Nepal Rastra Bank (NRB), Central Bank of Nepal, issued a circular directing “A” Class Commercial Banks to prepare NFRS (Nepal Financial Reporting Standards) Compliant Financial Statements from F.Y. 2074/75 (2017/18) onward.
Nepal Accounting Standards Board (NASB) issued NFRS in line with International Financial Reporting Standards issued by IASB. The Institute of Chartered Accountants of Nepal (ICAN), regulatory authority to pronounce Accounting Standards issued by NASB, directed the implementation of NFRS for Commercial Banks since 2015/16. But citing the lack of clear direction from NRB, banks, except few, were continuing to prepare financial statements under existing Regulatory Framework. With the issuance of this direction, now the banks will publish NFRS Compliant Financial Statements.
The circular requires bank to publish its fourth quarter results of 2074/75 following both NFRS and NRB Regulatory Framework. The quarterly results of 2075/76 will be published under Nepal Financial Reporting Framework with a reconciliation of NFRS profits with regulatory profits.
The Notes to the Accounts of NFRS Compliant Financial Statements will include a disclosure on reconciliation between profits derived under Nepal Financial Reporting Framework and Regulatory Framework.
The Statements of Changes in Equity will have a separate equity heading for “Regulatory Reserve”, which includes the difference in results of operation under NFRS and NRB Guidelines. The Regulatory Reserve includes the difference between NFRS profit and regulatory profit at the time of First Time Adoption of NFRS and any difference during the subsequent period only when the NFRS profit is greater than Regulatory Profit. The Regulatory Reserve is non-distributive. A separate disclosure in Notes to the Accounts is to be dedicated for the movement of Regulatory Reserve in Financial Statements.
The Fair Value Reserves that may be created as a result of Fair Value Measurement of various items such as financial assets, investment property, etc. under NFRS will not be eligible for Capital Adequacy purpose.
However, the banks are required to follow the format prescribed by NRB while preparing NFRS Compliant Financial Statements.
A separate format for the presentation of Financial Statements with amendment in NRB’s Unified Directive 4/2074 is much awaited to prepare NFRS Complaint Financial Statements.
The circular can be downloaded here.