Nepal Financial Reporting Standards (NFRS)
Nepal Financial Reporting Standards (NFRS) are set of financial reporting standards developed by the Accounting Standards Board (ASB) with belief that the common global language for business affairs so that company accountants are understandable and comparable within Nepal.
Who have Public Accountability?
- Whose debt or equity instruments are traded in public market or is in process of issuing such instruments (except listed Micro Finance not having economic significance)
- It holds assets in a fiduciary capacity for broad group of outsiders as one of its primary businesses:
- banks, credit unions, insurance companies, security dealers and mutual funds, investment banks (except Micro Finance and Cooperatives not having economic significance)
- Pension and retirement fund
- Government Business Enterprises (GBEs), Public entities established under special acts not preparing financial statements under NPSAS
- Entities having economic significance
What is Economic Significant?
- The entity called entity having economic significant if any of the following, conditions are satisfied
- Borrowings from B&FIs or public funds or from entities holding an assets in fiduciary capacity of NPR 50 Crore (500 Million) or more;
- Total of Financial Position (Balance Sheet) without offsetting current assets and current liabilities) of NPR 1 Arab (1000 Million) or more;
- Employing more than 300 employees including worker during the year on an average
- Annual Turnover of NPR 1 Arab (1000 Million) or more
- Holding an assets in fiduciary capacity in excess of NPR 50 Crore (500 million) including security brokers handling Demat account, micro finance and co-operatives
Note: An entity which attains at least 1 of these limits in 2 consecutive years shall be deemed to be an entity having economic significance to qualify as an entity with public accountability and once qualified, must fall below all of these limits for 2 consecutive years to cease to qualify.
What is Small and Medium-sized Entities (SMEs)?
Small and Medium-sized Entities (SMEs) are the entities that;
- Do not have public accountability; and
- Publish general purpose financial statements for external users
Note: General purpose financial statements are those directed to general financial information of the wide range of users who are not in position to demand reports tailored to meet their particular information needs.
Therefore, entity comply with the above definition of SMEs shall prepare financial statements as per NFRS for SMEs issued by The Institute of Chartered Accountant of Nepal.
What is Micro Entities?
Micro entities are those entities, which fulfill all the following thresholds:
- Annual turnover of NPR 10 Crore (100 Million) or less
- Borrowing from B&FIs or Public Fund or from entity holding assets in fiduciary capacity of NPR 5 Crore (50 Million) or less
- Total of financial position (Balance sheet) of NPR 10 Crore (100 Million) or less without offsetting current assets and current liabilities
- Holding assets in fiduciary capacity of NPR 5 Crore (50 Million) or less including security broker handling demat account, micro finance and co-operatives.
Note: An entity must meet all of these limits in 2 consecutive years to qualify as a micro-entity and once qualified, must exceed at least 1 of these limit for 2 consecutive years to cease to qualify.
Therefore, entity not having public accountability and not SMEs shall prepare financial statements as per NAS for Micro-entity issued by the Institute of Chartered Account of Nepal.
Therefore, entity not having public accountability and not SMEs shall prepare financial statements as per NAS for Micro-entity issued by the Institute of Chartered Account of Nepal.
Summary of NFRS Applicability
|
Public Accountability |
|||
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1) Debt or Equity traded in public market 2) Hold assets in fiduciary capacity (Bank, Insurance, Mutual fund etc. PF/R/P) 3) Government Business Entities 4) Economic Significance |
Full NFRS |
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Economic Significance |
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Particulars |
NFRS |
SMEs |
ME |
|
Loan/ Borrowings |
50 Cr <= # |
5 Cr < # < 50 Cr |
5 Cr >= # |
|
Financial Position (Balance Sheet) Total |
100 Cr <= # |
10 Cr < # < 100 Cr |
10 Cr >= # |
|
Number of Employees |
300 < # |
N/A |
N/A |
|
Annual Turnover |
100 Cr <= # |
10 Cr < # < 100 Cr |
10 Cr >= # |
|
Holding and Assets in Fiduciary Capacity |
50 Cr < # |
5 Cr < # < = 50 Cr |
5 Cr >= # |
|
Qualify |
At least 1 for 2 CY |
………….. |
All for 2 CY |
|
Disqualify |
Below all of these for 2 CY |
……………… |
At least exceed for 2 CY |
** CY= Consecutive Year
Adoption Timeline of NFRS
The entities shall prepare its Financial Statements as per respective applicable NFRS on or after the following timeline
|
Type |
Entity Type |
Financial Year |
|
A |
1) Listed Multinational Manufacturing Companies 2) Listed State Owned Enterprises (SOEs) with minimum paid up capital of NPR 5 billion (except Banks and Financial Institutions under BAFIA Act 2006)
|
2014/15 |
|
B |
1) Commercial Bank including State Owned Commercial Bank 2) All other listed State Owned Enterprise (SOEs)
|
2015/16 |
|
C |
1) All Other Financial Institution not covered under A&B above 2) All other State Owned Entity (SOEs) 3) Insurance Companies 4) All other listed companies 5) All other corporate bodies/entity not defined as SMEs or entities having borrowing with minimum of NPR 500 Million
|
2016/17 |
|
D |
SMEs as defined and classified by ASB |
2019/20 |
|
E |
Micro-entity as defined and classified by ASB |
2020/21 |
Note: Micro-entity can prepare its financial statements as per NAS for Micro-entity for the FY 2019/20 as voluntarily.
The author (CA. Shambhu Budathoki) is a qualified chartered accountant and has a vast expertise in the field of Financial Reporting, Audit and Taxation.He is also a budding entrepreneur in Nepal .
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