Effective audit committees in companies sought

Kathmandu, June 23:

Financial experts have expressed the view that audit committees are needed in public limited companies to strengthen financial reporting for better governance.

Despite Nepal Rastra Bank (NRB) having made a mandatory provision for the need of audit committee four years ago, it has not been effective which has caused errors in financial reporting. Even the recent company ordinance has also made it a mandatory to have audit committees that will ultimately lead to accountability, systemic efficiency and transparency. Interestingly, promoters of companies still do not understand what really audit committees do

for better accountability to the public about the companies’ progress.

Bijay Nath Bhattarai, governor of NRB, said that audit committees work towards fulfilling four responsibilities of overseeing financial reporting process, adopting accounting policies, and principles, monitoring internal control process and evaluation of performance of external auditors.

Bhattarai informed that banks and financial institutions also fall under the public limited category. He said that NRB is one of the few public institutions in the country to pioneer the audit committee practices and endeavour to comply with international accounting standards and international financial reporting systems.

NRB has already set up an independent and effective international audit department.

Auditor General Gehendra Nath Adhikari stressed on the need of audit companies in limited companies. He said that the government has to evolve a mechanism before it is too late for having audit companies. The government’s accounting and auditing also should go on in a organised way, Adhikari said.

Narayan Bajaj, president of Institute of Chartered Accountants of Nepal (ICAN) mentioned that the concept of corporate governance was brought in by Nepal Rastra Bank (NRB) initially. Bajaj disclosed that Securities Board of Nepal (SEBO/N) is planning to introduce the principles of corporate governance in association with ICAN in a bid to strengthen governance in the corporate sector.

However, the problem is that none of the regulating authorities have got any mechanism to see whether principles of corporate governance are actually being followed, Bajaj commented. He suggested NRB governor to oversee how audit committees in different commercial banks are actually functioning as they have become a party to formality only.