Ican Journal September 2013

September 2013
Vol. 16 No. 1
P A
Contents
ACCOUNTANT
(Quarterly Journal of The Institute of Chartered Accountants of Nepal)
Editorial Committee
CA. Mahesh Kumar Guragain
CA. Narendra Bhattarai
CA. Kiran Subedi
CA. Pankaj Thapa
CA. Santosh Ghimire
RA. Dev Bahadur Bohara
RA. Dharani Dhar Adhikari
RA. Murari Bhattarai
RA. Shankar Gyawali
Mr. Binod Neupane
Chairman
Vice -Chairman
Member
Member
Member
Member
Member
Member
Member
Secretary
Mr. Binaya Paudel
Editorial Support
Editorial
President's Message
ACCOUNTING
Nepal on the Path of Implementation of IFRS
- CA. Mahesh Kumar Guragain
- CA. PN Adhikari
NAS-10 and its Applicability for Accounting of VAT

Rebate to Sugar Industries
- CA. NK Swami
IAS 36- Impairment of Assets

- CA. Surya Bhakta Pokharel
Recent Development in IFRS

- CA. Adwait Morwekar
The Institute of Chartered Accountants of Nepal

Babar Mahal, P O Box 5289, Kathmandu, Nepal
Tel. No. 4269130, 4258569, 2030021, Fax: 977-1-4258568
E-mail: ican@ntc.net.np, Website: www.ican.org.np
AUDITING
Branch Office Biratnagar

Tel: 021-471395, Fax: 021-470077, E-mail: icanbrt@ican.org.np
ECONOMY
Branch Office Butwal

Tel: 071-543629, E-mail: icanbtl@ican.org.np
11
15
22
Internal Auditing in Banks- Third Line of Defence

- CA. Ramesh Kumar Dhital
29
Kautilya Arthasastra: It's Relevance of Modern Economics

Mr. Yadav Mani Upadhyaya
32
Branch Office Birgunj

Tel: 051-522660, E-mail: icanbrj@ican.org.np
The Monetary Policy and the Financial Stability in the

Context of Financial Crisis
Branch Office Pokhara

Tel: 061-537679, E-mail: icanpkr@ican.org.np
Dr. Basu Dev Sharma
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38
Insurance Prepared for Uncoming Comprehensive Global

Standard
Students News
Member News
Editorial
Editorial
In the present era of globalization and liberalization, where companies are establishing
their businesses in various countries and cross border movements of capital are
increasing, the users of the financial statements of an entity are no longer limited to
single country. Therefore, it is necessary that as far as possible, the accounting
principles for reporting financial information should be identical in all the countries.
All this has necessitated the establishment of a single set of globally accepted financial
reporting system. The International Financial Reporting Standards (IFRS) issued by
the International Accounting Standards Board (IASB) are increasingly being recognized
as global financial reporting standards. Substantial benefits have been proposed by
the adoption of IFRS, including a decreased cost of capital, greater mobility of capital,
greater efficiency in the allocation of resources, improved transparency of result and
enhanced comparability of financial reporting.
In our context, as a member of IFAC we are not the exception and required to adopt
the global financial reporting standards. The Accounting Standards Board (ASB),
which is responsible for the standard development process and The Institute of
Chartered Accountants of Nepal (ICAN), is charged with the responsibility of
pronouncements of the standards, supervision and compliance of the standards by
the corporate entities in financial reporting. Considering the challenges to be faced
for first time adoption and implementation of IFRS, ICAN has developed a road map
to converge the Nepal Accounting Standards with International Financial Reporting
Standards. As per the road map of IFRS application, the convergence will begin on
phased manner commencing from financial year 2014-15 with Multinational
Manufacturing Companies and State-Owned Enterprises (SOEs) listed in Security
Exchange. The convergence process shall be completed in 2016-17.
For initiating the implementation of IFRS, ICAN and ASB has been individually and
jointly holding comprehensive training programs, educational initiatives, workshop
and IFRS certification courses, in time to time so as to generate awareness and
educating concerned stakeholders for smooth implementation of IFRS in its initial
phase. In this connection individual efforts of ICAN and ASB may be insufficient,
hence support from business community including proactive role of regulating agencies
and Government shall be highly desirable for effective implementation of IFRS in
Nepal.
The Editorial Board
ACCOUNTING
Dear Friends,
President's
Message
To begin with, I express my heartfelt

thanks to entire council members for the
affection shown and confidence reposed
on me by unanimously electing me for
the prestigious post of President of ICAN.
The Institute of Chartered Accountants
of Nepal (ICAN) is established aiming
to provide chartered accountancy
education and regulating the accounting
profession and doing its best for the
development of the profession since its
inception. ICAN has been able in getting
remarkable achievements in developing
financial, institutional development and physical infrastructure
despite various internal and external limitations. The institute
is dedicatedly working and undertaking various initiatives
towards enhancement of the profession for which we have to
work aggressively to establish our institute of international
repute among the accounting bodies of the world. To enhance
the capacity development the Institute has been participating in
various bilateral and multilateral events along with the largest
accounting bodies of the world.
With the liberalization of economy in our region a significant
growth has been witnessed in the capital market which has
created a lot of career development opportunities to our
profession. Nepal is also not the exception of this global wave.
This made CA's role more critical particularly in economic
activities at national and international level in meeting the global
financial system. To keep pace with the changing development
in financial market, it seems necessary to lead the institute with
responsible manner in order to enhance the level of Nepal's
accounting professional which can be recognized and acceptable
nationally and globally. As the President of the Institute, I take
this opportunity to mention some proposed activities of the
Institute.
Work Plan for Educational Initiatives

With the aim of getting recognition globally, ICAN will continue
to undertake the various trainings, studies, use educational
materials and introduce examination system in line with
The Nepal Chartered Accountant
June 2013
35
procedures determined by the IFAC to elevate the status

of ICAN to the rank of the world class accounting bodies.
In Nepal, IFRS is to be implemented in phased manner
commencing from 2014/015. With this in view, the Institute
plans to include IFRS in CA course on or before 2015.
We are planning to introduce simple and effective online
learning mechanism, inclusion of ISA Training, simplify
IT training to make IT practices more effective for students
and members.
General Management and Communication Skill (GMCS)
and IT Training activities shall be continued. Experts in
respective domain will be invited for carrying out training
to get exposed with the knowledge from expertise which
will help the Nepalese product in getting recognition at
local and international market.
CAP III level is the professional stage of CA education
and professional accounting sectors. To make CAP III
Level examination more effective and qualitative, experts
from foreign countries shall be invited to use their expertise
in selected subjects on requirement basis. Competitiveness
of our product can flash out the image of the Institute for
which ISA certification course shall be continued and
efforts shall be made to modify the existing curriculum to
get examination system recognized from IFAC and make
the ICAN product more competitive in the global market.
To make more deliverable and productive few changes
have been made for the membership examination criteria
for foreign CA degree holders.
Coordination with the concerned Government authorities
shall be initiated for making AT education further effective
and to get access in foreign market for Nepalese ATs.
ICAN is doing its best to make the AT product more
competitive and saleable in the global prospective.
Infrastructure and Human Resource

Development
The ICAN building is under-construction and near to
completion. We expect to move to our new building within
this year. Initiation shall be taken for dialogues with Nepal
Government and Donor Agencies for soliciting their
financial support to develop Kathmandu as an excellent
venue of South Asia for holding international conference,
meeting and research center in accounting profession with
ultra modern equipments and providing sufficient facilities

in the new building.
I would like to express my sincere gratitude to Nepal
Government for providing land and financial support for
building construction. I hope the newly constructed building
will prove to be a better work place for the Institute.
Initiation has been taken to open a branch at Nepalgunj to
increase the accessibility to the members and students of
Middle Western and Far western region. This will be an
another milestone of ICAN to further increase the trust of
society in accounting profession.
The process of implementation of ERP based software for
all departments within the institute has already been
arranged. To some extent, this will help in making our
governance mechanism fast. Arrangement of Online
facilities to students, members and other stakeholders has
been made and also facilitated to make ICAN more
accessible to all stakeholders.
Capable staff is our prime requirement for organizational
development. Conducive working environment shall be
created for the dedicated, skilled and capable staff by
providing career development avenues within the Institute.
Professional Capacity Development Initiatives

Post qualification education like ISA Audit, IFRS and
International Taxation will be continued with improved
manner and also arrange the program for users. Similarly,
trainings, seminars and conferences will be carried out as
per the requirement to enable the stakeholders, business
leaders, Institute and the members in discharging their
responsibility in the changed context of economic
development.
Disciplinary action will be taken without any biases against
those members who infringe the professional integrity and
discipline. Members found guilty shall be brought under
disciplinary net. Monitoring committee with the
combination of high level personalities has been formed
to supervise and take required disciplinary action. It is
expected that there will be little room for blaming to the
working practice of the Institute and its members due this
arrangement.
Grievance and gaps between CA and RA Members is heard
in time to time. Dialogues and interaction among
representing council members from CA, RA and

government nominees shall be initiated to generate sense
of collective responsibilities and solve the grievances,
minimizing the gaps and make them more responsible
towards their deliveries.
In making CPE program effective online CPE shall be
arranged and practical based material shall be used in
conducting trainings, seminars and workshops on IFRS
and ISAs. Members are encouraged to be more active in
the profession participating national and international
development activities in addition to ICAN initiatives.
Initiatives for the Coordination

Demand of services of professional accountants in Local
Government, Cooperatives and Community School is
increasing to engage them to ensure adherence with legal
and regulatory requirement by these entities. Coordination
with Ministry of Federal Affairs and Local Development
and Ministry of Education including Department of
Cooperative, Internal Revenue Department, and Office of
the Company Registrar shall be further strengthened to
harmonize the relationship and enhance professionalism
and consistency in accounting and audit services. In this
context, Auditor General will be approached to seek support
in getting due priority from the government to this agenda.
Initiation will be taken to designate a liaison officer to

coordinate with the regulators in order to maintain the
credibility of the accounting profession and avoiding the
weaknesses and misunderstanding.
To manage the non-availability of the auditors in rural
and remote areas, the arrangement of one man one
profession shall be continuously implemented and
supervised. Member mapping for small and remote area
will be initiated to identify the number of member and area
for audit.
Initiatives for enhancing International

Relation and Professional Recognition
The Institute of Chartered Accountants of Nepal will
continue to participate and work jointly with the international
professional bodies like IFAC, IASB, CAPA and SAFA in
an effective manner. Nepal is approaching in CAPA Level
as a key contributor in Public Sector Financial Management.
Efforts for recognition to CA Product of ICAN at SAARC
region will be continued. Also knowledge sharing with
other international accounting bodies with whom MOUs
have been signed will be effectively initiated.
At last, I would like to thank to all the members, Past
President, GON, OAG and International Accounting
Professional Bodies for their contribution and support to
ICAN from its establishment.
Best Wishes

President
ACCOUNTING
Nepal on the Path of Implementation of IFRS

Background
IFRS accepted as a global
language for accounting and
financial reporting, it is in the
interest of the country itself to
adopt it and be understood by rest
of the world instead of being
isolated in financial reporting. At
the reporting entity level, by
adopting IFRS, a business entity
can present its financial statements
on the same basis as its foreign
competitors, with enhanced
Comparability. Entities may also
need to convert to IFRSs if they
are a subsidiary of a foreign entity
that uses IFRSs
CA. PN Adhikari
CA. Guragain is President of ICAN
CA. Adhikari is Technical Director of ICAN
International Financial Reporting

Standards (IFRSs) has become the
global standard for preparation of
financial statements by business
enterprises. Since it's taking over the
role from International Accounting
Standards Committee in 2001,
International Accounting Standards
Board (IASB) has been successful in
proving its existence as the globally
accepted independent body for setting
financial reporting standards.
The need of harmonization of
financial reporting standards at global
level have largely paved due to the
development of international capital
markets. The use of IFRSs was started
from 2005 onwards and of late over
100 countries, including three quarters
of G20 countries. Those countries
includes Australia, New Zealand
European Union and Asia (including
China, Korea, Japan), Latin America,
Canada have adopted and/or permitted
use of IFRSs. It is expected that the
number of countries requiring or
permitting IFRSs could go up to 130
within couple of years.
Each country desiring to embrace open
market economy cannot afford to
remain aloof of the globalization
process. The country needs to keep
pace with the development taking
place around the world. Accounting
and financial reporting being the
backbone of good governance and
transparent economic system, there

is no other choice to ultimate adoption
of IFRSs.
IFRS- an Overview
After the failure of ENRON, the US
based Company, it has become a
synonym of non transparent
accounting and reporting. The
company's management manipulated
accounts resulting in over statement
of earnings by using complex financial
derivatives and shifting of debts from
balance sheet to off balance sheet
items. The auditors Arthur Andersen
were apparently in agreement with
the company for over stating the
income by using financial derivatives
and hiding the debts indicating
auditor's involvement in corporate
fraud. Then the FASB realized the
deficiencies of rule based financial
reporting and decided to work together
with IASB to prepare the globally
accepted single set of financial
reporting standards. Accordingly
Board (IASB) develops the
International Financial Reporting
Standards (IFRSs). It was formed in
March 2001 before which the
known as IASs used to be issued by
the International Accounting
Standards Committee (IASC). Now
all these are commonly called as
IFRSs. Since 2001, the IASB has
developed new IFRS and replaces
some IAS into new IFRS. IFRSs are
September 2013
ACCOUNTING
standards and Interpretations adopted by the (IASB). They
comprise:
International Accounting Standards (IAS) originally
issued by the International Accounting Standards

Committee (1973-March 2001). These standards are
subsequently adopted and amended by the IASB,
For starting of the IFRS convergence ICAN and ASB has

been conducted number of comprehensive training programs
on IFRS time and again from FY 2009/10 onwards. Further,
ICAN has conducted numbers of IFRS certification course
and this will be a continuous process in the days ahead
too.
International Financial Reporting Standards (IFRS)
IFAC Statement of Membership Obligation

(SMO) Compliance Program
Interpretations by the International Financial Reporting
The development of action plan and compliance program

has the responsibility of member body i.e. compliance staff
will communicate and exchange information during the
process so that matters to be addressed are clarified and
proposed are fully agreed. The SMO-7 requires the
commitment of the regulatory body to adopt the IFRS in
their own jurisdictions. Accordingly Nepal was granted
the IFAC membership on November 2008 on its
commitment through Part-III action plan. Thereafter, in its
compliance program submitted to IFAC, ICAN has
committed to prepare the IFRS compliant financial
statements in its jurisdiction starting from mid July 2012
though it is deferred for a year.
issued by the IASB from April 2001 onwards, and
Interpretations Committee (IFRIC) or the former

Standing Interpretations Committee (SIC).
As of now there are altogether 66 IFRS, comprising 13

IFRS, 28 IASs, 17 IFRICs & 8 SICs in effect which are
issued by IASB and some of them subsequently amended
by IASB on regular basis.
Role of ASB & ICAN

The Accounting Standards Board (ASB) has been
established under Section 15 (a) of the Nepal Chartered
Accountants Act 1997, by the Government of Nepal in
2003 to carry out the function of development of Accounting
Standards in Nepal. The Board is responsible for the
standard development process whereas Institute of Chartered
Accountants of Nepal (ICAN) has the responsibility of
pronouncements of the standards and supervision the
compliance with the standards by the corporate entities.
ASB has prepared the road map so as to converge the
Nepal Accounting Standards with International Financial
Reporting Standards, which has been expected to be
implemented from financial year 2013-14 onwards on
phase-wise basis. For this purpose, a non-standing
committee called IFRS & ISA Implementation Committee
under Council of ICAN has been formed in the year 201112. The committee includes the, professional members,
representatives from the Ministry of Finance (MoF), Office
of the Auditor General (OAG), Financial Controller General
Office (FCGO), Nepal Rastra Bank (NRB), Securities
Board (SEBON), Insurance Board (IB) and the Office of
the Company Registrar (OCR).
As per the roadmap of IFRS application, convergence will
begin on phase-wise-basis starting from financial year
2014-15 with Multinational Manufacturing Companies
and State-Owned Enterprises (SOEs) listed in Security
Exchange.
8
September 2013
Why 'Convergence' of National Standards

with IFRS?
Convergence means harmonization of national standards
gradually with IFRSs. In other terms, convergence can be
considered "to design and maintain national accounting
standards in a way that financial statements prepared in
accordance with national accounting standards draw
unreserved statement of compliance with IFRSs".
While recognizing a convergence process as a valid path
to adoption, the Accounting Standards Board recommends
transition to IFRS on a phase wise basis. Full adoption of
IFRS is recognised irrespective of whether jurisdictions
will adoption by a single step or through a convergence
process. Convergence is the process aligns with the IFRS
and gradually pave in to the way of full adoption of IFRS.
Convergence will facilitates for the transition over a period
of time for full adoption of IFRS.
IAS-1 Presentation of Financial Statements is clear that
an entity must comply with all applicable IFRSs in order
to make an unreserved statement of compliance with IFRSs.
ACCOUNTING
Consequently, no claims of equivalence with IFRS may
be made during the convergence process, and the converged
local standards may not be referred to as IFRS. Accordingly,
convergence should be a means of making the transition
to full adoption of IFRS, and not an end in itself.
In converse, adoption is the process where all those
standards developed and issued by IASB would be applied
once at a time. Nepal is not in a position to adopt all those
standards (Converged NFRS) in a single day because of
preparedness of the corporate entities rather planned to
adopt the standards on phase-wise basis.
Thus, 'convergence with IFRSs' means adoption of IFRSs
on phase-wise manner when and it can denote that the
application of full set of IFRSs will be made mandatory
to certain category of reporting entities with ultimate
adoption over a defined period of time. Hence, the
convergence can be termed as gradual transition to IFRS
across the reporting entities over a period of time. This
approach is practical for environment where not all the
regulators require full IFRS and also the country needs
time and resources to implement full adoption.
Need for Convergence of National Standards

with IFRSs
IFRS accepted as a global language for accounting and
financial reporting, it is in the interest of the country itself
to adopt it and be understood by rest of the world instead
of being isolated in financial reporting. At the reporting
entity level, by adopting IFRS, a business entity can present
its financial statements on the same basis as its foreign
competitors, with enhanced Comparability. Entities may
also need to convert to IFRSs if they are a subsidiary of
a foreign entity that uses IFRSs. In addition, entity may
be benefitted if they wish to raise capital abroad.
Nepal, as a member of WTO, has agreed to implement the
WTO regulation in trade, financial and professional services
from 2011. Entry to WTO has imposed many challenges
to Nepal's trade and economy that requires competing with
world's economic power houses. This is a big challenge
for a country like Nepal which can be converted into
opportunities only with a well developed plan and
preparedness to implement the plan. It has been
acknowledged that private sector investment, more
significantly the foreign investment, is the prime driver of

Nepalese industrial and economic development. The open
market economy adopted by Nepal about 3 decades before
has been able to attract foreign investments and mobilize
the resources from local investors in an organized manner.
However, substantially larger volume of investments is
needed for the corporate and overall economic development
of the country. Financial reporting system that is understood
universally enhances the comfort and confidence of the
investors as it helps in ensuring transparency, governance
system and accountability. The international financial
reporting standards serve this purpose.
Global Scenario of Adoption of IFRS

A historic moment to migrate to IFRSs came on June 2002
when the European Council of Ministers approved the
regulation that would require all EU companies listed on
a stock exchange to prepare accounts in accordance with
International financial reporting Standards for accounting
periods beginning on or after 1 January 2005. As of now,
over 100 countries, including three- fourth of G20 countries
either uses or permitted to use IFRS. Those countries
includes Australia, New Zealand European Union and Asia
(including China, Japan, Korea) Latin America (Brazil,
Argentina) Canada have adopted and/or permitted use of
IFRSs.
Australia and New Zealand followed the EU and adopted
the IFRS through their national standards that they describe
as IFRS-equivalents starting from 1 January 2005. National
Standards setter in many countries in Asia-pacific region
have adopted virtually word-for-word IFRSs convergence
e.g. Australia, Hong Kong, New Zealand, Singapore has
adopted most IFRSs word-for-word but has modified
several standards. Canada has adopted IFRS from January
2012, China has already implemented IFRS on or after 31
March 2010, and South Korea implemented IFRS from
2011.
Scenario in South Asia Region

The countries in SAARC region are increasingly
participating in the economic globalization process. This
has made the adoption of IFRSs for harmonization of
financial reporting practices through out the region.
Further, South Asian Federation of Accountants (SAFA)
has been organizing best presented annual accounts
September 2013
ACCOUNTING
competition in the region. This has generated substantial
interest amongst the accounting bodies and companies in
the region to ensure the harmonized and standardization
reporting practices in preparing and presentation of the
financial statements and other reports.
Pakistan- Pakistan adopted IFRS that are required to be
approved by the Institute of Chartered Accountants of
Pakistan (ICAP) and notified by the Securities and Exchange
Commission of Pakistan (SECP) for application of this
standards. There may be differences in timing for approval.
Sri Lanka- Sri Lanka adopted IFRS which is required
by all listed companies effective from January 1, 2012.
India- Ministry of Corporate Affairs (MCA), Government
of India had in January 2010 announced a multi-phase
plan for transition beginning April 1, 2011 to the new
Converged Indian Accounting Standards known as "IndAS".
Bangladesh- Bangladesh adopted IFRS which is required
by all listed companies effective from January 1, 2012.
Nepal- Nepal is converging IFRS on phase-wise basis
starting from multinational manufacturing companies and
state-owned enterprises listed in stock exchange from the
financial year 2014-15 onwards. ICAN commitment
towards IFAC through its SMO compliance program is
being informed to the Government of Nepal (GoN), Office
of the Auditor General (OAG), and regulating agencies
vis-a-vis their support for the implementation is being
solicited by ICAN. Coordination among regulating agencies
and other authorities of GoN is required for effective
implementation of IFRSs. Major donor agencies and
supranational bodies are closely overseeing the process.
Application of IFRSs and Time Schedule

There are now, two set of accounting standards developed
by ASB. The 26 Nepal Accounting Standards, out of which
19 are mandatory and 7 are on voluntary compliance, are
for the erstwhile corporate entities. The other full set of
converged NFRS will be applicable to those entities
announced by ICAN on phase-wise basis.
ASB has initiated to revise existing standards and develop
the new standards in line with IFRS from 2012 and these
developed standards altogether called NFRS, which are
pronounced by the Institute. These NFRS in principle have
10
September 2013
no departures from the IFRS. Out of 41 IFRSs currently

in effect, ASB has developed (based on 1.1.2012 version
of IFRS) 40 Nepal Financial Reporting Standards (NFRS)
and recommended to ICAN for pronouncement. The
existing Nepal Accounting Standards (26) along with other
newly developed Accounting Standards (14 except NFRS9 for application on later date) for compliance to the
designated entities on phase-wise manner effective from
fiscal year 2014-15 replacing the existing NASs in totality.
However, at the initial stage listed multinational
manufacturing companies and listed state owned enterprises
(SOEs) with minimum paid up capital of Rs. 5 billion
(except Bank and Financial Institutions under BAFIA
Act 2006) will apply new NFRS with effect from the
financial year 2014-15 onwards and will be completed by
the end of the financial year 2016-17. The details of the
implementation schedule is available in www.ican.org.np
From the financial year 2016-17 onwards full set of NFRS
will be applied by all the entities. However, early adoption
of NFRS is encouraged to all listed corporate entities,
SOEs and other entities from financial year 2013-14
onwards.
Conclusion and Recommendation

Accounting Standards Board recommends transition to
IFRS in a stage-wise approach, called as conversion of
NAS in line with IFRS. Considering the preparedness of
the stakeholders, ICAN is of the view that stage-wiseapproach to adoption would be more beneficial and practical
rather than full adoption of IFRS in all-at-once-approach.
This process of convergence facilitates adoption over a
transitional period is an appropriate way of making
migration to IFRS adoption in due course of time but
convergence is not an objective in itself but is a means to
achieve the adoption of IFRSs to the designated entities
in phase-wise-manner. However, early adoption is
encouraged and should be for all NFRSs and that cannot
be on selective basis. n
ACCOUNTING
NAS-10 and its Applicability for Accounting

of VAT Rebate to Sugar Industries
1. Introduction:
While accounting for purchase,

taxes (other than these recoverable
by the entity from the taxing
authorities) are to be included
under NAS 10, the rebate of VAT
should be deducted from the cost
of sugar cane since the VAT is
recoverable by the entity from the
taxing authorities. This is in line
with IAS 2, Inventories Para 11.
Thus NSA 04 permits the
accounting of VAT refund as
deduction from the respective
expenses. Hence accounting of
the Rebate by deduction from the
Cost of sugar cane is well within
the premises of valuing the cost
of purchase as per NAS 04 and
NAS 10.
1.1. The Nepal Government every

year through the Finance Act
gives relief up to 70% of the
VAT(Value Added Tax) collected
on sale of sugar to registered
dealers and the said amount of
relief is to be distributed to the
Cane growers in addition to the
base price agreed to, in order to
provide attraction for farmers to
extend the Cane cultivation to
feed the local sugar mills to crush
more sugar cane and produce
more sugar in order to reduce the
dependence on imported sugar.
Such relief / rebate is a
government grant to the Sugar
Mills to pay the amount to the
respective Cane cultivators. Thus
the Sugar Mills become the
medium to transmit the amount
from the government to the
agriculturists.
1.2. Since it is a government grant.
NAS 10 (IAS20) is applicable to
the transaction and this article
examines the various options
under the said NAS. The
government grants are described
on Para 3, as follows:
CA. NK Swami
CA. Swami is Fellow Member of ICAN
Forgivable loans are loans which

the lender undertakes to waive
repayment under certain
prescribed conditions.
Government assistance is action

by government designed to
provide an economic benefit
specific to an entity or range of
entity's qualifying under certain
criteria. Government assistance
for the purpose of this Standard
does not include benefits
provided only indirectly through
action affecting general trading
conditions, such as the provision
of infrastructure in development
areas or the imposition of trading
constraints on competitors.
Government grants
are
assistance by government in the
form of transfers of resources to
an entity in return for past or
future compliance with certain
conditions relating to the
operating activities of the entity.
They exclude those forms of
government assistance which
cannot reasonably have a value
placed upon them and
transactions with government
which cannot be distinguished
from the normal trading
transactions of the entity.
Grants related to income are
government grants other than
those related to assets.
2. Provision of NAS 10
2.1. The relevant paragraphs of the
said NAS 10 are reproduced
September 2013
11
ACCOUNTING
below for ready reference:

5.
9.
The receipt of government assistance by an entity

may be significant for the preparation of the
financial statements for two reasons. Firstly, if
resources have been transferred, an appropriate
method of accounting for the transfer must be
found. Secondly, it is desirable to give an
indication of the extent to which the entity has
benefited from such assistance during the
reporting period. This facilitates comparison of
an entity's financial statements with those of
prior periods and with those of other entities.
The manner in which a grant is received does
not affect the accounting method to be adopted
in regard to the grant. Thus, the grant is accounted
for in the same manner whether it is received in
cash or as a reduction of a liability to the
government.
11. Once a government grant is recognised, any

related contingent liability or consingent asset
is treated in accordance with NAS 12: Provisions,
Contingent Liabilities and Contingent Assets.
12. Government grants shall be recognised as income
over the periods necessary to match them with
the related costs which they are intended to
compensate, on a systematic basis. They shall
not be credited directly to shareholders' interests.
13. Two broad approaches may be found to the
accounting treatment of government grants: the
capital approach, under which a grant is credited
directly to shareholders' interest, and the income
approach, under which a grant is taken to income
over one or more periods.
16. It is fundamental to the income approach that
government grants be recognised as income on
a systematic and rational basis over the periods
necessary to match them with the related costs.
Income recognition of government grants on a
receipts basis is not in accordance with the accrual
accounting assumption (see NAS 01 Presentation
of Financial Statements) and would only be
acceptable if no basis existed for allocating a
12
September 2013
grant to periods other than the one in which it

was received.
In most cases the periods over which an entity
recognises the costs or expenses related to a
government grant are readily ascertainable and
thus grants in recognition of specific expenses
are recognised as income in the same period as
the relevant expense.
20. A government grant that becomes receivable as
compensation for expenses or losses already
incurred or for the purpose of giving immediate
financial support to the entity with no future
related costs shall be recognised as income of
the period in which it becomes receivable.
22. A government grant may become receivable by
an entity as compensation for expenses or losses
incurred in a previous accounting period. Such
a grant is recognised as income of the period in
which it becomes receivable, (with disclosure to
ensure that its effect is clearly understood.)
29. Grants related to income are sometimes presented
as a credit in the income statement, either
separately or under a general heading such as
"Other income"; alternatively, they are deducted
in reporting the related expense.
30. Supporters of the first method claim that it is
inappropriate to net income and expense items
and that separation of the grant from the expense
facilitates comparison with other expenses not
affected by a grant. For the second method it is
argued that the expenses might will not have
been incurred by the entity if the grant had not
been available and presentation of the expense
without offsetting the grant may therefore be
misleading.
31. Both methods are regarded as acceptable for the
presentation of grants related to income.
Disclosure of the grant may be necessary for a
proper understanding of the financial statements.
Disclosure of the effect of the grants on any item
of income or expense which is required to be
separately disclosed is usually appropriate.
ACCOUNTING
2.2. As mentioned above it can be seen that two methods
of presentation are permitted in respect of grant
received from the Government:
1. To show the grant as income in the Profit & Loss
Account;
2. To deduct the grant from the Cost or Expenses in
respect of which it is given.
In practice, the sugar factories in Nepal adopt both
the methods. Let us examine the effect of the
accounting treatment under the two methods.
2.3. Under the first method, the income received by way
of 70% rebate in respect of VAT collected as payable
to government on Sale of sugar to registered dealers
is taken as income along with the Sales income and
shown as a separate line item under Income side of
the Income Statement.
2.4. The payment made due to the agriculturists is debited
to Cane Purchase Cost includes the VAT amount
refunded to the agriculturists as per the agreement
with the Agriculturists Unions.
2.5. The VAT collected on Sales against the VAT portion
of Cost of Sugar Cane paid to the Agriculturists does
not get set off under this method. Thus the cost of
Sugar Cane is inflated to the extent of VAT element
included in the price of Cane and accordingly the
closing stock value also gets inflated. But the income
on sale of total sugar stocks ultimately will remain
the same when all the stocks are disposed off.
2.6. However, this does not comply with Para 16 above,
in that the income is not matched with the Cost of
VAT included in the Cane Cost price. The agreement
for purchase of sugar cane stipulates the basic price
per quintal plus separate additional fixed VAT amount
per quintal calculated on the basis of prevalent selling
price of sugar at 9% yield of sugar or average yield
for the past two / three years per quintal of Cane.
2.7. Under the Second method, the 70% of VAT payable
granted as rebate is deducted from the Cost of Cane
since the rebate of VAT is in respect of additional
price paid to the agriculturists on the basis of assurance
of government to give a rebate of 70% of VAT collected
on Sale of Sugar, the rebate is directly related to the
additional cost paid and hence deduction of the rebate

from the cost of Cane price is justifiable under Para
16 of NAS 10.
3. Accounting Treatment
3.1. Now the fundamental question arises that when the
cost of purchase of sugar cane is computed on accrual
basis on the basis of quintal of sugar cane purchased
whether the price is paid in the same year or next
year but the rebate is accounted on almost cash basis
against the bills raised upto Ashadh (Mid July) of the
financial year. Thus under both the methods income
is recognised on actual receipt whereas costs are
accounted on accrual basis by the payment due to
agriculturists on the basis of sugar cane supplied.
Thus the cost and rebate received are not matching
in most of the cases and not in accordance with Para
16 of NAS 10.
3.2. The crushing period of sugar factories in Nepal ranges
for 3 to 4 months in the middle of financial year. So
the cane purchase cost is confirmed within the financial
year, whereas the sale of sugar produced during the
period is not made within the financial year and usually
extends over to the next financial year. Now while
reducing the cost of sugar cane the cost of sugar also
will proportionately come down and closing stock
value will be less than when no reduction for VAT
rebate is accounted. But here also the income on the
closing stock will be the same when sugar is sold in
the next year. When this procedure is adopted as the
Accounting Policy and consistently followed, and is
in compliance with Para 10, 11, 12 & 13 of NAS 02:
Accounting Policies, Changes in Accounting Estimates
& Errors.
3.3. NSA 10 suggests that whichever method is used, the
income should also be accounted on accrual basis as
the expenses are accounted on accrual basis. NAS 04
relating to inventories states in Paragraph 11, Cost of
Purchase as follows:
The cost of purchase of inventories comprise the
purchase price, import duties and other taxes (other
than those subsequently recoverable by the entity from
the taxing authorities), and transport, handling and
other costs directly attributable to the acquisition of
September 2013
13
ACCOUNTING
finished goods, materials and services. Trade discounts,
rebates and other similar items are deducted in
determining the costs of purchase.
3.4. While accounting for purchase, taxes (other than these
recoverable by the entity from the taxing authorities)
are to be included under NAS 10, the rebate of VAT
should be deducted from the cost of sugar cane since
the VAT is recoverable by the entity from the taxing
authorities. This is in line with IAS 2, Inventories
Para 11. Thus NSA 04 permits the accounting of VAT
refund as deduction from the respective expenses.
Hence accounting of the Rebate by deduction from
the Cost of sugar cane is well within the premises of
valuing the cost of purchase as per NAS 04 and
NAS10.
3.5. The same is supported by Para 53 & 54 of NAS 12
Provisions, Contingent Liabilities & Contingent Assets,
which are reproduced below:
Reimbursements
53. Where some or all of the expenditure required
to settle a provision is expected to be reimbursed
by another party, the reimbursement shall be
recognised when, and only when, it is virtually
certain that reimbursement will be received if
the entity settles the obligation. The
reimbursement shall be treated as a separate
asset. The amount recognised for the
reimbursement shall not exceed the amount of
the provision
54. In the income statement, the expense relating to
a provision may be presented net of the amount
recognised for a reimbursement.
3.6. As per NAS 12, if the estimated VAT recoverable after
the year end exceed, the payment made to the cane
growers, the provision should be limited up to the
amount of the expenditure to be reimbursed. If the
estimated VAT recoverable is less than the amount of
expenditure outstanding to be reimbursed, then the
provision of contingent asset should be limited up to
the estimated VAT recoverable. In other words, the
lower of the expenditure outstanding or the lower of
the VAT recoverable only should be accounted for.
14
September 2013
3.7. Even though the sale of sugar is certain, its price is

uncertain and thus recoverable amount is a probable
amount. If its stock is destroyed by Fire or Water,
unless insured, the recovery of VAT also becomes
uncertain. Even if insured unless the policy provides
for reimbursement of related VAT specifically, the
industry will have to pay VAT on the reimbursement
by the insurance company thus losing VAT rebate
available financially.
4. Conclusion:
4.1. In the view of above content now the only question
arises as to how to account for the rebate receivable.
The answer of this question is difficult in the case of
sugar industry. In very rare occasions only the sugar
produced in one crushing season remains in stock till
the end of the next season. The factory also adopts
normally first in first out method for sugar stock.
4.2. To comply with NAS 10, as well as Sec.23 of the
Income Tax Act, VAT rebate available on the stock
of sugar held at the end of the year has to be estimated
on the basis of the recent sugar sales made and the
relative rebate should be accounted as an account
receivable in the balance sheet of that year that will
be recovered from the 70% of rebate on VAT realized
on subsequent sales up to the closing stock of sugar
stated at the year end in the balance sheet. Any excess
realized will be income and deficit will be accounted
as loss / expenses in the respective years after the
VAT rebate is received in full in respect of those
stocks. This is treatment comply with Para 37 of NAS
02 Accounting Policies, Changes in Accounting
Estimates & Errors.
4.3. Only in extraordinary circumstances, when the stock
of the previous year crushing season is not sold till
the end of this year, separate details of VAT to be
recovered for the production of sugar of previous
season and sugar produced this year season lying in
the stock at the year end, have to be maintained. n
ACCOUNTING
IAS 36 - Impairment of Assets

1. Introduction
IAS 36 on Impairment of Assets

prescribes the procedures to be
followed to ensure that the
carrying cost of an asset does not
exceed its recoverable amount.
If the carrying amount of the
asset exceeds the amount to be
recovered through use or sale of
the asset, the asset is considered
as impaired and the standard
requires recognizing an
impairment loss
CA. Surya Bhakta Pokharel
CA. Pokharel is Fellow Member of ICAN
Financial statements under IFRS are

prepared based on the concept of fair
valuation and the principle of fair
valuation is enshrined in a number of
accounting standards. Valuation of
inventories at the lower of cost or net
realizable value is one of the many
instances where the principle of fair
valuation is addressed in the relevant
IFRS itself. For other assets, IAS 36
on Impairment of Assets provides
guidance on fair valuation.
In simple terms, Impairment is an
unexpected decrease in the future
economic benefits or service potential
of an asset or cash-generating unit.
Impairment losses are the difference
between the assets's Carrying Amount
and its Recoverable Amount.
IAS 36 on Impairment of Assets
prescribes the procedures to be
followed to ensure that the carrying
cost of an asset does not exceed its
recoverable amount. If the carrying
amount of the asset exceeds the
amount to be recovered through use
or sale of the asset, the asset is
considered as impaired and the
standard requires recognizing an
impairment loss. In line with the
concept of prudence, if the recoverable
amount is greater than the carrying
amount, the surplus is ignored.
The standard is applicable in
accounting for impairment of all
assets, other than those for which the
existing applicable IFRSs contain
provisions for recognizing and

measuring these assets based on the
concept of fair valuation.
2. Key Terms used in IAS 36

Carrying amount is the amount at
which an asset is recognized after
deducting any accumulated
depreciation (amortization) and
accumulated impairment losses
thereon.
A Cash generating unit is the smallest
identifiable group of assets that
generates cash inflows that are largely
independent of the cash inflows from
other assets or group of assets.
Corporate assets are assets other
than goodwill that contribute to the
future cash flows of both the cash
generating unit under review and other
cash generating units.
Depreciation (Amortization) is the
systematic allocation of the
depreciable amount of an asset over
its useful life.
Depreciable Amount is the cost of
an asset or other amount substituted
for cost in the financial statements
less its residual value.
Useful life is either the period of time
over which an asset is expected to be
used by the entity or the number of
production or similar units expected
to be obtained from the asset by the
entity.
September 2013
15
ACCOUNTING
Impairment loss is the amount by which the carrying
amount of an asset or a cash generating unit exceeds its
recoverable amount.
Recoverable amount of an asset or a cash generating unit
is the higher of its fair value less costs to sell and its value
in use.
Internal sources of information:
Evidence is available of obsolescence or physical

damage of an asset;
Significant changes with an adverse effect on the entity

have taken place during the period, or are expected to
take place in the near future, in the extent to which,
or manner in which, an asset is used or is expected to
be used. These changes include the asset becoming
idle, plans to discontinue or restructure the operation
to which an asset belongs, plans to dispose of an asset
before the previously expected date and reassessing
the useful life of an asset as finite rather than indefinite;
Evidence is available from internal reporting that

indicates that the economic performance of an asset
is or will be worse than expected.
Fair value less costs to sell is the amount obtainable from

the sale of an asset or cash generating unit in an arm's
length transaction between knowledgeable, willing parties
less the costs of disposal.
Costs of disposal are incremental costs directly attributable
to the disposal of an asset excluding finance costs and
income tax expense.
Value in use is the present value of the future cash flows
expected to be derived from an asset or cash generating
unit.
3. Assessment of Impairment of Assets

An entity shall assess at the end of each reporting period
(including interim balance sheet date) whether there is an
indication that an asset is impaired. If such an indication
exists, recoverable amount of the asset should be estimated.
An asset is impaired when its carrying amount exceeds its
recoverable amount.
Indicators of Impairment
External sources of information:
During the period, an asset's market value has declined

significantly more than would be expected as a result
of the passage of time or normal use;
Significant changes with an adverse effect on the entity

have taken place during the period, or will take place
in the near future, in the technological, market,
economic or legal environment in which the entity
operates or in the market to which an asset is dedicated;
Market interest rates or other market rates of return

on investments have increased during the period, and
those increases are likely to affect the discount rate
used in calculating an asset's value in use and decrease
the asset's recoverable amount materially;
The carrying amount of the net assets of the entity is
more than its market capitalization.
16
September 2013
If there is an indication that the asset may be impaired the

entity has to conduct a quantitative impairment test which
means that the recoverable amount has to be estimated and
compared to the carrying amount. For intangible assets
with indefinite useful life, intangible assets which are
not yet available for use and goodwill a quantitative
impairment test has to be conducted annually and
additionally if there is an indication because those assets
are not depreciated (yet). The recoverable amount is defined
as the higher value of fair value less costs to sell and value
in use - which reflects the principle of rationality of the
management. If the carrying amount exceeds the recoverable
amount the asset is impaired and an impairment loss has
to be realized in the amount of the difference between
carrying amount and recoverable amount.
4. The Recoverable Amount

Recoverable amount of an asset is the higher of its fair
value less costs to sell (net selling price) and its value in
use. However, it is not always necessary to determine both
an assets fair value less costs to sell and its value in use
as if either of those amounts exceeds the asset' carrying
cost, the asset is not impaired and the other amount need
not be determined.
a)
Fair Value less Costs to Sell
The fair value less costs to sell reflects the (estimated)

market price of the asset. IAS 36.6 defines the fair value
ACCOUNTING
less costs to sell as the amount obtainable from the sale of
an asset or cash?generating unit in an arm's length
transaction between knowledgeable, willing parties, less
the costs of disposal. According to IAS 36.25 ? .27 the
following hierarchy has to be applied for the determination
of fair value less costs to sell:
1. The price in a binding sale agreement in an arm's length
transaction less costs to sell;
2. The current market price less costs to sell if the asset
is traded at an active market;
3. The price of the most recent transaction less costs to
sell if there were no significant changes in economic
circumstances since that transaction;
4. The best estimate of the amount that an entity could
obtain from the disposal of the asset in an arm's length
transaction between knowledgeable, willing parties, at
the end of the period, less costs to sell. As long as the
entity is not forced to sell the asset immediately the
fair value less costs to sell does not reflect a forced
sale.
Recognized Liabilities - In determining the recoverable
amount of an asset, sometimes it may be necessary to
consider some recognized liabilities. Thus if a liability
directly attached to an asset were to be taken over by a
buyer, such a liability is notionally adjusted against carrying
amount and value in use/ selling price of the asset.
Costs of disposal - Costs of disposal are incremental costs
directly attributable to the disposal of an asset, excluding
finance costs and income tax expense. Costs of disposal
are deducted while determining fair value less costs to sell.
Examples of such costs are legal costs, stamp duty,
transaction taxes, costs of removing the asset and direct
incremental costs to bring an asset into condition for its
sale. However, disposal costs do not include termination
benefits and costs associated with reducing or reorganizing
a business, following the disposal of an asset.
b) Value in Use
The value in use shall reflect the value that the entity can
earn by further use of the asset. It is defined as the present
value of the future cash flows expected to be derived
from an asset or cash?generating unit and thus has to be
calculated using discounted cash flow methods by definition.
The calculation can be subdivided in three parts:

1. Estimating future cash flows
2. Calculating a discount rate
3. Calculating the terminal value
The estimation of future cash flows has to reflect
reasonable and supportable assumptions and shall be
based on the most recent financial budgets approved by
management. The detailed cash flow projection should
generally not exceed a time span of five years. Cash flow
projections shall reflect
Cash inflows from further use of the asset,
Cash outflows that are necessary for the further use of
the asset, and
Cash inflows from the disposal of the asset.
As discount rate the entity shall choose a pre?tax rate

which is independent of the capital structure of the entity
and reflects the time value of money as well as the risks
of the asset which have not been incorporated in the cash
flow estimates. As the discount rate has to reflect the
current market assessments (contrasting the firm?specific
cash flow estimates) the best way to determine the discount
rate is to estimate it from similar assets. As those similar
assets are in the majority of cases not available IAS 36.A17
gives three discount rates which can be used as a starting
point for the estimation of the discount rate:
The weighted average cost of capital (WACC)
determined using techniques such as the capital asset

pricing model (CAPM);
The entity's incremental borrowing rate; or

Other market borrowing rates.
These three starting points are based on market data

and thus produce post-tax discount rates. To receive the
required pre-tax rate IAS 36.BCZ85 shows techniques to
calculate the pre-tax rate from the post-tax rate:
Iterative calculation: Based on the assumption that the
value in use after taxes is equal to the value in use before

taxes the pre-tax rate is the discount rate that discounts
the pre-tax cash flows to the same amount as the posttax cash flows discounted with the post-tax discount
rate;
September 2013
17
ACCOUNTING
Grossing up: The pre-tax rate is the post-tax discount
entity operates, or for the market in which the asset is used.
The terminal value has to be calculated using a steady or

declining growth rate. An increasing growth rate may only
in rare circumstances be used when it can be justified. The
growth rate shall not exceed the long?term average growth
rate for the products, industries, or countries in which the
The calculation of the value in use can only be forgone if

the fair value less costs to sell lies above the carrying
amount or if there is no reason to believe that the value in
use materially exceeds the fair value less costs to sell. In
these cases the fair value less costs to sell may be used as
the recoverable amount.
rate divided by (1 - tax rate).
18
September 2013
ACCOUNTING
5. Cash Generating Units

If the value in use cannot be estimated for the single asset
- it cannot be estimated to be close to the fair value less
costs to sell and the asset does not generate cash inflows
that are largely independent of those from other assets the recoverable amount cannot becalculated. In such cases
the quantitative impairment test has to be conducted at the
level of the cash?generating unit of the asset. Goodwill
and corporate assets can only be tested for impairment
using their cash?generating units as both do not generate
cash inflows on their own. As the definition of a
cash?generating unit is that it generates cash
inflows that are largely independent of cash inflows of
other assets or groups of assets the value in use of a
cash?generating unit can always be determined. If the fair
value less costs to sell of the cash?generating unit cannot
be determined because there is no binding sale agreement,
no active market and no starting point for 'value in use?
estimation' of the cash generating unit can be used as the
recoverable amount.
The identification of cash generating units is based on the
management approach as they are supposed to represent
the lowest level within the entity at which the goodwill is
monitored for internal management purposes. The upper
bound for the size of cash? generating units are segments
according to IFRS 8. Cash?generating units shall be
identified consistently from period to period. Goodwill
has to be allocated to cash? generating units or groups of
cash?generating units based on the assessment of future
benefits from the synergies of the business combination
the goodwill results from. If a quantitative impairment test
is conducted for a cash?generating unit which contains
goodwill and reveals impairment the carrying amount of
the goodwill has to be reduced first. The carrying amount
of the other assets covered by the cash?generating unit has
to be reduced only if the carrying amount still exceeds the
recoverable amount after the goodwill has been completely
written off.
6. Goodwill
Goodwill recognized in a business combination is an asset
representing the future economic benefits arising from
other assets acquired in a business combination that are
not individually identified and separately recognized. It
does not generate cash flows independently from other

assets or group of assets and therefore the recoverable
amount of goodwill as an individual asset cannot be
determined. But it often contributes to the cash flows of
multiple cash-generating units.
Allocating goodwill to cash generating units
Goodwill acquired in a business combination should be
allocated, from the acquisition date, to each of the acquirer's
cash generating units that is expected to benefit from the
synergies of the combination irrespective of whether other
assets or liabilities of the acquiree are assigned to those
units or group of units.
Each unit or group of units to which the goodwill is so
allocated should
a. Represent the lowest level within the entity at which
the goodwill is monitored for internal management
purposes and
b. Not be larger than an operating segment determined as
per IFRS 8: Operating Segments.
By allocating goodwill in the aforesaid manner, the test of
impairment of goodwill is done at a level that reflects the
way the entity manages its operations.
Disposal of a portion of a cash-generating unit containing
goodwill
If the entity disposes off an operation within cash generating
unit to which goodwill has been allocated, the goodwill
associated with that operation should be
a. Included in the carrying cost of the operation for
determining the gain / loss on disposal.
b. Measured on the basis of the relative values of the
operation disposed off and the portion of cash generating
unit retained, unless the entity justifies some other
better method.
Testing cash generating units with goodwill for impairment
Goodwill sometimes cannot be allocated on a non-arbitrary
basis to individual cash generating units but only to groups
of cash generating units. Thus the lowest level within the
entity at which the goodwill is internally monitored by
management sometimes comprises a number of cash
generating units to which the goodwill relates, but to which
it cannot be allocated.
September 2013
19
ACCOUNTING
In case of cash generating units to which goodwill relates
but not allocated the unit should be tested for impairment,
whenever there is an indication of impairment of the unit,
by comparing the unit's carrying amount excluding any
goodwill, with its recoverable amount.
recoverable amount, the entity should recognize the

impairment loss.
8. Allocation of Impairment loss for a cash

generating unit
If the unit includes an intangible asset with indefinite useful

life or which is not yet available for use in its carrying
amount and the intangible asset can be tested for impairment
only as part of the cash generating unit, then the unit is to
be tested for impairment annually.
The impairment loss should be allocated to reduce the

carrying amount of the assets of the cash generating unit
in the following order:
If the carrying amount of the unit exceeds its recoverable

amount, the entity should recognize the impairment loss.
b. Allocate the remainder to the carrying amount of each

asset within the cash generating unit on a pro rata basis
(of the carrying amount of the assets).
7. Corporate Assets
Corporate assets are assets other than goodwill that
contribute to the future cash flows of both the cash
generating unit under review and other cash generating
units. It includes group or divisional assets such as the
building of a head quarter or a division of the entity like
research center. Corporate asset do not generate cash
inflows independently of other assets or group of assets
and their carrying amount cannot be fully attributed to a
specific cash generating unit.
7.1 Recoverable amount of corporate assets
As corporate assets do not generate separate cash
inflows, the recoverable amount of an individual
corporate asset cannot be determined unless the
management decides to dispose off the asset. If there
is an indication that a corporate asset may be impaired,
recoverable amount is determined for the cash
generating unit or group of cash generating units to
which the corporate asset belongs and is compared
with its carrying amount.
7.2 Testing cash generating units with corporate assets
for impairment
A cash generating unit to which a portion of carrying
amount of corporate assets is allocated on a reasonable
and consistent basis, should be tested for impairment,
whenever there is an indication of impairment of the
unit/ corporate asset, by comparing the unit's carrying
amount, including the portion of carrying amount of
corporate assets allocated, with its recoverable amount.
If the carrying amount of the unit exceeds its
20
September 2013
a. Allocate the impairment loss to goodwill attributable

to cash generating unit.
These reductions in carrying amounts should be treated as

impairment losses on each individual assets. While
allocating the impairment loss, the carrying amount should
not be reduced below the highest of
a. Its fair value less costs to sell (if determinable)
b. Its value in use (if determinable) and
c. Zero.
The amount of the impairment loss that would otherwise
have been allocated to the asset shall be allocated pro rata
to other assets of the unit ( group of units).
9. Reversal of Impairment Loss

At the end of each reporting period, an entity should assess
whether there is any indication that an impairment loss
recognized in the previous period may have decreased or
no longer exist. This does not apply to goodwill. If such
indication exists, recoverable amount of the asset is to be
estimated.
The increase in the carrying amount of an asset can only
go up to what the carrying amount would have been if the
impairment had not occurred. However, if it exceeds the
carrying amount that would have been determined (net of
amortization or depreciation) had no impairment loss been
recognized for the asset in prior years, the excess is
considered a revaluation and the requirement of respective
IFRS is to be adhered to.
A reversal of impairment loss for an asset shall be
recognized immediately in profit or loss. However if it is
ACCOUNTING
a revalued asset, the reversal should be treated as a
revaluation increase as per the requirement of applicable
IFRS and is recognized in other comprehensive income
and revaluation surplus is increased accordingly. However,
a reversal of impairment loss on the revalued asset is
recognized in profit or loss to the extent the loss was
previously recognized in profit or loss. The reversal of an
impairment loss may require an adjustment to the
depreciation of the asset in future periods.
9.1
Reversing an impairment loss for goodwill

An impairment loss recognized for goodwill shall
not be reversed in a subsequent period. This is
because any increase in the recoverable amount of
goodwill in the periods following initial recognition
of impairment loss amounts to an increase in
internally generated goodwill ( the recognition of
which is prohibited by IAS 38 Intangible Assets)
rather than a reversal of impairment loss.
10.
For each material impairment loss recognized or

reversed during the period for an individual asset,
including goodwill or a cash generating unit, an entity
should disclose the events and circumstances leading
to the recognition and reversal and the amount. For
an individual asset, the nature of the asset and the
reportable segment to which it belongs is disclosed.
For a cash generating unit, a description of the cash
generating unit ( such as whether it is a product line,
a plant, a business operation, a geographical area or
a reportable segment) and the amount of the
impairment loss recognized or reversed by class of
assets and by reportable segments shall be disclosed.
c.
The basis used to determine fair value less costs to

sell such as whether fair value was determined by
reference to an active market. Similarly the discount
rates used in current estimate and previous estimate
of value in use.
d.
If any portion of the goodwill acquired in a business

combination during the period has not been allocated
to a cash generating unit at the end of the reporting
period, the entity should disclose the amount of the
unallocated goodwill and the reasons for not allocating
the goodwill.
e.
Estimates used to measure recoverable amounts of

cash generating units containing goodwill or intangible
asset with indefinite useful lives.n
Reversing an impairment loss for a cash

generating unit
A reversal of an impairment loss for a cash generating
unit shall be allocated to the assets of that unit on
a pro rata basis ( of the carrying amount of the
assets). These increases in carrying amounts should
be treated as reversals of impairment losses for
individual assets and recognized immediately in
profit or loss.
9.2
b.
Disclosures
Disclosures requirements of IAS 36 are extensive which

can be summarized as follows:
a.
For each class of assets including for revalued assets,

an entity should disclose the amount of impairment
loss recognized in profit or loss and the amount of
reversals of impairment loss.
September 2013
21
ACCOUNTING
Recent Development in IFRS

IFRS has become the global
language of financial reporting
with its adoption by over 100
countries. The IFRS Standards
are continuously evolving with
the IASB issuing several new
standards in the recent past. In
this article, we shall understand
the key requirements of the new
Standards - IFRS 10 to 12 relating
to Consolidation, IFRS 13 relating
to Fair Value Measurement and
amendments to IAS 19 on
Employee Benefits which have
become effective during the year
2013. In addition, we shall
understand the significant
requirements in the Exposure
drafts released relating to
Standards on Revenue
recognition, Leases and Financial
Instruments.
CA. Adwait Morwekar

The author is member of the ICAI
He can be reached at adwait 2000@hotmail.com
22
In this era of globalisation, it has

become the need of the hour that
companies across the globe and more
particularly the listed companies
should use a common set of
accounting principles which would
help investors
to assess the performance of
companies. International Financial
Reporting Standards or IFRS is
required or permitted for use by more
than 100 countries across the globe.
Since IFRS has become the global
language of financial reporting,
Board or IASB, the standard setting
body for IFRS, has been in dialogue
with the stakeholders around the globe
and have been making amendments
to existing Standards, introducing new
Standards and also undertaking
convergence project with the Financial
Accounting Standard Board or FASB
in the US, to develop accounting
standards which can be universally
accepted
.
The developments in IFRS over the
past 12 months can be broadly
classified as follows:
1
New IFRS Standards 10 to 12

relating to Consolidation, IFRS
September 2013
13 relating to Fair Value

Measurement and amendments
to IAS 19 on Employee Benefits
which have become effective
during the year 2013; and
2
Exposure drafts relating to

Standards on Revenue
recognition, Leases and Financial
Instruments which have been
released and are expected to be
finalized in the current year.
The current work plan for 2013

released by the IASB for the major
IFRSs for which Exposure Drafts
(ED) has been released and which we
would be discussing
IFRS 10 introduces a single control
model for all entities, including
Special Purpose Entities. It is likely
to be a difficult standard to apply
across many sectors. This is because
the Standard provides a series of
indicators of control, without
providing a hierarchy to be
followed. One is required to
understand the design and purpose
of the investee and take into account
evidence of power, which would
entail application of significant
judgement in making the control
assessment. extent.
ACCOUNTING
in this article is as follows:
the investee's returns. Power can be the result of voting

rights acquired from equity shares or from contractual
arrangements;
b) exposure, or rights, to variable returns from its
involvement with the investee; and
c) the ability to use its power over the investee to affect
the amount of the investor's returns.
Further, post implementation review for IFRS 10 to 12

would be in 2016, for IFRS 13 in 2015 and for amendments
to IAS 19 in 2015. A post implementation review normally
begins after the new requirements have been applied
internationally for two years, which is generally 30 to 36
months after the effective date.
New IFRS Standards

We shall now understand the key requirements of IFRS
Standards which have become effective in 2013, applicable
for periods beginning on or after 1st January 2013.
IFRS 10 - Consolidated Financial Statements

IFRS 10 on Consolidated Financial Statements provides
a revised definition of control and related guidance. It
replaces IAS 27 Consolidated and Separate Financial
Statements and SIC 12 Consolidation - Special purpose
entities and applies to all investees.
Under IFRS 10, the investor, regardless of the nature of
its involvement with an entity (the investee), shall determine
whether it is a parent by assessing whether it controls the
investee. As per IFRS 10, an investor controls an investee
when it is exposed, or has rights to variable returns from
its involvement with the investee and has the ability to
affect those returns through its power over the investee.
An investor controls an investee if and only if the investor
has all the following:
a) power over the investee which is demonstrated when
the investor has existing rights that give it the current
ability to direct the activities that significantly affect
From the above, it is clear that IFRS 10 introduces a single

control model for all entities, including Special Purpose
Entities. It is likely to be a difficult standard to apply across
many sectors. This is because the Standard provides a
series of indicators of control, without providing a hierarchy
to be followed. One is required to understand the design
and purpose of the investee and take into account evidence
of power, which would entail application of significant
judgement in making the control assessment.
The key impact of the above is that investees previously
accounted for using equity accounting or as financial
instruments may require consolidation. Further, previously
unconsolidated entities that have significant relationships
with the entity may now require consolidation. Entities in
the financial services sector (excluding an investment
entity) are expected to be impacted the most, and to a lesser
extent those in the real estate sector. Also entities in the
infrastructure and energy sectors where rights other than
voting rights are relevant in assessing control may be
impacted.
An amendment to IFRS 10 provides a mandatory
consolidation exception to a qualifying investment entity
which is required to account for investments in controlled
entities - as well as investments in associates and joint
ventures - at fair value through profit and loss. The only
exception would be subsidiaries that are considered an
extension of the investment entity's investing activities.
IFRS 10 is applied retrospectively when there is a change
in the control conclusion. There are specific requirements
when retrospective application is impracticable.
IFRS 11 - Joint Arrangements
Under IFRS 11 Joint Arrangements, joint arrangements
are essentially defined in the same way as under IAS 31
Interests in Joint Ventures - as an arrangement over which
there is a joint control. IFRS 11 sub-categorises joint
September 2013
23
ACCOUNTING
arrangements into joint operations and joint ventures.
A joint arrangement is defined as an arrangement of which
two or more parties have joint control. A joint arrangement
has the following characteristics:
a) The parties are bound by a contractual arrangement.
b) The contractual arrangement gives two or more of
those parties joint control of the arrangement.
A joint arrangement is either a joint operation or a joint
venture.
Joint control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions about
the relevant activities require the unanimous consent of
the parties sharing control.
An entity shall determine the type of joint arrangement in
which it is involved. The classification of a joint
arrangement as a joint operation or a joint venture depends
upon the rights and obligations of the parties to the
arrangement.
The key change brought about by IFRS 11 is that equity

method must be used for consolidation of joint ventures.
The existing option available under IAS 31 to account
for joint ventures as per equity method or as per the
proportionate consolidation method has been withdrawn
by IFRS 11 and the equity method has been made
mandatory.
Not all jointly controlled entities under IAS 31 will be
joint ventures under IFRS 11. Transitioning from
proportionate consolidation to equity method can affect
all financial statement line items, notably decreasing
revenue, gross assets and gross liabilities. This change is
expected to have a widespread impact since significant
number of IFRS users account for joint ventures using the
proportionate consolidation method of accounting. It is
also expected that industries in the extractive and real
estate sector would be particularly affected because of the
prevalence and complexity of joint arrangements.
A joint operation is a joint arrangement whereby the

parties that have joint control of the arrangement have
rights to the assets, and obligations for the liabilities,
relating to the arrangement. Those parties are called
joint operators.
IFRS 12 - Disclosure of Interest in Other

Entities
A joint venture is a joint arrangement whereby the

parties that have joint control of the arrangement have
rights to the net assets of the arrangement. Those
parties are called joint venturers. A joint venturer shall
recognise its interest in a joint venture as an investment
and shall account for that investment using the equity
method.
(a) the significant judgements and assumptions it has

made in determining the nature of its interest in another
entity or arrangement, and in determining the type of
joint arrangement in which it has an interest; and
Although there may not be across-the-board change in

classification, on transition to IFRS 11, all joint
arrangements will need to be re-assessed. As the
classification of a joint arrangement requires The key
change brought about by IFRS 11 is that equity method
must be used for consolidation of joint ventures. The
existing option available under IAS 31 to account for joint
ventures as per equity method or as per the proportionate
consolidation method has been withdrawn by IFRS 11 and
the equity method has been made mandatory. identification
and assessment of the structure, legal form, contractual
24
arrangement and other facts and circumstances, this is

expected to be an area of judgement that requires careful
consideration in practice.
September 2013
IFRS 12 Disclosure of Interest in Other Entities is basically

a disclosure standard. It requires an entity to disclose:
(b) information about its interests in:

(i) subsidiaries;
(ii) joint arrangements and associates; and
(iii) structured entities that are not controlled by the
entity (unconsolidated structured entities).A structured
entity is an entity that has been designed so that voting
or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights
relate to administrative tasks only and the relevant
activities are directed by means of contractual
arrangements.
The objective of this IFRS is to require an entity to disclose
ACCOUNTING
information that enables users of its financial statements
to evaluate:
(a) the nature of, and risks associated with, its interests in
other entities; and
(b) the effects of those interests on its financial position,
financial performance and cash flows.
It is expected that the impact of this Standard would be
the most on entities which have interests in unconsolidated
structured entities. Investment funds and asset-backed
financing are common examples of entities that might be
structured entities.
IFRS 13 - Fair Value Measurement

IFRS 13 Fair Value Measurement replaces existing guidance
in individual IFRSs. It provides a revised definition of fair
value and related guidance as well as an extensive disclosure
framework.
IFRS 13 establishes:
a single definition of fair value (FV)
a framework for measuring FV
disclosure requirements for FV measurements
IFRS 13 does not require additional FV measurements in

addition to those already existing
IFRS 13 defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date. Thus fair value measurement is based
on the exit price and market participant view. The impact
of this Standard is that significantly more disclosures would
be required in financial statements and may involve
significant judgement and estimation uncertainty to arrive
at the fair value.
IAS 19 - Employee Benefits Amended

Certain Amendments were also made in IAS 19 - Employee
Benefits. However, there are no changes to fundamental
measurement method under which benefits are attributed
to periods of service.
The major amendments pertain to the fact that under the
amended Standard, all actuarial gains and losses are
recognised immediately in other comprehensive income.
The option available under the earlier Standard to apply

the corridor method or to recognize the amount in the profit
and loss account for actuarial gains and losses is removed.
The Standard prescribes revision in the calculation for
finance costs. Net interest cost is now calculated as the net
defined benefit liability (asset) multiplied by the discount
rate that is used to measure the defined benefit obligation,
and the difference between the expected rate of return on
the plan assets and the rate used to discount the existing
obligation is recognised in other comprehensive income.
The nature of the plan assets held will have no impact on
the net finance charge or credit. The impact of this change
will be greater, when the gap between the expected rate of
return on plan assets and the rate used to discount the
obligation is greater. This change might lead to a rebalancing
of investment portfolios.
Companies would also be required to evaluate the
classification of short-term and other long-term employee
benefits based upon when the employee benefit is 'expected'
to be settled.
The above represents the key developments in Standards
which are applicable during 2013.
In addition to the above significant developments, IASB
regularly undertakes narrow-scope amendments to the
existing standards based on the feedback received from
the stakeholders to address practical issues and
inconsistencies, if any.
Exposure Draft of Standards

We shall now take a look at the Exposure Drafts on Revenue,
Leases and Financial Instruments which are expected to
significantly change the manner in which these transactions
/ instruments are accounted for as per the existing IFRS
standards.
Exposure Draft on Revenue from Contracts

with Customers
The IASB and FASB have recently jointly released an
exposure draft on Revenue from Contracts with customers.
The ED does not propose a specific effective date but
mentions that would be applicable no earlier than annual
periods commencing on 1st January 2015. The ED proposes
that a single revenue standard would apply to all contracts
with customers under IFRS and US GAAP.
September 2013
25
ACCOUNTING
As per the Exposure Draft, entities would recognize revenue
based on a 5-step analysis, focussing on transfer of control.
new standard for the financial reporting of financial

instruments that was principle-based and less complex.
IASB intends to replace the entire IAS 39 with IFRS 9.
However, to respond to the users as quickly as possible,
it was decided to replace IAS 39 in three phases:
Step
1__Identify the contract with a customer.
Step
2__Identify the separate performance obligations

in the contract.
Step
3__Determine the transaction price.
Phase 1: Classification and measurement of financial assets

and financial liabilities (limited amendments)
Step
4__Allocate the transaction price to the separate

performance obligations in the contract.
Phase 2: Impairment methodology
Step 5__Recognise revenue when (or as) the entity satisfies

a performance obligation.
There are two ways to recognise revenue within the model.
Revenue may be recognised over time, similar to current
stage of completion accounting, or at a point in time,
similar to current sales of goods accounting. The ED
proposes new criteria to determine when revenue should
be recognized over time.
Phase 3: Hedge accounting.
ED on limited amendments to classification

and measurement
The key impacts which this ED is expected to have are:
Under the ED relating to limited amendments to

classification and measurement, financial assets are
measured at fair value through profit and loss unless certain
conditions are met requiring the use of amortised cost.
Changes in certain equity investments may be presented
in OCI. Guidance on financial liabilities has remained
mostly unchanged.
Revenue may be recognised at a point in time or over

a period of time.
A financial asset qualifies for amortised cost measurement

only if it meets both of the following conditions:
For complex transactions with multiple deliverables

and/or variable consideration, revenue recognition
may be accelerated or deferred
the asset is held within a business model whose objective

is to hold assets in order to collect contractual cash
flows; and
Extensive new disclosure requirements about business

practices and prospects
Changes may be required to the IT system to capture

data to comply with the new requirements.
the contractual terms of the financial asset give rise on

specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
Bonus structures and contract terms may be required

to be revisited to align them to the corporate goals.
Also debt covenants may be impacted.
Exposure Draft IFRS 9 Financial Instruments

IFRS 9 on Financial Instruments would be applicable for
annual periods commencing on 1st January 2015. Although
currently IAS 39 on Financial Instruments: Recognition
and Measurement sets out the requirements for recognising
and measuring financial assets and financial liabilities,
many users of financial statements communicated to IASB
that the requirements in IAS 39 were difficult to understand,
apply and interpret. The Board was urged to develop a
26
September 2013
If a financial asset does not meet both of these conditions,

then it is measured at fair value with fair value changes
generally recognised in profit or loss.
It is therefore, expected that under the standard, process
for determining classification of financial assets will need
revision.
ED on Amortised cost and impairment

The ED on Amortised cost and Impairment lays down
measurement proposals that apply to both financial assets
and financial liabilities stated at amortised cost. The
impairment proposals apply to financial assets measured
at amortised cost.
ACCOUNTING
ED on Hedge accounting
The ED relating to hedge accounting, is a more principlesbased standard that aligns hedge accounting more closely
with risk management. It includes new requirements to
achieve, continue and discontinue hedge accounting.
Further, additional exposures may qualify as hedged items.
Some of the key differences compared to IAS 39 includes
introducing new fair value option model for managing
credit risk, and alternative fair value option model for
certain own-use contracts. Additionally, time value of
purchased options and forward element of forward contracts
may be deferred or amortised. The new ED also requires
additional disclosure requirements regarding an entity's
risk management and hedging activities.
Exposure Draft on Leases

The IASB and FASB have jointly released an exposure
draft (ED) on Leases recently. The ED does not propose
a specific effective date. The comments period for this
standard would end on 13th September 2013.
Under the proposals, lessees and lessors would apply a
new lease classification test. The classification criteria
would be based on the nature of the underlying
Certain Amendments were also made in IAS 19 Employee Benefits. However, there are no changes to
fundamental measurement method under which benefits
are attributed to periods of service. The major
amendments pertain to the fact that under the amended
Standard, all actuarial gains and losses are recognised
immediately in other comprehensive income.
A lease is classified as Type A if the lessee has a significant

economic incentive to exercise an option to purchase the
underlying asset.
Accounting by lessees:
Lessees would recognise Type A and Type B leases 'onbalance sheet'. In each case, the lessee would recognise:
a right-of-use (ROU) asset - representing its right to

use the underlying asset during the lease term; and
a lease liability - representing its obligation to pay

lease rentals.
In a Type A lease, the profile of total lease expense

(amortisation of the ROU asset plus interest on the lease
liability) would often be front-loaded.
In a Type B lease, the lessee would measure the ROU asset
as a balancing figure - to achieve a straightline profile of
total lease expense.
asset and the extent to which the asset is consumed over

the lease term. The ED proposes a dual accounting model,
as follows:-
Accounting by lessors:
An entity would classify every lease as either a Type A or

a Type B lease.
Lessors in a Type A lease would derecognise the underlying

asset on lease commencement and recognise:
Lease classification would depend on the nature of the

underlying asset and the extent to which it is consumed
over the lease term. There is a distinction between
underlying assets that are property - i.e. land and/or a
building - and non-property. If a separate lease component
contains a lease of more than one underlying asset, then
the entity would classify the lease according to the nature
of the primary asset.
a lease receivable - representing its right to receive
lease payments from the lessee; and
a residual asset - representing its interest in the underlying
asset at the end of the lease term.
Lessors in a Type B lease would apply a model similar to

current operating lease accounting.
September 2013
27
ACCOUNTING
Further in case of short term leases, both lessees and lessors

could elect a simplified approach. Short term leases are.
leases with a maximum contractual term, including renewal
options, of 12 months or less. Under the proposals, any
lease that contains a purchase option is not a short-term
lease.
Under the simplified approach, the lessee/lessor would
recognise lease payments as expense/income in profit or
loss, similar to current operating lease accounting.
The key impacts which this ED is expected to have are:
Data extraction from lease agreements and

identification of the lease for appropriate accounting
Significant impact on the balance-sheet on both assets

and liabilities
New estimates and judgement required for

identification, classification and measurement of lease
transactions
28
September 2013
New systems and processes may be required to be

developed to quantify and account o Contract terms
and business practices may be affected.
To summarise, extensive efforts are being made to improve

financial reporting by companies across the globe. As can
be seen from the above, due to the global adoption of IFRS
standards, most of the Standards lays down principles
which require analysis of the facts and circumstances and
application of significant judgement. Although, based on
the feedback received from the various stakeholders, IASB
comes up with interpretations and clarifications on a regular
basis, however, due to the exercise of significant judgement,
practical implementation of the Standards is expected to
be a challenging area not only for the management of the
companies but also for its auditors. n
Source: ICAI e Journal, September 2013
www.icai.org
AUDITING
Internal Auditing in Banks-Third Line of Defence
Internal Audit
The third line of defence is the

internal audit function that
independently assesses the
effectiveness of the processes
created in the first and second lines
of defence and provides assurance
on these processes.
Internal audit is an independent

appraisal function established within
an organization to examine and
evaluate its activities as a service to
the organization. Unified Directive
No. 6 issued by Nepal Rastra Bank
mandates the bank to carry out internal
audit function on regular basis.
Further, Directive 7 mandates to
develop procedures to ensure effective
internal control system. Such
procedures shall include:
a. Procedures relating to reviewing
the management and control of
accounts of the licensed institution
so actual condition of the
institution is depicted and assets
are protected;
b. Procedures relating to verifying
the reliability of statistics;
CA. Ramesh Kumar Dhital
CA. Dhital is Member of ICAN
c. Procedures for verifying the

application of policies with respect
to credit extension, treasury
operations, foreign exchange
management, liquidity
management, adequacy of capital
fund, personnel administration,
management information systems
as well as compliance with the
banking laws;
d. Procedures for reviewing quality
of assets;
e. Procedures relating to reviewing

of financial risks management
(liquidity, assets/liabilities, foreign
exchange management).
Structure
The role of Internal Audit has to be
defined in a written Internal Audit
Charter and the audit activities have
to be set out in the Annual Audit Plan.
The Audit Committee approves the
Internal Audit Charter periodically
and the Audit Plan annually.
The Board of Directors and

Internal Audit
The principles of Basel Committee
on Banking Supervision provides that
an effective internal audit function
provides independent assurance to the
board of directors and senior
management on the quality and
effectiveness of a bank's internal
control, risk management and
governance systems and processes,
thereby helping the board and senior
management protect their organization
and its reputation.
The bank should have an internal audit
function with sufficient authority,
stature, independence, resources and
access to the board of directors.
Independent, competent and qualified
internal auditors are vital to sound
corporate governance.
September 2013
29
AUDITING
Reporting Mechanism
The internal auditors who perform the internal audit work should report to the bank's audit committee, or its equivalent.
Source: - Basel Committee on Banking Supervision
Principles
Mostly we observe that the scope of audit is guided

by terms of reference (TOR) and specific requirement
of regulator. Consideration of this principle seems
inevitable while agreeing on the TOR.
Basel Committee on Banking Supervision suggests the

following principles relating to the supervisory expectations
relevant to the internal audit function.
1.
An effective internal audit function provides

independent assurance to the board of directors and
senior management
7.
The scope of the internal audit function's activities

should ensure adequate coverage of matters of
regulatory interest within the audit plan
2.
The bank's internal audit function must be independent

of the audited activities
8.
3.
Professional competence, including the knowledge

and experience of each internal auditor and of internal
auditors collectively, is essential to the effectiveness
of the bank's internal audit function
The bank's board of directors has the ultimate

responsibility for ensuring that senior management
establishes and maintains an adequate, effective and
efficient internal control system and, accordingly, the
board should support the internal audit function in
discharging its duties effectively.
4.
Internal auditors must act with integrity
9.
5.
Each bank should have an internal audit charter that

articulates the purpose, standing and authority of the
internal audit function within the bank
The audit committee, or its equivalent, should oversee

the bank's internal audit function.
6.
Every activity (including outsourced activities) and

every entity of the bank should fall within the overall
scope of the internal audit function
30
September 2013
10. The head of the internal audit department should be

responsible for ensuring that the department complies
with sound internal auditing standards and with a
relevant code of ethics.
AUDITING
11. The internal audit function should be accountable to
the board, or its audit committee, on all matters related
to the performance of its mandate as described in the
internal audit charter.
relationship with the business units, ensures that risks

in the business units have been appropriately identified
and managed. The business support functions work
closely to help define strategy, implement bank policies
and procedures, and collect information to create a
bank-wide view of risks.
12. The internal audit function should independently

assess the effectiveness and efficiency of the internal
control, risk management and governance systems
and processes created by the business units and support
functions and provide assurance on these systems and
processes.
c)
13. Regardless of whether internal audit activities are

outsourced, the board of directors remains ultimately
responsible for the internal audit function.
The responsibility for internal control does not transfer

from one line of defence to the next line.
The third line of defence is the internal audit function

that independently assesses the effectiveness of the
processes created in the first and second lines of
defence and provides assurance on these processes.
Internal audit and compliance

Basel Committee on Banking Supervision relates a bank's
business units, the support functions and the internal audit
function using the three lines of defense model.
Conclusion:-
a)
The business units are the first line of defence. They

undertake risks within assigned limits of risk exposure
and are responsible and accountable for identifying,
assessing and controlling the risks of their business.
b)
The second line of defence includes the support

functions, such as risk management, compliance,
legal, human resources, finance, operations, and
technology. Each of these functions, in close
The role of the internal audit is vital in every business

however it is more important in banking business. Internal
audit helps in identifying risk areas in timely manner and
corrective action from the management on internal audit
report may protect banks in avoiding the loss or risks to
the banks. Hence strengthened internal audit with well
equipped staff is required to better serve the bank as third
line of defence. n
September 2013
31
ECONOMY
Kautilya Arthasastra: It's Relevance on

Modern Economics
Abstract
Kautilya's contribution to
economics is commendable, as
by studying his The Arthasastra
we can not only learn about the
methodological problems of the
time, scope of their inquiry, and
reality of their assumptions, but
also gather knowledge of the
methodological, epistemological
and practical problems of
modern economics
Kautilya's Arthasastra gives details of

the economic development of the past
and it provides much basic knowledge
about economics and several of its
conception. Kautilya did not believe
that it would be applicable for all times
or to all social settings. In that, as in
many other respects, he displayed
great wisdom. The lessons from
Kautilya's Arthashastra are relevant
even today's economic development
and can be integrated into the modern
context towards achieving the ultimate
a i m o f r e d u c i n g p o v e r t y,
unemployment, inequalities which can
provide value to people. From the
beginning World are facing many
development challenges. In this
situation, Kautilya Arthasastra may
help to make a leap-frog from poverty
to prosperity at the shortest possible
period of time seems to be the urgent
need of people.
1. Introduction
Mr. Yadav Mani Upadhyaya
Mr. Upadhyaya is Lecturer, Sanothimi Campus
32
Kautilya is also known as Vishnugupta

and by the name Chanakya. According
to Jha and Jha (1997), Chanakya was
a great statesman as well as a great
scholar. The book such as Arthasastra
should have been written more than
2400 years ago in northern India. It
is a book of large size. While the exact
date of its completion is unclear, the
available evidence suggests that it was
written somewhere between 321 and
September 2013
286 BC (Fleet, 1914). Although the

original work is very old, it was
obtained by Shyamashastry in 1905
by a Brahman of Mysore. He edited
and published it in 1909 at first.
Subsequently, the English translation
of the Arthashastra by Shyamashastry
was published in 1915. Second and
third editions of this translation were
published in 1923 and 1927
respectively. Nepali Translation was
presented by K R Aryal in 1967.
The treatise deals exhaustively with
statecraft, economics, espionage,
administration, war science, ecology
and various other aspects pertaining
to human living. The entire text is
divided into fifteen books, each
containing several chapters. Although
there are occasional insertions of
prose, the treatise is written mainly
in slokas (Sanskrit verse consisting
of two lines). Artha in the narrow
sense means money but in the wider
sense it means all material means to
meet human requirements and Sastra
means the holy book (Sarkar,
1999/2000). Arthasastra literally
translates from Sanskrit as 'the science
of wealth'. Artha corresponds to the
work 'wealth' in Sanskrit, and Sastra
to 'science' (Thanawala, 1997).
The importance and relevance of such
strategies and concepts could be
inspiring to the contemporary world.
Some of the strategies could be
ECONOMY
gainfully employed to achieve long-term benefits and
resolve some of the key issues affecting many countries
today. A careful analysis reveals that many of the recently
popularized western economic theories and concepts have
been in practice in Asian countries. These practices were
not only in the context of development, but also in the
context of state or economic governance. Many
communities and countries in the world are now trying to
discover and explore their own system of economic
development. The lessons from Arthasasthra are relevant
even today and can be integrated into the modern
development towards achieving the ultimate aim, which
is to provide value to today's people. Arthasasthra gives
understanding of different focus areas, which help us,
develop a long term strategic plan and fulfill all ends from
our resources. It helps to understand ancient approach to
manage and restructure and reorganize development plan
and priorities.
1.1 From Arthasastra to Modern Economics
Kautilya in Arthasastra has talked about various economic
concepts and ideas which have parallels in modern
economic theory of economics. There are many elements
of modern economics that can be illustrated by the coverage
in Arthasastra. Kautilya was well aware of the importance
for the efficient operation of the State and economic
development of what is described today as good governance.
It is interesting to note that Kautilya points out that public
prosperity should generate by the various elements such
as production, consumer protection, demand and supply
of the goods, international trade, local trade, revenue
collection and public expenditure, eligible tax rate policy,
interest rate, price policy, irrigation and etc (Shamasastry,
1961).
was, therefore, necessary to correct the negative public

externalities on the market.
Kautilya's economy was a regular 'mixed' economy that
rested on five common pillars of any market economy:
Private ownership and property rights
Competition, and
Price system
Moral-hazard problem.
Entrepreneurship
A comparison below provides an important insight that

could explain the differences between ancient economies
and the 'virtually zero' economic growth rates, registered
at the time. Scholars have tried to explain why the ancient
economies were not growth-oriented, i.e. why there was
virtually no growth in ancient times. Reading Kautilya
provides a crucial evidence to answer such questions. He
was convinced that market is basically un-ethical and
corrupt, and therefore the State, in synchrony with Dharma,
must control it. Profits and incentives were under the
government's control, likewise were the price system and
trade.
Kautilya economic growth is a multi-dimensional
phenomenon that results in increased economic activity,
with productivity being the ultimate source. Several
instances in his text provide strong evidence that he was
fully aware of the economic growth process. At the very
beginning of his theory he asserts that:
Table No.1: Modern Economy Comparison to Kautilya's
Economy
Kautilyan economy was a type of market economy, in no

way different from today's, except for a strong State
intervention in the market. Accordingly, to Kautilya, market
failure and government failure were conjoined twins with
a common stomach. Market failure could not occur without
government failure, and government failure could not take
place unless there was a moral failure and poor
organizational design (Sihag, 2009). Kautilya was of the
opinion that forces of a privately guided market were an
interest in itself, and the invisible hand, in turn, could not
look after the public interests. Government intervention
September 2013
33
ECONOMY
Source: Author's Own Creation
Chart No. 1: Kautilyas Economic Model

Source: Constructed by Author from the "Journal of Philosophical, Volume VI, Issue 2, 2013
34
September 2013
ECONOMY
'A king shall augment his power by promoting the welfare
of his people; for power comes from the countryside which
is the source of all economic activity: He shall build
waterworks since reservoirs make water continuously
available for agriculture; trade routes since they are useful
for sending and receiving clandestine agents and war
materials; and mines for they are a source of war materials;
productive forest, elephant forest and animal herds provide
various useful products and animals. He shall protect
agriculture from being harassed by fines, taxes and demands
for labor' (Rangarajan, 1992).
1.1.1 Kautilya and Adam Smith

Kautilya, like Adam Smith, did not focus on a single
element of the economic system but looked at it as a whole
connecting each and every element with the sole purpose
that the system generates and accumulates wealth based
on free trade (in Smith's model) and strong agricultural
production (Kautilyan case). A free market operates under

natural laws (in Smith's case) and under conspicuous eyes
of the State (in Kautilyan model). Economic growth process
is based on productive labour (Smith) and productive
enterprises (Kautilya). Market price is a result of interaction
of natural market forces at which any commodity is sold
(Smith) and market mechanism under State stabilization
policy (Kautilya). Wages are negotiated on bargaining and
contract (Smith) or as labour productivity wages (Kautilya).
Since, in the Kautilyan system, the sole purpose of trading
was to promote general welfare of people, the profit margins
are fixed at 5 and 10 per cent (for selling local and imported
goods respectively). Profits, as Smith believed, have an
inherited tendency to fall (i.e. wage-profits inverse relation)
and are directly related to labour productivity in Kautilya.
Table 1 provides a comparative picture of views expressed
by Kautilya and Adam Smith in their respective works.
Table No.2: Comparative Views of Arthasastra and the Wealth of Nations
September 2013
35
ECONOMY
1.1.2 Kautilya and David Ricardo

Kautilya, just like Ricardo, built a differential theory of
rents and distribution connecting values with scarcity and
quantity of labour and its quality (human capital). While
the Recardian wages, or the natural price of labour as he
calls it, depends on the labourer's costs of subsistence (food
and necessities), Kautilya proposes that labourers should
be paid a proportional wage as to the time and skill
(measured by quality of product) so as to protect their
welfare and his family's minimum subsistence level.
Evidently, Kautilya argued for the labourer's natural wage,
a wage that is not derived from commodity's final market
price (forces of demand and supply) or profits. According
to him, the lowering the means of subsistence through the
so called natural wage drop, will in turn result in scarcity
of labour supply, falling consumption demand and thus,
falling profits and economic growth. Kautilya, like Ricardo
develops a differentiated theory of rents depending not
only on the quality of land but also on the quality of labour
(skilled and unskilled labourers) with heavy fines and even
confiscation of the land from proprietors those not using
it efficiently and for productive purposes. Kautilya has
developed a modern and complex theory of international
trade and comparative advantage in no sense inferior to
Ricardo's. We must appreciate his wisdom, as he places
an equal importance on the imported and exported
commodities. He asserts that exported commodities through
money exchanges increases wealth accumulation (in other
words, gains from trade).
1.1.3 Kautilya and Malthus

Similarities can be also be found between some views of
Kautilya and some of Malthus, particularly with respect
to economic inequality, self-interest and public welfare,
nature of economic progress and its future, religion and
poverty.
1.1.4 Kautilya and Karl Marx

Karl Marx, following Smith's doctrine, believed that
economic growth is a result of increasing productive
capacities and profits resulting from the gap between
natural wage and produced commodity values. Likewise,
Kautilya sees economic growth as a direct consequence
of productive labour and productive enterprise with the
State obligation to monitor profits and that labourers are
36
September 2013
paid on the basis of the principle of just labour equal to

just wages. Profits were aloud but not at the expenses of
just wages. Evidently, in Marxian sense, it reflects a care
for labour's interest.
1.1.5 Kautilya and Alfred Marshall

Kautilya well understood the relationship of demand and
supply in the determination of price. He even wrote about
the estimation of demands and control of supply. As he
puts it, "A king should not arbitrarily fix the price of a
product without regard to its supply and demand." Even
today, largely for social considerations, prices of certain
products are arbitrarily fixed, which have their effects on
fiscal area.
Figure No.1: Price Operating Mechanism in Kautiya
Arthasastra

Kautilya and Alfred Marshall both consider demand for
the factors of production and wages to be determined by
the marginal-productivity relationship such that prices
fluctuate around marginal costs. They share a common
line of thought about development and growth also. Large
expenditure followed by a small increase in wealth is not
to be considered economic progress but merely a physical
(organic) growth of production.
Evidently, Kautilya, like Alfred Marshall makes a clear
distinction between progress and growth. While economic
system in Marshall's opinion is just one part of the unityeconomic, political, social, cultural and institutional settings
and economics as a science that connects the study of
wealth cycle and the mankind; Kautilya's The Arthasastra
literally does the same: 'the science of wealth' studying all
aspects of economic life (poverty, welfare, growth,
ECONOMY
exchange, trade, wage) under natural law of Dharma.
Kautilya long before Marshall has advanced an 'organic
growth theory of society' based on conjoint economic
development of society and the human nature. Alfred
Marshall, too, focused on his economic theory by trying
to explain how and why economic system progresses and
tried to link it with the development of society. However,
the fundamental question both for Kautilya and Marshall
remained - does the economic system progresses as society
develops or it is the economic progress.
1.1.6 Kautilya and Keynes

Close resemblance between Arthasastra and The General
Theory of Keynes is visible in the demonstrated need of
positive role that the State should play in the economic
system. In both works, markets have been assigned an
important role within the society; but both stress that
economic progress cannot be achieved without an 'active'
role of the State. Kautilya and Keynes, both believed that
markets cannot manage productive activities by themselves,
and that within a well developed institutional framework,
help from the State in its role of 'General Manager'
responsible for macroeconomic managing, is highly
desirable. To both, the aggregate demand is too important
for the economic growth to be left wandering around by
itself. Private sector has neither full knowledge (on how
the rest of the system works) nor is interested beyond its
profit, the State must, therefore, protect the economic
system from the occurrence of business cycles and the
shocks inherited from within or from outside the system.
Furthermore, we strongly feel that modern economics must
offer an objective evaluation of Kautilya's contribution to
the development of the economic science. This should be
seen as a 'cumulative theory' and should receive due credits.
His doctrine contains elements that are carried over not
only in the classical school (placing him as first preclassical theorist) but also in Marxian, Neoclassical and
Keynesian schools of economics. He was the first political
economist to construct a comprehensive growth model

with a theoretical background incorporating Marshalls'
'organic economic growth' concept (completely different
from mainstream growth theories that bounce out
completely the human nature and man from all equations).
However, Kautilya much before Marshall shaped economic
growth and progress as the 'final frontier' that mankind
must cross and not just answer 'why the nations grow'.
2. Conclusion
The arguments advance in this paper leave little doubt that
Arthashastra conceals an important contemporary relevance
for the modern economics theory. A systematic study of
political economics, Arthasastra is a major contribution to
economic theory and, as such, deserves rehabilitation of
its long forgotten proper place in the history of modern
economic thought. Kautilya could surely be called as the
first political economists and precursor to classical economic
thought.
In the Phillipsian sense (1962) of economics as a science
that tries to explain 'how the system works', we can consider
The Arthasastra to be the link between pre-classical and
modern economics that shows the evolutionary path by
providing a valuable insight into the policies and practices
of the time. Kautilya's contribution to economics is
commendable, as by studying his The Arthasastra we can
not only learn about the methodological problems of the
time, scope of their inquiry, and reality of their assumptions,
but also gather knowledge of the methodological,
epistemological and practical problems of modern
economics. In the end, we can say with great confidence
that Arthasastra is evidently an important systematic study
of the political economy of the time. Economic concepts
and variables that we can identify in the Kautilyan model
leave us with no doubt in our mind that these are the same
standard exogenous and endogenous variables that construct
any modern economic model. n
September 2013
37
ECONOMY
The Monetary Policy and the Financial

Stability in the Context of Financial Crisis
Abstract
The wide definition of financial

stability gives a high importance
to the functioning of the financial
system as a whole and represents
the situation in which the financial
system ensures the efficient
allocation of money resources and
resists to chocks without
significant disruptions. This
definition suggests that monetary
policy is very important from the
standpoint of the efficient
allocation of resources in the
measure that it contributes to price
stability.
It is unanimously acknowledged at an
international level that, for the long
term, the stability of prices is the
fundamental objective of the monetary
policy of central banks. The
international financial crisis that have
occurred in the context of financial
globalization have determined central
banks from various countries to give
special attention to the promotion of
financial stability. This attitude is due
to the fact that a stable and solid
financial system provides the
prerequisites for the implementation
of an efficient monetary policy, which
contributes to the achievement of the
fundamental objective, that of ensuring
the stability of the prices. This paper
aims at emphasizing the relationship
between the stability of the prices and
financial stability in the context of
financial globalization, and the extent
to which central banks can, via the
monetary policy they promote, can
contribute to the achievement of these
objectives.
General Background
Dr. Basu Dev Sharma
Dr. Sharma is Under Secretary, Ministry
of Finance
38
In the context of the financial

globalization process that began in
the '80s, the financial systems of most
states of the world registered
significant transformations. They were
September 2013
determined, mainly, by the reforms

undertaken by the authorities in order
to liberalize and modernize financial
systems, as well as by the
multiplication of financial
innovations. The mutations registered
allowed an efficiency growth in
resource allocation, but also the
pronounced growth of financial
instability that lead to the numerous
financial crisis of the last few years.
Ensuring financial stability represents
a natural concern of central banks,
result of some of its specific functions:
lender of last resort, regulation and
supervision of the banking sector,
regulation and monitoring of the
economy payment systems and the
function of foreign currency center.
In the last years, ensuring financial
stability became a major concern of
central banks, due to the fast
propagation of financial crisis, their
negative effects on financial markets
and the macroeconomic perspectives,
but also due to the economic and
social costs that they imply.
From the standpoint of monetary
policy, central banks are interested to
ensure financial stability because
monetary policy is implemented
through operations on the financial
markets, while the efficient
ECONOMY
transmission of monetary policy measures into the real
economy depends, mainly, on the good operation of
financial institutions and markets. As a matter of fact, there
is a close link between financial stability and monetary
policy. Thus, on the one hand a stable and solid financial
system allows the efficient transmission of monetary policy,
and on the other hand, financial disruptions may be
prevented and eliminated through the operational framework
of monetary policy.
1.Defining Financial Stability

Financial stability is a condition in which an economy's
mechanisms for pricing, allocating, and managing financial
risks (credit, liquidity, counterparty, market, etc.) are
functioning well enough to contribute to the performance
of the economy.
A financial system is in a range of stability whenever it is
capable of facilitating (rather than impeding) the
performance of an economy, and of dissipating financial
imbalances that arise endogenously or as a result of
significant adverse and unanticipated events.
Broadly, financial stability can be thought of in terms of
the financial system's ability:
To facilitate both an efficient allocation of economic

resources both spatially and especially inter temporally
and the effectiveness of other economic processes
(such as wealth accumulation, economic growth, and
ultimately social prosperity);
To assess, price, allocate, and manage financial risks;

and
To maintain its ability to perform these key functions

even when affected by external shocks or by a buildup
of imbalances primarily through self-corrective
mechanisms.
2. Price Stability as a Aim of Monetary Policy

and its Relation to Financial Stability
At international level, as a result of numerous studies and
further to practical experience, that stressed the significant
costs of both inflation and deflation, there is a consensus
regarding price stability as a fundamental objective of
monetary policy. In present conditions, the statutes of most
central banks define the ensuring and maintaining of price
stability as a fundamental aim of monetary policy. For

example: according to article 105 of the European
Community Treaty, the main objective of the European
Central Bank (ECB) is "to maintain price stability", but
also, without affecting the fulfillment of this goal, "a lasting
and non-inflationist economic growth, a high level of
employment and social protection". Therefore, the Treaty
establishes a clear hierarchy of the objectives pursued by
the ECB, giving special attention to price stability and
subordinating the other objectives to this main goal.
In the U.S.A., the Federal Reserve System (FED) has the
following objectives, defined by its statute: "a maximal
degree of employment, price stability and moderate long
term interest rates" [The Federal Reserve Board, 2000].
That is, unlike the ECB, FED has a multi-objective mandate.
In the case of the Federal Reserve System and according
to its statute, price stability is not defined as the priority
objective of monetary policy. However, FED officials have
repeatedly stated that by "a maximal degree of employment"
they understand a "maximal degree of sustainable
employment", that is a non-inflationist one, in such a way
that the main objectives, equally important, would be a
complete labor force employment and price stability, while
maintaining long term interest rates at a moderate level
would be a secondary objective.
The wide definition of financial stability gives a high
importance to the functioning of the financial system as
a whole and represents the situation in which the financial
system ensures the efficient allocation of money resources
and resists to chocks without significant disruptions. This
definition suggests that monetary policy is very important
from the standpoint of the efficient allocation of resources
in the measure that it contributes to price stability. The
definition of financial stability in a narrow sense stresses
crisis prevention and represents the situation in which there
are no banking crises and the asset prices and, specially,
interest rates show a high level of stability. From this point
of view, monetary policy presents a high importance in
ensuring financial stability, but the possibility to use its
main instrument (monetary policy interest rate) can be
limited to prevent a conflict between price stability and
financial stability.
International financial imbalances that have occurred since
1997, including the present financial crisis were generated
September 2013
39
ECONOMY
in the context of a financial environment characterized by
stable prices, which invalidates the conventional approach
according to which price stability represents a sufficient
condition to ensure financial stability. The present
international financial crisis that began in August 2007 in
the mortgage credit market of the U.S.A. stresses the fact
that there may be situations in which ensuring financial
stability is more important than the objective of maintaining
price stability. In this case, a monetary policy oriented to
ensuring price stability can accept, at least at short term,
adopting priority measures to ensure financial stability. If
there is no financial stability the increase of monetary
policy efficiency cannot be ensured and, therefore, long
term price stability cannot be ensured either.
3. The Role of Monetary Policy in Price

Stability and Financial System
The sub-prime mortgage credits crisis in the U.S.A. that
began in August 2007 spread fast to other markets and
other states, which imposed the necessity of a fast
intervention of central banks in order to reestablish the
health of the financial system. From the standpoint of
monetary policy, the reactions of central banks to financial
turbulences were different, depending on the nature of the
chocks that affected the economies, on the particularities
of economic and financial structures and on the transmission
mode of monetary policies onto the real economy.
For example, in the U.S.A. the real estate crisis, which
broke out in a context characterized by the overindebtedness of the population, slow down of economic
growth and fear of economic recession, determined the
monetary authority to modify the orientation of monetary
policy by relaxing it. Thus, on September 18, 2007 the
Federal Reserve System reduced the federal funds rate by
50 basic points, i.e. from 5.25% to 4.75%. Such a situation
reflects the deep concern of the Federal Reserve System
for the impact that the restriction of activities in the field
of real estate and the hardening of crediting conditions
could have on economic growth perspectives.
In the opinion of Governor Frederic S. Mishkin, the decision
to reduce the federal funds rate was a most prudent action
from the macroeconomic point of view, which created no
conflict with the price stability objective, as data regarding
the inflation were favorable [Mishkin, 2007]. From the
40
September 2013
beginning of the crisis up to-day, the Federal Reserve

System reduces the federal funds rate several times in
order to reestablish the normal work order of the financial
system. On December 18, 2008, in order to anchor
anticipations regarding the federal funds rate, the Federal
Reserve System communicated to the public its engagement
to keep this instrument within the fluctuation range of 0
- 0.25% [The Federal Reserve Board, 2008].
In comparison with the U.S.A., the economic context in
the Euro Zone, characterized by economic growth, but
also by inflationist tensions, determined the European
Central Bank not to change the orientation of monetary
policy, in such a way that the interest rate of the monetary
policy was maintained at the level that existed before the
crisis, i.e. 4%. Therefore, the orientation of the monetary
policy of the European Central Bank remained focused on
the fundamental macroeconomic objective of maintaining
price stability at middle term.
The actions undertaken by the European Central Bank in
the period August 2007 - October 2008 in order to correct
financial instability and reestablish the normal work order
of the financial system were guided by the principle of
separating the monetary policy, which is defined by directing
interest rates and aims to attain the fundamental objective
of maintaining price stability at middle term, from asset
administration, which aims to ensure the normal work
order of the interbank monetary market, as well as from
the efficient transmission of monetary policy impulses
onto the real economy [Papademos, 2009].
In the period mentioned above, due to the high inflation
rate, the actions of the European Central Bank were not
aimed to change the orientation of the monetary policy,
but to adapt the monetary policy operational framework
in such a way that liquidity on the interbank monetary
market might be ensured. The aggravation of the
international financial crisis from September 2008, the
confirmation that the economies of important states entered
recession, as well as the reduction of the risk of inflation
increase due to the fall of prices of oil and raw material,
determined the European Central Bank to announce the
first reduction of the monetary policy interest rate (from
4.25% in July 2008 to 3,75% in October 2008) by
participating in the coordinated action to reduce the
monetary policy interest rate (by 50 basic points), in which
ECONOMY
participated at the same time the Federal Reserve System,
the Bank of Canada, the Bank of Sweden and the National
Bank of Switzerland.
In order to ensure financial stability central banks, and
especially the Federal Reserve System and the European
Central Bank, have undertaken, besides the reduction of
monetary policy interest rate, other actions as well, such
as: the operational adaptation of the monetary policy, in
such a way that it might ensure the necessary liquidity to
keep a normal work order of the interbank monetary market,
as well as the adoption of extraordinary non-standard
measures. Such measures are called in this way because
they differ from the classic measures adopted in normal
conditions, when there are no financial disruptions.
4. Conclusions
Ensuring financial stability is a natural concern of central
banks that arises from their specific attributions regarding
the drafting and implementation of monetary policies and
their role of "bank of banks" that regulates and monitors
the payments within the economy. The significant
development of financial markets in the context of the
globalization process, the increase of risks to financial
stability and the serious consequences of financial instability
for the good work order of financial institutions and markets,
as well as for the economic growth and price stability,

determined central banks to give priority in the last years
to ensuring financial stability. From the standpoint of
monetary policy, the special interest on central bank to
ensure financial stability is justified by the fact that a solid
and stable financial system contributes to the increase of
monetary policy efficiency and implicitly to the achievement
of its fundamental objective of ensuring price stability.
The significant concern of central banks to achieve financial
stability does not mean that they give less importance to
price stability. On the contrary, the actions of central banks
intended to ensure a normal work order of the financial
systems must take into account the need to ensure price
stability at middle and long term. This is due to the fact
that a sable and solid financial system allows the increase
of monetary policy efficiency, i.e. the achievement of the
main objective of ensuring price stability. However, ensuring
price stability over the medium and long term can correct
financial imbalances. The international financial crises
that took place in the last years determined the necessity
to reconsider the relation between price stability and
financial stability. Thus, unlike the conventional approach,
that sustains that price stability is a condition necessary
and sufficient to ensure financial stability, the "new
environment" hypothesis, sketched in the context. n
September 2013
41
INSURANCE
ORSA (Own Risk and Solvency Assessment) Is Nepali Insurance Prepared for Uncoming
Comprehensive Global Standard
Introduction
Given the very general nature of

the ORSA and the many different
regulatory systems there is a wide
range of potential business and
risk metrics that an ORSA will
have to produce. However, the
core of this process should be to
understand how the capital
requirements (regulatory, ratings,
economic) of the business progress
over time across a range of
scenarios
CA. Yuba Raj Pandeya
CA. Pandeya is Member of ICAN
42
In the financial world the BASEL III

and Solvency II Accord are the most
recent and to be applied regulatory
requirements. The BASEL III is
proposed to be applied in banking
industry all over the world and
Solvency II is applied among the
Insurers, Reinsurers and Pension
Funds of European Union. In US there
is equivalent insurance capital
requirement Risk Management and
Own Risk and Solvency Assessment
Model Act (September 2012). The
solvency accord (may not be the same
name) is applied in case of Asian
countries, and in case of India and
Nepal, the regulatory requirement to
the insurance sector is parallel to older
Solvency I (Solvency I is the
foundation stone of Solvency II, and
currently applied Regulatory
Requirement). There is still debate on
the provisions and application timeline
of Solvency II in EU, but it is sure
that the Solvency II accord shall be
came into effect (with some
modifications resulting from currently
going on discussion) in near future
(most recent expected date is 2016).
In this article author has tried to
discuss about the one of pillar of
September 2013
Solvency II (there are Three Pillars

on Solvency II).
ORSA (Own Risk and Solvency
Assessment) has emerged as the
global framework for the internal
assessment of insurance firms' current
and prospective risk exposures and
capital resources. It is one of the key
elements of Solvency II (European
Union) and in the US the National
Association of Insurance
Commissioners (NAIC) has mandated
the US Insurers to have and ORSA
in place by 1st January 2015.
ORSA is generally not intended to be
a prescriptive regulatory calculation
but asks insurance firms to describe
how they manage risk and capital
across the enterprise. Many insurance
companies have identified a range of
quantitative modeling capabilities that
they will need in order to support the
objectives of ORSA. These might
include:
Real time monitoring of current

regulatory requirements
The firms' own assessment of its

economic capital requirements of
the business (this may be
calculated under a definition of
capital that is specific to business
INSURANCE
and hence different from regulatory capital requirements

such as Solvency II Pillar I's 1 year 99.5% of ( Value
-at- Risk) VaR Capital or the Conditional Tail
Expectation ( CTE) 90 run-off Capital used in US
principles based approaches to reserving and capital)
A capability to make multi-year projection of insurers'

business plan under a range of different financial and
business scenarios, with an assessment of the solvency
requirement under those scenarios.
It is also noteworthy that the banks in US and EU have

recently been required to develop multi-period stress testing
and capital projection capabilities to meet Regulatory
requirement of US Federal Reserve and The European
Banking Authority. In case of Nepal, the Banking Regulator
Nepal Rastra Bank has mandated the Banks for stress
testing following the practices of US and EU. But the
Insurance Regulator Insurance Board has no any concrete
plan to implement international developments in customized
Nepali Scenario. The main reason behind this situation
seems to be lack of insurance experts (Such as Actuaries,
Economists, and Chartered Accountants) to adopt
international practices.
ORSA Modelling
Insurers use the capital provided by shareholders and to
take on and then manage various types of risk in order to
provide return on capital. Understanding how these risks,
the capital required to support them and the return on
capital evolve over time in different scenarios and how

management actions would mitigate against these changing
risks is an integral part of insurers' risk management. It is
also fundamentals of any ORSA process.
The ORSA process needs to have a quantitative foundation
that is consistent with the insurer's other business and
regulatory capital process. There is little point in developing
processes and modeling for ORSA which for example do
not reflect the reality of regulatory solvency position for
the insurer.
Given the very general nature of the ORSA and the many
different regulatory systems there is a wide range of
potential business and risk metrics that an ORSA will have
to produce. However, the core of this process should be
to understand how the capital requirements (regulatory,
ratings, economic) of the business progress over time
across a range of scenarios.
Both in Europe and in North America, current regulatory
and economic capital requirements are often assessed using
stochastic simulation approaches. Whether the capital
requirement is defined using a 1-year market -consistent
Value -at -Risk (MC VaR) approach or a CTE run-off
approach, a similar technical challenge arises. A huge
number of stochastic simulations will, in theory, be needed
if the capital requirements are to be measured not just in
current conditions, but at several time steps in each of a
number of multi-year projections.
September 2013
43
INSURANCE
The general projection process can be seen in their distinct

stages:
Determine the multi-year scenarios in which the business

is to be projected. This could be a handful of
deterministic scenarios or thousands of stochastic
scenarios. In both cases, the modeling is typically done
at macro level.
Describe how all the components of Insurer's Balance

Sheet behave with those macro scenarios.
Calculate the business implication in each of those

scenarios for each year. We need to calculate the result
for n*m times for m situations for n years.
Conclusion:Thus the ORSA is dependent on the insurer's own capability

to define the future economic outcomes as a result of
different possible scenarios (which is determined by the
past data and future estimation). For the ORSA modeling,
Nepalese insurers should begin to improve the data
management process as soon as possible. And learning
from world's best practices, Insurance Board had recently
issued Directive for Measurement of Solvency position to
Life Insurers. The directive, although, not mentioned
anything about ORSA, Nepalese insurers should start
ORSA process by the time. When the Solvency II will be
fully implemented in Europe, we will also implement the
same in Nepal (that may be with some modification).
Hence the preparation for ORSA is the act of this time for
Nepalese Insurers. n
Path to Become CA
10+2 or A-Level or PCL

or
Graduates or Post Graduates with less
than minimum required marks for CAP-I
Level (New Course)
Passed Foundation or Passed

CAP-I Examination or Graduates
or Post Graduates With minimum
required marks
8 Months for CAP-I Level
Entry for CA Professional Course
CAP-II Level
100 Hours Information

Technology training
Passed CAP-II Level
3 Years Articleship under Practicing
Chartered Accountant
CAP-III Level
During CAP-III Level
or Passed CAP-III Level
15 Days General Management &

Comnunication Skills (GMCS) Training
Apply for Membership
44
September 2013
IFAC
IFAC-SMP
7 Tips for Accountants on Supporting the
Globalization of Small Business
Globalization is not a new phenomenon but what is new
is both its velocity and how it affects small- and mediumsized entities (SMEs). The impact on SMEs has significant
implications for the accounting practices, in particular
small- and medium-sized practices (SMPs), that typically
serve SMEs. According to the Edinburgh Group (EG)'s
recently published report, Growing the Global Economy
through SMEs, SMPs may need to carefully critique the
services they provide to SMEs seeking to internationalize.As
a starting point, the report suggests specific actions for
SMPs that include developing more understanding and
expertise internally, strengthening relationships with funding
institutions, and building international networks of trusted
professional and business contacts. SMPs have the potential
to become a key agent for the internationalization of small
business if they are able to provide SMEs with the advice
they need.
Role of SMPs
While globalization presents great opportunities for SMEsnot least new markets for their goods and services-it also
poses great challenges. Perhaps the greatest challenge
SMEs face is the lack of human capital, including
managerial expertise, and financial resources to take
advantage of these opportunities. IFAC research indicates
that SMEs will likely look to SMPs, their trusted business
advisors, to fill the resource gap. The EG report, however,
suggests that SMPs themselves must ready to capitalize
on the opportunities created by the internationalization of
small business.
Recommendations for SMPs from the EG

Report
The EG report (page 5) makes the following
recommendations for SMPs:
1.
Provide more proactive support to SMEs in their

planning for internationalization, including support
in identifying the most attractive, fast-growing
international markets.
2.
Develop knowledge and information resources to

guide SMEs through the red tape challenge associated
with international activity, and to help them access
all appropriate sources of funding.
3.
Build relationships with banks and other key financiers

of international investment and trade, to facilitate
introductions between these funding sources and SME
clients.
4.
Identify where SMEs are dealing in foreign currency

and seek opportunities to provide value-adding advice
in areas such as managing foreign exchange risks and
forecasting currency needs.
5.
Consider whether additional networking opportunities

exist to build relationships with other professionals
or to help connect SME clients with each other to
Globalization of SMEs
SMEs are a vital and integral part of the global economy.
According to the OECD,they account for the majority of
private sector employment and GDP as well as a
disproportionately large share of new jobs;they area major
source of entrepreneurship and innovation. These SMEs
are increasingly becoming part of the global business
community. Dramatic changes in communications,
transportation, and information technology have accelerated
the pace of globalization. SMEs now regularly manufacture
products and provide services in many countries and sell
to customers and clients around the world-just as large
multinational companies have been doing for many years.
The EG report reveals a significant amount of international
activity among the SME sector. Almost 75% of the SMPs
it surveyed have clients that have some sort of international
aspect to their business, even if it is simply buying goods
or services from abroad.
September 2013
45
IFAC
create mutually supportive environments and
information channels.
6.
Assess how the proactive delivery of services targeted

at SMEs with international ambitions could help to
grow practice income, as well as strengthening client
relationships and the firm's wider reputation.
7.
Consider whether developing the international

resources available to the practice-for example, by
participating in an international network of
accountancy firms or building more direct close
relationships with firms in other countries-could
benefit the firm itself, and its SME clients.
SMEs are increasingly being integrated into the global

business community. However, in order for SMEs to
maximize the opportunities from internationalizing their
business, they need timely advice. SMPs are well placed
to provide this counsel.
46
September 2013
Resources
IFAC's website hosts a range of resources and tools to help
SMPs implement these recommendations. These resources
and tools help SMPs enhance their practice management
and build their capacity to offer business advisory services.
See Resources and Tools in the SMP area of the IFAC
website (www.ifac.org/SMP) and the SMP Committee's
Delicious page, which features bookmarked links to relevant
free resources (filter by Practice Management [especially
Module 2 on networks] and Business Advisory). n
Copyright July 2013 by the International Federation of
Accountants (IFAC). All rights reserved. Used with permission
of IFAC. Contact permissions@ifac.org for permission to
reproduce, store, or transmit this document.
NOTICE
September 2013
47
NOTICE
48
September 2013
NOTICE
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September 2013
49
NOTICE
50
September 2013
NEWS
News
Election for President and Vice President
Conducted
Election for President and Vice President was held on 12
July, 2013 at the Institute. CA. Mahesh Kumar Guragain
was elected unanimously as a President and CA. Narendra
Bhattarai was elected on voting basis. CA. Guragain has
served as a Vice President and CA. Bhattarai was Council
Member for 1st Tenure of 6th Council. Tenure for President
and Vice president is for one year as stipulated in Nepal
Chartered Accountants Act .
Newly Elected President and Vice President

Take Oath of Offices
On 19 July 2013, newly elected President CA. Mahesh
Kumar Guragain took Oath of Office from Mr. Bhanu
Prasad Acharya as the 17th President of ICAN.
the President Medallion to the newly elected President.

Delivering the acceptance speech, the newly elected
President CA. Mahesh Kumar Guragain thanked all the
members and colleagues for electing him as the President
for 2nd tenure of 6th Council and also thanked all who
directly or indirectly contributed towards the development
of the Institute and also pledged commitment for the
continuity of the Institutional Development. President
CA. Mahesh Kumar Guragain requested to the government
to establish practice of consulting the ICAN during the
process of formulation of rules, regulation and policy
espically with respect to corporate and taxation laws etc.
Similarly, the newly elected President administered the
Oath of Office to the newly elected Vice President CA.
Narendra Bhattarai.
Newly Elected Vice-President CA. Narendra Bhattarai takes Oath of Office with
President CA. Mahesh Kumar Guragain.
Newly Elected President CA Mahesh K. Guragain takes Oath of Office with AG
Mr. Bhanu Prasad Acharya.
Speaking on the occasion the outgoing President CA.

Madhu Bir Pande gave a brief outline of the achievements
made during his tenure. Expressing his best wishes to the
newly elected President and Vice President he handed over
On this occasion, on behalf of President gave momento

to the outgoing President as Token of Love.
In the Program Minister for Finance, Mr. Shankar Prasad
Koirala accepted the seat as the chief Guest of the program
and Auditor General Mr. Bhanu Prasad Acharya, Office
September 2013
51
NEWS
of the Auditor General, Chairman, Mr. Fatta Bahadur K.C. Insurance Board of Nepal, and Chairman, Mr. Baburam
Shrestha, Security Board of Nepal was also present as the Guest of the Program.
ICAN officials with Chief Guest and Other Guests.
On the occasion Chief Guest and the Guests appreciated for the achievement made by the Institute. Finance Minister
Mr. Shankar Prasad Koirala said that Government of Nepal is ready to support financially to construct ICAN Building
at Satdobato, Lalitpur and also announced to release the grant of ten million rupees.
National Best Presented Accounts Awards

To promote quality and disclosure in presentation of information in the annual report of the bussiness organizations,
ICAN has been holding the National Best Presented Accountants (BPA) Awards in different categories.
On the occasion of Oath Taking Cermony and BPA Award 2012 Distribution Program held on July 19,2013 the Finance
Minister Mr. Shankar Prasad Koirala distributed certificate to the winners of BPA Awards in four categories.
BPA Awards 2012 winners with Chieft Guest, Othe Guests and ICAN Officials.
52
September 2013
NEWS
The annual reports were evaluated as per the criteria set by the SAFA. The Institute is consistently participating in the
SAFA BPA Awards competition. ICAN has started to distribute this award since 2003 in different categories.
Workshop on Income Tax and VAT

The Institute of Chartered Accountants of Nepal organized
one day workshop on Income Tax and VAT with the
participation of Morang Trade Association and Internal
Revenue Office, Morang on 6 September 2013 on the
above topics at Biratnagar.
President of ICAN, CA. Mahesh Kumar Guragain

inaugurated the program. The workshop was divided into
three technical sessions. Officer of Internal Revenue Office,
Morang Mr. Jib Narayan Gyawali made presentation on
the changing financial rules and CA. Jagadish Agrawal
conducted session on the current issues of Income Tax and
VAT.
At the end of the program, panel discussion was also
organized in the presence of ICAN President along with
the representative of Morang Trade Association,
representative of Internal Revenue Office, Council Member,
ICAN, Mohan Subedi and Coordinator, Branch
Coordination Committee CA. Pawan Rathi.
Altogether 120 person from different field participated in
the program.
ICAN President CA. Mahesh Kumar Guragain Delevering the Speech on the Program
September 2013
53
NEWS
Conference Conducted
The Institute of Chartered Accountants of Nepal (ICAN) organized Full day conference on the theme "XBRL, Contemporary
Issues in Income Tax Act and Anti- Money Laundering" on 19 July, 2013, in Kathmandu. Eminent personalities and
expert from Nepal and India presented Paper and interaction was held on technical papers.
At the beginning of the program ICAN President, CA. Madhu Bir Pande delivered the opening speech and highlighted
the importance of the conference .
ICAN Then President CA. Madhu Bir Pande Delevering Opening Remarks of the
Conference.
Past President CA. Sudarshan Raj Pandey is Presenting his Technical Paper.
Conference is conducted in three sessions. Sessions were conducted on the topic "Basis and Overview of XBRL" ,
"Contemporary issues in Income Tax Act" and "Anti -Money Laundering-Combating the Financing of Terrorism:
Obligation for Accounting Profession".
Altogether 104 members participated in the program. The member participants of the Institute were allotted 8 CPE credit
hours.
Meeting with Governor

President, CA. Mahesh Kumar Guragain, Vice President,
CA Narendra Bhattarai, and Executive Director CA. Binay
Prakash Shrestha met Governor, Nepal Rastra Bank, Mr.
Yuvaraj Khatiwada on 24 September 2013 to discuss on
the implementation of NFRS and Branch Audit of banks
in coming days.
ICAN President and Vice-President in the Meeting with Governor, NRB,

Mr. Yuvaraj Khatiwarda
54
September 2013
NEWS
Information System Audit (ISA) Course Result

Published
President and Vice President Met Staff

Members of ICAN
The Institute of Chartered Accountants of Nepal (ICAN)

organized ISA Course for the CA Member of ICAN with
the technical support of The Institute of Chartered
Accountants of India (ICAI). The aim of organizing such
course was to provide the professional knowledge of system
development and use and development of information
technology in auditing field. The need of the modern day
for auditing professionals to provide quality service to
their client which is made possible by the exertion of
information technology and information System Audit. To
extract the knowledge of Information system Audit,
Information Technology Committee, ICAN conducted ISA
certification course assessment test on 22 June 2013to the
interested member. 11 participants were declared successful
in the test.
ICAN President CA. Mahesh Kumar Guragain and Vice

President CA. Narendra Bhattarai met Staff of Institute on
4th Bhadra 2070 in Kathmandu. Most of the staff along
with Executive Director attended the meeting. Grievance
and suggestions for Institutional improvement was briefed
to the President and Vice President during the meeting. In
the meeting President presented his work plan for
improvement of the Institute and appreciated for raising
grievance and possible suggestions by the staffs.
Examination and Education Department

Chartered Accountancy Examination of
Different Level Result Published
The results of the chartered accountancy examination held
on June 2013 was published. According to the results 14
students of CAP III Level, 98 students of CAP II Level
and 486 (442- New course and 44 Old Course) students
of CAP I Level were declared pass in the respective level.
CAP I and CAP II Level Students were eligible for the
higher level course CAP II and CAP III respectively
whereas CAP III level students were eligible for
membership on fulfilling the requirement made by the
Institute. Brief result is shown below.
Membership Examination Result Published

The results of membership examination held on May 2013
was published. According to the result 32 candidates were
declared pass and eligible for membership of the Institute.
Altogether 158 candidates attempted the examination out
of 161 applicants. Membership examination was made
mandatory for the Chartered Accountant who qualified
from the foreign institutions. Exam was conducted on May
15 to 17, 2013.
Publication and Additional Books in Library

The Institute of Chartered Accountants of Nepal added 85
new books of new edition of different subjects such as
management, finance, accounting and laws in the library
to better meet the demand of the students. To facilitate the
students of different level, Institute has published suggested
answer of June 2013 exam. This will help the students to
improve their answering capability and writing style in the
exam. Such publication has been beneficial to the student.
September 2013
55
NEWS
A Prestigious & Rewar

din
g
P ro fe
s si o n
'Punantu Manasa Dhiya' means

'Purity of Mind and Clarity of Wisdom'
g]kfn rf6{8{ PsfpG6]G6\; ;+:yf
The Institute of Chartered Accountants of Nepal

(Established Under The Nepal Chartered Accountants Act, 1997)
56
September 2013
NEWS
4th Batch of GMCS Training Conducted
Career Counseling
With the aim of disseminating the importance and generating
awareness toward chartered accountancy education to the
interested visitor, the Institute organized career counseling
program in different colleges at Kathmandu. Among other
things, the program offered information on eligibility
criteria of enrollment, future prospects, membership and
international recognition etc.
GMCS Participants with ICAN Offcials in Closing GMCS Training.
The Institute of Chartered Accountants of Nepal has been

organizing the GMCS training twice a year to enhance the
communication and management capacity of the student.
This training has been made mandatory for the CAP III
and AT students from 2011 to get membership and getting
permision from the Institute for providing audit services.
The fourth Batch of GMCS training was conducted from
1st September to 15th September 2013. Altogether 18
students of CAP III level and 4 student of Accounting
Technician were actively participated in the training.
Training was conducted in three sessions every day.
Considering the time constraints of the CAP III level
Student, Institute has facilitated by providing training
opportunity for those students who have passed the any
one group of board exam.
During July- September 2013 two programs were arranged

in Janamaitri Campus and Mega College, Kathmandu.
During the program 122 and 67 students and other persons
attended respectively. Technical Joint Director, ICAN CA.
Pushpendra Singh, CA. Suresh Khakurel and Officer, ICAN
Mr. Madhav Narayan Kachhyapati facilitated the program.
Student Enrollment
The increasing number of students enrolled for chartered
accountancy education signals the growing attraction
towards CA profession within the country. The status of
enrollment upto Aswin 2070 (September 2013) is as shown
below.
Fiscal Year
CAP I
CAP II
CAP III
Total
2066/067
954
608
101
1663
2067/068
1223
590
103
1916
2068/069
564
567
108
1239
2069/070
1038
625
211
1874
287
63
421
Upto 2070 Aswin 71
Student Exchange Program

With the aim of increasing capacity, level of confidence
and exposure of the student, Institute has been providing
an opportunity for deserving students for exposure visit
under the student exchange program organized by SAFA
member bodies. This year, Institute has provided an
opportunity to 10 students to attend student exchange
program in Kolkata, during 13-14 September 2013. In the
two days program participants from the Institute presented
technical papers.
September 2013
57
NEWS
Members and Professional development department

Membership, Certificate of Practice and Auditing firm
The total number of Registered Member, Certificate of Practice holders and Auditing Firms and the status of renewal
as of 30 September 2013(Ashoj 14, 2070) is given in the table below.
Officers Appointed
NFRS Implementation
The Institute has appointed two officers at the beginning

of the fiscal year. Miss Samita Dangol and Mr. Basanta
Kr. L. Ranjitkar are recruited for Administration and IT
Department respectively.
The Institute of Chartered Accountants of Nepal has decided

to implement Nepal Financial Reporting Standards (NFRS)
including IFRICs and SICs on the recommendation of
Accounting Standards Board (ASB) which are prepared
in line with the International Financial Reporting Standards
(IFRS). Institute has recommended and encouraged to
implement NFRS as soon as possible.
58
September 2013
September 2013
59
Proposed Building
Construction in Progress as on 2070/07/14

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September 2013

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

Mr. Binaya Paudel

NAS-10 and its Applicability for Accounting of VAT

IAS 36- Impairment of Assets

Recent Development in IFRS

The Institute of Chartered Accountants of Nepal

Branch Office Biratnagar

Branch Office Butwal

Internal Auditing in Banks- Third Line of Defence

Kautilya Arthasastra: It's Relevance of Modern Economics

Branch Office Birgunj

The Monetary Policy and the Financial Stability in the

Branch Office Pokhara

Dr. Basu Dev Sharma

Designed & Printed By

ORSA (Own Risk and Solvency Assessment)-Is Nepali

CA. Yuba Raj Pandeya

Annual Subscription Rs. 600

(including courier charges for Organizations)

Rs. 400 (including courier charges for Member)

Insurance Prepared for Uncoming Comprehensive Global

The Editorial Board

To begin with, I express my heartfelt

Work Plan for Educational Initiatives

procedures determined by the IFAC to elevate the status

Infrastructure and Human Resource

ultra modern equipments and providing sufficient facilities

Professional Capacity Development Initiatives

representing council members from CA, RA and

Initiatives for the Coordination

Initiation will be taken to designate a liaison officer to

Initiatives for enhancing International

CA. Mahesh Kumar Guragain

Nepal on the Path of Implementation of IFRS

CA. Mahesh Kumar Guragain

International Financial Reporting

transparent economic system, there

The Nepal Chartered Accountant

issued by the International Accounting Standards

For starting of the IFRS convergence ICAN and ASB has

International Financial Reporting Standards (IFRS)

IFAC Statement of Membership Obligation

Interpretations by the International Financial Reporting

The development of action plan and compliance program

issued by the IASB from April 2001 onwards, and

Interpretations Committee (IFRIC) or the former

As of now there are altogether 66 IFRS, comprising 13

Role of ASB & ICAN

The Nepal Chartered Accountant

Why 'Convergence' of National Standards

Need for Convergence of National Standards

significantly the foreign investment, is the prime driver of

Global Scenario of Adoption of IFRS

Scenario in South Asia Region

The Nepal Chartered Accountant

Application of IFRSs and Time Schedule

The Nepal Chartered Accountant

no departures from the IFRS. Out of 41 IFRSs currently

Conclusion and Recommendation

NAS-10 and its Applicability for Accounting

While accounting for purchase,

1.1. The Nepal Government every

CA. Swami is Fellow Member of ICAN