Ican Journal March 2013

Chartered
T h e
N e p a l
March 2013
Volume 15 No. 3
Accountant
Journal of the Institute of Chartered Accountants of Nepal
March 2013
Vol 15. No. 3
Chartered
Accountant
T
(Quarterly Journal of The Institute of Chartered Accountants of Nepal)
E d i t o r i a l
CONTENTS
B o a r d
CA. Madhu Bir Pande

CA. Mahesh Kumar Guragain
CA. Jagannath Upadhyay
CA. Kiran Subedi
CA. Anjuli Shrestha
CA. Hem Kumar Kafle
CA. Roshan Pokhrel
RA. Murari Bhattarai
RA. Sankar Gyawali
Mr. Binod Neupane
Chairman
Vice-chairman
Member
Member
Member
Member
Member
Member
Member
Secretary
Mr. Binaya Paudel
Editorial Support
Editorial
President's Message
AUDITING
Statutory Audit of Treasury Operations of Banks:
Nepalese Perspective
-CA. Ramesh Kumar Dhital
iCATs: The Tools for ISSAI Implementation

-CA. Baikuntha Adhikari
13
Social Auditing of Rural Roads:

A Sociological Analysis
-Dr. Shambhu Prasad Kattel
19
The Institute of Chartered Accountants of Nepal,

Babar Mahal, P O Box 5289, Kathmandu, Nepal
Tel. No. 4269130, 4258569 Fax No. 4258568
E-mail: ican@ntc.net.np
Website: www.ican.org np
Branch Offices
Biratnagar: Tel: 021 471395
Fax: 021 471395 | E-mail : icanbrt@wlink.com.np
Butwal: Tel: 071 543629 | E-mail: icanbtl@ntc.net.np
Birgunj: Tel: 051 522660 | E-mail: icanbrj@ntc.net.np
BANKING
Design, Layout & Printed by:

Format Printing Press, Kathmandu, Nepal
Subscription Rates
Annual Subscription Rs. 600

(including courier charges for Organizations)

Rs. 400 (including courier charges for Members)

Rs. 300 (if received by self)
Opinions expressed by the contributors in this journal are their own

and do not necessarily represent the views of the Institute. Member
Bodies of Safa may quote or reprint any part of this Journal with due
acknowledgement. For others, solicitation is expected.
Challenges of Managing Interest Rate Risk

- CA. AR Bhattarai
24
Challenges in Operational Risk Management

- Mr. BN Gharti
26
ECONOMY
Foreign Direct Investment : An Overview
-CA. Sajan Dhakal
29
The Present Situation of Nepalese

Derivative Market
-CA. Binod Dhungana
32
INFORMATION TECHNOLOGY
XBRL: The Language for Electronic
Communication of Business Information
- CA. Mukunda Pokharel
35
MANAGEMENT
REPORT
Seminar on Corporate Governance
47
News
55
International News
61
Stress Management for Busy Executives

-CA. LP Bhanu Sharma
41
TAXATION
The Tax Bubbles: Unnoticed Erosion
of Capital
-CA. Surendra Bhusan Shrestha
45
Editorial
Editorial
Happy New Year 2070 to our readers and contributors, to members of ICAN, officers &
staffs of the ICAN and to all those associated with the editorial board and to all friends
and colleagues who are helping us in different capacity for publishing the journal. We
wish everyone a healthy, happy and successful 2070.
A new year gives us an opportunity to analyse the progress and achievements made in
the previous year and shows us way to perform better in coming year. Year 2069 was a
challenging year for accounting profession in the country where issues such as role of
accounting profession in corporate governance and intricacy of IFRS implementation
in Nepal stole the limelight. The coming year is even more challenging for us. We
expect the change in political scenario in the country and more economic activities so
that accounting profession will have ample opportunity to contribute to the economic
growth of the country,
We are pleased to reiterate that the journal now stands at its highest position. We
believe that this is primarily due to both the high standard and superior quality of our
published material, our reader's confidence and untiring efforts of the editorial team.
In the last year we together with you worked hard to make our journal a meaningful
publication. We tried to include a number of interesting articles and information such
as current legal issues relating to profession, corporate responsibility. To refresh the
readers we even included some jokes. We believe the articles and other information bear
relevance to our readers. There are still plenty of scope for the overall improvement of
the Journal and we await readers comments and suggestions in this regard.
We would like to thank all our readers and contributors for their support in 2069 and
hope that they would continue their support in the year ahead. We would also like to
place on record our sincere thanks to those who have inspired and enriched us with
their insightful feedback and lighted our ways with their vision.
Warm Regards !
Editorial Board
President's
Message
Dear Colleagues,
We are at the end of B.S. 2069 and the year
has seen many ups and downs in economic and
political arena in Nepal. With the formation
of interim election government, it is expected
that much awaited election will take place and
elected Constituent Assembly and the government
will work towards completing the journey left half
way two years ago . We should also be hopeful
that economic agenda will receive it's due priority
after the present political turmoil gets over. Time
has come not only the professionals ,every citizen
of the country in whatever be their capacity and
condition should think and act towards making Nepal a politically
stable and economically prosperous country.
Despite not being a favourable environment in the country, ICAN has
been able to pace up its activities during the period. Some of the
activities taken place during the period are as follows:
Confederation of Asian and Pacific Accountants (CAPA)
Meetings and International Conference
ICAN hosted CAPA Public Sector Financial Management Committee
meeting on 7 March 2013 at Kathmandu. Coinciding with the
meeting, an international conference on Strengthening Nepal Public
Sector Accounting and Auditing was also held. The President of the
CAPA Mr. Keith Wedlock and Chairman of the PSFM Committee Mr.
Geoff Applebee and 25 other foreign delegates from more than 10
countries attended the meetings and conference. The speakers of
the conference were eminent personalities from CAPA region and
the World Bank. Mr. Shanta Raj Subedi, Secretary at the Ministry of
Finance addressed the opening session as the guest of honour.
The conference was represented by Ministry of Finance, Finance and
Comptroller General Office, Office Of Auditor General, the World
Bank, Ministry of Federal Affairs and Local Development, ICAN,
Accounting Standard Board and the Auditing Standards Board. The
conference highlighted global development, regional scenario and
Nepalese context in the public sector financial management.
A round table discussion to assess actual situation and to co-ordinate
between various stakeholders responsible for implementation of an
effective PFM in Nepal including implementation of IPSAS was
also held in the afternoon on 8 March 2013 as a follow up of the
conference.
Education
Education has always been our top priority. We have
been trying hard to improve education related activities
and to provide best facilities to our students. The
study materials for CAP I, CAP II and CAP III have been
developed. Revision Test Papers of CAP II and CAP III
levels for June 2013 examination have been published.
The examination of new syllabus for CAP I level will be
effective from June 2013 onwards.
The result for December 2012 Chartered Accountancy
Examination was timely declared and the result was
encouraging. Altogether 21 students qualified as
Chartered Accountants. The overall result has been
satisfactory and has shown that students are now
taking up examination with good preparation.
We have decided to provide examination centres
at Biratnagar, Butwal and Pokhara from June 2013
onwards. We believe that this facility to the students
outside Kathmandu will boost their morale and the
confidence level will be high as they will be able to
appear for the exams from their hometown or from
the centre most convenient to them.
Branch Activities
Inauguration of Pokhara Branch
Pokhara branch was formally inaugurated on 5 April
2013. The branch aims to cater to the needs of members
and students and will give a platform for a better
interaction and carrying out professional activities to
enhance the capacity of members. For students branch
will be a functional centre for the ICAN's requirement
and also will have a well equipped library. As the
Institute has already announced examination centre at
Pokhara for CAP I exams, there will be more educational
related activities at the branch and it is expected the
opening of branch at Pokhara will contribute immensely
to attract more students in CA education.
As a part of our continuous effort to upgrade the branch
and to increase the activities at the branch, we have
also decided to relocate our Biratnagar branch office
to a more convenient premises with sufficient carpet
area so that more facilities can be provided to our
members and students. Biratnagar being the centre of
The Nepal Chartered Accountant | March 2013
Eastern Region for education with growing number of

educational institutions it is expected more and more
students will be enrolled in CA course from the eastern
region.
Programme for Members in Industry
The members in industry are our valued members and
serving the profession in various capacities. However,
in recent years we have observed they may have felt
little alienated from the Institute and the Institute
has not addressed their cause on the professional
issues. We have also seen that some of the members in
industry are even reluctant to renew their membership.
To be interactive with members in Industry in order
to understand their professional needs and Institute's
responsibility, Committee for Members in Industry
(CMII) was formed by the Sixth Council.
An interaction programme on the theme Lets Join
Hands for a Better Professional Environment was held
on 4 March 2013 where 55 members working in various
sectors participated and exchanged their views. The
participants discussed about the role of chartered
accountants in industry and their contribution for
better professional environment and to the economy
of the country.
Annual Day Celebration / Seminar on
Corporate Governance
16th Anniversary of the ICAN was celebrated on 30
January 2013. The formal function was addressed
by Mrs. Bimala Subedi, Acting Auditor General, Mr.
Yuba Raj Khatiwada, NRB Governor and Mr. Baburam
Shrestha, Chairman of Securities Board of Nepal.
The corporate governance has been buzzword in the
recent years and all players of economy have now
realised that without stricter corporate governance
practices neither the investment can be attracted nor
public interest can be protected for the cause of overall
economic development and prosperity of the country.
With this background, to mark the Annual Day of the
Institute, one day seminar on corporate governance
was organised in association with Securities Board of
Nepal (SEBON).
The seminar was attended by the high officials of

regulating bodies and corporate sector, past president
and council members of ICAN.
Mr. Asite Talwatte , Chairman-CG Committee of The
Institute of Chartered Accountants of Sri Lanka and an
eminent personality in the Corporate Governance in Sri
Lanka was the keynote speakers. Other eminent speakers
at the conference included CA Maha Prasad Adhikari,
Deputy Governor of Nepal Rastra Bank, Mr Janak Raj
Shah, a member of Planning Commission.
Information System Audit (ISA) Course
The use of information technology in the area of
accounting and auditing is getting wider day by day. More
and more business enterprises are relying on software
for recording their transaction and business world is now
moving towards paperless documentations.
As a result, professional accountants now require
adequate knowledge and practical application of
computerised tools and techniques. They should have
professional skills and expertise to provide the value
added services such as information system audit, As a
part of ICAN's commitment for continuous effort towards
the capacity building of its members, ISA course covering
12 day and 100 hours of training was conducted in
Kathmandu from 20 January to 31 January 2013 with
technical co-operation from the Institute of Chartered
Accountants of India ( ICAI). Altogether 33 persons
participated in the training.
International Networking and Sharing
Experiences
ICAN always has given high priority to international
networking and learning by sharing experiences with
counterparts across the globe. International recognition
is a key to the success of Institute and in order to achieve
that it's important to participate in various forums and
interact with the heads and representatives from various

accounting institutes. During the period, we attended
SAFA Board and Committee meetings in Dhaka. I also
visited Malaysia to meet with the President of Malaysian
Institute of Accountants and discuss on MOU between
ICAN and MIA. The MOU between two institutes has
almost been finalised and awaiting final seal from both
the institutes.
During the period, I also visited New Delhi and met
with the President of ICAI to discuss further on MRA and
formalising the present areas of co-operation. We also
discussed about possible new avenues of mutual cooperation.
Our fraternity is growing in numbers and the Institute's
responsibilities are also expanding. We have to explore
newer opportunities for our members and meet the
challenges ahead of us. I strongly believe that along
with council members and past presidents all senior
members should come forward and contribute towards
accomplishing the Institute's mission. Our success also
depends on the support and co-operation from various
regulating bodies and the government and I hope that we
will get our due share.
May this new year be the beginning of new thoughts
and values in accounting profession and bind all of us
together firmly through this highly coveted profession.
Wish you all a very happy and prosperous new year 2070.
Best Wishes
CA. Madhu Bir Pande

President
The Nepal Chartered Accountant | March 2013 7
The Nepal Chartered Accountant | March 2013
AUDITING
Statutory Audit of Treasury Operations of Banks:
Nepalese Perspective
'
1. BACKGROUND
The trend of Foreign Exchange

Rate and the actual day wise
Revaluation Gain (Loss) of the
bank. Auditors can prepare
lead sheets of each category in
their own, of the audit areas and
match the same with schedule
in financial statements.
'
CA. Ramesh Kumar Dhital

CA. Dhital is CA Member of ICAN
Treasury
operations
in
banks
include management of banks
holdings, with the ultimate goal
of maximizing its liquidity and
mitigating its operational, financial
and reputational risk. Treasury
Management in a bank includes
banks
collections,
payments,
borrowing, investment and funding
activities. It may also include trading
in Government Bonds, TreasuryBills, Currencies, Bullions, Financial
Derivatives and the associated
financial risk management.
Audit of treasury function is essential
considering the following mandate:
a. Statutory auditors are required
to express an opinion on the
financial
statements
based
on
the
audit,
conducted
in accordance with Nepal
Standards on Auditing (NSA),
considering the requirements of
Banks and Financial Institutions
Act, 2063 and Companies Act,
2063. The Financial statements
of the banks may comprise the
FS elements emanating from the
treasury transactions.
b. Auditors in their report has
to mention that the financial
statements are in agreement
with the books of accounts of
the Bank; and
c. Accounts and records of the

Bank are properly maintained in
accordance with the prevailing
laws.
d. In the Long Form Audit Report,
auditor has to comment on the
adequacy of the Controls in
Treasury Operations
2. TREASURY FUNCTIONS
AND STATUTORY AUDIT
An auditor, to enable himself, to
express opinion on the financial
statement
prepared
by
the
management, has to take comfort
on the financial figures on the basis
of the verification of the evidences
available. The key elements of
financial statements emerging from or
associated with treasury functions as
given in various schedule of Directive
4 issued by Nepal Rastra Bank are:
1. Debentures & Bonds (Schedule-4.3)
2. Borrowings (Schedule-4.4)
3. Balance With Banks/Financial
Institutions (Schedule 4.10)
4. Money at Call and Short Notice
(Schedule-4.11)
5. Investment (Schedule-4.12)
6. Exchange Gain/Loss (Schedule
4.22)
7. Significant Accounting Policies
(Schedule 4.32)
AUDITING
3. TREASURY AUDIT PROCEDURE
i. Need and decision of investment transactions
Auditors can take forward the audit procedure as under
ii. Analysis of counterparts financial health, rating,

trend etc
I.
Evaluation of Internal Control
NSA-500 on Audit Evidence requires that while obtaining

audit evidence from tests of control, the auditor should
consider the sufficiency and appropriateness of the audit
evidence to support the assessed level of control risk.
Thus, the auditor has to get acquainted with the internal
control environment which can be on the basis of study of:
i. Investment Policies and procedures approved by
Board of Directors as per the requirement of NRB
Directive 8, regarding the investment in Government
of Nepal securities, Nepal Rastra Bank bonds, and
other corporate bodies' share and debentures
ii. The Formation, Composition and functioning of AssetLiability Committee(ALCO) as per Risk Management
Guidelines, 2010 of NRB
iii. Review of minutes of Asset-Liability Committee
iv. Review of organization chart and existing hierarchy
of treasury department and job descriptions of each
v. Authorized Limit provided to each personnel involved
in the department.
vi. Maker Checker Control
vii. Work Handover Policy and its impact
viii. The accounting policies adopted by the bank and
changes in those policies. This can be confirmed by
way of discussion with Head of Department on the
basis of previous years signed financial statements.
ix. Coverage and reports of Internal Auditors
x. The effect of new accounting
pronouncements by ICAN.
or
auditing
xi. The auditors cumulative knowledge of the accounting

and internal control systems and reliance expected
to be placed on tests of control and substantive
procedures.
II. Walkthrough of the Transactions
Auditor can prepare the questionnaire and discuss with
the competent level as to the areas of risk. The outcome
or the response of the management on the preliminary
discussion can be substantiated by way of walkthrough
testing of transactions in each category of line items
affecting the elements of financial statement. The walk
though of investment in bonds can be preceded as under:
10 The Nepal Chartered Accountant | March 2013
iii. Hierarchy involved in the transactions

iv. Initiation of the transactions
v. Recording of the transactions
vi. Maker checker in entry process
vii. Verification of physical certificate
viii. Accrual of investment (whether system triggered or
manual)
ix. Maintenance
investment
of
supporting
documents
of
the
x. Inclusion of such investment in subsequent NRB

reporting
III.
Analysis of Result of Walkthrough
The auditor has to analyze the result and select the

appropriate audit procedure based on the outcome of
the walkthrough process.
Compliance / Test of Control Procedure
NSA-500 on Audit Evidence provides that while obtaining
audit evidence from tests of control, the auditor should
consider the sufficiency and appropriateness of the audit
evidence to support the assessed level of control risk. For
this auditor has to study the design and implementation
of internal control system. Accordingly , If the result of
the walkthrough is as per the internal policy and in line
with the explanations provided by the management, the
auditor can go for Compliance procedure/test of control
procedure where by auditor can repeat the process as
given in the above walkthrough process. The process can
be repeated on the appropriate sampling as selected by
the auditor using statistical or judgmental sampling.
Substantive Procedure
However, if the outcome of the walkthrough is not
as expected and as explained by the management,
auditor may not rely on the control testing. In such
case substantive procedure has to be adopted. Such
procedure will lead the auditor to select majority of the
transactions.
Thus, the following assertions (MCOVERPD), needs to
be evaluated by the auditor apartment from propriety
aspect of the over treasury transactions in case of the
substantive procedure
AUDITING
a. Measurement- Investment is recorded at correct

price.
e. Risk Monitoring Table for Rate of Interests (Directive

Form No. 5.2)
b. Completeness- Complete
recorded for the period.
been
f. Risks Monitoring Table for Foreign Exchange (Directive

Form No. 5.3)
c. Occurrence- Transactions have been recorded as and

when they occurred.
g. Half yearly Investment Review Report certified by

internal auditors as per clause 5 of NRB directives 8.
d. Valuation-Investments have been valued as per

clause 6 of NRB Directive 8.
h. Other customized reporting on the basis of specific

communications from NRB.
e. Existence- Physical
certificates
investment
verification
of
has
investment
f. Rights and Obligations- Outstanding amount, if any.

g. Presentation and Disclosure- Has been disclosed as
per Directive 4.
Further, the auditor can apply analytical tools such as
ratio analysis, trend analysis and comparison with earlier
years data and comparison with peer banks data for
additional comfort. For example, the trend of Foreign
Exchange Rate and the actual day wise Revaluation Gain
(Loss) of the bank. Auditors can prepare lead sheets
of each category in their own, of the audit areas and
match the same with schedule in financial statements.
IV.
Review of Compliance Aspects
NSA 250, on consideration of laws and regulations in

an audit of financial statements provides that while
planning and performing audit procedures and in
evaluating and reporting the results thereof, the auditor
should recognize that non-compliance by the bank with
laws and regulations may materially affect the financial
statements. As stated in the preceding paragraph, auditor
has to verify the compliance with the prevailing laws. Bank
should comply with the laws and regulations affecting
treasury transactions and reporting requirements
thereof. Some of the NRB reporting to be reviewed are:
V.
Documenting the Work
NSA 230 provides that the auditor should document

matters which are important in providing evidence to
support the audit opinion and evidence that the audit was
carried out in accordance with NSA. The treasury audit
plan, the nature, timing and extent of treasury auditing
procedures performed and the conclusions drawn from
the evidence obtained should be recorded in working
papers. All significant matters, which require the exercise
of judgment, together with the auditor's conclusion
thereon, should be included in the working paper. Specific
documentation depends the policy adopted by the audit
firms. Few of the key documents to be preserved are:
a. Entire set of Walkthrough documents
b. Questionnaire discussed with management
c. Hierarchy of the personnel in the department
d. Key Minutes such as ALCO, BOD or other committee
e. Copies of NRB reporting
f. Copies of Investment certificates
g. Reconciliation Statements
h. Counterparty confirmations
i. Copies of limit assigned etc.
a. Monthly details of investment made in Government

Bond and Nepal Rastra Bank Bond (Directive Form
No. 8.1)
b. Monthly details of investment made in Share Capital
of companies (Directive Form No. 8.2)
c. Monthly details of investment made in debenture of
companies (Directive Form No. 8.3)
d. Descriptive table of structural liquidity (Directive
Form No. 5.1)
CDS and Clearing Ltd.

1. What is a depository?
A depository facilitates the holding and/or transacting securities in

book entry form. In other words, a depository takes the ownership
guarantee of the shareholders by holding those securities and other
market instruments which are listed in the secondary market,
distributed or allotted and can be deposited into the electronic form.
The investor has to open a demat account to avail the services of
depository. Additionally, the depository maintains the record in the
account of the investors.
2. What kind of company is CDS and Clearing Ltd.

(CDSC)?
CDS and Clearing Ltd. is the sole depository in Nepal established in

2067 B.S. under Company Act 2063 with an objective to render service
of dematerialization of securities. It is wholly owned subsidiary
company of Nepal Stock Exchange Ltd. (NEPSE). The authorized capital
and issued capital of CDSC is NRs. 500 million and NRs. 300 million
respectively.
3. What are the services provided by CDSC?
The services CDSC provides are as mentioned below:

Deposit, withdrawal and transfer of securities,
Electronic credit of securities directly into the investors demat
account allotted in Initial Public Offering (IPO),
To safeguard the investors securities into the electronic form
and to debit/credit the particular investors account as per the
transactions occurred in the book entry system,
Quicker distribution of securities allotted by issuers under IPO and
corporate actions and benefits of the issuers,
To provide secure and convenient electronic procedures for
pledge and unpledge of securities.
To provide updated statement and reconciliation statement.
4. What is Dematerialization (Demat)?
Dematerialization is a process of converting physical securities into

electronic form.
5. What are the purpose of opening a demat account?
The purpose of opening a demat account are as mentioned below:

To convert the physical securities into the electronic form,
To deposit and transfer the NEPSE listed securities in a
dematerialized form ,
To credit the securities allotted through IPO and corporate
actions (such as right share issue, bonus issue, merger, etc.) in a
dematerialized form,
To receive the statement of the securities held in a demat account,
To pledge the securities held in a demat account,
To rematerialize the securities held in a demat account.
For instance:
9. What are the benefits of opening a demat

account for investors?
A demat account has become a necessity for all categories of investors

due to numerous following benefits:
Eliminates risk associated with physical certificates,
Immediate transfer of securities,
Immediate settlement cycle,
Immediate distribution of shares allotted in IPO,
Easy in portfolio management,
Solve the problem of address change,
Easy in pledge of securities.
10. What is an Instruction Slip? What precautions

need to be observed by BOs with respect to
Instruction Slips?
An instruction slip is the instruction given by BO, who has a demat

account with CDSC; to debit the securities from their account. The
BOID of each BO is pre-stamped on all the pages along with the serial
number.
The following precautions need to be observed by BOs with respect to
instruction slips:
Ensure that DP issues Debit Instruction Slip (DIS) book.
Ensure that instruction slip numbers are pre-printed on each DIS.
Ensure that the demat account number is pre-stamped on each
DIS.
After the DIS has been filled in, strike out remaining blank space
to prevent misuse.
Entire details to be furnished in DIS should be filled in properly.
Issue separate DIS for different instructions such as On Market, Off
Market, transfers etc.
Retain the duplicate DIS, in which DP has acknowledged the
receipt stamp; in safe custody.
Keep the DIS book in proper custody when it is not in use. In case
of loss/ misplacement of DIS, the same should be intimated to the
DP immediately.
One should never sign and keep a blank DIS.
All the holders must confirm any alteration, correction or
cancellation made on the DIS with their signatures.
For Detail Information:
6. Who is a Beneficial Owner (BO)?
A Beneficial Owner is the person who have opened the demat account
with CDSC through a registered DP in order to deposit their securities
or instruments which are capable of being deposited in demat form.
7. Who is a Depository Participant (DP)?
A Depository Participant is an agent of the depository who has received

the registration certificate from the Security Board of Nepal and the
membership license from CDSC. A DP directly renders services to the
investors on behalf of the depository.
8. What is an ISIN (International Securities

Identification Number)?
An ISIN is a unique 12 digit alphanumeric code given to the securities

such as shares, preference shares, debentures, bonds, etc. when the
security is admitted in the depository system. The first two digits of the
ISIN code indicate country of registration for the security.
CDS and Clearing Ltd.
3rd Floor, Shikhar Biz Centre,

Thapathali, Kathmandu.
Phone No.: 01-4101593/94/95
Fax No.: 4101597
Website : www.cdscnp.com
AUDITING
iCATs:
The Tools for ISSAI Implementation
'
iCATs and ISSAIs
The adoption of the ISSAI

represents a milestone in the
strengthening of the global
public sector audit profession.
INTOSAI called upon its
members to use the ISSAI
framework as a common
framework of reference for
public sector auditing and
implement the ISSAIs in
accordance with the mandate
and national regulations of the
respective SAIs.
'
iCATs refer the ISSAI Compliance

Assessment Tools developed by
INTOSAI Development Initiative (IDI),
a non-profit organization established
under law of Norway that aims to
enhance the institutional capacity
of Supreme Audit Institutions (SAIs)
in developing countries and works in
close cooperation with International
Organization of Supreme Audit
Institutions (INTOSAI). SAIs should
use these tools for assessing their
needs of ISSAI requirements and
formulating ISSAI implementation
strategy.
ISSAI refers the International
Standards
of
Supreme
Audit
Institution. As the International
Standard on Auditing (ISA) is
applicable for all professional
auditing under the member countries
of the International Federation
of Accountants (IFAC), ISSAI is
applicable for all audits of SAIs under
the member countries of INTOSAI.
INTOSAI has divided the ISSAIs under
4 levels:
Level 1 Founding Principals-Lima
declaration cover ISSAI 1.
CA. Baikuntha Adhikari
Level 2 Prerequisite for the

functioning of SAI covers
ISSAI 10 to 99.
Level 3 Fundamental Auditing

Principles cover ISSAI 100 to
999.
Level 4 Auditing Guidelines cover
ISSAI 1000 to 5999.
Permission of IFAC in
the ISSAIs
ISSAI 40 Quality Control for SAIs
draws on the International Standards
on Quality Control (ISQC) developed
by the International Auditing and
Assurance Standards Board (IAASB)
and published by the International
Federation of Accountants (IFAC).
It is used with the permission of
IFAC. ISSAI 1200 to 1810 Financial
Audit Guidelines draw on ISA 200
to 810 developed by the IAASB and
published by IFAC. The ISAs are
included in these Guidelines with the
permission of IFAC.
Usefulness of iCATs
SAIs can use the iCATs for the
following purpose: SAI may use these tools for
assessing the needs of SAI to
fulfill the ISSAI requirements
and for formulating ISSAI
implementation strategy.
SAI may use these tools for
CA. Adhikari is Director of OAG, Nepal

AUDITING
identifying mechanism by which the SAI meets the

requirements of ISSAI implementation.
These tools provide the auditors the knowledge of
ISSAI requirements. Quality assurance and peer
reviewer can use these tools to review the ISSAI
compliance in the overall audit functions.
From these tools, a SAI can easily comprehend the
ISSAI requirements and its compliance status so
that the SAI can improve their non-compliance and
partially compliance areas of ISSAIs.
SAI can disseminate knowledge of ISSAIs through the
iCATs to the Academicians, researchers, students and
other interested people.
iCAT conveys the reader with references and examples
the compliance status of ISSAI requirements in the
SAI.
Implementation of ISSAI
The 20th INTOSAI Congress (South Africa, 2010) adopted a
comprehensive set of International Standards of Supreme
Audit Institutions (ISSAI) that cover the core audit
disciplines of financial, performance and compliance
audits. The adoption of the ISSAI represents a milestone
in the strengthening of the global public sector audit
profession. INTOSAI called upon its members to use the
ISSAI framework as a common framework of reference
for public sector auditing and implement the ISSAIs in
accordance with the mandate and national regulations
of the respective SAIs.
Adherence to ISSAIs adds value to SAIs by the following
ways: It promotes transparency in the public sector and
adds credibility to auditors work.
It improves the effectiveness and efficiency of the
work of SAI and provides the basis for the quality
audits.
It increases the perceived level of professionalism of
SAIs.
Therefore, all 190 SAIs members of INTOSAI including
Office of the Auditor General of Nepal must implement
the ISSAI in the audit work of their jurisdiction. INTOSAI
supports the SAIs to implement the ISSAIs.
Types of iCATs
ISSAI Implementation Initiative (3i) programme under IDI
has prepared a model of iCATs. Each SAIs should conduct
own iCATs under that model. Under the 3i programme, IDI
is going to create a pool of 180 ISSAI facilitators by the
end of 2013 in five English speaking regions and one year
thereafter as required number of ISSAI facilitators in the
remaining regions of INTOSAI. Including these facilitators
SAIs must form an iCAT team for financial, performance
and compliance audit to finalize and conduct the iCATs.
Two types of iCATs models are there. First model is for
level 2 ISSAI requirements that generally operate at
the SAI level. This covers ISSAI 10 to 40, which includes
independence, accountability & transparency, code of
ethics and quality control mechanism in SAI. Second
model is for level 4 ISSAI requirements that operate at
the individual audit engagement level which covers ISSAI
1000 to 2999 for financial audit, ISSAI 3000 to 3999 for
performance audit and ISSAI 4000 to 4999 for compliance
audit.
Guiding Principles for conducting

an iCAT
IDI has prescribed the following Guiding principles for
conducting an iCAT:1. iCAT is not an evaluation tool The iCATs aim to
help SAIs in understanding ISSAI requirements and
assessing their needs for complying with ISSAIs. The
iCAT is thus formulated as a needs assessment tool
rather than an evaluation tool.
2. Scope of the iCAT Four iCATs have been developed.
Level 2 iCAT for all Audit, Level 4 iCAT for Financial
Audit, Level 4 iCAT for Performance Audit and Level
4 iCAT for Compliance Audit. As far as possible, it is
better to conduct all four iCATs so that a consolidated
strategy can be developed for implementation of
ISSAIs. However, if that is not feasible in a SAI, then
it is recommended that the SAI conduct the level
2 iCAT along with the level four iCAT of the chosen
audit stream. This is because; the compliance gaps
identified at audit level (level 4) would invariably
have their reasons at the institutional level (level 2).
3. Who can conduct an iCAT If the SAI has adequate
capacity it can decide to conduct its own iCATs. An
SAI may also ask for external support in helping to
AUDITING
conduct the iCAT. It is envisaged that the pool of

ISSAI facilitators created by IDI in the SAIs will help
their own SAIs, as well as other SAIs in the regions
to conduct iCATs. For the purpose of objectivity, an
SAI may also exercise the choice of having the iCAT
conducted by an external team from the region.
4. iCAT team - Whatever the approach the SAI selects, it
is recommended that the iCAT be used by a team and
not a single person. The iCAT team should consist of
atleast one trained ISSAI facilitator. Team members
must have managerial backgrounds so that they
have a good organizational overview and necessary
influence in subsequent implementation. Besides
members who have a good understanding of SAI level
issues ( level 2 ISSAIs), the team should also have
members who are well conversant with the relevant
audit practice as defined in the ISSAIs and as actually
practiced in the SAI.
5. Participatory Approach - A broad-based consultative
process is recommended for conducting iCATs. It is
important for the iCAT team to consult with a cross
section of SAI staff across various levels. Staff from
different levels and different areas of the SAI should
be consulted in this process and their views should
be given due weight in iCAT. External stakeholders
views and needs should also be taken into account.
The more people feel they are involved, the greater
the ownership and thus effectiveness of the results.
If the SAI management is able to facilitate ownership
for the process at the conducting of iCAT stage, the
subsequent stages of developing and implementing
an ISSAI strategy will have greater acceptance in the
SAI.
6. Top and senior management support The success
of the iCAT is highly dependent on the level of
commitment at high levels in the SAI. The SAI
management should insist on knowing the situation
and the needs as they have. The SAI management
should also ensure that the iCAT team has the
required resources to conduct the iCAT.
7. Documentation The iCAT team should systematically
document all the working papers and the evidence
that it generates in filling out the iCAT format.
Besides helping the team in later compiling its ISSAI
Compliance Assessment Report, documentation will
also be helpful in illustrating the finding of the iCAT
to the SAI management and help future iCAT teams

in conducting similar exercises.
Process of conducting an iCAT

IDI has prescribed the following process of conducting
the iCAT:1. Planning the iCAT Like any other project,
conducting an iCAT would require resources in
terms of financial resources, infrastructure, time,
people etc. It is recommended that the iCAT team
prepare an action plan detailing the milestones, the
resource requirement and the risks attached to the
achievement of each milestone.
2. Use variety of data gathering tools In order to
gather data to fill in the iCAT format the iCAT team
should use a variety of data gathering tools like
focus groups, interviews, document review, survey
and physical observation. It is important that the
tool used is appropriate for gathering valid and
relevant information for assessing compliance of
ISSAI requirements. For example, if iCAT team wants
to check the extent to which a policy is actually
implemented, interviewing people may not be
enough; it would have to review documentation
supporting implementation.
3. Writing the ISSAI Compliance Assessment Report At
The end of conducting an iCAT, the iCAT team prepare
the ISSAI Compliance assessment report.
SAI Commitments
There are commitments among SAIs, a regional working
group of INTOSAI like Asian Organization of Supreme
Audit Institutions (ASOSAI) and IDI. As per Statement
of commitments, under the coordination, support and
advice of relevant regional working group of INTOSAI and
IDI, all SAIs of 5 English speaking regions including Nepal
under INTOSAI should perform the following activities : Define roles and responsibilities for ISSAI facilitators
by SAIs, that have ISSAI Facilitators by end of April
2013 and reserve the facilitators for facilitating ISSAI
interventions at SAI and regional level
All SAIs will carry out ISSAI compliance assessments
with the help of ISSAI Facilitators by December 2013
to March 2014 (one iCAT to be completed by August
AUDITING
2013, all iCATS to be completed by March 2014)

Formulate ISSAI implementation strategy or review
current ISSAI implementation strategy in light of iCAT
findings by March 2014 to June 2014
Formulate action plan for ISSAI implementation
strategy by March 2014 to June 2014
Monitor, evaluate and report on ISSAI implementation
annually
Based on Guiding Principles for conducting an iCAT,

each SAI needs to complete the remaining columns.
(B) Level 4 iCATs: - Model of level 4 iCATs and the matters
to be filled up in the concerned columns are given in
the same columns as below. Model developers have
already completed column number 1 and 2 in the
iCATs. Based on Guiding Principles for conducting
an iCAT, each SAI needs to complete the remaining
columns of all 3 iCATs namely Financial Audit,
Performance Audit and Compliance Audit iCATs.
Conducting iCATs in two levels

(A) Level 2 iCATs :- Model of level 2 iCATs and the matters
to be filled up in the concerned columns are given
in the same columns as below. Model developers
have already completed column number 1 and 2.
Level 2 iCAT Format and instructions for preparation: Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
ISSAI
Reference
ISSAI
Requirement
Mechanisms/
instrument of
compliance
SAI status
Level 4 Examples
Comments
Principle number,
ISSI number,
Elements and
paragraph number
of ISSAI whatever
all or any relevant
is mentioned in this
column.
Compliance
requirement
sentences of the
ISSAIs are mentioned
clearly in this column.
ISSAI requirement
Compliance statuses are
classified under: Full compliance:
when level 2 and level 4
requirements are met.
Partial compliance:
when either level 2
requirements or the
implementation on
level 4 requirements
are not met. Noncompliance: when
requirements on level 2
and 4 are not met.
SAI must have the

complete Level 4 iCATs
before it begin to
prepare level 2 iCATs.
Level 2 issues are linked
with Level 4 examples.
Such examples of Level
4 are mentioned in
this column except in
the case where it may
not be applicable due
to overall policy level
matters, which are not
needed to be available
in each individual level
audit documents. In
such case, SAI should
mention here Not
Applicable.
Information about
the mechanism
and instruments of
ISSAI requirement
compliance such as
legal provisions or
other evidences are
mentioned in brief in
this column in case the
SAI status of column 4 is
either Full compliance
or Partially compliance.
iCAT Team of the SAI

should mention one of
these statuses in this
column for each ISSAI
requirement.
When the iCAT Team

finds the SAI status
mentioned in column
4 is other than Full
compliance the team
should mention the
suggestions in this
column so that it
may cause to make
the status Full
Compliance.
AUDITING
Level 4 iCAT Format and instructions for preparation:

While the individual iCATs may have some variation in their formats, depending upon the nature of the level 4 ISSAIs
as Financial Audit, Performance Audit and Compliance Audit, all the iCATS have the following common components.
ISSAI Reference
This column
references the ISSAI
requirement to the
SAI.
ISSAI Requirement
This column
contains the ISSAI
requirement in a
brief form.
Mechanisms/instruments of
compliance
Status of Compliance
Three options are available for status
of compliance to fill up in this column.
Met- To select when the requirement
is entirely met.
Partiality Met- This option covers the
entire gamut from where the SAI has
just started implementation of this
requirement, it has some elements
of compliance in place, it has a large
extent of compliance in place but is
not entirely compliant. Not Met- To
select when SAI does not comply with
the requirement at all.
iCAT workshop
After completion of level 4 of the iCAT, workshop
should be held with relevant senior management
to discuss the findings on level 4. The purpose of the
workshop is for senior management to assign level 4
findings to their specific requirements within the level
2 ISSAI requirements. When completing the level 2
ISSAI requirement the participant should understand
the relationship between levels 2 and 4 of the ISSAI
Framework. Level 2 provides the strategic direction and
level 4 is aimed at the details of audit practices when
implementing the strategic aspects. There are three
possible results to be entered into column 4 SAI Status,
namely: full compliance, partial compliance and noncompliance as described in column 4 of level 2 iCAT
format.
Can Audit Firms conduct such tools

in ISA implementation?
As same as the ISSAI Compliance Assessment Tools, any
Institute of Chartered Accountants like the Chartered
Accountants of Nepal (ICAN) can develop and make
compulsory the Audit Firms to conduct the ISA
Compliance Assessment Tool (ICAT) for assessing needs
of any Audit Firm to fulfill the ISA requirements and
formulating ISA implementation Strategy in the audit
firm. ICAN can develop such tools with the help of Nepal
Auditing Standards Board (AuSB). This tool can work as
an important innovation to enhance the quality of overall
In this column, the iCAT team should

mention the document, provision,
system through which that complies
with the ISSAI requirement. This
column will be filled in when the
status of compliance is Met or
Partially Met.
Reasons for non

compliance
When the status of
compliance is Not
Met or Partiality Met,
the reasons for noncompliance should be
recorded here. This
column is important in
determining future ISSAI
implementation strategy,
which will involve
addressing the reasons
for non-compliance.
audit functions in an audit firm through the fulfillment of

every requirement of Nepal Standards on Auditing (NSA).
This tool can work as a helping hand for the works of
auditors, audit supervisors, quality control reviewers and
peer reviewers.
Support from IAASB is essential to apply such tools in
member countries of IFAC. For these purpose highlevel commitments among IAASB, IFAC, AuSB of all
countries and the Institute of Chartered Accountants of
all countries are essential. Supports from professional
auditors in practice are also necessary.
Conclusion
IDI has developed iCATS. SAIs should use iCATs for assessing
their needs of ISSAI requirements and formulating ISSAI
implementation strategy. iCATs are useful for auditors,
reviewers, academicians, researchers and students
also. Adherence to ISSAIs adds value to SAIs. iCATs are
conducted in Level 2 and Level 4 of ISSAI requirements
based on guiding principles and process of conducting an
iCAT as prescribed by IDI. Among SAIs, regional group of
INTOSAI like ASOSAI and IDI have agreed in a statement
of commitments to conduct iCATs for implementing
ISSAI. Conducting iCATs is a group work. Any institute of
Chartered Accountants like ICAN can develop and make
use such tools in audit firms for effectively implementing
relevant auditing standards. Support from IAASB is
essential to apply such tools in member countries of IFAC.
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AUDITING
Social Auditing of Rural Roads:

A Sociological Analysis
'
Introduction
The
development
of
transportation
and
communication
technology
multiples interconnectedness
of people of the world
became possible that reduced
the geographical distance
of individuals of different
continents. As a result,
globalization process has
strongly affected domestic
political system, the government
and the governance.
'
Dr. Shambhu Prasad Kattel, Ph. D.
Modernization
and
economic
development not only introduced
physical facilities to the worlds
population but it also introduced
knowledge and technology for
the betterment of human life.
Economic development provides a
ground forknowledge enhancement
and technology innovations which
ultimately enriches the economic
prosperity and physical facilities.
The present achievements of the
world whether we pronounce it as
modernization or globalization
or westernization, it is the result
of the enlighten movement of the
Western Europe. The Europeans of
a time period of 14th to 17th century
had given incredible contribution for
the birth of capitalism, democracy,
human rights, good and responsive
governance and finally the science
and technology.
Democracy,
good
governance,
civil
rights,
transparency,
decentralization and federalism
are much catchy jargons used
commonly in daily discourse of
political regimes as well as in
development field. Good governance
is not possible in autocracy or any
types of rules except democracy.
Good governance denotes such a
responsive government which hears
voices of citizen and works for the

welfare of the citizens. Citizen itself
is very much politicized jargon in
the developing countries like Nepal
where political party used for their
followers only. Hearing voices of
all category citizens and working
for the welfare of allis possible in
democratic political system only.
Social audit or public auditrefers to
a system in which concerned people
are invited in public places to hear
their voices (reactions) regarding
their concern issues or areas. Audit
or auditing means an examination
of
a
development
program
implemented for the betterment
of local people by government or
development agencies. Social audit
is conducted publicly for receiving
reactions of concerned people about
a development program. It gives
reflection of locals and concerned
stakeholders about the development
programs. Hence, it provides a
chance to the program implementer
to correct the loops and holes of the
program by hearing the voices of
people.
The present article presents the
social audit of two road subprojects
implemented by Rural Access
Improvement and Decentralization
Project (RAIDP) under Department
of Local Infrastructure Development
Dr. Kattel is Lecturer of Central Department of Sociology/Anthropology, TU.

AUDITING
and Agricultural Roads (DoLIDAR) and Ministry of Federal

Affairs and Local Development (MoFALD) from the support
of the World Bank. One road is selected from mid hill and
another is from terairegion. During the selection of roads
socio-cultural contexts and importance of roads are also
considered.
Theoretical Underpinnings
Large scale modernization was appeared in the world
especially after the Second World War which brought
several changes in micro and macro level socio-cultural
institutions such as family, community/society and a
state. The main motto of modernization was economic
betterment through transformation of knowledge and
technology and promotion of market but it also brought
changes in socio-cultural and political life. Hence, the
technology transferred in the name of modernization
promoted globalization directly due to the capacity
of technology to enhance multiple networks of people
(Appadurai 1998). Along with the development of
transportation and communication technology multiples
interconnectedness of people of the world became
possible that reduced the geographical distance
of individuals of different continents. As a result,
globalization process has strongly affected domestic
political system, the government and the governance
(Keohane & Nye 2000). As the capitalism flourished in
European democratic political system, it indirectly
enforced/ enforcing democratic political system and
appropriate socio-cultural and economic norms that were
applied to promote capitalism in the spirit of protestant
ethics (Waber 1930).
The term audit denotes an official examination of
account to see that they are in order. Social audit is a
recently coined and used term in development discourse
which denotes examination of development program
through the discussion of concerned people which
was implemented for their betterment. Social audit
promotes good governance, accountable and sustainable

development by controlling possibility of the misuse of
power, position and budget (ESP 2001).
Trishuli-Deurali-Meghang Rural
Road, Nuwakot District
Trishuli-Deurali-Meghang Road enhanced the access of
above ten thousand people of North-West belt of the
district to the district head quarter and national highway.
The main inhabitants of the area were Tamangs, Brahmin,
Chhetris and low caste groups such as Kami, Damai and
Sarki. The road was just a foot trail until 2006 which
was upgraded to dry season motorable road in 2005 by
District Development Committee (DDC). However, the
district was selected as a project district by RAIDP and
then initiated upgrading works since 2007 and completed
civil works in 2012 (21km).
According to the project rules, social audit must be
conducted three times in a package work. First social
audit is conducted after 2 months of civil works, second
after 6 months and the third before two months of the
completion. The social audit includes technical, social
and environmental issues equally. It is conducted in public
places as per the demand of the locals but mostly in the
road sides. The project informs local people, district line
agencies and concerned institutions and individuals and
the contractor.
In the mass, the project staff informs the objectives of
the gathering and announces the norms such as speaking
turn by turn, use of polite language and raising issues
without repetition and so on. And finally, the staff raises
issue one by one and the participants give their view
accordingly. The first social audit of the road was held
in May 2011, second in December 2011 and the third was
held in June 2012. The major issues raised in the audit
and people satisfaction level are presented in table 1.
AUDITING
Table 1: Major issues of CBPM

SN
1
2
3
4
1
2
3
1
2
3
4
1
2
3
4
Major Issues
Status
Labor and Labor Safety

Employment of local labors, marginalized and women
Use of child labor
Rate of payment as per district rate and payment as per
requirement
Labor insurance and safety measures
Environmental Safety
Loss of Tress
Loss of water sources
Health hazards due to dust during construction
Social
Loss of land and residential structure
Informed locals about the loss properly
Prepared mitigation plan
Received Assistances of the losses
Technical / Quality issue
Problems appeared during construction which was not in design
Resolved the problems
Supervise the works regularly
Use of quality materials and quality works
Other issues
Yes
No
As per local interest

Not in practice
Yes
Maintained record shows it
Yes
Insurance only, no other safety measures
No
No
No
Road does not lie in the forest

No water sources in the alignment
Managed the dust during works
Yes
Yes
Yes
Yes
213 land donors & 5 residential structure

Notice affixed in public places
A plan was prepared
Distributed assistance to all
Yes
Yes
Yes
Yes
Drainage issue was raised

Constructed earthen drain
Project engineer supervised regularly
It was tested in labs by expert
Formation and consultation of local road user group
Yes
2
3
Orient the local groups for monitoring

Involve locals for monitoring
Yes
Yes
Hearing the voices of locals
Yes
Thus, the social audits conducted in Trishuli-DeuraliMeghan road have given positive feedbacks to the
project. As discussed above, local users, road user
committee members, representatives of District Forest
Office, District Road, Media, journalist, contractor, and
land donors, people lost residential structures, VDC, DDC
and DTO representatives and the district level project
people were attended in the meeting.
After completion of the audit, a group of people went
to working areas, observed the safety equipments used
by the labors, discussed with them about payment and
rate and then also observed the labor camp, records of
payment to the labor and so on. The public audit as well
as the observation visit found very encouraging situation
of road development in Nuwakot district. This enforces
us to put two logics. One there was heavy necessary of
the road so all concerned people attended in the audit
found perfect work combination. Second, the project
mechanism has been able to construct good quality roads
Remarks
Formed a users committee in the begging

of road selection
Orient time to time
Local users involved in monitoring
Grievance hearing committee is
functional for hearing local issues
and therefore concerned people are satisfied with the

construction works.
Tikkar-Budhi Rural Road in Kapilvastu

The road lies in the middle of the district which divides
the district into Eastern and Western Parts. The road links
the access of northern belt people of upper side of the
East-West High Way to district head quarter, Taulihawa,
and the boarder of Nepal to India, Krishnagar. The total
length of the road is 21km crosses the postal road in
the southern part. The main inhabitants of the road
alignments are Terai people (Such as Tharu, Sah, Kurmi,
Yadav and so on) and hill migrants Brahmin, Chhetri,
Magar, Newar, Kami and Damai. The toal beneficiary
population is 42000. This is an old road constructed
by local government body about 35 years back but not
improved for all season until the upgrading works of
RAIDP. This was a priority no one road with heavy demand
AUDITING
of the people for a long time therefore selected it for

improvement in 2009 and completed the construction
works in 2012.
construction works completion. Thus, several problems

were identified by public audit of different times and the
project adopted new strategies for addressing it.
The project rule is same for all roads and hence social audit
was conducted three times as usual. In the first public
audit it was marked that contractor was constructing
slowly and local people, media, journalist and local
government authorities were paying their concern about
quality road and completion on time. In the second audit
the construction works were progressing but the affected
people were not receiving the assistance amount on time
and appeared borrow pit problems due to excavation of
social from road sides and damage of few tress in the
jungle area. However, the situations were not found in
the third audit but appeared some new problem as land
ownership transfer was not completed until the time of
As other public audits, the social consultant of the

project working in the district has given responsibility of
public audit. He informed all concerned stakeholders for
the audit and organized the gathering. In the meeting,
the consultant informed the objectives of the program
and meeting and then set some rules of the meeting.
Thereafter, he raisedthe issue one by one and the
interested participants gave their opinionsturn by turn.
The first social audit of the road was held in September
2009, second in April 2011 and the third was held in
January 2012. The major issues raised in the audit and
people satisfaction are presented in table 2.
SN
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
Table 2: Major issues of CBPM
Major Issues
Status Remarks
Labor and Labor Safety
Employment of local labors, marginalized and
No
Not all interested people got the chance
women
Use of child labor
No
Not in practice
Rate of payment as per district rate and payment
Yes
It is followed
as per requirement
Labor insurance and safety measures
Yes
Insurance only, no other safety measures
Environmental Safety
Loss of Tress
Yes
Prepared Re-plantation Plan
Loss of water sources
No
No water sources in the alignment
Health hazards due to dust during construction
No
Managed the dust during works
Borrow pits and spoil disposal problem
Yes
Road sides are used as borrow pits
Social
Loss of land and residential structure
Yes
213 land donors & 5 residential structure
Informed locals about the loss properly
Yes
Notice affixed in public places
Prepared mitigation plan
Yes
A plan was prepared
Received Assistances of the losses
No
Not distributed assistance to all
Technical / Quality issue
Problems appeared during construction which
Yes
Sides borrow pits and water logging
was not in design
Resolved the problems
No
Not properly resolved water logging issue
Supervise the works regularly
Yes
An engineer supervised regularly
Used quality materials but otta-seal
Use of quality materials and quality works
Yes
technique is not durable
Other issues
Formed a users committee in the begging
Formation and consultation of local road user
Yes
group
of road selection
Orient the local groups for monitoring
Yes
Orient time to time
Involve locals for monitoring
Yes
The contractor does not hear local voices
Hearing the voices of locals
Yes
GHC is formed but not effective
AUDITING
Thus, local people and road users of Tikkar-Budhi rural

road have shown serious concernsabout road quality,
timely completion of the road, side borrow pits and water
logging and other social, environmental and technical
issues. The concerned of the people raised in different
public audits were analyzed and taken necessary actions
for resolving them on time. In social audit, it came to
know that different stakeholders have different concern
or interest about the road. For instance, the locals and
the VDC authority were concerned about quality works
and its completion on time. The people from District
Forest Office were upset with the situation of tree
lost and then suggested the project for re-plantation.
Whereas the journalists and media people broadcasted
news more negatively which discourage the project
people for some time. Finally, the project corrected all
problems raised in public auditsin coordination with local
road users committee, local authority, contractor and
DDC and DTO people.
However, the project has not been able to address a few
problems till to date. The first and foremost problem is
completion of land ownership transfer within the project
period. The project has given sufficient budget to the
district though it has not resolved because some of them
are absentee and some of them are not interested in
land ownership transfer in small rate of assistance.
Although, the district project staffs are trying their best
for resolving the problems raised in social audit.
Conclusion
Public audit or social audit is used as a component in most
of the development programs and projects to know the
views of stakeholders about the project. Social audit in
RAIDP is a compulsory component conducted three times
in a project period (ESMF 2012). Social auditing system
has given the project incredible success and experiences
to the project. In comparison to the benefits of it the

cost and hurdles are minimal though it gives additional
burdens to the staffs as they have to contribute sufficient
time for its preparation and face some hurdles.
Achieving targeted objectives smoothly in time depends
upon so many other factors. Commenting something
negatively or giving feedbacks to others is an easy action
but it is tough to achieve the success as expectation.
In rural road construction, there involves three parties
directly. They are contractor, local beneficiary population
and the project staffs or experts. The locals want to have
a quality road in time for that the project people are
also committed. The contractor is a businessman or an
organization which expects to earn more benefits from
the contract. In business norms earning benefit has two
options: either use low quality materials or product or
use labors of low wage rate. Hence, the contractor,
normally, uses low quality materials and construct low
quality road which is not favorable for locals and the
project.
Moreover, the contractor may offer bribe to the experts
and use low quality materials or does not perform as per
the provisions of Bill of Quantity. In this situation, the
social audit is the only means which exposes the reality
to the public in front of all stakeholders. If there is a
system of hearing the voices raised in the public audit,
no doubt, it resolves most of the problems.
On the basis of the experiences of RAIDP social audit,
it can be concluded that it could not resolve all types
of problems/hurdles that linger a project but it resolves
most of the obstacles that hinders a project/program to
meet the targeted objectives. It helps familiarizing the
program and its success and failure. Moreover, it gives a
platform to the stakeholders where all sit together and
discuss about their common benefits.
BANKING
Challenges of Managing Interest Rate Risk
'
The banks complexity and risk

profile should determine its
IRR management programmes
formality and sophistication.
More complex banks will likely
need more formal, detailed IRR
management programmes. In
such cases, management should
establish specific controls
and produce cogent analysis
that addresses all major risk
exposures.
'
CA. AR Bhattarai
Recent cash crunch in the money

market has caused enormous
pressure on banks and financial
institutions to adjust the interest
rate towards upward region as
there were no options left. Intense
competition for business involving
both the assets and liabilities,
together with increasing volatility
in the domestic as well as foreign
markets, has brought pressure on
the management of banks to rethink
spreads between profitability and
long-term viability.
The unscientific and ad-hoc pricing of
lending in the context of intensifying
competition and alternative avenues
available for the borrowers results in
inefficient deployment of resources.
A thoughtful evaluation of customers
and their price sensitivities can
provide valuable insights into the
crisis.
The deregulation of interest rates and
the operational flexibility given to
financial institutions in pricing most
of the assets and liabilities imply
the need for the banking system to
hedge the Interest Rate Risk (IRR).
IRR is a risk where changes in market
interest rates might adversely affect
a banks financial condition. The
immediate impact of changes in
interest rates is on banks profits
by changing its spread (Net Interest
Income - NII). A long-term impact of
changing interest rates is on banks
Economic Value of Equity (EVE).
CA. Bhattarai is CEO of Commerz & Trust Bank Ltd.

Therefore, before making revision

on interest rate, every financial
institution should understand the
following points. First, why is the
price war occurringor may occur?
Second, it is also critical to recognize
where to look for resources when in
a battle. Third, it is important to
analyze carefully the customers,
competitors and other players within
and outside the industry that may
have an interest in how the price war
plays out.
Primarily, the market risk results from
the interest rate, foreign exchange
rate and equity price volatility.
Clearly, most banks principal
market risk exposure is interest
rate risk (IRR). The IRR examination
procedures guide examiners towards
a qualitative assessment of a banks
IRR management and exposure.
IRR is the exposure of a banks
current or future earnings and
capital to interest rate changes.
Interest rate fluctuations affect
earnings by changing net interest
income and other interest-sensitive
income and expense levels. Interest
rate changes also affect the capital
by altering banks economic value of
equity (EVE).
EVE represents the net present
value of all asset, liability and offbalance sheet cash flows. Interest
rate movements change the present
values of these cash flows. EVE
estimates the long-term expected
BANKING
change to earnings and capital that will result from an

interest rate movement. As financial intermediaries,
banks cannot completely avoid IRR. However, excessive
IRR can threaten banks earnings, capital, liquidity and
solvency. IRR has many components, including re-pricing
risk, basis risk and yield curve risk.
the Boards policies into clear operating standards;

secondly, they should maintain a measurement system
that identifies, measures, and monitors IRR. Thirdly,
they must establish effective internal IRR controls.
Prudent risk management demands accurate, timely IRR
quantification.
Re-pricing Risk results from timing differences between

cash flows from assets, liabilities and off-balance sheet
transactions. For example, long-term fixed rate securities
funded by short-term rate deposits may create re-pricing
risk. If interest rates change then deposit funding costs
will change more quickly than the securities yield.
When evaluating IRR, well-managed banks should

consider both earnings and economic approaches.
Reduced earnings, or losses, can harm capital, liquidity,
and even marketplace perception. EVE measurements
provide longer-term earnings and capital analysis. Each
IRR measurement system relies upon unique assumptions.
However, there are some key assumptions that most
systems incorporate.
Basis Risk results from weak correlation between interest

rate changes for assets, liabilities and off-balance sheet
transactions. For example, deposit rates may change
by 200 basis points while prime-based loan rates may
change only by 50 basis points during the same period.
Yield Curve Risk results from changing rate relationships
between different maturities of the same index. For
example, a one-year Treasury Bills yield may change
by 100 basis points, but a three-month Treasury Bills
yield may change only by 50 basis points during the same
period.
The banks complexity and risk profile should determine
its IRR management programmes formality and
sophistication. More complex banks will likely need more
formal, detailed IRR management programmes. In such
cases, management should establish specific controls
and produce cogent analysis that addresses all major
risk exposures. At those banks internal controls should
include an independent review process for IRR analysis
and requirements for reasonable separation of duties.
All procedures should be clearly documented and senior
management should supervise the daily operations.
The board of directors must ensure that the management
effectively identifies, measures, monitors and controls
IRR. The policies, procedures and systems applied to
achieve those goals comprise the IRR management
programme. The board of directors must understand the
banks risk exposures and how those risks affect current
operations and strategic plans. The boards three primary
IRR responsibilities are: First, to establish strategy and
acceptable risk tolerance levels, including policies, risk
limits and management authority and responsibility.
The second is to monitor IRR to prevent excessive
risk exposure, and the third, to provide adequate IRR
management resources.
Senior managements responsibilities include both longrange and daily IRR management. Senior management
should first implement procedures that translate
Projected Interest Rate Forecasts must be used in

many systems (particularly duration and simulation
models). Banks may generate internal forecasts based on
supported analysis. For example, internal rate forecasts
might rely on implied forward yield curves, economic
analysis, or historical regressions. Banks might also
incorporate forecasts from external sources. Regardless
of the source, rate forecasts should be consistent with
other forecasts used throughout the banks planning
processes (for example, forecasts used to estimate loan
demand). Rate forecasts should include increasing and
decreasing rate environments that provide meaningful
stress scenarios and address the banks risk exposures.
Reinvestment Rates determine the yields earned by
projected future cash flows (after the bank receives and
reinvests them), primarily in simulation models. Many
systems simply assume that all future cash flows will be
reinvested at one rate (for example, Treasury Bills Rate).
More sophisticated systems use multiple reinvestment
rates for cash flows from different sources. All
reinvestment rates should be reasonable and consistent
with other bank forecasts. Unrealistic reinvestment rates
render IRR simulations meaningless.
Growth Estimates should reflect the strategic goals
and forecasts used in the strategic planning process.
Unrealistic asset or deposit growth assumptions will
invalidate the systems results. Banks should maintain
systems that concisely report IRR. At least quarterly,
senior management and the board should review those
reports. However, banks that engage in complex activities
or take greater risks should assess IRR more frequently.
IRR reports should contain sufficient detail to permit
management and the board to identify IRR sources and
levels; to evaluate key assumptions, including interest
rate forecasts, deposit behavior and loan prepayments;
and to verify compliance with policies and risk limits.
banking
Challenges in Operational Risk Management
'
Increasing operational risk

events suggest that there is
urgency of creating further
awareness to the Board, Senior
Management and Staffs that
Operational Risk Management
should also get equal priority
and importance in order to have
strong internal control system
and mitigate the operational
risk.
'
Operational risk events, with

high severity, are taking place
one after another in Nepalese
banking industry in the recent
days. INR demand draft issuance
by submitting fake documents by
the customer, thousands of amount
withdrawals through counterfeit
cards, certification of good for
payment cheques without having
sufficient balance in the account,
embezzlement of cash by the vault
key-holder, etc are a few examples
of such risk events, which have
been posing serious threats to the
BFIs in managing operational risks
effectively.
Operational Risk
Operational Risk is the loss resulting
from inadequate or failed internal
processes, people, system or
external events.
Mr. BN Gharti
Mr. Gharti is associated with KIST Bank Ltd.
Basel
Committee
on
Banking
Supervision (BCBS) has categorized
7 types of operational risk events
which are a) Internal Fraud, b)
External Fraud, c) Employment
Practices and Work Place Safety, d)
Client, Products & Business Practice,
e) Damage to Physical Assets, f)
Business Disruptions & System
Failures and g) Execution, Delivery &
Process Management.
Credit and market risks can be

estimated and have risks mitigants
in place accordingly.
But, it is
extremely difficult, in case of
operational risk events, to estimate
up to which extent loss can incur
and when and how it take place.
Peoples (staff/directors/outsiders)
involve in banking activities. The
risk arises to the BFIs due to staffs
incompetency or wrong doings even
if they are competent and external
fraud. Therefore, operational risk
management, which also covers
managing the peoples, has a
paramount importance.
Increasing Challenges
The challenges for Operational Risk
Management (ORM) is increasing
significantly due to increase in day
dreamers to be wealthy in a short
period, fraudulent and illegal money
making activities and uncalculated
risks taking culture, reliance on
technology and outsourced assets,
increase in service outlets and
customer base, rapid growth of
business and staff attrition, assigning
responsibilities to inexperienced
staff, innovation of new products and
services, poor corporate governance
and vulnerabilities in the systems,
inadequate knowledge of the Board
and Senior Management about
BANKING
banking complexities, insufficient policies and standard

operating procedures for internal control, etc.
Technological development and innovation has simplified
and shortened the service delivery period with easy
banking accessibility. Plastic Monies, Online Banking,
Cell-phone Banking, etc are a few examples, which have
brought the banking in the finger tips of the customers
from the brick and mortar branches but have immensely
increased operational risks as well.
Capital Adequacy
BFIs should ensure capital adequacy so that they can
easily tolerate the shocks if any untoward incident takes
place.
Credit and Market Risks Management have always got
greater importance rather than operational risk not only
in Nepal but also in the banking industry of the world. The
Bank uses others money to provide credit facilities, which
fund needs to be returned on demand / at maturity. That
is one of the reasons why BFIs do give high preference
for Credit Risk Management (CRM). Comparatively more
trainings are provided to the staffs deputed in credit
department, policies and procedures are also defined
with high importance and more resources are allocated
for CRM. However, the near collapse of the US financial
system in 2008 clearly indicates that CRM is far from
perfect even in the developed countries like USA.
Nevertheless, after the devastating twin tower attack in
2001 and increasing money laundering activities, BFIs in
the overseas started to give greater importance for ORM
too.
Nepal Rastra Bank has introduced Basic Indicator
Approach for calculating capital adequacy for the
operational risk. Net Interest Income, Operating
Income, Foreign Exchange Income and Increase in
Interest Suspense are added and risk weighted assets
(RWA) are derived @ 15% as per NRB Directives on the
average amount of last 3 years. Out of the total RWA
derived for capital adequacy calculation, credit risks
commands a large share of about 90% whereas rest around
10% by operational and market risks, which indicate that
capital allocation for operational risk management is
very low.
Difficulties
Its comparatively easy to quantify risks relating to credit
and market risks. For example, if a loan of Rs 200 is
provided, the maximum risk to the BFI is up to Rs 200 and
financial and administrative cost to be incurred thereon.
Similarly, if the Bank maintains long or short position of
USD 200, there would be risk of exchange fluctuation on
USD 200. Therefore, risk mitigants are also arranged as
per the estimated risks. However, it is always hard to
estimate in case of operational risks. For example, if the
BFI has not arranged the fail-over system and the primary
server crashes, it cannot be estimated that what would
be the possible loss? But, such event may precipitate the
Bank even up to the situation of collapse if it could not
recover the data in the reasonable time.
Historically, BFIs have accepted operational risk as an
unavoidable cost of doing business. They therefore put in
effort to transfer risk or have risk mitigants like Insurance
coverage, installation of generator for alternative
electricity back up, taking back up of transactions in
hard disks / tapes, arrangement of secondary data center
with fail over system, installation of fire extinguishers,
construction of strong room, installation of firewall in
the system, deputation of security guards, etc.
However, the culture of recording, reporting and
analyzing the operational risk loss events and near loss
events in the Nepalese banking industry is yet to be
fully developed. If loss events are collected it can be
categorized and analyzed as High Frequency High Risk,
Low Frequency High Risk, Low Risk Low Frequency
and High Frequency and Low Risk events and find out
the actual reasons and sources, which help them to
correct the laxity at source and take proactive decisions
for averting / mitigating such risks based on its severity
and frequency.
Risk Events Reporting

BFIs can obtain credit information about the customer
from Credit Information Centre Ltd. However, there is
not any such organization, which provides operational
risk events occurred in other BFIs for taking reference to
formulate risk management strategy proactively. Whilst
such incidents are highly sensitive in nature and should
not be disclosed to outsiders, there is a practice in the
overseas to provide the information to the member
BFIs about the incidents without disclosing the name
banking
of the respective BFI. If same type of system could be

introduced in Nepal too, it would help other BFIs for
setting ORM strategy proactively.
At last but not least, increasing operational risk events
suggest that there is urgency of creating further
awareness to the Board, Senior Management and Staffs
that Operational Risk Management should also get equal
priority and importance in order to have strong internal
control system and mitigate the operational risk.
Three lines of defenses Frontline Units, Compliance and
Internal Audit should be further strengthened by each BFI
and operational risks identifying and managing culture
should be further developed. Adequate risk management
policies and standard operating procedures, experienced

human resources, zero tolerance compliance, and risk
based audit should be there for minimizing operational
risks. BFIs themselves can increase the minimum capital
requirement for operational risk other than specified by
NRB so that they can tolerate the shock of the operational
risk events.
More notably, the Nepalese BFIs, which were collapsed
or faced problems in Nepal was more because of their
failure in operational risk management (ORM), though on
the surface, it appears that they were failed on account
of loan defaults, which itself indicates how challenging
and important it is to manage the operational risk.
ECONOMY
Foreign Direct Investment

An Overview
'
Introduction
The impact of FDI on

economic growth is expected
to be two-fold. Firstly, FDI
is expected to be enhancing
growth by encouraging the
incorporation of new inputs
and foreign technology in
the production function of
the
recipients
economy
through capital accumulation.
Secondly, through knowledge
transfers, FDI is expected to
augment stock of knowledge in
recipients economy through
labour training and skill
acquisition and introduction
of alternative management
practices and organizational
arrangements.
'
In world economy, the term

globalization
is
being
used
heavily since mid 1990s. In 2000,
International Monetary Fund (IMF)
has identified four aspects of
globalization: Trade & Transaction,
Migration & Movement of people,
and Dissemination of knowledge and
Capital & Investment Movement.
Among these, the most important
aspect is Capital and Investment
Movement.
Growing inter linkages among
countries in the form of direct
investment is an important feature
of globalization. Globalization has
made the entire world, a common
platform for making investments.
It has brought integration in world
economy. With the integration of
international capital markets, FDI
flows have increased tremendously.
Concept
Generally, we understand that
Foreign Direct Investment (also
termed as Direct Investment or
Foreign
Investment)
includes
investment made by a foreign
investor in the form of:
Investment in Shares
Re-investment of Profits for
expansion
CA. Sajan Dhakal
Investment in the form of loans
According to Balance of Payment

6 published by IMF, Direct
investment is a category of crossborder investment associated with
a resident in one economy having
control or a significant degree of
influence on the management of an
enterprise that is resident in another
economy. Control exists where the
foreign investor owns more than 50%
of the voting power in the direct
investment enterprise. Similarly,
significant influence exists if the
foreign investor owns from 10%50% of the voting power in direct
investment enterprise. Hence, to be
called as direct investment in shares,
foreign investor must have at least
10% voting power of the investee.
Other than the investment in equity
that gives rise to control or influence,
FDI also includes:
a) Investment in indirectly influenced
or controlled enterprises: Control
or influence may be achieved
indirectly through voting power in
one direct investment enterprise
that owns voting power in
another enterprise. It is known
as Indirect Direct Investment.
b) Investment in fellow enterprises:
Fellow enterprises are such
enterprises which are under the
control or influence of common
immediate or indirect investor.
Neither of the fellow enterprises
controls or influences other
fellow enterprises.
CA. Dhakal is CA Member of ICAN

ECONOMY
c) Debt: Although debt and other claims that does not

provide voting power, to the direct investor, are not
relevant in defining direct investment relationship,
they are included in direct investment transaction if
a direct investment transaction exists between the
parties. Debt instrumentsother than monetary gold,
SDRs, currency, interbankpositions, and pension and
related entitlements potentiallycan be included
in direct investment. However, debt transactions
between affiliated financial corporationsare not
classified as direct investments; rather they are
included under portfolio or other investments.
positive effect on economic development of the host

country but the magnitude of this effect depends on the
stock of human capital in the host country.For economic
development, host country requires learning capabilities
to cope up with the technological developments caused
by the introduction of advanced technology. Research has
proved that the growth in the countries having highest
level of FDI and human capital was greater than that of
the countries having low level of human capital.
d) Reverse Investment: Reverse investment arises

when a direct investment enterprise lends funds to
or acquires equity in its immediate or indirect direct
investor, provided it does not own equity comprising
10 percent or more of the voting power in that direct
investor.
FDI inflows also contribute in export performance of

host countries in a significant manner. Foreign affiliates
tend to have greater share of exports in host countries
than that of domestic firms. Level of export is also the
function of cost of inputs. Countries with advantage of
low cost inputs have high FDIs and therefore share of
affiliates in the export of that country is also high. Thus,
FDI inflows help, in great extent, to reduce imports and
increase exports and ultimately make BOP positive.
Role of FDI in Economic Development
Current situation of FDI in Nepal
Our country is very slow in the race of development.

The major reasons behind this are lack of financial
resources, advanced technology and entrepreneurship
whereasmajor benefits of FDI inflows are that, it not only
provides financial resources but also brings a broader
package including technology and entrepreneurship.
Thus we can see that FDI can act like a bridge of economic
development in our country.
Nepal has adopted open and liberal trade policy in

order to develop Nepalese economy. In 2004, Nepalese
economy achieved a big milestone when Nepal got
membership of WTO. So, it can be seen that Nepal has
made arrangements to lure foreign investments and to
regulate it. An act is also formulated named Foreign
Investment and Technology Transfer Act (FITTA), 1992.
FITTA has also made some provisions to attract foreign
investment, which includes providing 6 months nontourist visa to those who wants to conduct research with
the objective to make investment in Nepal and providing
business visa to foreign investor until such investment is
retained.
The impact of FDI on economic growth is expected to

be two-fold. Firstly, FDI is expected to be enhancing
growth by encouraging the incorporation of new inputs
and foreign technology in the production function of
the recipients economy through capital accumulation.
Secondly, through knowledge transfers, FDI is expected
to augment stock of knowledge in recipients economy
through labour training and skill acquisition and
introduction of alternative management practices and
organizational arrangements.
The attractiveness and efficacy of FDI in any country
depends upon the country-specific factors like countrys
openness to trade, investment in basic infrastructure,
factor endowment, financial structure and macroeconomic, political and social stability. FDI can play a
key role in economic development of recipient (host)
country only if it has conducive environment in terms of
sufficient capability to absorb advanced technologies to
be made available in that country.
Another important factor in economic development,
through increment of FDI inflows, is availability of
human capital.FDI inflows in the developing country have
Although FDI in Nepal has increased, the increase is not

satisfactory as compared to other South Asian countries.
According to World Investment Report 2012 published by
UNCTAD in 2012, FDI inflow of Nepal in 2011 was below
$0.1 billion while FDI inflow of India was above $10
billion. Similarly, FDI inflow of Pakistan and Bangladesh
lied between $1 to 9.9 billion and that of Sri Lanka and
Maldives was between $0.1 to 0.9 billion. This shows that
Nepal was among one of the least FDI receivers in South
Asian countries.
From above statistics, we can make an estimate about
the share of FDI inflows that Nepal contributes to the
overall FDI inflows of South Asia.Yes, it is very low as it
was expected. In 2011, share of FDI received by Nepal on
overall FDI inflow of South Asia was 0.24%. Similarly, in
2010 it was 0.27% and in 2009 it was 0.09%.
ECONOMY
The data of FDI, received by Nepal in 2011, seems even

worse when compared to other least developed countries
in the world. In that list also, Nepal lies in bottom with
countries like Afghanistan, Bhutan, Lesotho, Angola etc.
To be more specific, data of Nepal is compared with
other landlocked countries of the world. In that list also
Nepal lies at bottom of table just above Burkina Faso and
Burundi which has received FDI in 2011 below $10 million.
After comparing Nepal with other countries, lets
compare Nepal own performance in past few years.
Well, from this point of view, it seems that FDI inflow has
been in increasing trend recently. In 2011, FDI received
by Nepal is $95 million which is higher than $87 million
in 2010 and $39 million in 2009. Here, we can see that
FDI has increased significantly from 2009 to 2010 and the
increasing trend is continuing in 2011 which is a good sign
from view point of Nepalese economy.
Constraints
From above facts and figures, it is well agreed that
Nepal has not been able to lure foreign investors than
compared to its neighboring country and other South
Asian countries. Despite of having enough natural
resources and scenic beauty, Nepal has failed to mark its
existence and prospects to foreigners. Following are the
constraints that have caused lack of FDI inflows in Nepal:
a) Political Instability: Well, nothing much is required
to describe about Nepalese politics. We all know the
current political scenario of Nepal. Not only FDI, it has
been major cause for various other issues in Nepal.
But one thing I would like to address here is that why
is national economy suffering due to conflict among
political parties on other agendas. Cant they form
a framework on economic rehabilitation and make
an agreement on it so that whichever party forms
government, it would have no impact on economy
of the country. Thats one thing that needs to be
considered.
b) Repatriation of Manpower: Nepal is going to face
scarcity of skilled and mostly unskilled manpower in
coming years and the reason is massive repatriation
of manpower to gulf and other developed countries.
Although inward remittance has become backbone
of Nepalese economy in recent past, a nation should
preserve its human capital if it has to be a selfsustained nation. As I have said earlier, human capital
is very important in order to have positive impact of
FDI in the economy; lack of manpower might become
one of the reasons for not receiving FDI inflows in
future.
c) Inadequate Infrastructure: Most part of Nepal

is remote where there is no access of basic
infrastructure like communication, telephone and
electricity. In the case of electricity, even metros are
deprived of electricity in Nepal these days, as we
all know whole country is suffering from electricity
crisis. Inadequate infrastructure is one of the major
reasons that Nepal has not been able to attract
foreign investments. Nepal is rich of resources but
there are no infrastructures to extract and exploit
those.
Prospects and Recent Development

Nepal lies between two emerging powers of the world.
So, there are lots and lots of opportunities in Nepal for
attracting foreign investments. One of them can be
playing the role of transit in the trade between India
and China and there many more like this.There are
various sectors which can attract foreign investments.
One of them is Hydropower (most important of all other
sectors). Others can be Tourism, Agro-based Industries,
and Rope-ways etc.
In recent past, we can see government showing somewhat
positive attitude towards economic development and
attracting FDIs. As a result, recently, Nepal has signed
BIPPA agreement with India. Nepal should be signing
more of these agreements so that there is no fear in
foreign investors towards security of their investments.
These kind of agreements helps in attracting foreign
investments.Similarly, Tax holiday to hydropower
companies can also be taken as one of the strategy of
government to attract FDIs.
Conclusion
There is huge opportunity in Nepal to attract FDIs
and equally there are numerous challenges. So, the
government should seriously think on this matter
and remove all these obstacles to create a healthy
environment for safeguard of foreign investment in order
to lure FDIs. I think there is a great need of concrete FDI
policy specifying core priority sectors from where Nepal
can derive FDIs and take appropriate action to implement
them and develop the infrastructures accordingly. And
most importantly, nation should be undertaking various
measures to develop the skills of human resources.
Having said all these, I hope for the better future of
Nepalese economy because after all we all want to see a
greater and developed Nepal.
ECONOMY
The Present Situation of

Nepalese Derivative Market
'
UNDERSTANDING
DERIVATIVE MARKET
Most commodities exchanges

in Nepal provide only a portal
to buy or sell contracts of
the commodities but there
is no delivery system and
transactions are held for
speculative
motive
only.
Thus, at present the existing
commodities exchanges do not
contribute much in the national
economy except for the taxes
they pay.
'
CA. Binod Dhungana

CA. Dhungana is CA Member of ICAN
Derivatives are financial contracts or

financial instruments whose prices are
derived from the price of underlying
asset. There can be derivative of
many things e.g., commodities,
equityshares, residential mortgages,
commercial real estate, loans, bonds,
an index like rates, exchange rates,
stock market indices, consumer price
index. However, they may be broadly
classified as,
Commodity derivative - contract
where underlying asset is a commodity
like wheat, coffee, soya bins, cotton,
gold, silver, crude oil etc.
Financial derivative - contracts that
have financial assets or variables as
underlying.
The most commonly used derivative
contracts are forward, futures,
options and swaps. A commodity
exchange is an association or a
company or any other body corporate
that is organizing futures trading
in commodities. In Nepal, national
level exchanges have been set up
in a corporatized / demutualised
environment. There are seven
nationally recognized commodity
exchanges and dozens of other are
in pipeline.
In comparison to the stock market,

commodity trading is a lot faster.
This is because an investor can
make money a lot faster when good
research, good product trading
guidance and/or good instinct is
involved. However, a lot can be lost
just as fast with a worthless contract.
The way to make money in this
market is learn trading and practice
demo trading before you put dime
in the market. Also, there is risk of
manipulation and malpractices due
to lack of regulation of commodity
market in Nepal.
BRIEF HISTORY OF
DERIVATIVE MARKET
The history of derivative market can
be traced to The Chicago Board of
Trade USA, founded in 1848. In India,
after a decade of establishment of
Chicago Board of Trade, Cotton Trade
Association was founded in 1875
and futures trading were started.
Following Cotton, derivatives trading
started in oilseed in Bombay (1900),
raw jute and jute goods in Calcutta
(1912), Wheat in Hapur (1913) and
Bullion in Bombay (1920).However
many feared that derivatives
fuelled unnecessary speculation and
were detrimental to the healthy
functioning of the market for the
underlying commodities, resulting
ECONOMY
in to temporary banning of commodity options trading

and cash settlement of commodities futures after
independence in 1952.
Meanwhile, what is now the USA's largest futures
exchange, the Chicago Mercantile Exchange, was founded
as the Chicago Butter and Egg Board in 1898.
In 2007, CME and CBOT officially merged, and are now
collectively known as CME group Inc., the worlds largest
and most diverse derivatives exchange.
In Nepal, pioneer of commodity market is Commodities
Exchange Nepal Ltd (COMEN) operating since 2006.
Currently there are seven exchanges operating in Nepal.
1. Commodities and Metal Exchange Nepal Limited
(COMEN)
2. Mercantile Exchange Nepal Limited(MEX)
3. Nepal Derivative Exchange Limited(NDEX)
4. Wealth Exchange Limited (WEX)
5. Nepal Spot Exchange Limited(NSE)
6. National Spot Exchange Limited(NSX)
7. Commodity Future Exchange Nepal Limited(CFX)
Commodity exchanges of Nepal operate on the online
trading system. It is an order-driven trading platform,
which is reachable to the various participants through
the Internet.
CURRENT SCENARIO OF THE NEPALESE

DERIVATIVE MARKET
Nepalese derivative market has a short history of six
years. The majorities of investors are new to market
and are not able to analyze the marketproperly. The
commodities market has mobilized investment of
more than Rs 250 million, with around Rs 13 billion
investments from investors. It is said that majority of
investors are losing their investment. Unlike other
financial intermediary, the exchanges need not publish
any statistics showing how much money is involved in
the sector and the exchanges are not answerable to
authorities regarding their business dealings as well.
There is also no account of the money handled by the
exchangesexcept of the amount shown as income and
expenditure in their balance sheet for tax purposes.
A recent report made public by the SEBON had stated

that the commodities derivative market in the country
was operating in an unprofessional and ad-hoc manner
without complying with minimum international standards
to minimize risks and protect the interest of investors.
Due to lack of uniform regulating guidelines, investors
are vulnerable to risk of suspicious trading software, lack
of transparency and bad corporate governance. Most
of these companies are operating haphazardly without
adequate capital, reserves to ensure timely payment and
electronic system to match orders.
Most commodities exchanges in Nepal provide only a
portal to buy or sell contracts of the commodities but
there is no delivery system and transactions are held for
speculative motive only. Thus, at present the existing
commodities exchanges do not contribute much in the
national economy except for the taxes they pay. There
are seven commodities exchanges, 20,000 investors, 200
brokers and 400 sub-brokers operating in the country
and more than a dozen are in the pipeline. More than 50
companies are registered as brokerage and exchange
in Company Registrar office indicating a huge regulating
trouble in the future.
Most of the investors find the derivative market as some
sorts of gambling place where people gather together for
gambling purpose and try to make out high returns with
least investments. But it is very important that one must
realize that there is a difference between gambling and
speculation.
NEED OF REGULATION OF DERIVATIVE

MARKET
Matured economies have established regulators to
regulate derivative market. In U.K regulatory authority
of derivative market is vested on Financial Services
Authority, (FSA). In the USA, the Commodity Futures
Trading Commission (CFTC) has jurisdiction to regulate
all types of derivative contracts forex, government
securities, interest rates, equities etc. Similarly, in India,
The Forward Markets Commission (FMC) is the chief
regulator of forwards and futures markets regulating
commodity trading in 22 derivative exchanges in India.
In Nepal, currently there is no regulator of derivative
market. Exchanges are operating on their own corporate
governance standards. Recently, Ministry of Finance has
instructed Securities Board of Nepal (SEBON) to submit
economy
a draft of regulation on commodities and derivatives.

Accordingly, Sebon prepared the draft of a regulation
to regulate and monitor activities of commodities and
derivatives exchanges by stepping on the Administrative
Procedure (Regulation) Act 1956. The draft was tabled at
the Ministry of Finance in September 2012 and was later
forwarded to the law ministry seeking approval.
After reviewing the document, the law ministry has said
a law to regulate commodities and derivatives markets
cannot be introduced by referring to the Act as it does not
allow creation of a separate legal entity to regulate and
monitor an entirely new market for the country. Although
the red flag shown by the law ministry has prevented the
Sebon from introducing the regulation for now, it can
always use the Essential Commodities Control Act 1961
as a platform to introduce a legal document to monitor
and regulate commodities and derivatives markets.
Firstly, Policy level decision of government is required on
modality how commodity exchange should be setup. The
areas to discuss may be;
Like stock exchange, whether there should be only
one national commodity exchange ,
whether this should be created with the private
sector initiative without any contribution in equity
by the government providing Public financial
institutions contribute equity of the exchange and
Whether the exchange should be run on professional
lines as a commercial venture.
It appears that there is a trade-off between having only
one exchange (which could impose the economy to
inefficiencies of the monopolistic exchange on one hand)
and having multiple exchanges (where the economy faces
the risk of fragmenting volume and wasted resources
on the other).While allowing the multiple exchanges
to trade the same product and granting recognition to
new exchanges to trade products already traded by the
existing exchanges, the government should announce its
policy in unambiguous terms. It would allow free and fair
competition and no one should expect the government
to provide immunity or bail-out to any exchange against
competitive pressures from successful exchanges.
Exchanges themselves should conduct due diligence on

the competitive environment and its impact on viability
of the exchange. The exchanges themselves would be
responsible for their commercial decisions to organize
trading in the permitted commodities. The regulator
should ensure that exchanges do full disclosure to the
existing and potential participants about the risks of
trading at theseexchanges. Complaints of unfair and
fraudulent practices against exchange management
and administration ought to be dealt with firmly and
expeditiously.
The prices of commodities are influenced by their qualities,
grades, seasons of production, the quality of storage and
warehousing etc. Unlike securities, commodities come
in different grades and qualities. Commodities are also
bulky involving difficulties in transportation, which affect
spatial integration. These issues can be addressed by
introducing nationwide warehouse receipt system. Under
this system, the warehouses, which meet the prescribed
standards of storage, preservation, testing, grading
and certification would be licensed by the Regulatory
Authority and warehouse receipts issued by these
warehouses could become negotiable. The Regulatory
Authority could evolve a system of inspection, monitoring
and surveillance to ensure that the licensed warehouses
comply with the prescribed standards and warehouse
receipts issued by them truly reflect the quality, quantity
and the ownership of the goods. Commodity exchanges
could create market place for trading and settlement of
warehouse receipts to facilitate hassle free trading in
commodities.
CONCLUSION
The stakeholders are long waiting for regulation
governing the derivative market. Currently, people are
utilizing the derivative market for speculating rather
than risk hedging.Regulation needs to steer exchanges
to facilitate commodities trading for hedging and
arbitrage purpose too. The infrastructure required for
physical delivery settlement of commodities should be
developed.The people should be aware of these markets
and the role it can play in their economic elevation. Only
then will its economic utility be realized.
information technology
XBRL:
The Language for Electronic Communication of
Business Information
'
XBRL can show how items are

related to one another. It can
thus represent how they are
calculated. It can also identify
whether they fall into particular
groupings for organizational or
presentational purposes. The
rich and powerful structure
of XBRL allows very efficient
handling of business data by
computer software. It supports
all the standard tasks involved
in compiling, storing and using
business data.
'
CA. Mukunda Pokharel
Suppose that you received a sheet

of paper containing information in
figures as mentioned below. Could
you be able to understand the
information and be able to rekey
the information in a spreadsheet and
compare the information with the
same information received from five
other companies?
out what a human would be able to

do. Computers are dumb machine.
You have to give a computer explicit
instructions to get it do the right
thing. The fact that computers are
so dumb and need such explicit
instructions is where the capability
of defining clear rules and standards
become important.
Best Business Limited

As of December 31, 2012
(thousands of dollars)
2011
2012
Land
4,736
4,720
Buildings, Net
6,938
5,933
Furniture and Fixtures, Net
2,356
2,449
Computer Equipment, Net
170
200
Other Property, Plant and Equipment, Net
320
360
14,520
13,662
Breakdown of Property, Plant and Equipment, Net:
Property, Plant and Equipment, Net, Total

I believe, you could. You can figure
out that the information is related to
Best Business Limited because it is
written at the top of the sheet. You
know the numbers are in thousands
and start multiplying the numbers
by 1,000. You know where to look
for the total and what period the
information relates to.
A computer, on the other hand,
cant read that printout and figure
Limitations of paper
based reporting
Paper is a convenient, simple and
flexible way to express many types
of information. But paper medium
has a few disadvantages:
1. Physical:
Paper
must
be
physically carried from one place
to another in order to be used by
multiple parties.
CA. Pokharel is CA Member of ICAN

2. Two dimensional: Paper has only two dimensions,

whereas business information can have more than
two dimensions. With the increase in dimensions,
the challenges of expressing the information on this
two-dimensional medium increases. For example, it
is far more convenient to present and analyze multidimensional data in pivot table compared to a paper
report.
3. Static: After the information is put on the paper, its
fixed, and you cant change it.
4. Limited richness: Only certain things can be put on
paper. For example, you cant put video on paper.
Despite the potentials of the technology, in the way we
are working today, certain aspects of financial reporting
are stuck in the offline, pre-PC world. Electronic paper
formats (like HTML, PDF, word documents, images and
excel sheets) are a little better than the physical piece
of paper. Digital paper allows you to create multiple
copies of the document and it can be transferred over
the web, but electronic paper is also two-dimensional
and static and has limited richness.
The ability to reuse information is more important than
the presentation. To effectively reuse information, the
information needs to have context. Simply exchanging
data between business systems doesnt automate
processes. Although the business system that generates
the data understands the context of the generated
information, if the receiving system doesnt understand
that context, the data isnt reusable.
Lets take the case of filing Audited Financial Statements to
the Inland Revenue Department. You file the information
to the IRD in electronic paper form, either image or pdf.
There is no way IRD can use the information filed for
further analysis and investigation. The information filing
has just become a formality and they can just look at the
information for verification purpose that the information
has been filed. The IRD filing system cannot even tell
you the difference between Balance Sheet and Notes to
the Account and reject the upload if you provided the
wrong file. If you want to analyze the data further and
compare the data relating to more than one company or
of the same company for more than a single period, the
information needs to be rekeyed.
This is where the XBRL comes in. You can use XBRL to
define and model the meaning of business information
so that computer applications can effectively interpret,

analyze and exchange that information without any
human intervention.
XBRL stands for eXtensible Business Reporting Language.
XBRL is a language that lets you build what you typically
think of as a report. This report is a physical document,
just like other documents youre familiar with: a word
document, an excel document, or maybe a PDF file.
Like these reports, XBRL also has a document. The XBRL
document, also called an XBRL instance, is built in the form
of an electronic file and contains business information.
It is a language for the electronic communication of
business information, providing major benefits in the
preparation, analysis and communication of business
information. It is the Standard way to exchange business
information.
XBRL is the business-reporting equivalent of the UPC or
other type of bar code. Just as a UPC bar code uniquely
identifies a physical product, the XBRL bar code
uniquely identifies chunks of information. Just as a UPC
bar code allows software to retrieve key characteristics
of a product (e.g., weight, dimensions, characteristics,
price, etc.), XBRL provides data on key attributes of the
related information (e.g., meaning of the data item,
type of data, time period, organization, etc.).
The standard for the use of XBRL is freely available from
the XBRL international consortiumit is not the property
of any software vendor. Nor is it restricted to any one
particular computer system or language.
XBRL allows information to be communicated to interested
partners in an automated, validated, and reliable manner.
It makes it easy to extract the information processed by
the systems. It offers flexibility to reuse the data and
also represent the data in user defined manner.
Why stick with paper (printed or the electronic type) if
other potentially better options are out there?
The eXtensible Business Reporting

Language
XBRL is a powerful and flexible version of XML which has
been defined specifically to meet the requirements of
business and financial information. In broader terms,
XBRL consists of an XBRL instance, containing primarily
business report built in a special way and published in a
special format, and a collection of taxonomies, which

define metadata (semantical, meaningful description of
the nature of data) about these facts, such as what the
facts mean and how they relate to one another.
define particular taxonomies. Rather, this responsibility

lies with those who manage the supply chainssecurities
organizations, banks, or other regulators or a single
organization that wishes to improve its own internal
information supply chain. When the information provider
publishes its business report in XBRL format, it tags all
the facts in the report against the predefined concepts
in the taxonomy. XBRL also allows for extensions to the
standard taxonomy (not alterations). A special taxonomy
has also been designed to support collation of data
and internal reporting within organizations called GL
taxonomy.
Although XBRL doesnt have a formal logical model,
Charles Hoffman has presented a simplified high-level
model of a XBRL implementation2.
An XBRL instance has four main parts1 :

Values: The values are the text and numbers in the
report. Generally, the text and numbers come from some
sort of business system, such as accounting software, ERP
system or an excel sheet. For example, a value may be
a number like 6938 or text, such as Buildings, Net.
Context: The important information about the values in
the report are explained by the context. For example
you would like to know - what period the value relates
to, what entity the value relates to, whether the values
are actual or budged and so on.
Concepts: Technical representations of business terms
are known as concepts. These business terms are
associated with the values (text or numbers) contained on
a business report. The business terms can be represented
as technical structures by giving them unique names,
such as BuildingsNet. The main purpose of the concept
is to give a unique name to business terms so that they
are not confused with the business terms.
Dictionary: Concepts are expressed within a dictionary.
In XBRL, these dictionaries are known as taxonomies. The
dictionary gives a precise definition about the meaning
of each term.
At the heart of every XBRL implementation is one or more
taxonomies providing a means to associate reported
business facts with their definitions. It means that every
participant in an information supply chain has a common
understanding of the meaning of terms. XBRL does not
Figure: A high-level logical model of XBRL by Charles Hoffman
XBRL can show how items are related to one another. It

can thus represent how they are calculated. It can also
identify whether they fall into particular groupings for
organizational or presentational purposes. The rich and
powerful structure of XBRL allows very efficient handling
of business data by computer software. It supports all
the standard tasks involved in compiling, storing and
using business data. Such information can be converted
into XBRL by suitable mapping processes or generated
in XBRL by software. It can then be searched, selected,
exchanged or analyzed by computer, or published for
ordinary viewing.
1 This article does not discuss technical terms in details. See the references for further resources.
2 Modeling Business Information Using XBRL by Charles Hoffman
Importance and benefits of XBRL

Most of the organizations have one or more business
system ranging from a big Enterprise Resource
Planning (ERP) system to perhaps small but important
spreadsheets that contain information. Those business
systems are generally internal to the internal use of the
organization. Many times the organization may need to
exchange business information with subsidiaries, which
also have business systems. The same is likely true of
customers, suppliers, regulators, and many other parties
external to the organization with whom the organization
interact and exchange different sorts of information. In
the past, there was no standard way of exchanging the
information acceptable to all the parties whether they
were internal or external to the organization. This led
to creating non-standard approaches requiring a lot of
human involvement that have been the norm to exchange
information between business systems. With XBRL,
more of these information exchanges can be efficiently
automated by using one globally standard approach.
Sharing information between business systems today,
even in the age of the internet connectivity, is difficult.
Most of the webs content is designed for humans to read,
not for computer programs to interpret and manipulate
meaningfully. The volume of information we have to deal
with is increasing. The world of business information
exchange is extraordinarily complex. To deal with the
rapidly increasing volume of information and complexity
of information exchange, we need some reliable
technology that can exchange, interpret and analyze
the information in a meaningful way. XBRL helps to solve
that problem to a large extent by providing a common
baseline for the many types of business information
exchange.
As Hans Hoogervorst, chairman of the International
Accounting Standards Board puts it XBRL has the
potential to supplement the one-size-fits-all approach of
todays financial statements with an la carte menu of
financial information.
Some of the compelling things that XBRL can do are:
Making business information exchange better, faster,
and cheaper
enabling the exchange of that meaning between

humans or between business systems
Improving data integrity
Integrating business systems
Saving government and regulatory authorities money
and making them more efficient
Improving integrity of information by using XBRL to
check computations and reportability rules.
XBRL offers major benefits at all stages of business
reporting and analysis.
The benefits are seen in
automation, cost saving, faster, more reliable and more
accurate handling of data, improved analysis and in
better quality of information and decision-making.
Because data are exchanged electronically in XBRL,
users can automate their handling, thus cutting out
time-consuming and costly collation and reentry of
information. Software can also immediately validate the
data, highlighting errors and gaps which can immediately
be addressed. It can also help in analyzing, selecting, and
processing the data for re-use. Human effort can switch
to higher, more value-added aspects of analysis, review,
reporting and decision-making. In this way, regulators
and government departments can assemble, validate,
and review data much more efficiently and usefully in
performing their regulatory vigilance functions.
The users of XBRL is not limited to the regulatory
reporting. It can be used by many stakeholders in the
information supply chain for
Internal management reporting inside corporate
groups and consolidating financial statements
Reporting to government agencies and banks
Data analysis by financial data companies and
accountants
Supporting the integration of dispersed reporting
and accounting systems
Reporting of financial statements to company
registers, stock exchanges, and securities regulators
Making financial reporting more transparent and

discoverable
Convergence
between
different
accounting
principles, such as international financial reporting
standards (IFRSs) and local generally accepted
accounting principles (GAAPs)
Explicitly expressing business meaning and thus
Corporate tax reporting
Implications for Users of Business

Reporting
next step is definitely going to be the implementation of

XBRL for the financial reporting.
In the long term, financial statements prepared under

one standard format may need to be filed only once for
access by several regulatory agencies. For example, a
company may file its financial statements to only one
regulator or common national information repository and
all the other regulatory and statutory authorities access
the information from there. In that case a company does
not need to file separate copies of the same report to
Inland Revenue Department, Company Registrars office
and sometimes other regulators like Nepal Rastra Bank
or SEBON.
As regulators have done, for example, in China, Italy,

Japan, Singapore, India and the United States. In the
near future, other users, such as analysts and investors,
are going to expect companies to provide their
information in XBRL format as well. XBRL also can bring
many benefits to organizations and their stakeholders.
Therefore, organizations can and should no longer ignore
the developments in XBRL.
Regulatory Requirement3
Accounting is a vast world of standards, principles,
and reporting languages businesses use to transfer
information from one group to another. Two of the most
common types of accounting principles and reporting
language are IFRS and XBRL. The former is the gold
standard for international accounting standards; the
latter is an electronic method by which companies
can transfer accounting information through digital
exchange, drawing a connection between IFRS and XBRL.
IFRS represents a national accounting standard for many
different international countries. XBRL is a fast-evolving
digital exchange method where companies transfer data
in order to build a large area of business intelligence.
In the U.S., the Financial Accounting Standards Board
oversees the XBRL taxonomy for U.S. GAAP, while the
IASB is involved with the XBRL taxonomy for International
Financial Reporting Standards. The United States
Securities and Exchange Commission (SEC) mandates the
use of XBRL, stock exchanges around the world use it,
and its officially supported by the European Parliament
as well as the governments of the Netherlands, Australia,
Singapore, Japan, India, and China. The Extensible
Business Reporting Language (XBRL) is becoming a
global standard for information exchange and business
reporting.
In India, the Bombay Stock Exchange has implemented
the XBRL whereas Ministry of Company Affairs, IRDA
and National Stock Exchange are in the process of
implementing XBRL. In China all major regulatory
authorities have already implemented the XBRL.
Implementing XBRL may soon become mandatory to your
organization. After the adoption of IFRS in Nepal, the
XBRL Implementation
The major issue for organizations is deciding how to
integrate XBRL within their own environment. The use
of XBRL may result from a strategic decision to adopt
it within the organization, or it may also result from a
requirement of an information intermediary or regulator.
Organizations may also decide to leverage the mandated
use of XBRL and either simultaneously embed XBRL within
their internal processes or do so in a phased manner.
According to an ISACA research study on Leveraging
XBRL for Value in Organizations, organizations can adopt
several methods for XBRL implementation, including:
Method 1: Bolt On
At the most basic level of adoption, organizations may
see XBRL purely as a compliance exercise. In a bolton approach, an organization takes information from
various sources within the organization and then copies
or keys this information into an XBRL tool. There is no
process change in this approach, merely a conversion of
the results of the existing processes to XBRL format using
a software tool.
Method 2: Outsourced
A second alternative is to use a third-party company
to generate the XBRL by interfacing with the BI
warehouse or financial reporting tool.
Method 3: Tightly Coupled
XBRL GL may be used as the transport medium to move
performance and compliance information from the
subsidiary to the head office and in turn from head office
to external or regulatory reporting.
3 For a complete list of XBRL regulatory requirements both mandatory and recommended visit
http://www.xbrl.org/knowledge_centre/projects
Conclusion
XBRL is an open standard that facilitates the flow of
business information from information providers to
information consumers in a consistent and reliable
manner. XBRL leverages Internet technology to make
information flows efficient, effective, reliable, and
secure.
Information consumers can reside within an organization
or, more typically, are external to the organization. XBRL
provides a means for units within organizations to transfer
transactional data and management information from
system to system using a common internal taxonomy.
Most of the implementations of XBRL have been put in
place by regulators and information intermediaries. When
they make the choice to mandate XBRL in information
transfers, they often do so to improve the efficiency and
effectiveness of the reporting supply chain.
Frequently, information that is typically produced with

complex computer systems is transformed into a paper
format. Then, very often, the users of those printed
reports re-key at least some of this information into
their own analytical databases. XBRL was developed
to increase the effectiveness and efficiency of these
information transfers.
There are XBRL-related initiatives around the world,
many of which were introduced by regulators to improve
the performance of information supply chains for
performance and compliance data. There is little value
for consumers of information if individual information
providers use different definitions and technologies that
do not work together. Standardization brings value to
both information providers and consumers. XBRL can
provide such standards. Therefore, now its time to think
about XBRL and plan for implementing XBRL along with
the IFRS adoption.
management
Stress Management for Busy Executives
'
Introduction and
Meaning
Since stress is an individual's

internal phenomena and two
different people will react to
the same situation differently,
it is a question of training our
mind to understand life and
cope with stressful situations.
This an interesting saying in
Mahabharata, If the problem
can be solved why worry? If
the problem cannot be solved,
worrying will do you no good.
Yes, to manage stress one needs
to look into life with a new eye.
'
CA. L P Bhanu Sharma
Stress has become a modern-day

epidemic. Studies by American
Psychological Association reveal that
over 80% of all our illnesses come
from stress. Similarly, about fourfifth of our visits to hospitals and
clinics are stress-related. A survey
conducted in nine countries has
revealed that over of one-third of
the population is living with extreme
stress. About 48% of Americans feel
that job-related stress has increased
over the past five years, and nearly
one half of the population say that
need help in managing stress. Stressinduced diseases include ulcer,
sleeping disorder, memory loss,
obesity, migraine, indigestion and
cancer, and the list is endless.
The term 'stress' refers to the response
we have when facing circumstances
that force us to act, change, or
adjust in some way to maintain our
footing, or to keep things balanced.
It is a chronic imbalance of the
automatic nervous system. The
circumstances themselves are known
as 'stressors'. This stress response,
also known as the fight-or-flight
response, triggers many involuntary
changes in our body, which give us
an extra burst of energy so that we
can fight or run away from perceived
threats. This was a helpful response

for human beings in earlier times
especially in the stone-age, when
most of the stresses we faced were
physical - this burst of physical
energy was needed to keep us alive
in many cases. Nowadays, though,
more and more of our threats are
psychological - job stress, financial
insecurities, interpersonal conflict,
etc. - and this response to stress,
which can actually make us think
less clearly, isn't always necessary,
or even helpful.
Still another view of stress
conceptualizes it as the difference
between pressure and adaptability
that is,
Stress = Pressure - Adaptability.
What Happens During

and After Stress?
During stress, a stimulus is presented
that has the potential to trigger a
fight-or-flight response (the stressor)
that elicits physiological changes
such as increased muscle tension
and blood pressure (stress reactivity)
that, in turn, results in physical,
psychological,
or
behavioral
consequences such as headache
or agoraphobia (strain). When we
encounter a stressor, the sympathetic
nervous system, activated by the
CA. Sharma is the President of Jeevan Vigyan Kendra and Principal of Apex College
Management
hypothalamus, regulates the body to go into emergency

situation (such as increase in heart rate, increase force
with which heart contracts, dilate coronary arteries,
constrict abdominal arteries, increase mental activity
and increase basal metabolic rate significantly, to name
a few).
On an average, every infant laughs nearly two hundred
times a day, whereas an adult laughs not more than twelve
times. When we sense some threat or an uncomfortable
situation, adrenals fire like anything which is also known
as the Cushing Syndrome, which is responsible for stressrelated hormone 'cortisol'. This hormone gets into the
blood and circulates throughout the body damaging
almost everything that comes into contact with it.
The human body was trained to produce additional
energy - the adrenaline - to face unforeseen challenges
in situations of emergency right from the stone-age.
Without this additional energy that gives a sudden kick,
we homo sapiens would have immediately fallen prey to
a tiger, a lion a wild boar or other creatures. Our body
continues to release this hormone even today although
we do not have similar physical threats. Interestingly, our
brain does not differentiate between real and perceived
threats, and instructs the adrenals situated just above
our kidneys to go into emergency situation the moment
it feels uncomfortable.
Stress has taken a toll one every aspects of human living

- personal life, family, work, society and environment.
Stress has turned life into meaningless pursuit, ruined
our family, paralyzed relationships, reduced our
productivity and has narrowed our vision. Professionals
such as chartered accountants, lawyers, doctors, nurses,
engineers are some of the most affected ones, due to
the nature of their job, time pressure, financial crisis,
unexpected demands by clients - to name a few.
Stress and Poor Academic

Performance
The next time your child or sibling does poorly on an exam,
you might be able to blame it on stress. Researchers have
found that, in stressful situations, when an individual
perceives a lack of control, an enzymeprotein kinase C
(PKC)is produced by the brain. PKC interferes with the
functioning of the prefrontal cortex of the brain, which
regulates thoughts, behavior, and emotions. The result is
that PKC impairs short-term memory and other functions
of the prefrontal cortex. So, instead of blaming loadshedding, try the stress excuse the next time.
A survey conducted by the American Psychological
Association in 2008 revealed the following interesting
facts.
The Journal of Science reports that when we are stressed

our worries use so much of our working memory leaving
fewer cognitive resources
devoted to our life. In
What Causes Stress?
fact, experts now say that Money 81%
Housing costs 62%
The economy 80%
there is hardly any disease Relationships 62%
Family health problems 67%
Personal health concerns 61%
that cannot be linked
Family responsibilities 64% Job stability 56%
Personal safety 48%
to stress. This is a very
dangerous situation. As
What Are the Effects of Stress?
you read this material, if
Physical Effects :
Psychological Effects :
you can look into yourself General Effects :
Headache 47%
Lack of interest/motivation 49%
you will find that you have Irritability or anger 60%
stress of some sort or the Fatigue 53%
Tightness in chest 16%
Feeling depressed or sad 48%
other. Keep this material Lying awake at night 52%
Upset stomach 35%
Feeling nervous or anxious 49%
aside for some time. Can
Feeling dizzy 15%
Feeling like crying 40%
you close your eyes for
Muscular tension 34%
half a minute and recollect
Change in menstrual cycle 10%
when was the last time
Change in sex drive 19%
you experienced stress?
Erectile dysfunction 10%
You will be surprised to
Teeth grinding 17%
find that it was just during
the last week.
Source: American Psychological Association, Stress in America (Washington, DC: American Psychological
Association, 2008).
Management
Stress and Spirituality

Spirituality is our ability to learn how to experience
love, joy, peace, and fulfillment; and to help ourselves
and others to achieve full potential. Spirituality looks
differently at stress and offers distinct and complete
solution. It says stress is the result of an individual's
ego. That means higher the ego, higher the stress. The
perception of threat is the function of our ego. The
solutions offered by spirituality are eternal, time-tested
and handy.
remedy of stress. Good feelings that we get when meeting

a relative, friend or a loved one enable the release of
oxytocin hormone in our body, which is an antidote to
stress. Feelings of love, oneness and affection changes
our mood and take our hearts and minds to a different
state of well-being. Oxytocin is the secret of why we
enjoy meeting near and dear ones. Besides allowing us to
be social, such meetings and involvements help us fight
stress within our system, and theirs too.
3. Exercise
How do We Manage Our Stress?

Since stress is an individual's internal phenomena and
two different people will react to the same situation
differently, it is a question of training our mind to
understand life and cope with stressful situations. This
an interesting saying in Mahabharata, If the problem can
be solved why worry? If the problem cannot be solved,
worrying will do you no good. Yes, to manage stress one
needs to look into life with a new eye. I propose.
Here are seven very simple, practical and tested remedies
for stress. These remedies integrate the research and
understanding of psychology, medical science and
spirituality, and are basically meant for busy executives.
1. Organize:
We live a life without knowing what to do, when to do,
where to do and how to do. Once we map our life and
prioritize our actions, we start becoming proactive,
productive and contended, leaving very little room for
stress to pop in. We become organized and our activities
become meaningful and impactful. One of the tasks we
are oft en unsuccessful at is managing our time well.
There really is no reason for this, since there are effective
time management techniques. These techniques can help
us with your most precious possessionour time. Time
moves continuously and it is usedone way or another. If
we waste time, there is no bank where we can withdraw
time we previously saved to replace the time wasted.
2. Network
Emotional connection and involvement with family,
friends and community is regarded as an important
Right exercises involving in physical activities like

work-outs, yoga, dancing, cycling, jogging, walking and
other forms of exercises help us live a stress-free and
successful life. Such activities help in release of chemical
substances by the body. One of these types of substances
is a brain neurotransmitter called endorphins. Endorphins
act as opiates might actthat is, they decrease pain
and produce feelings of well-being. Several research
findings indicate that physical fitness and exercise can
increase cognitive functioning. Exercise improves the
functioning of the lungs and circulatory system, delays
the degenerative changes of aging, increases the bloods
ability to transport oxygen to body parts, strengthens
the heart muscle, burns calories, and lowers serum
cholesterol.
It is advisable to set up a personal exercise and fitness
plan considering one's physical activities, status of health
and illness, age and time availability.
4. Give:
Another effective remedy is the act of giving. Two
hormones - endorphin (also known as 'happy hormone')
and oxytocin (also known as 'love hormone') - are
responsible to kill stress and give us pleasant feelings
in life. All our acts of help, service, donation, charity
stimulate production of oxytocin and endorphin that act
as antidote to stress and give us all the pleasant feelings.
This is the secret of why service, donation and charity
are given prominence by all religions of the world.
As professionals, there is so much we can contribute
to the society and our community. The benefit of such
contribution is two-fold: the receivers feel they have
got so much from the act, and the giver experiences a
Management
surge of great feelings, confidence, satisfaction and joy.

Also oxytocin released in the process helps the body in
fighting stress.
5. Accept:
Whatever has happened in life up to the present moment
is a matter of history (somewhat like the accountant's
concept of 'historical cost'), because it cannot be undone.
Stress arises because of our inability to accept the facts
of life as they unfold, and acceptance puts an end to
all stress. Acceptance does not mean simple consolation;
basically, it is about clearly understanding the fact that
unlike in computers there is no 'undo' command in life.
We need to develop an attitude of accepting what our
life has given us till date and perform appropriate actions
for what more we want to accomplish.
6. Meditate:
Meditation is now acknowledged, both by medical
science and psychology besides the eternal endorsements
by spirituality, as the most powerful remedy for stress.
Meditation is the state of mind without variation,
compulsion, obsession and concentration. Author Diana
Robinson puts it in beautiful terms, "Prayer is when
you talk to God; meditation is when you listen to God".
Meditation affects the body in exactly the opposite ways
that stress does, restoring the body to a calm state,
helping the body to repair itself, and preventing new
damage due to the physical effects of stress.
Through meditation we recharge our immune system,
reduce hypertension, allergy and heart diseases and
realize our own true inner Self. All positive qualities of
life such as love, patience, confidence, courage, peace,
compassion and service are the results of meditation.
Through meditation, the heart rate and breathing slow
down, your blood pressure normalizes, you use oxygen

more efficiently, and you sweat less; your adrenal glands
produce less cortisol, your mind ages at a slower rate,
and your immune function improves. Your mind also
becomes clear and your creativity increases. It is very
important to find time for meditation on a daily basis,
not only to get rid of stress but also do know oneself and
access higher energy for a better life.
7. Energize:
When you are distressed, your breathing becomes rapid
and shallow, and it stems from your chest. Medical
science now agrees that such shallow breathing reduces
our immunity level, tones up stress and gives way for
many diseases to attack us because of less oxygen
received by the body organs.
It is long understood by the spiritual people that
conscious, happy, slow, deep, diaphragmatic breathing
reduces stress. Taking conscious control of the breathing
process, we learn to establish a balance between the
mind and the body. Recent scientific studies have
shown that this type of breathing is also beneficial in
the non-pharmaceutical management and prevention of
hypertension, and of other physical and mental health. If
we make our breathing long, deep, happy and rhythmic,
we can live a stress-free life and also stay away from
many of the diseases. Such conscious and long breathing
can be practiced at any time during the day, whether at
work or home.
Yes, it is better to manage your stress before it manages
you. If we can take these simple practical steps and
change our life style, we will find that we are out of
stress in a very short time.
taxation
The Tax Bubbles:
Unnoticed Erosion of Capital
'
There underlies a huge

conceptual difference regarding
taxation in the mind of tax
authorities. Many a times, same
expenses which are genuinely
borne by the banks turn out
to become taxable as an add
back in filthy issues such as
these being related partially to
or wholly to the income of the
previous or future years.
'
CA. Surendra Bhusan Shrestha
The Tax Bubbles are really causing the

larger impact on the capitals of the
Banks and other corporate houses.
The huge differences especially on
taxable profit and accounting profit
of the Bank has caused the erosion
of capital in a never ending scenario.
Especially
after
introduction
of Income tax, 2058, Nepalese
Income Tax Act's clear distinction
between accounting income and
taxable income has provided a
vicious impact on the capital base
of businesses and especially large
corporate tax payers. And moreover,
in terms of conservative tax system
which pertains to huge differences in
these two items have given a dearth
of challenges for the corporate
managers. Banks especially suffering
with bulk problem loans are not in
a state to record better profit in
their financial statements whereas
they are bound to pay taxes on loss
making years also due to differential
treatment of provisioning write off
and write back of loans in the tax
assessment.
The most devastating state of
problem faced by some banks are
they are not able to record adequate
return on one hand and are unable
to give adequate dividend to their
shareholders and in the meantime,
they are assessed to have earned
hefty taxable income and they are

bound to release the funds for the
clearance of their tax liabilities
relating to the period more than two
or three years earlier with penalties
and fines.
This has definitely made the jobs
of finance managers difficult. The
release of funds from their hands
in the name of this tax bubble has
created erosion of capital invested
in the business.
There underlies a huge conceptual
difference regarding taxation in
the mind of tax authorities. Many
a times, same expenses which are
genuinely borne by the banks turn
out to become taxable as an add
back in filthy issues such as these
being related partially to or wholly
to the income of the previous or
future years.
For the state where already there
are numerous issues raised to the
Government by public regarding
absence of the Governments effort
towards the public welfare in terms
of tax one has paid, the confusing
and contradicting taxation practices
would not be a fruitful venture for
the nation as such. And hence, the
authorities should always make it
easier in terms of the impact on
the banks and corporate houses by
CA. Shrestha is associated with NB Bank Ltd.

taxation
rather allowing them for letting the corporate or banks to

choose what they can under the directives of regulatory
authorities. Accounting Standards have been made for
better disclosure of the financial status of the company
to the stakeholders and banks also have to follow the
same route for adequate disclosure. Once the Banks and
corporate follow these Standards and the regulations
of regulatory authorities, no matter they should not be
penalized for the reason that they have chosen one or
other option.
So, the concern today is regarding the tax bubbles that

are being created here and there are going to make
corporate weaker in terms of their growth in local
scenario and have impacted some of the loss making
institutions to greater extent. I hope, the planners and
policy makers would definitely give a thought process for
the better solution of these problems to make Nepalese
tax system much healthier and professional in the days
to come.
REPORT
Seminar on Corporate Governance
Jointly organized by The Institute of Chartered Accountants of Nepal (ICAN)

and Securities Exchange Board of Nepal (SEBON) on 30th January 2013
About the Seminar

On the occasion of the 16th Anniversary of the Institute
of Chartered Accountants of Nepal (ICAN), a half day
Seminar on the theme Corporate Governance on 30th
January 2013 (17th Magh 2069, Wednesday) was organized
by the ICAN in association with Securities Board of Nepal
(SEBON) at Hyatt Regency Hotel, Boudha, Kathmandu,
Nepal.
ICAN is a statutory body established under an act of the
parliament, The Nepal Chartered Accountants Act, 1997,
to enhance social recognition and faith in an accounting
profession by raising public awareness towards the
importance of accounting profession towards economic
and social responsibility of the accountants and towards
economic development of the country through the
development of awareness among the professionals
about their responsibility towards the importance of
accounting in order to develop, protect and promote the
accounting profession.
SEBON was established by the Government of Nepal
on June 7, 1993 as per the Securities Act, 1983, as an
apex regulatory body of capital market in Nepal. As
an apex regulator of the capital market, SEBON, since
its establishment, has been effortful in building fair,
creditable, transparent, responsible, dynamic and
efficient capital market. The major objectives of the
SEBON are to regulate the capital market, to protect the
interest of investors and to advice Government of Nepal
in policies and programs related to capital markets.
The Seminar has focused on the contemporary and
emerging issues on Corporate Governance. Besides
this, the attraction of the Seminar was an expert from
Sri Lanka Mr. Asite Talwatte, Chairperson, Corporate
Governance Committee of The Institute of Chartered
Accountants of Sri Lanka who has delivered the key
note speech. The resource persons were well known

corporate leaders and have vast experience in the sector
of Corporate Governance.
Welcome Speech
The programme was formally started by Mr. Binod
Neupane, Joint Director of ICAN and
MC of the
Programme. Mr. Neupane invited CA. Madhu Bir Pande,
President of ICAN, Mr. Babu Ram Shrestha, Chairman of
SEBON and CA. Asite Taiwatte, Chairperson of Corporate
Governance Committee of The Institute of Chartered
Accountants of Sri Lanka (ICASL) to the dais.
CA. Asite Taiwatte, Chairperson, Corporate Governance Committee,

Sri Lanka, CA. Madhu Bir Pande, ICAN President, & Mr. Babu Ram
Shrestha, Chairman, SEBON on seat
The programme started with the welcome speech by

President of ICAN. ICAN President welcomed all the
participants and rendered special thanks to CA. Asite
CA. Madhu Bir Pande, ICAN President, delivering welcome speech
report
Taiwatte, an eminent figure in Corporate Governance

sector in Sri Lanka. He stated that the dream to organize
a seminar on Corporate Governance has come true and
ICAN has taken initiative to foster practicing corporate
governance norms in Nepal. President highlighted the
role and responsibilities of accounting profession in
corporate governance and the contribution of professional
accountants to bolster good governance in the corporate
sector . He wished all the best to the participants and
wished success of the program. He also said that ICAN
is committed to to conduct programme relating to
corporate sector and in future also in coordination
with SEBON for the benefit of its members and public
at large.
The chairman of SEBON expressed his pleasure to coorganize the seminar on Corporate Governance with
ICAN.He appreciated ICAN for taking initiative to organise
a seminar on corporate governance.
He expressed that Corporate Governance is very
important aspect at this moment because corporate
bodies are heading towards economic prosperity and
towards good governance. Similarly, Mr. Shrestha
highlighted the importance of Corporate Governance. Mr.
Shrestha also expressed that public limited companies
are still operating like private limited companies since
they are run by family members. He further said SEBON
is working on developing and implementing CG code in
the corporate sector.
He expected active participation from the participants.
He welcomed all the participants and expressed gratitude
for providing their valuable time.
Keynote Speech
Mr. Asite Talwatte delivering Keynote speech
Mr. Asite Talwatte, Keynote speaker expressed his view

on Corporate Governance. He presented different data
and figures of corporate governance and highlighted
on sustainability reporting approach and its principles.

Mr. Talwatte highlighted on why capital market require
corporate governance. Some of the major issues
discussed during the sessions are as follows:
Why Corporate Governance Needed?

Good corporate governance is imperative to inspire
investors confidence, expand the private sector, and
stimulate economic growth. In short, corporate coherence
can be catalyst for change, for higher economic growth,
for a more economic growth, for a more efficient use
of resources, for greater accountability to investors and
society for a reduction in corruption, and for a healthy
investment climate.
Country Perspective
For the developing nations perceptive, corporate
governance particularly countries with deficit in
balance of trade needing foreign currency inflows
through development fund, foreign direct investments,
foreign debt and portfolio investment (stock market,
financiers look into opportunity and risk. Risk has several
dimensions like country (political, policy, legal etc.),
financial and business. Financial and business risks are
mitigated by transparent financial reporting (IFRS),
good governance practices (corporate governance) and
independent and diligent audit (a strong independent
profession). These factors are well within the purview
of Accountancy Community. Through the corporate
perspective corporate governance has benefit of
increasing investors confidence, reduces cost of capital,
reduces the risk of fraud, improves meritocracy, ensures
fairness, transparency, accountability and realizes long
term shareholder value, whilst taking into account other
stakeholders interests. At global level recent financial
crises have elevated the importance of good corporate
governance. Specific corporate governance related
reforms could make countries more attractive investment
destinations. Corporate governance is a critical factor
in emerging market investment decisions. Investors are
willing to pay a premium for better governed emerging
market firms.
Investors are prepared to pay a premium for companies
that demonstrate a successful approach to risk
management and implement principles of good corporate
governance. Investors identified the following as the
REPORT
most important corporate governance aspects to check

before making an investment:
Serial
Number
1
2
Criteria
Communication to Stakeholder
An independent
Board of Directors
and
efficient
Percentage
(%)
63%
57%
(Source EY Corporate Governance WEB Survey 2005).
Board of Directors and Their

Responsibilities
To establish corporate governance, every public company
should be headed by an effective board, which should
direct, lead and control company, should adopt a formal
and transparent procedure for the appointment of new
directors to the Board. A nomination committee should
be established to make recommendation to the Board
on all new appointments. Similarly, Board should have
a balance of executive and non-executive directors
such that no individual or small group of individuals can
dominate the boards decision. At least two or one third
of total directors (whichever is higher) shall be nonexecutive directors. If chairperson and Chief Executive
Officer (CEO) is the same person, non-executive directors
should comprise majority of board. Ideally chairperson
of the board and CEO has separate posts and persons.
Decision to combine the posts is to be justified and
disclosed. Senior Independent Director (SID) is to be
appointed. SID is to attend confidential discussion with
other directors. A director would not be independent if
he/she has employment, material business relationship
with the company and has close family members with
director, CEO or key management personnel, significant
shareholding, continuous service and has indirect
influence.
The Board should assess the performance of the CEO
at least annually. Board should personally appraise
their own performance in order to ensure that
Board responsibilities are satisfactorily discharged.
Remuneration packages should decide through a formal
and transparent procedure. The directors should
constructively use Annual General meeting (AGM) and
should encourage participations of the shareholders. The
Board should implement effective communication with
shareholders through quarterly report etc. Directors
should disclose to shareholders all proposed material
transactions, which if entered into, would materially
alter/vary the companys net assets base or in the

case of a company with subsidiaries, the consolidated
group net asset base. Prior to a company engaging in or
committing to a Major related party transaction with a
related party, directors should disclose to shareholders
the purpose and all material facts of such transactions
and obtain shareholders approval at an extra ordinary
general meeting.
Financial Reporting
The Board is responsible to present a balanced and
understandable assessment of the Companys financial
position, performance and prospects. This responsibility
extends to interim and other price sensitive public
reports, reports to regulators and information presented
in line with statutory requirements. Annual report should
contain a statement setting out the responsibilities of
the Board for the preparation and presentation of
financial statements, together with a statement by
the Auditors about their reporting responsibilities.
Annual report should contain management discussion
and analysis discussion, among other issues: industry
structure and developments, opportunities and threat,
risks and concerns, internal control system and their
adequacy, social and environmental protection activities
carried out by the company, market developments and
prospects for the future. The directors report, in addition
to the financial statements should also disclose that the
company has not been engaged in any activity which
contravenes laws and regulations, the directors has
declared all material interest in contracts, the company
has ensured the equitable treatment of shareholders,
the business is going concern and they have conducted
a review of the internal controls, to obtain reasonable
assurance of their effectiveness and adherence. The
board should adequately and accurately disclose related
party transactions in its annual report.
Accountability and Audit

Board should establish formal and transparent
arrangements for considering the selection and application
of accounting policies, financial reporting and internal
control principles and for maintaining an appropriate
relationship with Companys auditor. Composition of an
audit committee should exclusively have non-executive
directors with majority being independent, with a
minimum of two independent non-executive directors.
report
Company must adopt a code of business conduct and

ethics for directors and key management personnel
and must promptly disclose any waivers of the code
of directors or others. Directors should be required to
disclose the extent to which the Company adheres to
established principles and practices of good governance.
Institutional Shareholders have a responsibility to make
considered use of their votes and should be encouraged
to ensure their voting intentions are translated into
practice. A listed Company should conduct a regular and
structured dialogue with shareholders based on a mutual
understanding of objectives. Arising from such dialogue,
the chairperson should ensure the views of shareholders
are communicated to the board as a whole.
At last he focused the words of Mr. Arthur Mitchell and Mr.
Clare Wee It is not possible to establish an island of good
corporate governance in a sea of poor or underdeveloped
public governance.
For closing the keynote Speech session, Vote of thanks
was given by CA. Narendra Bhattarai, Council member of
CA. Narendra Bhattarai, Council Member delivering vote of thanks.
ICAN, to the keynote speaker for giving his precious time

and sharing his well experience Corporate Governance
practices in Sri Lanka and all around the world. A gift to
the keynote speaker was given by CA. Madhu Bir Pande,
President of ICAN.
Technical Sessions
Session Presenter Mr. Janak Shah highlighted that

Corporate Governance is a product of every sector
including politics, important for public as well as private
sector and expressed that ultimate goal of the Corporate
Governance is to protect stakeholders rights. Mr. Shah
gave brief background and development of Corporate
Governance all around the world. He mentioned the
types of CGs model like Angalo-American Model, Multi
Stakeholders Model, and Indian Model etc. He expressed
the external and internal stakeholders types. Mr. Shah
informed that, National Planning Commission has formed
a steering committee to prepare National Framework
on Corporate Governance (NFCG) and highlighted the
issue of corporate charter by public companies. Mr. Shah
said Corporate Governance is the system by which
companies are directed and controlled. It involves
regulatory and market mechanisms, and the roles and
relationships between a companys management, its
board, its shareholders (Investors protection) and other
stakeholders, and the goals for which the corporation is
governed. There are two types of stakeholders visually
external and internal stakeholders. External stakeholders
include shareholders, debt holders, trade creditors,
suppliers, customers and communities affected by
companys activities. Internal stakeholders include board
of directors, executives (agent), and other employees.
The theme of corporate governance is to mitigate
conflicts of interest between stakeholders through the
ways: process, culture, customs, policies, laws, and
institutions, separation of ownership and management
and investors protection. Some of the major issues
raised during the sessions are as follows:
Principles of Corporate Governance

Rights and equitable treatment of shareholders,
Interests of other stakeholders
Seminar was separated into three technical sessions:

Paper Presenter
Session 1: Corporate Governance

and Investors Protection
Topic
Session 1
& Investors Protection
Mr. Janak Shah, Member,

National Planning
Commission
CA. Maha Prasad Adhikari,

Deputy Governor, Nepal
Rastra Bank
Integrity and ethical behaviour
Session 2
Role of Accounting
Profession in
CA. Gyanendra Dhungana,

CEO, NB Bank Limited
CA. Komal Bahadur

Chitrakar, Past resident
ICAN
Disclosure and Transparency
Session 3
Contemporary
issues in Corporate
Governance in Nepal
CA. Bimal Wagle,

Chairperson, Public
Enterprise Directive Board
CA. Kaushalendra Kumar

Singh, Past President,
ICAN
Session Chair
Role and responsibilities of the Board
Session
(Sources: The Cadbury Report (UK 192), The principles of Corporate

Governance (OECD 1998 and 2004), The Sarbanes Oxley Act of 2002
(US, 2002).
REPORT
Parties to corporate governance

Following parties have an interest, whether direct or
indirect, in the Financial Performance of the Company
and Corporate Social Performance. Those parties include
government agencies, stock exchanges, management
including board of directors, other executives and line
management, employees, shareholders and auditors,
lenders, suppliers, creditors, customers and community
at large.
Mechanism and Controls

Internal corporate governance controls include
monitoring by the board of directors, internal control
procedures and internal auditors, balance of power,
remuneration, monitoring by large shareholders and
monitoring by banks and other large creditors.
External corporate governance controls include
governmental regulations, authorities, competition,
debt agreement, demand for and assessment of
performance information, labor market, media pressure
and takeovers.
Benchmarking Guidelines
One of the most influential guidelines has been the OECD
principles of corporate governance. These guidelines are
often referenced by countries developing local codes
or guidelines. The internationally agreed benchmark
consists of more than fifty distinct disclosure items
across five broad categories. The five categories include
Auditing, Board and management structure and process,
corporate responsibility and compliance, financial
transparency and information disclosure and ownership
structure and exercise of control rights. (Source: OECD
Principles of corporate governance published in 1999 and
revised in 2004.)
At the end of first session, questions raised by the
participants were jointly answered by Mr. Shah and
CA. Maha Prasad Adhikari. Final concluding remarks were
given by CA. Maha Prasad Adhikari. He expressed the
opinion to protect the rights of depositors, there may
be compromise in investors rights. He informed that
72% of stock market of Nepal is covered by the financial
institutions. He expressed the views that prospectus
signing Board of Directors of the public companies
should be liable for public offering.
At the end of the first session, vote of thanks was given

by CA. Prakash Lamsal, Council member of ICAN, to
the session presenter and chairperson of the session
and expressed that session was very extensive and
experienced one. Gift to the session presenter and
session chairperson was given by Mr. Babu Ram Shrestha,
Chairperson of SEBON.
Session 2: Role of Accounting

Profession in Corporate Governance
Session presenter CA. Gyanendra Dhungana expressed
that, corporate governance is required to fare better
in the business and to achieve desired result. Corporate
Governance and sustainability of the business is
interrelated. Accounting profession is the nerve system of
business and corporate governance. He also highlighted
about various roles and contribution of professional
accountants in corporate sector.
At the end of the session concluding remarks was given
by CA. Komal Bahadur Chitrakar, Past President of ICAN
and session chairperson expressed that SEBON has to
form a task force to look after auditors opinion (Audit
Report) for at least listed companies. Some of the major
issues raised during the sessions are as follows:
Two definitions on Corporate Governance was discussed.
One is of OECD definition The system by which business
corporations are directed and controlled. Second is
IFAC definition Corporate governance refers to the
structures and processes for the direction and control of
companies. In Nepal corporate governance is primarily
concerned with public listed companies i.e. those listed
on stock exchange. Corporate governance focused on
preventing corporate collapses such as Enron, Polly peck
and the Maxwell companies.
Four Pillars of Corporate

Governance
Accountability
Fairness
Transparency
Independence
Accountability ensures that management is accountable
to the Board and board is accountable to the shareholders.
report
Fairness protects shareholders rights. Fairness treats all

shareholders including minorities equitably and provides
effective redress for violations.
corporate governance code has been developed, code of

ethics has been developed, the company is recognized as
a corporate governance leader.
Transparency ensures timely, accurate disclosure on

all material matters, including the financial situation,
performance, ownership and corporate governance.
Role of Accounting Profession in

Independence ensures that the procedures and structures

are in place so as to minimize, or avoid conflicts of
interest. Independent directors and advisors i.e. free
from the influence of others and without any vested
interest.
Elements of Corporate Governance

Good Board Practices
Control Environment
Transparent Disclosure
Well Defined Shareholders Right
Board Commitment
Corporate Governance can establish integrity of

corporate reporting, increases the credibility of external
audit through the concepts like auditors, traditional
gatekeepers of the financial reporting regime, play a
significant role in strengthening corporate governance.
Profession accountant has self-regulation system through
the control by a governing body over its membership and
activities of its members. Self-regulation in the accounting
profession means entry qualifications, quality assurance
processes, conformity with accounting regulations and
standards, rules development and enforcement.
Typical Role of Accounting

Profession in Corporate Governance
Good board of directors practices include clearly

defined roles and authorities, duties and responsibilities
of directors well understood, well structured board,
appropriate composition and mix of skills, appropriate
board procedures, director remuneration in line with best
practice, board self-evaluation and training conducted.
As an Accountant
Control environment means independent audit committee

established, internal audit function, management
information systems established and compliance
function established. Control environment also
includes internal control procedures, risk management
framework, disaster recovery systems in place, media
management techniques, business continuity procedures
and independent external auditor conducts audits.
Accountant prepares and presents the financial

statements, develops adequate internal control system,
complies with internal and regulatory norms and should
have integrity and be honest.
Well defined shareholders rights include minority

shareholder rights formalized, well organized shareholder
-meetings conducted and policy on extraordinary
transactions.
Transparent disclosure means financial/non-financial
information disclosed, financials prepared according
to accounting standards/IFRS and timely publication of
annual report.
Board committeemen includes policies and procedures
have been formalized and distributed to relevant staff,
As a Consultant
As an Auditor
He defined various roles as follows:
Consultant give input in smooth operation and expansion

of the business, give input in defining clear role of all
the stakeholders, advise management for compliance of
norms set by regulator and give opinion to run business
with full corporate governance.
Auditors are of two types. They are internal auditor and
external auditor. Internal auditor assist management to
have adequate system of corporate governance through
internal policies, suggest management to have sound
governance system, give full effort to fill up any type
of loopholes in internal control system, gives separate
report regularly on corporate governance in certain
level.
REPORT
External auditor give independent opinion on position and

performance of the business, have zero level tolerance
in governance issue and governance issues should be
reported in the audit report with full integrity.
Recommendation/Conclusion
CA. Dhungana has focused to establish stringent rules to
pinpoint the responsibility, effective use/monitoring of
professionals code of ethics, and self-regulation is the
key to improve the governance culture, establishment
of formal processes for evaluation of the performance,
adequate remuneration package, formation of the
independent governance committee and regular
independent reporting.
At the end of the second session, vote of thanks was
given by CA. Bhaskar Singh Lala, Council member of
ICAN, to the paper presenter and chairperson of the
session and expressed that session was very fruitful and
urged auditors, advisorss and accountants to maintain
corporate governance in business houses. Gift to the
paper presenter and session chairperson was given by
CA. Mahesh Guragain, Vice President of ICAN.
Session 3: Contemporary issues in

Corporate Governance in Nepal
Third Session was presented by Mr. Bimal Wagle and
expressed that private sector is not so vibrant because
information related to the private companies are
not adequate. He highlighted the needs of Corporate
Governance in public sectors to restrict financial crisis,
to separate the ownership and management, to make
market discipline etc. He informed that 36 Public
Enterprises in Nepal have been divided into 6 sectors
consisting of industry, service, public utility etc. There
are total Rs. 92.19 billion equity and Rs. 95.16 loans in
36 Public Enterprises. Contribution of gross operating
income to GDP is 11% from Public Enterprises. Total
employees in Public Enterprises are more than 32,000
and total liability for gratuity is Rs. 24.29 billion. Mr.
Wagle has also informed that Public Enterprises that
deals in industrial, trading and social sectors are at net
loss. Overall situation of public enterprises does not
reflect satisfactory position. Dividend received from the
public enterprises is of Rs. 5.49 billion out of which Nepal
telecom contributes Rs. 4.8 billion. Dividend payer public
enterprises are only four in numbers, there is very high
unfunded liability and sustainability of present situation

is very high. Some of the major issues raised during the
sessions are as follows:
Governance Challenges in Public

Enterprises

Undue political interference inhibiting to run in

businesslike manner
Situation of diluted accountability,
Protection from the threat of bankruptcy.
Issues of Corporate Governance in

Public Enterprises

Striking a balance between exercise of ownership

function and refraining from imposing undue
interference in the management of public
enterprises
Ensuring level playing field so that private sector

can compete with the public enterprises
Separating states
regulatory function
Recognize the right of minority shareholders
Effective transparency and disclosure system
Board of directors, an intermediary
Vibrant capital market
Debt covenants
Strong legal system with effective enforcement
ownership
function
and
Functions of Public Enterprise

Directorate Board

Recommend candidates for the appointment of

Chief Executive Officers
Selection through open competition
Appointment based on performance contract
Salary and other benefits linked with performance
Recommended policy measures for management

improvement
report
Monitoring and evaluation of public enterprises

including board of directors.
presenter and session chairperson was given by CA.

Madhu Bir Pande, President of ICAN.
Concluding remarks of the third session was given by

CA. Kaushalendra Kumar Singh, past president of ICAN
and focused on integrity in leaders of corporate sector
and he reiterated that without Corporate Governance
institutions cannot run. He highlighted that Government
of Nepal do not want to run in Corporate Governance,
this is the crux problem for public sector enterprises.
Finally, programme was concluded by Joint Director of

the Institute, Mr. Binod Neupane, MC of the seminar.
Seminar was followed by 16th Anniversary Celebration
Programme of ICAN.
At the end of third session, vote of thanks was given by

Mr. Niraj Giri, SEBON and expressed that presentation
was quick, proper, concrete and comprehensive one. He
also highlighted the urgent need to boost performance
of Public Enterprises for betterment of Corporate
Governance in those institutions. Gift to the session
Thank you !
Report by: CA. Hem Kumar Kafle
Member Editorial Committee
NEWS
NEWS
16th ICAN Day Celebration

Dr. Yuba Raj Khatiwada, Governor, NRB and Mr. Babu
Ram Shrestha, Chairman, SEBON, also delivered
speech as Guest of Honor. Both Speakers appreciated
the development of the Institute and also expressed
concerns and challenges faced by accounting profession
in the country. They wished all the success in days to
come. Dr. Khatiwada emphasized on the coordination of
ICAN and NRB while Mr. Shrestha emphasized on the Good
Governance.
CA Madhu Bir Pande, President delivering speech of ICAN activities
in 16th Anniversary
The Institute of Chartered Accountants of Nepal

celebrated its 16th Anniversary on 17th Magh, 2069 at
hotel Hyatt Regency, Boudha Kathmandu.
Mrs. Bimala Subedi, Acting Auditor General of Office of
the Auditor General was Chief Guest on the occasion,
Guests of Honor included Mr. Yuba Raj Khatiwada,
Governor, NRB and Mr. Babu Ram Shrestha, Chairman
SEBON. ICAN President CA. Madhu Bir Pande distributed
Bouquet and Batch to Chief Guest and Guests of Honor.
Program was inaugurated by Acting Auditor General
Mrs. Bimala Subedi with lighting the lamp. President of
ICAN CA. Madhu Bir Pande prsented the annual progress
for the FY 2068/69. He also highlighted the ICAN's future
plans. In the opening remarks, ICAN President CA. Madhu
Bir Pande urge the professional accountants to rise above
their level to meet the expectation of society and the
country.
While addressing the program Chief Guest Mrs. Subedi
expressed her appreciation to the Institute for its
achievement during the short period of time. She
also appreciated the institute for its endeavor in the
development of accounting profession in the country.
Chief Guest, Acting Auditor General Mrs. Bimala Subedi

applauded the Institute for its endeavor in developing
and regulating the accounting profession in the country
and she also stressed that the auditors should comply
with the code of ethics and disciplinary mechanism
while discharging their duties. She also stressed on
strengthening of the disciplinary committee to control
irregular activities made by the members. And she also
emphasized on the coordination of concerned entities.
On the occasion, Chief Guest Acting Auditor General
Mrs. Bimala Subedi felicitated the students who passed
different level of chartered accountancy examination
by securing highest rank and marks in June 2012 and
December 2012 with certificate and medal.
Chief Guest Mrs. Binala Subedi presenting certificate to student
NEWS
Similarly, Chief Guest Mrs. Bimala Subedi distributed

appreciation letter to ICAN staff members Mr. Bipin Raj
Tiwari, Senior Assistant and Mr. Sanoj Bhattarai, Assistant
for their outstanding performance and contribution.
CA. Madhu Bir Pande, President highlighted and briefed
about annual status of ICAN and also gave token of
gratitude to Chief Guest and Guest of Honor and
immediate past president in the program.
The program concluded with vote of thanks from Vice
President of ICAN CA. Mahesh Kumar Guragain.
CAPA Conference
CA. Madhu Bir Pande in CAPA Conference, Kathmandu with foreign

delegates
The Institute of Chartered Accountants of Nepal (ICAN)

and the Confederation of Asian and Pacific Accountants
(CAPA) jointly organized half day conference on
strengthening Nepal Public Sector Accounting and
Auditing at Kathmandu on 8th March 2013, Friday.
Representative from more than 10 member countries
along with Nepal participated in the seminar.
Seminar was started with the opening remarks by the
ICAN President CA. Madhu Bir Pande, CAPA President
Mr. Keith Wedlock and the Finance Secretary Mr. Shanta
Raj Subedi respectively.
Chief Executive of CAPA Mr. Brian Blood presented
paper on the topic Effective Public Sector Financial
Management and Economic Development in the Global
view. Similarly Senior Operations Officer, Nepal Country
Office, The World Bank Mr. Bigyan Pradhan presented
paper on the topic Developments in Public Sector
Financial Management Across the region in the regional
point of view.
During the conference representative of Korea, Pakistan,

UK and Sri Lanka shared their experiences of the respective
countries. They shared their approaches, challenges and
benefit by the range of countries at various stages in their
journey to improve public sector accounting, auditing
and financial management. Vice Chairman of KMPG
Korea and Vice President of Korean Institute of certified
Public Accountants Mr. Young- Jin Park presented the
paper on the topic the Improvement Journey in KoreaA Structured Approach since 2007. Likewise, Public
Sector Committee Chairman of ICA Pakistan Mr. Md.
Abdullah Yusuf presented paper on Project to Improve
Financial Reporting and Auditing (PIFRA) - Lesson from
Phase I and intentions in phase II. Similarly, to share the
experiences Public Sector Regulatory Policy Manager of
ICA England and Wales Ms. Sumita Shah presented the
paper on Building Blocks to Better Public Sector Financial
Management. In the Similar way, Deputy President of
CAPA and partner of Pricewaterhousecooper Mr. Sujeewa
Mudalige presented the Sri Lankan experiences on the
topic Reforming the Auditor Generals Office- The Sri
Lankan Experience.
In the other session, International Director of Chartered
Institute of Public Finance and Accountancy Mr. Alan
Edwards presented the paper on Global Steps to Better
Public Financial Management.
The last paper was presented by former Finance Secretary
of Nepal Mr. Rameshore Khanal on Public Sector Financial
Management in Nepal.
Program was concluded with the closing remarks by
President of ICAN CA. Madhu Bir Pande with vote of thanks
to all paper presenters, delegates and the participants.
Public Sector Round Table

The Institute of Chartered Accountants of Nepal hosted
a Public Sector Round Table on 8th March 2013 at Soaltee
Crown Plaza, Kathmandu. That event was held in the
partnership with Confederation of Asian and Pacific
Accountants (CAPA).
The purpose of the round table was to engage in
discussion with relevant parties to share views and
experiences in relation to Nepals ongoing initiatives to
improve public sector financial management, including
the current commitment to introduce cash-based public
sector accounting standards.
NEWS
Interaction Program
Participants of Public Sector Round Table
Program was started with welcome remarks and

introduction followed by discussions. Discussions were
made in two sessions. About three hours discussions
program was concluded with closing remarks.
42 participants from different National and International
organizations along with ICAN were actively participated
in the round table meeting.
Information System Audit(ISA)
CA. Bijay Kumar Agrawal, Past President & Chairman of Committee

for Members in Industry delivering speech
A day interaction program on the theme Lets Join Hands

for a Better Professional Environment was conducted
by the Committee for Members in Industry, ICAN on
4th March 2013 (Falgun 21, 2069) at Hotel Yak & Yeti,
Kathmandu. The aim of the program was to build a sense
of belongingness amongst members. The program was
targeted to the chartered accountants members engaged
in the industry (employee or businessman) other than as
an auditor.
Program was started with the welcome speech by
Chairman of Committee for Members in Industry and Past
President CA. B.K. Agrawal.
CEO of Commerz and Trust Bank Ltd CA. Anal Raj Bhattarai
presented a paper on the theme of the program. During
the interaction program Deputy Governer of Nepal Rastra
Bank CA. Maha Prasad Adhikari gave special address to
the participants.
Group Photograph of participants of ISA Course along with ICAN

Officials

conducted ISA Course with the technical cooperation of
the Institute of Chartered Accountants of India (ICAI) at
Kathmandu. The aim of the course was to enhance the
professional skill of chartered accountants in the area
of system development and information technology and
offer value added services of Information System Audit.
Course was conducted for 12 days from 20th January to
31st January 2013 which covered 100 hours of training.
Altogether 33 persons participated in the training.
Floor discussion was also opened to the participants

during the programme. Representative from Banking
sector, Insurance sector, Manufacturing Sector, Hospitality
Sector, Airlines sector, Information Technology sector,
Office of the Auditor General and Regulatory Bodies
such as Nepal Rastra Bank, Securities Board of Nepal,
and Insurance Board of Nepal were participated in the
program.
Program was concluded with the closing remarks by
President of ICAN CA. Madhu Bir Pande with vote of thanks
to paper presenter, delegates and all the participants.
NEWS
Education and
Examination Department
General Mnagement and
Communication Skill (GMCS) Training
Similarly, CA. Pushpendra Singh and CA. Suresh Khakurel

conducted career counseling Program in the month of
Falgun 2069 in western part of Nepal where more than
2500 interested people actively participated. Program
was conducted in Pokhara, Tanahun, Syangja, Baglung,
Beni and Kushma.
Plus two and Bachelor Level students were targeted
from different colleges in different parts of Nepal. The
participants had shown keen interest on CA education
and expressed their interest to join CA course in near
future.
Group photograph of GMCS participants along with ICAN Officials
The third batch of GMCS training for CAP III and final level
passed out and appeared students had been completed
successfully. This training enhances the capacity of
general management and communication skills of the
students. After completion of such training along with
fulfillment of other criteria students are eligible to get
membership of the ICAN. Training was started on 1st
March 2013 and completed on 18th March 2013. Training
was conducted in 3 sessions on daily basis for fifteen
days. Altogether 26 students participated in the training.
Career Counseling
With the aim of providing the importance and awareness
of chartered accountancy education to the students,
parents and interested people, the Institute of Chartered
Accountants of Nepal organized career counseling
program in different parts of Nepal. The program
highlighted a detail deliberation on the eligibility
criteria of enrollment, future prospects, international
recognition and the membership criteria of the Institute.
Program was conducted in eastern and western part
of Nepal during the three months period. Program was
conducted in Biratnagar, Inarua, Itahari, and Dharan.
Council Member CA. Suresh Devkota conducted career
counseling in the eastern part of Nepal where more than
1000 interested peoples actively participated.
CA Membership Examination Result

Published
CA Membership examination result has been published.
According to the result 23 foreign CA degree holders were
qualified for the membership of ICAN. In November 2012
examination altogether 125 applied while 117 appeared
in the exam.
Chartered Accountancy Examination

Result Published
The result of Chartered Accountancy Examination held in
the month of December 2012 has been published. As per
the result 240 students of CAP I Level were eligible to join
CAP II while 120 students of CAP II level were eligible to
join CAP III level. Similarly, 21 students were eligible for
the membership of ICAN. Out of them 11 students were
from Final Level and 10 Students from CAP III level. None
of the students from Foundation and Intermediate level
were passed out. Details of the result are as follows.
SN
Level
Foundation
Intermediate
Final
CAP I
CAP II
CAP III
Description
Total appeared
Pass in exam
Total appeared
Pass in exam
Total appeared
Pass in exam
Total appeared
Pass in exam
Total appeared
Pass in exam
Total appeared
Pass in exam
Both
Group
2
0
1
0
5
0
360
153
577
40
82
1
First
Group
0
0
1
0
17
11
107
78
133
55
42
6
Second
Group
0
0
0
0
8
2
49
86
163
81
55
17
Total
2
0
2
0
30
13
516
317
873
176
179
24
Pass
%
0
0
43.33
61.43
20.16
13.41
NEWS
Registered Auditors Upgrading

Result Published
In the year 2069, ICAN has upgraded 7 RA members from
their respective classes. According to the upgradation
result published by the examination committee, the
following 6 C class RA members were upgraded to B
class while 1 D class RA member was upgraded to C
class.
SN
Name of the Member
Mem. No
Approval for Upgradation
Mr. Hari Har Uppreti
3068
From C Class to B Class
Mr. Ramod Dhungana
5328
Mr. Tej Narayan Shrestha
3013
Mrs. Laxmi Kumari Pandey
4562
Mr. Madhu Prasad Khanal
3402
Mr. Rajendra Prasad Dhungana
3436
Mr. Bhawani Datta Bhatta
2772
From D Class to C Class
Altogether 18 C class RA members and 2 D class RA

members applied for upgradation.
Accounting Technician Examination

Conducted
(ICAN) successfully conducted Accounting Technician
examination in March 2013 at the ICAN premises. 15
students filled the form for this session while 14 students
attempted the examination. Exams are conducted twice
in a year in March and September. The numbers of AT
students have been increasing gradually. The increasing
demand of AT degree holder in the market pushed to high
enrollment at the Institute.
Member Service and Professional

Development Department
Membership, Certificate of Practice,
and Auditing Firm
Following is the status of total no of Registered Member,
Certificate of Practice Holders and Auditing firm and its
renewal status till March end, 2013
Category
Membership
Total
Renewal
No
Certificate of Practice
Total
Renewal
No
Firm
Total
No
Renewal
202
FCA/CA
643
450
547
233
452
RA-B
RA-C
3371
2126
3125
1608
903
684
1612
950
1475
793
317
207
RA-D
Total
2296
1397
2102
1241
213
153
7922
4923
7249
3875
1885
1246
CPE Training
As per the provision, CPE training is mandatory for
members to renew their COP. Currently CPE training is
commencing in various places of the country. Institute has
granted permission to conduct CPE Training to Auditors
Association of Nepal (AuDAN), Prism Center for Learning
(PRISM), International College of Accountancy (INCA),
Institute of Professional Excellence (IPE), Chartered
Academic International (CAI), and Professional Solution
(PS). Till date CPE has been conducted in Mahendranagar,
Narayanghat, Bhairahawa, Baglung, Janakpur, Biratnagar,
Birgunj, Birtamode, Hetauda, Butwal, Dharan, Dang,
Pokhara, Illam, Dhangadi and Nepalgunj.
Blood Donation Program
Preview of Blood Donation Program
On the occasion of 16th Anniversary of the Institute,

the Employee Union of ICAN (NEON) and CA Student
Association (NCASA) jointly organized blood donation
program with the slogan Donate Blood Save Life at ICAN
premises on Magh 7, 2069. The program was supported
by Nepal Red Cross Society. Vice President CA. Mahesh
Kumar Guragain deliberated speech of the importance of
blood donation. Large no. of staff members of ICAN and
Students of ICAN participated in the program. Altogether
107 donated blood during the program.
NEWS
International
ICAI International Conference
Private Banking Sector while Clean Energy Development

Bank Ltd. won merit certificate in Non Banking Sector.
Similarly, Credit Information Sector Ltd. (Karja Suchana
Kendra Ltd.) won merit certificate in Public Sector Entities.
MEETING WITH ICAI PRESIDENT
CA. Madhu Bir Pande, ICAN President delivering speech
The Institute of Chartered Accountants of India organized

a conference on Accountancy Profession: Enablers of
Economic Growth in Mumbai India on 23rd January to
25th January 2013. Five Delegates team from the Institute
participated in the conference led by CA. Madhu Bir
Pande, ICAN President. Other team members from the
Institute were council members CA. Achyut Raj Joshi, CA.
Narendra Bhattarai, RA. Mohan Kumar Subedi and Suka
Dev Khatry. ICAN President CA. Madhu Bir Pande was a
speaker in the panel discussion on Professionalism as tool
to economic growth. He spoke about role of accounting
profession and the ICAN for the economic development
of Nepal. Different speakers shared their experience
in various topics of economic relevance. Around 1275
participants participated in the conference.
SAFA Board and Committee Meeting

and BPA Award
SAFA Board and Committee Meeting along with SAFA BPA
Award ceremony was conducted in Sri Lanka on 22nd and
23rd March, 2013. Four delegates team from the Institute
participated in the conference with the leadership of
CA. Madhu Bir Pande, President. Other team members
from the Institute: CA. Mahesh Guragain, Vice President,
CA. Suvod Kumar Karn, Past President and CA. Prakash
Lamsal, Council Member attended the Meeting and
Ceremony.
Various entities from Nepal won merit certificate in
different categories. Nabil Bank Ltd. and Standard
Chartered Bank (Nepal) Ltd. won merit certificate in
CA. Madhu Bir Pande, President ICAN and CA. Suvod

Agrawal, President ICAI sat on bilateral discussion
between ICAN and ICAI. Basically discussion was
concentrated on Mutual Recognition Agreement (MRA)
and Technical Assistance between the countries. To
start with both the countries agreed to execute MOU for
various technical assistance.
Meeting with Malaysian Institute of

Accountants (MIA)
CA. Madhu Bir Pande, ICAN President and CA. Binay Prakash
Shrestha Executive Director with Mr. Datuk Mohamed Nasir Ahamed,
President, MIA
CA. Madhu Bir Pande, ICAN President and CA. Binay

Prakash Shrestha, Executive Director, ICAN and Mr. Datuk
Mohamed Nasir Ahamed, President of MIA sat on bilateral
discussion between ICAN and MIA in Malaysia. Basically
meeting was concentrated on Mutual Recognition
Agreement (MRA) and Technical Assistance between the
countries. To start with both countries agreed to sign
MOU for various technical assistance.
SAFA Board and Assembly Meeting

CA. Madhu Bir Pande, ICAN President, CA. Mahesh
Guragain, Vice President ICAN, RA. Dol Prasad Dahal,
Council Member participated in SAFA Board and Assembly
Meeting in 12th January 2013 in Dhaka, Bangladesh.
1. Responding to a Suspected
Illegal Act
The IESBA considered the significant comments received
from over 70 respondents on its Exposure Draft (ED),
Responding to a Suspected Illegal Act. Topics discussed
included: disclosure of a suspected illegal act to an
appropriate authority; disclosure to the external auditor;
right with an expectation to disclose to an appropriate
authority; the public interest reporting test and
escalation threshold; the requirement to confirm or
dispel the suspicion; types of suspected illegal acts to be
disclosed; and the interaction of the proposed standard
with the International Standards on Auditing (ISAs).
The IESBA will continue its consideration of key
issues and future actions at its June 2013 meeting.

2. Long Association of Senior

Personnel (Including Partner
Rotation) with an Audit Client
The IESBA received an update on the project to review the
long association provisions in Section 290 of the Code of
Ethics for Professional Accountants (the Code) to ensure
that they continue to provide robust and appropriate
safeguards against the familiarity and self-interest
threats arising from long association with an audit client.
Among other matters, the IESBA discussed the approach
to research into the partner rotation provisions in major
jurisdictions and canvassing the views of stakeholders
on the threats associated with long association.
3. Review of Part C of the Code

The IESBA approved a proposal to commence a project
to review Part C of the Code addressing professional
accountants in business (PAIBs) to ensure that the
provisions in that part of the Code are robust and
remain appropriate. Phase I of the project will review
Sections 300, 320, 330, and 340 of the Code. This
phase will, in particular, address pressure by superiors
and others to engage in unethical or illegal acts, the
responsibility of PAIBs to produce financial reports
that are faithful representations of the economics

of transactions, and associated matters. Phase II of
the project will address Section 350, which is related
to facilitation payments and bribes. The IESBA will
discuss the project further at its June 2013 meeting.
4. Structure of the Code

The IESBA considered draft terms of reference for, and
an initial status report from, the working group formed
to advise the Board on ways to improve the readability,
understandability, and accessibility of the Code. Among
other matters, the IESBA discussed the objectives, scope,
and timing of the initiative, as well as the approach to
the work. The board agreed that careful thought should
be given to distinguishing clearly between options that
could be considered on a short term basis and longer
term options that could address a more fundamental
review of the structure of the Code. The board asked
the working group to explore these options and to
undertake the research to support the way forward.
5. Definition of Those Charged

with Governance
The IESBA considered significant comments received on
its ED of a proposed change to the definition of the term
those charged with governance. The IESBA agreed in
principle to amend the proposed definition in the light
of respondents meaningful comments. The IESBA will
consider the final definition for approval at its June 2013
meeting after consulting with its Consultative Advisory
Group (CAG) on the significant ED comments in April 2013.
6. Emerging Issues and Outreach

The IESBA agreed to the establishment of an Emerging
Issues and Outreach Working Group to advise the board
on emerging issues and international developments of
relevance to the IESBAs work, and on the boards strategy
for outreach. The IESBA will consider draft terms of
reference for the Working Group at its June 2013 meeting.
7. Non-Assurance Services
11. 2013 IESBA Handbook
The IESBA received a brief update on the Task Forces

approach to information gathering for purposes of scoping
out the project. The IESBA will consider the information
gathered and the Task Forces proposals regarding the
scope of the project at the June 2013 IESBA meeting.
The IESBA is developing the 2013 Handbook of the Code

of Ethics for Professional Accountants. It will contain the
final pronouncements addressing breaches of provisions
in the Code and conflicts of interest, and the revised
definition of engagement team. The 2013 Handbook
is expected to be released in the second quarter of
2013. For the current edition, see 2012 IESBA Handbook.
8. Next Meetings
Meetings of the IESBA and the IESBA CAG are open to
the public. The IESBA CAG will next meet in New
York, USA on April 10, 2013. The next IESBA meeting
will be held in New York, USA, on June 1012, 2013.
For more information and to register to attend an
IESBA or IESBA CAG meeting as an observer, visit
IESBA Meetings or IESBA CAG Meetings respectively.
9. EC Statutory Audit Directive

vs. IESBA Code: FEE Compares
Independence Requirements
In a study released in February 2013, the Fdration des
Experts Comptables Europens (FEE) compared provisions
in the EU frameworks on auditor independence (the 2006
Statutory Audit Directive and the 2002 Recommendation
on Statutory Auditors Independence in the EU) and
the Independence provisions of the IESBA Code.
Among other matters, the study found that the Code
is more robust with respect to audits of public interest
entities. In particular, the Code includes strict provisions
for those non-audit services that are incompatible
with the provision of audit services. The study also
found that the Code tackles other matters that may be
considered for inclusion in future EU audit legislation.
10. IESBA is Hiring

The IESBA is searching for a technical manager to join
its staff team based in New York. Qualified candidates
should have experience at the manager or senior
manager level in professional practice, a professional
accounting body, the office of a public sector auditor,
or similar. For a complete job description and required
skills and experience, see Working at IFAC. Qualified
candidates should send a resume to jobs@ifac.org.
12. World Congress of Accountants

2014 to be Held in Rome;
Sponsorship Opportunities
Available
The next World Congress of Accountants (WCOA)
will be hosted by the Consiglio Nazionale dei Dottori
Commercialisti e degli Esperti Contabili (CNDCEC) in
Rome, Italy in 2014. Themed 2020 Vision: Learning from
the Past, Building the Future, the 2014 WCOA will be held
November 10-13 at the Auditorium Parco della Musica.
More than 4,000 professionals from all over the world will
convene at this IFAC event, which is held every four years.
WCOA 2014 will look back to explore the evolution of
the accountancy profession and forward to showcase the
innovations that will shape the future of the profession.
The WCOA also provides a global platform for
organizations and firms to share their projects
and visions via various sponsorship opportunities.
For more information, please contact info@
wcoa2014rome.com or Dimarco@wcoa2014rome.com.
Copyright April 2013 by the International Federation
of Accountants (IFAC). All rights reserved. Permission is
granted to make copies of this work provided that each
copy bears the following credit line: Copyright April
2013 by the International Federation of Accountants
(IFAC). All rights reserved. Used with permission of IFAC.
Prepared by IFAC's Communications Department. Contact
communications@ifac.org for further information.
1. IAASB Addresses Use of Direct

Assistance; Releases ISA 610
(Revised 2013), Using the Work
of Internal Auditors
In follow-up to its 2012 release of stronger standards
dealing with the external auditors use of an internal audit
functions work, the IAASB has released International
Standard on Auditing (ISA) 610 (Revised 2013), Using the
Work of Internal Auditors. The revised ISA now includes
requirements and guidance for external auditors when
determining whether they can use direct assistance from
internal auditors and, if so, in which areas, and to what
extent. The material addressing direct assistance does
not apply if the external auditor is prohibited by law or
regulation from obtaining direct assistance. This new
material is effective for audits of financial statements
for periods ending on or after December 15, 2014.
2. Open for Comment: A Framework

for Audit Quality
The IAASB released for public comment a Consultation
Paper addressing audit quality. A Framework for Audit
Quality seeks input from stakeholders internationally
who have an interest in continually enhancing audit
quality, including regulators, audit committees,
investors, and audit firms. Through the proposed
framework, the IAASB aims to raise awareness of the
key elements of audit quality, encourage stakeholders
to explore ways to improve audit quality, and facilitate
greater dialogue between key stakeholders on the topic.
The IAASB is seeking responses to several questions
listed in the Consultation Paper, in particular, whether
the framework is clear, comprehensive, and useful.
Comments are requested by May 15, 2013.
3. IAASB Invites Input on Strategic

Review
The IAASB has released an online survey seeking public
comment, insights, and views from all stakeholders to
help shape its future direction for 2015 and beyond.
The survey asks for input on emerging developments

and trends that are likely to be important in the
public interest, as well as specific areas of focus for
development of standards and related guidance. It
also asks for input on the appropriate balance between
setting new and revised standards and facilitating their
adoption and effective implementation. Views are also
sought on the appropriateness of the IAASB extending
its future strategy period to five years (20152019).
Responses to the survey will inform the development of
a formal consultation paper on the strategy and work
program commencing 2015, to be issued in late 2013.
All stakeholders are encouraged to complete the
survey. Comments are requested by May 7, 2013.
4. HighlightsFebruary 2013 IAASB

Meeting
Auditor Reporting
The IAASB deliberated issues arising from stakeholder

responses to its June 2012 Invitation to Comment (ITC),
Improving the Auditors Report. Key discussion points
included the need for a new ISA, tentatively ISA 701.
ISA 701 will include requirements and guidance to assist
auditors in determining what additional information
should be included in a new section of the auditors
report under the heading Key Audit Matters. The
IAASBs view is that the auditors judgment of what
to report externally is derived from what had been
communicated to those charged with governance. The
IAASB further considered how proposed ISA 701 should
best reflect this view and discussed the factors to guide
the auditors decision-making process in relation to
external reporting. The IAASB also discussed proposed
revised requirements to ISA 700, Forming an Opinion and
Reporting on Financial Statements, to operationalize the
IAASBs suggested improvements to auditor reporting.
ISA Implementation Monitoring
The IAASB received an overview of the preliminary
findings from Phase 2 of its ISA Implementation
Monitoring project. A draft report of findings will be
presented to the IAASB at its April 2013 meeting.
Assurance Engagements Other than

Reviews
of
Historical
Financial
Audits or
Information
The IAASB received a presentation providing further

background on the nature and scope of direct
engagements, and discussed how the features of
direct engagements relate to concepts in proposed
International Standard on Assurance Engagements (ISAE)
3000 (Revised), Assurance Engagements Other than
Audits or Reviews of Historical Financial Information.
For more detailed information, please visit the
IAASBs meetings page. The next IAASB meeting will
be held in New York, New York, on April 1519, 2013.
5. IAASB Presents at NYSSA Event

Dan Montgomery, IAASB deputy chair, joined a January
2013 New York Society of Security Analysts (NYSSA)
panel discussion, where he presented The Auditors
Role Relating to Information Communicated to
Financial Statement Users. Mr. Montgomery discussed
the IAASBs proposed changes to the auditors report,
disclosures within and outside financial statements, and
relevant information for users of financial statements.
6. The IAASB is Hiring

The IAASB has open positions within its technical staff
team. Interested individuals are invited to submit their
resumes to: jobs@ifac.org. Further information about
the positions is available on the IAASB home page.
7. Other Relevant StandardSetting Board and IFAC Initiatives

Initiatives
of
IFAC
committees
and
other
independent
standard-setting
boards
supported
by IFAC may be of interest to those who follow
the work of the IAASB, including the following:
IESBA Strengthens Key Sections of Code of Ethics for
Professional Accountants
New Publication from IFAC Helps Professional
Accountants Implement Effective Business Reporting
Processes in Organizations
IAESB Issues Revised IES 5, Initial Professional
DevelopmentPractical Experience
IFAC Welcomes G-20 Focus on Public Sector Financial
Management, EC Report on Accrual-based Accounting
Engagement Quality Control Reviews: Practical
Considerations
8. Share IAASB eNews with Your

Colleagues
The IAASB issues regular eNews updates to keep you
apprised of the board's activities and recent publications.
Please forward this eNews to any interested colleagues
and let them know they can register and subscribe to
this and other eNews bulletins on the IFAC website.
9. World Congress of Accountants

2014 to be Held in Rome;
Sponsorship Opportunities
Available
The next World Congress of Accountants (WCOA)
will be hosted by the Consiglio Nazionale dei Dottori
Commercialisti e degli Esperti Contabili (CNDCEC) in
Rome, Italy in 2014. Themed 2020 Vision: Learning from
the Past, Building the Future, the 2014 WCOA will be held
November 10-13 at the Auditorium Parco della Musica.
More than 4,000 professionals from all over the world will
convene at this IFAC event, which is held every four years.
WCOA 2014 will look back to explore the evolution of
the accountancy profession and forward to showcase the
innovations that will shape the future of the profession.
The WCOA also provides a global platform for
organizations and firms to share their projects
and visions via various sponsorship opportunities.
For more information, please contact info@
wcoa2014rome.com or Dimarco@wcoa2014rome.com.
Copyright March 2013 by the International Federation
of Accountants (IFAC). All rights reserved. Permission is
granted to make copies of this work provided that each
copy bears the following credit line: Copyright March
2013 by the International Federation of Accountants
(IFAC). All rights reserved. Used with permission of IFAC.
Prepared by IFAC's Communications Department. Contact
IAASBCommunications@iaasb.org for further information.
Proposed ICAN Building
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March end 2013

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Chartered

Journal of the Institute of Chartered Accountants of Nepal

(Quarterly Journal of The Institute of Chartered Accountants of Nepal)

CA. Madhu Bir Pande

Mr. Binaya Paudel

iCATs: The Tools for ISSAI Implementation

Social Auditing of Rural Roads:

The Institute of Chartered Accountants of Nepal,

Design, Layout & Printed by:

Rs. 400 (including courier charges for Members)

Opinions expressed by the contributors in this journal are their own

Challenges of Managing Interest Rate Risk

Challenges in Operational Risk Management

The Present Situation of Nepalese

Stress Management for Busy Executives

The Nepal Chartered Accountant | March 2013

Eastern Region for education with growing number of

The seminar was attended by the high officials of

interact with the heads and representatives from various

CA. Madhu Bir Pande

The Nepal Chartered Accountant | March 2013 7

The Nepal Chartered Accountant | March 2013

Statutory Audit of Treasury Operations of Banks:

The trend of Foreign Exchange

CA. Ramesh Kumar Dhital

c. Accounts and records of the

The Nepal Chartered Accountant | March 2013 9

3. TREASURY AUDIT PROCEDURE

i. Need and decision of investment transactions

Auditors can take forward the audit procedure as under

ii. Analysis of counterparts financial health, rating,

Evaluation of Internal Control

NSA-500 on Audit Evidence requires that while obtaining

xi. The auditors cumulative knowledge of the accounting

iii. Hierarchy involved in the transactions

x. Inclusion of such investment in subsequent NRB

Analysis of Result of Walkthrough

The auditor has to analyze the result and select the

a. Measurement- Investment is recorded at correct

e. Risk Monitoring Table for Rate of Interests (Directive

f. Risks Monitoring Table for Foreign Exchange (Directive

c. Occurrence- Transactions have been recorded as and

g. Half yearly Investment Review Report certified by

d. Valuation-Investments have been valued as per

h. Other customized reporting on the basis of specific

f. Rights and Obligations- Outstanding amount, if any.

Review of Compliance Aspects

NSA 250, on consideration of laws and regulations in

Documenting the Work

NSA 230 provides that the auditor should document

a. Monthly details of investment made in Government

The Nepal Chartered Accountant | March 2013 11

CDS and Clearing Ltd.

A depository facilitates the holding and/or transacting securities in

2. What kind of company is CDS and Clearing Ltd.

CDS and Clearing Ltd. is the sole depository in Nepal established in

3. What are the services provided by CDSC?

The services CDSC provides are as mentioned below:

4. What is Dematerialization (Demat)?

Dematerialization is a process of converting physical securities into

5. What are the purpose of opening a demat account?

The purpose of opening a demat account are as mentioned below:

9. What are the benefits of opening a demat

A demat account has become a necessity for all categories of investors