Professional Documents
Culture Documents
2014
Vol. 16 No. 3
P A
Contents
ACCOUNTANT
Editorial Committee
CA. Mahesh Kumar Guragain
CA. Narendra Bhattarai
CA. Kiran Subedi
CA. Pankaj Thapa
CA. Santosh Ghimire
RA. Dev Bahadur Bohara
RA. Dharanidhar Adhikari
RA. Murari Bhattarai
RA. Shankar Gyawali
Mr. Binod Neupane
Chairman
Vice -Chairman
Member
Member
Member
Member
Member
Member
Member
Secretary
Editorial Support
President's Message
BANKING
Creation of Synergy by Merger
- CA. Narendra Bhattarai
ACCOUNTING
Nepal Accounting Standard 40:Investment Property
- CA. Lalit Aryal
19
22
FINANCIAL MANAGEMENT
Financial Literacy
- Mr. Hermann Rune
27
MANAGEMENT
An Overview of Internal Oversight Mechanism in UN
Systems Organizations
30
33
TAXATION
Alarming Compliance Cost of Taxation
- Mr. Kul Prasad Aryal
Subscription Rates
Annual Subscription Rs. 600
37
OTHER
ICAN and Other Regulatory Bodies in NepalA win win Relationship
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 acknowledgements. For others,
solicitation is expected.
49
Students News
Member News
Important Notice
ECONOMY
News
Editorial
40
45
Editorial
Editorial
The journal of the institute is the mirror which has to reflect the contemporary
issues of the accounting, auditing, taxation, economics, and latest developments
in those areas. It should portray strength of the profession in diversified sectors
and support to enhance the social recognition and visibility.
The history of our journal began from the year 1998 when the concept of
publishing the journal visualized for the first time. However, the process of
improvement and advancement took many years.
As there is always room for further improvement, we realize that it is a high
time, and the responsibility goes not only to ICAN but to each and every
member, to magnify the professional values of the journal by enhancing its
existing scopes through latest news and developments in the field of accounting,
finance, taxation, economics, auditing and educational learnings. So as to speed
up the process of the enhancement and advancement of the quality of the journal,
we have proposed a draft editorial policy. The policy once adopted by the
council will be implemented and it will support the function of editorial committee
as well as encourage the existing and potential writers and contributors. The
Major Highlights of the Editorial Policy are:
Guidelines to the writers about the length and necessary content etc.
of the article.
ACCOUNTING
Dear friends
President's
Message
June 2013
35
Best Wishes
Dear Friends.
I would also like to draw the attention of all members that
the compliance with the local laws of the countries and general
auditing practices by the accounting professional is highly
BANKING
March 2014
BANKING
1980 AD
1990 AD
2000 AD
2014 AD
13
31
86
45
59
NA
NA
NA
31
65
207
March 2014
BANKING
Structure of Nepalese Financial System
Banks and Financial Institutions Mid -July
2012
Commercial Banks (A)
Development Banks (B)
Finance Companies
Micro Finance Institutions (D)
Sub-Total
Nepal Rastra Bank
NRB permitted Cooperatives
(with limited banking activities)
NRB permitted NGOs
(with limited banking activities)
Insurance Companies
Employees Provident Fund
Citizen Investment Trust
Postal Saving Bank
Total
Mid -Jan.
2013
Mid - July
2013
31
86
59
31
207
1
Assets/
Liabilities
(in billions)
1243
200
101
36
1580
538
Share
(percent
of total)
51.6
8.3
4.2
1.5
65.6
22.2
Share
(percent
of GDP)
73.1
11.8
5.9
2.1
92.9
31.4
32
88
70
24
214
1
32
90
67
25
214
1
16
16
18
15
0.6
0.9
36
25
1
1
1
295
34
25
1
1
1
293
31
25
1
1
1
285
5
85
145
42
1
NRs. 2411
0.2
3.5
6.0
1.8
0.1
100
0.3
5.0
8.5
2.5
0.1
141.6
Sri Lanka
Nepal
July 2013
24
31
86
48
59
Total
81
176
72%
90.8%
March 2014
BANKING
Merged
Merging
New/ Upgraded
De-licensed
Commercial Banks
Development Banks
11
13
Finance Companies
16
16
Total
17
25
18
25
10
March 2014
BANKING
5.2 Cons
March 2014
11
BANKING
12
March 2014
BANKING
Particulars of Domains
Ashwin-end 2070
Paush-end 2069
Global
NIC
MB Global
NIC
MB Global
NIC
MB
2.78
2.31
2.47
2.41
2.31
2.47
2.25
1.31
2.47
36.97
38.44
31.11
35.35
37.85
28.89
29.36
22.13
22.55
30.11
31.83
25.27
28.59
31.80
23.48
23.91
17.84
18.61
532.8 385.35
204.0
271.4
144.9
67.4
244.9
233.4
32.9
11.50
13.77
11.43
11.15
14.29
12.12
10.82
11.73
13.52
3.22
2.96
2.67
2.59
2.90
2.60
2.10
1.20
3.07
13.78
16.46
25.15
10.83
10.88
17.61
20.70
1.33
Ashwin-end 2070
Paush-end 2069
BU
H&B
IDB
VB
BU H&B
IDB
VB
BU H&B IDB
VB
842
897
827
917
842
897
827
917
842
897
827
916
4.64
5.64
3.81
3.18
4.18
5.60
3.01
2.97
3.63
6.07
2.68
2.86
4.10
4.59
2.43
1.93
3.86
4.77
2.20
1.70
3.48
6.01
2.15
1.68
20.1
(191)
25
(52)
16.7
4.8
10
(26)
(38)
3.5
20.1
12.3
24.3
11.9
19.7
15.8
25.5
16.1
24.9 16.43
32.1
13.7
8.15
4.85
8.29
13.3
4.36
4.96
7.44
15.5
3.75
7.99
33.3
3.98
(17) (115)
March 2014
13
BANKING
One of the principal objectives behind the mergers
and acquisitions in the banking sector is to reap
the benefits of economies of scale. Merger should
bring substantial benefits to the Nepalese banking
system. Merger should create synergy by lowering
operating costs, extend the benefits of economies
of scope and scale, expansion and diversification
of market share. It is perceived that a big
organization is considered to be efficient in
allocating resources to maximize the output
gains.
In case of the Nepalese context, both analogies
'small is beautiful' and 'bigger is better' hold true
in the context of merger of financial institutions.
Such experience was also witnessed in Egypt and
also in Malaysia. Hence the merger of finance
companies with other finance companies, finance
companies with development banks cannot create
any synergy. In order to create synergy, size matters
and hence merger of BFIs with commercial bank
is essential.
7. Merger Process
NRB has published 'Merger Guideline' for merger of
BFIs that has defined the merger processes. The main
elements of the merger process are depicted below:
14
March 2014
BANKING
To carry out Legal Due Diligence Audit to examine
Summary of Business Valuation based on the result of the DDA of Bank A and Bank B is given below:
Particulars
Valuation of Goodwill
1. Capitalization of Average Profit Method
2. Annuity Method
3. Average or 1 & 2
Valuation of Shares
1. Intrinsic Value Per Share
2. Book Value Per Share
3. Capitalization of Discounted Projected Earnings Per Share (EPS) of 5 Years
4. Capitalization of Projected Earnings Per Share (EPS) of 5 Years
5. Market Price (average of 180 days)
Bank A
Value per Share
(NRs.)
Bank B
Value per Share
(NRs.)
110
32
71
160
157
249
359
538
110
109
118
171
242
March 2014
15
BANKING
Assigned
Weight
(a)
Value per
Share-Bank A
(b)
Product
Value per Product
Bank B Share-Bank B Bank B
(a) x (b)
(c) (a) x (c)
Intrinsic Value
160
800
110
550
Book Value
157
628
109
436
249
747
118
354
359
718
171
342
538
538
242
242
Total
Value of Goodwill
15
3431
1924
228
128
32
260
128
2:1
228
128
Value of Goodwill
110
338
128
16
March 2014
2.6:1
BANKING
Value of Goodwill
228
128
71
299
128
2.3:1
Method of Post Merger Synergy Creation: The top areas
where banks can improve the integration process and
maximize synergy may include:
10. Conclusion
Nepal has unsustainable number of BFI at present in
term of her size of GDP and pace of economic development.
The NRB authority has no answer why such a huge number
of licenses were issued to establish BFIs within a span of
about 15 years. But being a regulator including the licensing
authority of BFIs, NRB has to focus on reducing the number
of BFIs at a sustainable level. It is only the merger and
acquisition which can bring the number of BFIs at a
sustainable level and therefore NRB induced merger by
bringing the Merger Bylaws in 2011. NRB should not
focus only on reducing the number of BFIs but to focus
whether the merger will create synergy. If the merger fails
to create synergy, NRB should not encourage creating
another mess. Theoretically, merger creates synergy by
lowering operating costs, extends the benefits of economies
of scale, expansion and diversification of market share.
March 2014
17
BANKING
18
March 2014
ACCOUNTING
March 2014
19
ACCOUNTING
Initial Measurement:
Subsequent Expenditure
20
March 2014
ACCOUNTING
Disclosure Requirements
For All Circumstances:
1. Classification criteria.
2. Methods and assumptions used to measure fair value.
3. Extent of involvement of independent, professional
and recently experienced valuators in the measurement
of fair value.
4. Amount included in profit or loss for:
a. Rental Income
b. Direct operating expense from rented property
c. Direct operating expense from non- rented property
5. Restriction on reliability of property or remittance of
income/disposal proceeds.
6. Material contractual obligations:
a. To purchase, construct or develop investment
property; or
b. For repairs, maintenance or enhancements.
For Fair Value Model:
1. Reconciliation between opening and closing carrying
amount of investment property held at fair value.
2. Any investment property that is not carried at fair value
should be similarly subject to reconciliation separately
from other properties, and additional disclosure made
(e.g. including and explanation of why it is an
exception).
For Cost Model:
1. Deprecation method used
2. Useful lives or depreciation rates used
3. Gross carrying amount, accumulated depreciation and
impairment losses at beginning and end of the period.
4. Reconciliation of brought forward and carried forward
amounts.
5. The fair value of investment property (or an explanation
why it cannot be measured). n
March 2014
21
ECONOMY
Introduction
The pursuit for achieving economic
growth remains at the forefront of the
policy agenda of any economy.
Economic growth indeed constitutes
the necessary condition for attaining
higher standard of living or human
welfare, the ultimate objective of any
development policy. The modern-day
world has come off a long way from
the organic view of the state in which
the existence of the citizens and their
activities would exclusively mean for
the welfare of the 'state' rather than
the citizens themselves. The role of
the government has thus shifted from
maintenance of law and order, and
governance to enhancing the standards
of living of the citizens. This is
March 2014
22
ECONOMY
23
March 2014
ECONOMY
March 2014
24
ECONOMY
25
March 2014
Conclusion
From the stated theoretical background and economic
performance factor it could be concluded that following
factors will support economic growth and dynamism of
Nepalese economy. Whatever maybe the socio political
economy these factors are crucial for the long term growth
and development of Nepalese economy. The paper suggest
to Nepalese political, public, private, cooperative,
nongovernment institution along with international
development partners and donors to insist these factors.
such as: High quality of human capital, High technology,
innovation, R&D, Stable political environment, High degree
ECONOMY
March 2014
26
FINANCIAL MANAGEMENT
Financial Literacy
27
March 2014
FINANCIAL MANAGEMENT
Introduction
In continuum of these stories it is attempted to understand
how financial literacy apart from business training enable
microfinance clients to run better businesses and make
appropriate financial decisions.
Financial literacy has been defined as the ability to process
financial information and make informed decisions about
personal finances. In the last few years, with increasing
focus on access to finance as an important determinant of
household-level economic development and its
accompanying positive consequences for empowerment,
financial literacy has become an important issue for
actioners and policymakers alike.
Why is financial literacy important? Firstly, financial
literacy can be an important determinant of access to
finance. Low levels of literacy may prevent the take-up of
more complicated financial products such as insurance,
since clients may be hesitant to buy a product whose utility
they do not fully comprehend.
Even for a less complicated financial product, such as a
bank account, a financially illiterate person may not
understand the importance of formal savings. Lack of
financial literacy may also be compounded by a lack of
access to a range of financial products.
Given its importance in today's context, financial literacy
programs have mushroomed, and much of the conversation
on policy focuses on how to improve it. For financial
literacy providers, some of the key questions include:
Many of the borrowers also recognized that nonrepayment could have potentially harmful
consequences.
March 2014
28
FINANCIAL MANAGEMENT
Budgeting
A budget is a plan for your future income and expenditures
that you can use as a guideline for spending and saving.
Although many people already use a budget to plan their
spending, the majority also routinely spend more than they
can afford. The key to spending within your means is to
know your expenses and to spend less than you make. A
good monthly budget can help ensure you pay your bills
on time, have funds to cover unexpected emergencies, and
reach your financial goals.
Most of the information you need is already at your
fingertips. To create or rework your budget, follow the
simple example outlined below to get a clear picture of
your monthly finances.
29
March 2014
2. Estimate Expenses
The best way to do this is to keep track of how much you
spend for one month. In the worksheet you divide spending
into fixed and flexible expenses. Fixed expenses are those
that generally do not change from month to month, such
as rent and insurance payments. Flexible expenses are
those that do change from month to month, such as food
or entertainment. If some of your expenses for one or more
categories change significantly each month, take a threemonth average for your total.
MANAGEMENT
1Oversight
Lacunae in the United Nations System, Joint Inspection Unit, JIU/REP/2006/2, p. 1-2
March 2014
30
MANAGEMENT
auditing, evaluation and investigation. However in the
United Nations inspection function is attached to the
evaluation function (Inspection and Evaluation Division).
Currently, oversight mechanism is organized in three
different ways as follows:
2www.un.org/Depts/oios
3Paragraph
31
March 2014
MANAGEMENT
Reporting System
Concluding Remarks
Oversight mechanisms are increasingly seen as an
organizational instrument that contributes in providing
reasonable assurance to managers and governing bodies
in relation to the management of resources and programs,
promoting integrity and ethics. These mechanisms are also
facing challenges of ensuring quality, adequate coverage
and building professional competence of its human
resources. Clear and achievable objectives and continued
efforts can bring positive results. n
March 2014
32
MANAGEMENT
Understanding Human
Element and Business
33
March 2014
MANAGEMENT
Managing it
You don't build a business- you build people- and then
people build the business. There's no such thing as a
successful business without a lot of successful people
helping to grow it. - Zig Ziglar
Organizations know that they must have the best talent in
order to succeed in the hypercompetitive and increasingly
complex global economy. Along with the understanding
of the need to hire, develop, and retain talented people,
organizations are aware that they must manage talent as
a critical resource to achieve the best possible results.
This is the war for talent era. It has become a potential
battleground to fill any position from executive level to
front-line employee. Simply put, firms with better talent
will be more successful than firms with lesser talent. Talent
what comprises the 5 'C' comes within the people in an
organization, how they enter, develop their skills, and move
through. Talent management involves not only getting and
staffing the good but identifying and removing the
nonessential and outright bad as the Welch Way calls it
weeding out.
White Paper: Nine Best Practices for Effective Talent
Management authored by Wellins, Smith & Erker on behalf
of DDI Inc., USA stated the following key components of
a highly effective talent management process that include:
A clear understanding of the organization's current
and future business strategies.
Identification of the key gaps between the talent in
place and the talent required to drive business success.
A sound talent management plan designed to close
the talent gaps. It should also be integrated with
strategic and business plans.
Accurate hiring and promotion decisions.
Connection of individual and team goals to corporate
goals, and providing clear expectations and feedback
to manage performance.
Development of talent to enhance performance in
current positions as well as readiness for transition
to the next level.
March 2014
34
MANAGEMENT
35
March 2014
MANAGEMENT
Conclusion
There are so many examples from the Mahabharata age to
present that clarify and describe explicitly that people build
organization and sustain it by serving others and realizing
the stated and desired goals and objectives. In the wake of
technology and presence of all new advancements due to
privatization, liberalization and globalization have
compelled business houses to become more strategic and
competitive - if they really choose to survive, sustain and
remain sound.
Hyper competition, heightened legislation, highly
unpredictable customer choices and responses, new way
of living, changing social fabric, and complex global
economy etc have put so many complexities and challenges
on business organizations. To accept and cope with such
turbulence and create winning, managing talent might be
choice-less alternative. Though it is indispensable, it should
not be taken as panacea. As there are so many forces,
factors and relationships that play vital role for
organizational effectiveness and success; absence of it,
delivering results will remain either daydream or
nightmare.n
March 2014
36
TAXATION
37
March 2014
TAXATION
March 2014
38
TAXATION
39
March 2014
OTHER
Regulatory Authorities in
Nepal
ICAN and its members are the
forerunners for providing accounting,
assurance, taxation and financial
consultancy services. At the other end
of spectrum of the services offered
by ICAN and its members are the
recipients of these services which are
regulated by one or the other
regulatory bodies setup in Nepal. The
objectives and functions of these
March 2014
40
OTHER
41
March 2014
OTHER
concerned regulators,
March 2014
42
OTHER
Areas of Cooperation
The institute too has to play a key role in enforcing
regulation and demonstrating their accountability towards
the profession and the country. Similarly, it is also important
to emphasize the government to establish the practice or
mechanism of seeking consultation from the Institute with
regard to formulation or amendment of legislation, policy
matters particularly with respect corporate laws, taxation
and policies thereon and capacity building measures.
The institute may establish a committee on taxation, provide
suggestions to the government in such areas as reforming
the revenue collection, broadening tax base, simplification
and removing of ambiguities in taxation, improving the
process of departmental scrutiny or review of Tax Returns,
enhancing tax payers services and so on. Such kind of
communications, dialogues or interaction can be productive
to the tax regime of the government in revenue collection
and the accounting profession within the country.
Another area where the help of ICAN can be useful is to
43
March 2014
OTHER
Conclusion
Initiatives of the institute alone may not be sufficient, the
role of the government and regulatory authorities is also
equally vital for the development of accounting profession
in the country. However, as an apex accounting body of
the nation the duty and the onus is on the institute itself,
and it has to establish itself as an advisor to the government
and other regulators by bringing the proposals and
suggestions responsive to the policy and programs of the
government and other regulators with respect to the
accounting and financial sector.
Returning back to the wise words of Mr. Greenspan, an
honest cooperation between ICAN and other regulatory
bodies is the need of the hour; it is not a zero sum game
and is a win-win for accountancy profession and all the
stakeholders. n
March 2014
44
OTHER
45
March 2014
OTHER
March 2014
46
OTHER
D. IFAC Events
(i) IFAC PAO Development Workshop on
"Realizing the Power of PAOs"
47
March 2014
OTHER
March 2014
48
NEWS
News
Events
Hon' ble Finance Minister Shankar Pd. Koirala lighting the lamp at
ICAN Anniversary Program
ICAN President presented the annual progress report (201213) of the Institute during the function and also highlighted
the annual plan and program for current fiscal year. President
urged the professional accountants to meet the expectation
of the society and the country and also requested to all
members to follow the Rules, Regulations, Code of Ethics
and Other Directions issued by the Institute. He thanked
all the stake holders, students, members for their financial
contribution for construction of Institute's building at
Satdobato, Lalitpur.
49
March 2014
NEWS
March 2014
50
NEWS
51
March 2014
NEWS
Topic
1st
2nd
3rd
Review Process
4th
Reporting by Reviewer
Rules Amended
The Nepal Chartered Accountants Rule, 2061 has been
amended as per the decision of dated 2070.10.24 of
Government of Nepal . The amended Rules can be seen in
notice given in the Journal on page:26 & 39.
Exchange of Signed Copies of Agreement between ICAN and KUSOM
March 2014
52
NEWS
53
March 2014
NEWS
Career Counseling
Membership
COP
Firm
Total No.
Renewal No.
Total No.
Renewal No.
Total No.
Renewal No.
FCA/CA
714
501
588
258
493
242
RA- B
3374
2095
3130
1576
928
699
RA- C
1610
921
1475
761
331
210
RA -D
2292
1348
2098
1195
225
160
Total
7990
4865
7291
3790
1977
1311
March 2014
54
NEWS
International Paricipation
SAFA Committee, SAFA Board, Task Force
and Assembly Meeting, Sri Lanka
The four Member delegation of the Institute attended
various meetings held in Colombo, Sri Lanka from 20-22
January, 2014. The delegation was led by ICAN President,
CA. Mahesh Kumar Guragain and others were Vice
President CA. Narendra Bhattarai, Council Member RA.
Mohan Kumar Subedi and Technical Director CA.
Paramananda Adhikari. For detail information about the
events has been reported in this issue of Journal by CA.
Paramananda Adhikari.
55
March 2014
March 2014
56
on
57
March 2014
NEWS
March 2014
58
NEWS
Blood Donation
March 2014
Proposed Building
December 2013
58