Red tape, auditing malpractice major causes of corruption

The Commission for the Investigation of Abuse of Authority (CIAA) has filed 206 cases against individuals for their alleged involved in corruption and irregularities in the first five months of the current fiscal year 2019-20.
As the country is implementing the federal system, there is a rise in the misappropriation of the state fund, reveals a survey report 'Study on Corruption and Good Governance in Nepal-2018' released last year. “During the period, the anti-graft body carried out 94 sting operations,” it reads, adding that the anti-graft body has registered 351 cases at the Special Court, the highest number in the history of the CIAA, in the last fiscal year, whereas it had conducted some 142 sting operations – also a record high – bringing 200 public officials to book.
Speaking at an event organised by the Institute of Chartered Accountants of Nepal (ICAN) today, the CIAA chief commissioner Nabin Kumar Ghimire said that corruption cases have been on the rise, mainly at the local government level. “The commission has started rigorous watch on officials at the local units.”
The survey report also reveals that only land revenue offices are more corrupt than local units. “Most of the complaints are related to quantity and quality of supplied goods, substandard construction, awarding contracts without following due procedures, budget misappropriation, illegal mining of aggregate, distribution of social security allowance, and misuse of office facilities.”
The participants though stressed on poor auditing process and fraudulent financial reporting as the reasons behind corruption, Ghimire sought effective role of chartered accountants (CAs) to check the cases of financial misappropriations in public offices.
The Corruption Perception Index 2019 released by the Transparency International (TI) also reveals that Nepal's position fell two notches to 124 in 2018.
Business leaders, on the occasion, also expressed concern over the expanding shadow economy and falling quality of development work due to increasing corruption, which has also increased cost of doing business.

Finance Minister invites businesspeople to invest in Nepal

Finance Minister Dr Yubaraj Khatiwada has invited businesspeople to invest in Nepal as the country has created business friendly environment. Giving examples that all the foreign firms operating in Nepal have been making up to 25 per cent return on equity (RoE) against the global average of 10 per cent, he said that Nepal is a better option for investors.
Speaking at a session during the Nepal Infrastructure Summit 2019, the finance minister also informed that Nepal is in the process of conducting sovereign credit rating to facilitate businesses in the country. However, he acknowledged that the government has not been able to give due priority to the infrastructure sector due to lack of enough resources as the incumbent government also has bigger responsibility of ensuring social security of citizens.
“The Constitution has guaranteed more than 30 fundamental rights to the people and majority of them are related to social security,” he said, adding that the government also has to ensure availability of resources – administrative – to all 761 governments across the country. “The government is, therefore, promoting the support and investment from the private sector for desired economic goals and development aspirations of the country.”
Ample investment in the infrastructure, including roadways, railways, airways and the tourism infrastructure, will ensure easy entry of the private sector in the development process, he added. “Along with this, the government is seeking private sector’s support also to diversify and minimise risks.”
According to Khatiwada, a few infrastructure projects could also be operated in business model to attract private sector’s investment.
Likewise, former chief executive officer of Investment Board Nepal (IBN) Radesh Panta said that the country today needs quality investment for which the government should ensure necessary subsidy packages and coordination with investors.
World Bank vice president Jingdong Huo, on the occasion, said that the multilateral development partner has been contributing the private sector-oriented economic development in Nepal. According to Huo, the World Bank has been operating 25 projects in Nepal at present, while $2.6 billion worth of new projects have been initiated in Nepal recently. “The majority of economic indicators of Nepal today are satisfactory,” he added.
Likewise, chief executive officer of NMB Bank Sunil KC informed that banks have been investing almost 20 per cent of their loan portfolio in the infrastructure sector. “Of the total, majority of the investment is in hydropower and renewable energy,” KC added.
Though Nepal needs huge investment to achieve targeted economic growth rate, he lamented that the financial sector is often witnessing the crunch of loanable funds. “In such a context,” he urged the government to facilitate banks to bring in funds from offshore markets.
On the occasion, president of Institute of Chartered Accountants of Nepal (ICAN), Krishna Acharya said that ‘accountability’ is the primary challenge facing the country at present. He also highlighted the necessity of effective coordination between the government, private sector and the financial sector for development of infrastructure in Nepal.

Urge to focus on quality of audits to improve trust

Accountancy professionals urged the accountants to improve the quality of audit for enhancing public trust on audit reports issued by them.
Speaking at a session on ‘Enhancing Quality of the Audit to Meet Expectations of Stakeholders’ during a day long ‘Conference on Accounting Profession and Way
Forward' – organised by the Institute of Chartered Accountants of Nepal (ICAN) – in Kathmandu today, they said that chartered accountants should conduct audit of corporate and public enterprises in accordance with auditing standards prescribed by the regulators.
ICAN – an autonomous body to regulate chartered accountancy in Nepal – has organised the conference on the occasion of its 22nd anniversary.
Experts and practitioners, on the occasion, presented and commented on technical papers in four sessions during the conference, where they discussed on Blockchain and Financial Market, Corporate Governance Reporting and Role of Professional Accountants, Experience in Implementation of Nepal Financial Reporting Standards in Nepal.
Over 250 participants, including ICAN members, government officials, corporate executives, regulators and chartered accountants, participated in the conference, where finance minister Dr Yuba Raj Khatiwada also addressed. 

Sebon issues code of conduct for Board of Director

The capital market regulator has directed its Board of Directors (BoDs) not to invest in the promoter shares of any company that has received any kind of permission from the board. Issuing a code of conduct for its Board of Directors, Securities Board of Nepal (Sebon) has also asked them to refrain from making any investment in the secondary market. It has said that they should not invest in the secondary market and promoter shares during his or her tenure at the board ‘to maintain secrecy and integrity’.
According to the direction, the board members can also no longer join the board of any brokerage company or any company either listed or is in the process of being listed in the secondary market. The board members have also been barred from working as full-time staff at any such organisations.
Sebon has a seven-member board, including the chairman. Three members from government agencies – joint secretaries from Finance Ministry and Ministry of Law, Justice and Parliamentary Affairs, and executive director of central bank – whereas remaining three are the representatives from Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Institute of Chartered Accountants of Nepal (ICAN) and an independent member.
"Sebon board members should maintain financial transparency," the capital market regulator said in its press note. "They should not abuse the authority granted to them,” the note reads, adding that the regulator is also planning to issue corporate governance directive to the organisations that are under the supervision of the authority.
Board members will now have to get a clearance from the board before they can speak to the media as any information given by them can directly affect individual companies or the market. They are also not allowed to accept any gifts without permission, the release adds.
Sebon has already issued code of conduct to its staff members.

Minister asks auditors to maintain professional integrity

Finance minister Shankar Prasad Koirala has asked the auditors to maintain professional integrity.

Addressing the 17^th anniversary of the Institute of Chartered Accountants of Nepal (ICAN), here today, he said that the auditors have a huge responsibility of maintaining financial discipline. "Trust deficit on auditors will raise question on good governance of the country."

The government is ready to utilise the expertise of the auditors, he said, adding that the regulatory authority has to be free, strong and empowered for the country to maintain financial discipline. "As the country is moving towards economic development after the political transition, professional manpower like auditors have more role to play."
 The economy follows guideline of the auditors, deputy governor of the central bank Maha Prasad Adhikari, on the occasion, said, asking the auditor to maintain professional integrity.
Currently, there are 8,00 chartered accountants in the country.

Banks will have to publish two different sets of financial statements

Since the country is adopting International Financial Reporting Standards (IFRS) from next fiscal year, banks will have to publish two different sets of financial statements, one according to regulatory authority's prescription and the other according to the international standard.

The banks and financial institutions have to currently provision for loan loss according to the central bank prescribed time frame and percentage but the international standard format focuses on fair value based assessment of collateral instead of current format of time line for loan loss provisioning, according to chartered accountant and member of Accounting Standard Board (ASB) Parakram Sharma.

“The standards will be based mainly on financial principles than on a rule-based system," Sharma added.

Currently, a bank has to provision 25 per cent in three months, 50 per cent in six months, and 100 per cent nine months for expected loan loss.

Though the format is expected to comply with the norms of the concerned regulators also apart from international auditing standards, there could be different need of the regulatory authority, he said, adding that in the US also, the companies publish both sets of financial reporting.

The IFRS is focused on strengthening the accounting system and also bring global harmonisation in the financial reporting that will help gauge the actual financial health of a company. It would be based on general purpose financial statements that measure the various financial components in fair value instead of the timeframe value being implemented now.

As the government is planning to implement the IFRS from the next fiscal year 2014-15, in the first phase, multinational companies and listed State Owned Enterprises (SOEs) with minimum paid up capital of Rs 5 billion – except Banks and Financial Institutions under BAFIA Act, 2006 – will start implementation of the new financial reporting format. In the second phase, in the fiscal year 2015-16, the commercial banks including state owned commercial banks, and all other listed State Owned Enterprises have to implement the new format for financial reporting. Likewise, in the third phase, all other financial institutions, all other SOEs, insurance companies, all the listed companies, and all other corporate bodies/entities not defined as SMEs or entities having borrowing with minimum of Rs 500 million will have to implement from the fiscal year 2016-17. The Small and Medium Enterprises (SMEs) – defined by Accounting Standard Board – will also implement it by the fiscal year 2016-17.

"Though, the government will fully implement new financial reporting standards by 2017, implementation in SMEs should be well thought and planned as only 57 countries have implemented the standard reporting format for SMEs, out of total 122 countries that are using the international format of financial reporting currently," according to auditor General Bhanu Prasad Acharya.

Developed by the International Accounting Standards Board as a system of keeping accounts of companies that would be recognised universally, the IFRS helps bring in foreign investors as the financial reporting standard harmonises globally.

Institute of Chartered Accountants of Nepal (ICAN) and Accounting Standard Board is working jointly in cooperation with the Office of the Auditor General to implement the IFRS as Nepal missed the earlier time frame of implementation.

Though Nepal committed to implement the global standard from 2011, it failed due to various technical reasons.

Currently, Nepal Accounting Standards is in effect. With the aim of implementing the IFRS, the government has been providing training to officials of financial regulating bodies.

But for the international standard financial reporting, the financial statement reporting supply-chain has to be maintained from the preparer, who has to understand requirements of auditor to auditors, regulators and users, said chartered accountant Narendra Bhattarai.

SAFA Award for Nepali corporate houses

Credit Information Bureau (CIB) bagged the second runner-up award in Best Presented Accounts (BPA) amongst the public sector in the South Asia Federation of Accountants (SAFA) Awards in Dhaka on November 29.
Similarly, Nabil Bank, Standard Chartered Bank Nepal, NIC Bank were awarded with Certificate of Merit under the Banking Sector, while Ace Development Bank and Butwal Power Company were also awarded Certificate of Merit under Financial Service Sector and Manufacturing Sector respectively.
Among the various corporate houses that were awarded with Best Presented Accounts (BPA) in the event held at Dhaka, Bangladesh on November 29 organised by South Asia Federation of Accountants (SAFA), an apex body of SAARC, Nabil Bank was the winner of BPA Award in Nepal with Standard Chartered Bank Nepal as first runner up and NIC Bank as second runner up under Banking Sector Category.
It is not only a satisfying achievement but also substantiates accounting and disclosure practices followed in Nepal and they are in line with international standards, according to the winners.
Similarly, Ace Development Bank, Butwal Power Company and Credit Information Centre were the winner of BPA Award in Nepal in financial service sector, manufacturing sector and public sector entities, respectively.
The president of the Institute of Chartered Accountants of Nepal (ICAN) Sudarshan Raj Pandey expressed happiness with the result of Nepal where more numbers of corporate were awarded with coveted awards.
"Domestic corporate sector has made Nepal proud,” Pandey added.