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Regulations affecting accounting profession in Nepal

The accounting profession is regulated largely by ICAN, but in addition Central Bank and Insurance Boards also indirectly regulate the auditors who audit these sectors. This includes additional qualification or eligibility requirements. Like an FCA is required for audit of an insurance company and any auditor facing a legal case is disqualified for audit of a bank or financial institutions.

Some regulations affecting the profession are quite stringent in Nepal. In case of public company audits, the auditor needs to be changed every three years. This is not simply rotation of engagement partner as in most of developed countries, but changing of audit firm as a whole. Similarly, legal cases to auditors for audit failures is common in developed countries, but in Nepal any form of legal case to a partner disqualifies the whole firm for audit of a bank or financial institutions. These factors along with low professional service fees have affected the growth of audit firms as an organization. So, there are numerous challenges facing the profession and several regulatory initiations are essential to kick start the reform process. As a stakeholder, Baker Tilly Nepal welcomes the several initiations taken by ICAN especially during the period 2009/10 for positive growth of accounting profession in Nepal, especially in relation to fixing audit slabs, minimum audit fee requirements, adoption of IFAC Code of Ethics and implementing One man one profession concepts.

Maximum Number of Audit

Limitation is imposed on the auditing capacity of Registered Auditors based on turnover or assets size of the client. Registered Auditors are not allowed to audit Commercial Banks and Financial Institutions and Insurance companies. Since establishment of ICAN, new practice license (COP) is provided only to CA member of the institute.

Minimum Audit Fee

The minimum audit fee requirement for a FCA member of ICAN is Rs.15,000 while for a CA and B class auditor is Rs.10,000. This fee excludes fees for other services like tax audit, certifications as statutory auditor etc.

CPE requirements

Chartered Accountants and Registered Auditors (B class) members are required to obtain CPE hours of at least 15 each years and total of 60 hours over a span of three hours, in order to renew their COP. For Registered Auditors the minimum requirement is 10 hours per year and 40 hours in three years. CPE workshops are conducted by ICAN and private bodies authorized by ICAN. Relevant international programs, seminars and qualifications are also entitled for CPE on case to case basis.

Rotation of Auditors

In case of public companies, the statutory auditor needs to be rotated every three years. Partners and staffs of the auditor of last three years are also disqualified for the audit. Even other organizations, including INGOs are found to have followed the practice of changing their auditors every three years though that is not required by law.

This provision is quite stringent compared to international norms that require rotation of engagement partner, instead of firm as a whole. This local practice in Nepal ultimately affects audit quality as three years is an insufficient period for an auditor to obtain sufficient knowledge of a large organization to add value in audit and auditors always have risk of losing a business.

Audit Standards, NSQC1 and Peer Review in Nepal

Nepal has its own auditing standards called 'Nepal Standards on Auditing' which are in line with international audit standards. These audit standards are issued by Auditing Standards Board of Nepal. Similarly Nepal Standards on Quality Control 1, issued in line with ISQC 1 has been issued, subject to exemptions in certain provisions.

ICAN has a peer review Board with responsibility for peer review. Peer Review is currently voluntary in Nepal, but is expected to be mandatory soon, especially for audit firms serving listed companies.

Code of Ethics

ICAN had its own Code of Ethics in line with IFAC Code of Ethics. But from July 2010 ICAN has decided to make IFAC Code of Ethics mandatory for all its members. The ethical issues, including all complaint against members are looked upon by disciplinary committee of ICAN. The procedural provisions require final approval of disciplinary action by council of the institute. Complaint may be filed by any relevant persons against the members by paying in the institute.