Ican Journal June 2010

Chartered
T h e
N e p a l
June 2010
Accountant
Journal of the Institute of Chartered Accountants of Nepal
Chartered
Accountant
T
PRESIDENT'S MESSAGE
BANKING
The Role of Audit Committees in Central Banks
- Surendra Man Pradhan
7
12
Liquidity Problem and Managing Liquidity Risk in

Banks and Financial Institutions
- Pratigya Pandeya
16
Anti Money Laundering- An Introduction

- Nil Saru
20
ECONOMY
Prospects and Challenges of SAFTA in the Context
of EconomicDevelopment of Nepal
- Yadav Mani Upadhyaya
25
Appropriate Growth Strategies for Developing

Countries
- Khubi Ram Acharya
30
38
International Financial Reporting Standards

Impairments of Assets in IFRS
- Bishnu Bhandari & Santosh Ghimire
43
Discerning the Impact of IFRS on Tax Sphere

- Gagan Kumar
48
Information, Communication and Technology

51
B o a r d
Chairman
Member
Member
Member
Editor
Member
Member
Member
Member
Secretary
Suvod Kumar Karn, FCA

Sunir Kumar Dhungel, FCA
Prabin Kumar Jha, FCA
Lalit Aryal, CA
Bishnu Bhandari, CA
Pratigya Pandey, CA
Jeetendra Dhital, CA
Sewa Pathak, CA
Kedar Natha Poudel, RA
Binod Neupane
Editorial Support
Satyendra Sharma Satyam
The Institute of Chartered Accountants of Nepal,

Babar Mahal, P O Box 5289, Kathmandu, Nepal
Tel. No. 4269130, 4258569 Fax No. 4258568
E-mail: ican@ntc.net.np
Website: www.ican.org np
Branch Offices
Biratnagar: Tel: 021 537195
Fax: 021 522077 | E-mail : icanbrt@wlink.com.np
Butwal: Tel: 071 622574 | E-mail: icanbtl@ntc.net.np
Birgunj: Birgunj, Nepal
Design, Layout & Printed by:
Format Printing Press Kathmandu, Nepal
Subscription Rates
Annual Subscription

Rs. 400
Rs. 300
Peeping into the Flipside of Spurring Growth in India

-Tejesh Pradhan
36
e-Readiness
- Rom Kant Pandey
E d i t o r i a l
EDITORIAL
Implementation of LPG Model: An Opportunity

and Challenges
- Dr. Jiba Nath Dhital
(Quarterly Journal of The Institute of Chartered Accountants of Nepal)
CONTENTS
Early Warning Systems in Credit Risk Management

- L D Mahat
(including courier charges)

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

and do not necessarily represent the views of the Institute. Member
Bodies of Safa may quote or reprint any part of this Journal with due
acknowledgement. For others, solicitation is expected.
INSURANCE
Financial Statements of a General Insurance
Company: Comparison of Directive with IFRSs
- Jagdish Agrawal
54
MANAGEMENT
Insubordination: A Managerial Challenge
- Bhuwan Raj Chataut
58
MOTIVATION
Awaken the Leader in You
- L P Bhanu Sharma
61
NEWS
64
NOTICE TO MEMBERS
70
E ditorial
ver 120 countries has already either adopted International Financial Reporting Standards
(IFRSs) or prescribed Local Accounting Standards that are in convergence with IFRSs.
Nepal is no exception, Institute of Chartered Accountants of Nepal by its 133rd council
meeting has already decided to adopt stage-wise approach for implementation of IFRSs. As
per the decision, listed companies are required to adopt IFRSs from July 2012 onwards, public
companies from July 2013 onwards and others from July 2014 onwards.
By 2015, it is expected that more than 150 countries will move to IFRSs. This is a commendable
effort that will bring about wide spread convergence and a uniform financial reporting system
around the world.
Nepalese Accounting Profession is young, a massive efforts hence is required to move towards
IFRSs implementation. Our institute being the regulator of the accounting profession in Nepal
has a vital role to play in IFRSs implementation specially considering the deadline set by the
133rd council meeting. There will be a lot of preparation, training and publicity requirements
in the periods to come if we want to adopt IFRSs by the set deadline. The institute should be
taking a lead role in implementation of IFRSs specially making sure that all concerns are fully
prepared before the deadline. The role of professionals, whether in practice or in service, should
also be equally important. All professionals shall have through knowledge of IFRSs. Support
from other bodies like governmental authorities shall also be equally important so as to ensure
smooth convergence. All players involved in the formulation, implementation and enforcement
of accounting standards have to play a very important role and require proper coordination and
regular communication at all times.
The Institute should regularly organize training programs to its members on IFRSs. Members,
whether in practice or in service, should have the opportunities to avail the education as well as
training on IFRSs. The five day intensive training program on IFRSs organized by the institute
on June 16-20, 2010 was a good start that needs continuity.
Its the time that every accounting professional should be aware about the challenges and
opportunities arising out of it. Professional members thoughts and suggestions will be required
as always. The focus now, should be on IFRSs. The journal has tried to include articles on
IFRSs so as to make our valued members aware of the forthcoming challenges and opportunities
arising out of adoption of IFRS. We hope the articles will be fruitful.
Besides IFRSs, we have tried to focus on banking, insurance and economy related articles in
this issue. In addition, Information, Communication and Technology (ICT), management and
motivation related articles have also been covered. News and photo gallery, as usual, are the
regular features for coverage.
The editorial team would like to thank all the contributors of the articles, ICAN staffs, printing
press, advertising entities who supported us for the journal with their ideas and information,
without which we could not have been able to publish the journal. We request the readers to
provide timely feedback so that we could improve further in our future issues. The tenure for
the current editorial board is over, we also like to take this opportunity to welcome the new
editorial committee members and wish them for the days to come.
Editorial Board
P resident ' s M essage

you some of the significant
achievements made during my
leadership.
Institutional Development
To strengthen and standardize
Dear Colleagues,
I have been communicating
since last one year when I
assumed the office of President
with you through these pages
to keep you abreast with recent
developments taking place in our
profession as well as the Institute.
With every communication I feel
that there are so many things to
do in limited time of one year.
However, I am able to carry out
the task effectively both national
and international arena. Now for
me the time for change has come
with the change in leadership of
the Institute and this would be
my last communication as the
President of this august Institute.
I would like to place on record
the encouragement and support
from the Council and different
Committees which were my
source of inspiration and
strength to look forward for
the development of accounting
profession in the country.
I believe this year has been the
year of achievement and I take
this opportunity to share with
the service of existing liaison

offices namely Biratnagar and
Butwal, has been upgraded
into Branch Office status
and one more branch has
been opened at Birgunj. The
branch advisory committee
has formed for the smooth
operation of these branches.
The Government of
Nepal has provided the

approximately 3,900 yard
land to Institute on lease
for a period of 50 years at
Patan Industrial Estate. The
Institute has initiated and
approach to the Government
from the very beginning.
Hon'able Prime Minister Mr.
Madhav Kumar Nepal has
performed foundation stone
laying ceremony for the stateof- the- art building of ICAN
on 20th January 2010. As
a president of the Institute,
I would like to extend my
gratitude to Government of
Nepal, Ministry of Finance
and Ministry of Industries,
and to all those who
supported for this noble
cause.
Employee By-law and Finance

By-law 2066 approved and
recruitment process of staffs
have been completed. We
have also started Dress Code

to the staff and installed
the attendance time record
machine for the benefit of
staffs. Similarly, two new
four wheeler vehicles were
purchased during this year
to strengthen the logistic of
Institute.
Members
To enhance the capacity of
members, mandatory CPE

hours has been increased.
As per the new provision,
Chartered Accountants
and Registered Auditor B
Class members are required
to obtain at least 15 CPE
hours per year and 60 CPE
hours in a period of 3 years.
Similarly Registered Auditor
C & D Classes members are
required to obtain at least 10
CPE hours per year and 40
CPE hours in a period of 3
years.
We have decided to fix the
minimum audit fee for the

audit assignment for the
benefit of the members and
to avoid the under cutting
of the professional fee.
Minimum audit fees for the
assignment carried out by RA
C and D classes members is
NPR 5,000 while Chartered
Accountants members and
RA B class members is NPR
10,000 and minimum audit
fee for an FCA members
is fixed NPR 15,000. Also,
minimum audit fee for
audit of Banks and Finance

institutions and Insurance
companies is NPR 40,000.
It is believed that quality
of professional services
discharged by the members
will be enhancing with the
increased fee.
We have also decided to
fix the audit ceiling to the

members who are in practice.
This has been a remarkable
achievement in terms of
setting maximum number
of Audit ceilings, which is
good news for members who
are in practice and also to
the new comers thinking
to make their career in
professional practice. As per
new provision, members can
perform audit of maximum
55 companies both public
and private companies
incorporated under the
Companies Act. However
the number of public
companies should not exceed
15 in any case.
We have formed a Task Force
to study the requirement

of Bank Branch Audit
Concept to minimize the risk
associated in Bank Audit.
The Task Force has come out
with the Concept paper along
with its recommendation
after carrying the detailed
study within the country
and within SAFA member
countries. We have placed
the report before the
Governor of the Nepal
Rastra Bank and Secretary

of the Ministry of Finance,
Government of Nepal for
its implementation from
the coming fiscal year. It is
believed that audit efficiency
and output of our members
will be increased and BFIs
will also be benefited from
the branch audit from their
inspection and supervision
perspectives.
This year we have published

official directory of the
Institute and I believe this
practice will continue in the
days ahead.
We have decided to revise
the Audit limit of RA

members based on entitys
turnover or balance sheet
figure. According to the
revised provision, new limit
of NPR 40 crores, 10 crores
and 2 crores is prescribed
for Registered Auditors - B,
C and D classes Members
respectively and in case
for Accounting Technician
20 crore is prescribed.
The revised limit shall be
applicable after approval from
the Government of Nepal in
due course.
We have also decided,
keeping view of request

received from RA B class
Members who hold bachelor
degree in commerce/
management and want to
become themselves CA
members, are exempted
maximum papers in CAP-II

Level. RA members do have
opportunity to be a qualified
professional.
This year we have made a
milestone achievement in
listing of auditor in different
regulators. Our members
were required to list their
name in the audit panel of
various regulators like Nepal
Rastra Bank, Insurance
Board (Beema Samiti), Cooperatives Offices, Regional
Directorate of Education and
Local Developments Bodies
to carry out the audit of their
respective organizations
despite having a membership
and holding certificate of
practice from the Institute.
Initiation has been taken to
convince to these regulators
from the hectic provision
of listing and we are able to
come out with agreement with
them and our members are
not required to get them listed
furthermore. The Institute
now onwards will work closely
with the regulators.
We have decided that every

Chartered Accountant
member who is engaged in
profession shall write CA
as prefix to their name and
every Registered Auditor
member who is engaged in
profession shall write RA as
prefix to their name. This is
recommendatory to those
members who are engaged
other than in profession.
We have also decided to
revised code of ethics for

members which is in line
with IFAC Code of Ethics
2010 enforced from the
coming year which I believe
will enhance the members
integrity and professionalism.
This year we have come out
with the Audit Guidelines

of Cooperatives which will
be helpful to the members to
discharge their professional
responsibilities with due care.
One more publication Audit
Guidelines of NGO is under
preparation and hope this
will reach in the hands of our
members within couple of
months.
Students
ICAN has also initiated various
tasks for the benefit of the
students as well. Following are
some of the achievements.
Full set of Study Materials
of CAP-I level has been

published and distributed
to the students, while
CAP-II level are under
preparation and almost in
final shape within a month.
Study Material for CAP-III is
allotted for preparation. We
The Nepal Chartered Accountant | June 2010
hope draft of these materials

will be completed within
couple of months. After the
development of our own
study materials we will not
have to primarily dependent
on study materials of ICAI.
We have also published
Question Bank of all the
levels of CA examinations
asked from the very
beginning. This will help
to familiarize the students
with the questions set in the
previous years.
We have also trying to
enter into Memorandum of
Understanding with ACCA,
which is beneficial to both
ACCA members and ICAN
members. Mutual exchange
of professionalism will be
possible with this Mutual
Exemption especially from
this our members will have
more avenues to explore
within the country as well as
abroad.

Another achievement during
my tenure is launching of
Accounting Technician
Course, which is already
started. This is believed to
fulfill the shortage of middle
level accounting professionals
in the country.

Last, but not the least,
we have also recognized
CA Student Association
which was long pending to
get recognition and their
demands are addressed
professionally and prudently.
International
For the first time, Mr. Komal
Chitracar from Nepal, elected as
the President of SAFA for the
year 2010 from the 70th SAFA
Assembly Meeting held on 23rd
of January 2010 at Kathmandu,
Nepal, which was long awaited
to get the leadership by Institute
in regional bodies. This will help
to recognize our Institute in an
international arena.
At last I would like to thank all
the council members, members,
students, staffs and from the
stakeholders who directly
or indirectly helped me to
successfully complete my tenure
as President of the Institute.
Once again thank you all, for
your trust to me and I will
continue to offer my services
in all my capacity for the cause
of our esteemed profession, our
members and the Institute.
Suvod Kumar Karn

President
banking
The Role of Audit Committees

in Central Banks
Surendra Man Pradhan*, FCA
Introduction
The concept of audit committee
was brought into light after
the constitution of the Cadbury
Committee in 1992. The committee
recommended this concept as one
of the Code of Best Practices in
good corporate governance. The
significance of audit committee
in the context of good corporate
control mechanism was also
highlighted in the Armstrong
Corporate Governance Principles.
The same was given prominence
in the OECD Principles of
Corporate Governance and Basel
Committee paper on Enhancing
Corporate Governance for Banking
Organizations.
For the purpose of enhancing
the structure of corporate
governance, the audit committee
needs a good acquaintance of the
underlying accounting framework,
the organizational relationships
upholding governance and the
process of its financial reporting.
However, the scope of audit
committee varies depending upon
the prevalent practices, mandatory

and regulatory provision and nature
of governance framework exercised
by an entity.
Commercial corporations and public
sector undertakings are brought
under the purview of a fairly
well developed good governance
principles as compared to the
central banks. However, in the
recent years, to constitute an
audit committee is increasingly
being considered as best practice
for central banks as well. The
International Monetary Fund (IMF)
also frequently recommends the
formation of an audit committee in
the Funds Safeguard Assessments.
As compared to the commercial
undertakings for which accounting
frameworks are typically designed,
the objective of a central bank
is usually the effective and
efficient policy implementation
of its designated objectives and
functions rather than maximization
of shareholders net worth. The
financial reporting framework for
a central bank should, hence, in
principle, be more concerned with

stewardship of public funds, i.e.,
efficient utilization of resources.
However, adopting internationally
recognized accounting frameworks
for central banks dealing with
a broad range of commercial
transactions is very useful from a
transparency perspective.
Effective disclosure and assurance
of integrity help a central bank
to strike a balance between
autonomy and accountability. The
transformation of traditionally
functioning central bank in the
era of economic deregulation
has shifted the attention
towards transparency, holding
the autonomous central bank
accountable for attaining
clearly identified and prioritized
objectives. An effective system of
financial reporting in the central
bank supported by consummate
good governance is instrumental
in the proper performance of an
autonomous central bank. The focus
on governance and accountability
provides strong incentive for a
central bank to formulate an
* Mr. Pradhan is a Fellow Chartered Accountant Member of the Institute.
The Nepal Chartered Accountant | June 2010 7
banking
audit committee. This mechanism

for adopting the audit committee
concept in a central bank functioning
as a supervisory authority as well will
give an opportunity to the central
bank to throw the demonstration
effect of adopting the approach of
Practice What You Preach in the
financial system. The core function
of the audit committee in the central
bank remains similar to that of other
sector, i.e., to oversee the integrity
of the internal controls and the
transparency of financial reporting.
The committee is not involved in
executive or operational functions.
Its focus sticks around the discharge
of the fiduciary responsibilities of the
board.
Challenges for Central

Banks
The institutional objective and the
governing incentive of a central
bank are quite different from that
of a commercial corporate sector.
Hence, applying corporate sectors
experience with the audit committee
in the central bank is a challenge.
The reliability of and transparency in
the superseding objectives of price
stability and financial sector stability
differ from those of shareholders
wealth maximization. The focus of
central bank financial disclosure and
the functions of its audit committee
will obviously be different from that
of a corporate sector entity.
Several challenges crop up while
applying accounting standards in a
central bank which could distinguish
its audit committee from those
of other corporate entities. The
trend towards harmonization of
International Financial Reporting
Standards in the context of
central bank accounting facilitates
comparability, transparency,
8
The Nepal Chartered Accountant | June 2010
and helps avoid Cherry Pick

accounting treatment concept
being exercised by some central
banks. It also enhances the
accountability of the board as well
as audit committee in reviewing
accounting policy and disclosure
requirements. While striving
towards compliance with prevailing
accounting standards, a central
bank needs to ensure that financial
reporting neither conflicts with its
objectives and law, nor exposes its
capital base. IFRS requirements to
report foreign currency revaluation
gains and losses through the profit
and loss account can generate
significant precariousness in the
central banks profitability due to
the specific structure of its balance
sheet. These issues need to be
paid due attention while preparing
financial statements to ensure that
the statements disclose reality, do
not generate obstinate incentives
and do not indicate non compliance
of IFRS requirements.
Similarly, supplementary
disclosures beyond areas prescribed
by the accounting framework may
help the board better perform
its fiduciary obligations. Better
transparency is necessary on
the part of the central bank
to maximize the benefits of
communicating with financial
market better. For this purpose,
better and additional explanations
may be required to help interpret
the central banks balance sheet so
as to facilitate better assessment
of its performance and to cater the
need of information dissemination
to the interest of different
stakeholders of central bank with
varying interests in operational
details and financial literacy like
politicians, financial institutions,
economists, and public at large.
An independent audit committee

can play a pivotal role in meeting
these challenges. Part of the role
of an audit committee in such
circumstances may be to assess
the substantive transparency of
the disclosures, and the extent to
which they are correct, complete
and consistent with the financial
statements. In this context an
audit committee can help assure
the level of financial integrity and
demonstrate high standards of good
governance in the central bank.
Acclimatization of
Audit Committee in a
Central Bank
The main objective of an audit
committee is to oversee fiduciary
duties on behalf of the board and
in accordance with the prevailing
internal regulations. These duties
consist of the duty to ensure the
existence and operation of effective
internal control system, mechanism
of risk management and transparent
financial reporting. The scope of
the committee may depend upon
country specific factors, like the
degree of autonomy of the central
bank, and accompanying need of
accountability. The charter of audit
committee is a significant vehicle
against which the committee may
be held accountable and it provides
its members with a clear glimpse
of their precise role within the
committees overall objectives.
An audit committee will be
able to convene its duties and
responsibilities in a central bank
only through a process of frequent
and iterative interaction with key
governance functions of the central
bank. Open communication and
interactive cooperation should be
established across the entity for
banking
the audit committee to perform its

functions effectively.
The full hearted support of the
governor is also necessary in this
process, without which it may
not be able to carry out its duties
effectively since it will need
cooperation from management
and staff. The audit committee is
supposed to be composed entirely
of non executive members with
specialized expertise. Hence,
it might have both open and
confidential meetings with the
governor, deputy governors, other
pertinent representatives of
management, the external auditor,
internal auditor, the financial
controller, the heads of strategic
planning, regulation/supervision and
the head of risk management, if any,
separately or jointly. The committee
may require specific private
discussion with the internal auditor
or other pertinent management
representatives regarding the
governors performance with
regards to the effective operation
of internal control mechanism or
the external auditors report on
effectiveness of the internal audit
functions. The audit committee
relies on the management,
internal audit, accounting and risk
management and audit functions
so as to perform its duties towards
ensuring the existence of effective
system of internal controls and
risk management. It plays a
complementary role in establishing
good governance in the central
bank. It neither replaces internal
auditor or external audit functions
nor interferes in managements
operational responsibilities.
However, the key to oversight
effectiveness is a circumspectly
designed organizational structure
which does not leave any scope

for any gaps or overlaps in
responsibilities. Irrespective of
any manner the central bank is
configured, it is of paramount
significance that its audit committee
functions assimilate into the overall
governance framework. There should
not be any scope of duplication of
efforts or any breach of coverage. A
proper balance should be maintained
between the execution of boards
fiduciary functions and the danger
of diluting its responsibilities.
The ultimate responsibility for
financial integrity remains vested
with the board of directors, even
though the authority to discharge
this responsibility may have been
delegated to the audit committee.
The board of directors should
exercise its authority diligently while
authorizing the audit committee to
function its fiduciary duties so that it
may carefully design and execute the
central banks financial disclosure
strategy so as to avoid potential
reputational risk that may arise if
the public fail to understand the true
financial position of the central bank.
Designing Audit
Committees for Central
Banks
While constituting an audit
committee, the central bank should
learn from the experience of the
private and public sector. Various
issues need to be considered while
designing an audit committee. The
issues like the very objectives of its
formation, delegation of authority,
reporting mechanisms, level of
autonomy the committee expected
to exercise, the composition, terms
and qualifications of the members
and the frequency of meetings
expected for the committee need
to be considered. Similarly, the
resources, administrative and

secretarial support necessary to
perform its functions should also be
given due consideration. Although
constituting an audit committee
is increasingly accepted as a tool
for strengthening governance
framework, it is highly important to
maintain realistic expectations. It
is the fact that an audit committee
adds value by contributing to
enhanced objectivity of financial
reporting and internal controls
and adding assurance of integrity
of the operations of the business.
However, the expectations from
the audit committee need to be
realistic. The audit committee
operates on a part time basis, and
it has to rely on reports compiled
by the management, internal
audit or external auditor. The
board of directors should ensure
that the members of its audit
committee have sufficient time to
devote to their allocated task and
are not over burdened by other
responsibilities.
Basically three main factors need
to be considered while forming an
audit committee in a central bank
so as to optimize its effective role
in good governance framework.
a) Appropriateness in terms of
country-specific factors.
b) Independence in terms of
appointment, composition and
professionalism.
c) Interaction with the board.
a) Appropriateness
The effectiveness of the audit
committee depends upon its
configuration within the governance
structure of the central bank in line
with the countrys legal system.
The members should have a good
understanding of their position
in the central banks governance
banking
structure and the broader legal

framework within which the central
bank operates. Due care also need
to be given to the fact that the
modalities for delegating oversight
duties are unambiguous so as to
avoid any duplication of efforts.
Some central banks may opt for more
limited audit committee functions
and some opt for expanded functions
based upon the complexities of the
financial operations being undertaken
by them. Banks which do not engage
in complex financial transactions opt
for the former since the oversight
functions may not require special
expertise and may be effectively
discharged through an advisory
committee of the board rather than a
more formal supervisory body which is
formed separately in the latter case.
In some other circumstances, the
size of the central bank may be so
small that it may not be practicable
for a separate audit committee with
non-executive members. It normally
happens in case of smaller central
bank boards or in less developed
countries where the pool of qualified
and truly independent persons are
quite limited. In such circumstances,
it is preferable to opt for a sub
group of the board comprising of
external members to act as the audit
committee subject to the provision
that their charter could ensure that
the external members have an open
access to the entity similar to that of
their executive counterparts and that
their presence be explicitly required
for the quorum for the meeting.
b) Independence
The independence of the members
as well as the committee itself is
very important for effective audit
committee. The audit committee
10 The Nepal Chartered Accountant | June 2010
should be constituted and chaired

by a non-executive member so as
to enable it to exercise objective
judgment and ask the awkward
and critical questions. The
independence as to the duration
of the members of the audit
committee as well as independence
as to the strict qualification criteria
to ensure that members have the
required skills and expertise to
exercise good judgment is very
necessary for the formation of an
independent committee.
The audit committee may also

require access to external expertise
in certain complex situations. A
training budget may be envisaged
so as to enhance the professional
competence of the members
resulting into effectiveness of the
audit committee.
As regarding the duration of the

term of a member of an audit
committee, the term must strike
a balance between building
institutional acclimatization and
bringing in valuable external
expertise. Frequent rotation should
be discouraged since it will not
be supportive to the consistency
and the building of institutional
acclimatization. For a smooth
transition, there should be an
arrangement that both outgoing
and incoming members attend the
committee meeting for a certain
predetermined handover period.
C. Interaction
The interaction of the audit
committee with the board from
which it derives authority also
has a significant bearing on
the effectiveness of the audit
committee. An interactive
dialogue between the board,
management and the audit
committee and a more formal
reporting at a predetermined
schedule are important elements
for effectiveness of the audit
committee. The chairman of
the committee shall play an
instrumental role in maintaining
a cohesive dialogue with its
counterparts in the central bank.
He can play a role of a focal point
for communicating with board and
coordinating with the internal and
external auditors.
Similarly, it is necessary to ensure

that members are competent
though not necessarily experts
in the areas that comes under
the purview of the committees
responsibility. It is preferable that
the audit committee members
be nominated by the board
subject to specific criteria to
reflect multiplicity in technical
backgrounds. The basic requirement
for all members is to be adequately
financial literate to be able to
put pertinent questions and form
objective opinions on internal
controls, financial reporting and risk
management.
Similarly, overlapping membership

and the exchange of minutes
between the audit committee and
the board of directors also enhances
the relationship between the two
bodies. The common membership in
the board as well as audit committee
consisting of non-executive members
may tighten the relationship
between the board and the audit
committee and would also help the
committee to better understand
the boards priorities, thereby
adding value to the governance
system and finally resulting into
enhanced effectiveness of the audit
committee.
banking
Audit committee in the

Central bank in Nepals
Context
The concept of an audit committee
in the Nepalese history was initiated
by the Nepal Rastra Bank Act,
2058. Under section 34 of the Act,
it has made the audit committee
a mandatory requirement in Nepal
Rastra Bank, the central bank of
Nepal. The section provides that
the board of directors of NRB shall
constitute an audit committee
comprising of one director as
convener, Chief of Internal Audit
Department of NRB as a member and
one senior officer of NRB designated
by the board as another member.
Section 35 of the same Act
prescribes about the functions,
duties and powers of the audit
committee. This includes
submission of its report to the
Board on accounts, budget and
audit procedures and control
system of the bank, supervision of
implementation of the appropriate
risk management strategies adopted
by the bank, and performance and
management audit of the bank.
Based on the above provisions, NRB

has constituted one audit committee
under the chairmanship of one nonexecutive director. However, the
terms of reference are not specified
and the business of the committee
is regularized by the subsequent
activities of the committee itself.
The committee has designed some
TOR for itself and working smoothly
under this charter till date.
However, there is no provision
regarding the term of the members
of audit committee. The qualification
is also not specified and it is at the
discretion of the board itself. The
Act does not spell out anything about
the independence of the members.
One of the members being the chief
of the Internal Audit Department
itself, the duration of this member
has been at the mercy of the
governor since he can transfer or
switch over any department Chief
from one department to another at
any time. Similarly, being the staff of
the bank two of the members of the
audit committee cannot be expected
to play an independent members
role full heartedly since they are
accountable to the governor.
In the above circumstances, the

effective and independent role of
audit committee in Nepal Rastra
Bank is only an imaginary concept.
Considering the aforementioned
concepts and requirements for
enhancing effectiveness in the
functioning of the audit committee
and also to foster independent role
of the audit committee in NRB,
the provisions made in section 34
of the NRB Act need to be revised
so as to accommodate and attract
external experts from outside the
bank itself and also the duration
and qualifications for the audit
committee members need to be
spelled out. If these provisions
could be accommodated, then
we can expect that the audit
committee in the central bank
will be fully independent and the
service of external experts could
be mobilized specifically for the
benefit of the bank itself and the
economy of the country at large,
resulting into positive support in
the governance framework of NRB
through effective role of the audit
committee.
banking
Early Warning Systems

in Credit Risk Management
L D Mahat*, FCA
Background
Taking risks is an essential element
of banking. But in today's complex
financial services environment,
the types and potential severity of
risks to which all institutions are
exposed have multiplied. Many
community banks, however, lag
behind their larger counterparts
when it comes to devoting resources
to risk management, believing that
less complex institutions do not
have the same need, or capacity,
to manage risk as do larger banks.
The reality is that banks of all sizes
face the same risks and have access
to the same methods, markets and
products to manage those risks.
Risk to a financial institution
manifests itself in a variety of
ways, e.g, credit risk, interest
rate risk, liquidity risk, operational
risk, foreign exchange risk, and
environmental risk. The focus of
this paper is upon early signals of
credit risk, and the implications
for specific segments of the bank's
portfolio. Early warning systems
(EWS) provide warning of possible
and imminent problems in borrowers

enterprises and, in consequence,
possibly in the lenders own business.
Objectives of an EWS
The objectives of an EWS are to:

enable the lender to take
corrective action before the
planned/budgeted
position becomes irretrievable;
minimise the risk of loss; and
Poor management: Poor
improve the lenders prospects of management is demonstrated by
recovery in the event of default. the following:
indecisiveness in making
Causes of Business
decisions;
Decline
inadequate knowledge of the
product, the process and the
It is important to understand the
market;
primary causes of business decline of
failing self-confidence;
borrowers to identify the symptoms
lack of vision/strategies,
of potential distress.
Lack of commitment:
Businesses fail for many reasons:

some from a single cause, others from
several causes. Each case is unique
but there are common causes of
business decline. The primary causes
of decline is described below:
Inadequate information for decision
making: Inadequate information is
evidenced by following:
* Mr. Mahat is a Fellow Chartered Accountant Member of the Institute.
no budgets or poorly prepared

budgets,

no accounts or limited
management accounts,
no costings/unit costs,
limited analysis/planning for
stock,

capital expenditure not
Sector/industry/product decline:
Sector/industry/product decline has
the following characteristics, among
others:
competitive weakness,
declining market,
changes in demand,
over-capacity,
price war.
banking
Declining
market share
sales
margins
prices
liquidity
dividends
capital expenditure
High cost base: A high cost base as
evidenced by:
rising labour costs,
falling productivity,
expanding distribution costs,
increasing cost of raw
materials,
high reorganisation costs
Inadequate financial control:

Inadequate financial controls are
indicated by:
poor debt management/
structure (measured by debt
to equity ratio and cash flow
analysis),
cash flow not monitored,
poor asset/liability
management,
overtrading.
Poor marketing strategy: Poor

marketing strategy can be indicated
by:
absence of strategy statements,
absence of marketing plan,
lack of market knowledge, and
weak/inappropriate promotional
activity
Diversification can also create

problems when resources are
diverted from core business areas to
areas of low expertise.
For many borrowers, financial
decline is the outcome of a series
of problems, not the cause of the
Rising
staff turnover
unit costs
low margin sales
debtors
creditor pressure
short term debt
problems. There are numerous

reasons why a borrowers business
and financial position may be
declining, among which are:
How does an EWS Work?

The need for early identification
of problem loans is one of the
principles of the Basle Committee
for the management of credit risk.
Problem loans most commonly
arise from a cash crisis facing the
borrower. As the crisis develops,
internal and external signs emerge,
often subtly. Frequency and quality
of information is the key.
A typical EWS process consists of
various elements that are listed
below:
continuous monitoring by credit
officers,
scheduled loan reviews,
examination (internal audit and
central bank inspection),
loan covenants,
asset classification against
performance quality,
management information
reporting, and
early detection of business
decline through warning signs.
Continuous Monitoring by Credit

Officers
Credit officers should know their
clients and should be trained to
be alert to indicators/early warning

signs and to be able to interpret
them. Credit officer monitoring is the
first means of identifying problems
in loans and the requirement should
show prominently in the credit
officers job description.
Credit officers should have regular
contact with their clients during
which they should compare the
results declared in the management
accounts submitted by the borrower
with the targets set out in the
contract/business plan and with the
work agreed for the period during
the previous visit - the variance
guides the further enquiry.
Scheduled Reviews
Site visits should be scheduled and
the schedule should be driven by
priorities based on susceptibility
to harm - susceptibility to harm is
signalled by the loan classification.
The frequency of visits might be:
Standard Accounts (good or pass)

- a visit every quarter;

Sub-Standard Accounts - a visit
every month, more frequently

if the need demands: these
accounts are most likely to repay
attention and to respond to
remedial action;
Doubtful Accounts - a visit each
month for as long as there are
signs that performance might
improve but, if performance
does not respond to attention,
frequency should fall back to
a visit each quarter to ensure
that the enterprise remains in
operation and the assets remain
on site and in good (working)
condition;
Loss Accounts - scheduled halfyearly visits to ensure that the
assets remain and are properly
banking
secured and maintained and

call-in visits whenever the
credit officer responsible for
the loan account is passing in
the neighbourhood: a surprise
or two may obviate sale or
abandonment of assets.
When a problem is identified, the
credit officers task is incomplete
until preventive or remedial action
has been formulated and is being
implemented - the reaction time of
the credit officer is often critical
to the successful outcome. Credit
officers should be encouraged to
bring problems to the notice of his/
her superiors in the confidence that
his/her superiors will give support;
if the culture is one of blame,
problems will be concealed, to
the detriment of the portfolio, the
lender and the client.
Problem loans should not come as a
surprise to credit officer at annual
review.
Examination
Examinations may be made as
inspections by the central bank or its
agents (second tier institutions) or
by internal audit.
However, if problems are identified
at this stage, some options for
recovery may have lapsed and, in
some cases, it may be too late to
take effective remedial action.
Loan Covenants
Loan covenants should be such that
a borrower has financial reporting
obligations and a commitment to
providing unconditional access to
accounting and financial records.
There may also be restrictions on
the payment of dividends, additional
borrowing, new investments
or changes in the Board or

organisational.
Management Information
Reporting
Information has traditionally
played a major role in lending
decisions. The manner in which this
information is stored, accessed, and
analyzed, however, has changed
markedly over the last ten years.
Where such requirements are in

place, the credit officer should
ensure that scheduled and call-in
visits cover these points. Should
the borrower fail to abide by loan
covenants, the loan is in default
and the loan classification should be
Evaluation of a borrower's credit
reviewed immediately and the matter worthiness has typically rested
reported to management.
upon historical information gleaned
from credit bureau reports, credit
Loan Performance Classification
scoring models, and current
Asset classification is a process
financial statements. The underlying
of regular review, the minimum
assumption often voiced is that if
frequency of review should be:
the borrower could make payments
on schedule in the past, then he/
at the time of every transaction
she must represent good future
on the loan account, once the
credit risk as well. The following
first drawdown has been made;
MIS reports should be available, as a
after each site visit, and
minimum for EWS:
at such time as the institution
requires the submission of
Loan concentration reports
financial statements and
showing the portfolio
management accounts.
concentration by industry,
geography and borrower
The review process is not lengthy
segments each month;
and should be reported on a standard
Account activity reports
form (Loan Classification and
to identify any unusual
Provision Report) which guides the
transactions or no transactions
credit officer in the performance
(large transactions, inactive
of the review. A copy of the report
accounts) each month;
should be placed on the working file
Loan payments due reports
of the loan account and the original
issued daily, one month in
should be passed to the Credit
advance of the due dates of
Manager.
loan payments;
Overdue loan payments reports
If the quality of performance suggests
should be issued daily, showing
that the classification should be
in days the number of days a
downgraded but is not because there
loan payment (or payments) is
are mitigating circumstances (debtors
(are) overdue;
payments in process of being cleared,
Weekly summary overdue
seasonal cash flow fluctuations, etc),
loan payment reports showing
the credit officer should complete
all accounts on which loan
the mitigation section of the Loan
payments are still overdue at
Classification and Provision Report
the end of a week;
- the mitigation report details the
Monthly summary overdue
risks and what can or is being done to
loan payment report showing
manage the risk.
all accounts on which loan
banking
payments are still overdue at

the end of each month;
New limits reports - for
checking that all input details
including name of borrower,
amount, interest rate, term
and amount of repayments are
correct;
Larger loans reports issued on
a weekly basis listing major
exposures above a threshold as
set by Senior Management
Detection of Business Decline

through Warning Signs
Credit officers need to be aware
of the warning signs that prelude
business failure. Warning signs can
be classified into non-financial,
financial and fraudulent. Non
financial warning signs include:
delays in presentation of

financial information/late filing

of accounts,
incomplete financial
information,
covenant waiver and
amendment requests,
changes in management and
board structure,
changes in auditor/accounting
policies,
non co-operation with bank
requests,
changes in business strategy
(diversification into a new and
unfamiliar business),
illogical borrower behaviour,
constantly or frequently
postponing meetings,
lack of planning,
poor record-keeping
(discontinued reports may be
a symptom of breakdown of
accounting and control system),
changes in personal habits of
key people,
deteriorating working
conditions,
evidence of low morale/staff

unrest,

offices/premises in state of
neglect,
emphasis on cash sales with
little regard for profit,

understaffing,
clerical backlog of work,
cessation of trade discounts,
sudden discounting of accounts
receivable,
lawsuits against the borrower,
adverse news affecting the
borrowers industry,

failure to acknowledge
problems,
mortgages being taken over
other assets of the borrower or

his/her guarantors,
adverse shift in exchange rates,
establishment of new corporate
entity, and
recurrence of problems
previously resolved.
Financial warning signs include:

missed and late loan payments,
repeated requests for increased
facilities or rollovers/extension
of terms,
rapid sales or asset growth,
losses for two or more years,
withdrawal of facilities by other
banks,
short-term loans continue
beyond seasonal requirements,
cash balances lower than
projected,
unusual account activity,
qualified audit opinion,
slowdown in accounts
receivable (increase in days
outstanding),
increase in creditors days
outstanding,
speculative investments,
short-term loans to finance
long-term expenditure,
borrowing to pay operational
expenses,
excessive inventory (number of

days of stock held increasing),

unexpected increase in borrowing
requirements,
borrower breaches loan
covenants,

borrower is technically insolvent,
debt to equity ratio increases,
liquidity ratios reveal
deteriorating trends,

continual requests for excesses
or hard core debt evident on

overdraft account, and
banks dishonour borrowers
cheques.
Fraudulent warning signs include:

overstated sales,
overstated inventory,
understated liabilities,
false valuation/appraisal of
assets,
audits cease,
unusually large funds transfers,
significant cash balances in noninterest earning accounts,
management overrides of internal
controls,
incomplete, missing or destroyed
documents,
asset sales to related parties,
unusual supplier relationships,
staff working unusually long
hours,
signs of deceit, and
inappropriate attitudes and
reactions to questions.
Summary
An early warning system can help
management identify pockets of
potential risk in time to be proactive
in its lending and portfolio decisions.
Credit officers and staff need to be
alert to signs of business distress. It is
vital to identify signs of distress that
diminish the borrowers capacity to
repay debt. Early recognition followed
by appropriate action is essential if a
lender is to minimise loss.
banking
Liquidity Problem and

Managing Liquidity Risk in Banks
and Financial Institutions
Pratigya Pandeya*, CA
1.1 Background
1.2 Possible causes
Liquidity Crisis has been a topic

of gossip, topic of huge discussion
in the board rooms of Banks and
Financial Institutions (BFIs) and big
corporate houses, and also topic of
news and views in the news papers
and journals across the country. It is
very common to listen that BFIs do
not have money.
Following few reasons are considered

to be the contributing factors for the
current liquidity situation:
Political and economic
instability.
Stagnant Deposit: As per Nepal
Rastra Banks, in the 10 months
of 2009/10, deposit mobilization
of commercial banks increased
merely by 5.6% (NPR 30 billion)
to reach total deposit of NPR
580 billion. The increment
was 20% (NPR 82 billion) in the
corresponding period of the
previous year. More interestingly,
the level of deposit is almost
stagnant since last 6 months.
Excessive Investment in Gold:
During last 2 years, investment
in gold is also taken as measure
for safe investment due to
increased price of gold. Nepal
Rastra Bank has implemented
quota system to manage the
import of gold as well. However,
the consumption seems to be
always encouraging leading to
funds transferring from banking
channel to stock of gold.
Nepalese financial sector is fighting

against the severe liquidity problem
since last 9 months. Initially, when
the crisis started, non release of
budgetary fund for FY 2066/67
was taken as the one of the main
reasons for liquidity problem.
However, even after release of
budgetary fund, though late, the
problem remained as it is and
conditions worsen more.
In this article, it is aimed to reveal
the snapshot of current situation
of liquidity position of Nepalese
financial system followed by liquidity
risk management strategies to be
followed by BFIs which can assist to
mitigate the probable liquidity risk.
* Ms. Pandey is currently working with Citizens Bank International Limited.
Capital flight: Though we dont
have data to prove possible

capital flight from Nepal.
However, declined real estate
price in countries like USA and
all time high real estate price
in Nepal must have encouraged
Nepalese to invest in USAs
real estate. Also, political and
economic instability of the
country was main reason for nonspending of money in productive
sector here and amount might
have gone out of Nepal.
Deficit Balance of Payment
by NPR 17.36 billion in the 10
months of 2009/10, against the
surplus of NPR 43 billion in the
same period last year.
Assets Liabilities Mis-match of
BFIs: Many Nepalese BFIs lack
to manage the asset liability
maturity mismatch. Long term
assets are funded by very short
term sources of funding, which
hits hard when funds are not
available easily in the market.
Cash Holdings by general Public
Decrease in Remittance: Due to
global financial crisis, the rate
of remittance sent by Nepalese
workers has decreased this year.
banking
1.3 Impact of Liquidity

Crisis
Increment in Bank Deposit/
Lending Rate of Interest: We

have been witnessing soaring
interest rates in the deposits
and lending rates of BFIs. One
year fixed deposit report even
touched the level of 12%-14% and
lending rates touched the level
of 20%. Average rate of treasury
bills also seemed increased.
Similarly, Standing Liquidity
Facility (SLF) rates and inter
bank rates touched the as high as
14-15%.
Difficulty for BFIs to advance
loans: Loans flow by the BFIs is
also hardly increased. Loans and
advances of commercial banks
increased by 12% (NPR 63 billion)
to reach NPR 582 billion in the
first 10 months of 2009/10. It
grew up by 18% (NPR 71 billion)
in the same period last year.
Possible loss of public faith
on the BFIs, leading to
concentration of funds in nonbanking sectors. It is observed
that, individual deposits of the
BFIs are seen decreasing trend
and believed to be concentrated
in non banking form and even
in small cooperatives. This has
led to the deposit crisis to the
banking sector.
Bearish trend in Stock Market:
The NEPSE index declined by
31% to 458 points in the first
10 months of 2009/10. The
index stood 661 points in the
same period last year. NEPSE
is witnessing smaller volume
of trading. Nepal Rastra Banks
policy to tighten loans against
shares was also one of the main
reasons for bearish sentiment in
the market.
1.4 Nepal Rastra Banks

role in managing the
liquidity crisis
Nepal Rastra Bank, primarily, have
used the money injecting tool
of REPO and outright purchase
to manage the liquidity problem
faced by the Nepalese BFIs. During
this period, once the economy
had more than NPR 20 billion
fund injected by Nepal Rastra
Bank in terms of REPO, which is
almost sufficient to meet CRR
(Cash Reserve Ratio) requirement
of commercial banks. Repo is
considered to be the short term
tool to manage the liquidity need.
However, NRB is continuously
using the tool since last 7 months.
There is no doubt that BFIs failed
to generate fund even to meet the
basic CRR needs.
1.5 How much is the

minimum level of
Liquidity
What is the adequate level of
liquidity is always matter of
discussion and debate. Excess
liquidity leads curtailing of revenue
while tight liquidity may even force
the BFIs closure of operations. In
this context, adequate level of
liquidity may also be determined
by the customer bases, deposit mix
and diversification, assets quality,
location of BFIs etc. BFIs need
to identify when and how much
liquid assets to maintain so as to
meet the foreseen and unforeseen
withdrawals of deposits. Analysis
of past trend of withdrawals,
industry trend of withdrawals in
similar type of situations, constant
interaction and meeting with
customers will help BFIs to forecast
the liquidity needs.
However, Nepal Rastra Bank has set

a minimum level of liquid assets to
be 20% of local currency deposits.
Liquidity assets contains:
Cash and Bank Balances.
Money at Call.
Placement upto 90 days
Investment in Government
Security
Less: Borrowings upto 90 days
Net Liquid Assests
2.1 How to Manage

Liquidity Problem
Banks and financial institutions are
prone to many risks including credit
risk, default risk, market risk,
interest rate risk, management risk,
operational risk etc. And, liquidity is
one of the major risks, which can be
taken as a part of operational risk.
Liquidity risk is the potential for
loss to a bank arising from either
its inability to meet its obligations
or to fund increases in assets as
they fall due without incurring
unacceptable cost or losses.
It is not easy to outline definite
rules and procedures, which can
be implemented as tool that can
100% stop liquidity crisis. However,
properly set out Liquidity Risk
Management Framework can surely
mitigate the liquidity risk that can
arise in financial system.
2.2 Warning Signals

for Possible Liquidity
Problem
Banks need to be aware of possible
signals which trigger the liquidity
problem bottom. Bank management
needs to monitor carefully such
indicators and exercise careful
scrutiny whenever it deems

banking
appropriate. Following are the

few examples which can be taken
as warning signals for liquidity
problem:
A negative trend or significantly
increased risk in any area or
product line.
Concentrations in either assets
or liabilities.
Deterioration in quality of
credit portfolio.
A decline in earnings
performance or projections.
Rapid asset growth funded by
volatile large deposit.
A large size of off-balance sheet
exposure.
Deteriorating third party
evaluation (Negative Rating)
about the bank and
negative publicity.
Unwarranted competitive
pricing that potentially stresses
the banks.
internal pricing, performance

measurement and new product
approval process
BFIs should implement sound
process for identifying,
measuring, monitoring and
controlling liquidity risk.
BFIs need to monitor and
control liquidity risk exposures
and funding needs within
contingency funding plan
(CFP) that clearly sets out
the strategies for and across
legal entities, business lines
and currencies, taking into
account legal, regulatory and
operational limitations to the
transferability of liquidity.
BFIs require formal addressing
liquidity shortfalls in emergency
situations
BFIs need to establish a funding
strategy that provides effective
diversification in the sources
and tenor of funding.
2.3 Basic principles

of Liquidity Risk
Management
2.4 Liquidity Strategies
BFIs need to implement a liquidity

risk management framework with
following basic principles.
BFIs need to have robust
liquidity risk management
framework.
BFIs clearly articulate a
liquidity risk tolerance that
it appropriate for its business
strategy and its role in the
financial system.
BFIs should develop a strategy,
policies and practices to
manage liquidity risk in
accordance with the risk
tolerance and to ensure that
the bank maintains sufficient
liquidity.
BFIs should incorporate liquidity
costs, benefits and risks in the
Banks should formulate and

implement appropriate liquidity risk
management policies. The liquidity
strategy must be documented in a
liquidity policy, and communicated
throughout the bank. The strategy
should be evaluated periodically
to ensure that it remains valid.
Specific details of the policy may
vary from bank to bank according to
the nature, size and complexity of
their business. At minimum it should
cover general liquidity strategy
(short- and long-term), specific
goals and objectives in relation
to liquidity risk management,
process for strategy formulation
and the level within which it is
approved. The strategy should
provide continuity in approach
and should be reviewed and
amended periodically as deemed

necessary; it should be viable in
the long term and through various
economic cycles. The liquidity risk
strategy defined by board should
enunciate specific policies on
particular aspects of liquidity risk
management, such as:
2.4.1 Composition of Assets
and Liabilities
The strategy should outline the
mix of assets and liabilities to
maintain liquidity. Liquidity risk
management and asset/liability
management should be integrated
to avoid steep costs associated with
having to rapidly reconfigure the
asset liability profile from maximum
profitability to increased liquidity.
2.4.2 Diversification and
Stability of Liabilities
The strategy should ensure that
the bank have a diversified sources
of funding day-to-day liquidity
requirements. A bank would be
more resilient to tight market
liquidity conditions if its liabilities
were derived from more stable
sources. To comprehensively analyze
the stability of liabilities/funding
sources the bank need to identify:
Liabilities that would stay
with the bank under any
circumstances;
Liabilities that run-off gradually
if problems arise; and
That run-off immediately at the
first sign of problems.
2.4.3 Access to Inter-bank

Market
The inter-bank market is one of the
sources of liquidity. However, the
strategies should take into account
the fact that in crisis situations
access to inter bank market could
be difficult as well as costly.
banking
2.4.4 Contingency Funding Plan

Designing contingency funding plan
to enable BFIs meet their funding
needs under stress scenarios.
Such a plan, popularly known as
Contingency Funding Plan (CFP), is a
set of policies and procedures that
serve as a blue print for a bank to
meet its funding needs in managing
liquidity risk in a timely manner
and at a reasonable cost. The CFP
should project the future cash
flows and funding sources of a bank
under market scenarios including
aggressive asset growth or rapid
liability erosion.
2.5 MIS and Sound

Liquidity Management
Decision
An effective management
information system (MIS) is essential
for sound liquidity management
decisions. BFIs should be able to
monitor its day today liquidity
position and risk control. MIS of
liquidity should be developed
keeping a crisis monitoring in
mind. Accuracy and timeliness of
information are important elements
for monitoring liquidity. Since bank
liquidity is primarily affected by
large, aggregate principal cash
flows, detailed information on
every transaction may not improve
analysis.
An appropriate mechanism for
monitoring activities helps in proper
identification of liquidity risks
through early warning indicators,
which have the potentials of
igniting the problem. Management
should develop systems that can
capture significant information.

The content and format of reports
depend on a bank's liquidity
management practices, risks, and
other characteristics. Management
should regularly consider how best
to summarize complex or detailed
issues for senior management or
the board. Besides several types of
information important for managing
day-to-day activities and for
understanding the bank's inherent
liquidity risk profile include:
Asset quality and its trends.
Earnings projections.
The bank's general reputation in
the market and the condition of
the market itself.
The type and composition of the
overall balance sheet structure.
The type of new deposits being
obtained, as well as its source,
maturity, and price.
3. Regulators role
in managing Liquidity
Management
It is not only the Banks but also
the regulator, Nepal Rastra Bank,
should pay attention to manage the
liquidity as even a liquidity problem
in a single BFI may lead to loss of
public faith to the banking system.
In this context, NRB should see this
as an economic problem rather than
problems of Banks.
Following role of Nepal Rastra Bank
is desired to manage the liquidity
problem of the economy:
Proper education and regulation
in liquidity management of BFIs.
Proper and timely monitoring of
liquidity position of BFIs.
Implementation of sustainable
and effective liquidity

management tools so as
to supplement BFIs effort to
combat the liquidity problems.
4. Internal Controls
within BFIs
BFIs should institute review process
that should ensure the compliance
of various procedures and limits
prescribed by senior management.
The structure (unit) for review
should be independent of the
funding areas. Reviewers should
verify the level of liquidity risk and
managements compliance with
limits and operating procedures.
6. Conclusion
This is the time for the government,
institutions like Nepal Rastra Bank
and individual Banks and Financial
Institutions to take a lesson from
this type of mis-match in the
financial system. Political stability,
proper economic vision and
implementation thereof, proper and
regular review and monitoring of
BFI activities by regulator like Nepal
Rastra Bank and sound Liquidity Risk
Management Framework within BFIs
are the bare minimum requirement
so as to mitigate any unforeseen
liquidity risk in the financial
system. Otherwise, who knows,
current liquidity problem, can be
an indication of downfall of the
nations financial system as a whole?
banking
Anti Money LaunderingAn Introduction

Nil Saru*, CA
The phrase money laundering was

first coined at the beginning of the
20th Century. The criminalization of
the actual or attempted laundering
of proceeds of crime is also quite
recent. However, the practice of
disguising income derived from
illicit activities can be traced back
to the 13th Century B.C, when the
oceans and seas were originally used
as international trade routes. Rife
with pirates, the shipments were
often purged and plundered for
valuable commodities and assets.
Pirates were arguably pioneers in
the practice of laundering such
articles as they and even the
empires they served sought to profit
from their treacheries in a way that
did not attract any ramification.
Because of the sophistication
that the global banking industry
has and because of the advent of
information technology, money
laundering has been much easier
in twenty first century that
that in pirates time. Crime has
become more global. It is no
longer sufficient for enforcement
authorities to merely be aware of
what is occurring within their own
jurisdiction. Hence criminals no

longer have the desire to remain
or limit their activities to one
country. As a result, international
criminal organizations have become
skilled and experienced at moving
property from one country to
another, taking advantage of the
notoriously lax legislation existent
in some countries that provides safe
havens for foreigners seeking to
conceal their wealth. Many of these
countries provide dead ends for
investigators who attempt to follow
the trail left by the proceeds.
Money LaunderingDefined
Though money laundering came to

the world centuries back, however
no industry level initiatives were
taken until a decade ago even
though banks world over were
having different practices at their
entity level. Finally Anti Money
laundering guidelines came to
effect post the September 11
attacks. Now the Regulators of
more than 100 countries has set
up Financial intelligence Units
are issuing guidelines to their
stakeholders so as to combat money
laundering and terrorist financing
activities.
1. Placement (Hide)
The launderer introduces the illegal
profits into the financial system. This
may be done by breaking large amounts
of cash into less conspicuous, smaller
sums that are then deposited directly
into a bank account. Or by purchase of
a series of monetary instruments (the
cashier's cheques and money orders)
that are then collected and deposited
into accounts at other locations.
* Mr. Saru is a Chartered Accountant Member of the Institute.
Money laundering is basically giving

legitimate cover to the funds acquired
through illegal activities. It is a
process by which Criminals attempt
to hide the original source of the fund
acquired through crime. If the attempt
becomes successful, it provides and
apparent legitimate cover for the
criminals source of income.
Stages in Money
Laundering
2. Layering (Move)
The launderer engages in a series of
conversations or movements of funds
to distance them from their source.
banking
The funds may be channeled through

the purchase and sale of investment
products or the launderer may simply
wire the funds through series of
accounts at a number of different
banks. In some instances, the
launderer may disguise the transfers
as payments for goods or services,
thus giving them a legitimate
appearance.
in. Going by the estimation made

by the experts, money laundering
is reporting to be more than US $ 1
Trillion every year by the Criminals.
And it is estimated to grow at the
rate of 2.5%-3% annually.
Because of the fact that such huge

amount of sums is being laundered,
it has been all the more important
for the entire financial institutions
Integration (Invest) : The illicit funds world over to develop policies and
re-enter the legitimate economy.
implement the same to combat the
The launderer may choose to invest
anti money laundering activities.
the funds into real estimate, luxury
And hence several bodies have been
assets or business ventures.
formed to combat money laundering
and finance of terrorism. The wolfs
Money Launderingberg group is an association of twelve
Global Scenario
global banks, which aims to develop
financial services industry standards
In today's global economy organized
and related products, for Know Your
crime groups generate huge sums
Customer, Anti Money Laundering and
of money through illegal activities
Counter Terrorist Financing policies.
viz. drug trafficking, arms smuggling
The Egmont Group is an association
and financial crime. The money
of several FIU's across the world
generated from those activities are
whose aim is information exchange
of very little use for them as the
about money laundering activities.
same raises suspicions of the law
In the world at large, more than
enforcement. The crime syndicates
100 FIU's are working as on date and
then tries to give legitimate cover
several countries are in the process
to their illegal money by disguising
of establishing FIU's to combat money
the original source without exposing
laundering.
themselves. It has been a major
challenge for the financial services
Money Launderingsector across the world to combat
Nepalese Perspective
money laundering and terrorist
financing.
Nepalese Financial Industry is way
far from the sophistication that
The more developments in the
the global banks have. However
global financial system of the
because of the banking system
world, more difficult it has been to
in use and mushrooming of banks
combat the anti-money laundering
which has been seen till the recent
activities. Because of the advent
times, this has been a safe haven
of sophisticated technologies in
for the criminals to penetrate their
the banking space, though it has
illicit money in to the Nepalese
been able to provide services par
banking channel. Despite the fact
excellence to the customers at the
that Nepalese banks have not even
same time it has made easy way to
been graduated from the pull based
the criminals to launder their money banking model, in the scenario that
banks are begging and competing

for deposits with the interest rate
as high as 13-14 percent, it has been
a golden opportunity for criminals
to launder their money. The Thirst
of the deposits is so deep that
bankers are ready to override any
parameters set by the regulators.
In that context, thinking over
Control mechanism by the banks
for combating money laundering
and terrorist financing and working
towards the same seems to be far
from distant.
So it gives all the more reasons to
Nepalese Banking Industry to think
and develop strategies for combating
financing to the country at large.
And at the same time, it has already
rang siren to the regulators to
develop strategies to monitor money
laundering and terrorist financing.
However as the Nepalese economy
is in transition phase, similar is the
situation of the Nepalese banking
space. We have a scenario that
Nepalese banks are still way far
from the technologies, management
models and information system used
by the gobal banks at one end. At the
other, it is bitter truth that the Top
Management of the bank itself is not
AML literate in majority of the Banks.
Because of the same, it is really
challenging at the regulator's end to
implement AML initiatives.
Though Anti Money Laundering act
2008 has been enacted in Nepal,
Hardly few banks are seen who
are having Transaction Monitoring
Units(TMUs) to combat the AML at
the bank level and raising Suspicious
Transaction Reports (STRs) at the
regulators level. Here the challenge
lies not only to compel banks to raise
STRs but also to educate the senior
banking
management with respect to the

implementation of AML Framework at
the bank level.
Mechanism to Prevent
Money Laundering
It is official now that in Nepal we
also do have Anti Money Laundering
Act formally known as Asset
(Money) Laundering Prevention Act
2008) and the Regulator viz. Nepal
Ratra Bank has already developed
Financial Intelligence Unit as a move
towards the Prevention from Money
Laundering and Terrorist Financing
Activities. And also NRB is putting
efforts on educating the reporting
entities to develop strategies to
combat money laundering activities
at the supervisory level. Now the
changing banking scenario and
the changing regulatory level
expectations warrant the reporting
entities to develop a mechanism
to combat money laundering at
the reporting entity level also.
And for the reporting entities to
comply with the requirements of
the Anti Money Laundering Act and
develop strategies to combat money
laundering, they require to have in
place a robust AML programme that
would not only help in detecting
instances of money laundering but
also allow them to report cash and
suspicious transactions to FIU-Nepal.
A robust AML programme should
incorporate the following:
A designated Principle
Compliance Officer:
A system of Internal Policies,
Procedures and Controls
A continuous employee training
programme and
An independent testing
programme (i.e. internal
control/audit)
1) Principal Compliance Officer

(Oversight Activities)
The first and foremost move
towards the development of an AML
Programme is the appointment of an
AML Compliance Officer (AMLCO) that
is approved by the Board of Directors
and possesses requisite knowledge
and competency to effectively
oversee the AML programme.
Some of the roles and responsibilities
of the AMLCO would be
To coordinate and monitor day to
day AML compliance
Liaison with regulatory/
enforcement authorities
Submit cash and Suspicious
Transaction Reports to the FIU
To make sure that the AML
policies and procedures have
been well documented, approved
by the Board and communicated
to all personnel
Review adequacy of AML controls
in the existing and new products
offered by the organization
Report to the Audit Committee
on the adequacy of existing
control and improvements
needed
Maintain oversight over AML
related duties and have
been delegated within the
organization.
procedures that the organization as a

whole would adopt. It also indicates
the AML Operating structure,
regulatory reporting and recording
requirements and internal audit and
monitoring that would be carried
out to ensure adherence to AM
requirements.
The Enterprise wide AML Policy should
generally incorporate
The objectives the organization
aims at achieving
The AML Organization structure
Regulators requirements towards
AML
Role of Employees
Reporting and Record Keeping
requirements
Escalation procedures in place
Monitoring and Audit that would
carried internally
After developing an AML policy at the

enterprise level, the organization
needs to develop "Operating Policies
and Procedures" for each or its
functions. The operating policies and
procedures mention the documents
that need to be collected from
customers, the due diligence that
needs to be performed, transaction
monitoring that needs to be
conducted, records that need to
be maintained and the manner of
reporting to the AMLCO. Following
2) Internal policies, Procedures are the various components of the
and Controls
Operating Policies and Procedures and
The organization needs to have in
the expectations of the regulator.
place a board approved 'enterprise
wide' AML policy and operating
a) Customer Identification
policies and procedures for each
Procedure: The organization needs to
area or function of the organization. put in place a process for capturing
The enterprise-wide policy is like
information about the customer.
a master document as it sets the
Popularly known as Know Your
tone of the senior management
Customer (KYC), this is the first step in
towards AML. It communicates
identifying potential money laundering
to the personnel throughout the
instances. For the same Nepal Rastra
organization the AML standards and
Bank has already issued guidelines.
banking
KYC procedures allow the

organization to gather information
about the background of the
customer. These KYC procedures
need to be adopted for both existing
and new customers.
customers classified as high risk,

this would help the organization
in gathering maximum information
about the customer and take a well
informed decision whether it wants
to accept the customer or not.
The components of a robust

Customer Identification Procedures
include:
A list of documents (identity
and address proof) that needs
to be collected by the personnel
from different classes of
customers (e.g. individual, trust,
partnership firm, body corporate)
Collection from customers,
name and address proof (e.g.
Citizenship, PAN Card etc)
Confirming the authenticity of
the documents provided
Screening customer's name
against watch lists (e.g.
customer having the criminal
background, terrorist affiliations)
Besides the above, organizations

should consider performing
enhanced due diligence for foreign
correspondent banking accounts,
customers that are from high risk
geographic or purchase certain
products which are prone to
money laundering or are politically
exposed persons (PEPs).
b) Customer Due Diligence: Once

the necessary KYC documents
are collected and verified, the
organization needs to collect
information about the client.
The process involves gathering
information about the customer's
nationality occupation, nature
of business, source of wealth,
affiliations expected transaction
volumes and types of products
the customer is likely to engage
in. Profile Checks, Residence
Verification, Business Verifications
can be conducted as a tool of CDD.
Based on the information gathered,
the organization should perform
a risk profiling of the customers,
Customers could be classified as low,
medium or high risk. Enhanced due
diligence should be performed for
It would be essential that the

risk profiling needs to be well
documented so that the parameters
can be well demonstrated to the
regulator as and when required.
c) Transaction Monitoring:
The regulations issued by the
regulators require organizations
to perform periodic monitoring
of customer related transactions.
Accordingly, organizations should
undertake a risk-based monitoring
of transactions and aim to detect
unusual or suspicious activity in
customer's account.
The organization must clearly set
out procedures, which would serve
as guides to each function in the
organization. The procedures should
clearly spell out the transactions
that would be monitored, the tools
(automated/manual) that would be
used to monitor the transactions,
periodicity of monitoring
transactions, the escalations
procedures that need to be adopted
when "alerts" are generated,
the time frame within which the
"alerts" need to be resolved and the
procedure that needs to be adopted

for filing Suspicious Transactions
Reports (STR).
d) Transaction Reporting: The AML
ACT requires the organization to file
with FIU two kind of reports:
Cash Transaction Report (CTR)
Suspicious Transaction Report
(STR)
The organization needs to file these

reports in the prescribed format to
FIU in a timely manner as specified
in the Asset (Money) Laundering
Prevention Act 2008).
e) Record Retention: The guidelines
issued by the regulators require
the banks, financial institutions
and intermediaries to document
policies for retention of customer
identification and due diligence
records, records of transaction
conducted by the customer and
documents supporting CTR and STRs
filed by the entity.
3) Employee Training Program
A robust and updated training
programme is the corner stone
for countering money laundering
and terrorist financing. Welltrained employees are a strong
defence against money laundering
and terrorist financing. Hence,
it is important for organizations
to develop and implement an
enterprise wide training programme.
It is advisable that training programs
are structured for:
New Employees
Existing Employees and
High Risk Employees (employees
that deal with products
or services which have a
substantial "money laundering
risk")
banking
Further, the training program should

be frequently updated t incorporate
changes in the money laundering
and terrorist financing laws and
scenarios.
4) Independent Review of the
AML Programme
Finally, the AML programme should
be subjected to an independent
review. The guidelines issued by
the regulators require the internal
audit or the compliance team to
evaluate the AML Programme.
Further, external reviewers
may be appointed to judge the
adequacy and the robustness
of the AML programme. Lapses
in the programme should be
communicated to the audit
committee on a quarterly basis.
Before Signing Off

There is no denying that with
the sophistication of the
globalised banking industry,
money laundering activities
has also extended at the global
scale. However the innovations
in information technology and
evolution of different logical
computer languages, monitoring
financing has made easier which
otherwise would have been a
uphill task.
In our Nepalese context, though
the banking operations are moving
towards the global sophistication,
but we cannot really see any
upsurge in the control parameters
designed to monitor the subject

like money laundering at the
enterprise wide level. In this
context, it could be a valid
argument, If supervisory level
controls are pin pointed. But in the
country like ours, where transition
phase is unending, Entity level
preparedness plays more prominent
role than that of supervisory, as
the Entities need to sustain /
grow despite the supervisory level
controls and guidelines. Hence
it calls for the banks in Nepal
to develop Enterprise wide Anti
Money Laundering Controls and
Procedures and to implement
them in the spirit for which it was
designed irrespective of whether
supervisory level controls are
working or not.
Accounting Technician (AT) Course

Paper I : a) Advanced Accounting (60 Marks)
b) Management Accounting (40 Marks)
Paper II : Auditing & Assurance (100 Marks)
Paper III : Corporate & Other Laws (100 Marks)
Paper IV : Taxation (100 Marks)
A combination of theoretical study and practical training
supported by 100 hours IT training and 10 days General management & Communication Skills (GMCS)
training
Entry Level Requirements

Passed the Chartered Accountancy
Professional (CAP) I / Foundation
Examination,
Or
Be at least Graduate in management/

commerce or secured at least 50% marks
other than management/commerce from the
recognized university
Registration Fee Structure

Total Registration Fee Rs. 20,500/Levy for Building Fund Rs. 2000/Registration fee shall be paid in installment basis i.e. Rs. 13,000 at the time of registration and
Rs. 10,000/- within six months from the date of registration.
economy
Prospects and Challenges of

SAFTA in the Context of Economic
Development of Nepal
YADAV MANI UPADHYAYA*
1. Background of SAFTA
Nepal is facing trade barriers in
the international market. The total
volume of foreign trade is very low
in comparing with our neighborhood
countries. Besides this, the
export trade is not remarkable in
comparing import trade. South
Asian Free Trade Area (SAFTA)
is the latest model of extension
of regional trade in South Asia.
SAFTA is one of way of eliminating
barriers to trade and facilitating
the cross border movement of
goods between contracting states,
promoting conditions for fair
competition; creating effective
mechanism for the implementation
and application of this agreement
for its joint administration and
for the resolution of disputes,
and establishing a framework
for further regional cooperation.
Nepal is one of the most trade
dependent economies in South
Asia. Nepal's proximity to the
large economies of India and China
offers opportunities for trade that
could support Nepal to accelerate
economic growth and poverty
alleviation. The liberalization

trade creates opportunities to
export, which ultimately seems
creating employment and using raw
materials. These activities help to
raise income and also help uplift
the living standard of the people.
However, there are number of
challenges to the implementation
of SAFTA's terms and conditions.
There are some constrains among
the member countries, and Nepal
and India. Nepal is the country, its
peoples' per capita is the lowest
among the SAARC countries.
There are other numbers of
problems such as transportation
and communication, traditional
technology in the industrial sector,
lack of public awareness, unskilled
manpower, low productivity, low
development in infrastructure, low
development in financial sectors,
political conflict etc which are
hindering the implementation
of SAFTA agreement and getting
benefits from the SAFTA application
in the SAARC countries.
South Asian Free Trade Area (SAFTA)
is the latest model of extension of
regional trade in South Asia. SAFTA

is the refined form of South Asian
Preferential Trading Agreement
(SAPTA). These both models have
been brought into existence for
the development of regional trade
and cooperation in the South Asian
region. The provisions of SAPTA
and SAFTA keep mum in trade
and services. During the summit,
Islamabad in January 2004, the
heads of state and government of
the seven members of South Asian
Association for Regional Cooperation
(SAARC) decided to establish a
free trade area in South Asia. The
Islamabad declaration aims to
launch the South Asian Free Trade
Area (SAFTA) on January first 2006.
The various rounds of South Asian
Preferential Trading Agreement
(SAPTA) a predecessor of SAFTA
has not produced meaningful
consequences partly because of
the highly protective trade regimes
most countries had in place. SAPTA
implementation was also made
difficult by the abiding hostility
between India and Pakistan. The
fourth round of tariff reductions
under SAPTA had to be deferred
* Mr. Upadhyaya is an Assistant Lecturer in Sanothimi Campus, Bhaktapur.
economy
because of the return of military

rule in Pakistan and mounting
tensions between the two countries
in 2001 and 2002.
2. SAFTA Agreement
The SAFTA agreement's initiated
objective is to 'Strengthen intraSAARC economic cooperation to
maximize the realization of the
region's potential for trade and
the development of their people.'
The objectives of agreement tells
for, (i) Eliminating barriers to trade
and facilitating the cross border
movement of goods between
contracting states; (ii) Promoting
conditions for fair competition;
(iii) Creating effective mechanism
for the implementation and
application of this agreement for
its joint administration and for
the resolution of disputes, and (iv)
Establishing a framework for further
regional cooperation. Which are
governed by the principles of the
World Trade Organization (WTO),
reciprocity, and an awareness
of the needs of least-developed
SAFTA members (Bangladesh,
Bhutan, Maldives and Nepal), the
agreement targets the elimination
of tariffs, Para-tariffs and non-tariff
barriers. The SAFTA 's agreement
is followed by the principles as,
(i) The SAFTA is governed by the
provisions of the agreements
and also by rules, regulations,
decisions, understandings and
protocols to be agreed upon within
its framework by the contracting
states, (ii) The contracting states
affirm their existing rights and
obligations with respect to each
other the agreement establishing
the world trade organization and
other treaties to which, such
contracting states are signatories,
(iii) The agreement involves the

free movement of commodities
between countries through the
elimination of tariffs, para-tariffs
and non-tariff restrictions on the
movement of commodities and
any other equipment measures,
(iv) The agreement entails the
adoption of trade facilitation and
other measures, and the progressive
harmonization of legislation in
the relevant areas, (v) The special
needs to the least developed
countries is clearly recognized by
adopting concrete preferential
measures in their favor on the nonreciprocal basis and it is applied on
the principles of overall reciprocity
and mutuality of advantages.
The agreement provides for the
creation of two institutions to
oversee implementation. The
SAFTA Ministerial Council will be
the highest decisionmaking body
and will consist of the ministers
of commerce or trade of member
states. The council will meet at
least once each year with the
chair of the council changing
annually. The committee of experts,
consisting of a senior economic
official from each member state
will support the council, report on
implementation status semiannually,
and serve as the dispute settlement
body. The Committee of Experts
will meet at least once every six
months, with the chair of the
committee changing annually. There
are some agreement under SAFTA.
2.1 Tariffs
SAFTA member states have
committed to a ten-year phase out
of tariffs beginning in January 1,
2006. Reductions will proceed in
two stages but at a different pace
for least developed countries (LDCs)
and non-least developed countries

(NLDCs). In the first two years:
(i) LDCs will reduce tariffs to a
maximum of 30%. Tariffs already
below 30% will be reduced by
5% annually.
(ii) NLDCs will reduce all tariffs to a
maximum of 20%. Tariffs already
below 20% will be reduced by
10% annually.
In the second phase of
implementation:
(i) LDCs will reduce tariffs between
0% to 5%.
(ii) NLDCs will reduce tariffs to
between 0% to 5% by the third
year for products from LDCs and
over 5 years for the remainder
at a rate of no less than 15%
annually. But Srilanka is allowed
6 years to complete this phase.
The SAFTA preferences have some
additional requirements for rules
of origin, sensitive lists, balance of
payments, and safeguard measures
for qualifying. The rules of origin
eligibility for tariff preferences by
specifying how a good commodity
is classified as being produced in
a member state as a percentage
of value added. Negotiations of
rules of origin may determine
the benefits of the agreement.
Certain categories of products
may be excluded permanently or
temporarily from preferences.
The agreement contains provisions
restricting trade in the interests
of national security, public morals,
health or historic value. It also
provides for exemptions of sensitive
list of products. The agreement
needs that lists be reviewed every
four years with a view to reducing
the number of items, but entails
no commitment to shortening
the lists. WTO requires that
economy
preferential trading agreements

free substantially all trade between
member states where substantial
all is interpreted as 85%. This would
seem to place a maximum limit on
the size a country's sensitive list.
Member countries facing serious
balance of payments issues can
temporarily suspend the concessions
of the agreement. The experts'
committee will monitor such
situations and require that the
suspension be phased out once
the balance of payments situation
has improved. Member countries
may also temporarily suspend
concessions for specific goods when
the quantity of imports causes or
threatens to cause serious injury
to producers of like or directly
competitive products and it can be
extended for maximum three years.
2.2 Non-tariffs
Trade liberalization provisions also
address non-tariffs barriers. The
requirement is that quantitative
restrictions not consistent with
WTO provisions be eliminated for
products not on sensitive lists.
All non-tariff barriers and paratariffs must be notified to the
SAARC Secretariat annually. The
committee of Experts will review
measures for WTO compliance and
can recommend their elimination
or amendment. The agreement
makes no positive statement
about compliance or systematic
elimination of non-tariff barriers.
2.3 Special and Differential
Treatment
The agreement has several
provisions for differential of LDCs,
including a longer implementation
period, faster tariff reductions for
NLDCs, and favorable consideration
for applying antidumping and

countervailing measures and
continuing quantitative reductions
or direct trade measures. The
agreement provides for a revenue
compensation mechanism for LDCs
by which member states agree 'to
establish an appropriate mechanism
to compensate the least developed
contracting states for their loss of
customs revenue.
2.4 Other Issues and Provisions
The agreement is the adoption of
trade facilitation initiatives as the
principle. Those initiatives would
provide significant benefits for
LDCs. The agreement also highlights
areas that might be considered
in the future negotiations, the
harmonization of standards,
customs clearance procedures,
customs classifications, and import
licensing and registration, customs
cooperation, transit facilitation,
removal of investment barriers
inside SAARC, macroeconomic
consultant, rules for fair
competition, communication and
transportation infrastructure
and the elimination of exchange
restrictions.
3. Prospects of
Economic development
from SAFTA
A tiny landlocked country in South
Asia, Nepal remains as one of the
48 least developed countries in the
world. Nepal is situated between
the two populated countries, India
and China. Nepal has much to gain
from regional cooperation and has
been pursuing economic integration
for well over the decades. Since
1990, Nepal entered market
oriented economic reforms to
facilitate integration with the global
economy by opening up to the trade

in goods and services, technology
and investment for import
substituting industrialization.
Tariff liberalization will improve its
access to SAARC markets and open
its own market, generate trade,
and offer beneficial secondary
efforts arising from economics of
scale, structural transformation,
investment flow, and efficiency
resulting from greater competition
and technological change. Thus,
trade liberalization can be a net
benefit only if trade creation and
secondary efforts are large enough
to offset trade and revenue losses.
Benefits, especially secondary
benefits, could be much greater
if Nepal's free trade agreement
with India, its main trading
partner among SAARC countries,
is integrated into SAFTA. This
integration would cut Nepal's
customs revenue substantially.
By realizing the potentially wider
gains of tariff liberalization under
SAFTA, will require enforcing
simpler and less restrictive
safeguard measures, offering
compensation for customs revenue
losses, eliminating Para-tariff and
nontariff barriers trade facilities,
by improving trade facilitation and
transport connectivity, regional
transit agreements, expanding the
agreement on encompassing trade
in services and strengthening the
SAARC secretariat.
Nepal is one of the most trade
dependent economies in South
Asia. Nepal's proximity to the
large economies of India and
China offers opportunities for
trade that could support Nepal
to accelerate economic growth
and poverty alleviation. Nepal's
economy
economic reforms of the early

1990s increased its integration
into the global economy. Major
reforms encompassed liberalization
of trade and industrial policies
and rationalization of the foreign
exchange regime, including a
substantial depreciation of U.S.
dollar. Nepal's trade to GDP ratio
increased from 23% in the 1980s
to more than 50% by the end of
1990s, but this ratio was decreased
after 2000 because of the global
economic slowdown and internal
political instability. Nepal's
improved business environment
also contributed to a rapid export
growth. Exports trade mainly
manufactured goods grew 30%
annually from 1991s to 1995;
exports of carpets and garments
together rose by 77% in the early
1990s. In the second half of the
1990s, weak demand, quality
problems and importing countries'
concern over child labour slowed
growth in exports of carpets. Many
problems have been resolved, but
carpet exports have not resolved
and exports of readymade garments
suffered as competition intensified
with the dismantling of the quotas
on imports from China and India.
Nepal's trade with India is governed
by a bilateral trade agreement;
tariff free access under SAFTA
will not affect its access to India's
markets or its exports to India
unless the treaty is not integrated
into SAFTA. Under the agreement,
Nepal's export will face a maximum
tariff of 5% in NLDCs, such as
Pakistan by 2009 and Sri-Lanka by
2011, and in all LDCs, including
Bangladesh, Bhutan, and Maldives
by 2015. Tariff free access to these
markets could significantly expand
Nepal's exports and boost foreign
direct investment in the country.

Nepal's exports to Pakistan, mainly
large cardamom and leather, are
likely to benefit from reduced
tariffs, as are its exports to
Bangladesh.
Tariff free access could also present
producers opportunities to export
more or new goods to existing
or new partners in the SAARC
region. There will be increased
in output and it will rise several
secondary benefits. The more
important secondary benefits would
include structural transformation,
economies of scale and investment.
The extent of secondary benefits is
likely to be much greater if Nepal's
bilateral agreement is integrated
into SAFTA.
Hence liberalization trade
creates opportunities to export,
which ultimately seems creating
employment and using raw
materials. These activities help to
raise income and also help uplift
the living standard of the people.
4. Challenges of SAFTA
Nepal can be said to be the
country of problems. Low
economic growth rate, growing
unemployment, and intensifying
poverty culminating into the vicious
cycle of low income, low saving,
low investment and low growth
have led the country to low level of
equilibrium. Further, inefficiencies
in resource management resulting
in high capital-output ratio has
led to a high cost economy and
retarded country's relative market
competitiveness. Deteriorating
performance of the agricultural
sector in spite of highest priority
laid on it has been the major factor
hindering economic growth and well

being for more than three- quarters
of the population.
Falling into the category of least
developed country, Nepal lags
behind to complete with other
member states especially in
manufacturing sector because of
the underdeveloped infrastructure
and geo-political situation. Having
being a landlocked country, Nepal
is bound to bear higher transport
cost, which is added into cost
structure of the commodity
produced. There are a number
of problems and difficulties in
the development of the economy.
After the implementation of SAFTA
agreements, Nepal has to face other
constraints.
(i) There may be the administrative
problems with customs such as
discretionary power, valuation
procedures and non-transparent
inspections, which will give,
raise corruption. The informal
payments such as of 30% of
invoice value for a consignment
on the Kakarbitta- Phulbari/
Bangladesh.
(ii) Varying standards among South
Asian countries and failure to
recognize other standards also
hinders trade in the region.
Some Nepalese products are not
allowed to enter Indian markets
because they cannot obtain
the Indian Standard Institute
(ISI) mark, nor are Nepalese
Standards recognized in India.
Nepal's agricultural and herbal
exports are also subject to a
high fee for the quarantine test.
(iii) The incompatibilities in
customs, information
technology systems increase
transaction costs. For example,
economy
India uses the India customs

on Electronic Data Interchange
System and Bhutan uses the
Bhutan Automated customs
system.
(iv) Nepalese products and quality
of products have not met
international quality standard,
which results unsatisfactory
level of export trade. There is
the problem of geographical
structure, which hinders the
development of transportation
and other infrastructure sector.
Nepal's frequently changing
trade policy also disturbs the
foreign trade.
Even though, all the transaction
costs and behind the border
barriers can nullify the positive
effects of tariff reduction under
SAFTA. Simplifying and harmonizing
procedures for cross border
movement of goods would do much
to facilitate trade and ensure
realization of SAFTA's benefits.
Removing tariffs and non-tariffs
barriers and facilitating trade
will improve market access, but
improving transport infrastructure
and transit facilities will be more
critical for the smooth movements
of goods for our country. Nepal
should rely on the infrastructure

and transit facilities of other
countries. Nepal needs to reach
a seaport either India or via India
and Bangladesh. Nepal also faces
high transit times and logistics
costs in reaching ports. Despite
the provisions of the transit treaty,
drivers are harassed. They must
carry numerous documents and pay
bribes to police patrols and others
at road barriers on both sides of
the border. Indian government also
imposes restrictions on Nepalese
vehicles at whim. Even though the
treaty does not require Nepalese
vehicle to pay fees to enter Indian's
territory, road transport unit
of India recently took over 10%
Nepalese oil tankers and imposed
fines ranging from IRs 68,000 to
1,05,000 for failure to pay road
tax even though the tankers had
received permission not to pay the
tax from India embassy.
Conclusion
There are various possibilities
to expand and correct the trade
relations and regional economic
cooperation between Nepal and its
neighborhood (SAFTAs members)
countries. Tariffs liberalization
under SAFTA will improve Nepal's

access to SAARC markets and open
its own markets, create trade, and
offer beneficial secondary effects
arising from economies of scale,
structural transformation, and
efficiency from the competition and
change in technology. Hence the
trade liberalization can also be a
social benefit only if trade creation
and secondary effects more than
offset trade and revenue losses.
There must be secondary agreement
between Nepal and India obtaining
benefit for Nepal from SAFTA.
However, there are some constrains
among the member countries,
and Nepal and India. Nepal is the
country, its peoples' per capita
is the lowest among the SAARC
countries. There are other numbers
of problems such as transportation
and communication, traditional
technology in the industrial sector,
lack of public awareness, unskilled
manpower, low productivity, low
development in infrastructure, low
development in financial sectors,
political conflict etc which are
hindering the implementation
of SAFTA agreement and getting
benefits from the SAFTA application
in the SAARC countries.
economy
Appropriate Growth Strategies

for Developing Countries
Khubi Ram Acharya*
1. Introduction
Economic growth is an important
objective of each and every
economy of the world because it
improves the quality of all human
lives by making available more
quantities of goods and services.
The speed and structure of
economic growth depends on the
growth strategies adopted by the
particular countries. Everyone is in
favor of economic growth. But there
are strong agreements about the
appropriate strategies to achieve
higher economic growth. Some
economists and policy makers stress
on higher saving, low population
and technological development.
Others advocate on the formation
of human capital, economic
and political stability, economic
protection and liberalization. The
appropriate growth strategy leads
a nation towards prosperity. It
increases per capita income and
reduces poverty and unemployment.
This paper includes the discussion
on definition of economic growth
and strategies, origin of the concept
of economic growth, theories and

strategies of economic growth,
sources of economic growth, growth
experience of Asian Tigers, growth
or development strategies of
Three Year Interim Plan (2007/082009/10) in Nepal and appropriate
growth strategies for the developing
countries like Nepal.
2. Definition of
Economic Growth
Economic growth is the increase
in value of the goods and services
produced by an economy. It is
conventionally measured as the
percent rate of increase in real
gross domestic product, or real
GDP. Growth is usually calculated in
real terms, i.e. inflation-adjusted
terms, in order to net out the
effect of inflation on the price of
the goods and services produced.
In economics, economic growth or
economic growth theory typically
refers to growth of potential
output, i.e., production at full
employment, which is caused by
growth in aggregate demand or
observed output. Economic growth
* Mr Acharya teaches business economics at Nepal Commerce Campus, T.U.
occurs when there is outward shift

in the production possibility curve
(Stanlake and Grant, 1996:358-59)
As an area of study, economic
growth is generally distinguished
from development economics. The
former is primarily the study of how
rich countries can advance their
economies. The latter is the study
of how poor countries can catch up
with rich ones. As economic growth
is measured as the annual percent
change of gross domestic product
(GDP), it has all the advantages and
drawbacks of that measure (Lipsey
and Crystal, 2001:445-577).
Growth strategies refer to
economic policies and institutional
arrangements aimed at achieving
economic convergence with the
living standards prevailing in
advanced countries (Rodrik, 2003:2).
3. Theories of Economic
Growth
3.1 Origin of the Concept
In 1377, the Arabian economic
thinker Ibn Khaldun provided one of
the earliest descriptions of economic
economy
growth. He viewed that economic

growth occurs due to increase in
labor force, consumption and profit
In the early modern period, some
people in Western European nations
developed the idea that economies
could grow, that is, produce a
greater economic surplus which
could be spent on something other
than mere subsistence(Wikipedia,
the free encyclopedia).
During much of the "Mercantilist"
period, growth was seen as involving
an increase in the total amount of
coined money that is circulating
medium such as silver and gold,
under the control of the state. This
"Bullionist" theory led to policies
to force trade through a particular
state, the acquisition of colonies to
supply cheaper raw materials which
could then be manufactured and
sold. Later, such trade policies were
justified instead simply in terms
of promoting domestic trade and
industry. The post-Bullionist insight
that it was the increasing capability
of manufacturing which led to
policies in the 1700s to encourage
manufacturing in itself, and the
formula of importing raw materials
and exporting finished goods. Under
this theory of growth, the road to
increased national wealth was to
grant monopolies, which would
give an incentive for an individual
to exploit a market or resource,
confident that he would make all
of the profits when all other extranational competitors were driven
out of business. The "Dutch East
India Company" and the "British
East India Company" were examples
of such state-granted trade
monopolies. But the physiocrats
were against this concept. They
viewed that that productive
capacity, itself, allowed for growth

and the improving and increasing
capital to allow that capacity
was "the wealth of nations".
They stressed the importance of
agriculture and saw urban industry
as sterile for growth of the economy
(Roll, 1975:54-76).
3.2 Classical Growth Theory
Adam Smith opined that
manufacturing was central to
the entire economy. In his view,
division of labour improves
efficiency of labour and the
increasing specialization leads to
rise in per capita income. David
Ricardo argued that trade was
a benefit to a country, because
if one could buys a good more
cheaply from abroad, it meant that
there was more profitable work
to be done here. This theory of
"comparative advantage" would be
the central basis for arguments in
favor of free trade as an essential
component of growth. Malthus said
that any growth in the economy
would translate into a growth
in population. Thus, although
aggregate income could increase,
income per capita was bound to
stay roughly constant. Thus his view
is pessimistic (Ibid: 142-195).
3.3 The Neoclassical Growth
Theory
The growth theory developed by
Robert Solow and Trevor Swan in
the 1950s is called Neoclassical
Growth Theory which was the first
attempt to model long-run growth
analytically. The central element
of neoclassical theory of economic
growth is the neo-classical
production function which explains
how three inputs: capital, labor and
technology are combined to produce
output. It focuses on capital

accumulation and its link to saving
decisions and the like. According
to this theory, long run growth
results only from improvement
in technology. In absence of
technological improvement, output
per person will eventually converse
to steady-state value. Steadystate output per person depends
positively on the saving rate and
negatively on the rate of population
growth (Fischer et. all, 2004:61-72).
The model also notes that countries
can overcome this steady state and
continue growing by inventing new
technology. In the long run, output
per capita depends on the rate
of saving, but the rate of output
growth should be equal for any
saving rate (Jones, 2006:20-50).
3.4 New Growth Theories
Growth theory advanced again
with the theories of economist
Paul Romer in the late 1980s and
early 1990s. Other important
new growth theorists include
Robert E. Lucas and Robert J.
Barro. Unsatisfied with Solow's
explanation, economists worked to
endogenize technology in the 1980s.
They developed the endogenous
growth theory that includes a
mathematical explanation of
technological advancement. This
model also incorporated a new
concept of human capital, the skills
and knowledge that make workers
productive. Unlike physical capital,
human capital has increasing rates
of return. Therefore, overall there
are constant returns to capital,
and economies never reach a
steady state. Growth does not
slow as capital accumulates, but
the rate of growth depends on the
types of capital a country invests
economy
in. Research done in this area

has focused on what increases
human capital (e.g. education)
or technological change (e.g.
innovation). It means that
economic growth depends on
the technological progress and
technological progress depends
on saving, particularly investment
directed towards human capital
(Fischer et. all, 2004:61-72).
4. Sources of Economic Growth
According to classical growth
theory, there are three major
sources of economic growth which
are growth of labour force and
stock of capital, improvements in
the efficiency with which capital is
applied to labour through greater
division of labour and technological
progress, and foreign trade that
widens the market and reinforces
the other two sources of growth
(Meier and Rauch, 2006:7677). The neoclassical growth
theory discusses the sources of
economic growth different from
the classical theory. According
to this theory, the sources of
growth are labour, capital,
human capital and technology or
knowledge. But this theory left
unexplained the process by which
technological progress occurs, by
assuming that technology grows
at an exogenous rate. Becoming
unsatisfied, a large number of
researchers have worked hard to
determine exact source of growth
which is known as endogenous
growth or new growth model.
According to this theory, the major
sources of economic growth are
human capital, and technology or
knowledge. The government can
affect the economic growth by
legal system, political system, and
macroeconomic environment (Salai-Martin, 1997).
5. Development
Strategies of Three
Year Interim Plan
(2007/08-2009/10) in
Nepal
The Three Year Interim Plan
(2007/08-2009/10) has given
emphasis on broad-based
economic growth in order to
have a proportional and balanced
utilization of the available natural,
physical, human and other assets,
decent employment growth, and
to reduce income disparities and
alleviate poverty. This plan has
projected the economic growth rate
5.5 percent for the plan period. The
development or growth strategies
of this plan are as follows (NPC,
2007:26-36):
To give special emphasis on

relief, reconstruction and

reintegration
To achieve employmentoriented, pro-poor and broadbased economic growth
To promote good-governance
and effective service delivery
To increase investment in
physical infrastructures
To give emphasis on social
development
To adopt an inclusive
development process and carry
out targeted programs
6. Review of Growth
Strategies and
Experience of Different
Countries
6.1 The Older View
The dominant views on appropriate
development strategies form
1945 to early 1980s were inward
looking and interventionist.
They were inward looking in the
sense that local industries were

fostered primarily to replace
imports. These local industries
were usually protected with high
tariffs, supported by large studies,
and favorable tax treatment. The
exchange rate was almost pegged
at an over valued rate. Many
governments were hostile to the
foreign investment and made it
difficult to multinational firms to
locate in their countries. The focus
of commercial policy was on import
substitution. Heavy subsidization of
private firms and state investment
in public firms required much
money and tax structure of many
poor countries could not provide
sufficient funds. As a result
inflationary finance was often
used. Persistent inflation was a
major problem in many developing
countries.
Because of intervention measures,
there was great power to the
government officials and there was
high corruption. Bribes were needed
to obtain the things like subsidies,
licenses and quotas. As a result
many researches were allocated to
those who had the most political
power (Lipsey and Chrystal,
2001:568-69).
6.2 The Rise of the New View
During 1980s four important
events contributed to reappraisal
of this growth strategy. First,
developing countries that had
followed these policies most faith
fully had some of poor growth
records. Second GDP growth
rate of the Soviet Union that had
followed intervenist, non-market
approaches to their own growth
were visibly falling behind those
of the market based economies.
Third, Taiwan, Singapore, South
economy
Korea and Hong Kong, which

had departed from the accepted
model by adopting more market
based policies were prospering
and growing rapidly. Fourth, the
globalization of the world economy
led to on understanding that
countries could no longer play a
full part in world economic growth
without a substantial presence of
multinational corporations within
their boundaries (Ibid :169)
6.3 Experience of Developing
Countries and NIEs
The experience of developing
countries like Argentina, Myanmar,
Tanzania, Ethiopia, and Ghana
were all interventionist and all
grew slowly or achieved very low
economic growth. The countries
India and Kenya, achieved mixed
economic system and achieved
higher economic growth rate
then more highly interventionist
neighbors, but their development
was still disappointingly slow (Ibid).
The experience of communist
countries was also not encouraging.
But the experience of NIEs like
South Korea, Taiwan Hong Kong and
Singapore is encouraging. These
countries have achieved higher
economic growth rate and turned
themselves form poor countries in
to relatively high income, Indus
trialed countries in the course of
less them forty years (Ibid :570).
During the early stage of their
development, their government
used import. Restriction to build
up local industries and to develop
labors forces with the requisite
skills and experience. In 1950s
and 60s, however each country
abandoned many of the invest
aspects of the older development
model. They created market-
oriented then other developing

economics, who stuck with
accepted development model
(Ibid: 570)
South Korea and Singapore did
not accept the laissez-fire stance.
Instead, both followed quite
strong policies which targeted
specific areas for development
and encouraged those areas with
various economic incentives.
In contrasts, Hong Kong had a
much more laissez-faire attitude
towards the direction of industrial
development. Taiwan was
somewhere between these two
extreme. In contrasts South Korea
relied on small entrepreneurial
firms rather than massive
conglomerates. In contrast to
Hong Kong, it assisted many
infant industries. For example the
government initially developed the
electronics sectors through state
owned firms, which it transferred
to private owners after they had
established. All four of these
countries adopted outward policies
and achieved success (Ibid-71).
It is also argued that INES which
are also known as Asian Tigers
achieved higher economic growth
rate because of higher saving,
higher investment, FDI, hard
work and sacrifice, increase in
total numbers of population and
political stability even thought
there was not remarkable increase
in factor productivity (Ray, 2004;
119-123, Jones, 2006: 49-50 and
Fisher at al., 2004: 87-88)
6.4 Elements of the New View
As a result of the experience of
developing countries and NIEs, a
new consensus on development
strategy has emerged. The
revised strategy calls for more out
word looking, international trade

oriented and market-incentive
based route to development. It calls
for accepting market mechanism
and the pervasive regulation that
characterized the older approach.
The new view recommends
competition, limited role of
government and economic activities
at private sector rather than public
sector, well- defined property rights
and redistribution of income with
ideas of social justice (Lipsey and
Crystal, 2001:573).
6.5 The Washington Consensus
and Debate beyond It
The Washington consensus
describes the condition that the
poor countries should adopt the
newer views to get themselves on
a path of sustained development
and higher economic growth.
These views have been accepted
by a number of international
agencies like the World Bank, the
IMF, and UN Organizations. The
major elements of this consensus
are sound fiscal policies, broad
tax base, free trade, united and
competitive exchange rate, trade
liberalization, deregulation,
privatization, security of property
rights, interest rate liberalization
and openness to FDI (Rodrik, 2003).
The basic Washington Consensus
on out ward-looking, marketoriented, fiscally sound economic
policies provides what many people
believed are necessary condition for
a country to achieve as sustained
growth path in todays world which
in most case require that it is able
to attracts quite a large volume
of FDI. It is clear that polices
suggested by Washington Consensus
are primarily to the behavior of
governments themselves. But the
economy
question arise that the Washington

Consensus is sufficient or just
necessary to encourage the kinds
and volume of both domestic
comparative advantages in higher
value added industries, or are
merely necessary? Many economists
and policy maker argue that
Washington consensus is incomplete
and active government policies
go beyond it. Dani Rodrik (2003)
discards concepts of Wasingtion
Consensus as a capsulate economic
growth. He has proposed on
Augmented Washington Consensus
is the precious ten items plus
corporate governance, anti
corruption, flexible labor markets,
adherence to WTO disciplines
and international financial
codes and standards prudent
capital- accounting opening,
non intermediate exchange role
regimes, independents central
banks, inflation targeting, social
safety nets and targeted poverty
reduction (Rodrik, 2005).
The policies of Washington
Consensus and Augmented
Washington Consensus are basically
based on the circumstances of
western capitalist countries.
The East Asian countries did not
follow the policy prescriptions of
the Washington Consensus. They
emphasized the role of state to
achieve higher economic growth.
China also did not follow the policy
prescriptions of the Washington
Consensus. Latin American
countries followed the policy
prescription of the Washington
Consensus but they did not have
good performance. Dani Radrik
(2004) prescribes diagnostic
approach as useful way of looking
at growth issues which is better
then the list given in Washington
Consensus.
7. Appropriate Growth
Strategy for the
Developing Countries
like Nepal
The many developing countries
like Nepal are suffering from
mass poverty, unemployment
and inequality. The economic
performance of these countries
is also very poor. These countries
are not dependent on domestic
resources. They are also guided by
bilateral and multilateral agencies
in their development policies or
suggested by others.
In the many developing countries
like Nepal human poverty is deeper
as compared to economic poverty.
Consequently, the policy makers
have been following the policies and
strategies suggested by others. The
strategies copied from others do not
match with the social, economic
and political situation and interest
of people. Therefore the countries
like ours where there are different
socio-economic and political
characteristics that of different
from developed countries should
not copy the growth strategies of
developed countries blindly. In
case of Nepal we need to adopt
both inward and outward looking
policies. In my opinion growth
strategies should be adopted on
diagnosis basis. Nepal should adopt
following growth strategies:
7.1 Maximum Utilization of
Natural Resources
Nepal is rich in natural resources
like water, forest and land. It is
second richest country in the water
resources in the world, after Brazil.
Water resource can be used to
supply for drinking water irrigating
agricultural land and to produce
hydroelectricity. By producing
sufficient hydroelectricity, Nepal
can substitute import of petroleum
production in one hand and on
the other hand it can export it to
neighbor countries (especially India)
and will earn of foreign currency.
It will help to reduce large deficit
of Nepalese foreign trade with
India. Likewise, agricultural
productivity can be increased by its
commercialization. The government
should also provide subsidies
in the agricultural inputs like
fertilizers, tools and implements
etc. but it should be targeted to
the marginalized and small farmers.
Land reform is also necessary to
develop agricultural sector in
Nepal. Forest should be also utilized
extensively but in the sustained
way. Herbs and shrubs are also
helpful to earn foreign currency.
7.2 Human Resource
Development
Human Resource is very important
to achieve higher economic growth
rate in Nepal. Without development
of human resource (educated,
skilled and healthy manpower),
it is not possible to utilize both
capital and natural resources of
the country. Human resources
development is also very important
to reduce widespread poverty in
Nepal. A short term, mid- term and
long term plan should be prepared
for human resources development.
In my opinion, free education
and health are facilities should
be provided by state in order to
develop human resources.
7.3 Capital Formation and
Development of Technology
Both capital and technology are
very important for economic
growth of the country. Most of
economy
the developing countries lack

social and economic overheads or
capital. It requires huge investment
which can not be met by internal
resource or domestic saving. So
both internal and external resources
should be effectively utilized to
build socio- economic overhead
or infrastructures. Similarly,
technology also plays important
role in achieving higher economic
growth. The developing countries
like ours should optimally mix
both method of production capital
intensive and labour intensive
technique in rural areas. The use of
labour intensive technique in rural
area helps to reduce of disguised
unemployment.
7.4 Reducing Unemployment,
Poverty and Inequality
The main aim of Three Year
Interim Plan in Nepal is to reduce
unemployment, poverty and
inequality. This can be achieved
only by adopting an inclusive
development process and carrying
out targeted programmers. It is
necessary to make an investment
on education, health drinking water
and sanitation. The safety nets
should be also provided to reduce
poverty and inequality. Progressive
and broad-based tax system is also
helpful to reduce income inequality
rural unemployment can be reduced

by adopting labour- intensive
technique.
7.5 Public- Private Partnership,
Co-operative Movement and
Foreign Private Investment
In the developing countries like
Nepal, there is dearth of capital.
To full fill the dearth of capital,
public- private partnership can be
appropriate policy of developing
transportation, communication,
water supply etc. Likewise state
should try to attract foreign
investment by creating investment
friendly environment and adopting
policies which are compatible with
the concept of growing wave of
globalization in the world.
In the countries like Nepal, majority
people have small land holding or
capital. Such people can benefit by
carrying the economic activities in
group or by cooperation.
7.6 Tourism Sector
Development
Nepal enhances natural beauty
which can attract many tourists
from each and every part of the
world. By developing tourism sector,
Nepal can earn foreign currency
which will be helpful to reduce the
trade deficit.
7.7 Political stability and Rule

of Law
The rule of law, protection of
property right and political stability
promote economic growth. So the
government should maintain the
rule of law and guarantee property
rights. Good governance is also a
factor that has positive impact on
growth.
8. Conclusion
In the past, many development
growth strategies were practiced
in the different countries. Some
strategies got failed and some got
success. The success and failure of
the strategies depends upon how
these policies are implemented.
It also depends upon the situation
of the country. The development
strategy should not be blindly
copied. The countries like Nepal
should adopt liberal economic
policy with appropriate mixture of
inward and outward looking growth
strategy. In case of Nepal, higher
economic growth can be achieved
only by development agriculture,
tourism, hydropower and human
resources. So the government of
Nepal should focus investment on
these factors of growth.
economy
Peeping into the Flipside of

Spurring Growth in India
Tejesh Pradhan *
The Indians themselves loathed

the Danny Boyles internationally
celebrated Oscar winning movie
Slumdog Millionaire, which is
based on orphans of Indian slums.
The movie depicts the part of
India that they would rather forget
about, as it has been outshone
in the present by the sustained
accelerated growth of the Indian
economy for the past decade. It
has rightly been said, high-profile
successes conceal fundamental
problems. (Chaurashiya, 2005) The
upsurge in Indias annual growth rate
of 9% and GDP per capita of 7.7%
in 2007 arguably reflects the free
market economic policies such as
liberalization of international trade,
rationalization of the tax system,
promoting privatization and industrial
deregulation alongside the boom in
IT industry. The question is whether
the growth indicators suffice enough
to confirm how balanced the growth
is since they have failed to portray
the negative consequences of Indias
success stories.
An alternative measure of
development would not just take
productivity and economic activity
into account, but also the numerous

costs of growth. Such measure
would especially be suitable to
India where with continuous highscaled development, the associated
problems of high inequality among
the citizens, vastly centralized
fiscal development and increasing
mass unemployment have emerged.
Unfortunately, the government of
India has initiated little to solve
these problems. The 326 million
Indians living below poverty
line of $1.25 a day and over 40
million struggling for survival in
the slums today prove the lack
of governments effort. Albert
Camus once said, By definition,
a government has no conscience.
Sometimes it has a policy, but
nothing more. In order to ascertain
their sense of responsibility, the
Indian government must facilitate
the underprivileged. It should
alleviate poverty and narrow the
gap between the elites and the
deprived by more equally sharing
the benefits of the Indias financial
expansion through fiscal and
industrial decentralization. Also,
it should institutionalize education
and career-based opportunities to
* Tejesh Pradhan, Williams College, MA, Undergraduate in Economics and Mathematics.
the needy in order to increase their

productivity as well as to improve
their overall living standards.
If implemented efficiently, fiscal
decentralization, essentially
the transfer of expenditure
responsibilities and revenue
assignments to lower levels of
government, would both improve
the finances of local authorities for
the betterment of underdeveloped
communities and expand human
capital. Instead, what prevails in
India is the hierarchy of the central
government over the state and local
ones. This administrative dominance
can be substantiated by the delayed
progression in the procedure of
reducing the dependency of local
authorities on central government
in order to manage their finances.
Moreover, the ever-increasing
industrial centralization of service
industries within the megafinancial centers such as Mumbai
has overshadowed the low-skill
industries. Despite, service industry
growing at a rate of 10% and
contributing to 52% of the national
GDP growth, it only employs less
than 30% of the entire labor force of
economy
India, which numbers to 450 million.

Due to this, substantial pressure has
been put on the agricultural and
low-skilled manufacturing industries
to create enough opportunities
for the vast majority of unskilled
workers. Therefore, there is a
definite need of expanding the
dimensions of industrial and fiscal
growth beyond what it is limited
to now so that all Indian citizens
can equally reap the benefits of
the high-scale growth rate that
this developing nation has been
experiencing for long.
In addition to the existing free
market policies, government
of India should also put into
practice some other necessary
steps. Consider for instance
China, on one hand, Chinese local
authorities were entrusted with
the right of independent decisionmaking, provided with sufficient
resources to budget their own
finances and released free from
the frequent dominant control
of the central government. Also,
allocation of funds were made
transparent enough to ease the
inter-governmental transfer
system and efficient information
exchange between the central
government and the policy makers
was established so as to achieve
fiscal decentralization. Besides
these strategies, government of
India must also provide the low-skill
manufacturing and domestic laborbased industries with necessary
capital and infrastructures such
as small-scale technologies and
easy access to the market. This
will help the low-skill industries

to sustain the remaining mass of
people who are not involved in
rapidly growing service industries
and can contribute to better
the human capital. Thus, Indian
government still has many points
to take into account as many keep
confirming the positive correlation
between decentralizing economic
development and increasing
sustained growth of an economy.
Likewise, to address inequity and
poverty, India should also subsidize
the cost of institutionalized
education. If we reconsider the
crucial factors that led the onset
of Industrial Revolution in Britain,
institutionalized education by
the then powerful churches will
definitely be the most important
of them. By then, literacy rate
of Britain was close to hundred
and it was already the center
of scientific revolutions and
astronomical discoveries and today,
India stands at 61%, which proves
that whatever the Government of
India has been doing to promote
literacy is insufficient. With all the
recent technological advancement
becoming increasingly skill-biased,
the low-skilled workers have to be
well educated and trained in order
to compete in the labor market.
The government should also provide
the illiterate people with proper
opportunities where they can
make a practical use of what they
learned. Hence, skilled training
should always complement the
quality of education being given.
Indeed, it will be advantageous if
the government supplies high skilled

education to those who have not
been able to access it because the
effort will prove to be productive at
the end.
The government has a significant
role to play in resulting growth of
an economy to a great extent. But,
the central government of India
has to realize the gravity of the
negative consequences that can
occur because of the rapid growth
if they do not handle the situation
cautiously. While majority of the
policies that has been put to effect
turned out to be successful so far,
those particular reforms also have
brought along some disadvantages,
which in the future might slow
down the economic growth. The
implemented policies still miss
some of the important factors for
bringing up balanced economic
growth. Therefore, India should not
just be jubilant about the current
speedy growth but rather should
be equally concerned about how
imbalanced growth can be steered
up for improvement. The challenge
of narrowing the huge difference in
between those who are facilitated
and those who are deprived should
be tackled well before it gets
widened further. More importantly,
the significance of decentralizing
the fiscal and industrial growth,
beyond the social, economical and
geographical centers of today as
well as the advantages of turning
the unskilled people to some potent
economic contributors, has to be
realized soon and worked upon to a
satisfactory level.
economy
Implementation of LPG Model:

An Opportunity and Challenges
Dr. Jiba Nath Dhital*
Introduction
Development is conceived
as multidimensional process
involving major changes in social
structures, popular attitudes and
national institutions as well as the
acceleration of economic growth,
the reduction of inequality and the
eradication of absolute poverty
(Michael P. Tadaro). There are various
types of development strategies in
the world. Among them, four of them
are considered major they are; (i)
state-led development strategy (ii)
market-led development strategy (iii)
NGO/INGO-led development strategy
and (iv) people-led development
strategy. Every strategy has own
nature, characteristic, merit and
demerit. However, here, discussion
has been on emphasis on market-led
development strategy. Market-led
development strategy focuses on
price mechanism and open market.
It is also known as the modern
concept of development, which
started since 1970S. Liberal policy
in market mechanism, privatization
of public enterprises and free flow
of production in all over the world
without any restriction of government
Liberalization
participant in the growth process.

In market-led growth process,
the role of government seems
liberal and facilitator but private
sectors participation increases
in management and ownership on
assets yet controlled and monitored
by the government.
Adam smith had emphasized

laissez faire policy or concept
of liberalism in economy in
18th century. Liberalization is a
process or policy, which promotes
privatization and facilitates to
globalization enhancing private
sector to participate in every
sector of economy. In this process,
state controlled economy should
be more liberal and facilitated.
It means government just plays
vital role to make suitable plan
and policy to promote price
mechanism. It creates favorable
circumstances to apply the LPG
(Liberalization, Privatization and
Globalization) model within the
country. A state-led development
strategy is traditional approach
in which the state sets a correct
direction to the economy and plays
a leading role as a catalyst or active
According to world development

report (1990), liberalization means
freeing prices trade and entry
to markets from state- control
while establishing the economy.
Liberalization is a planned and
managed mechanism where free
entry of market, trade and prices are
accepted and government controls
not only an economic aspect but
also social, cultural, educational
sector etc. Liberalization should
be internal or domestic as well as
external. Capital, labor market
and government enterprises should
be privatized to implement the
internal liberalization and free trade
outside country and converting of
currency are known as the external
liberalization. If the production of
goods and services are adequate
in country, market expansion is
inevitable in liberalization.
are major three major constituents

of market-led development
strategy. LPG Model of development
consists of Liberalization,
Privatization and Globalization,
which is discussed below.
* Mr. Dhital is an Associate Professor, Tribhuvan University.
economy
Privatization
Privatization is another instrument
of market-led development
strategy. According to Susan K.
Jones, the term privatization
refers to any shift in activity
from the public to private sector.
This could involve merely the
introduction of private capital or
management expertise into a public
sector activity. More typically, it
involves the transfer of ownership
of public enterprises to the private
sector. Therefore, it is the process
whereby public operations are
transferred to the private sector.
It means, not only the sale of
assets of public enterprises but
also privatizing its management
through contracts and leases and
contracting out activities that were
previously done as state owned
enterprises. Public enterprises are
privatized in three ways;
(i) By transferring full ownership
of property of state to private
sector of its administration and
management.
(ii) By transferring partial
responsibilities where state
and private sector, keep equal
right to control and regulate the
public enterprises.
(iii) The government can keep full
ownership of property but only
management transfers to the
private sector on contract basis.
Drawbacks of Public
Enterprises
Peoples participation plays vital
role in every process of economic
development. In general, public
enterprises are considered to be
incompetent or incapable than
the private enterprises. Lack of
responsibilities in management
process, political interference in
public enterprises, overcrowded
and unnecessary staffing, uses of
old machinery and technologies,
inefficiency of market management
and lack of quick managerial and
administrative decision are the
major factors, which weaken the
public enterprises. In this context,
involvement of private participation
should be increased to reform such
enterprises as well as to make them
more competent, independent,
capable and self- sustained.
Need of Privatization
Privatization of public enterprises is
needed;
(i) to increase the competent
production of quality and
quantity
(ii) to reduce budget deficit
(iii) to develop domestic capital
market
(iv) to reduce surplus tax burden
(v) to make better mobilization of
resources
(vi) to access private finance
(vii) to increase work efficiency
(viii) to make more capable and
competent and
(ix) to fulfill the social justices.
Privatization,
Liquidation and
Termination of Public
Enterprises in Nepal
State-led development strategy
started in 1930 in the world when
the great economic depression
broke out. To regulate and execute
the state led planning, to make
strong power centralization of the
state, to make negligible people
participation in developmental
activities and expanding

governmental interferences
in every sector of economy
are the major characteristics
of state-led development
approach. Development planning
is formulated in central level
and executed, directed and
monitored by central authority
as the Top down process. State
monopoly is high in production,
distribution, exchange, land
etc. to lessen the drawback of
state-led development strategy.
Nepal government has initiated
the process of privatization,
liquidation and termination of
public enterprises (PEs) since 1993.
Its main objectives were to raising
the private sectors productivity
through their skills enhancement
by easing the governments
financial and administrative
burden and to increasing the
private sectors participation,
ensuring effective and efficient
delivery of goods and services.
Since then and between the fiscal
year 2009/10, the government has
divested 30 PEs through adoption
of various modalities including the
sale of businesses assets, partial
disinvestment of shares, sale of
current assets, leasing of buildings
and land, management contract,
liquidation and termination etc.
No process for privatization has
moved ahead in FY 2009/10.
Among the privatized PEs, the
liquidation process of Agriculture
Lime Industry ltd. is completed
and removed from the record of
the Company Registrars Office
(Economic Survey FY 2009/10). The
detail of such disinvestments is
presented below.
economy
Table 1 Disinvestment and Liquidated Public Enterprises

SN
Name of Enterprise
Years of
disinvestment
or liquation (AD)
Privatization
Process
Shares
disposed
(percent)
Amount received
through disinvestment
(in million Rs.)
Bhrikuti Paper Factory
1992
Business and
Assets/sale
229.800
Harisiddhi Brick & Tile Factory
1992
Business and
Assets/sale
214.830
Bansbari Leather shoes factor
1992
Bussiness and
Assets/sale
(except Land)
29.854
Motion Picture Development Company
1993
Shares
Disinvestment
51.0
64.662
Balaju Textile Industry
1993
Shares
Disinvestment
70.0
17.716
Raw Hide Collection and Sales Center
1993
Shares
Disinvestment
100.0
3.990
Nepal Bitmument and Barrle Industry
1994
Shares
Disinvestment
65.0
13.127
Nepal Lube Oil
1994
Shares
Disinvestment
40.0
31.057
Nepal Jute Development and Trading Co.
1993
Liquidation
10
Tobacco Development Co.
1994
Liquidation
11
Nepal Metal Co.
1996
Shares
Disinvestment
51.0
14.473
12
Raghupati Jute mills
1996
Shares
Disinvestment
65.0
82.204
13
Nepal Bank Ltd.
1997
Shares
Disinvestment
10.0
125.140
14
Agriculture Project Services Center
2001
Liquidation
15
Nepal Tea Development Corporation
2000
Shares
Disinvestment
65.0
267.105
16
Biratnagar Jute Mills
2002
Management
Contract
17
Himal Cement Industry Ltd.
2002
Liquidation
18
Cottage Handicraft Sales Emporium
2002
Liquidation
19
Nepal Coal Ltd.
2002
Liquidation
20
Hetauda Textile Industry
2002
Liquidation
21
Nepal Transport Corporation
2002
Dissolve
22
Butwal Power Company
2003
Shares
Disinvestment
75.0
874.200 and USD 1.0

million
23
Birgunj Sugar Factory Ltd.
2003
Liquidation
24
Agricultural Tools Factory Ltd.
2003
Liquidation
25
Bhaktapur Brick Factory Ltd.
2004
Assets sale and

renting out
14.500 asset sale 31,900

(rent for 10 yrs)
26
Lumbini Sugar Mill
2006
Assets sale and

renting out
78.600 asset sale

31.900(Annual Rate)
27
Nepal Rosin and Terpentine Ltd.
2006
Assets sale and

renting out
110.100 (Asset sale)

3.012 (Annual rent)
28
Agriculture Lime Industry Ltd.
2006
Liquidation
29
Nepal Drilling Company
2006
Liquidation
30
Nepal Tele-communication Co. Ltd.
2008
Shares sale
8.53
4,264.139
Source: Economic Survey, 2009/10, pp: 147-148
economy
Since the decade of 1980s,

world economy has followed
open and free trade economy or
price mechanism concept, which
has attempted to transfer the
governments ownership of public
enterprises to the private sector
to make them more capable,
competitive, effective and efficient
in their activities. In liberalization
process, as a whole, there is a
policy of maximizing the role of
private sector and minimizing
governments interference in the
economic developmental activities.
Globalization
Liberalization and privatization
are the major components of
globalization. They are interrelated
and complementary aspects,
which support the market-led
development strategy. Globalization
refers to an advanced stage of
development where capital,
production, technology, labor,
raw materials information,
transportation, distribution and
marketing are integrated on a
global scale. In globalization, flow
or expansion process of technology,
trade, finance, capital, investment,
goods and services crosses the
broader of a country and expands
it all over the world. Especially,
industrial and developed countries
achieved positive return applying
LPG model in their own country
because of their multi dimensional
strength. But, most of the poor
and developing countries could not
get expected outcomes from the
globalization process.
Lack of labor- efficiency, lack of
modern technology, low investment,
low capital, inadequate physical
infrastructure, high illiteracy,
high population growth rate,
low quality of production, lack

of market expansion etc. are the
major factors, which make the
developing countries weak and
incapable or incompetent. Now-adays, most of the countries in the
world attempt to apply LPG model
for the development their countries
rapidly. All of the countries, which
are engaged in globalization, have
not equal status. Globalization
process provides more advantages
to the advanced or well-developed
countries whereas most of the
developing countries in the world
get frustrated being involved in
globalization process because of
their incompetency. In fact, there
is sharp contrast between strong
and weak, developed and under
developed rich and poor countries
for the development process. Hence,
globalization process is, at the same
time, boon or curse according to the
countries overall strength.
International
Organizations and
Globalization
World Trade Organization,
International Monetary Fund, World
Bank, Asian Development Bank and
Structural Adjustment Program
(SAP) are the major organizations
who attempt to expand, execute,
monitor and adopt the policy and
the process of globalization. In
globalization process, the flow
and expansion of goods, services
and technology become accessible
in the world. Economists and
planners concluded that the causes
of poverty, unemployment, and
low economic growth, burden
of excessive foreign loan, high
inflation, and unfavorable balance
of payment are the consequences of
state centered planning or the stateled development strategy.
A state-led growth strategy

does not mean that the state
should be at the commanding
heights, regulating and controlling
all resources, production and
distribution system through
centralized decisions completely
replacing the market mechanism. A
state-led growth strategy is defined
here as one in which the state sets
a correct direction to the economy
and plays a leading role as a
catalyst or active participant in the
growth process as to attain a high
growth rate with distribute, justice,
in terms of reducing poverty,
underemployment, low productivity
and improving the quality of life of
people in general (Battachan and
Mishra et.al, 1997:44). Control and
interferences by state is needed
in every sector of economy but
in practice, without the direct
participation of private sector in
developmental activities, it could
not be sustainable and long lasting.
Economic Growth Rate,

Trade Balance and
Poverty Scenario of
Nepal
Growth Rate
Nepal is a developing country
as China and India. Economic
growth rate of China seemed 13
percent and 9.6 percent for the
year 2007 and 2008 respectively.
Similarly, such growth rate of India
was 9.4 percent and 7.3 percent
respectively in those consecutive
years. So far the economic growth
rate of Nepal concerned, it was
only 3.3 percent and 5.3 percent at
those periods. It shows that Nepal
is the least developed among her
neighboring countries; China and
India. The following table presents
the economic status of Nepal with
her comparable countries in SAARC.
economy
Table 2 Economic Growth Rates of Nepal and

Neighboring Countries (SAARC)
Countries
2007
2008
2009
China
13.0
9.6
8.7
Forecast
2010
2011
10.0
9.9
Afghanistan
14.2
3.4
22.5
8.6
7.0
Bangladesh
6.3
6.0
5.4
5.4
5.9
Bhutan
19.7
5.0
6.3
6.8
6.6
India
9.4
7.3
5.7
8.8
8.4
Maldives
7.2
6.3
3.0
3.4
3.7
Pakistan
5.6
2.0
2.0
3.0
4.0
Sri Lanka
6.8
6.0
3.5
5.5
6.5
Nepal
3.3
5.3
4.7
3.0
4.0
Source: International Monetary Fund (World Economic Outlook), 2010
Trade Balance Scenario

Nepals export has increased
by 33.6 percent to Rs. 294.15
billion during first eight months
of FY 2008/09 against 24.2
percent increase during the same
period of the previous fiscal year.
However, exports during the first
eight months of the current fiscal
year dropped significantly, which
imports surged notably. Besides,
total trade deficit expanded by
almost double to 61.2 percent
totaling Rs. 213.33 billion due
to boarder base of imports. Such
deficit had expanded by 30.1
percent totaling 132.35 billion in
the previous year. Trade deficit
with India in the review period
totaled Rs. 111.44 billion with
increase of 53.8 percent while
such deficit with other countries
totaled Rs 101.89 billion with
deficit growth of 70.1 percent
(Economic Survey, 2009/10, p: 86).
Thus, trade deficit seemed highly
increased because such deficit with
India had increased by 15.6 percent
whereas the deficit was 53.4

percent with other countries in the
same period of the previous year.
Poverty Situation
According to the Nepal Living
Standard survey (2003/04),
poverty seemed disproportionately
distributed in occupational basis.
Among the total, under the
poverty line, 67.0 percent found
engaged in agro -based employment
and 11 percent as agricultural
laborers. This indicates that prime
means of employment for 78
percent of the total poor in the
agriculture sector. According to the
same survey, 30.85 percent of total
population still estimated living
below the poverty line. It is notable
to Gini-Coefficient, the indicator
for income inequality, which was
0.34 in 1999/93 reached 0.41 in
2003/04. According to the same
survey, poverty seemed reduced by
10.91 percentage points between
1995/96 and 2003/04. Main reasons
for its, income from remittance,
fast growing urbanization, increase

in average wage in the agriculture
sector, and growth in the number
of economically active population.
(Economic Survey, 2009/010,p-93).
It shows that growth rate of income
level of the rich has been higher
than that of the poor. Hence, it has
needed to take the poor oriented
policy and programs as soon as
possible.
Implementation of LPG Model
in Nepal
Nepal is a developing country with
low economic growth rate, where
majority of people are povertystricken. It also has unfavorable
balance of payment and imbalance
trade with other countries,
especially with India. Increasing
unemployment, low income,
low savings, low investment,
and low production are the main
characteristics. To achieve more
benefit by adopting LPG Model in
the economy, quality of goods and
services should be exportable,
competitive, and high in quality
according to international standard.
By the cause of low efficiency, low
investment, traditional technology
etc., Nepal is unable to compete
with advanced countries. Hence,
increasing import and decreasing
export is the present scenario of
Nepalese economy. In this concern,
with the adaptation of the LPG
Model, it would be boon or dire in
the country, which would depend on
the operation and implementation
of development strategy. At last,
implementation of LPG model is an
opportunity but we have to face
more challenges to compete and
achieve the target goal in Nepal.
Impairments of Assets
in IFRS
Bishnu Bhandari*, CA, LLB
Background
The history and development
of international accounting and
auditing standards trails back to the
late sixties, but they have never
reached greater prominence than
today as the world moves closer
towards international convergence.
The importance of International
Financial Reporting System (IFRS) is
immense as it is acceptable globally
and provides a common accounting/
reporting language to the world
and the investors would no longer
need to waste time and effort to
reconcile financial information as
they compare similar companies
from different countries.
The Institute of Chartered
wAccountants of India (ICAI)
has announced that IFRS will be
mandatory in India for financial
statements for the periods
beginning on or after 1 April 2011.
This has been planned to be done
by revising existing accounting
standards to make them compatible
with IFRS. Similarly, Nepal has
committed for the compliance of
IFRS requirements from the FY
Santosh Ghimire*, CA
2012-13. But, Nepal is yet to have a

proper convergence guidelines and
standards to meet its commitments
towards IFRS.
The IFRS 36 on Impairment of Assets
is based upon the prudence and it
is widely applied concept in the
preparation of financial statements.
A specific application of prudence is
that assets should not be carried in
the statement of financial position
at a value exceeding the cash flows
expected to be generated in the
future. Accordingly, at the end of
each reporting period an entity
should assess whether there is any
indication that an asset may be
impaired. The standard describes
about the indicators of the possible
impairment loss and treatment
for the identified impairment loss
along with the minimum disclosure
requirements in the financial
statement.
A. Key Definitions
Impairment loss
An Impairment Loss is the amount
by which the carrying amount of
an asset exceeds its recoverable

amount.
Recoverable amount
Recoverable Amount is the higher
of an assets fair value less costs
to sell and its value in use.
Fair value less costs to sell
Fair value less costs to sell is
the amount obtainable from
the sale of an asset (in an arms
length transaction between
knowledgeable, willing parties)
less costs of disposal.
Value in use
Value in Use is the present value
of the future cash flows expected
to be derived from an asset (or
cash-generating unit).
A cash-generating unit
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 groups of assets.
Both the authors are currently working with Spice Nepal Pvt. Ltd.
B. Basic Rules of
Impairment
Thumb Rule
At the end of each reporting period
an entity should assess whether
there is any indication that an asset
(or cash-generating unit) may be
impaired. If any such indication
exists, the entity should estimate
the recoverable amount of the asset
(36.9).
If no indications of a potential
impairment loss are present there is
no need to make a formal estimate
of recoverable amount, except for
certain intangible assets.
Intangible Assets
Irrespective of whether there is
any indication of impairment, the
following intangible assets must be
tested annually for impairment:
those with an indefinite useful
life;
those not yet available for use;
goodwill acquired in a business
combination (36.10).
Where an intangible asset with

an indefinite life forms part of a
cash generating unit and cannot be
separated, that cash-generating unit
must be tested for impairment at
least annually.
C. Indications of
potential impairment
loss
An entity should consider the
following indications of potential
impairment loss both external and
internal as a minimum. However,
the lists are not exhaustive and
other possible indicators can be the
basis for the test of impairments.
1) External sources of
information
During the period, an assets
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
enterprise 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 enterprise
operates.
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 assets value
in use and decrease the
assets recoverable amount
materially.
The carrying amount of the
net assets of the reporting
entity is more than its market
capitalization.
2) Internal sources of
information
Evidence is available of
obsolescence or physical
damage.
Significant adverse changes
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.
Evidence is available from
internal reporting that
indicates that the economic
performance of an asset is, or
will be, worse than expected.
D. Measurement of
Recoverable Amount
1) General Principle
The Recoverable Amount is the
higher of fair value less cost to
sell and value in use.
If fair value less costs to sell
or value in use is more than
carrying amount, it is not
necessary to calculate the
other amount. The asset is not
impaired. (IAS 36.19).
If fair value less costs to sell
cannot be determined, then
recoverable amount is value in
use. (IAS 36.20)
For assets to be disposed of,
recoverable amount is fair value
less costs to sell (IAS 36.21).
2) Fair Value Less Cost to Sell

If there is a binding sale
agreement, use the price under
that agreement less costs of
disposal.
If there is an active market for
that type of asset, use market
price less costs of disposal.
Market price means current bid
price if available, otherwise
the price in the most recent
transaction.
If there is no active market,
use the best estimate of the
asset's selling price less costs of
disposal.
Costs of disposal are the direct
added costs only (not existing
costs or overhead).
3) Value in Use
The calculation of value in use
should reflect the following
elements (IAS 36.30)
an estimate of the future cash
flows the entity expects to
derive from the asset
expectations about possible
variations in the amount or

timing of those future cash
flows
the time value of money,
represented by the current
market risk-free rate of
interest
the price for bearing the
uncertainty inherent in the
asset
other factors, such as
illiquidity, that market
participants would reflect in
pricing the future cash flows
the entity expects to derive
from the asset
E. Cash-Generating
Units
Recoverable amount should be
determined for the individual asset,
if possible. If it is not possible to
determine the recoverable amount
(fair value less cost to sell and value
in use) for the individual asset, then
determine recoverable amount for
the asset's cash-generating unit
(CGU). The CGU is the smallest
identifiable group of assets that
generates cash inflows that are
largely independent of the cash
inflows from other assets or groups
of assets.
Cash flow projections should

be based on reasonable and
supportable assumptions, the most
recent budgets and forecasts,
and extrapolation for periods
beyond budgeted projections. IAS
36 presumes that budgets and
forecasts should not go beyond
five years; for periods after five
years, extrapolate from the earlier
budgets. Management should
assess the reasonableness of its
assumptions by examining the
causes of differences between past
cash flow projections and actual
cash flows.
F. Recognition of an
Impairment Loss
Cash flow projections should

relate to the asset in its current
condition future restructurings to
which the entity is not committed
and expenditures to improve or
enhance the asset's performance
should not be anticipated.
G. Impairment of
Goodwill
Estimates of future cash flows

should not include cash inflows
or outflows from financing
activities, or income tax receipts
or payments.
An impairment loss should be

recognized whenever recoverable
amount is below carrying amount.
Following are the treatment for
recognition of an impairment loss;
The impairment loss is an
expense in the income
statement (unless it relates to a
revalued asset where the value
changes are recognized directly
in equity).
Adjust depreciation for future
periods.
Goodwill should be tested for

impairment annually (IAS 36.96).
To test for impairment, goodwill
must be allocated to each of the
acquirer's cash-generating units,
or groups of cash-generating units,
that are 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 groups of
units. Each unit or group of units to
which the goodwill is so allocated
shall (IAS 36.80)
represent the lowest level within
the entity at which the goodwill
is monitored for internal
management purposes; and
not be larger than an operating
segment determined in
accordance with IFRS 8
Operating Segments.
A cash-generating unit to which

goodwill has been allocated shall
be tested for impairment at least
annually by comparing the carrying
amount of the unit, including the
goodwill, with the recoverable
amount of the unit (IAS 36.90)
If the recoverable amount of the
unit exceeds the carrying amount
of the unit, the unit and the
goodwill allocated to that unit is
not impaired.
If the carrying amount of the
unit exceeds the recoverable
amount of the unit, the entity
must recognise an impairment
loss.
The impairment loss is allocated to

reduce the carrying amount of the
assets of the unit (group of units) in
the following order (IAS 36.104)
first, reduce the carrying amount
of any goodwill allocated to the
cash-generating unit (group of
units); and
then, reduce the carrying
amounts of the other assets of
the unit (group of units) pro rata
on the basis.
The carrying amount of an asset

should not be reduced below the
highest of (IAS 36.105)

or intangible assets with
its fair value less costs to sell (if goodwill
indefinite useful lives. Following
determinable),
are the key disclosure requirements
its value in use (if
under the same.
determinable), and

zero.
For each class of assets
Impairment losses (and reversals

If the preceding rule is applied,
further allocation of the impairment
loss is made pro rata to the other
assets of the unit (group of units).
H. Reversal of an
Impairment Loss
For reversal of an impairment
loss, same approach as for the
identification of impaired assets
is adopted i.e. assess at each
balance sheet date whether there
is an indication that an impairment
loss may have decreased. If so,
calculate recoverable amount.
Following principles are adopted in
this regard;
No reversal for unwinding of
discount.
The increased carrying amount
due to reversal should not be
more than what the depreciated
historical cost would have been
if the impairment had not been
recognised.
Reversal of an impairment loss
is recognised as income in the
income statement.
Adjust depreciation for future
periods.
Reversal of an impairment loss
for goodwill is prohibited.
I. Disclosure
Requirements
Extensive disclosure is required
by IAS 36 especially for the key
assumptions and estimates used to
measure the recoverable amount
of cash-generating units containing
of losses) recognized during the

period and the line item(s) of
the statement of comprehensive
income in which they are
included should be disclosed.
An entity that applies IFRS 8
Operating Segments, should
disclose the amount of
impairment losses (and reversals
of losses) recognized in profit or
loss and in other comprehensive
income for each reportable
segment.
In case of material Impairment
losses recognized or reversed
during the period, the following
should be disclosed.
a. The events and
circumstances that led to
the recognition or reversal
of the impairment loss.
b. The amount of the
impairment loss recognized
or reversed.
c. Whether the recoverable
amount of the asset (cashgenerating unit) is its fair
value less costs to sell or its
value in use.
d. For Individual assets, the
nature of the assets and
the reportable segment to
which the asset belongs (if
applicable).
e. In case of Individual cash
generating units(CGU), The
amount of the impairment
loss recognized or reversed
by class of assets and by
reportable segment (if
applicable) along with the
description of the CGU.
f. If any portion of the

goodwill acquired in a
business combination
during the period has not
been allocated to a cashgenerating unit at the end
of the reporting period, the
amount of the unallocated
goodwill disclosed and the
reasons why that amount
remains unallocated.
g. If impairment losses
recognized (reversed) during
the period are material
in aggregate an entity
should disclose a brief
description of the main
classes of assets affected by
impairment losses (reversals
of impairment losses);
and the main events and
circumstances that led to
the recognition (reversal) of
these impairment losses.
J. Challenges in
Nepalese Context
The scope and the importance of the
application of the IFRS is immense,
however, Nepal is not free from
many challenges for implementation
of IFRS as per its commitments.
Following the key challenges that
need to be addressed immediately
for implementation of IAS 36;
Inadequate knowledge of IFRS
to Government organization,
regulatory body etc.
No Specific provision on
allowance of impairments loss
charged as per the IFRS for
taxation purpose.
Auditors position to challenge
the management status
regarding the statement of the
impairment test is in state of
confusion.
Example on Disclosure to Notes

Siemens tests at least annually whether goodwill has suffered any impairment, in accordance with its accounting policy.
The determination of the recoverable amount of a division to which goodwill is allocated involves the use of estimates
by management. The recoverable amount is the higher of the divisions fair value less costs to sell and its value in use.
The Company generally uses discounted cash flow based methods to determine these values. These discounted cash
flow calculations use five-year projections that are based on the financial budgets approved by management. Cash flow
projections take into account past experience and represent managements best estimate about future developments.
Cash flows after the planning period are extrapolated using individual growth rates. Key assumptions on which
management has based its determination of fair value less costs to sell and value in use include estimated growth rates,
weighted average cost of capital and tax rates. These estimates, including the methodology used, can have a material
impact on the respective values and ultimately the amount of any goodwill impairment. Likewise, whenever property,
plant and equipment and other intangible assets are tested for impairment, the determination of the assets recoverable
amount involves the use of estimates by management and can have a material impact on the respective values and
ultimately the amount of any impairment.
(Extracted from The ANNUAL REPORT 2008 Notes to Consolidated Financial Statements of SIEMENS)
Difficulty in yearly review
and benchmarking the various

indicators for impairments by
management.
Test of impairment is more of
substantial and judgmental
issue for management in
Nepalese scenario.
Valuation, the most
complicated and neglected
area, which lacks expertise in
Nepal, is biggest challenge to
implement IFRS.
K. Recommendation
Need of the hour is to have an
initial diagnostic and impact
analysis on implementation of
IFRS on all the relevant sectors
of the Nepalese economy so as to
avoid the unexpected results and
news. For this the role of the ICAN
should be proactive by having a
separate and specific task force on
IFRS. Similarly, ICAN should lobby
with government bodies especially
with the regulatory bodies like
tax authorities to have common

understanding on IFRS possible issues.
Training and awareness program at
appropriate level should be done
along with periodic interactive
program amongst representatives of
ICAN, professionals, practitioners,
regulatory bodies, Tax authorities etc
for the successful implementation
of the global accounting standards
like IFRS. Further, the challenges on
the impairment of assets should be
managed by proper action of ICAN
within the due course of time and
fulfill its commitment towards IFRS.
Discerning the Impact of

IFRS on Tax Sphere
Gagan Kumar*
With the financial markets

undergoing a turbulent period,
the world economies seem to be
shrinking at a fast pace. In these
arduous times, International
Financial Reporting System
(IFRS) is ushering into the
accounting arena to change the
looks of financial statements,
the way it has been understood
so far. It is the aspiration of
international community that
with the implementation of IFRS,
multinational companies would not
be required to follow multi GAAP1
reporting but a uniform system of
accounting would take its place.
Globalization and liberlisation of
economic activities are transforming
the world to a one without borders.
The need of the hour demands
that financial statements are also
reported using the same language
and applying the same principle
across the globe. This would also
enable investors around the world
to read them in the same manner.
It, therefore, becomes critical for
multinational companies, which
have subsidiaries in various tax

jurisdictions to keep themselves
abreast of the progression and
implementation of IFRS.
Globally taxable profit is
determined in accordance with
local tax laws with some degree
of reliance placed on financial
statements prepared in accordance
with the local accounting standards.
Thus, computation of taxable profit
can be said to be quasi-dependent
on financial statements prepared
in accordance with the local
accounting standards.
As a result, it is indispensable for
tax professionals to understand the
perils of implementing IFRS on tax,
if any. In the ensuing paragraphs, an
attempt has been made to identify
the areas where implementation of
IFRS may have a potential impact on
tax liability of a company.
The issue may arise in those
tax jurisdictions where thin
capitalization rules are in practice.
For example, deduction of interest
to a company funded through
borrowings from its parent entity

may be challenged if owing to IFRS
implementation, such borrowings
are regarded as capital while
preparing financial statement in
conformity with the applicable IFRS.
In contrast, where redeemable
preference share capital, pursuant
to IFRS, is regarded as a debt,
and not capital, the payment of
dividend may attract dividend
distribution tax, (if such a tax is
prevalent in the respective tax
jurisdiction), despite the fact
that for accounting purposes it is
regarded as a debt.
Infirmity may also arise while
computing the book profits (i.e..
profit disclosed in the financial
statement without adjusting for
tax deductions/disallowance). In
such a scenario, the tax payable
would be on taxable income which
can be substantially lower if the
adjustments made on account of
IFRS are removed. To exemplify,
adjustment made on account
of restatement of any asset or
liability and accounted for in the
profit and loss account, though not
* Mr. Kumar is Principal Consultant Designate in Tax Practice Group, Amarchand Mangaldas, New Delhi, India.
1
Generally Accepted Accounting Principles.
deductible or chargeable in terms

of respective tax laws would not be
taken into account.
It would also be interesting to
note the manner in which revenue
is recognized. For example, the
fair value accounting, in terms
of IFRS, may aggrieve the real
estate companies. As under the
existing accounting system,
commonly followed by the real
estate companies, is based on
percentage of completion method
wherein the revenue is recognized
as the project is being constructed.
The tax authorities have been
consistently accepting this method
of accounting.
With the debut of IFRS in the real
estate sector, the accounting
would be largely required on the
completed contract method
wherein revenue is recognized
when the project is completed and
sold.
This would invariably lead to
variance in the method of revenue
recognition of tax and accounting
purposes. It may then turn out to
be a nightmare for the real estate
companies to explain such variance
to the tax authorities.
This may further result in the
double taxation of the same
income, where in the initial
years owing to non-recognition
of income for IFRS accounting
purposes, higher taxable income
would be computed following the
consistently accepted method of
revenue recognition by the tax
authorities.
Though in the subsequent years, tax

may be required to be paid on book
profits in the tax jurisdictions where
the concept of minimum alternative
tax is prevalent.
Besides, even if the tax authorities
accept the IFRSs revenue
recognition method for tax purposes,
an over cautious tax officer may
disallow the expenses which are
charged to profit and loss account
following the matching concept,
incurred in earlier years contending
them to be prior period expenses.
Obviously, such a situation is not
desirable and therefore it again
accentuate the need to create
awareness amongst the tax
authorities and seek clarification
from them regarding the position
which they are likely to follow in
similar scenarios.
Certain jurisdictions, like United
States follow last in first out
(LIFO) method for valuation of
inventory which is in contrast with
the method of valuation prescribed
by IFRS. It would, therefore, be a
herculean task for companies to have
two different valuation methods for
determination of value of inventory
as on the reporting date.
Another intriguing observation
to deliberate upon would be
the position adopted by the tax
authorities while looking at the
international transactions in light
of the transfer pricing provisions.
For example, the balance sheet is
required to disclose a fair value of
a credit payable to is parent entity
then whether such a valuation can
be ignored by the tax authority while
making transfer pricing assessments.
In terms of IFRS, the balance

sheet as on reporting date needs
to depict fair value of the state of
affairs. This may require certain
adjustments in terms of carrying
amount of the transactions
entered into with the associated
enterprises. Such an adjustment
may be adversely used by the
tax authorities while carrying out
the transfer pricing analysis and
inferring that the transaction was
not carried out on arms length
principle.
Tax authorities may ignore the
fact that the objective of transfer
pricing is to benchmark the
transaction at the point of time at
which it was carried out whereas
the adjustment on account of IFRS
is carried out as on the reporting
date. Hence, it may have an
indirect bearing on accounting for
uncertain tax position (FIN-48).
It would be also be interesting to
examine whether the one time
expenses incurred by the businesses
on such an exercise of convergence
would be allowed by tax authorities
as revenue expenses or would they
be perceived to have a enduring
benefit and hence be classified as
capital in nature.
The IFRS would also have an impact
on determination of deferred tax
asset or liability, for example, in
case of foreign non-monetary assets
whether to recognize the difference
between historical cost of the goods
and the revalued amount as on the
balance sheet date as a permanent
or temporary difference. Further,
in case of share payments made
to employees and their respective
outstanding liabilities adjusted due

to fluctuation, whether the market
price of such shares would need to
be accounted for while calculating
the impact of deferred tax is
something which would require a
detailed analysis based on specific
facts of each case.
The issues are numerous and the
solution would depend on the
preparedness of the tax authorities
to absorb the financial changes
which may arise due to convergence

of existing accounting standards
with IFRS. At this point of time
the businesses, are reluctant to
pour time and resources in finding
solutions to most of these concerns.
However, the companies must be
mindful of the potential impact
of IFRS on their tax outgo while
undertaking tax planning as well
as in major business acquisitions.
The journey is long and time is
less. The impact of IFRS may
not be substantial but it would

be frequent. Therefore, while
businesses are converging from
local accounting standards to IFRS,
the tax authorities also need to be
educated in the manner in which
financial statement are to be looked
at while making tax assessments
and ignoring the immaterial
distortions which may arise due to
implementation of IFRS.
Chartered Accountancy Professional (CAP) Course

CAP- I/Foundation
Group I
CAP-II/Intermediate
Group I
CAP-III/Final
Group I
Paper 1 Fundamentals of Accounting
Paper 1 Advanced Accounting
Paper 1 Advanced Financial Reporting
Paper 2 Fundamentals of Economics
Paper 2 Audit & Assurance
Paper 2 Advanced Financial

Management
Paper 3 Business Communication
Paper 3 Corporate & Other Laws
Paper 3 Advanced Audit & Assurance

Paper 4 Corporate Laws
Group II
Group II
Group II
Paper 4 Mathematics & Statistics
Paper 4 Financial Management
Paper 5 Management Information &

Control System
Paper 5 Management & Organizational

Relations
Paper 5 Cost & Management Accounting Paper 6 Advanced Taxation
Paper 6 Fundamentals of Information

Technology
Paper 6 Business Communication &

Marketing
Paper 7 Advanced Cost & Management

Accounting
Paper 7 Income Tax & VAT
Paper 8 Strategic Management &

Decision Making Analysis
Entry Level Requirements

10+2 or Proficiency Certificate Level
or Bachelor or Masters Level Pass (no
percentage bar)
CAP-I/Foundation Level Pass or

Bachelor or Masters Level Pass with
50% for management and 60% for nonmanagement students
Passed both groups of CAP-II/

Intermediate Level Examinations and
registered as an articled trainee under
a practicing chartered accountant.
Registration Fee Structure

Rs. 25,000/-*
Rs. 30,000/-**
* Rs. 12,500/- at the time of

registration and balance up to 30th
November for students registered till
31st May and up to 31st May of the next
year for students registered till 30th
November.
** Rs. 15,000/- at the time of

registration and balance up to 30th
November for students registered till
31st May and up to 31st May of the next
year for students registered till 30th
November.
Rs. 30,000/-***
*** Rs. 15,000/- at the time of
registration and balance within one
year from the date of registration.
e-Readiness
Rom Kant Pandey*
A survey of 16 to 24 year olds has

found that 75% of them feel they
"couldn't live" without the internet.
The report, published by online
charity Youth Net (BBC News)
The world has benefited and affected
enormously from the developments
in Information and Communications
Technology (ICT). Not only it has
enhanced business productivity,
it also permeates the social and
political field in ways that have
never been possible in the past.
For instance, citizens of Bahrain
can file their visa applications
online while Bangladesh developed
an Electronic Birth Registration
System to reduce error rates in
birth registration. Citizens can
also participate in the decisionmaking in Denmark through online
discussions. Tunisia has a virtual
university to provide open distance
education at all educational levels
using multimedia technology. African
writers are improved their skills
through linkages formed with UK
mentors. Farmers in China and India
have access of weather messages,

receive skills training using ICT and
also buy and sell products through
online.
Internationally, this revolution in
ICT has facilitated the globalization
of the economy, business, finance
and culture. Development of the
information society and the widespread diffusion of ICT give rise to
new digital skills and competences
that are necessary for employment,
education and training, selfdevelopment and participation in
society.
However, the Information Age is
increasing the gap between the rich
and poor, developed and developing
countries and creating a society of
information haves and have-nots.
The Digital Divide is, one hand, a
new phenomenon, on the other
hand, it can also be under-stood
as a new facet of an old problem,
or rather several old problems;
namely, the existing divides
between rich and poor countries,
between rich and poor people with
in countries, between urban and

countryside, between men and
women, between young and old
and between healthy and disable
people.
e-Readiness assessments measure
a countrys ability to exploit ICTs
for human, economic or democratic
development. The e-Readiness
assessment process can help to
frame realistic projects and identify
underlying issues of technical
and human capacity that will
need to be addressed in order to
effectively implement e-Commerce,
e-Government, e-Education,
e-Health. Most developing
countries have already undergone
an e-Readiness assessment some
countries have been assessed
multiple times. e-Readiness
assessment can be a vital tool
for judging the impact of ICT, to
replace wild claims and anecdotal
evidence about the role of ICT in
development with concrete data for
comparison. Unfortunately Nepal
has not assessed its own status of
e-Readiness.
* Mr. Pandey can be reached at romkant@yhaoo.com.
Asian Pacific Economic

Cooperation (APEC) group defines
a country as e-ready that is 'ready'
for e-commerce, has free trade,
industry self-regulation, ease of
exports, and compliance with
international standards and trade
agreements.
EIU (Economist Intelligence

Unit) on E-Business Readiness
KAM (World Bank, Knowledge
World Economic Forum

Consultation Report on e-Readiness
defines e-Readiness as the ability
of the ICT networks to effectively
adapt to the social and economic
advancement.
Center for International

Development at Harvard
University the most acclaimed
institution in e-Readiness research
defines an e-Ready society is one
that has the necessary physical
infrastructure (high bandwidth,
reliability, and affordable prices),
integrated current ICTs throughout
businesses (e-commerce, local
ICT sector), communities (local
content, many organizations
online, ICTs used in everyday life,
ICTs taught in schools), and the
government (e-government), strong
telecommunications competition,
independent regulation with a
commitment to universal access,
and no limits on trade or foreign
investment.
International Organizations
to assess e-readiness
There are some International
organizations to assess the readiness
on different issue:
APEC (Asia Pacific Economic
Cooperation) on E-Commerce
Readiness
CSPP (Computer Systems
Policy Project) on Existing
Infrastructure
Assessment Matrix) on
K-Economy
MI (McConnell International)
on Infrastructure, Digital
Economy, Education and
Government
MQ (Mosaic Group) on Internet
NRI (CID, Harvard) on
Infrastructure, E-Society,
Policies, Digital Economy,
Education and Government
ITU (International
Telecommunication Union) on
Telecom
USAID (US Agency for
International Development) on
Access, Government, People
Classification of e-readiness
components
The wide range of component of
e-readiness can be classified in the
following main groups:
Access of Network: What are

the availability, cost and quality

of ICT networks, services and
equipment?
Networked Learning: Does the
educational system integrate
ICTs into its processes to improve
learning?
Networked Society: To what
extent are individuals using
information and communication
technologies at work and in
their personal lives? Are there
significant opportunities available
for those with ICT skills?
Networked Economy: How are
businesses and governments using
information and communication
technologies to interact with the
public and with each other?
Network Policy: To what extent
does the policy environment
promote or hinder the growth of
ICT adoption and use?
The following are the main APECs

e-Readiness Assessment categories:
Asia Pacific Economic Corporation(APEC) e-readiness Parameters

1
Infrastructure and
Technology
Tele-density, Wireless Services, Network

Speed and Functionality, Pricing, Reliability,
Competition, Import Barriers
Access to Necessary
Service
ISP Access Capacity, ISP Competition, Access to

Network capacity, Logistics, Financial System,
Customs
Community and
Government use of IT
Internet Hosts, User Population, User

Demography, Government Application, Business
Application,
Awareness and Promotion
SME Programs, Analysis of Impact, Universal

Services, Standards, Program for disadvantage,
Growth of Internet use
Skill and Human Resources Schools access, Schools Program, Education

Policy Integrated, Latest Technology Available,
Business Involvement in Education,
Policy Positioning for the

Digital Economics
Cyber Law, Self Regulation Preferred, legal

Frame work, Intellectual property protection,
liability, consumer protection, Security
Encryption, Taxation, Privacy Regime
E-readiness assessment
Many organizations have
conducted e-readiness assessments
in developing countries using a
variety of tools. According to
the Economist Intelligence Unit,
Sweden is the world's most e-ready
country, E-readiness rankings
2010. India 58 and China 56
rank among the countries. In the
Asian region Taiwan, South Korea
and Japan take high scores in
broadband and mobile quality.
Global Information Technology
Report 2008-09, has placed Nepal
in 127th position in the Networked
Readiness Index among 134
nations. China leapfrogged to 46th
position from 57th last year while
India fell to 54th position from last
years 50th.
Nepals e-readiness being 1.73 at

the scale of 0-9 according to ITC,
the enthusiasm and willingness
to use ICT as a tool to explore
business as a whole will prove
to be a significant step towards
modernization of economic reforms
in the country. According to the
United Nations E-Government
Development Knowledge Base
Ranking Index of Nepal in 2010:
Ranking
153
E-Readiness
0.2568
Web Measure
Index
0.1683
Human Capital
Index
0.5820
Infrastructure
Index
0.0226
E-participants
Index
0.05572
Conclusion
There is no doubt e-readiness
assessments are major tools
to guide development efforts
by providing benchmarks for
comparison and gauging progress,
but there are a lot of areas, which
need to be kept in mind while
going for such an assessment. Use
assessment results effectively
to develop an e-strategy that
addresses how exactly e-readiness
will be improved and ICT used to
benefit the country.
Letters to Editor
ww
The Nepal Chartered Accountant welcomes letters to the editor on any subject relevant
to the accountancy profession in Nepal. Please email them to binod@ican.org.np or
send them to the Editor, The Nepal Chartered Accountant, P. O. Box 5289, Babar Mahal,
Kathmandu. Please keep them short and include your address and a contact number.
Request from the Editorial Board

Members, students and academicians are requested to send their original (researchoriented) articles on the topics relevant for the accounting profession for our forthcoming
issues. Important professional news or technical updates also can be sent for publication.
Insurance
Financial Statements of
a General Insurance Company:
Comparison of Directive with IFRSs
Jagdish Agrawal*, FCA
The Beema Samiti has prescribed a

detailed format for preparation and
presentation of financial statements
of a general insurance company.
The format includes the main
parts of the financial statements
like revenue accounts, balance
sheet, profit and loss account, cash
flow statement and statement of
changes in equity along with several
annexure forming part of the main
parts of the financial statements.
Even the wordings in each financial
statements and annexure are
available in the prescribed format.
This includes the points to be
disclosed for accounting policies for
different subjects adopted by the
company.
Through this article attempts to
compare and point out where and
how the format differs materially
from the provisions of various IFRSs.
IFRS 4 Insurance Contracts directly
relates to insurance contracts.
But, IAS 1 Presentation of Financial
Statements, IAS 18 Revenues, IAS
8 Accounting Policies, Changes in
Accounting Estimates and Errors,
IAS 19 Employees Benefits, IAS 37
Provisions, Contingent Liabilities

and Contingent Assets, IAS 38
Intangible Assets and IAS 39
Financial Instruments Recognition
and Measurement are also relevant
to insurance contracts.
The point to point discussion on
insurance related accounting
treatments are given hereunder.
Random arrangement
of financial statements
As per IAS 1 Presentation of
Financial Statements, a complete
set of financial statements
comprises:
a. a statement of financial position
(balance sheet) as at the end of
the period;
b. a statement of comprehensive
income for the period;
c. a statement of changes in
equity for the period;
d. a statement of cash flows for
the period; and
e. notes to accounts, including
a summary of significant
accounting policies and other
explanatory information.
* Mr. Agrawal is a Fellow Chartered Accountant member of the Institute.
But, the format has arranged the

various statements in the following
order:
a. Revenue accounts- The IAS
has given no place to revenue
accounts as a part of financial
statements; rather such
accounts are treated as a part
of shadow accounting. Such
accounts may be presented
by way of an explanatory
statement.
b. Profit and loss account- IAS has
given it the second priority
after balance sheet. Balance
sheet of an entity shows the
financial position of the entity
and thus should be presented as
the first document.
c. Balance sheet already
discussed in 'b' above.
d. Statement of changes in
equity- as per the IAS, figures
relating to current year as well
relating to previous year should
be presented, but the format
requires the figures of current
year only.
e. Statement of cash flows- The
IAS requires an entity to present
the cash flows statement
insurance
adopting either direct method

or indirect method, but the
format compels use of direct
method only.
f. Annexures are also not arranged
in line with the various main
statements. Annexure 6 and
12 to 26 are forming part of
balance sheet, annexure 2, 5
and 7 to 12 are forming part
of profit and loss account and
annexure 1 is forming part of
revenue accounts.
As per IAS 1, as a minimum, the
statement of financial position shall
include line items that present the
following amounts (only liability
side is considered):
a. Trade and other payables;
b. provisions;
c. financial liabilities;
d. liabilities and assets for current
tax;
e. deferred tax liabilities and
deferred tax assets;
f. non-controlling interests,
presented within equity; and
g. issued capital and reserves
attributable to owners of the
parent company.
The IAS further states that an
entity shall present additional line
items, headings and sub-totals in
the statement of financial position
when such presentation is relevant
to an understanding of the entitys
financial position.
In the prescribed format the column
to show total equity and total
non-current liabilities is not given.
Instead, the amount of retained
earnings, which is an integral part
of equity, is to be presented as
No. 19 item of the balance sheet.
Retained earnings is always an
integral part of equity.
As per the IAS, deferred tax

liability is to be shown as noncurrent liability, but the column for
presentation of the liability is not
given. Thus, it is to be presented in
column No. 16 as current liability.
The IAS requires all the expenses
and incomes to be shown in the
profit and loss account under the
specific heads of accounts either on
the face of profit and loss account
or through notes. The line items are
prescribed as under:
Revenue
Cost of sales
Gross profit
Other income
Distribution costs

Administrative expenses
Other expenses
Profit before tax
x
(x)
x
x
(x)
(x)
(x)
x
The IAS requires representation of

total figures of the line items on the
face of the profit and loss account
or through notes. The presentation
of netting effect is not at all
allowed.
But, the format compels a company
to appropriate certain revenue
items (investment income)
and certain expenses items
(administrative expenses, taxation
expenses) for presentation one
portion in profit and loss account
and another portion in revenue
accounts. And the net effect of
the revenues accounts is carried to
profit and loss account.
Premium income
In a general insurance business
premiums received during a
financial year is taken as income but
routed through revenue accounts.
The net premium income as

shown in profit and loss account is
calculated as under:
Particulars
Amount Amount
Opening provision
for unexpired risk
xxx
Plus net premiums
received during
the year
Premium received
xxx
Less: Premium
paid (ceded) for
reinsurance
(xxx)
Net insurance
premium income
xxx
Less: Closing
provision for
unexpired risk
(xxx)
Net premium
income shown in
(xxx)
revenue account
A simple formula is given for

calculation of the amount of
provision for unexpired risk at
50% of the net premium received
during the year.
As per the IFRS the premium
income should be recognized
during a period shall be calculated
as under:
For recognizing premium income
the IFRS has referred to IAS 18
Revenues. Premium written
(received or receivable) shall
be shown as revenue after due
adjustment for opening and closing
unearned premium reserve. Similar
adjustments should be made for
reinsurance premium (ceded) paid
or payable after adjustment for
prepaid reinsurance premium.
Thus, the formula should be as
follows:
insurance
Premium written
Opening unearned
premium reserve
Closing unearned
premium reserve
Premium earned
Premium ceded
Opening prepaid
reinsurance
premium ceded
Closing prepaid
reinsurance
premium Ceded
Reinsurance
expenses
Net premium
revenue
Rs
xxx
xxx
(xxx)
xxx
xxx
coverage, as per the matching

concept, the portion of commission
relating to premium earned shall
only be treated as expenses of the
year and rest of the commission
should be treated as advance
payment of expenses or prepaid
expenses.
Thus, the formula for recognition
of commission expenses shall be as
follows:
xxx
(xxx)
(xxx)
xxx
As per the Standard, the company

has to calculate the amount of
earned premium from all the
insurance contracts accepted
and also the amount of unearned
premium on the basis of period
covered by each insurance contracts
falling during this year and falling
under coming year or years.
Similar time basis treatment is
required for reinsurance expense
(ceded) also. It means IFRS requires
reasonable accuracy than the mere
estimation based on formula given
by respective regulation.
Commission expenses
Commission payable to insurance
agents is directly linked with the
premium income of the year.
In practice, the total of the
commission payable to an agent for
the premiums collected during the
year is considered as commission
expenses for the year. When the
premium income is recognized
on the basis of expired period of
Particular
Opening prepaid
commission expense
+ Commission
expenses computed
on the basis of
premium collected
during the year
-Prepaid commission
amount calculated on
the basis of unexpired
period of coverage
Commission expenses
to be recognized
Amount
xxx
xxx
(xxx)
xxx
Appropriation of
administrative expenses
Certain mismatches have been
noted in provisions in relevant
regulations regarding items to
be embedded in administrative
expenses and also in appropriation
of administrative expenses amongst
profit and loss account and various
revenue accounts.
Rules 16 of Insurance Rules, 2049,
states that total of administrative
expenses to be charged to revenue
accounts should not exceed 25% in
case of marine insurance and 30%
in case of other kind of insurances
of insurance premium collected. As
the maximum limit is different for

different kind of insurance policies,
the ceiling should be applied for
appropriation of administrative
expenses to different revenue
accounts only. Thus the formula
shall be as under:
Total administrative
expenses
10% of the expenses is
charged to profit and loss
account
Remaining amount shall be
appropriated to revenue
accounts as per formula
given in directive
In case the appropriated
amounts cross the ceiling as
given in the Rule 16, charge
the excess amount to Profit
and loss account
xxx
xxx
xxx
xxx
But, the directive requires an

insurance company to compute the
amount as follows:
Total administrative
expenses
Less: Excess amount
calculated by applying the
ceiling, this amount is to be
account
Remaining amount
10% of the remaining
amount shall also be
account
Remaining amount shall be
appropriated to revenue
accounts as per formula
given in the directive
Even then, if the expenses
so appropriated cross
the ceiling in any of the
revenue accounts, the
excess amount should also
be transferred to profit and
loss account
xxx
xxx
xxx
xxx
xxx
xxx
insurance
As per accepted practice,

management and administrative
expenses which are directly
attributable to indirect expenses
allocated to the various classes
of underwriting business should
be classified as administrative
expenses to be appropriated for
revenue accounts on the basis of
net premium received. But, other
administrative expenses should
be charged directly to profit
and loss account. Such expenses
may be legal and professional
fees, donations and contribution,
directors' fee and meeting
expenses, auditor's remuneration
and audit expenses, depreciation,
provision for doubtful debts,
amortization of intangible assets,
workers welfare fund, etc.
Thus, it is not likely to appropriate
the bundle of total expenses on the
basis of percentage fixed by the
Samiti.
Employees' bonus
Items of expenses to be classified
as administrative expenses are
enumerated in Annexure 5 of the
financial statements as prescribed
by the Samiti. The detail of
the employees cost is given in
annexure 5.1. Expenses incurred
by the company on employees,
whether it is payable during the
year or payable in future, are
shown in the sub-annexure. The
expenses incurred during the year
includes salary, allowances, training
expenses, dress allowance or cost
of dresses, medical expenses,
insurance expenses, and the
requirements include provision for
pension and gratuity, provision for
leave encashment, provision for
other facilities, etc.
But the bonus payable to employees

is not considered as administrative
expenses and provides to charge
directly to profit and loss account.
It is assumed by the Samiti that
employees' bonus is neither a
present obligation nor future
obligation of the company emerged
from services provided by them
during the current year. However,
IAS 19 Employees Benefits has
considered bonus expense as
important part of employees benefit
cost.
Investment income
The format specified has required
separate treatment for actual profit
or loss from disposal of securities
from provision for impairment in
value of the securities. The actual
loss from disposal of securities is
to be shown in annexure 2 which is
subject to appropriation in between
profit and loss account and revenue
accounts. But, the format provides
that provision for impairment
in value of securities should be
charged directly to profit and loss
account making a component of
annexure 11. IFRS provides same
treatment for actual loss and
impairment loss. As per IFRS both of
these are charged to profit and loss
account.
Provision for housing

Few companies are providing for
employees housing as Labor Act has
made it mandatory for all entities.
This provision is made for providing
housing facilities to employees
in future. It is not an earmarked
provision against any revenue
expenses and it is not related to any
past event and present obligation.
If any company makes such provision,

it should be treated as appropriation
of retained earning rather to show
as expense to be charged to profit
and loss account. But, the format
prescribed by the Samiti compels an
insurance company to charge such
provisions to profit and loss account.
Preoperative and
deferred expenses
IFRS states that any expenses
incurred as preliminary expenses,
pre-production expenses, preoperation expenses or any other
deferred natured expenses should be
charged to profit and loss account
as incurred. But, as per the format
such expenses should be treated as
deferred expenses to be amortized
in future years. Annexure 24 is
prescribed for such expenses.
Conclusion
As the Institute of Chartered
Accountants of Nepal has committed
to adopt the IFRS from 2013 for
listed companies, we should be
ready for the adoption by amending
our regulations and directives.
While making amendments in the
directives, it is suggested to the
regulators to consider the financial
statements of Atlas Insurance Ltd.,
Lahore, Pakistan. The auditor of
the company is Ms. A. F. Ferguson &
Co. The financial statements of the
company comprises of:
a)
b)
c)
d)
e)
f)
g)
h)
balance sheet;
profit and loss account;
statement of changes in equity;
cash flows statement;
statement of premiums;
statement of claims;
statement of expenses; and
statement of investment income.
management
Insubordination:
A Managerial Challenge
Bhuwan Raj Chataut*
The football mania has impinged

upon entire world and Nepal is
no exception. Likely, I was also
enjoying the same, the round of 16
of 19th FIFA World Cup - Germany
Vs England at Free State Stadium,
Bloemfontein on screen along with
my wife and son at home. Germany
had got more inexperienced players,
which was an added value for
England. Both teams were willing
to reach the quarter final with a
win. Eventually, Germany defeated
England by 4-1. The significant two
reasons what made them winner
were first, the spirited Germans and
second, their subordination for the
team. Another, the wrong decision
of lines man at one instance was
also in favor of Germans.
My concern, here, is the spirited
Germans and their subordination.
All German players along with
goalkeeper subordinated well. They
had a great harmony against the
British. They were fully motivated
for their team. Their activeness,
enthusiasm, zeal and subordinated
behavior made them able to play at
quarter final.
Today world is changing so

fast creating the new series of
challenges. Mainly, the changes
are due to added necessities and
innovations. The business firms
or corporations have to face
such challenges without a bit of
concession. They are in need to align
their resources to maximize their
strengths; the strength that could
produce the fair return to investors,
satisfy customers and maximize
value of the firm. Aligning resources
efficiently and effectively create the
operational excellence that paves
the corporations path to success.
Resources within the business
organization can be simply grouped
into four as mentioned by RW Griffin
(2000) - Human Resources, Financial,
Physical and Information Resources.
Amid the four, HR or people are the
most important one in any business
today. The great results can be
revealed by the great people. And it
is an art of person at key position to
manage the HR is called HR manager
who can turn everyone in great
people. Yes, HR manager must have
the skills of getting things done by
* Mr. Chataut is a Freelance Consultant and Trainer for Finance and Management.
his people extraordinarily. S/He will

be praised and rewarded if the staff
performs well, in the other hand, if
the staff misses track; it indicates
the managers incompetence. Hence,
a manager and the whole company
achieve its goals and objectives
if only people cope and follow
accordingly.
On the contrary, if the people within
disobey the chain of command in
hierarchy and disrupt harmony, a
manager and whole company fails
even to set their goals in the right
path. This act of disobeying lawful
order is called insubordination and
can be defined as corporate disease
since it deteriorates overall rhythm
of corporation. And, this disease is
not a simple like others; perhaps it is
contagious as it induces the remaining
people and becoming perennial.
What is insubordination?
Any business organization possesses
a structure to put its effort so
diligently for value creation. A
person that leads structure or
group is simply a manager and s/
management
he is responsible to bring order out

of the chaos. S/He simply puts on
idea and thoughts; also sometimes
instructions and orders to the people
following her/him. At the same
time if s/he finds followers with
the task accomplished accordingly,
the situation is favorable and it is
subordination where as if s/he finds
no followers to accomplish it, the
situation is adverse and it is called
the act of insubordination.
Insubordination is simply refusing
to obey orders from people in the
authority showing that one is not
willing to obey orders. The people
may show insubordinate-behavior
at workplace explicitly or implicitly.
Manager wants the employees to be
customer oriented. But, they do not
want to be so. However, they may
not say no but think opposite to do.
Likewise, in educational institutions,
principal wants the faculty to
be student oriented and follow
the stated teaching methodology
but faculty deviates or ignores.
Insubordination is the act of an
employee for not to be subordinate.
They deliberately violate a lawful
order from someone in charge of
them. However, refusing to perform
an action which is unethical or illegal
is not subordination and also refusing
to perform that is not within the
scope of authority of the person
issuing order. It may sometimes
arise due to higher qualification,
experience, information, intellect
and intelligence of employee.
Insubordination in
Nepalese Corporate
Milieu
Insubordination is a severe disease in
Nepalese corporations and perhaps
in the private business houses or
firms. Obviously, insubordination

is not the rare case for us as in
the Southwest airlines or Nokia or
Qualcomm where the workplaces
are modern and hierarchical
powers are usually sufficiently
internalized. It has become
common to most institutions. It
would be the exemplary for us
that Professionals are trusted to
run organization in the interests of
their employees mentioned by
one of the American physicist and
writer Jeff Schmidt on his book,
Disciplined Minds.
Here, we have so many examples
and cases that occur at workplace
pointing insubordination. Simply,
a manager asks for the financial
statements or for inventory records
to her/his employee, s/he may show
her/his insincerity by disobeying
or showing inappropriate response.
Likely, a government employee is
bound to start his work at 10 but,
hardly s/he reaches office at 10.
The most public-owned business
organizations or government
entities must be customer-oriented
to provide quality and timely
services to customers/citizens.
However, insubordination is playing
suicidal role to deviate the purpose
and vision of such entities.
Insubordinate shows certain
attributes in spite of managements
best effort; they are irresponsible,
complacent, undisciplined, weak
in communication, insincere, dull,
inactive or reactive, negative,
superficial and resistant. Certainly,
insubordinate does not want to act;
if s/he does, does as reactions.
S/he is not willing to take any
responsibility. S/he remains dull
with no learning attitude. S/he
hides the problems at workplace
like keeping the dust under carpet

and even not shares ideas or
information.
Let us discuss why there is
insubordination or what causes it
to occur in management system in
Nepalese perspective.
First, lack of well-defined job
design- it should be stated clearly to
make an employee responsible for
particular job. The job design should
be modern as such it could foster
the team spirit. It has to address the
issue of job enrichment, flexibility,
job rotation. Second, weak
hierarchical power relationshipsthere should be well-established
hierarchical power relationships
that could create the harmony
and subordination. Third, ignoring
participatory mechanism- the
employee should be given a chance
to participate upon decision making
process, it enables her/him to act
accordingly. Fourth, ineffective
appraisal/reward system has
promoted the insubordination. Both
the subordinate and insubordinate
are treated by keeping in the
same basket. Neither the former
reaps rewards nor the later gets
punished. Hence, it stimulates the
former to be as the later. Fifth,
lack of distinguished motivation
techniques- the psychology of
people is changing and growing but
the authority has remained static.
The management should explore the
very practical tools to induce people
at organization-setting. Nepalese
corporations rarely use non-financial
tools to draw the best from people.
Sixth, misuse of union power- the
labor unions are inevitable for
employees as they fight against
the employers manipulation and
management
exploitation regarding jobs; they

simply function to protect the
employees lawful right. But, in
Nepalese context, the labor unions
are found to be prime cause to occur
insubordination mostly occurs by the
name of labor unions. The leaders
and employees near to unions misuse
their power which is unethical
and illegal. Last, indirect political
influence- it causes the management
weak enough to create and increase
the numbers of insubordinate in
the developing country like Nepal.
Management shows needless
loyalty to political parties and as
a consequence the employees who
have their affinity and closeness to
parties cross the limit.
The later causes are more
catastrophic and enough to damage
the corporations and government
entities at greater extent. Hence,
the act of insubordination has
become a managerial challenge for
every institution as it induces others
to insubordinate.
Belling the Cat

As mentioned earlier, insubordination
does not come by its own accord.
Here, the unstable politics is the
main cause. The proliferation
of politics can be seen by its
consequences in the economy,
society and the psychology of
citizens. We are bound to live in
the same economy where we are,
not at higher; it is due to politics.
The economy is scrawny so that
psychology of citizen is weak. No
production leads to no savings
and investments that create no
employments and eventually, no
good sentiments to citizens. So,
if we relate the issue here with

politics, it only could be treated by
stability upon national politics. But,
if we consider the organizations only
keeping all others at side, then it has
to be cured at managerial level.
A manager must be skilled
and equipped so as to face
earlier mentioned causes for
insubordination. S/He needs
profundity. S/He must consider the
all four quadrants of HR as whole
being- Body, Mind, Heart and The
Spirit. S/He should accept the
human capital as a whole being
instead of accepting her/him like
other resources. First, s/he should
trade off the needs of individual
and company as well. Second, s/he
should be clear that an employee at
job has authority and responsibility
also he must be socialized with team
so as to work in harmony. Third, a
manager should monitor and find
the insubordinate. A manager should
show his unhappiness to faulty and
seek the reason for disobedience;
however s/he should not be insulted.
One can use the tools as given by
Veda Scriptures- Sama, Dama, Danda
and Bheda. Fourth, a managers
praise and reward definitely work
as medicine. S/He should use the
discretion for right discrimination.
Fifth, employee sometimes needs
a guidance to initiate. A manager
should give her/him good support
and backup. S/He should focus on
transforming to make them smart,
active, diligent, initiator, goal
oriented, ambitious, optimistic and
enthusiastic. People need a good
manager and a leader who could
show right direction and a way that
enable them to act upon.
Last, but not the least

Human capital is the most
superior among all resources in
any organization. There are two
extreme possibilities what arises
due to them: first, they can
outmaneuver and second, they can
damage the whole entity. These
possibilities are due to the intellect
and the intelligence they have.
The effective leadership skills and
distinguished motivation mechanism
plays vital role in managing
human capital. The efficient and
effective use of such capital is core
responsibility of the human resource
manager. In spite of the best efforts
by manager, subordinate resist or go
against the reasonable and lawful
instructions resulting in actual work
stoppage called insubordination. It
has been spreading in the Nepalese
corporate milieu resulting low
productivity as it has reduced the
contribution and affected workculture badly.
Hence, a manager must confront
such situation in the light of
problems in management system
and the psychology of people.
And s/he should use the devices
like counseling, written warning,
suspension without pay, and
termination as needed to uproot
insubordination and to get spirited
people so as to bring the great
work-culture, playful workplace
and friendly work-environment.
The great work-culture, playful
workplace and friendly workenvironment certainly ensure
the operational excellence which
unlocks the door to destiny.
motivation
Awaken the Leader in You

L P Bhanu Sharma, FCA*
A study of the life of great achievers

- those who have made significant
contributions, those who performed
at extraordinary levels and those
who have earned great recognitions
- reveals something very important.
There is a hidden pattern in the type
of life they lived, the thoughts they
had, the actions they performed and
the impressions they left on others.
This pattern is so universal that they
contribute to the greatest reason for
extraordinary leadership capabilities
and can simply be described as the
characteristics that a vibrant leader
must possess.
This paper tries to categorize
these qualities and characteristics
into broad five meaningful and
purposeful types. No matter what
your, childhood upbringing, or aim
in life great leaders had, we are
sure to find that these qualities
represent the traits, capabilities
and the results of these special
people. Although the demands of the
particular profession, career and job
is different from others, these five
qualities are basic to all leadership
examples. Similarly, the needs and
demands of a particular society may

be different, but the basic qualities
of the leader remain the same.
1. Vision
Vision is the capability to see the
future with the mind's eyes. The
power of imagination, which is
the monopoly of human beings
among all creatures, holds the key
to creating the desired future and
complete personal transformation
within every individual. Every
human being is there on earth to
fulfill some great purpose. However,
in most of the cases, people are
not able to identify their purpose
in life. As substitute for identifying
their own life's mission and purpose,
they start emulating others without
knowing that each individual is
unique, and copying is strictly
forbidden in this domain.
William James has said, "Most
people live in a very restricted
circle of their potential being. We
all have reservoirs o f energy and
genius to draw upon of which we do
not dream". Albert Einstein says,
"Imagination is more important

than knowledge". Once we start
envisioning and imagining our
future, the subconscious layers
of our mind gets activated and
we start creating our own future
rather than accepting whatever
comes in life. For the first time,
we become the original creators of
our destiny. Leaders have the clear
vision how they want their future
to be and work hard day in and day
out to transform that into reality.
"Leadership is the capacity to
translate vision into reality", asserts
Warren Bennis.
2. Integrity
It is the act of putting all of our
energy to work towards realizing
the vision. Some people call it
discipline, but integrity is much
appropriate a word because it
denotes a conscious choice to
channelize everything one has to
create the desired future. Integrity
represents the second creation.
It's the executing, the making it
happen, the sacrifice involved in
doing whatever it takes to realize
* Mr. Sharma is a Fellow Chartered Accountant Member of the Institute.
motivation
the vision. The soft rays of the sun

spark a fire when channeled through
a magnetic glass. This magnetic
glass simply puts the scattered rays
of sun together which creates a
vibrant force to sparks fire.
One may think here that integrity
is a bondage that one creates for
oneself. But, integrity is a conscious
choice that shapes our future in
terms of the vision. It is accepting
our freedom to make choice from
available alternatives. It is no doubt
a personal sacrifice; but entails the
beautiful process of subordinating
today's pleasure for a greater longterm good.
Integrity inspires a leader to always
think and act in the right direction
without letting external motivations
influence his way. A visionary leader
always knows what he is doing is
right and takes bold steps even in
difficult circumstances. He knows
the power of his dreams and does
everything to accomplish the same
without allowing his life energy to
go astray.
3. Balance
Right after vision and integrity
comes the act of balancing one's
life. There are contradictory
demands of family, society, career
and dream coming together in our
life. Balancing means understanding
the role and importance of all
the five dimension of our life personal, family, social, professional
and spiritual and creating the
right environment in which these
basic factors are fully taken care
of. Gautam Buddha knew the
importance of balancing so much
that he called his precepts the
'Middle Path'.
Psychologists say that by default the

human mind tends to choose one
extreme. Either it is hyperactive
or dead lazy, too materialistic or
too spiritual. The part of our life
that is ignored due to our extremist
nature starts creating a slow but
fatal revolt within ourselves.
This ultimately results in anxiety,
neurosis and depression. This does
not mean that you should sacrifice
your principal demands. It only
means that when sitting priorities
one should not ignore any of the
important parts of human living.
One of the main issues confronting
human behavior specialists today is
'work-life balance'.
4. Excellence
We talk a lot about actions but we
have understood hardly anything of
its core science. Our educational
institutions give us set of knowledge
and skills required to perform the
desired actions. But this entire
training till date is biased towards
performing the right action at the
fastest possible speed. They say, "Do
it right and do it fast". This attitude
has ignored one basic fact that is
so important and unavoidable: the
psychology of the person who is
performing the actions. Very few
leaders and management thinkers
have talked about excellence.
Excellence is the right attitude
required for performing any action.
Excellence is all about 'who' is doing
the actions, i.e. the psychology,
the right frame of mind, and not
about 'how' and 'when' an action
is being performed. A story can
drive this point home. There was a
temple being constructed and few
workers were leveling the stones
to be used in construction. A visitor
asked one common question to four

of them: "What are you doing?" The
first one replied, "I am breaking my
head in this scorching heat". The
second labourer said,''I am fulfilling
my responsibilities to my family".
The third one said, "I am earning
my bread and butter". The fourth
had a different answer. He said, "I
am enjoying my power to create
something and feel immensely
blessed to be able to create a
temple of God while being paid
for my labour". You can figure out
which of the four labourers is more
happy, energetic and productive.
Undoubtedly, the fourth labourer
will have maximum output and will
create a better world because of his
positive frame of mind. Excellence
is the creation of right frame of
mind and using the power of choice
in realizing one's vision.
5. Self Renewal
There is only one certainty in life
- the future is uncertain. However
meticulously one aligns life's tasks,
something unpredictable is bound to
occur. Self renewal is the capacity
to remain flexible, agile and open
to new situations, opportunities
and challenges in life. It is the act
of reviewing everything in regular
intervals and realigning mission and
priorities to reflect basic changes.
Self renewal is seeing the whole life
afresh without being conditioned
by past errors and failures.
Accountants call it 'Zero- Base
Budgeting' and spiritualists called
it 'living moment to moment'. One
needs a very clear understanding of
life and also an appreciation that
every single day is different from
the past. Old patterns, beliefs,
knowledge and way of thinking are
motivation
simply insufficient to address today's

issues and demands. It also include
attending training, seminars,
conference and immersion
programmes to understand others'
perspectives and learn from others'
experiences.
Human beings had almost
forgotten the power of dreams.
The development in psychology,
physiotherapy, management and
spiritual understanding over the
past half a century has proved that
the subconscious mind holds the key
to creating one's future to attain
success in life. The unfathomable
power of human mind is caged in
the dark room of the subconscious
which when activated takes one to
what Abraham Maslow liked to call
'self actualization'. That is what
living passionately is. Passion opens
the door to subconscious. People

who have unraveled this mystery
have said "Do what you love and
love what you do".
Peter Koestenbaum, noted
management philosopher has
summarized the leadership
qualities as:
The best leader operates in
four dimensions: vision, reality,
ethics and courage. These
are the four intelligences, the
four forms of perceiving, the
language for communicating
that are required to achieve
meaningful sustained results.
The visionary leader thinks big,
think new, thinks ahead - and
most important, is in touch with
the deep structure of human
consciousness and creative
potential. You must gain control
over the patterns that govern

your mind: your worldview, your
beliefs about what you deserve
and about what's possible. Thats
the zone of fundamental change,
strength and energyand the true
meaning of courage.
Even human being is endowed with
leadership potentials but very few
know the secrets to access these
realities. People like Mahatma
Gandhi, Mother Teresa, Lord
Krishna, Albert Einstein, Nelson
Mandela, Henry Ford and Warren
Buffet, to name a few, have used
this power to create outstanding
success for themselves and
fellowmen in human history.
Isn't it time you awakened the
leader in you?
Request to Members
The Institute has decided to raise funds for the construction of the
Building from professional fraternity. The Institute requests all the
members to contribute for the special fund created for the construction
of Building at the leased land granted by the Government of Nepal.
Members are kindly requested to contribute at least the following
amount to the Building Fund:
For
For
For
For
For
Fellow Chartered Accountant Members:

Chartered Accountant Members:
Registered Auditor Class 'B' Members:
Registered Auditor Class 'C' Members:
Registered Auditor Class 'D' Members:
Rs.
Rs.
Rs.
Rs.
Rs.
25,000
15,000
8,000
4,000
2,000
Council adopts stagewise approach for

adoption of IFRSs
The Council has adopted stage-wise
approach for the implementation of
IFRSs. As per its decision at 133rd
meeting, IFRSs would be mandatory
for various companies from the dates
mentioned below:
July 2012
Listed Companies
July 2013
All Other Public

Companies
July 2014
All Other Limited

Companies
President Mr. Karn addressing the Inauguration Ceremony
Birgunj Branch Office

inaugurated
On Jestha 27, 2067 (June 10,
2010), President Mr. Suvod Kumar
Karn inaugurated the Birgunj
Branch Office amidst a ceremony
presided by the Coordinator of
Branch Advisory Committee Mr.
Jagadish Prasad Khandelwal. Mr.
Karn as the Chief Guest opined
that the opening of the branch at
the behest of the local Chamber
of Industry & Commerce in the
industrial township of Birgunj would
be a major breakthrough for the
institutional development of the
Institute. The welcome speech
was given by Mr. Arvind Kumar
Khetan at the occasion. President
of the Birgunj Chamber of Industry

& Commerce Mr. Om Prakash
Sikariya, who was the Special Guest
at the function, hoped that the
relationship between industrial
community and accountancy
profession would become closer.
Listing No More a
Nuisance for Audit of
Co-operatives
Vice-President Mr. Sunir Kumar

Dhungel and Council Member Mr.
Krishna Prasad Paudel were also
invited as guests. Regional President
of AUDAN Mr. Rajendra Lal Das was
also present at the programme. The
ceremony concluded with a vote of
thanks from Mr. Khandelwal.
The Department of Cooperatives

has published a public notice stating
that the provision of annual listing
of auditors for the purpose of the
audit of cooperatives has been
abolished. In addition to this, all the
cooperatives have been directed to
audit their accounts as per Section
37 of Cooperatives Act, 2048 after
availing permission from concerned
division cooperative offices.
The branch office is located in the

premises of Birgunj Chamber of
Industry and Commerce.
The Institute had long been

venturing for abolition of such
provision.
5-day Intensive Training on

IFRSs organized
Participants and Resource Persons at the IFRS Training
In order to enhance the capacity of its

members, the Institute had organized 5-day
intensive training on the International
Reporting Standards (IFRSs) from June 16th
to 20th, 2010 in Kathmandu. Eight resource
persons from India deliberated on various
facets of IFRSs along with International
Valuation Standards (IVS). Altogether 65
participants including chartered accountant
and registered auditor members and corporate
participants were present at the programme.
The resource persons were Mr. Avineesh Matta,
Mr. Gagan Kumar, Mr. Rajeev Singh, Mr. Shyamal
Kumar, Mr. Amit Singh, Mr. Amit Kalra and Mr.
Sushil Kumar Lal.
STUDENTS' CORNER
Crash Course Organized
for CA Course Students
Study Materials for

CAP-I launched
Crash course was organized for the

students of CAP-II/Intermediate
Level appearing for June 2010 CA
Examinations in the ICAN premises
from April 1, 2010 to May 2, 2010.
The course had been aimed at
providing technical details and
cursory revision of various subjects
of CAP-II/Intermediate level.
Altogether 70 students attended
the course in morning and evening
shifts. The programme was
coordinated by Mr. Bishnu Prasad
Subedi, Officer at the Education
Department.
The study materials for all the six

papers of CAP-I/Foundation level
have been published. The study
materials are distributed free of
cost to the students registered on or
after December 1, 2009. The books
are also available for sale at the
cash counter of the Institute. The
Institute is planning to come with
the study materials of all papers
of CAP-II/Intermediate level in
immediate future.
Student Enrolment
The status of students registration
in the CA Course and Accounting
Technician Course in the FY 2066/67
(till 2067 Jestha end) is as follows:
Level

CAP-I/Foundation
CAP-II/Intermediate
CAP-III/Final
AT Course
Number of
Students
953
609
102
72
SAFA Events at Colombo
Representatives from various SAFA member bodies
SAFA Board, Committee

and Task Force
Meetings, Colombo Sri
Lanka
The 13th SAFA Board, different
committees and Task Force
meetings were held in Colombo,
Sri Lanka from April 26 to 27, 2010.
The meetings were attended by
the Council Members Mr. Madhu Bir
Pande, Mr. Laxman Prasad Khanal,
Technical Director & SAFA Executive
Secretary Mr. Paramananda Adhikari
& Past President Mr. Narayan Bajaj.
SAFA Board Meeting

The Institute of Chartered
Accountants of Sri Lanka (ICASL)
hosted the 13th SAFA Board
Meeting on 27th April 2010 at Hotel
Galadari, Colombo, Sri Lanka. Mr.
Paramananda Adhikari, Executive
Secretary and Mr. Madhu Bir Pande
attended the SAFA Board Meeting.
The members shared various
activities and events held in their
respective countries before the
Board. Further the chairman or
authorized representatives of the
different committees and task force

was briefed the decision taken by
the committee to the Board.
The SAFA Board has decided,
inter alia to host the First SAFA
Accounting Summit by ICA Nepal in
the third week of September 2010
and to host the SAFA Forum in Kuala
Lumpur Malaysia coinciding with the
18th World Congress of Accountants
scheduled to be held from 8-11th
November 2010. It was also
discussed and decided that SAFA as
a regional grouping of IFAC should
participate actively in responding to
exposure drafts issued by IFAC.
Task Force to review

Constitution
The Task Force to Review
Constitution meeting was held on
26th April 2010. The Task Force was
finalized the Constitution of SAFA
for its recommendation to the SAFA
Board. The revised Constitution was
approved by the SAFA Board which
will be placed before SAFA Assembly
for final approval in the forthcoming
meeting.
Task Force for

Organizing SAFA Summit
The Task Force for organizing SAFA
Summit was held on 27th April
2010. The Task force principally
agreed with a proposed theme
of sustainable development in
SAARC would be held in third
week of September 2010 in Nepal.
The Summit task force will act
as Technical Committee and one
speaker should be assigned to each
member body of SAFA. It was also
decided that the summit should be
held every alternate year.
Committees Meetings
There were various committees
meeting held on 27th April 2010.
For the first time ICA Nepal has an
opportunity to chair the Committee
on Harmonization of Fiscal and
Tariff Regimes which was decided
by the 12th SAFA Board meeting
held on 23rd January 2010 at
Kathmandu. Mr. Narayan Bajaj,
Past President of ICAN chaired the
Committee.
Further the following matters were

decided in the meeting relating to
SAFA Best presented annual reports
awards competition in SAFA iTAG
Committee Meeting.
Particulars
Member countries
to send Annual
Report of 2009
Preliminary
Markings
Finalization of
Markings
Award Ceremony
Timeline
30 June 2010
30 September 2010
28 November 2010
2nd week of
January 2011
Dignitaries at the SAFA Event at Colombo
Categories
It was also discussed and decided

that that facilities should be
generated to visit the SAFA annual
report award ceremony via Web
site.
The meeting was decided to
develop a sector wise BPA Awards
marking check list in order to make
it more relevant. After the initial
development of the check list by
the respective country it will get
the consent from all the countries
by circulating it among the member
institutions. Responsibility to
develop the sector-wise check
list was undertaken by the
representatives as follows:
Banking Sector
Insurance and NonBanking Sector
Manufacturing &
Public Sector
Telecommunication
Sector
Hospitality, Health,
Transport and
Shipping
Responsible
Member Body
Sri Lanka
Bangladesh
Pakistan
India
Nepal
Meeting of the Committee on Quality

Control was held on 27th April 2010.
In the meeting the model quality
control framework circulated was
discussed extensively. The committee
discussed the review cycle options,
the cycle and risk based approaches
followed by member bodies.
The members were agreed some
practical difficulties in applying the

independent review system with
a large number of practicing firms
and the resource constraints faced
by them in performing independent
review systems. And in view of the
same the option of having both review
systems i.e. quality control as well as
peer review is to be discussed further
within the member bodies.
SAFA Small and Medium Practices
Committee meeting was also held on
27th April 2010. The Committee has
decided to hold the SAFA SMP Forum in
third week of August 2010 at New Delhi,
India where all the member bodies of
the SAFA shall present the status of SMP
in their respective countries.
New Publication
The Institute has come out with a new professional booklet entitled
Audit Guidelines for Cooperatives (Sahakari Sanstha Tatha Sanghaharu
ko Lekhaparikshan Nirdeshika). Divided into five sections, namely,
Introduction, Financial Administration & Bookkeeping, Internal Control
System & Audit Risk Assessment, Execution of Audit and Audit Report, the
Nirdeshika also contains the special directives issued by the Department
of Cooperatives regarding audit of cooperatives. The booklet also provides
samples of audit report in annexures.
International News
IFAC and the Princes Accounting for Sustainability Project Collaborate
to Promote Sustainable Organizations
The International Federation of
Accountants (IFAC) and The Prince's
Accounting for Sustainability
(A4S) Project have entered into
a memorandum of understanding
to support the global accountancy
profession's role in developing
sustainable organizations. The Prince's
Accounting for Sustainability Project
works with businesses, investors,
the public sector, accounting
bodies, NGOs and academics to
develop practical guidance and
tools for embedding sustainability
into decision-making and reporting
processes. To date, the project has
involved the collaboration of more
than one hundred and fifty public and
private sector organizations.
Organizations are increasingly
seeking new ways to maintain
their economic performance and
contributions to society in the face
of challenge and crisis. Perhaps
the most critical challenge facing
business and society generally is
to live within our ecological limits,
while continuing to enjoy economic
prosperity. IFAC and A4S believe
that an essential part of the answer
lies in going beyond traditional
ways of thinking about performance
and embedding sustainability into
strategy, governance, performance
management, and reporting
processes.
Key priorities to support the work

of professional accountants in
embedding sustainable practices
include:
Raising awareness and
facilitating sharing and
collaboration across the global
accountancy community,
for example, through the
development of a community
website for professional
accountancy organizations,
business leaders, academics, and
other experts to exchange ideas
and share good sustainability
practice;
Establishing an international
integrated reporting committee
to develop a new reporting
model that will better reflect
the interconnected impact of
financial, environmental, social,
and governance factors on the
long-term performance and
condition of an organization; and
Incorporating accounting for
sustainability within professional
training and education.
Professional accountants in
organizations support the
sustainability efforts of the
organizations they work for in
leadership roles in strategy,
governance, performance
management, and reporting
processes. They also oversee,
measure, control, and

communicate the long-term
sustainable value creation of their
organizations.
Paul Druckman, Chairman of the
A4S Executive Board, states,
"We will only be able to achieve
a sustainable future if all
organizations, and all individuals
within those organizations,
recognize the role that they can
and need to play. Effective action
by the accounting and finance
community to better account for
sustainability is an essential part
of the response. The collaboration
between IFAC and A4S will help to
make this a reality."
"Professional accountants play
a vital role in helping to create
sustainable organizations and
markets, especially in the areas of
accountability and measurement
of results," says Robert Bunting,
President of IFAC. "I am delighted
that our two organizations are
working together to advance the
role of sustainability leadership
and reporting at a global level,
fostering collaboration with key
stakeholders and developing
best practices for integrating
sustainability issues in the way we
do business."
IFAC Survey Shows Accountants as Advocates for Small Business and Global
Standards, Highlights Corporate Governance Reforms
As world economies recover from
the global financial crisis, the
Third Annual Global Leadership
Survey of the International
Federation of Accountants (IFAC)
revealed its membership as vocal
advocates for small and midsize
businesses, as well as for the
adoption of global accounting
and auditing standards. It also
highlighted corporate governance
enhancements in jurisdictions
around the world.
"Our members took action to

assist their jurisdictions during
the crisis, lending their expertise
to governments and businesses.
Through a variety of outreach
programs, they also let the public
know what a valuable role the
professional accountant plays
in all the sectors we serve,
especially in a time of crisis,"
says IFAC Chief Executive Officer
Ian Ball. Mr. Ball noted that, in
October and November 2009,
IFAC received 105 responses
to its online survey from the
presidents and chief executives
of accountancy institutes, and
regional accountancy organizations
and groupings. He adds, "Survey
respondents believe that
continued emphasis on effective
implementation of international
accounting and auditing standards
and good corporate governance
principles are critical issues for
the future."
Public sector finance improvements.

Because the financial crisis led
to many governments' assuming
an interventionist role in their
economies through providing a
range of guarantees and undertaking
bailouts of major banks and other
institutions, among other actions,
the survey sought information on
efforts to improve the transparency
and accountability of governments
for public sector finance. Many
respondents reported their countries
were in the process of adopting
the International Public Sector
Accounting Standards (IPSASs), which
can provide the reliable information
about government finances that is
so important in the context of the
crisis.
Corporate governance
enhancements. When survey
participants were asked whether
there had been enhancements
to corporate governance in their
jurisdictions, the majority reported
that there had either been
improvements, that actions were in
process, or that such changes were
being considered. In particular,
they reported the adoption of the
Organization for Economic Cooperation and Development's (OECD)
good governance principles, but
there was an extensive range of
responses, from making it mandatory
for companies of a certain size
to create an audit committee, to
introducing codes specific to small
businesses.
Demand for accountants. IFAC's

survey also asked about the demand
for accountants throughout the
broad spectrum of sectors in which
they work, and found that the
profession remains attractive to
students and those already in the
field. According to survey responses,
the demand for accountants
remains high, worldwide, with
growing interest in the government
and academic sectors. Participants
believe the demand for accountancy
professionals will grow in the
coming years.
Unity of the profession. Finally,
respondents believe in the
importance of maintaining the unity
of the accountancy profession, in
order to play a role in the changing
regulation of the financial sector
internationally. They said that they
believe that IFAC should continue
in its roles as a voice of the global
profession--such as its memoranda
to the G-20 leaders on reform of the
global financial system, including
special consideration for the
needs of SMEs (small and medium
entities)--and as a global standardsetter for auditing and public sector
accounting, and professional ethics
and education.
The full report is available in the
Policy Position Papers and Reports
section of IFAC's Publications and
Resources site.

(source: www.ifac.org)
g]kfn rf6{8{ PsfpG6]G6\; ;+:yfsf] ;"rgf

g]kfn rf6{8{ PsfpG6]G6\; P]g, @)%#, g]kfn rf6{8{ PsfpG6]G6\; lgodfjnL, @)^! tyf cfrf/ ;+lxtfsf] clwgdf
/xL kl/ifbn] u/]sf b]xfo adf]lhdsf lg0f{ox? ;+:yfsf ;Dk"0f{ ;b:ox?n] cf=j= @)^&)^* af6 clgjfo{ ?kdf
kfngf ug{ ;DjlGwt ;j}sf] hfgsf/Lsf] nflu of] ;"rgf k|sflzt ul/Psf] 5 .
!= Go"gtd n]vfk/LIf0f kfl/>lds ;DaGwdf
;b:ox?n] n]vfk/LIf0f u/] afkt k|fKt ug'{kg{] k|To]s n]vfk/LIf0fsf] Go"gtd z'Ns b]xfo adf]lhd x'g'kb{5 .
s_ u / 3 ju{sf btf{jfnf n]vfk/LIfs ;b:on] ?= k+fr xhf/ .
v_ v ju{sf btf{jfnf n]vfk/LIfs tyf rf6{8{ PsfpG6]G6 ;b:on] ?= bz xhf/ .
u_ km]nf] rf6{8{ PsfpG6]G6 ;b:on] ?= kGw|| xhf/ .
3_ g]kfn /fi6 a}saf6 dfGotf k|fKt ljQLo ;+:yf tyf aLdf ;ldltaf6 dfGotf k|fKt aLdf sDkgLsf]
n]vfk/LIf0f z'Ns ;j} ;b:on] ?= rfnL; xhf/ .
@= n]vfk/LIf0f ug{] clwstd ;+:yfsf] ;+Vofx?sf] ;DaGwdf .
k]zfut k|df0fkq k|fKt ;b:ox?n] b]xfosf] ;Ldf eGbf jl9 lgsfox?sf] n]vfk/LIf0f ug{ kfOg] 5}g .
s_ sDkgL P]g cGt{ut btf{ ePsf sDkgLsf] xsdf clwsQd %% j6f;Dd -t/ klAns lnld6]8 sDkgLsf]
xsdf j9Ldf !% j6f;Dd _ .
v_ dfly -s_ afx]sdf cGo ;+3 ;+:yfx?sf] xsdf j9Ldf $% j6f ;Dd .
u_ ;fem]bf/L kmd{sf k|To]s ;fem]bf/n] pk/f]Qm ;Ldf;Dd n]vfk/LIf0f ug{ kfpg]5 .
#= Branch Audit ;DaGwdf
a}s tyf ljQLo ;+:yfsf] n]vfk/LIf0f ubf{ s'g} a}s tyf ljQLo ;+:yfsf] zfvfdf hDdf lgIf]ksf] b'O{ k|ltzt jf
;f] eGbf j9L ;+sng u/]sf] ePdf To:tf] zfvfsf] ;d]t n]vfk/LIfsn] :jtGq n]vfk/LIf0f ug'{kg{]5 .
$= cfrf/ ;+lxtf ;DaGwL
k]zfut k|df0fkq k|fKt ;b:on] ;+:yfn] hf/L u/]sf] cfrf/ ;+lxtf @)^) sf] ;f International Federation
of Accountants (IFAC) n] hf/L u/]sf] cfrf/ ;+lxtf, @)!) nfO{ g} ;+:yfn] Adopt u/]sf]n] Code of
Ethics 2010 tyf ;+:yfn] ;b:ox?sf] nflu hf/L u/]sf cGo lgb]{zg ;d]tsf] kfngf ug'{kg{]5 .
%= gfdsf] cufl8 l;=P= tyf cf/=P= n]Vg] ;DaGwL
;+:yfsf ;Dk"0f{ ;b:ox?n] Joj;foLs k|of]hgsf] nflu clgjfo{ ?kdf cfk\mgf] gfdsf] cuf8L o; ;+:yfsf
rf6{8{ PsfpG6]G6 ;b:ox?n] l;=P= / btf{jfnf n]vfk/LIfs ;b:ox?n] cf/=P= n]Vg' kg{]5 . tyfkL cGo
k|of]hgsf] nflu cfkm\gf] gfdsf] cufl8 l;=P= tyf cf/= P= P]lR5s ?kdf n]Vg ;lsg]5 .
^= l;=lk=O{= tflnd ;DaGwdf
kl/ifbsf] lg0f{ofg';f/ cf=j= @)^&)^* sf] k]zfut k|df0fkqsf] gjLs/0fsf] nflu rf6{8{ PsfpG6]G6 / v
ju{sf btf{jfnf n]vfk/LIfs ;b:on] tLg jif{df ^) / k|To]s jif{ !% qm]l86 cfj/ tyf u / 3 ju{sf btf{jfnf
n]vfk/LIfs ;b:on] tLg jif{df $) / k|To]s jif{ !) qm]l86 cfj/ a/fa/ l;=lk=O{= lng'kg]{ Aoj:yf u/]sf] 5 .
&= ;"lrs/0f ;DaGwL
&=! a}+s tyf ljQLo ;+:yf / aLdf sDkgLx?sf] n]vfk/LIf0fsf nflu g]kfn /fi6 a}+s tyf ljdf ;ldltdf
;"lrs/0f ug{ gkg{] Joxf]/f hfgsf/L u/fO{G5 . a}+s tyf ljQLo ;+:yf / aLdf sDkgLx?sf] n]vfk/LIf0fsf
nflu ;+:yfdf k]zfut k|df0fkq gljs/0f ubf{sf jvt g]kfn /fi6 a+}s tyf ljdf ;ldltdf gfd k7fpg]
k|of]hgsf nflu kmd{ eg'{kg{]5 .
&=@ ;xsf/L ;+:yfsf] n]vfk/LIf0fsf nflu k"j{jt ;"lrs/0f ;DaGwL Joj:yf k"0f{tM vf/]h ePsfn] o;
;+:yfaf6 k]zfut k|df0fkq k|fKt u/]kl5 To:tf ;+:yfdf n]vfk/LIf0f ug{sf nflu :jtM of]Uo x'g] Joxf]/f
hfgsf/L u/fO{G5 .
g]kfn rf6{8{ PsfpG6]G6\; ;+:yf
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NEPAL

(Established under the Nepal Chartered Accountants Act, 1997)
aa/dxn, sf7df8f},+ kf]=a=g+= %@*( kmf]gM )!$@%*%^($@^(!#)@)#))@!

km\ofS; M $@%*%^*, Od]nM ican@ntc.net.np, website: www.ican.org.np
g]kfn rf6{8{ PsfpG6]G6\; ;+:yfsf] ;"rgf
o; ;+:yfsf ;b:ox?sf] xs lxt ;'/Iff Pj+ k|lti7fsf] ;+/If0f tyf ;Da4{g ug{sf nflu ljleGg lgsfoaf6 tof/

Ican Journal June 2010

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ican Journal June 2010

Uploaded by

Copyright:

Available Formats

Chartered

Journal of the Institute of Chartered Accountants of Nepal

Liquidity Problem and Managing Liquidity Risk in

Anti Money Laundering- An Introduction

Appropriate Growth Strategies for Developing

International Financial Reporting Standards

Discerning the Impact of IFRS on Tax Sphere

Information, Communication and Technology

Suvod Kumar Karn, FCA

Satyendra Sharma Satyam

The Institute of Chartered Accountants of Nepal,

Peeping into the Flipside of Spurring Growth in India

Implementation of LPG Model: An Opportunity

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

Early Warning Systems in Credit Risk Management

(including courier charges)

Opinions expressed by the contributors in this journal are their own

P resident ' s M essage

To strengthen and standardize

the service of existing liaison

Nepal has provided the

Employee By-law and Finance

have also started Dress Code

To enhance the capacity of

members, mandatory CPE

We have decided to fix the

minimum audit fee for the

audit of Banks and Finance

We have also decided to

fix the audit ceiling to the

We have formed a Task Force

to study the requirement

Rastra Bank and Secretary

This year we have published

We have decided to revise

the Audit limit of RA

We have also decided,

keeping view of request

maximum papers in CAP-II

This year we have made a

We have decided that every

We have also decided to

revised code of ethics for

This year we have come out

with the Audit Guidelines

Full set of Study Materials

of CAP-I level has been

The Nepal Chartered Accountant | June 2010

hope draft of these materials

Suvod Kumar Karn

The Role of Audit Committees

the prevalent practices, mandatory

principle, be more concerned with

* Mr. Pradhan is a Fellow Chartered Accountant Member of the Institute.

The Nepal Chartered Accountant | June 2010 7

audit committee. This mechanism

Challenges for Central

The Nepal Chartered Accountant | June 2010

and helps avoid Cherry Pick

An independent audit committee

the audit committee to perform its

which does not leave any scope

resources, administrative and

structure and the broader legal