSAIs 1000-4999) which set the
requirements for financial, performance and compliance
auditing. SAIs may choose to adopt the General Auditing
Guidelines as their authoritative standards. In such cases
the auditor must comply with all ISSAIs relevant to the
audit.
OAG/N has been working to develop and update its
auditing standards and guidelines in line with international
auditing standards. Many auditing standards and sectorial
audit guides have been promulgated and implemented
to facilitate and streamline audit works of specific area.
Currently, OAGN has initiated to develop and implement
its audit standards in compliance with ISSAIs.

Audit Strategy and Methodology

The expansion of government activities and growth in
the interest of civil society has posed new challenges in
public sector auditing. In view of this situations, SAIs
have initiated the work to reform their audit strategies
and audit procedures. The SAIs of many countries have
promulgated strategic plans and audit guides to direct
their audits to specific direction. In general, public-sector
audits can be categorised into three main types: financial
statements audit, compliance audit and performance
audit. However, many audit approaches have been
developed to supplement those main categories audits.
New audit approaches such as IT audit, environmental
audit, concurrent audit, risk-based audit, integral audit,
social audit etc. have been promulgated. Financial audit,
compliance audit and performance audit have been carried
out along with application of various auditing tools and
approaches. Audit quality improvement has been a prime
agenda for the SAIs. Quality assurance and peer reviews
of audits works are conducted within and outside audit
institutions.

To ensure the proper utilization of public funds, SAIs have

started to collaborate with civil society organizations in
course of the audit. For example, India has started to use
public hearing forum to conduct the social audit of local
government expenditure. In South Korea, the Board of
Audit and Inspection (BAI) has introduced the national
citizen audit request system to allow citizen in the special
audit from the BAI on public agencies suspected of
corruption or irregularity. National Commission on Audit
of Philippines has a partnership with NGOs to conduct
the participatory audits or particular performance audit of
the government projects and programs.
In Nepal, OAGN has also prepared strategic plan to define
its future strategy. Risk-based audit approach, concurrent
audit, IT audit are being carried out to supplement its
main audit procedures. To assess the outcomes of public
spending in projects and programmes properly, the inputs
of civil society and beneficiaries are taken in course of
performance audits.

Conclusion
Public sector auditing has been contributing to governance
system of countries through promoting accountability and
transparency. SAIs, as oversight agencies, have pivotal
role in highlighting the non-compliance and misconduct
of public funds and contributing for the stewardship public
resources. In view of the needs of time, the role of SAIs
which was originated as guardian of compliance with
laws and regulations should be transformed into partners
role to contribute in its their governance system. The
insight and foresight roles of SAIs should be enhanced.
SAIs should have envisaged visions and strategies for
streamlining the future audit policies and focus areas.
To address the concerns of the stakeholders and people
at large, SAIs should give attention in enhancing the
professional competency the auditors and adopting new
audit approaches and techniques.

The Nepal Chartered Accountant

September 2015

19

BANKING

Basel III: A Global Capital Regulatory Framework

Nepal Rastra Bank has brought a

plan of Basel III implementation
by mid of 2015. It starts with
transitional period with different
stages and different measures.
Existing practice of Basel II will
have significant impact on capital
requirements
and
liquidity
management. It is a challenge to
maintain minimum requirements
to Nepalese banking industry.

CA. Mukunda Subedi

CA. Subedi is Member of ICAN.
He can be reached at
mukunda.subedi@prabhubank.com

20

The Nepal Chartered Accountant

Basel Committee on Banking

Supervisions (BCBS) has brought
into implementation a new capital
framework Basel III: A Global
Regulatory Framework for more
Resilient Bank and Banking
systems in December 2010.
Basel III is the enhanced version
of Basel II Capital Accord. With
the realization of cause and impact

of global economic and financial

crisis 2007 on banking sector,
the Basel III framework has been
developed to protect banks from
such crisis in future. It is developed
to make banking system strong
commensurate with the economic
condition and enhancing the
shock absorbing capacity from the
financial and economic crisis. Its a
global voluntary regulatory standard
on measuring capital adequacy,
enhanced supervisory review and
enhanced market discipline with
micro prudential measurement.

September 2015

Basel III has taken following basic

identical features:

Qualitative Capital Maintenance

Introduction
of
Conservation Buffer

Capital

Introduction
of
Cyclical Buffer

Counter

Minimum Common Equity and

Tier 1 Capital

Leverage Measurement

Liquidity Funding both Short

Term and Long Term

Micro Prudential Regulation

Rigorous
Credit
Management

Risk

High Risk Exposures on Trading

and Derivatives Assets

Basel III has taken key objectives

on strengthening Basel pillars
with
enhanced
measurements

BANKING

on minimum capital, supervisory review and market

disclosures. It aims to have safe and sound financial
system with reduced probability of banking crisis,
strengthen financial system through micro prudential
measures, adopt international best practices, create
public confidence and ultimately safeguard public
interest. Three pillars are continued as like Basel II but
the scopes under each pillar are enhanced with strong
supervisory control.
Capital requirement ratios are increased with additional
requirements of Basel II. The minimum capital
requirements and the transitional period of implementation
are as below:
Capital\Year

2013 2014 2015 2016 2017 2018 2019

Minimum Common Equity Capital Ratio

3.5
(% of RWA)

4.5

Minimum Conservation Buffer

(% of RWA)

4.5

4.5

4.5

4.5

0.625 1.25 1.875 2.5

Minimum Common Equity Capital plus

Conservation Buffer (% of RWA)

3.5

Minimum Tier 1 Capital

4.5

5.5

Minimum Total Capital (% of RWA)

Minimum Total Capital plus

Conservation Buffer (% of RWA)

Minimum Counter Cyclical Buffer

Total Capital Ratio with Buffers

4.5 5.125 5.75 6.375

8.625 9.25 9.875 10.5

Range Between 0 - 2.5%

13%

Minimum Capital Requirements

The framework has incorporated various new measures
for making qualitative capital compositions and strengths.
Tier 1 capital has been divided to Minimum Common
Equity Capital and Minimum Tier 1 Capital. Banks have
to maintain both ratios as regulatory requirements. Tier 1
Capital has to meet at least 6% and out of that, Minimum
Common Equity Capital must be at least 4.5%. Minimum
Total Capital has to be at least 8% for regulatory
requirements but it would not be sufficient. There are
lots supervisory adjustments on capital adjustment.
Bank has to maintain at least 10.5% capital adequacy
ratio with capital conservation buffer. In addition to that,

it needs to maintain Capital Maintenance for Counter

Cyclical Buffer for addressing business growth and micro
prudential measurement. Thus the total capital adequacy
ratio with conservation and counter cyclical buffer shall
be minimum 13%. These requirements are significantly
higher than Basel II.

Capital Conservation Buffer

It is a new measure introduced in Basel III. Bank intending
to distribute return to its shareholders has to maintain
minimum capital conservation buffer at least 2.5% in
addition to the minimum capital requirements. Thus
total 10.5% capital need to be maintained for distributing
dividend. It has intended to control on dividend
distribution, share buybacks, bonus payments to senior
management even though maintaining minimum capital
ratio. The capital conservation buffer becomes effective
from 1st January 2016 and will be on full swing from 1st
January 2019. It begins from 0.625% of RWAs on 1st
January 2016 and increases in each year by additional
0.625% up to 2.5% of RWAs on 1 January 2019. This
measure builds up the prudent earnings retention as
conservation buffer. It controls the prevalent practices of
distributing profits maintaining marginal capital.

Counter Cyclical Buffer

Counter cyclical buffer aims controlling the excess credit
growth and other macro prudential environmental control
within the organization. It is taken as a protection of bank
from systematic risk of future economic imbalances and
uncontrolled growth. The buffer measurement is hard to
determine and assess. The relation of credit, GDP and other
local level judgmental factors are taken into consideration
while determining the counter cyclical buffer. It is a
supervisory adjustment to be applied when the credit
growth leads to make systemic risk. Buffer ranges from
0 to 2.5% of risk weighted assets for common equity Tier
1 capital. In case capital falls below the buffer range, it
is restricted to distribute bonus, dividend distribution and
share buy-back.

The Nepal Chartered Accountant

September 2015

21

BANKING

Systematic Risk and Interconnectedness

It is a counter party risk and systematic risk assessment
of the financial/economic sector. It has higher capital
charge for financial derivatives, inter-financial exposures
and systematic risk. Failure of one large institution my
cause the failure of one or more of its counterparties
with chain effect on the industry. Basel III prioritizes on
close monitoring of Systematically Important Financial
Institutions (SIFIs) for analyzing the systematic impact
on banking institutions so that one problem would not
have negative impact to others through suitable control
measures. SIFIs attract additional layer of regulatory
capital requirements between 1 to 2.5% of risk weighted
assets. It believes that SIFIs are only those which have
capacity to make changes of total market and influence
the system change. Basel III has proposed to improve
the cross boarder coordination to protect banking system
even to other countries.

Liquidity Framework
Basel III has introduced liquidity framework for capital
maintenance for ensuring banking operation. Global
financial crisis taught a lesson that simply capital
regulation cannot protect bank on crisis. Liquidity and
solvency are important for smooth business operation.
Basel III has introduced two ratios for liquidity monitoring
and management:
Liquidity Coverage Ratio (LCR)
Net Stable Funding Ratio (NSFR)
Liquidity Coverage Ratio (LCR) is related with short term
management of liquid assets to protect on acute stress
in 30 days. The mechanism is to be started from 2015.
LCR is calculated dividing the Stock of High Quality
Liquid Assets by Total Net Cash Outflow over 30 days
period. LCR should be at least 100% to be sound bank on
liquidity maintenance for short period. If not, there will
be adjustments on capital measurements based upon the
regulatory standard.

22

The Nepal Chartered Accountant

September 2015

Net Stable Funding Ratio (NSFR) is used to assess the

long term liquidity assessment for a year. It is a kind
of assets and liabilities maturity mismatch assessment.
NSFR must be at least 100% for a year. It is calculated
dividing available amount of stable funding by required
amount of stable fund. The ratio shall be brought into
implementation from 2018.

Leverage Ratio

Though having adequate minimum capital requirement

ratio under Basel II, it was unable to absorb shock due
to inappropriateness on measuring risk weighted assets.
Leverage ratio is another measures introduced in Basel III
for overcoming the deficiencies of Basel II. It determines
the ratio of minimum Tier 1 Capital to Total Assets. Total
assets includes off balance sheet exposures too. Leverage
ratio must be at least 3% to meet the minimum criteria of
Basel III. Leverage ratio is used as Pillar 2 supervisory
adjustments on initial stage and converts to Pillar 1 later.
Without considering risk level, gross assets are taken into
consideration for leverage ratio maintenance on minimum
capital Tier 1. Lower the ratio, higher the leverage.

Basel III in Nepalese Context

Nepal Rastra Bank has brought a plan of Basel III
implementation by mid of 2015. It starts with transitional
period with different stages and different measures.
Existing practice of Basel II will have significant impact
on capital requirements and liquidity management. It
is a challenge to maintain minimum requirements to
Nepalese banking industry. In addition to the capital
and liquidity, Basel III makes impact on profitability
of banks and financial institutions. The requirements of
capital conservation buffer, counter cyclical buffer and
supervisory adjustments of liquidity hit the profitability. A
kind of voice is also coming that since Nepal has already
on higher side of capital requirement, Basel III may

BANKING

have less impact on additional capital requirements and

profitability. In the matter of Liquidity, since the NRB has
already controlled on liquidity through CRR and SLR,
only the provision of NSFR may give the impact on Basel
III. Risk weighted exposure of Nepalese banks will have
significantly increased with ever conservative approach
of risk weight.
OECD has stated in its research that the full
implementation of Basel III may decrease annual GDP
growth by 0.05 to 0.15% and same may be in Nepalese
context. Research has shown that return on equity may
be affected by 3 to 4% with the new provisions of Basel
III. Preparedness of banks and NRB for implementing
the Basel III is must to cope the challenges. Enhancing
staffs knowledge, organizing training program, making
essential data availability and ensuring the data integrity
are the precondition of successful implementation of
Basel III.

References:
1. Consultative
document
for
Basel
III
Implementation issued by Nepal Rastra Bank
2.

Basel III: The Liquidity Coverage Ratio and

Liquidity Risk Monitoring Tools published by
Bank for International Settlements

3.

Guidelines on Risk Based Capital Adequacy,

Revised Regulatory Capital Framework for
banks in line with Basel III, issued by Bangladesh
Bank, Central Bank of Bangladesh.

The Nepal Chartered Accountant

September 2015

23

ECONOMY

The Systemic Reform of National Pension System in India

(NPS) and Lessons for Nepal

Introduction
NPS is prudentially regulated
by the PFRDA and restriction
on fund withdrawal during
the accumulation phase to the
beneficiary, further the equity
exposure of fund is allowed at the
discretion of the beneficiary as
per their Period to retire basis for
additional investment return with
additional risk, this feature is not
incorporated by traditional EPF
(Employment Provident Fund)
and PPF (Public Provident
Fund).

CA. Yuba Raj Pandeya

CA. Pandeya is Member of ICAN.
He can be reached at
yrpassociates@gmail.com

24

The Nepal Chartered Accountant

The system of pension has started

from age of Bismarck from around
1883 AD in Germany. In Nepal,
then Prime Minister Shri 3 Chandra
Shamsher started to provide some
annual monetary relief to the
disabled armies who participated in
the First World War. Shree 3 Juddha
Shamsher on 1998\Bhadra\17 B.S
announced for pension of 1/5th of
the salary of the armies during their
lifetime. The system of pension
for civil servants was started from
1999\Mangshir\14 B.S, the amount
being 1/6th of the salary who have
completed the service period of
more than 25 years.
Pension is important component of
the terms and condition of service
in the Civil Service. As per the
Civil Service Act, Civil servants are
entitled to receive pension that is
consumerate with their rank, salary
and length of service. Generally the
pension system applicable in Nepal is
of non-contributory nature in contrast
to the contributory pension system
in the world. In most of countries,
the non-contributory system is

September 2015

changed to contributory type in later

years, although in past government
planned for contributory pension
system. Recently, the Government
in its Annual Budget of FY 207273 (2015/16) has announced for
adoption of contributory pension
system for the employees who will
join government service from the
year onwards.
An analysis of pension expenditure
of past few years shows that the
pension management and retirement
facilities expenditure is increasing
rapid trend (which is 6.19 Percent of
the total expenditure and 8.88 percent
of recurrent expenditure as per
Consolidated Financial Statement of
Government of Nepal for FY 201314). In the absence of contributory
pension fund, the financial burden
of government related to pension
has been increasing every year.
When comparing expenditure of last
three years, the pension expenditure
which figured Rs. 11 billion 540
million in 2068/69(2011/2012), has
reached to Rs. 24 billion 380 million
in 2070/71(2013/2014) with an
increase by 111.27 percent (as per

ECONOMY

52nd Annual Audit Report of Auditor General of Nepal).

The Main Features of NPS in India are:

As per analysis of the data given below, it seems that the

expenditure for retirement benefit and social security is
increasing rapidly, and a situation may arise where the
fiscal burden of the same become unmanageable.

The NPS account Permanent Retirement Account

Number (PRAN) remains the same irrespective of
change of employment or geography.

NPS is comparatively advanced in the technology it

uses. On joining NPS, each Subscriber gets log in ID
and Password of NSDL system for accessing NPS
details online.

It offers a choice of Service Providers, Funds,

Investment Options, Pension Fund Managers,
Annuity Service Provides and Annuity Plans to
Subscribers.

Budget for Retirement Benefit/Social Security

Particulars

2068/69

2069/70

2070/71

in Rs. '000
2071/72

2072/73

Retirement Benefit 14,428,799 23,974,548

27,110,150 41,004,747 47,414,965

Social Security

9,905,263

12,990,520 14,693,965 19,248,032

24,268,499 33,879,811

40,100,670 55,698,712 66,662,997

Total
% increment

9,839,700

39.60%

18.36%

38.90%

19.68%

Table : The budget allocated for Retirement Benefit and

Social Security
Currently for addressing the social security/ retirement
benefit, there are various bodies such as Pension
Management Office under Ministry of Finance, Social
Security Fund under Ministry of Labour and Employment,
Employees Provident Fund and Citizen Investment Trust
under separate Acts, and the universal pension system
implemented by Ministry of Federal Affairs and Local
Development. Due to multi- institutions and responsibility
centers, the cost is increasing rapidly year to year and
projection seems very uncertain for government ability
to pay the benefits in future. There is no regulatory body
to address for prudential regulation for retirement benefit
in Nepal.

Systemic Changes in Pension System in India

The Indian Government had introduced the National
Pension System (NPS) from 1st January, 2004 for new
entrants to Central Government service, except for the
Armed Forces. This defined Contribution scheme was
then opened to all citizens from 1st May, 2009 on a
voluntary basis. The Government constituted an interim
regulator, the Pension Fund Regulatory and Development
Authority (PFRDA).

It offers Subscribers freedom to switch the Service

Providers, Fund, Investment Option and Pension
Fund Manager.

Amount and frequency of contribution can be

changed as per the Subscriber requirement.

NPS is regulated by PFRDA, with transparent

investment norms and regular monitoring and
performance review of fund managers by NPS Trust.

Efficient grievance management through CRA /

PFRDA Website, Call Centre, Email or Postal Mail.

Investment Portfolio under each asset class can

be viewed on respective Pension Fund Managers
website.

Major Impact of NPS on Indian Pension System

NPS is prudentially regulated by the PFRDA and restriction
on fund withdrawal during the accumulation phase to the
beneficiary, further the equity exposure of fund is allowed
at the discretion of the beneficiary as per their Period to
retire basis for additional investment return with additional
risk, this feature is not incorporated by traditional EPF
(Employment Provident Fund) and PPF (Public Provident
Fund). The NPS is gaining a wide acceptance and most the
organized sector employees are in favor to switch to NPS,
although the NPS is addressing the retirement benefit of
formal sector workforce of the India.

The Nepal Chartered Accountant

September 2015

25

ECONOMY

Learning from Systemic Reform of India

The Nepals affairs are said to be mostly affected by the
Indias system. So the NPS is one of the best system to
be lesson learned by Nepal Government for scientific
and better retirement benefit management. The Annual
Budget for 2072-73 has announced for adoption of
contributory pension system for the employees joining
government service from this year onwards. This is not
the holistic systemic reform required for achievement of
socialistic Constitution. There should be holistic approach
for addressing the social security management of Nepal
which covers the universal pension system distributed to
old aged population meeting the criteria to the pension
to civil servants (including police, army and teachers)
to retirement benefit to the workforce on private and
unorganized sector.
The Auditor General of Nepal on its Annual Audit
Report has suggested for implementing the concept of
contributory pension system due to the increasing trend
of expenditure for pension, which stood 6.84 percent
of the total revenue and 8.03 percent of the recurrent
expenditure of this year and the liability which is likely
to increase further in future. There will emerge a situation
that require the government to set aside major portion
of its budget for its payments. (The 52nd Annual Audit
Report of the Auditor General of Nepal, 2071 (2015))
So keeping in view of the increasing fiscal burden, and
learning from the neighbor countries systemic reform, the
followings may be the suggestion for holistic retirement
benefit management in Nepal:

Legal infrastructure
Regulation

for

Retirement

Benefit

Single prudential regulator with strong regulating

norms

Use of technology at the optimum

Choice of Scheme, Investment/ Fund Manager,

26

The Nepal Chartered Accountant

September 2015

Restriction of fund withdrawal with criteria and

option for equity exposure

Utilization of fund of the retirement benefit plans

for long term investment such as infrastructures
development

Defined contribution type schemes with less fiscal

burden

Coverage of organized and unorganized sector

workforce

Selection and participation of Annuity Providers

as Insurance Companies Finally act as Social
Security Policy/ System covering best practices
of the Universal Pension Scheme (UPS) currently
implemented by the Government

Certain amount to be set aside from the tax paid by

the person as Social Security Tax currently set aside
for future retirement fund financing

References
1. 52nd Annual Audit Report of Auditor General of
Nepal 2071 (2015)
2. Consolidated Financial Statement of Government of
Nepal FY 2013-14
3. Pension Management Digdarshan published by
Pension Management Office of Nepal
4. Website of PFRDA of India, www.pfrda.org.in
5. Budget of Government of Nepal from FY 2068/69 to
2072/73

MANAGEMENT

Organizational Behavior
Almost Missing Module in Nepali Corporate

People are the only resources who

possess not just a body or mind;
rather they are consecrated with
emotions and the conscience
as well. As they are filled with
unlimited potentialities and
have enormous abilities to
use available resources and
identifying and tapping new
resources, there exists both
possibilities they can lead
the institution attain apogee of
success or they may destroy the
business empire.

Mr. Bhuwan R Chataut

Mr. Chataut is Lecturer at Different Colleges.
He can be reached at
bhuwan.chataut@ntc.net.np

President John F. Kennedy was

visiting NASA headquarters for the
first time, in 1961.While looking for
the facility, he introduced himself to
a janitor who was mopping the floor
and asked him what he did at NASA.
The janitor replied, Im helping put
a man on the moon!
Obviously,
the
janitor
had
understood the importance of his
contribution. He truly felt he was a
valuable part of something bigger
than himself, and his attitude created
a feeling of self-confidence in his
mission. He wasnt merely a janitor;
he was a member of the 1962 NASA
Space Team!
How can a company capture its
employees hearts and minds so
they see the link between their
own job performance and the
companys financial success? Here,
Organizational Behavior plays
the fundamental role by providing
backup to the interface between
people and management, i.e., HR.
Let us explore ahead.
Life is a mystical association of
chemicals and electrical impulse;

no electrical impulse means no

life remaining of mere mass of
chemicals. Simply, it resembles
with business organization. Here,
the electrical impulse implies the
passion and action that satisfies
customers needs and desires in
possibly best manner. And, such
passion and action lies in domain
what we call people in organization
setting.
Yes, people are the only resources
who possess not just a body or
mind; rather they are consecrated
with emotions and the conscience
as well. As they are filled with
unlimited potentialities and have
enormous abilities to use available
resources and identifying and
tapping new resources, there exists
both possibilities they can lead the
institution attain apogee of success
or they may destroy the business
empire.

Business Basics
Definitely, business starts with
exploring unmet needs and several
basic activities. We can describe
them as six Cs of business,

The Nepal Chartered Accountant

September 2015

27

MANAGEMENT

they are:
1) Creating value by knowing unmet needs and delivery,
2) Communicating the created value to prospective
customer,
3) Converting them into paying customers,
4) Commitment to provide the promised quality,
5) Confirming cash inflows and
6) Crafting rich corporate culture.
Needless to say, business exists only with customers; it
is all about creating customer by delivery of satisfaction
along with product and service. Harvard scholar Dr.
Paul Graham reveals the secret of business in concise
way - Make something people want. Theres nothing
more valuable than an unmet need that is just becoming
fixable. If you find something broken that you can
fix for a lot of people, youve found a gold mine.
Understanding customers and delivering them in right
time, at preferred place, in desired form and with
relevant information not only transfers funds within the
firm, it ensures customers loyalty by creating space in
their mind and heart.

Understanding the Four Dimensions of

Living Resources
By outer appearance an individual can be perceived as a
mere mass of blood and flesh, if so it is hallucination. A
person can have at least four dimensions. Let me reveal
them in brief one by one:
Body- It is the outermost layer of an individual. It
needs to live and survival. It demands the bodily needs.
In past, people were recognized as if they were just
the body and were used as the object and were given
food, or more up to clothing and shelter. Nonetheless,
body needs to be paid fairly as it is committed,
willing to sacrifice, hard-working and focused. Its
highest manifestation is discipline. So, it needs to be
compensated fairly.

28

The Nepal Chartered Accountant

September 2015

Mind- It is a second layer, responsible to the growth

and development. Like body needs to be paid, mind
needs to be used creatively to grow and develop. I like
here to recall line by Zarathusthra Knowledge keeps
the mind young. Here, the mind that is willing to know
and learn only could get the way for creativity, that is,
adding quality in activity; otherwise it may seek the way
to destruction. It produces the vision as it is the dreamer,
philosophical and strategic thinker.
Heart- The third layer that needs to be loved is heart. It
needs caring and sharing; on the other side it loves cares
and shares too. Once, it gets loved, it consequently knows
to love and shows belongings. So, it is responsible for the
relationships which is the key to quality work-life and
equally important to family and community. It fulfils a
person with passion and courage giving zeal, an energy
and motive to perform challenging job.
Spirit- It is the fourth layer and the first as well from
the inside. What does a person seek out of her/his job?
Generally, the most may say she/he wants to complete a
job as manager needs that to be done. Apparently it may
be true; rather the people try to find meaning out of whole
job being done. She/he gets success only after getting
the meaning upon the entire job. This success of finding
worthiness of particular job leads her or him to selfrespect and self-actualization. This layer makes a person
fair, intuitive and compassionate. It helps in finding the
right move through wisdom, integrity and intuition. It is
the realm of conscience.

Working with OB
OB is the unique field of study that systematically reviews
and applies the knowledge about how people (at individual
level, in group and in organization) and the groups act
within the organization-setting. It is unique in the sense that
it draws concepts and approaches from various disciplines
mainly from psychology, sociology, anthropology,
economics, political science and ergonomics.

MANAGEMENT

OB assumes each and every individual is different

by the way he or she thinks, feels, imagines, sees,
and dreams. Every individual has different priorities,
perception and the way of expression. Each one
possesses unique talents, intelligences, personality
and so on. Like A Rose is A Rose is A Rose, every
individuals are unique and different. Hence, OB
focuses on treating people with right discrimination.
It also assumes that an individual possesses the four
lives: personal, family, social and professional life and
focuses on developing him/her in terms of growth and
fulfillment. Sometimes, a person in workplace needs
to be involved in family or community. S/He also
involves in personal life besides the profession, family
and social life.
It presupposes that people do not exhibit behavior
randomly; rather their behavior is caused by some
motive, need, want or any drives, belief systems,
perception, understanding, education, experience
and environment. Meanwhile, it accepts human
dignity and a call for self-respect and recognition.
It also values the 3is interrelation, interaction
and interdependency among people continue till an
organization exists through which they perform some
definite roles and possess status. Eventually, OB
accepts that organization needs people and people also
need organization. Collective efforts by them finally
achieve the super-ordinate goals whereas organization
fulfills their needs.
This module provides supervisor (boss) the state-ofthe-art of engaging his/her people at work, albeit the
job of employee engagement is not so easy. It is one
of the complex phenomena to understand, predict,
manage and influence the human behavior. The
organization remains live when it consists of not only
people but people at right work. People at right work
exhibit certain pattern of behaviors and the behaviors
of people make the organization in dynamism.

Professor Pfeffer of Stanford University in his one of

the scholarly article stated that many people in many
organizations are unhappy and distrustful. Here, the OB is
only module that can create a bridge between people and
performance. As OB analyses human association at three
levels: individual, group and organization system level,
it ensures productivity, job satisfaction, mutual respect
and trust, harmony, cooperation, healthy relationships,
citizenship behavior, low turnover, low absenteeism and
high rate of employee engagement.
Let us have a glimpse on Q12 originally developed by
Gallup consultants to provide a measure of the extent to
which individuals are rightly placed and rightly managed,
creating the great place to work. It is a set of questions
that uncover many aspects of people and supports your
organization to pave future path to excellence. It will
simply help how an organization gets the desired pattern
of behaviour from knowledge worker. The questions are:
1) Do I know what is expected of me at work?
2) Do I have the materials and equipment I need to do
my work right?
3) At work, do I have the opportunity to do what I do
best every day?
4) In the last seven days have I received recognition or
praise for good work?
5) Does my supervisor, or someone at work, seem to
care about me as a person?
6) Is there someone at work who encourages my
development?
7) At work, do my opinions seem to count?
8) Does the mission/purpose of my company make me
feel like my work is important?
9) Are my co-workers committed to doing quality work?
10) Do I have a best friend at work?
11) In the last six months, have I talked with someone
about my progress?
12) At work, have I had opportunities to learn and grow?

The Nepal Chartered Accountant

September 2015

29

MANAGEMENT

Conclusion

Reference

We have already stepped in the 21st century. Specially,

globalization and technology have changed the way
of seeing, thinking, feeling, perceiving, doing and
understanding. Organizations are now fully dependent
upon data, information and its best application. Hence,
they need to rely upon knowledge workers. Yet, it is said
that people cannot be managed, rather they should be led.
But, knowledge workers neither can be managed nor they
should be led; they should be worked with. Hence, to work
with them, it is not only necessary it is indispensable to
know them and their behavior, their style and choices,
and their creativity and aspirations. When they are better
understood by supervisor, they find the knack how to work
with him/her. Hence, in Nepali corporate, OB can be the
connecting module between management and people to
outperform and deliver the unique customer experience
by making competition irrelevant. Accordingly, OB tools
and frameworks offer our business leaders the insight to
work and walk with people as if they are walking in the
shoes of the people they are leading.

Osho, Discourses and Books

Chataut, B. R. (2014). HR Transformation in NT:
Creating Value by Linking People, Strategy, and
Performance. Nepal Telecom (Nepal Doorsanchar
Company Limited): 10th Anniversary Souvenir,
10(1), 259-264. Kathmandu: Nepal Telecom
Drucker, P.F. (2001). Management Challenges for the 21st
Century. New York: HarperCollins
Nayar, V. (2010). Employees First, Customers Second.
Boston: Harvard Business School Press.
Pfeffer, J. (1998). The Human Equation: Building Profits
by Putting People First. Boston: Harvard Business
School Press.
Robbins, S. P. (2003). Organizational Behavior. Delhi:
Pearson Education
Luthans, F. (2011). Organizational Behavior: A Evidencebased Approach. New York: McGraw Hill/Irwin
Ulrich, D. (1997). Human Resource Champions, the Next
Agenda for Adding Value and Delivering Results.
Boston: HBR Press
http://www.tlnt.com/2012/06/07/company-goals-doyour-employees-have-a-line-of-sight-to-them/

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sf] ljifo 5'6sf] ;'ljwf k|Kt u/]df To:tf] JolQmn] rf6{8{ PsfpG6]G;L lzIffsf] clGtd txCAP III df egf{ x'gsf] nflu lgodfjnLsf] lgod
# -#_ adf]lhd ;+:yfdf gfd btf{ u/fpg' kg]{5 . CAP III df egf{ ePsf JolQmnfO{ # aif{sf] k+lhs[t k|lzIf0f tyf rf6{8{ PsfpG6]G;L lzIff cWoog ;DaGwL
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30

The Nepal Chartered Accountant

September 2015

TAXATION

VAT on Duty Meal Supply to Hotel Staffs :

An Overview and an Analysis

Duty meal supply is neither

self consumption nor personal/
domestic consumption, it is
expenses related to business
where the company can take
credit of input tax on purchase of
meal supply stuffs and duty meal
supply cost is obviously a type
of prerequisite expenses for sale
services of hotel industry.

The Income tax officer has

issued a notice to Hotel Private
Limited after VAT audit for
payment of VAT amount with 100
percent penalty and interest with
assuming purchase value/cost
as sale value for the duty meal
supply to the hotel staffs regularly
as per in their appointment terms
and condition.
Example:

Whether the assessment made by

tax officer against Hotel Private
Limited is correct?
Currently there are many cases
pending with Director General (DG)
Internal Revenue Department (IRD)
for administrative review, Revenue
Tribunal either for disallowance
of input tax credit by tax officers
or tax assessment of 100 percent
of purchase costs/expenses as sale

VAT Calculation and Assessment

Particulars

CA. Jha is Member of ICAN.

He can be reached at
kaushlendra@jkkfoundation.org

Poush

Magh

Fagun

Total

No. Of Employees( Monthly)

50

52

49

53

204

Monthly Duty Meal Expenses

1,25,000.00

1,12,500.00

1,02,655.00

1,16,253.00

4,56,408.00

VAT @13%

16,250.00

14,625.00

13,345.15

15,112.89

59,333.04

Penalty

16,250.00

14,625.00

13,345.15

15,112.89

59,333.04

Grand Total Tax Assessment

32,500.00

29,250.00

26,690.30

30,225.78

1,18,666.08

7,441.00

2,299.00

4,903.00

5,247.00

19,890.00

Input Tax on VATABLE

Purchase only

CA. Kaushelendra Jha

Mangsir

The tax officer has issued the notice

for the payment of RS.1,18,666
against purchase cost or duty meal
supply expenses of Rs.4,56,408. The
company has claimed the expenses
in the heads of staffs duty meals and
claimed input tax credit of Rs.19,890
in the second trimester VAT
returns.

value and 100 percent penalty

thereof;
Sub-Section 1 of Section 14 of Value
Added Tax Act, 2052 states that
Registered Person supplying any
goods or services, requires to issue
an invoice to the acquirer, except as
prescribed.

The Nepal Chartered Accountant

September 2015

31

TAXATION

Rule 19 of Value Added Tax Regulation, 2053 prescribes

that a person who carries out transactions of used goods
of a value exceeding of Rs.10,000 for the purposed of
Section 14(1) of the Act, need not to issue tax invoice in
such case where the selling price is less than the buying
price of the goods.
It is evident from above provision that the registered
person if supply of any goods and services, has to
issue tax invoice to the acquirer/recipient of goods and
services. The provision states that even if there is no
sale and purchase but supply of goods and services to
any person shall be required to issue tax invoice to the
acquirer/recipient which means there is not necessarily
always be a buyer or seller.
The VAT Directives 2069 issued by IRD has defined
self supply means if a registered person has consumed
of goods and services for its own commercial purpose
which were purchased or produced basically intended
for sale. In this case Sub - Section 14(1) comes into play
which has put the restriction for conducting transactions
without issuing invoices hence, invoicing has to be done
in self supply too.
The registered person when consumed the goods and
services commercially which were intended for sale has
not produced any financial impact as the VAT amount
which need to be deposited due to issue of an invoice get
set off through input tax credit as per Section 17 of the
VAT Act 2052. But if the same has been consumed for its
domestic and personal purposes then the input tax credit
shall be disallowed.
Example: Siya Sarawagi is engaged in the business of
trading in plywwod and is registered in VAT for making
furniture for its own commercial purposes, it has used
1000 sq.ft. of plywood. Since Siya Sarawagi has used
the plywood for its own commercial purposes, it has
to collect VAT by issuing the tax invoice and input tax
credit can also be availed as per Section 17 of the Act.

32

The Nepal Chartered Accountant

September 2015

But would it be used the same for its domestic or personal

purposes, input tax credit would have been disallowed.
Source: VAT directives, 2069 IRD
Now the question is whether the supply of duty meal
to the hotel staffs regularly as per the contract between
employee and employer comes under the definition of
self supply or not?
The circular issued as on 2056/12/03 which as follows:

e/tk'/ ;Dd]ngdf ePsf lg0f{o af/]

>L % sf] ;/sf/ -dGqL:t/_ sf] ldlt @)%^.!!.#) sf] lg0f{on]
lgDg jdf]lhdsf] Joj:Yff u/]sf] x'bF f cfjZos sfof{y{ cg'/f]w 5 .
sd{rf/LnfO{ pknJw u/fPsf] vfgf jf/] M

xf]6nx?sf] Duty Meal Supply nfO{ Self Consumption

gdfGg] . To:tf] cfk"lt{df k|of]u ePsf] s/ nfUg] j:t'x?sf]
s/ sL u/]sf] eP ;f] s/ sL ug{ glbg] u/L lg0f{o ePsf]
5 . t;y{ e};s]sf] s/ lgwf{/0f cfb]z ;d]t ;f]xL cg';f/
;+zf]wg ug]{ .
The above circular which has clealry mentioned that the
duty meal supply to hotel staffs is not to be treated as
self consumption hence, the input tax credit shall not be
allowed on the purchase made for supply of staffs duty
meal.
The above circular which has been issued as on
2056/12/03 but the directives issued as on 2069/02/30
which definitely supersedes to the extent of not conflicting
the provision of earlier Directives or Circulars. Here the
Directives says that if the expenses are for commercial
purpose then it shall be considered as self consumption
and input tax credit shall be allowed of purchased made
for commercial use.
Now the question is whether the duty meal supply to the
hotel staffs is to be treated as commercial use or personal/
doemsctic use?

TAXATION

We can not say the duty meal supply which are as per the
contract between employees and employer as per Labour
Act, 2048 too can not be treated as business expenses. Its
standard practice that the expenses which are incurred for
conducting of business and for generating the revenue of
the business are to be treated as business expenses but not
in any case to be treated as personal/domestic expenses.
We may further analyse through case study based on the
decision of Revenue Tribunal in Narayani Hotel Private
Limited.
Decision Number: 119 Year: 2063 :Revenue Tribunal
Kathmandu:
The hotel has provided duty meal supply to hotel staffs
as per Labour Act, 2048 and employment terms and
condition. The hotel has claimed input tax credit but
the tax officer disallowed expenses and input tax credit
thereon. The Revenue Tribunal has given the decision in
favour of the assessee i.e. Narayani Hotel Private Limited
citing that if the taxpayer has supplied staffs duty meal
as per appointment terms and condition and Labour Act,
2048 which is totally related to business expenditures

and there is no evidence that the input tax credit claimed

by taxpayer shall not be allowed to the taxpayer. The
input tax credit shall be allowed as per proportionate
expenditures related to staffs duty meals.
Conclusion: First,we can draw the inference that the stuff
purchased for the duty meal supply is not intended for
sale purpose to the customers/guests of hotel but only for
running of the hotel which is usually in hotel industry.
Secondly, there are many corporate house and company
which runs cafeteria and canteen for duty meal supply
to its staffs as house keeping/staffs welfare expenses.
Third, would it be a case where staffs avails same foods
and facility as guest and have meal sitting in hotel
through separate order like guest? definitely not in above
mentioned case, otherwise the hotel would have to be
issued VAT invoice to collect the same and supposed to
be a self supply .Fourth, duty meal supply is neither self
consumption nor personal/domestic consumption, it is
expenses related to business where the company can take
credit of input tax on purchase of meal supply stuffs and
duty meal supply cost is obviously a type of prerequisite
expenses for sale services of hotel industry.

Ps JolQm Ps k]zf qmlds ?kdf nfu' ug]{ af/] ;r"gf

g]kfn rf6{8{ PsfpG6]G6\; lgodfjnL, @)^! adf]lhd ldlt @)^& kf}if @) ut] b]lv k"0f{sfnLg ;]jfdf /x]sf rf6{8{
PsfpG6]G6 ;b:ox?nfO{ k]zfut k|df0fkq /f]s nufpg] sfo{ eO;s]sf] / @)&) >fj0f ! ut] b]lv k"0f{sfnLg
;]jfdf /x]sf btf{jfnf n]vfk/LIfs ;b:ox?nfO{ r/0fa4 ?kdf k]zfut k|df0fkq /f]s nufpg] Joj:yf eP adf]lhd
xfn} kl/ifbn] u/]sf] yk lg0f{ofg';f/ @)&@ >fj0f )! ut]b]lv ;]jf/t btf{jfnf n]vfk/LIfs ;b:on] lgDgfg'' ;f/
;+:yfx?sf] n]vfk/LIf0f ug{ gkfpg] Joxf]/f ;DjlGwt ;a}sf] hfgsf/Lsf] nflu of] ;"rgf k|sflzt ul/Psf] 5 .
s_ ;a} klJns sDkgLx? tyf ! s/f]8 eGbf a9Lsf k|fO{e]6 sDkgLx?
v_ ?= @ s/f]8 eGbf a9L /sdsf k|fO{e6] sDkgLsf] ?kdf :yflkt z}lIfs ;+:yfx?
u_ u|fld0f If]q afx]ssf s/ nfUg] # s/f]8 eGbf a9L /sdsf art tyf C0f ;xsf/L ;+:yfx? /
3_ @ s/f]8 eGbf a9L /sdsf] lghL tyf ;fem]bf/L kmd{x?, pBf]ux?
pk/f]Qm afx]ssf ;a} lgsfox?sf] n]vfk/LIf0f ug{ kfpg] .
@)&$ >fj0f ! ut]af6 Ps JolQm Ps k]zf k"0f{?kdf nfu' x'g]5 .

The Nepal Chartered Accountant

September 2015

33

Other

Walking in Two Different Heels

This is the country where women

hardly get a moment to live for
self. Here in this environment,
she is successful Chartered
Accountant living life with
dignity, success and happiness.
In this mysterious journey, she
is wearing two different heels
in her feet; one foot wears the
pointed heel heading high and
another foot wearing the wedge
to bear all the stumbling blocks.

She, the lady in the black suits and

chignon hairdo with her Ecco high
heels reflecting herself as the fearless
leader and vibrant personality
getting the most out of her life. Her
blue eyeshades and berry lipsticks
elevating her elegance but her Chanel
bag and Skagen watch magnifying
her self-confidence and nobility. She
is the self-motivated, compassionate
and confident Chartered Accountant
working in this corporate sector for
many years. From exterior side,
she looks successful lady CA who
is self-driven by her professional
goal and sharing healthy equation
with every kith and kin. Straight line
career escalation record definitely
overshadows the hundred painful
steps she walked and those thousand
moments when she almost gave up
everything.

She was born in patriarchal society

where the girl child grew up as
going to government schools while
her brothers went to elite boarding
schools. She came home from school,
helped mother to cook and clean

CA. Sanju Adhikari

CA. Adhikari is Member of ICAN.
She can be reached at
sanju.adhikari@civilbank.com.np

34

The Nepal Chartered Accountant

She is the stalwartly successful lady

who was grew up in modest Nepali
family and believed to have blissful
marriage and saint type refection
everywhere. It appears like she is
living her life in her terms with her
own choice of independence. But
this big portrait of corporate icon
is constructed by millions of tough
decisions and courageous actions,
yes some actions were really
small, some were heartbreaking.
In this journey, she is walking in
the road where her one foot is on
roses and another one is always
on fire. Sometimes she gets the
stick to support but sometimes
even air is so dense suffocating
her. There are many anecdotes to
share where she endured many
breathe taking incidents, faced many
trivial arguments, harsh words and
mocking reaction from own people
/ society.

September 2015

Other

while her brothers had privilege of playing, watching TV

and lazing around all time doing nothing with peers. She
was not gifted with the benefits which came to certain
alternative chromosomes. When the boys were raised
to be independent, strong and dynamic leader by all
freedom, toys of cars and guns; but at the same time she
was nurtured with dolls, makeup, dance and bhadakuti
to be sensitive, obedient and compromising member for
the family. This is the country where women hardly get a
moment to live for self. Here in this environment, she is
successful Chartered Accountant living life with dignity,
success and happiness. In this mysterious journey, she is
wearing two different heels in her feet; one foot wears the
pointed heel heading high and another foot wearing the
wedge to bear all the stumbling blocks.
Managing self, managing love life, managing family,
managing work and managing knowledge level all
efficiently is not everyones cup of tea. Some of woes and
way forwards in the similar journey like her are:

Young blood, flying confidence, having courage to

reach the moon are driving her to grab the best available
opportunity for her career objective. Everyone around her
started to believe that she has already got license to print
money.
Woes: At this phase of waiting for wings, her expectations
level is very high but the chains are dragging her down from
every choice she made. She cannot take manufacturing/
trading private sector because her priorities will change
after marriage and working long hours may spoil her life
in totally new/different family. She is not allowed to jump
in her dream job in INGO projects because frequent visit
to remote areas and outskirts which is neither considered
safe nor accepted by nonsensical hypocritical society.
Here nobody ask whether she wish to start her own firm
or do service, every family/friends/colleagues advice to
choose the public sector where she can get less work
pressure and lot of public holidays.

Glory and Expectations

Ambition and Rejections
Marriage and Work Life Balance
Self and Life
Growth at desired acceleration

1. Glory and Expectations

Passing CA final examination needs the determination
as well as blood, sweat and tears. In the years long hard
study and tough articleship, she was lured by inspiring
success story of many CAs, also she is alarmed by the
cases where candidate are keeping nose on grindstone
from decades to crack this final exam which is pausing
all their career dreams. Entering in one of most
reputed profession of Chartered Accountancy is itself
a big achievement attached with many work ethics and
corporate responsibility.

Living with the fear of being judged in every step is the

reality which is itself disgusting. After CA final result,
she has to proceed to acquire a degree Nepali Khana
and obeying everyone. Here her career choice depends
on the man she is going to marry, the type of job their inlaws approve and the sector where she can get the leave
for every small nonsense functions ( so that she can cook/
serve and clean in neighbors/relatives family functions
like birthday, sharadas etc). She burnt candles at both
ends to get this CA certificate and now she has to think
360 degree to move ahead just to please everyone.

The Nepal Chartered Accountant

September 2015

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Other

Way Forward: At first she is human, and then only she

is woman. In her career, she is the sole one to decide what
she really wants in her life. The truth is that no human
being can please everyone around him. So she needs to
decide what she really wants to do in career. She should
set a long term goal where she wants to see herself in next
10/20 years. Be practical, be straight forward. If a man
cannot love her for who she is and cannot understand her
career dream, then it is rare that he will support her in
ups and downs and become a soulful better half. It is her
life and it is totally her choice whether to work in MNCs
(Multinational companies) with hectic work schedule or
monotonous public sector. She must convey her inner
career wish to the family, going to be twin soul and future
family. Cooking for family and spending time is important
& heart winning thing to strengthen the bond but no one
can sacrifice own dream for sake of others comfort. If
she can afford full domestic help then there is no point
that she has to prove her cooking and home management
skills every day. Talking clearly with husband is the best
solution and the decision made in his support will be easy
to convince everyone as well as to implement. Every
man should understand that her success is not only her
success; it will be the success of whole family and kids
too. So to taste the ripe fruit of her success together, he
should be part of sowing & cultivation as well.

2. Ambition and Rejections

Ability is nothing without opportunity, but crowned with
the CA degree and having good knowledge in Accounting,
Costing, Financial Management, Auditing and Taxation
were her dream ticket to be selected for her choice of
career. If she had good work exposure in articleship
period, she got all the qualities to contribute in Accounting
or Finance or Auditing or Taxation or Strategic Planning
or Merger & Acquisition or Asset Management or total
Business Management of any business. Her wish is to
excel in corporate knowledge as well as to earn high for
her better life and happiness.

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The Nepal Chartered Accountant

September 2015

Woes: The world is very competitive; for selection, she

needs to prove that she can add visible contribution to
organization. In recruitments, some employer prefer
candidates with excellent subject knowledge; some prefer
excellent academic records, some prefer good family
background; some prefer outstanding communication &
soft skills; some prefer strong reference; some prefer long
term association and bonds. The tussle doesnt end on
convincing family for job; there are equal hurdles in work
as well. We have seen some organizations which prefer
male candidates because their work demands late night
workings or frequent visits to factories in remote areas.
It is hard to believe that few organization take pregnancy
and birth right of woman as the time of low efficiency
and excess leave. So entering in the job sector where
majority candidates are equally competent men ready to
work 24*7, is also hard nut to crack. Even in the teaching
sector (CA course or other Management class), ladies are
the last choice to engage in. At present also few ladies
faculty members engaged in CA classes either teaching
theory subjects or struggling to get equal opportunity. It is
not only matter of class control or knowledge deliveries;
little or more, it is the mindset of students/parents/institute
owners that ladies will not be able to drive the class in
comparison to male teachers.
Way Forward: Lady CA should also understand that
why should any organization do favor in her selection.

Other

If she has decided to walk in the same sector as men

are moving, she should be equally competent, equally
presentable and have equal knowledge base. If you are
rejected in some interviews or some group discussions;
accept this because thats the way the ball bounces. Lack
of luck or reference is not always reason for rejections,
there are other things too you need to improve yourself.
Accept your weakness and improve them before its too
late. One failure, one rejection will not proof who you
are, so dont lose hope and prepare yourself for better
you, improved you. If self-motivated lady professional
keep herself techno literate and updated in skills, then its
for sure that gender inequality can no way pull her back.

3. Marriage and Work Life Balance

Having loving husband, adorable kids and understanding
in-laws is every ladys fancy world. But every marriage
is not blessings; some marriage decision can turn the life
upside down.
Woes: Entering a totally new family with different
values, beliefs, faith and different way of living is the
reality every lady has to face. In todays time, the groom
family expects to welcome a virgin beautiful lady with all
cooking skills and home making perfections. For them,
the bride should be beautiful enough to match their son;
financially independent enough to support family; have
knowledge to get job and also to teach her kids. Also
the bride shall be having the ability of not voicing her
opinion, not indulging in smoking or drinking; and of
course the willingness of brides family to give them a
lot of dowry. She can smart enough in office, but in front
of in-laws she has no right to express her opinion. All she
has to do is obeying, obeying, and obeying.
To make her marriage smooth, she compromise in almost
everything, she serves to the extent she can. But when she
fails to obey a tiny detail of order placed, the sky of grooms
family start to break. That just one thing she couldnt do,
erase all her work, dedication and sacrifice. As a result,

she gets whipped, examined and judged in every step she

walks. Even the relatives or relatives of relatives love to
make fun of her by backbiting; brainwashing her man;
interfering in every decisions, taunting her every time
they get chance ; and pressurizing her to give them their
heir earliest possible. For them grandson is like insurance
who will protect them in sarcastic weather. In her head,
there are enough responsibilities of her own parents,
work, love life and also of her health. Forcefully she had
to react in daily tantrums and listen to take ownership of
every mess around home. Other family members cannot
even picks their dishes up after eating, But that sindoor
in her head made her exclusively responsible for doing
pooja path, keeping home clean, cooking yummy food
every day, nursing every member not feeling well, calling
relatives for their well beings etc etc . There were million
times that tears were just dripping away through her eyes
uncontrollably.

Way Forward
Growing in red tape area is very tough. If it is an arrange
marriage , she shall make her parents to convey that she
is working woman and will not be able to serve family
full time. Sometimes she needs to work in home or study
whole night, she cannot wake up at 5 am to make tea
for others. If its affair marriage, then she should clearly

The Nepal Chartered Accountant

September 2015

37

Other

tell her man that she wishes to be part of family not the
free-maid. If a woman is not helping herself to get out
that black hole, then nobody in this earth can rescue her
from that cage. If there is fuss in every day, then it will
not allow her to concentrate in her work or study. If the
situation get worse after having kids or after few years
of marriage, then discuss it openly. Change is painful,
legally partition invites many bitter talks and blame
game; but peace and progress demands some pain, ask
for some concrete decisions. Drastic times definitely calls
for drastic measures.
If the family is okay with having full time domestic
help, full time care taker for toddlers and she spending
time with babies, husband after office time ; then is will
be blessing for her. If the show runs smoothly without
cunning minds and jealousy, then home is heaven.

4. Self & Life

This is human life so no matter man or lady; everyone has

to live through bad luck, failure, rejections frustrations,
pain, dishearten, demoralizing environments, guilt and
covetousness. Having good health, desired success,
expected wealth, deserved love and peaceful spirituality
cost a lot of hard work, dedication, self-control and
management.

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The Nepal Chartered Accountant

September 2015

Woes
In the race of success and happiness, many people forget
that life is too short to run only. Particularly woman keep
herself too busy in home and children that she hardly
realize that beside family and career, there is her own life
also.
In the nuts and bolts of living, she forgets to see herself
in mirror. It is hard to remember that when the last time
she became wild enough to drunk hard was, laughed
loud and danced till last beat. Ladies also love to lazing
around sometimes doing nothing, they also have hobbies
of badminton or painting or travelling or may be just
chilling out with old friends.

Way Forward:
It is said that some people stop living at age of 30 (dyeing
internally) and waits next 50 years for funeral. Woman,
she should not also wait till retirement to visualize life
and start living with vigor body, mind and spirit. Have
hobbies; plan to manage time for your soul to smile.
Plan dinner date/movie date with husband and keep your
relation romantic. Gift some stuffs to in-laws which
will make you feel connected. Spend time with your
children, involve them in household works & encourage
opinion sharing. You can plan 2-3 days short trip with
your buddies to travel new place and talking endlessly
about college days and all those silly phase you have been
through. Or simply you can plan spa/sauna or parlor time
together with your friends to share things. By this way
your beauty will be enhancing along with lighter hearts.
Successful career and happy family at win-win condition
may be keeping her too busy thought-out life, but no
lady to wait till age of 45-50 to start jogging or Yoga
or meditation. Anger management, self-control and
self-motivation will be much easier with these ancient
techniques. Regular exercise and meditation make
healthy body, healthier mind. Any hobby or foreign tour
or any nature walk or any quiet breeze can cherish the

Other

little girl inside her.

5. Growth at Desired Acceleration

Any Chartered Accountant having fruitful working
experience in corporate world is definitely the potential
human capital in any organization. A lady chartered
accountant is also a professional contributing value addition
in any organization. Being in accounting profession needs
her to be updated in laws and regulations as well as in
emerging issues. For survival in changing world itself cost
hard effort, survival with flying colors cost a lot more hard
work, sleepless nights, life management and knowledge
up gradation. If a lady CA wishes to accelerate her career
growth, she has to shape herself accordingly.
Girl! Passing CA is not end of study; it is the start of
journey of your knowledge. You have to keep your
eyes & brain open to learn continuously. Changes in

Let your work speak. There may be many times you

were underestimated or undervalued. As you are a
lady, there may come a time when unhealthy politics
raise finger on you for office gossip even when you are
innocent. Calm down, and let your work speak for you.
Be techno literate and make your presentation more
effective.
Its okay to be broken sometimes; its okay to make
mistakes. Learn from them; dont ever over think as
that will spoil you internally.
Its okay that despite trying too hard, you couldnt
get your dream job. Life is not about one victory and
you can get better opportunities too.
Life is precious and it is very beautiful; count the
blessings, enjoy the rain, feel the breeze & live your life.
(Dear ladies in CA Fraternity, its really proud to be
in reputed profession. Youve been kind person with
beautiful heart and all the qualities of good CA. Youre
neither weak nor less competent. You dont need quota
system to exhibit your knowledge. Be yourself, live your
life, draw your own map and I wish every lady get the
rocking career growth, understanding better half and a
happy family. Good Luck! )

laws, rules and standards will surely bring change

in your work too, so try to keep yourself updated.
If possible, get the academic degree (MBS/MA etc)
that will add feather in your hat. Learning IFRS,
ISA, CISA and getting certifications will definitely
help you know more and work better.
Dont believe the myth that learning computer skills
will be tougher for girls. You have equal human
brain to be trained in MS Excel, power points or
flow charts. If you are not confident in that, learn it,
practice it every time you find suitable.

The Nepal Chartered Accountant

September 2015

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Amendments Made by Finance Act, 2072 in Value Added Tax (VAT)

Compiled By:

CA. Surya Bhakta Pokharel

CA. Pokharel is Fellow Member of ICAN.
He can be reached at surya.pokharel@ntc.net.np

CA. Bishnu Prasad Bhandari (DipIFR, CCIT)

CA. Bhandari is Member of ICAN.
He can be reached at bishnubb@yahoo.com

The Minister of Finance tabled the budget of government of Nepal for fiscal year 2072-73 (2015/56) before the Legislature
- Parliament on 14 July 2015. The Finance Act has made changes in tax laws whichis a regular process of reform in
tax system. The Finance Act becomes subject of discussion among stakeholders, especially taxpayers, collectors, tax
consultants etc. The noticeable change is thethreshold for the registration of Value Added Tax, which was not reviewed
since the implementation of Value Added Tax, has been fixed to Rs.5 million by increasing the existing threshold of Rs.2
million is a major change in VAT. Attempts have been made to give overview of the changes made in the VAT legislation
for the use of stakeholders in the article.
Section/ Rules

Provisions

1. Compulsory Registration
Rule 7(1)

In case any person has reason to presume that his annual transaction shall exceed Rupees five
million, he shall submit an application setting out such conditions, to the concerned tax officer in
the format set out in Schedule 1 for registration of the transaction.

Rule 7(2)

In absence of conditions where such presumption referred to in sub-Rule 1 of Rule 7 could not
be made and if the taxable transaction exceeds Rupees Five million, the person carrying out
such transactions shall submit an application to the concerned tax officer in the format set out in
Schedule 1 for registration within 30 days of the date on which such excess occurs.

Rule 7(5)

Notwithstanding anything mentioned in the Rules, if following transactions occurs for the
purpose of taxable goods or services by any person, such transaction shall have to be registered
in the tax office.
(Ka) At the time of the inspection by a tax officer the stock of the taxable goods exceeds the limit
prescribed IRD based on the nature of the goods
(Kha) In case a person's telephone expenses and house rent exceeds Rs. 100,000 during a year, or
(Ga) In case the business place of a person is situated in any market specified by IRD or it has
occupied an area exceeding as specified by IRD for different road areas.
The provisions of Rule 7(5) (Kha) and Rule (5) (Ga) has been deleted.

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2. Person not Required to Get Registered

Section 9

Notwithstanding anything contained in the act, an exemption may be provided to a small vendor,
having a prescribed annual taxable transaction threshold, from the requirements of registration
and filing of tax returns and from such requirements as may be prescribed.
However, small vendor dealing in taxable goods, except those submitting estimated income return
as per Section 4(4) of the income tax act 2058, may voluntarily get his transaction registered upon
completing the process as referred to in Section 10.

Section 10(2)

In case a person engaged in any goods which is declared as taxable (previously it was not taxable), or a
person has conducted transaction after producing bricks, or a person who has conducted their business
in a metropolis, sub-metropolis or municipality or area specified by the department, and is dealing
in hardware, sanitary, furniture, fixture, furnishing, automobiles, motor parts, electronics, marble,
educational consultancy, discotheque, health club, catering service, party palace business, parking
service, machine used dry cleaners, restaurant with bar and color lab shall have to apply for registration
in the prescribed format within 30 days of the declaration as taxable or engagement in such services.
The provision of Section 10(2) has been deleted.

3. Special Provision on Registration of Joint Venture

Section 10(kha)

The following provision has been inserted.

(1) If two or more persons create a joint venture to undertake a specific work for a fixed period,
then it has to be registered temporarily in VAT.
(2) Joint ventures registered under sub Section 1 shall cancel its registration once the period
mentioned while creating the joint venture is over.

4. Cancellation of Registration
Section 11(1ka)

In circumstances other than those mentioned in sub-Section (1) of Section 11, any person
carrying out small transactions who has got his transactions registered voluntarily shall not be
entitled to cancel such registration of his transactions voluntarily until completion of one year
from the date of registration of the transaction. A person carrying out a small transaction who
intends to get registration of such transactions to be canceled after completion of one year from
the date of registration of the transaction may file an application as prescribed to the concerned
tax officer for cancellation of registration. If such an application is so filed, the concerned tax
officer shall cancel registration of such transaction.

Section 11(1ka)

This provision is replaced by the followings.

In case a person has applied for cancellation of its registration number has to produce its records
and documents for audit within fifteen day of the application to the tax office. The tax officer
shall audit the records and documents and within three months of the application submitted
may allow or reject the cancellation. In case the tax officer has neither allows the application
nor rejected it, the person may stop the filing of the further returns.

5. Procedure for and Effect of Cancellation of Registration

Rule 12(4)

The following provision has been inserted.

In case of registered tax payers whose transaction is below the limit specified, cancellation of
registration and outstanding tax credit shall be made as per the process specified by the director general

The Nepal Chartered Accountant

September 2015

41

Other

Section 11(1kha)

The following provisions have been inserted.

If the transactions of registered tax payers having annual turnover less than Rupees twenty lacs
at the time of enforcement of this sub-Section does not reach rupees fifty lacs in next twelve
months, then the tax officer shall issue order for cancellation of registration.
However, this provision shall not apply in case of tax payers voluntarily registered under
Section 9 if it applies within the end of Ashadh 2073 with the intention to remain registered.

Section 11(1ga)

In case of registered Tax payers having taxable transactions less than the limit specified at the
time of application of this sub Section, remaining tax credit paid at the time of purchase and
import, tax credit for stock and registration cancellation shall be as specified.

6. Refund of Tax in Case of Re-export

Section 25ga

The following provision has been inserted.

If re-export has been done and payment is received in advance in convertible foreign currency,
then VAT paid on purchase by the concerned person shall be refunded to him.

7. Meaning of Supply
Section 2(Chha)

The following amendment has been made.

Supply" means sell, exchange and transfer of goods or services or an act of granting permission
thereto or entering into a contract thereto with or without consideration.

8. Provision of Bank Guarantee (Section 8ka)

Section 8ka (1)

Industry exporting at least 40% of total sales during the last 12 months of its operation may
avail the facility of bank guarantee on import of raw materials required for export of the
finished goods and goods to be imported for tax free shop through bonded warehouse subject
to following condition;
The industry has to export the goods for the price which is at least 10% value addition above
the consumed value of the raw material.

Section 8ka (5)

The person availing the facility under this Section is not allowed to take the facility of Section
24(4).
This provision of Section 8ka (5) has been deleted.

9. VAT Accounts
As per Rule 25, a tax officer may certify the purchase and sales register when:
a. a taxpayer submits an application to the office for the certification,
b. during the period of tax inspection or audit, or
c. at the time of inspection
The following provision has been inserted
In case of tax payers who have taken approval for issuing invoices from the computerized system, if sales book is
updated electronically, then sales book need not to be certified.

42

The Nepal Chartered Accountant

September 2015

Other

10. Penalty on not Keeping Purchase & Sales Book by Unregistered Person.
The following provision has been inserted.
Section 29 (Chha2) If Tax payers have used software for the purposes of computerized billing, whether approval
taken or not, on which data can be erased or modified, then Rupees Five Hundred Thousand.
Section 29 (1kha)

While stocktaking of the tax payers, if excess quantity is found in stock from what is stated
in purchase book, then the tax officer shall ask the tax payer to take into account such excess
quantity and fifty percent of the market value of such goods shall be levied as fine.

11. Definitions
Section 2(Ng)

The following amendment has been made;

"Export" means the act of exporting of any goods or services outside Nepal or Export trading
house or special economic zone pursuant to the prevailing law.

12. Amendments in Schedule 1 & 2

Amendment in Schedule 1
- In group 1, heading 11.01 has been deleted and in heading 11.03 and sub heading 1103.11.00 wheat flour has been
added.
- In the end of group 1 (second bullet), soyabodi masyaura has been added.
- In the end of group 4, third and fourth bullet has been added as following:
Import of green house by agricultural, horticultural and floricultural firm.
Tray for using seed sprouting and sowing.
- In the very beginning of group 5, heading 28.04, sub heading 2804.40.00 Oxygen gas has been added.
- In the end of group 5, fifth bullet has been added Medicinal and surgical equipment, apparatus and materials
imported by governmental, government funded and community hospitals.
- In part B Other goods and services of group 11, following has been amended:
In clause 3, agricultural crops insurance, livestock insurance has been added.
In clause 5, solar charge controller (sub heading 8504.40) has been added.
In clause 17, 50% has been changed as 70%. Also proviso has been added in clause 17 as However, in
case of domestic textile industry producing cent percent cotton cloths, remaining amount of tax collected
on its sales after deducting the tax paid on purchases shall be refunded as per the process specified by the
department.
In clause 18, sixty percent has been changed as 50%
In clause 19, 70% has been changed as 90%
Amendment in Schedule 2
Amendment in clause 7 of Schedule 2
In case of one other than that operated with the approval of Alternative Energy Promotion center has been replaced
by In case of other small hydropower projects on the recommendation of Electricity Development Board.

The Nepal Chartered Accountant

September 2015

43

News

Conference on Contemporary Issues and

Accounting Profession

The Institute is organizing such kind of conferences in

regular basis as a part of the ICANs regular activity.

The Institute of Chartered Accountants of Nepal (ICAN)

organized a day Conference on Contemporary Issues and
Accounting Profession on July 22, 2015 in Kathmandu.
The program was formally commenced with the opening
remarks of ICAN President CA. Narendra Bhattarai.

National BPA Award-2014 and Oath Taking

Ceremony
The Institute organized National BPA Award conceding
with Oath Taking Ceremony of Newly Elected President,
Vice President and other Council members on July 22,
2015.
President CA. Narendra Bhattarai welcomed Chief
Guest and other Special Guests with bouquet and batch
before formal inauguration of the program. Chief Guest
Honorable Finance Minister Dr. Ram Sharan Mahat
formally inaugurated the program by lightning the lamp
on the occasion.

President CA. Narendra Bhattarai is speaking on the program.

Program was organized in three sessions. The session

topics, paper presenter, Chair of the session and
Commentator are as given under:
Session

Paper Presenter

Chairperson

Commentator

1. Salient features of the

New Code of Ethics
and its Social Values

CA. Madan Krishna

Sharma

CA. Kaushlendra
Kumar Singh, Past
President, ICAN

CA. Madhu
Bir Pande, Past
President, ICAN

2. Overview of Nepal
Auditing Standards
based on ISA Clarity
Project and recently
pronounced by ICAN

CA. Nanda Kishor

Sharma, Past
Chairperson of
Auditing Standard
Board of Nepal

CA. Sunir Kumar

Dhungel, Past
President, ICAN

CA. Mahesh
Kumar Guragain,
Past President,
ICAN

3. Panel Discussion
on the Impact of
Earthquake on
Nepalese Economy

Panel Dignitaries
1) CA. Anal Raj Bhattarai, Banking and Financial Sector
2) Mr. Yogendra Shakya, Chairperson, ACE Hotel & Resorts
3) CA. Ashish Garg, Housing and Real Estate Sector
4) Mr. Nawaraj Bhandari, Seceratory, MOF, Policy reforms
Initiatives for Resource Mobilization, Operation and
Management of Reconstruction and Re-habitation
The Moderator of the session was ICAN President
CA. Narendra Bhattarai.

44

The Nepal Chartered Accountant

September 2015

Honorable Finance Minister Dr. Ram Sharan Mahat

inaugurating the program.

In his welcome speech President CA. Narendra Bhattarai

highlighted the key achievement made by the Institute
in his presidential tenure and briefed about the various
program being celebrated. He emphasized on three pillars
NAS, NSA and Code of Ethics for the development of the
accounting profession. He thanked all the stakeholders
such as individuals, entities and the institutions for their
meaningful support for making his tenure successful.

News

National BPA awards were given away under five different

categories to those organizations who obtained the
competitive marks on the competition for 2014 financial
report. The different five categories were Banking Sector
(Private and Public), Financial Sector (Development
Banks and Finance Companies), Insurance Sector, Public
Sector Entity and General Sector.
On the occasion, the Chief Guest, Honorable Finance
Minister Dr. Ram Sharan Mahat distributed the awards
to the entities who prepared best presented for Annual
Accountants of the respective companies.
The following organizations were declared winner and
runner up in different category.
S.No. Sector

Winner

Runner Up

Banking Sector
(Private and
Public)

Nabil Bank Ltd.

Standard Chartered
Bank (Nepal) Limited.

Financial Sector
(Development
Banks and
Finance
Companies)
Insurance Sector

Kailash Bikas Bank

Ltd.

Narayani National
Finance Ltd.

Public Sector
Entities
General Sector

Employees Provident
Fund, Nepal.
Butwal Power
Company Ltd.

3
4
5

occasion. Speaking on the occasion he hoped that such

practice of awarding the qualitative financial statements
preparation shall help in achieving the organization goal
and BPA can be a good platform to show the organizational
capacity in South Asia too. He also expressed that such
kind of award can enhance the positive vibes to the
competitors to prepare qualitative financial report in
professional manner.
The evaluation of financial statement is carried out
pursuant to the National BPA criteria. The winner of the
National BPA award is nominated for the SAFA BPA
Award. ICAN has initiated the practice of awarding BPA
since 2003 for the best presented financial statements
prepared by companies and others those who issued their
accounts for the public consumption.

NLG Insurance Co. Ltd. -

Nepal Doorsanchar
Co. Ltd

Newly elected Council Members taking Oath of Office with

Honorable Auditor General of Nepal.

Similary, the newly elected Council Members took oath

of office and secrecy in the special function organized for
swearing and BPA award ceremony, 2014 with Honorable
Auditor General Mr. Bhanu Prasad Acharya.

CA. Krishna Prasad Acharya is speaking on the program on

behalf of the winners.

On behalf of the winners, CA. Krishna Prasad Acharya

expressed the opinion about the BPA awards. He
congratulated the newly elected President, Vice President
and other Council Members for their success and thank
to the ICAN for providing opportunity to speak on the

Newly elected President taking Oath of Office with Honorable

Auditor General of Nepal.

The Nepal Chartered Accountant

September 2015

45

News

Similarly, for the first tenure of seventh council, the newly

elected President of ICAN CA. Prakash Lamsal took oath
of office and secrecy from Honorable Auditor General.

the Institute. He also stated that the Institute has still to

perform in accountable and notable manner.

President CA. Narendra Bhattarai handed over his

responsibilities to newly elected President CA. Prakash
Lamsal by garlanding President Medallion to run the
Institute. Before being elected as a President CA. Lamsal
performed his responsibilities as a Vice President for the
third term of 6th Council.
ICAN first President is addressing on the program.

He applauded the former President and Council Members

for their remarkable contribution for the development of
accounting profession in the country. He expressed the
best wishes for the success of the new Council and its
tenure and also congratulated the BPA award winners.
Newly elected Vice President taking Oath of Office with the
newly elected President.

Similarly, CA. Mahesh Khanal took oath of office as a

Vice President from Newly elected President CA. Prakash
Lamsal.
Accepting the responsibility, President CA. Prakash
Lamsal thanked all newly elected council members
for electing him unanimously as a President of the
Institute. He appealed and hoped for the cooperation
and support from Council Members, Past President,
staff of the Institute and all other stakeholders to make
his tenure successful. He presented Annual Work Plan,
Policy and Program for the development of the Institute
and expressed his commitment to give continuity to the
unfinished activities of previous Council.
Speaking on the occasion, first President of ICAN and
Past President of South Asian Federation of Accountants
(SAFA) CA. Komal Bahadur Chitracar praised the Institute
for the remarkable contribution to the development of
accounting profession and the achievement secured by

46

The Nepal Chartered Accountant

September 2015

Honorable Auditor General of Nepal is speaking on the program.

Similarly, Speaking on the occasion, Honorable Auditor

General Mr. Bhanu Prasad Acharya congratulated the
newly elected Council Members and elect President and
Vice President and wished for the success of the new
Council and its tenure. He appreciated the Institute for the
contribution towards the development of the accounting
profession in Nepal and made commitment on behalf of
Office of the Auditor General to support in development
of the profession. He suggested the institute to focus on the
area of monitoring, enforcement of Code of Ethics, and
full initiation in implementing accounting and auditing
standards. Similarly, he also advised to strengthen the

News

relation with stakeholders and providing suggestions to

the Government in the area of accounting, auditing so as
to improve the public sector financial management of the
nation. Further he appreciated the efforts for conducting
international conference, seminar, and workshop in local
Perspective in Nepal. Lastly he also congratulated the
BPA award winners for their achievement.

Before concluding the program Token of Love was

distributed to the Chief Guest and Guest of Honors,
Election officer of 7th Council and the then President.
The newly elected Vice President CA. Mahesh Khanal
made his commitment to support the new President.
He concluded the program with vote of thanks to Chief
Guest, Guest of Honors and others for their participation.

Various Committee Formed

The Council of the Institute of Chartered Accountants of
Nepal newly formed 4 Standing Committees and 26 Non
Standing Committees to run the various activities of the
Institute.
The committees consist of:
Honorable Finance Minister of Nepal speaking on the program.

Speaking on the occasion, Chief Guest Honorable

Finance Minister Dr. Ram Sharan Mahat, in his speech
congratulated to newly elected Council Members and
newly elected President and Vice- President. He expressed
the best wishes for the success of the Council.
He highlighted the role of accounts and accounting
professional in the economic development. He emphasized
that the fair and unbiased audit not only helps to enhance
trust of the society towards the accounting profession but
also contribute in creating investment friendly atmosphere
in the country. In the program, he further added FDI can
be the better source of the development but still some
challenges are to be dealt with for attaining investment. So,
he appealed the Institute to prepare for reducing fiduciary
risk mechanism, prepare for action taking and follow
the International Standards in accounting and auditing.
He expressed his confidence and trust that development
of accountancy profession can play the major role in the
countrys economic development. Lastly, he mentioned
that Ministry of Finance is always ready to support for the
development of the profession.

Name of the Committee

Name of the
Committee

Name of the
Committee

Editorial Committee

Small and Medium

Practices (SMP)
Committee

Fiscal and
Taxation
Committee

Education Committee

Monitoring
Committee

RA. Member
Capacity
Development
Committee

Ethics Committee

Recruitment
Committee

Building
Committee

Continuing Professional
Education Committee

Committee for
Members in Industry

Accounting
Technician Board

NFRS(Excluding Banks
and Insurance), NSA and
NPSAS Implementation
Committee

Career Counseling
Committee

Peer Review
Board

Audit Committee

Research and
Development
Committee

Contemporary
Issue Discussion
Committee

Scholarship Selection
Committee

Committee for
Implementation of
NFRS -Bank

Committee
for NPOs and
Cooperatives

Expert Advisory
Committee

Committee for
Implementation of
NFRS -Insurance

ICAN Advisory
Committee

Informational Technology
Committee

Law Reform
Committee

The Nepal Chartered Accountant

September 2015

47

News

ICAEW Team Visited Nepal

A two member representatives of ICAEW, Mr. Stephen
Lamdin and Dr. David Brookfield visited Nepal for the
study of scope of auditing profession in Nepal and ICAN
Syllabus of CA education for tuning in with ICAEW
Course on second week of September. During their
stay in Nepal they visited Honorable Auditor General,
Comptroller General, various auditing firms, chartered
accountancy tuition providers and corporate houses of
Nepal. The report of the study for tuning in with ICAEW
assumed to get after few weeks.

Meeting with Deputy Governor for

implementation of NFRS for Banks
A team with the leadership of Vice President CA. Mahesh
Khanal met Deputy Governor of Nepal CA. Maha Prasad
Adhikari on 6 September 2015 for proper implementation
of NFRS for Banks. According to the schedule published
by ICAN NFRS will come in effect in mandatory basis
from 2015/016 for all commercial Banks. It is notified that
for the purpose of implementation of NFRS Nepal Rastra
Bank already requested all commercial banks to provide
their work plan of NFRS implementation from 2015/016.

Member News
Membership, Certificate of Practice
and Audit Firm
Following is the total number of Membership, Certificate
of Practice and Auditing Firms and the renewal status till
end of September 2015 (Aswin 13, 2072).
Category/
Class

Membership

COP

Total
No

Renewal
No

FCA/CA

875

490

671

293

583

294

RA- B

3375

1721

3139

1289

1591

1292

RA-C

1607

768

1475

641

805

642

RA -D

2285

1137

2093

1010

1145

1003

Total

8142

4116

7378

3233

4124

3231

48

Total
No

Firm

Renewal
Renewal
Total No
No
No

The Nepal Chartered Accountant

September 2015

The firm registration is mandatory to the members for

providing auditing services.

Student News
CAP I, CAP II, CAP III and Membership
Examination Result Published
The Institute of Chartered Accountants of Nepal published
the result of CAP I level of June examination 2015 on
14 August 2015. According to the result 295 out of 446
students were declared pass in the CAP I level.
Similarly, the result of CAP II, CAP III and membership
examination were published on 15 September, 2015.
According to the result 82 students of CAP II Level
are eligible to join CAP III and 36 students of CAP
III level are eligible to get membership of the Institute
after completing the necessary requirement other than
examination. Similarly, 40 foreign CA degree holders
were qualified for the membership of ICAN.
Examination was conducted on month of July due to the
devastating earthquake of April and May 2015.
A detail of result is given below.
S.
No Level
1 CAP I

2
3
4

First Second Both

Group Group Group Total
Appeared Number in Examination
446
Student Description

Passed out Number

Appeared Number in Examination
Passed out Number
Appeared Number in Examination
CAP III
Passed out Number
Membership Appeared Number in Examination
Passed out Number
CAP II

270
37
149
35

232
80
150
20

633
29
147
7

295
1135
146
446
62
258
40

Student Orientation Program

The Institute of Chartered Accountants of Nepal organized
two orientation programs for the students of CAP I and
CAP II level separately. Program was organized for
CAP I and CAP II level student. CAP I and CAP II level
orientation program were organized from 14-17 July and

News

1-3 September 2015 respectively. 329 and 24 students

participated in the orientation program.

Additional Books in Library

The Institute added some new books of Income tax in the
library during the news period.

Announcement of Scholarship
The Institute announces the application for the scholarship
of different levels on 2072.05.24. Institute is providing
the scholarship to the deserving, deprived and capable
student to motivate to study Chartered Accountancy. The
Institute is providing scholarship to the students every
year.

Exposure Visit to the Institute of Chartered

Accountants of Sri Lanka (ICASL)
A team of two Joint Directors Mr. Binod Neupane and
Mr. Shyam Mani Dahal visited Institute of Chartered
Accountants of Sri Lanka (ICASL) from August 23 -29,
2015 as an exposure/study visit. During the visit they got
exposure and studied the operational activities of different
departments of the Institute of Chartered Accountants of
Sri Lanka.

International Participation
SAFA Board, Committe and SAFA Summit
A five members delegation team with leadership of
ICAN President CA. Prakash Lamsal attended 40th SAFA
Board Meeting, various Committee Meetings and ICMA
Management Accounting Summit on Business Resilience
through Integrated Reporting in Colombo, Sri Lanka
from 26th to 29 July.

A Glimpse of Srilanka Visit of Joint Directors.

The main objective of the visit was to increase good

relation with ICASL, exchange the practices in both
Institutes, and familiarize with the systems and
official practices in ICASL particularly with respect to
education system, examination system, membership
procedure, organizational and governance structure, and
other areas of services. During the visit they met and
discussed with the officials of ICASL. The team met
CEO, different department heads and technical director
and communicated the ongoing activities formally and
informally of the both Institutes.

President of ICAN with IFAC President Olivia Kirtley.

The other delegations consist of Vice President CA.

Mahesh Khanal, Council Member CA. Ram Prabodh
Sah, Council Member RA. Yadav Prasad Nyaupane and
SAFA Committee Member and Past President Dr. CA.
Suvod Kumar Karn.

The Nepal Chartered Accountant

September 2015

49

Notice

Unofficial Translation of Revision on the Provision of

Minimum Audit Fee and Maximum Number of Files
The provision on Minimum Audit Fee to be received by the member of the Institute while carrying out audit and
maximum number of files to be audited as fixed by the council have been revised by the Council on its 194th meeting
held on Feb 16, 2015. This notice has been published to notify to all concerned about the revised minimum audit fee. It
is further decided that provision of Minimum Audit Fee and Number of Files shall be applicable in the appointment to
be received from July 17, 2015.
a) The minimum fee to be received by the member of
Institute holding certificate of practice in consideration
of carrying out audit of the institution and body other
than the certain institute and body as mentioned in the
points below has been fixed as follows.

"D" Category Registered Auditor Member

and Accounting Technician
"C" Category Registered Auditor Member
"B" Category Registered Auditor Member
Fellow Chartered Accountant Member/
Chartered Accountant Member

Transaction
Amount Rs.

Revised Audit Fee

Rs.
Rs. 5,000

Above 50 Billion
Above 10 Billion
Above 5 Billion
Above 1 Billion
Above 60 Crores
Above 15 Crores

Rs. 10,000
Rs. 15,000
Rs. 20,000

b) The minimum audit fee to be received by the member

of Institute holding certificate of practice while
carrying out audit of listed public financial institution
on the basis of loan investment or deposit amount
whichever is higher shall be as follows.
Listed Public Financial Institution
Loan Investment or Deposit Minimum Audit Fee Rs.
Amount Rs.
Above 100 Billion
25,00,000
Above 50 Billion
20,00,000
Above 10 Billion
10,00,000
Above 5 Billion
5,00,000
Above 1 Billion
3,00,000
Minimum
1,00,000

while carrying out audit of listed or non listed public

company and private company and other organization
shall be as follows.

Above 2 Crores

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The Nepal Chartered Accountant

September 2015

20,00,000
10,00,000
5,00,000
3,00,000
200000
Minimum fee of listed
company shall be
applicable
Minimum fee of listed
company shall be
applicable

Minimum Fee of
Private Company
and other institutions
established as per
prevailing law Rs.
15,00,000
8,00,000
4,00,000
250000
150000
100000
40000

Subject to the above minimum fee, the minimum fee

of audit of listed company shall not be less than 100
thousand.

d) The minimum audit fee to be received by the member

of Institute holding certificate of practice while
carrying out audit of cooperative on the basis of loan
investment or deposit amount whichever is higher
shall be as follows.
Loan Investment or Deposit Amount Rs.
Above 5 Billion
Above 1 Billion
Above 60 Crores
Above 15 Crores
Above 5 Crores
Above 2 Billion

Subject to the above minimum fee, the minimum

audit fee to be received while carrying out audit of
commercial bank having A categories shall not be less
than Rs.1 million.

c) The minimum audit fee to be received by the

member of Institute holding certificate of practice

Minimum Audit
Fee of Other
Listed and Public
Institutions Rs.

Minimum Audit Fee Rs.

5,00,000
2,00,000
1,00,000
75,000
50,000
25,000

Subject to the above minimum fee, the minimum fee

of audit of listed company shall not be less than 100
thousand.

Notice

e) The minimum audit fee to be received by the member

of Institute holding certificate of practice while
carrying out audit of national and international
non-governmental organization and international
development partner on the basis of donation and
other receivable (as such organizations prepare
financial statement on the basis of cash) shall be as
follows.
Donation and Other Received Amount Rs.

Minimum Audit Fee Rs.

Above 50 Crore

5,00,000

Above 20 Crore

2,00,000

Above 1 crore

100000

Above 5 million

50,000

Subject to the above minimum fee, the minimum fee of

audit of international non-governmental organization
shall not be less than 100 thousand.

f) The minimum audit fee to be received by the member

of Institute holding certificate of practice while
carrying out audit of local body shall be as follows.
Minimum Audit Fee Rs.
All municipality of hilly area except
Kathmandu Valley, Kavre Kaski

1,00,000

All municipality of Kathmandu Valley,

Kavre Kaski and Terai belt

1,50,000

All sub metropolitan city

5,00,000

All Metropolitan City

10,00,000

g) The minimum fee of member for various level

manpower and certification work while submitting
proposal for audit and other assignment shall be as
follows:
i) For Statutory Audit/ Internal Audit/ Tax Audit
& Accountancy Consultancy Job/Investigation/
Management Service/Special Assignments
Prevailing Fee
per day Rs.

Revised Fee
per day Rs.

In case of F.C.A. Member

4,000/-

10,000/-

In case of C.A. Member

3000/-

7500/-

In case of R.A. B Member

1500/-

5000/-

In case of other member and assistant

1000/-

3000/-

ii) For Certification

In case of F.C.A. Member

In case of C.A. Member
In case of R.A. Member

Prevailing Fee
per day Rs.
3000
2500

Revised Fee
per day Rs.
3000
3000
1500

h) Minimum fee shall not be applicable to private

limited having transaction less than Rs.2 million, sole
proprietorship firm, partnership firm, cooperative,
governmental primary school, religious organization,
social association, consumer group, different
committee, trade union and professional organization
and other similar nature of association. Provided that
audit shall not be carried out without remuneration.
i) A member of the institute holding certificate of practice
shall take internal audit fee on the basis of minimum
audit fee as prescribed above. In case, it is required to
carry out internal audit on any special sector or limiting
in any transaction, it shall not be less than the minimum
fee per day as prescribed under point no. g (i).
j) A member of the Institute holding certificate of
practice shall take separate fee while making
preparation of special report requested by regulatory
body and carrying out tax audit and the fee shall not
be less than the minimum fee per day as prescribed
under point no. g (i).
k) The audit fee as mentioned above does not include
the other expenses related to audit. Other expenses
related to audit shall be separate.
l) For the purpose of the determination of the minimum
audit fee, the audited financial statement of previous
fiscal year shall be taken as basis.
m) In case of audit fee of public body- in case of the
body where the auditor to be appointed by the Auditor
General and the fee is to be fixed by the Office of
Auditor General, the audit fee shall be as fixed by the
Auditor General.

The Nepal Chartered Accountant

September 2015

51

Notice

n) This guidelines shall not be applicable if Government

of Nepal cause to involve the member of Institute
for any work other than audit task and profession
competition.
o) Member holding certificate of practice may carry
out 100 number of audit in a fiscal year. Provided
that the limit of public company shall not exceed 10
from amongst the limit of 100. Each partner of the
partnership firm may carry out the audit subject to the
above limit.
Provided that audit of private limited having

52

The Nepal Chartered Accountant

September 2015

transaction less than Rs.2 million, sole proprietorship

firm, partnership firm, cooperative, governmental
primary school, religious organization, social
association, consumer group, different committee,
trade union and professional organization and other
similar nature of association shall not be counted for
the purpose of counting limit of the number of files as
mentioned above.
p)
The transaction amount for the purpose of
determination of minimum audit fee and number of
file shall be as mentioned in Rule 53 of the Nepal
Chartered Accountants Rules, 2061.

Notice

As per the decision of 197th Council meeting, the following Nepal Standards on
Auditing revised and drafted based on IAASB hand book 2012 edition, are
applicable voluntarily from 1st Sharwan 2072 & Mandatory from 1st Sharwan 2073.

Nepal standards on Auditing

(Based on IAASB Hand Book 2012 Edition)
LIST OF STANDARDS

S.No. NSA No.

Standards

NEPAL STANDARDS ON QUALITY CONTROL(NSQCs)

1

NSQC1

Nepal Standard on Quality Control (NSQC) 1 : Quality Control For Firms that Perform
Audits and Reviews Of Financial Statements, and Other Assurance and Related Services
Engagements

AUDITS OF HISTORICAL FINANCIAL INFORMATION

200-299 GENERAL PRINCIPLES AND RESPONSIBILITIES
1

NSA 200

Overall Objective of the Independent Auditor and the conduct of an Audit in Accordance
with Nepal Standards on Auditing

NSA 210

Agreeing the Terms of Audit Engagements

NSA 220

Quality Control for an Audits of Financial Statements

NSA 230

Audit Documentation

NSA 240

The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements

NSA 250

Consideration of Laws and Regulations in an Audit of Financial Statements

NSA 260

Communication with Those Charged with Governance

NSA 265

Communicating Deficiencies in Internal Control to Those Charged with Governance and

Management

300-499 RISK ASSESSMENT AND RESPONSE TO ASSESSED RISKS

9

NSA 300

Planning an Audit of Financial Statements

10

NSA
315(Revised)

11

NSA 320

Materiality in Planning and Performing an Audit

12

NSA 330

The Auditors Responses to Assessed Risks

13

NSA 402

Audit Considerations Relating to an Entity Using a Service Organization

Identifying and Assessing the Risks of Material Misstatement through Understanding the
Entity and Its Environment

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Notice

14

NSA 450

Evaluation of Misstatements Identified during the Audit

500-599 AUDIT EVIDENCE

15

NSA 500

Audit Evidence

16

NSA 501

Audit Evidence-Specific Considerations for Selected Items

17

NSA 505

External Confirmations

18

NSA 510

Initial Audit EngagementsOpening Balances

19

NSA 520

Analytical Procedures

20

NSA 530

Audit Sampling

21

NSA 540

Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related
Disclosures

22

NSA 550

Related Parties

23

NSA 560

Subsequent Events

24

NSA 570

Going Concern

25

NSA 580

Written Representations

600-699 USING THE WORK OF OTHERS

26

NSA 600

27

NSA
610(Revised)

28

NSA 620

Special considerations-Audit of Group Financial statements (including the work of

component Auditors)
Using the work of Internal Auditors
Using the work of an Auditors Expert

700-799 AUDIT CONCLUSIONS & REPORTING

29

NSA 700

Forming an opinion and Reporting on financial statements

30

NSA 705

Modifications to the opinion in the Independent Auditors report

31

NSA 706

Emphasis of Matter Paragraphs and other Matter Paragraphs in the Independent Auditors
Report

32

NSA 710

Comparative information-corresponding Figures and comparative Financial Statements

33

NSA 720

The auditor's responsibilities relating to Other information in Documents Containing

Audited Financial statements.

800-899 SPECIALIZED AREAS

54

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34

NSA 800

Special Considerations-Audit of financial statements Prepared in accordance with special

Purpose Frame works

35

NSA 805

Special Considerations-Audits of Single Financial statements and Specific Elements,

Accounts or Items of a Financial statements

36

NSA 810

Engagements to Report on Summary of Financial Statements

NEPAL AUDITING PRACTICE NOTES

37

NAPN 1000

Special considerations in Auditing Financial Instruments

AUDITS AND REVIEW OF HISTORICAL FINANCIAL INFORMATION

2000-2699 NEPAL STANDARDS ON REVIEW ENGAGEMENTS(NSREs)
38

NSRE 2400

Engagement to Review Financial Statement

39

NSRE 2410

Review of Interim Financial Information Performed by the Independent Auditor of the

Entity

ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR REVIEWS OF

HISTORICAL FINANCIAL INFORMATION
3000-3699 NEPAL STANDARDS ON ASSURANCE ENGAGEMENTS (NSAEs)

3000-3399 APPLICABLE TO ALL ASSURANCE ENGAGEMENTS

40

NSAE 3000

Assurance Engagements Other than Audits or Reviews of Historical Financial

Information

3400-3699 SUBEJECT SPECIFIC STANDARDS

41

NSAE 3400

The Examination of Prospective Financial Information

42

NSAE 3402

Assurance Reports on Controls at a Service Organization

43

NSAE 3410

Assurance Engagements on Greenhouse Gas Statements

44

NSAE 3420

Assurance Engagements to Report on the Compilation of Pro Forma Financial

Information Included in a Prospectus

RELATED SERVICES
4000-4699 NEPAL STANDARDS ON RELATED SERVICES (NSRSs)

45

NSRS 4400

46

NSRSs
4410(Revised)

Engagements to Perform Agreed-Upon Procedures Regarding Financial Information

Compilation Engagements

Note: Click on link below for details.

http://www.ican.org.np/newnsas.php

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Activities

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