Nepal

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

Accounting Framework

The ASB has developed the Nepal Financial Reporting Standards (NFRS) in line with the IFRS. Listed companies, state-owned enterprises (SOE), commercial banks and other financial institutions, and other entities with public accountability that are not considered an SME must apply the NFRS.

Other companies may use Nepal Accounting Standards (NAS), NFRS for SMEs, or NAS for NPOs. NFRS for SMEs and NAS for NPOs will be mandatory for the fiscal year 2023-24.

Auditing Framework

The Companies Act 2006 requires all companies to be audited and audits must be conducted by a member of the Institute of Chartered Accountants of Nepal. The AuSB developed Nepal Standards on Auditing 2018 based on the 2016-17 ISA, which are to be applied in all audits.

Recently ICAN has approved Nepal Standards on Auditing 2024 for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 and for mandatory compliance for audit of financial statements for periods beginning 16 July 2025 except for NSQM-1, NSQM-2, NSA 220, NSA 600 and NSRS 4400 which are approved for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 but for mandatory compliance from 16 July 2026.

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

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

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

In order to use the designation of Chartered Accountant and offer accountancy services, individuals must complete an initial Chartered Accountancy Course offered by ICAN (individuals may enter at different levels depending on higher education), pass ICAN’s final examination, complete 100 hours of IT training as well as a 15 day General Management Communication Skill (GMCS) course, and have three years’ practical experience. Alternatively, individuals who complete an initial Chartered Accountancy Course from other foreign institutes and pass the examination of subjects as agreed in respective MRA/MPA/MoUs are eligible to get membership at ICAN and can also apply Certificate of Practice (CoP) in Nepal by meeting practical training requirements as outlined in ICAN Act, Rule, By-Laws or Procedure.

To offer auditing services as a Registered Auditor, Chartered Accountant members must obtain a Certificate of Practice from ICAN. Candidates for the Certificate of Practice must have (i) acquired a Chartered Accountant Membership Certificate and (ii) completed at least three years of practical training in auditing under a qualified Chartered Accountant with a Certificate of Practice.

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

Institute of Chartered Accountants of Nepal (ICAN)

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

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

Under the Nepal Chartered Accountants Act 1997, the Quality Assurance Board (QAB) was established by the Institute of Chartered Accountants of Nepal (ICAN) and is responsible for supervising and carrying out quality assurance (QA) reviews in the jurisdiction.

As of 2023, the QAB carries out reviews of firms conducting audits of listed companies and other firms who perform audit engagements of clients with a total balance sheet of NPR 500 million or more. Although all companies are subject to an audit, reviews of these other audits will be considered and conducted in phases. ICAN reports that the QA system aligns with the majority of SMO 1 requirements.

Upon the recommendation of AuSB, ICAN Council has approved the Nepal Standards on Auditing 2024 for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 and for mandatory compliance for audit of financial statements for periods beginning 16 July 2025 except for NSQM-1, NSQM-2, NSA 220, NSA 600 and NSRS 4400 which are approved for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 but for mandatory compliance from 16 July 2026.

Until then the existing ISA framework Nepal Standards on Auditing 2018 based on ISA 2016-17 is applicable for mandatory compliance.

ICAN is yet to publish its decision of pronouncement of new ISA framework in its website for general information.

Current Status: Partially Adopted

Under the Nepal Chartered Accountants Act 1997, the Institute of Chartered Accountants of Nepal (ICAN) is responsible for establishing initial professional development (IPD) and continuing professional development (CPD).

Candidates for the Chartered Accountant designation must fulfill initial education, practical experience, exams, and continuing education requirements stipulated by ICAN. ICAN reports it reviews its curriculum to be in line with IES and verifies compliance with the requirements through its Board of Studies. The last review and revisions took place in 2023 and will be applicable December 2024.

Current Status: Adopted

Under the Nepal Chartered Accountants Act 1997, the Auditing Standards Board (AuSB) is responsible for establishing applicable auditing standards to be applied in Nepal. The AuSB developed Nepal Standards on Auditing that are currently based on the 2016-17 ISA.

Upon the recommendation of AuSB, ICAN Council has approved the Nepal Standards on Auditing 2024 for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 and for mandatory compliance for audit of financial statements for periods beginning 16 July 2025 except for NSQM-1, NSQM-2, NSA 220, NSA 600 and NSRS 4400 which are approved for voluntary compliance for audit of financial statements for periods beginning 16 July 2024 but for mandatory compliance from 16 July 2026.

Until then the existing ISA framework Nepal Standards on Auditing 2018 based on ISA 2016-17 is applicable for mandatory compliance.

ICAN is yet to publish its decision of pronouncement of new ISA framework in its website for general information.

Current Status: Partially Adopted

The Nepal Chartered Accountants Act 1997 provides the Institute of Chartered Accountants of Nepal (ICAN) with authority to set professional conduct rules. ICAN has adopted the 2021 International Code of Ethics for Professional Accountants.

ICAN is considering the adoption of the revisions effective as of December 2022 and has finished the review and mapping process, but is yet to be recommended by the Ethics Committee to the Council. It is expected to complete this process soon and to issue the Code of Ethics 2024 based on the IESBA Code of Ethics 2022.

Current Status: Partially Adopted

The Government of Nepal has entrusted the Accounting Standards Board, Nepal (ASB Nepal) with the responsibility to develop accounting standards for the public sector.

The current version of Nepal Public Sector Accounting Standards (NPSAS) is based on the 2017 cash-basis IPSAS.

Current Status: Partially Adopted

Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Institute of Chartered Accountants of Nepal (ICAN) is responsible for establishing an investigation and disciplinary (I&D) system for all professional accountants. In 2023, ICAN conducted a self-assessment of its I&D system against the requirements of SMO 6 and reported alignment.

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

ICAN issued Disciplinary Investigation Procedures in 2019 to formalize the disciplinary actions initiated from the institute. A Disciplinary Division has been established under Technical Directorate of the institute to support the Disciplinary Committee.

Current Status: Adopted

Under the Nepal Chartered Accountants Act 1997, as amended in 2004, the Accounting Standards Board (ASB) was established to set accounting standards. The ASB has developed the Nepal Financial Reporting Standards (NFRS) in line with the IFRS. Listed companies, state-owned enterprises (SOE), commercial banks and other financial institutions, and other entities with public accountability that are not considered an SME must apply the NFRS.

Other companies may use Nepal Accounting Standards (NAS), NFRS for SMEs (based on IFRS for SMEs), or NAS for NPOs. NFRS for SMEs and NAS for NPOs will be mandatory for the fiscal year 2023-24.

Current Status: Adopted

Relevant Organizations

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

Relevant Legislation

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

Relevant Publications

• ICAN, SMO Action Plan, 2023.
• IFRS Foundation, “IFRS Application Around the World, Jurisdictional Profile: Nepal,” 2016.
• Institute of Chartered Accountants of Nepal, “Nepal Financial Reporting Standards.”
• World Bank, Report on the Observance of Standards and Codes (ROSC), Accounting and Auditing: Nepal, 2015.