Kathmandu, July 23

The Institute of Chartered Accountants of Nepal (ICAN) and commercial banks may be at the brink of a major showdown as it seems certain that class ‘A’ financial institutions will not be able to comply with the new reporting standards introduced by the regulatory accounting body of the country.

While ICAN has made it mandatory for commercial banks to generate their statements based on the new accounting standards — Nepal Financial Reporting Standards (NFRS) — commercial banks are gearing up to generate their financial statements in regular format citing lack of expertise to comply with the new reporting standards.

NFRS was designed based on the International Financial Reporting Standards (IFRS) for the uniformity of the financial reports across the world and more than 120 countries have already adopted the IFRS.

ICAN had set the deadline for the commercial banks to implement the NFRS from fiscal 2015-16. However, class ‘A’ financial institutions have said that they will not be able to implement NFRS in their balance sheet of last fiscal as they are all set to publish the financial reports of last fiscal.

Bhuvan Kumar Dahal, CEO of Sanima Bank and member of Nepal Bankers’ Association (NBA), said that implementation of NFRS is challenging for banks due to fair value measurements of the loans and other items. The use of fair value accounting can bring a lot of volatility and subjectivity to the financial statements.

“Nepal Rastra Bank has yet to issue the reporting format to the banks based on new accounting standards,” said Ratna Raj Bajracharya, CEO of Sunrise Bank, “We need to recast the loans to produce the financial reports based on NFRS, which would create huge difference in the profit of the banks.”

However, ICAN seems unwilling to budge from its stance, at least for now.

Prakash Lamsal, president of ICAN, said the regulatory accounting body will not revise the deadline to implement the NFRS. “If the commercial banks do not comply with the NFRS when presenting their balance sheets of the last fiscal, the auditors will make a note in the financial reports of such financial institutions that they are not qualified as per the NFRS.”

The bankers argue that banks would be required to convert the balance sheet of fiscal 2014-15 in NFRS standard as well to produce the report of fiscal 2015-16, which would be time consuming.

“We had settled the income taxes and other taxes in fiscal 2014-15 based on our regular financial statement,” said Bajracharya, adding that adopting NFRS would create disparities in all those balances.

According to him, for effective and efficient implementation of the new system, first companies that obtain loan from the banks should be required to comply with similar reporting standards, which would facilitate in fair value calculation of the loans.

Bankers say, if done in a systematic manner, it would take several years to fully comply with the NFRS in their financial statements. “Till date, Sri Lanka is the only country in South Asia that has been able to adopt IFRS,” said Bajracharya.

Nepal Rastra Bank (NRB) Executive Director Shiva Nath Pandey said that the central bank has been consulting with banks regarding the implementation of the NFRS. But the central regulatory and monetary authority is yet to design the reporting format for the banks based on NFRS.

ICAN has set different deadlines in coordination with other concerned regulators to gradually implement NFRS for all multinationals, listed companies, government-owned entities, corporate bodies and the firms that obtain loan from financial institutions.

As per ICAN’s regulation, multinational companies and state-owned enterprises with minimum paid-up capital of Rs five billion (such as Nepal Telecom) adopted NFRS since 2014-15.

ICAN has set the deadline for implementation of NFRS for all financial institutions, state-owned enterprises, all listed companies, all corporate bodies, and small and medium enterprises borrowing minimum of Rs 500 million in this fiscal, 2016-17.