General Overview of the Nepal Accounting Standards and Institute of Chartered Accountant Of Nepal ICAN

Executive Summary

Accounting is a language of business. It is the vehicle for reporting and communicating financial information about a business entity to its stakeholders. So, Accounting standards are useful for all entity. In this report, we have dealt about the Institute of Chartered Accountants of Nepal (ICAN), and Nepal Accounting Standards (NAS). In Nepal, there are 26 issued Nepalese accounting standards. Accounting standards regulate and bring the financial and business transactions and events to common set of system so that all stakeholders can understand and compare them efficiently.

The history of International Accounting Standards dates back to 1973 when the International Accounting Standards Committee (IASB) established. It was replaced by International Accounting Standards Board (IASB) in and afterward 2001. International Accounting Standards Board (IASB) is responsible for developing International Financial Reporting Standards (the new name for International Accounting Standards issued after 2001), revising them timely, coordinating with the different stakeholders and promoting the use and application of these standards.

In case of Nepal, even though Nepal has accepted IFRS and IAS, Nepal has issued its own Nepalese Accounting Standards in 2001 AD to localize them properly. The current developments in accounting and reporting standards are tending towards a degree of commonality at national and international levels. The Institute of Chartered Accountants of Nepal (ICAN) was established under a special act. ICAN is responsible for ensuring the proper implementation of rules and procedures set by ASB. The Institute is an autonomous body and the Council is fully authorized by the Act to undertake accountancy profession in Nepal. Against the common understanding, it is not ICAN which sets the accounting standards of Nepal, it is ASB which is responsible for development of standards and ICAN is the body responsible for implementation and monitoring of those standards.

 

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Financial Statements in every organization are prepared to summarize the end-result of all the business activities by an enterprise during an accounting period in monetary terms. These business activities vary from one enterprise to other. To compare the financial statements of various reporting enterprises poses some difficulties because of the divergence in the methods and principles adopted by these enterprises in preparing their financial statements. So in order to make these methods and principles uniform and comparable to the extent possible – standards are evolved.

Accounting Standards are the statements of code of practice of the regulatory accounting bodies that are to be observed in the preparation and presentation of financial statements. In layman terms, accounting standards are the written documents issued by the expert institutes or other regulatory bodies covering various aspects of measurement, treatment, presentation and disclosure of accounting transactions.

It is a principle that guides and standardizes accounting practices. The Accounting Standards are necessary so that financial statements are meaningful and understandable across a wide variety of businesses; otherwise, the accounting rules of different companies would make comparative analysis almost impossible.

Basic Objectives of NAS

  • To remove variations in the treatment of several accounting aspects.
  • To bring about standardization in presentation of financial Statements or information.
  • To harmonize the diverse accounting policies followed in the preparation and presentation of financial statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison.

Nepal has also put an effort on the initiation of uniform accounting practice. In Nepal, there are 26 issued Nepalese accounting standards. ICAN has taken responsibility to regulate the accounting practice in Nepal. Institute of Chartered Accountant of Nepal (ICAN) came into existence in 1997 by a special Act of the Parliament, The Chartered Accountant Act, 1997 with the objective of regulating the financial reporting and accounting professions, the assistance to build up awareness and basic skills in developing the accounting standards. The institute attempted to establish a set of accounting standards. Consequently in 2001, the Institute established two internal committees called Accounting Standards Committee and Auditing Standard Committee.

The Accounting Standard Committee became instrumental in doing all the groundwork for the preparation of Accounting Standards. Within a short period this committee developed exposure drafts of various standards needed instantly in the betterment of accounting profession and financial environment in the Country. After a year Committee was formally converted into the Accounting Standards Board (ASB) under Chartered Accountants Acts 1997.

The Accounting Standards Board (ASB) is an independent statutory body with the responsibility to set and issue accounting standards for preparation and presentation of financial statements in Nepal. The ASB was established in March 2003 with an amendment to the Institute of Chartered Accountants of Nepal Act 1997 incorporating the provision for its establishment and operation. The ASB is primarily responsible for setting accounting and financial reporting standards for business enterprises in line with the International Financial Reporting Standards (IFRSs). Since 2007, ASB has also been entrusted by Nepal Government with the responsibility to develop accounting standards for public sector in line with the International Public Sector Accounting Standards (IPSASs). Thus ASP/Nepal design and prepares accounting Standards in Nepal.

1.2 Objectives of the Study

Accounting standards are very helpful as it regulates and brings the financial and business transactions and events to common set of system so that all stakeholders can understand and compare them efficiently. So the study of Nepal Accounting Standards had been very fruitful to achieve the following objectives.

  • To be familiar with accounting standards, its practices, policies and challenges.
  • To upgrade our gained knowledge not only on Accounting Standards of Nepal but also on International Accounting Standards.
  • To match up our theoretical understandings of management with the real working process.
  • To improve the presentation skills, communication skills, research skills, group work.

1.3 Research Methods

The research is constructed by direct interview and questionnaire to obtain the qualitative information which in turn helps to meet the targeted objectives.

Sources of Data and Collection Procedures:

We mainly collected information and opinions relevant to our study from various primary and secondary sources.

Primary Sources:

The primary sources of information consisted of formal and informal interviews. The interviews were made on personal basis and provides substantial amount of information. Since different people have different perspectives or opinions or thoughts, which may affect the analysis. So we took help of secondary sources as well.

Secondary Sources:

Most of the data used in this report are of secondary nature that has already been published in the institutions bulletins, booklets, websites, and other newspapers. We basically focused on the secondary data’s as data used in this report are of secondary nature.

CHAPTER TWO: INTRODUCTION OF NAS

2.1 Introduction

The Nepal Accounting Standards (NASs) are the standards issued by Accounting Standards Board (ASB) in Nepal. Institute of Chartered Accountants of Nepal (ICAN) Act ,1997, has made it mandatory for the board to formulate and revise NASs following the International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB).While International Financial Reporting Standards have been used for development of NASs, we must confess that the legal and regulatory environment and the preparedness of the stakeholders of the accounting standards into the country have been considered by making minimum possible modifications to the IFRSs in developing Nepal Accounting Standards(NASs) .

The Standards are set considering in the process of eliminating the difference in accounting globally as far as possible.

Currently, there are 37 numbers of International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB) in effect. Till the date, a total of 26 Nepal Accounting Standards have been developed, out of which 19 are mandatory by 1st Shrawan 2065 and 7 are in voluntary compliance stage. Universally, the development and application of accounting standards is a gradual process and more so especially in a country like Nepal where the capital market development is yet to fully develop. Accordingly, the ASB has evaluated the need and planned the timing for developing these standards and the remaining standards to be issued in the coming period.

2.1.1 Accounting Standards Board

The Accounting Standards Board (ASB) is an independent statutory body with the responsibility to set and issue accounting Standards for preparation and presentation of financial statements in Nepal. The ASB was established in March 2003 with an amendment to the Institution of Chartered Accountants of Nepal Act 1997 incorporating the provision for its establishment and operation. The ASB is primarily responsible for setting accounting and financial reporting standards for business enterprises in line with the International Financial Reporting Standards (IFRSs)

The ASB consists of 13 members comprising a Chairman appointed by the Government of Nepal from Fellow Chartered Accountants and Other members representing from Ministry Of Finance, Office of the Auditor general, Financial Comptroller General Office, Inland Revenue Department, Company Registered Office, Security Exchange Board, the Institution of Chartered Accountants of Nepal and the Registered Auditors.

Accounting Standards Board committee

(2066/04/28 – 2069/04/27)Mr. Pradeep Kumar Shrestha, FCAChairmanMr. Deba Raj Pathak, Representative, MOFMemberMr. Som Raj Pokhrel, Representative, Office of the Auditor GeneralMemberMr. Babu Ram Shrestha, Representative, Financial Comptroller General OfficeMemberMr. Shankar Prasad Pathakl, Company Registrar, Company Registrar OfficeMemberMr. Shanta Bahadur Shrestha, Director General, Inland Revenue DepartmentMemberDr. Surbir Poudyal, Chairman, Securities Board of NepalMemberMr. Purneshwor Shrestha, FCA, Representative, ICANMemberMr. Lumba Dhoj Mahat, FCA, Representative, ICANMemberMr. Bhaskar Singh Lala, FCA, Representative, ICANMemberMr. Parakram Nath Sharma, FCA, Representative, ICANMemberMr. …………………………………………., FCA, Representative, ICAN Mr. Dilip Kumar Dhungana, Registered Auditor, Representative, ICANMember

2.1.2   Institute of Chartered Accountants of Nepal (ICAN)

The Institute of Chartered Accountants of Nepal (ICAN) was established under a special act, The Nepal Chartered Accountants Act, 1997 to enhance social recognition and faith of people at large in the accounting profession by raising public awareness towards the importance of accounting profession as well as towards economic and social responsibility of the accountants, and to contribute towards economic development of the country. The Institute is an autonomous body and the Council is fully authorized by the Act to undertake accountancy profession in Nepal.

ICAN is committed to regulate the accounting profession in Nepal. It has a great value of membership of ICAN and Members are integral part of the institute.

2.1.3 International Accounting Standards IAS

Historically, the International Accounting Standards started in mid 1960s more precisely in 1966, with the plan to establish an “International Study Group” incorporating the Institute of Chartered Accountants of England & Wales (ICAEW), American Institute of Certified Public Accountants (AICPA) and Canadian Institute of Chartered Accountants (CICA) for England and Wales, USA and Canada respectively. In June 1973 the International Accounting Standards Committee (IASC) came into existence soon after the formation of the Financial Accounting Standards Board (FASB) to release new international standards, which would be rapidly accepted and implemented worldwide.

In 1975, IAS 1 – Disclosure of Accounting Policies, and IAS 2 – Valuation and Presentation of Inventories in the Context of the Historical Cost System were published. The Standing Interpretations Committee (SIC) was formed in 1997 with an objective to develop, on a timely basis, interpretations of IASs for final approval by IASC.

SIC has issued 33 interpretations and at present 11 SICs are in implementation. Some of the IASs and SICs have been superseded or withdrawn and some of them have been modified.

In 2001 the IASC was disbanded and the International Accounting Standards Board (IASB) was established in March 2001 as a part of the International Accounting Standards Committee (IASC) Foundation to set International Financial Reporting Standards (IFRSs) and assumed its responsibility on 1 April 2001 from the IASC.

On 1 July 2010, the name of IASC Foundation has been formally changed to the IFRS Foundation. The standards issued after 2001 are named IFRSs. First IFRS – First-time

Adoption of IFRSs and first IFRIC – Changes in existing decommissioning, Restoration and Similar Liabilities are published in June 2003.

13 IFRSs have been issued till 2012 out of which 8 IFRSs are in implementation, one IFRS-9 will be effective from 2013. The interpretations issued before 2001 is called SIC and interpretations issued after 2001 is called IFRIC. 17 IFRICS are in implementation.

 2.1.4 International Financial Reporting Standards (IFRS)

It is a set of principles-based Accounting Standards, Interpretations and the Framework by an independent, not-for-profit organization called the International Accounting Standards Board (IASB). The goal of IFRS is to provide global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting. The IFRSs are increasingly being recognized as Global Reporting Standards for preparation of financial statements by business enterprises.

International Financial Reporting Standards comprise not only IFRSs but also the following:

  • IASs – standards issued before April 2001
  • IFRSs – standards issued after March 2001
  • Interpretation issued by the former Standing Interpretations Committee (SIC) – issued before 2001
  • Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) – issued after 2001

2.1.5 International Accounting Standards Board (IASB):

The International Accounting Standards Board (IASB) is an independent, privately funded accounting standard-setter based in London, England. The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee (IASC). It is responsible for developing International Financial Reporting Standards (the new name for International Accounting Standards issued after 2001), and promoting the use and application of these standards.

 

2.2 Significance of NAS

The standard setters globally are in process of removing the differences in accounting. More than 100 countries currently require or permit the use of or have a policy of convergence with IFRSs. Nepal cannot remain all of from this development .The board has also initiated this process and a task force in working to develop a plan for converging NASs to IFRSs. In a nutshell the NASs have an objective to converge with IFRSs, the objectives of which are as follows:

NAS will provide reliable, understandable and comparable information to make better informed investment decisions for the free flow of capital across borders

  • NASs would foster internationalization of the accounting profession and provides opportunity to carry out accounting profession globally.
  • Preparation of financial statements by adopting NASs on the same basis as its foreign competitors makes comparison task easy.
  • Preparation of financial statements of companies being a subsidiary of a foreign company or listed in foreign stock exchange or having foreign investor becomes easier.

Objective of NAS

  • To harmonize the diverse accounting policies and practices
  • To promote transparency in accounting
  • To ensure the adequacy and reliability of the accounts
  • To facilitate comparison of financial statements
  • To bring uniformity in accounting as a need of world trade

2.4 NAS Formulation Process:

The ASB employs the following process to formulate Nepal Accounting Standards:

2.4.1 IFRS is the source for NAS:

ASB is mandated by statue to follow international financial reporting standards (IFRS) while formulating Nepal Accounting Standards (NAS)

2.4.2 Technical Committee to Prepare Drafts:

The board forms technical committee for preparation of drafts of NAS for consideration of the board.

2.4.3 First Reading in Board:

The proposed standards in draft forms as recommended by the technical committee are presented at board’s meeting for first reading. After the first reading, a month’s time is allowed to the members of the board to make comments on drafts .the comments, if any, from the members of the boards are forwarded to technical committee for further discussion and consideration.

2.4.4 Second Reading in the Board:

The technical committee, after considering the comments received, if any, after the first reading, proposes improved version of the drafts to board for second reading.

2.4.5 Numbering Of Exposure Drafts:      

The board, after second reading, if decides to issue the drafts as exposure drafts, a lots the exposure drafts serial number (EDS number) to drafts and publishes in its website and also circulates to the stakeholders for public discussion as exposure drafts.

2.4.6 Public Discussion on Exposure Drafts:

The secretariat distributes exposure drafts and requests, allowing a period of two months, for comments thereon. The board member, if necessary, may organize workshops and seminars on such exposure drafts.

2.4.7 Issuance of Standards:

The Technical Committee presents final draft to the Board along with the comments received and recommends declaring the exposure drafts as Nepal Accounting Standards. The Board, upon the receipt of such recommendation, allows fifteen days time to its members to put forth further comments. The Board, after deliberation upon member’s comments, if any, or if no comment is received within the stipulated time, provides standard serial number to the exposure drafts and makes decision to publicly issue them as Nepal Accounting Standards (NAS). NAS are first issued for voluntary compliance for a minimum period of 12 months. After the end of voluntary compliance period, the Board makes decision for mandatory compliance as it deems appropriate.

2.4.8 Request for Compliance:

Upon issuance of the NASs, the Board formally informs the concerned regulatory authorities of its decision it issue the standards for voluntary or mandatory compliance as the case may be.

2.4.9 Language of the Standards:

Unless the Board specifies otherwise, the standards are issued in English language. Other directives, guidelines and explanatory notes regarding standards may be published in English or Nepali or in both languages.

2.5 Nepal Accounting Standards (NAS) Mandatory Compliance with their effective dates

S.No. NASs IASs Name Effective Date
(Original)
Revised Date
1 1 1 Presentation of Financial Statements 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
2 2 8 Accounting Policies, Changes Accounting Estimates & Errors 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
3 3 7 Cash Flow Statements 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
4 4 2 Inventories 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
5 5 10 Events After the Balance Sheet Date 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
6 6 16 Property, Plant and Equipment 1 Shrawan 2061
(16 July 2004)
1 Shrawan 2065
(16 July 2008)
7 7 18 Revenue 1 Shrawan 2062
(16 July 2005)
1 Shrawan 2065
(16 July 2008)
8 8 23 Borrowing Costs 1 Shrawan 2062
(16 July 2005)
1 Shrawan 2065
(16 July 2008)
9 9 12 Income Taxes 1 Shrawan 2064
(16 July 2007)
 
10 10 20 Accounting for Government Grants and Disclosure of Government Assistance 1 Shrawan 2063
(16 July 2006)
1 Shrawan 2065
(16 July 2008)
11 11 21 The Effects of Changes in Foreign Exchange Rates 1 Shrawan 2063
(16 July 2006)
1 Shrawan 2065
(16 July 2008)
12 12 37 Provisions, Contingent Liabilities and Contingent Assets 1 Shrawan 2063
(16 July 2006)
1 Shrawan 2065
(16 July 2008)
13 13 11 Construction Contract 1 Shrawan 2063
(16 July 2006)
1 Shrawan 2065
(16 July 2008)
14 15 17 Leases 1 Shrawan 2064
(17 July 2007)
1 Shrawan 2065
(16 July 2008)
15 16 24 Related Party Disclosures 1 Shrawan 2064
(17 July 2007)
1 Shrawan 2065
(16 July 2008)
16 17 34 Interim Financial Reporting 1 Shrawan 2064
(17 July 2007)
1 Shrawan 2065
(16 July 2008)
17 18 36 Impairment of Assets 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
18 19 40 Investment Property 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
19 20 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)

2.6 Nepal Accounting Standards under Voluntary Compliances:

S.No. NASs IASs Name Effective Date
(Original)
Effective Date
1 14 19 Employee Benefits 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
2 21 IFRS 3 Business Combinations 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
3 23 14 Segment Reporting 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
4 24 26 Accounting and Reporting by Retirement Benefit Plans 24 Magh, 2064
(7February 2008)
24 Magh, 2064
(7February 2008)
5 25 28 Investment in Associates 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
6 26 33 Earning per Share 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)
7 27 38 Intangible Assets 1 Shrawan 2064
(17 July 2007)
6 Shrawan 2064
(22 July 2007)

CHAPTER THREE: SUMMARY, CONCLUSION AND RECOMMENDATION

3.1 Summary

Accounting standards regulate and bring the financial and business transactions and events to common set of system so that all stakeholders can understand and compare them efficiently. A financial statement should reflect true and fair view of the business affairs of the organization. As these statements are used by various constituents of the society/regulators, they need to reflect true view of the financial position of the organization; and it is very helpful to check the financial position of the business for a specific period.

In case of Nepal, even though Nepal has accepted IFRS and IAS, Nepal has issued its own Nepalese Accounting Standards in 2001 AD to localize them properly. The current developments in accounting and reporting standards are tending towards a degree of commonality at national and international levels. The Institute of Chartered Accountants of Nepal (ICAN) was established under a special act. There are many reasons for implementation of accounting standards. The most important is the comparability of financial statements worldwide. ICAN is responsible for ensuring the proper implementation of rules and procedures set by ASB. The Institute is an autonomous body and the Council is fully authorized by the Act to undertake accountancy profession in Nepal. ICAN is not the one to set the accounting standards of Nepal, it is ASB which is responsible for development of standards and ICAN is the body responsible for implementation and monitoring of those standards.

3.2 Conclusion

From our study we came to conclude that;

  • Standards have facilitated uniformity, transparency, reliability and compressions in the books of accounts and its presentation.
  • The main problem lies in the lack of qualified and competent man power rather than the problems or inadequacy of standards.
  • Accounting Standards can be improvised with the implementation of IFRS from which corporate and foreign investment will benefit.
  • Although it is said to have systematic integration, there is poor integration and coordination among stakeholders
  • Lack of ethical and moral values in the Nepalese Accounting Professionals.

3.3 Recommendation

The dynamic environment of Nepalese market and economy poses the challenges of timely and effectively addressing on the needs that is to be transformed into opportunities. NAS are just the standards but the questions of their processing, issuance, implementation and monitoring need to be solved. So study on this project we were privileged and fortunate enough to recommend the following solutions.

  • Being principally educated is not enough to grasp the maximum output but instead they need to be professionally educated and trained with the in-depth accounting knowledge.
  • Political intervention should be minimized and transparency should be encouraged and enforced to ensure good governess.
  • The problem of implementation is prevailing in our country because of lack of proper localization of the standards. So ICAN should concentrate on localizing the standards instead of copying them.
  • There must be timely and proper integration between the stakeholders for the proper implementation of the standards.
  • Strict Disciplinary actions must be to discourage the misuse of the loopholes in the accounting standards.
  • There must be timely revision of the standards to meet the changing needs of the dynamic business world of today, so that we can be on par level with other countries of the world in terms of account keeping and presentation.
  • Universities should integrate the accounting standard in their course of content to bring core competency in the students graduating from the universities to fulfill the demand for the trained and skilled manpower.

Source: Original Article Posted On: kopila.com.np


Now Check This Out

;