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,” he 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 time-frame 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.

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