Accounting Practices in Nepal

1. Accounting Practices in Nepal Concept, Accounting Information System, Accounting Practices, recent development in Nepal Presented by: AmritShrestha (CA, CPFA Affil.)

2. Contents of Course - Outline • General Accounting concept • Accounting information system • Accounting procedures • Types of accounting bases • Financial statements • Recent changes Development (Accounting standard)

3. Accounting concept • Accounting is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information.. • n]vfeGgfn] sf/f]jf/ ePsf] Joxf]/f b]lvg] u/L k|rlntsfg"gadf]lhd /flvg] clen]v, vftf, lstfacflb / sf/f]jf/nfO{ k|dfl0ft ug]{ cGosfuhft ;d]tnfO{ hgfpF5 . -n]vfk/LIf0f P]g @)$*, sf] bkmf@_ • cfly{s sf/f]jf/ tyfcfly{s 36gfsf] clen]v /fVg' dfq n]vfsf] p4]Zo xf]O{g sLJoj;;fox?sf] cfly{s cj:yfsf] ;DjlGwtlgsfox?nfO{ /fd|/L hfgsf/L lbg'kg]{ klgxf].

4. Objective of accounting • To carry out the financial business of government in a timely, efficient and reliable manner (e.g. to make payments, settle liabilities, collect sums due, buy and sell assets etc.) subject to necessary financial controls. • To keep systematic, easily accessible accounting and documentary records as evidence of past transactions and current financial status, so that detailed transactions can be identified and traced and all aggregates can be conveniently broken down into their constituent parts. • To provide periodic financial statements, containing appropriately classified financial information, as a basis for (a) stewardship and accountability and (b) decision-making. • To maintain financial records suitable for budgetary control, internal control and the needs of auditors. • To provide means for effective management of government assets, liabilities, expenditures and revenues.

5. Need of Accounting • Risk mitigation • Consistency • Accountability • Institutional memory • Transparency • Evidence • Documentation • Good Governance Accounting information is required to be accountable towards taxpayers, for being transparent to stakeholders and maintain good governance in organization.

6. Professional Judgement & Skepticism • Professional Judgement: A Right that Comes with Responsibility • Its Applying knowledge, skills and experience, in a way that is informed by professional standards, laws and ethical principles, to develop an opinion or decision about what should be done to best. • Skepticism : questioning attitude or doubt towards one or more items knowledge or belief.

7. ASSUME Re think on your actions

8. Simple concept of Dr Cr • Its Just a (+) or (- )

9. Accounting Information System

10. Transactions and Event • All transaction are events but all events are not transactions • An event may or may not bring change in the financial position. • event must be measurablein terms of money.(i:e economic transactions)

11. Example • A very Skilled employee died due to accident that had a very heavy loss to the organization. All staff had deep sympathy on him. • A staff of office got into bike accident luckily he survived and office paid his all treatment expenses. Treatment cost was Rs 10 lacs.

12. Process - (Principals) Principles • Joj;floscl:tTjsf] l;4fGt(Business Entity Concept) • Df}flb|s dfkb08sf] l;4fGt (Money Measurement Concept) • gL/Gt/tfsf] l;4fGt (Going Concern Concept) • k/n d'Nosf l;4fGt (Cost Concept) • cfly{s jif{sf] l;4fGt (Accounting Period Concept) • K|ffKtLsf] l;4fGt (Realization Concept) • lx;fjldnfgsf] l;4fGt(Matching Concept) • bf]xf]/f] n]vfsf] l;4fGt (Double Entry System)

13. Procedure of accounting • An accounting procedure is a standardized process that is used to perform a function within the accounting department. • Recognition(Identification) • Measurement (Monetary value) • Documentation (Evidence) • Verification • Accounting and recording are different (E.g Store)

14. Process – (Procedures)

15. Building Blocks of Financial Statement

16. Accounting basis Basis • Cash Accounting basis • Modified cash Accounting basis • Modified Accrual Accounting basis • Full Accrual Accounting Basis (Main difference in modified accounting is treatment of expenditures and its timing ) HYBRID ACCOUNTING

17. Understand Cash • Cash means cash and cash equivalents, cash equivalents include highly liquid short term financial assets that are readily convertible to cash

18. How wording differs • Difference between expense and expenditure • Difference between revenue and income

19. Cash Basis Vs Accrual Basis

20. Scenario 1: Cash Basis Vs Accrual 49000+ 140000 540000+ 60000

21. Scenario 2: Cash Vs Modified Cash 49000+ 140000

22. Scenario 3: Modified Accrual Vs Full Accrual 49000+ 140000 380000 treated as asset Assets is written off during the same year

23. Scenario Comparison

24. Output –(Financial Statements) NPSAS Cash basis • Statement of cash receipt and payments; • Accounting polices and Explanatory notes; • Budget comparison Accrual basis • A statement of financial position; • A statement of financial performance; • statement of changes in net assets/equity; • A cash flow statement; • Accounting polices and Explanatory notes; • Budget comparison

25. Concept of GPFS • General purpose Vs Specific Purpose • General Purpose financial statements.

26. Financial Statement (Aarthik Bibaran) • Financial Statement will prepare (Aarthik Bibaran) of • Revenue • Expenditure • Deposit • Inventory • Budget • Loan and Investment • Types of Financial Statement 1. AarthikBibaran 2. IntegretedAarthikBibaran 3.Central AarthikBibaran 4. Subsidiary Aarthik Bibaran (Revenue: Tax Revenue and other revenue and Expenditure: Recurrent, Capital and Financing)

27. Accounting Process in the context of Nepalg]kfn ;/sf/sf] n]vfk4tL • uf]Zjf/f ef}r/ - ;flas d=n]=k= kmf/fd g+=!) _ / xfn@)# • vftfx? - ;flas d=n]=k= kmf/fd g+=@@ _ / xfn@)& • e'QmfgLcfb]zsf] - ;flascg';'rL!$ _ / xfn@)$ • a}+s gubLlstfa- ;flasd=n]=k= kmf/fd g+=% _ / xfn@)( • ah]6 lx;fa- ;flas d=n]=k= kmf/fd g+= * _ / xfn@)* • j}s lx;fj ;dfof]hg ljj/0f - ;flas d=n]=k= kmf/fd g+=!% _ / xfn@!@ • vr{sf] kmfF6jf/L - ;flas d=n]=k= kmf/fd g+=!# _ / xfn @!) • km5of}{6 x'gafsL k]ZsL - ;flas d=n]=k=kmf= !$_ / xfn @!! • cfly{s ljj/0f - ;flasd=n]=k= kmf/fd g+=!& _ / -Working Sheet) • सन्तुलन परिक्षण;flas ) / xfn@@% Professional Course on Management and Development: Sundar Shrestha

28. jflif{s k|ltj]bg -@_ jflif{s • e'QmfgLlbgafsLsRrfaf/L - ;flas d=n]=k=kmf= !* / xfn @@! • jflif{s cf=lj= - ;flas d=n]=k=kmf= !& / xfn @&@ NPSAS • km5of}{6 x'gafsL k]ZsL - ;flas d=n]=k=kmf= !$ / xfn @!! • ljlgof]hg ,w/f}6L, /fhZj, • lhG;L/ cGo • ;/sf/L sf/f]af/sf] jflif{s cfly{s ljj/0f tof/ ug{' kg]{ / o:tf] ljj/0fdf n]vfk|0ffnLdf ;dflji6 gu/]sf] s]lx ykljifodfhfgsf/L lbg'kg]{ Joj:yf 5, h:t}– e"QmfgLx'gafFsLljj/0f,c;"nx'g afFsL /fhZjsf] nut / utljutjif{sf] k]ZsL

29. Test your understanding • Is मन्त्रालयको केन्द्रिय आर्थिक विवरण a financial statement? • Answer: Nepal Public sector standards has defined FS R/P, Budget Comparison and NoA

30. Simple Equations • Approved budget- Budget release – Expenditure = Balance • Expenditure = Budget release

31. Features of Accounting system (GoN) • Double Entry System • Cash Basis • Budgetary Control over expenditure • Uniform Chart of accounts • Easy to maintain • Does not require substantiality skilled people • IT based recording and reporting (Most important these are based on international standards and frameworks such as GFSM 2014, IPSAS, COFOG, COSO etc)

32. Shortcomings of Govt accounting system • Treats advance as either income or expenses • Non cash financial transaction do not pass through the formal book keeping system and accounting system • Ignores contingencies liabilities and assets • Does not support assets accounting • Inter entity transactions are not properly treated • Activities costing is not possible under this accounting (local level has started, new voucher has started capturing it.)

33. Actions taken for shortcomings • Introduced accounting standard 2066 Bhadra (2009 A.D): Nepal Public Sector Accounting Standard NPSAS • Introduced Accounting Manual 2073 • Introduced Internal control framework 2075 • Revised Charts of Accounts • Revised accounting formats

34. Use of IT system in accounts • Federal level: LMBIS for Budgeting, CGAS for accounting, FMIS (Road Department), TABUCS (health ministry), RMIS for revenue, TSA for Banking • Provincial Level: P-LMBIS for Budgeting, CGAS for accounting, TSA for Banking • Local Level: SuTRA for budgeting as well as accounting

35. Recent developments • Updated in chart of accounts 2076 (2nd Amendment) with assets codes • Issuance of Govt. Accounting manual 2073 • Issuance of Internal Control framework (2076) • Finance procedure and responsibility act (bill in parliament) • New OAG forms issued 2075, • Updated software systems (CGAS, SuTRA, LMBIS, TSA) • E-Payment, electronic fund transfer (for revenue)

36. स्थानीय सञ्चित कोष ब्यवस्थापनप्रणालीSub-national Treasury Regulatory Application-SUTRA 1. Budget and program formulation 2. Accounting 3. Reporting 4. District Treasury Controller Office (DTCO) 5. Monitoring • 1, 2 and 3 for Local level and • 4 & 5 for DTCO, Financial Comptroller General Office ( FCGO ) and (Ministry of Finance )MoFand others entities for reporting

37. Any Queries

38. THANK YOU