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3 CA. Sudarshan Raj Pandey Chairman CA. Madhu Bir Pande Member CA. Jaganath Upadhyay Member CA. Ashish Garg Editor CA. Bishnu Prasad Bhandari Member CA. Mukunda Subedi Member CA. Sewa PathakMember CA. Suresh Khakure Member RA. Dhruba Prasad Poude Member Mr. Binod Neupane Secretary Mr. Binaya Paude Editoria Support The Institute of Chartered Accountants of Nepa Babar Maha, P O Box 5289, Kathmandu, Nepa Te. No , , Fax: E-mai: ican@ntc.net.np Website: Branch Offices: Biratnagar: Te: Fax: , E-mai: icanbrt@wink.com.np Butwa: Te: , E-mai: icanbt@ntc.net.np Birgunj: Birgunj, Te: , E-mai: icanbrj@ntc.net.np Designed & Printed By Print and Art Service Putaisadak, Ktm. Te: , Subscription Rates Annua Subscription T H E N E P A L ACCOUNTANT (Quartery Journa of The Institute of Chartered Accountants of Nepa) Editoria Board Vo. 14 No. 1 September 2011 Corporates- Rs. 600 (incuding courier charges ) Members Rs. 400 (incuding courier charges) Members Rs. 300 (if received by sef) Opinions expressed by the contributors in this journa are their own and do not necessariy represent the views of the Institute. Member Bodies of SAFA may quote or reprint any part of this journa with due acknowedgements. For others, soicitation is expected. News 67 Students' Corner 69 Members' Corner 69 Internationa Participation 70 Members as Corporate Leaders 72 Standing Committes & Non Standing Committes (068/69) 75 Contents Editoria 2 President's Message 3 ACCOUNTING Urgency of Carbon Accounting Strandards in Nepa - Mr. Tara Prasad Upadhyaya, Prof. Dr. Prashant Kumar 7 Consoidated Financia Statements - Mr. Yuba Raj Pandeya 11 IFRS- Time to get ready - Mr. Lok Man Maskey16 AUDITING Understanding the "Expectation Gap" in Auditing - CA. Paramananda Adhikari 20 BANKING Financia Sector Reform in Nepa - Mr. Tua Raj Basya 24 Crdit Risk and Its Management in Bank & Financia Institution - CA. Prakash Bara 34 Corporate Governance in Banking Business - CA. Mukunda Subedi 37 ECONOMY A Knowedge-based Economy: Some Issues -Mr. Gyan Mani Adhikari INFORMATION TECHNOLOGY Information System Risk-Reevant cases - CA. Sanjay Chaudhary 47 XBRL - CA. Ashish Garg 50 LEGAL The Convening of Meetings - CA. N. Krishnaswamy ;DkQ z'4s/0f sfg"g / n]vfk/lif0f k]zfsf r'gf}tx? - cf/p= t'naxfb'/ >]i7 55 Tax Issues Workshop on Tax Issue 62

4 Editoria With the change of eadership at ICAN, the new Editoria Board has taken charge and it is our great peasure to present yet another informative journa. Over the years the Journa has evoved to a sound communicative track among the members of ICAN. Nonetheess the improvement and further oading of information is an ongoing process. Editoria This issue tries to usher in a fee of change with introduction of new features reating to eadership and corporate subscription. Humour has been added with corporate jokes "The funny Accountant" to break the, at times, mundane accounting and auditing issues. With increased reach and infuence of members across a sectors of economy need has been fet to increase the Journa s subscription to non members. Now the corporate word can subscribe to the Journa at attractive rates. Further features in next issue are being worked out. In addition to our fiefdom of accounting and auditing, artices highight issues on information technoogy risks, corporate aw, economy, banking etc. The Journa desperatey needs feedback from the readers to improve and meet reader s expectation. A serious attempt sha be made to seek readers views in coming days. The accounting profession continues to pose new chaenges and opportunities and ICAN is graduay taking its strides from a just born to a growing institution. Under the eadership of new President CA Sudarshan Raj Pandey and his team, the Institute is expected to make a paradigm shift to meet the present chaenges. The festive season has bought new hope with greetings. We wish a very happy Dashain and Tihar to a. Happy Reading! Editoria Board

5 President's Message Dear Coeagues, I woud ike to extend my deepest gratitude to a the members for eecting me as 15th President of the Institute of Chartered Accountants of Nepa. I fee deepy honored to assume this responsibiity. I woud ike to thank a the counci members for eecting me as their President without any opposition. I am confident that a the past presidents, vice president, counci members and a the members of the Institute wi assist me in fufiing my duties and responsibiities. President's Message The Institute of Chartered Accountants of Nepa (ICAN) is an autonomous body estabished under Nepa Chartered Accountant Act 2053 to enhance socia recognition and faith of peope at arge in the accounting profession by raising pubic awareness towards the importance of accounting profession as we as towards economic and socia responsibiity of the accountants, and to contribute towards economic deveopment of the country. The main duty of the Institute is to achieve the objectives set forth in the Act. This is the ast year of the Fifth Counci and I beieve my duty aso incudes providing continuity to the activities initiated by the counci. With a viewpoint to achieve the organizationa objectives, as the 15th President, I have aid down the foowing program for this year. 1. Members Capacity Buiding CPE program sha incude practica trainings and reevant topics; primariy focussing to enhance the knowedge of registered auditors with appropriate coordination from professiona organisations. Structured Training Program sha be conducted in the Institute s branches by mobiising oca manpower and resources at east once in a year. Seminar, workshop sha be conducted by quaified resource person from India and abroad to acquaint and educate the members on Internationa practices. ISA and IFRS certification course sha be organised for interested members and individuas with technica assistance from ICAI and other accounting bodies. Diaogue with professiona association ike ACAN, AuDAN sha be initiated to address professiona issues and concerns. Peer Review sha be graduay impemented. Awareness program sha be initiated addressing One Man One Profession which has aready been impemented for Chartered Accountants and sha come into effect from 2070 for registered auditor members. Feasibiity of renewa of membership eectronicay is being considered. To make membership renewa easy and hasse free, provision for area wise counter sha be made and prior notice of the same sha be given. Matters reated to Income Tax Act, VAT Act, Nepa Chartered Accountant Act and its Rues, Nepa Accounting Standards, Nepa Standards on Auditing, Code of Ethics and other reated materias sha be upoaded in the Institute s website. Provisions for obtaining professiona queries via Emai sha be deveoped. A Monitoring Committee sha be formed to reguary monitor the member s activities, its compiance with the Code of Ethics and to make them more aware and responsibe towards their profession.

6 Efforts sha be made to conduct preiminary investigation on compaints against the members received in a timey manner. Profession reated suggestions/ recommendations received from different organisation/ agencies sha be provided to the members in a timey manner. Code of Ethics handbook has aready been deveoped and with necessary amendments and transation in Nepai, it wi be made avaiabe to the members. 2.Professiona Studies Priorities sha be given to activities which meet the Institute s objective to provide quaity professiona education to accounting professionas in consonance with internationa norms and practice so as to make the accounting profession respectabe and reiabe. The education committee and education department sha be activey engaged to enhance the quaity of professiona studies, Coaboration with ICAI and other Professiona body wi be sought to make Education Department more abe and effective. Standards issued by IFAC Internationa Studies Board and other internationa accounting bodies sha be referred to whie deveoping different study materia and curricuum of the Institute. Study materias for different eve of CA course sha be fuy deveoped and made avaiabe to students this year and entry eve curricuum and entry eve examination procedure sha be made simpistic to attract students. GMCS training and IT Practica Training sha be conducted to enhance abiity of the student. Revision Test Paper and Suggested Answers sha be timey pubished for the students and efforts sha be made to it make it more effective and compete. Crash Course for different eve of students sha be organized periodicay and it sha be competed one month prior to the examinations. Provisions sha be made to make adequate Resource Materia avaiabe in Institute s ibrary. Schoarship programs to underprivieged students sha be continued. Efforts sha be made to incude organizations/members/ individuas to broaden the program to incude more deserving candidates. Recognition sha be given to coaching centers meeting standards aid down by the Institute and periodic review of the same sha be done to ensure quaity education is imparted. With a viewpoint to enhance students performance, genera interaction programs sha be conducted at east twice a year to discuss about the examination resuts, areas of weaknesses, suggestions and measures for improvement. Discuss with oca universities on recognition of quaity of examination undertaken by the Institute. Reguar assessment of the Accounting Technica Course and its effectiveness sha be conducted. 3.Institutiona Deveopment and Enhancement of Empoyee Capabiity. Advisory Committee of Past Presidents sha be formed and interact at east twice a year to provide vauabe suggestions on poicy and matter concerning institution deveopment. Construction of ICAN buiding has aready started and efforts sha be made to compete it on schedue. In house training and other educationa tour /trainings sha be given to empoyee to enhance their morae and performance. Reguar interactions with the empoyees sha be conducted on staff wefare, capabiity enhancement and other empoyee reated matters. With the objective to enhance empoyee performance, Performance Indicator sha be impemented. 4.Reationship with Reguatory and Other Reated Entities. Efforts sha be made to make Institute's roe and the roe of its members cear to other reguatory bodies and entities. Reguar discussion sessions, workshop/ seminar and print media sha be empoyed to educate the entities/ organization and pubic regarding roes and obigations of auditors and of ICAN. Priority sha be given to investigation and timey settement of compaints received from other reguatory bodies and detaied information regarding compaint under settement sha be given. Efforts sha be made to create suitabe environment for casua/officia interaction and conduct joint programs with Nepa Rastra Bank, Office of Auditor Genera of Nepa, Beema Samiti, Securities Board of Nepa, Inand Revenue Department, Nepa Accounting Standard Board and Auditing Standards Board. In order to impement Branch Audit in a fuy fedged manner, cooperation sha be sought from reguatory bodies such Nepa Rastra Bank, Beema Samiti, Securities Board of Nepa. Efforts sha be made to create an environment of cooperation from Nepa Chamber of Commerce, Bankers Association, FNCCI, Deveopment Bank Association, Association of Finance Companies etc., 5.Compiance with Nepa Accounting and Auditing Standards and Impementation of IFRS. Provide Continuous information and education to members regarding accounting and auditing standards. Interact with NRB, SEBON, Insurance Board, FNCCI CNI, and Nepa Chamber of Commerce for impementation of accounting standards. A Task Force committee under Nepa Accounting Standards Board sha be formed to enforce the commitment made with IFAC to adopt IFRS in Nepa by 2012.

7 Conduct separate IFRS training programs for accountants, consutants, auditors and other finance reated professiona. Conduct awareness and interaction programs with FNCCI, Nepa Chamber of Commerce, CNI, Nepa Bankers Associations, Nepa Deveopment Bank Association, Association of Finance Companies etc to ensure timey impementation of IFRS. 6.Internationa Matters Participate in internationa patform for better iaison with IFAC, CAPA, SAFA and other internationa bodies to enhance ICAN goba image. Efforts sha be made to deveop singe Chartered Accountancy Course in SAARC region. Efforts sha be made to obtain Mutua Recognition for CA course by ICAI and other accounting bodies of the SAARC region. In the end, I woud ike to ensure that the above mentioned activities are carried out upon detaied discussion and decision of the Counci. In order to make my tenure successfu and to enhance the work of ICAN, I woud appreciate the continued hep and assistance from Government of Nepa, Office of Auditor Genera of Nepa, different reguatory bodies, counci members, past presidents, different organizations, Nepa Accounting Standards, Chief Executive officers and a the empoyees and members of the Institute. I woud ike to wish everybody Happy Dasain, Deepawai and Chhaat Thank You CA. Sudarshan Raj Pandey President

8 g]kfn rf6{8{ PsfpG6]G6\; g]kfn rf6{8{ PsfpG6]G6\; tyf cfrf/ ;+xtfsf] cwgdf /xl k/ifbn] u/]sf b]xfo jdf]hdsf g0f{ox? ;+:yfsf ;b:ox?n] cgjfo{ kfngf ug{ ;DaGwt ;a}sf] hfgsf/lsf] nfu of] ;"rgf k sfzt u/psf] 5. Go"gtd n]vfk/lif0f z'ns / kf/>ds ;DaGwdf jegg ju{sf k]zfut k df0fkq k fkt ;b:ox?n] k/ifbsf] g0f{ofg';f/ k To]s n]vfk/lif0fsf] Go"gtd z'ns/kf/>ds gdg adf]hd ng' kg]{5.!_ Pkm=;=P ;b:ox?n] Go"gtd!%-kGw _ ;=P ;b:ox?n] Go"gtd!)-bz_ xhf/?k}of. #_ ævæ ju{sf btf{jfnf n]vfk/lifs ;b:ox?n] Go"gtd!) -bz_ xhf/?k}of. $_ g]kfn rf6{8{ PsfpG6]G6\; ;+:yfsf ;b:ox?nfo{ ;"rgf æuæ ju{ / æ3æ ju{sf btf{jfnf n]vfk/lifs ;b:ox?n] Go"gtd %-kffr_ xhf/?k}of. % _ g]kfn /fi6"a+}saf6 dfgotf k fkt a+}s tyf jqlo ;+:yf / jldf ;dtaf6 dfgotf k fkt jldf sdkglsf] n]vfk/lif0fsf] Go"gtd z'ns/kf/>ds $) - rfnl;_ xhf/?k}+of. t/, jfif{s %-kffr_ nfv egbf sd sf/f]jf/ epsf ;/sf/l k fyds jbfnox?sf] xsdf tyf nfv egbf sd sf/f]jf/ epsf ;fgftgf ;xsf/l ;+:yf, wfd{s ;+3 ;+:yf, ;fdfhs ;+3 ;+:yf, pkef]qmf ;d"x, jegg s;dsf ;dtx?, 6«]8 o'glog tyf k]zfut ;+3 ;+:yfx? tyf cgo o:t} ;+3 ;+:yfx?sf] xsdf k/ifbn] tf]s]sf] Go"gtd n]vf k/lif0f z'ns nfu'x'g] 5}g. t/ agf s'g} kf/>ds eg] n]vfk/lif0f ug'{x'+b}g. n]vfk/lif0f ug{ kfpg] xb /sd ;DaGwdf k]zfut k df0fkq k fkt ;b:ox?nfo{ g]kfn rf6{8{ PsfpG6]G6\; godfjnl -;+;f]wg df gdg adf]hdsf] xb ;Dd n]vfk/lif0f ug]{ ;Sg] cwsf/ k bfg u/]sf] 5.!_ k]zfut k df0fkq gjs/0f cbfjws epsf ;=P tyf Pkm=;=P ;b:ox?nfo{ ht;'s} /sd ævæ ju{sf] k]zfut k df0fkq gjs/0f cbfjws epsf cf/=p ;b:ox?nfo{ $) -rfn;_ s/f]8?k}of ;Ddsf]. #_ æuæ ju{sf] k]zfut k df0fkq gjs/0f cbfjws epsf cf/=p ;b:ox?nfo{!) -bz_ s/f]8?k}of ;Ddsf]. $_ æ3æ ju{sf] k]zfut k df0fkq gjs/0f cbfjws epsf cf/=p ;b:ox?nfo{! -Ps_ s/f]8?k}of ;Ddsf]. cwstd n]vfk/lif0f ug]{ kfpg] ;Ldf ;+Vof ;DaGwdf k]zfut k df0fkq k fkt ;b:on] Ps cfy{s jif{df hddf!)) -Ps ;o_ j6f dfq n]vfk/lif0f ug{ kfpg] 5g\ h;df kjns sdkglsf] ;+Vof!% egbf a9l x'g] 5}g. ;fem]bf/l kmd{sf k To]s ;fem]bf/n] of] ;df ;+Vof ;Dd n]vfk/lif0f ug{ kfpg] 5. t/ pk/f]qm ;df ;+Vofsf] u0fgf ubf{ jfif{s %-kffr_ nfv egbf sd sf/f]jf/ x'g] ;/sf/l k fyds abfnox? ;dfj]z u/g] 5}g. Ps JoQm Ps k]zf ;DaGwdf ut]sf] g]kfn ;/sf/, cy{dgqfnosf] -df=dgql:t/lo_ g0f{o adf]hd g]kfn rf6{8{ PsfpG6]G6\; df ;+zf]wg epsf] 5. pqm ;+zf]wg cg';f/ Ps JoQm Ps k]zfsf] god rf6{8{ PsfpG6]G6 ;b:ox?nfo{ ;f]xl dt b]v k"0f{?kdf nfu' eo{;spsf] 5 h;cg';f/ k"0f{sfng ;]jf/t rf6{8{ PsfpG6]G6 ;b:ox?n] k]zfut k df0fkq kfpg] 5}gg\ eg] kfo{ /x]sf rf6{8{ PsfpG6]G6 ;b:ox?sf] k]zfut k df0fkq :jtm :yug e};s]sf] 5. btf{jfnf n]vfk/lifs ;b:ox?sf] xsdf eg] of] god >fj0f )! ut] b]v dfq nfu" x'g]5. k"0f{sfng ;]jf/t ;b:osf] k/efiff tyf o;sf] k i6s/0f ;+:yfsf] j]a ;fo6df x]g{ ;sg]5. zfvfsf] n]vfk/lif0f (Branch Audit) ;Dawdf a} +s tyf jqlo ;+:yfsf] s'g} zfvfn] pqm a} +s tyf aqlo ;+:yfdf hddf epsf] gif]k jf C0f nufglsf] b'o{ k tzt jf ;f] egbf a9l /sd ;+sng jf C0f nufgl u/]sf] epdf To:tf] zfvfsf] 5' } :jtgq n]vfk/lif0f ug'{kg]{ 5. ;b:ox?n] a}+s tyf jqlo ;+:yfsf n]vfk/lif0f ug]{ qmddf s'g} zfvfn] pqm a}+s tyf aqlo ;+:yfdf hddf epsf] gif]k jf C0f nufglsf] b'o{ k tzt jf ;f] egbf a9l /sd ;+sng jf C0f nufgl ep gepsf] osg ug'{kg]{5 / o:tf zfvfx?sf] :jtgq n]vfk/if0f k ta]bg k fkt ug'{kg]{ 5. o;/l a}+s tyf aqo ;+:yfsf] pk/f]qm adf]hdsf zfvfx?sf] :jtgq n]vfk/lif0f gepsf] ca:yfdf n]vfk/ifsn] cfkm\gf] n]vfk/lif0f k tj]bgdf æ==zfvfx?af6 k fkt jj/0fæ egg] jfsof+zsf] k5f8l æ:jtgq n]vfk/if0f gu/psf] eptfkg===æ ("The returns received from branches of the Bank." to be foowed by "though the statements are independenty not audited " ) egg] zabfanl yk u/l Unquaified report hf/l ug{ ;Sg] 5g\. g]kfn n]vfdfg tyf n]vfk/lif0fdfg nfu" ug]{ ;Dawdf o; ;+:yfn] hf/l u/]sf] g]kfn n]vfdfg tyf g]kfn n]vfk/lif0fdfgsf] k"0f{?kdf kfngf ug'{ ;Dk"0f{ ;b:ox?sf] st{jo xf]. ;b:ox?n] n]vfk/lif0f ug]{ ;n;nfdf ;Dk"0f{ n]vfk/lif0fdfgx?nfo{ k"0f{tof kfngf ug' {kb{5 eg] u fxsn] jqo jj/0f tof/ kfbf{ g]kfn n]vdfgsf] k/kfngf u/] gu/]sf] ;d]t x]g'{ kb{5. ob u fxsn] jqo jj/0f tof/ kfbf{ g]kfn n]vfdfgsf] k/kfngf u/]sf] 5}g eg] cfk\mgf] n]vfk/lif0f k ta]bgdf :ki6 pnn]v ug'{ kb{5. g]kfndf a}+s tyf jqo ;+:yfx? tyf aldf sdkglx?n] cfk\mgf] cfosf] n]vf+sg ubf{ Nepa Accounting Standard cg';f/ Accrua Basis df ug'{kg]{df ;DaGwt ;+:yfsf] godgsf/l gsfosf] P]g, god tyf gb] {zg cg';f/ Cash Basis df n]vf+sg ug]{ u/]sf] x'fbf tl gsfox?sf] n]vfk/lif0f u/ n]vfk/lif0f k tj]bg hf/l ubf{ g]kfn n]vfdfgsf] cfwf/df oyfy{ rq0f ub{5 eg /fo k]z ug{ gdng] b]vg5. t;y{ o:tf] cj:yfdf k :t't cfy{s jj/0f æg]kfn n]vfdfg cg';f/ tof/ kf/psf] 5Æ egg] zabfanlsf] cuf8l æk rnt sfg'gsf cwgdf /xl nfu' ug{ ;sg] xb;ddæ (" in accordance with Nepa Accounting Standards.." to be foowed by "so far as appicabe in compiance with the prevaiing Laws..") egg] zabfanl yk u/l Unquaified report hf/l ug{ ;Sg] 5g\. ;+:yfsf ;b:ox?n] pk/f]qm Joj:yfx?sf] jv{nfk s'g} sfo{ u/]df tyf sfo{ u/]sf] ph"/l ;+:yfdf k fkt epdf g]kfn rf6{8{ PsfpG6]G6\; g]kfn rf6{8{ PsfpG6]G6\; tyf cfrf/ ;+xtf adf]hd sfjf{xl x'g ;Sg] Joxf]/f ;DjGwt ;a}sf] hfgsf/lsf] nful ;"rt u/g5.

9 accounting Urgency of Carbon Accounting Standards in Nepa "Carbon trading dea of Nepa Biogas Project (NBP) became the first project for carbon trading under the Cean Deveopment Mechanism of the Kyoto Protoco on cimate change and raises a need of carbon accounting standards in Nepa. As we know the estimation of CO2 i.e. tota amount of carbon emitted during the production, processing and distribution of a product as we as forest change is a matter of concern with carbon accounting. The fina outcome of this exercise is caed the product s carbon footprint and the exercise itsef is known as carbon accounting. Carbon footprints are expressed in units of CO2 equivaents (CO2e).Fuzzy accounting environment, question about asset type and accounting vaue (cost or fair market vaue of CERs) are sti in question for carbon accounting around the word. So far Nepa is concerned it has to deveop its own carbon accounting standards in parae growth with the word s deveopment on the same fied." Mr. Tara Prasad Upadhyaya Prof. Dr. Prashant Kumar As a Party to the United Nations Framework Convention on Cimate Change (UNFCCC) and the Kyoto Protoco, Nepa is impementing number of cimate change reated activities in the recent year. The Government of Nepa has issued the Cimate Change Poicy, 2011 that incudes number of poicies to address the impacts of cimate change, and make the deveopment cimate-friendy and resiient. Carbon Accounting Today a movement is estabished which addresses the management of carbon foot print on a persona, product or organizationa eve. ISO have issued, and continue to issue, standards on carbon foot printing for the vountary sector. The European Union has pubished Directives and guideines for the permitting and enforcement of Carbon Dioxide (CO2) for the mandatory sector in Europe. In an important study (Brenton, Jones, & Jensen, 2009) stated that concern about cimate change has stimuated interest in estimating the tota amount of carbon emitted during the production, processing and distribution of a product. The fina outcome of this exercise is caed the product's 'carbon footprint' and the exercise itsef is known as 'carbon accounting'. A product's carbon footprint is different from a company's as the former incudes the carbon emitted by consumption (and disposa) of the product itsef as we as of a inputs necessary to produce it. It is therefore caed an embedded (or embodied) footprint Carbon. Footprints are expressed in units of CO2 equivaents (CO2e). This is because different GHGs have different impacts on the atmosphere so-caed radioactive forcing. The Mr. Upadhyaya is permanenty from Butwa, Nepa, and a Ph.D Schoar in Banaras Hindu University, Facuty of Commerce, Varanasi, India. Dr. Prashant Kumar is a senior professor in Facuty of Commerce, Banaras Hindu University, Varanasi India. The Nepa Chartered Accountant September

10 accounting GHGs(green house gases) data reported by Parties contain estimates for direct GHGs, such as CO2 - Carbon dioxide, CH4 - Methane, N2O - Nitrous oxide, PFCs - Perfuorocarbons, HFCs - Hydrofuorocarbons, SF6 - Suphur hexafuoride, as we as for the indirect greenhouse gases such as SO2, NOx, CO and NMVOC (UNFCC, 1992 a). Kyoto protoco and Carbon Accounting Kyoto Protoco is an agreement made under the United Nations Framework Convention on Cimate Change (UNFCCC). The treaty was negotiated in Kyoto, Japan in December 1997, opened for signature on March 16, 1998, and cosed on March 15, The agreement came into force on February 16, 2005, under which the industriaized countries wi reduce their coective emissions of greenhouse gases by 5.2% compared to the year 1990 (but note that, compared to the emissions eves that woud be expected by 2010 without the Protoco, this target represents a 29% cut). The aim is to ower overa emissions of six GHGs, carbon dioxide, methane, nitrous oxide, sufur hexafuoride, HFCs(Hydrofuro Carbon), and PFCs - cacuated as an average over the five-year period of Nationa targets range from 8% reductions for the European Union and some others to 7% for the US, 6% for Japan, 0% for Russia, and permitted increase of 8% for Austraia and 10% for Iceand. The GHGs are changing the Earth's energy baance and are aready resuting in observed impacts on the goba cimate system (Houghton, J.T.,Y.Ding, D.J.Griggs et a, 2001). CDM The Cean Deveopment Mechanism (CDM) is an arrangement under the Kyoto Protoco aowing industriaized countries with a greenhouse gas reduction commitment to invest in emission reducing projects in deveoping countries as an aternative to what is generay considered more costy emission reductions in their own countries. These companies in deveoping countries must adopt newer technoogies, emitting esser gases, and save energy. Ony a portion of the tota earnings of carbon credits of the company can be transferred to the company of the deveoped countries under CDM. There is a fixed quota on buying of credit by companies in Europe. Under CDM, a deveoped country can take up a greenhouse gas reduction project activity in a deveoping country where the cost of GHG reduction project activities is usuay much ower. The deveoped country woud be given credits (Carbon Credits) for meeting its emission reduction targets, whie the deveoping country woud receive the capita and cean technoogy to impement the project (KYOTO MECHANISM Artice 12). Carbon Credits Carbon credits are certificates issued to countries that reduce their emission of GHGs which causes goba warming. Carbon credits are measured in units of certified emission reductions (CERs). Each CER is equivaent to one tone of carbon dioxide reduction. A company has two ways to reduce emissions. One, it can reduce the GHGs by adopting new technoogy or improving upon the existing technoogy to attain the new norms for emission of gases. Or it can tie up with deveoping nations and hep them set up new technoogy that is eco-friendy, thereby heping deveoping country or its companies 'earn' credits. India, China and some other Asian countries as we as Nepa have the advantage because they are deveoping countries. Any company, factories or farm owner in Nepa can get inked to United Nations Framework Convention on Cimate Change(UNFCCC) and know the 'standard' eve of carbon emission aowed for its outfit or activity. The extent to which a country emits ess carbon (as per standard fixed by UNFCCC) it get credited in a deveoping country. This is caed carbon credit. These credits are bought over by the companies of deveoped countries mosty Europeans because the United States has not signed the Kyoto Protoco (KYOTO MECHANISM Artice 17). IET Under IET (Internationa Emissions Trading) mechanism, countries can trade in the internationa carbon credit market. Countries with surpus credits can se the same to countries with quantified emission imitation and reduction commitments under the Kyoto Protoco. Deveoped countries that have exceeded the eves can either cut down emissions, or borrow or buy carbon credits from deveoping countries (KYOTO MECHANISM Artice 6). Carbon trading of Nepa Nepa has signed on to "a carbon emissions reduction" agreement with the Word Bank whereby it wi trade surpus carbon for biogas pant. According to the Agreement, Nepa is set to fetch income worth Rs.43.4 miion (US$967,000) from two biogas projects which have been approved by the executive board of Cean Deveopment Mechanism (CDM) under the Kyoto convention on Cimate change. The Nepa Biogas Project (NBP) thus became the first project for carbon trading under the Cean Deveopment Mechanism of the Kyoto Protoco on cimate change. (Positivenepa, 2008). The Aternative Energy Promotion Center (AEPC), under which NBP is running, submitted two proposas for saving carbon from 9,708 and 9,688 biogas pants, respectivey, ast year. After signing the agreement, the director of AEPC, Dr. Madan Bahadur Basnet, said the revenue received from carbon seing woud be invested to insta 25,000 pants annuay. He aso stated that such trading wi further ift the standards of iving among rura peope (Dhita, 2006). ICAI and Carbon Accounting Accounting Standards Board, The institute of Chartered Accountants of India has issued an Exposure Draft: "Guidance 8 The Nepa Chartered Accountant September 2011

11 accounting Note on Accounting for Sef Generated Certified Emissions Reductions (CERs)." Besides this there is not any accounting standards approved and in practice in India. Whether CER is an 'asset : 'Framework for the Preparation and Presentation of Financia Statements', issued by the Institute of Chartered Accountants of India, defines an 'asset' as foows: "An asset is a resource controed by the enterprise as a resut of past events from which future economic benefits are expected to fow to the enterprise." From the above-mentioned definition of 'asset' it foows that for a CER to be considered as an asset of the generating entity, it shoud be a resource controed by the generating entity arising as a resut of past event/s, and from which future economic benefits are expected to fow to the generating entity (ICAI, 2010 a). Recognition of CERs: According to the 'Framework for the Preparation and Presentation of Financia Statements' "An asset is recognized in the baance sheet when it is probabe that the future economic benefits associated with it wi fow to the enterprise and the asset has a cost or vaue that can be measured reiaby." accordingy CERs come into existence when these are credited by UNFCCC in a manner to be unconditionay avaiabe to the generating entity. Therefore, CERs shoud not be recognized before that stage (ICAI, 2010 b). Type of asset: CERs are non-monetary assets without a physica form; they do not stricty fa within the meaning of 'intangibe asset' as per AS 26. The reason is that CERs are not hed for use in the production or suppy of goods or services, and neither is CERs used for administrative purposes nor are they used for the purpose of renting to others. Instead, CERs generated by the generating entity are hed for the purpose of sae (ICAI, 2010 c). Measurement of CERs: CERs are inventories for an entity which generates the CERs. Therefore, the vauation principes as prescribed in AS 2 shoud be foowed for CERs. As per AS 2, inventories shoud be vaued at the ower of cost and net reaizabe vaue. Accordingy, CERs shoud be measured at cost or net reaizabe vaue, whichever is ower. Cost of CERs Inventories: As per AS 2, The cost of inventories shoud comprise a costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present ocation and condition. Various costs are incurred by the generating entity to set up a CDM project activity, operate the CDM project and generate CERs. These may incude the foowing: (i) research costs arising from exporing aternative ways to reduce emissions; (ii) costs incurred in deveoping the seected aternative as a process/device to reduce emissions; (iii) costs incurred to prepare the Project Design Documents; (iv) fees paid to DOEs for vaidation and verification and to the Nationa Authority for approva; (v) fees of registering with UNFCCC; (vi) costs incurred for monitoring the reductions of emissions; (vii)costs incurred for certification of CERs; and (viii)operating costs incurred to run the CDM project. Net Reaizabe Vaue of CERs: In the determination of the net reaizabe vaue of CERs, paragraph 22 of AS 2 reproduced beow shoud be used as guidance: "22. Estimates of net reaizabe vaue are based on the most reiabe evidence avaiabe at the time the estimates are made as to the amount the inventories are expected to reaize. These estimates take into consideration fuctuations of price or cost directy reating to events occurring after the baance sheet date to the extent that such events confirm the conditions existing at the baance sheet date"(icai, 2010 e). From the above, it is cear that any poution contro/emission reduction devices instaed by the generating entity for the purpose of generating CERs are property, pant and equipment and therefore they sha be accounted for as per AS 10 (Revised). Further, as these devices are specificay instaed to generate CERs, the depreciation of such devices shoud not be incuded in the cost of the inventory of the principa product/s of the generating entity as they do not contribute to bringing the inventory of the principa product/s to their present ocation and condition. ICAN and Carbon Accounting Standards The Institute of Chartered Accountants of Nepa (ICAN) was estabished under a specia act, The Nepa Chartered Accountants Act, 1997 to enhance socia recognition and faith of peope at arge in the accounting profession by raising pubic awareness towards the importance of accounting profession as we as towards economic and socia responsibiity of the accountants, and to contribute towards economic deveopment of the country. The Institute is an autonomous body and the Counci is fuy authorized by the Act to undertake accountancy profession in Nepa (ICAN a., 2010). Keeping a its objectives in mind the ICAN has issued and impemented different Accounting Standards for the betterment of investors, sharehoders, corporate body, Government and others so concerned. As per the decision of the Counci, the Nepa Accounting Standards that have been made Mandatory for Compiances are NAS 1: Framework for the Preparation and Presentation of Financia Statements Presentation of financia statements; NAS 2: Accounting Poicies, Changes accounting Estimates and Errors; NAS 3: Cash Fow statements; NAS 4: Inventories; NAS 5: Events after the Baance sheet date; NAS 6: Property, Pant and Equipments; NAS 7: Revenue; NAS 8: Borrowing Costs; NAS 9: Income Taxes; NAS 10: Accounting for Government Grants and Discosure of Govt. Accounting; NAS 11: The Effects in Changes in Foreign Exchange Rates; NAS 12: Provisions, Contingent Liabiities and Contingent Assets; NAS 13: Construction Contract; NAS 15: Leases; NAS 16: Reated Party Discosures; NAS 17: Interim Financia Reporting; NAS 18: The Nepa Chartered Accountant September

12 accounting Impairment of assets; NAS 19: Investment Property; NAS 20: No- Current assets Hed for Sae and Discontinued Operation (ICAN). Though ICAN is active and tried its best for the deveopment of Nepa Accounting Standards as we as Nepa Standards on Audits but the question is sti the same that there is not any accounting standards' being issued against the carbon accounting as we as carbon trading activities of Nepa. As we know The Nepa Biogas Project (NBP) became the first project for carbon trading in Nepa, therefore it seems a high time for the highest professiona body of Nepa to react constructivey on the raised issued as soon as possibe. Chaenges of Carbon Accounting Fuzzy accounting Environment: In spite of growing awareness about the cimate change and carbon emission none of the nations of the word has deveoped a cear cut accounting principes and methodoogy for carbon accounting. There is currenty no authoritative accounting iterature from either the Financia Accounting Standards Board (FASB) or the Internationa Accounting Standard Board (IASB) on accounting for emission aowances. Both U.S. and internationa accounting standard setters have attempted to address the issue as eary as possibe (Rohrig & Davis, 2011 a). Question about the asset type: Emission aowances, expressed as carbon credits, entite the hoder of such credits to emit one ton of carbon per credit. Emission aowances, as intangibe assets, have a number of unique characteristics that chaenge the accurate measuring and reporting of their vaue. Intangibe assets are identifiabe nonfinancia assets that ack physica substance (Rohrig & Davis, 2011 b). From a definitiona perspective, emission aowances appear to aign more cosey to intangibes than inventory, athough some traditiona intangibe accounting practices may not be a precise fit for the aowances. For one, intangibes with a finite ife are typicay amortized over the period based on a unit-of-production approach (or straight ine if the previous method is difficut to identify). Concusion Carbon trading is becoming a atest financia aspect to earn foreign currencies especiay for the deveoping nations who are the signatories of Kyoto Protoco under UNFCCC. The trading is normay done between deveoped and deveoping nations. Because of carbon trading the need for accounting standards is vita for recording purposes in concerned Economy. There is not any finay and universay accepted carbon accounting standards but the process for the deveopment and enhancement is action. Nepa as a deveoping nation and a party of UNFCCC is in need of carbon accounting standards whie invoving in carbon dea. Therefore we fee that the roe must be payed by ICAN to tacke the atest situation as an apex body concerned with accounting practices and methods in Nepa. Bibiography Brenton, P., Jones, G. E., & Jensen, M. F. (2009). Carbon abeing and Low Income-Country Exports: A Review of Deveopment Issues. Deveopment Poicy review, 27 (3), Dhita, M. (2006, May 5). Ohmy News Internationa Goba Watch. Retrieved September 22, 2011, from Nepa Sign Carbon Trading Dea: artice_view.asp?no=290004&re_no=1 ICAI. (2010 a). The Institute of Chartered Accountants of India. Retrieved August 15, 2011, from Whats New: backindex.htm ICAI. (2010 b). The Institute of Chartered Accountants of India. Retrieved August 15, 2011, from Whats New: backindex.htm ICAI. (2010 c). The Institute of Chartered Accountants of India. Retrieved August 15, 2011, from Whats New: backindex.htm ICAI. (2010 d). The Institute of Chartered Accountants of India. Retrieved August 15, 2011, from Whats New: backindex.htm ICAI. (2010 e). The Institute of Chartered Accountants of India. Retrieved August 15, 2011, from Whats New: backindex.htm ICAN. Retrieved from Nepa Accounting Standards: Positivenepa. (2008, January 28). Positivenepa. Retrieved September 22, 2011, from Carbon Trading: Rohrig, M., & Davis, M. (2011 a, Apri a). Deoitte China Research and Insight Centre. Retrieved August 14, 2011, from Deoitte energy soution: Rohrig, M., & Davis, M. (2011 b, Apri a). Deoitte China Research and Insight Centre. Retrieved August 14, 2011, from Deoitte energy soution: UNFCC. (1992). United Nations Framework Convention on Cimate Change. Retrieved August 16, 2011, from GHG Data from UNFCC: items/4146.php 10 The Nepa Chartered Accountant September 2011

13 accounting Consoidated Financia Statements (IAS 27 Consoidate & Separate Financia Statements) (SIC 12 Consoidation-Specia Purpose Entities) (The Companies Act, 2063) There is no Accounting Standard covering consoidation in Nepa however, some of provisions of The Companies Act, 2063 indicate for preparation of consoidated financia statements by the reporting entities. Mr. Yuba Raj Pandeya Background Nepa is in the process of adopt of Goba set of Financia Reporting Standards (IFRS) starting 17 Juy 2012 (for isted entities). IFRS adoption is a subject of hot debate in recent time, especiay for the accounting professionas. Currenty Nepa is foowing its own Accounting Standards (NAS, or popuary known as Loca GAAP). There is no standards oca GAAP covering consoidation of financia statements in Nepa. Thus it is worthwhie and reevant to discuss the requirements of IFRS regarding Consoidated Financia Statements. Lega Requirement The financia statements are either prepared on the basis of GAAP or statutory requirements. There is no Accounting Standard covering consoidation in Nepa however, some of provisions of The Companies Act, 2063 indicate for preparation of consoidated financia statements by the reporting entities. The reevant provisions of The Companies Act, 2063 are reproduced here; A. Section 141 Acquisition or Sae of Property: 1. A pubic company or its subsidiary company sha, if the purchase or se of any property by it resuts in the foowing situation, give information thereof to the office: a. If the purchase of any property resuts in an increase in the vaue of consoidated property mentioned in the audited atest financia statement, by more than 15%; b. If the income to be earned from the property sod or intended to be sod exceeds by more than 15% of the consoidated income before making payment for tax as mentioned in the audited atest books of account of the company. (As per this section, the entities do not require consoidation; however the consoidation is indirecty supported for knowing the consoidated property/ profit). B. Section 143 Documents to be encosed: 1. Any hoding company sha encose the foowing documents of its subsidiary company in its baance sheet: a. One copy of annua accounts of the subsidiary company for the immediatey expired financia year and the report of its board of directors during that period; Mr. Pandey is a CAP III Student of ICAN The Nepa Chartered Accountant September

14 accounting b. Auditors Report; c. Detais of investment of the hoding company at the end of financia year; d. In cases where the financia year of the hoding company and that of subsidiary are different, the matter or change, if any, in any matter of the right of hoding company over the subsidiary company during such different periods. 2. The detais as referred to in cause (b) of sub-section (1) sha aso contain the net profits derived after deducting the oss suffered in the concerned financia year of the subsidiary and the profit and oss as we which has not been mentioned in accounts of the company after it has become the subsidiary company but which may be the concern of the sharehoders of the hoding company. 3. In cases where the Board of Directors of the hoding company fai to obtain the information as mentioned in cause (b) of sub-section (1), and sub-section (2) due to any reason, the baance sheet of the hoding company sha contain a written report thereof. 4. The detais as referred to cause (c ) of sub-section (1) sha aso show oans borrowed against the mortgage of any immovabe property of the subsidiary or the oans borrowed for any purpose other than discharging existing iabiities. (As per this section aso, the consoidation is not required, however there is indication of consoidation to know the net profit of the parent and subsidiary as a whoe). Introduction to Consoidated Financia Statements Consoidated financia statements are the financia statements of a group presented as a singe economic entity. A group is a parent and a its subsidiaries. A parent company is the investor that contros the subsidiary. The parent and subsidiary (subsidiaries) constitute a group. As per IFRS the parent company is required to prepare consoidated financia statements of the group as a whoe, which incudes: i) Consoidated Statement of Financia Position (Baance Sheet); ii) Consoidated Statement of Comprehensive Income (it is possibe to have one statement have two parts-consoidated Statement of Income & Consoidated Statement of Other Comprehensive Income or two separate statements); iii) Consoidated Statement of Changes in Equity; iv) Consoidated Statement of Cash Fows; v) Notes and other statements; vi) Restated opening Statement of Financia Position in accordance with IAS 8 (Accounting Poicies Change in Accounting Estimates & Errors). Contro Contro is the power to govern the financia and operating poicies of an entity so as to obtain benefits from its activities. The first criterion for determining contro is majority of voting power. As per para 13 of ISA 27 contro is presumed to exist when the parent owns, directy or indirecty through subsidiaries, more than haf of voting power if an entity, except in exceptiona circumstances. Other criterion deciding existence of contro over another entity are: i) Power over more than haf of voting rights by virtue of an agreement with other investors; ii) Power to govern the financia and operating poicies of the entity under statue or an agreement; iii) Power to appoint or remove the majority of the members of the board of directors or equivaent governing body and contro of the entity is by that board or body; and iv) Power to cast the majority of votes at the meetings of the board of directors or equivaent directors governing body and contro of the entity is that board or body. Estabishment of Contro Based on the contro criteria mentioned above the contro is presumed to be estabished i) When the contro is through hoding majority of voting power, the date of contro is when the shares carrying the voting rights are registered in the name of investor. ii) When contro is by agreement with other sharehoder, the date of agreement is the date when the contro is estabished. iii) When the contro is through power to appoint or remove the majority of the members of the board of directors, the date when the power is estabished which may be voting rights as mentioned in (i) or by agreement with other sharehoders as stated in (ii). In case it is demonstrated that without having majority voting rights or an agreement and entity has appointed (removed) majority directors, then contro is estabished on and from that date. iv) When the contro is through power to cast majority of votes at meetings of Board of Directors- The contro is estabished when it is demonstrated that an entity enjoys the power of casting majority of voting rights not having appointed majority directors by virtue of (i), (ii), or (iii) above. In this case the contro shoud be estabished on demonstration of the abiity to cast majority votes consistenty over the meetings. 12 The Nepa Chartered Accountant September 2011

15 accounting Specia Situations Potentia Voting Rights As per para 14 of IAS 27 whie evauating contro, the potentia voting rights are aso taken into account. Dua Contro A situation may arise when there is dua contro. When dua contro situation arises (for exampe one company has contro through majority of voting rights and another company appoints the majority members of Board for another reason, but this situation is unikey to exist for onger period of time). When the case of dua contro exists, both the reporting entities, which have contro, shoud consoidate. Indirect Contro Another specia situation is indirect contro (for exampe in case of group having more than one subsidiaries and subsidiary of subsidiaries), in this case aso the entities having indirect contro shoud evauate the contro situation to the owest possibe eve and consoidate the financia statements. Specia Purpose Entities (SPEs) Sometimes entities are created to accompish narrow and wedefined objectives ike affecting a ease, research and deveopment activities are securitization of financia assets. These entities are termed as SPEs which may take form of corporation, trust, partnership and unincorporated entity. IAS 27 requires the consoidation of entities that are controed by the reporting entity. The SIC 12 has given specia guidance on consoidation of SPEs, however the SIC 10 interpretation does not appy to post-empoyment benefit pans or other ong-term empoyee benefit pans to which IAS 19 (Empoyee Benefits) appies. As per SIC 12, an SPE sha be consoidated when substance of reationship between an entity and the SPE indicates that the SPE is controed by that entity. The contro may be demonstrated even if there is no majority ownership by the parent company in the SPE. The circumstances which demonstrate existence of contro as per SIC 12 are: i) In substance, the activities of the SPE are being conducted on behaf of the entity according to its specific business needs so that the entity obtains benefits from the SPE's operation; ii) In substance, the entity has decision making-powers to obtain the majority of benefits of the activities of the SPE or, by setting up an 'autopiot' mechanism, the entity has deegated these decision-making powers; iii) In substance, the entity has rights to obtain majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE; or iv) In substance, the entity retains the majority of the residua or ownership risks reated to the SPE or its assets in order to obtain benefits from its activities. Parents excuded from Consoidation A parent entity may not consoidate its subsidiaries in the foowing cases: i) A parent which is a subsidiary of another company having informed its minority sharehoders and having objection from sharehoders; ii) The parent's debt and equity are not isted; iii) The parent is not potentia isting candidate; iv) The utimate or intermediate parent of the parent produces consoidated financia statements avaiabe for pubic use that compy with IFRSs. If a parent is excuded to issue consoidated financia statements then it presents separate financia statements as per para of IAS 27. A subsidiary is not excuded from consoidation simpy because the investor is a venture capita organization, mutua fund, unit trust or simiar entity, nor a subsidiary is excuded from consoidation because its business activities are dissimiar from those of other entities within the group (US GAAP aows to excude if the operations of the parent and subsidiaries are nonhomogenous). However, the hed for sae subsidiaries are excuded from consoidation. Consoidation Procedures As per para of ISA 27 the consoidation procedure are: 1) Basic Principes : Consoidated financia statements present financia information about the group as that of a singe economic entity. To achieve that purposei) The carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary are eiminated. ii) Goodwi arising out of acquisition is determined in accordance with IFRS 3 Business Combinations and that goodwi wi appear in the consoidated statement of financia position as an intangibe asset. iii) Non-controing interests in the profit or oss of consoidated subsidiaries for the reporting period are identified; and iv) Non-controing interests in the net assets of consoidated subsidiaries are identified separatey from the parent's ownership interests in them. Non-controing interests in The Nepa Chartered Accountant September

16 accounting the net assets consists of : a) The amount at the date of origina combination cacuated in accordance with IFRS 3 Business Combinations; and b) The non-controing interests' share of changes in equity since the date of the combination. Effectivey 'equity' of the subsidiary company is distributed between the parent and non-controing interest. Noncontroing interest is presented as a separate component of equity. In case there exists potentia voting right, parent's share and non-controing interest are computed based on existing interest not on the basis of potentia interest. 2) Line by ine addition : An entity combines the financia statements of the parent and its subsidiaries ine by ine by adding together ike items of assets, iabiities, equity, income and expenses (expect investment in subsidiaries). 3) Intra-group baances, transactions, income and expenses : They are eiminated in fu. Profit and osses resuting from intra-group transactions that are recognized in assets, are eiminated in fu. Intragroup osses may indicate an impairment that requires recognition in the consoidated financia statements. IAS 12 Income Taxes appies to temporary differences that arise from the eimination of profits and osses resuting from intra-group transactions. 4) Consoidation is effected from the date of acquisition : The income and expenses of a subsidiary are incuded in the consoidated financia statements from the acquisition date as defined in IFRS 3 Business Combinations. Depreciation on the property, pant and equipment and amortization of intangibes, impairment of assets are computed based on that acquisition date fair vaue of assets of the subsidiary. This wi effectivey require that property, pant and equipments and intangibes of the subsidiary are carried at the acquisition date fair vaue. Simiary, de-consoidation is effected from the date of oss of contro. 5) Computation of deficit baance of non-controing interest is permitted : Profit or oss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controing interests. Tota comprehensive income is attributed to the owners of the parent and to the non-controing interests even if this resuts in the non-controing interests having deficit baance. 6) Existence of preference shares which are treated as equity : If a subsidiary has outstanding cumuative preference shares that are cassified as equity and are hed by non-controing interests, the parent has to compute its share of profit or oss after adjusting for the dividends on such shares, whether or not dividends have been decared. 7) Adjustment for changes in non-controing interest : Changes in a parent's ownership interest in a subsidiary that do not resut in a oss of contro are accounted for as equity transactions. Therefore, the carrying amounts of the controing and noncontroing interests are adjusted to refect the changes in their reative interests in the subsidiary. Any difference between the amount by which the non-controing interests are adjusted and the fair vaue of the consideration paid or received sha be recognized directy in equity and attributed to the owners of the parent. 8) Uniform accounting poicies : Adopt uniform accounting poicies whie finaizing accounts of the parent and subsidiaries for simiar transactions and other events. In case uniform accounting poicies coud not be adopted, it is necessary to discose the fact together with the proportions of transactions wherein uniform accounting poicies coud be adopted. 9) Uniform accounting period : Financia statements of the parent and subsidiary shoud ideay be drawn up to the same reporting period. In case it is not possibe to foow the same reporting period, the difference shoud not be more than 3 months. Adjustments shoud be made for the effects of significant transactions and other events of the subsidiary that occurred between the reporting date of the subsidiary up to the reporting date of the parent company. Loss of Contro A parent may ose contro of a subsidiary with or without a change in absoute or reative ownership eves. It aso coud occur as a resut of contractua agreement. A parent might ose contro of subsidiary in two or more arrangements (transactions). However, sometimes circumstances indicate that the mutipe arrangements shoud be accounted as a singe transaction. When a parent oses the contro over the subsidiary, the foowing accounting treatment are carried out by the entity:- i) Derecognize the assets (incuding any goodwi) and iabiities of the subsidiary at their carrying amounts at the date when contro is ost. ii) Derecognize the carrying amount of any non-controing interests on the former subsidiary at the date when contro is ost (incuding any components of other comprehensive income attributabe to them). 14 The Nepa Chartered Accountant September 2011

17 accounting iii) Recognize any investment retained in the former subsidiary at its fair vaue at the date when contro is ost. iv) Recassifies other comprehensive income for a amounts recognized in other comprehensive income in reation to that subsidiary. v) Derecognizes investment disposed of and fair vaue of consideration received. vi) Recognizes any resuting difference as a gain or oss in profit or oss attributabe to the parent. vii)baance of the investment in subsidiary is accounted for appying other IFRSs. Way Forward The IFRS impementation date is knocking at our door in Nepa. With ess than a year eft for its adoption, the accounting reguatory body, ICAN and Accounting Standards Board shoud gear up and organize interaction and discussion programs and make timey perparations for its impementation. Interaction with various reguatory bodies e.g. Nepa Restra Bank, Beema Samiti, Securities Exchange Board, Comapany Registrar sha pave the way for easy and timey adoption. (In recent pronouncement the IASB proposed to repace IAS 27 by new IFRS 10 Consoidated Financia Statements, which is in discussion phase). The Nepa Chartered Accountant September

18 accounting IFRS Time to get ready As per the decision of the counci dated 32 Ashad, 2067 of the The Institute of Chartered Accountants of Nepa has decided to impement IFRS for isted companies'. But the isted companies are not propery aware about IFRS. In certain case, even the reguatory bodies ack awareness about it. Government of Nepa has not taken any initiation ti now. Among the reguator, ICAN and ASB have taken some initiative on the awareness of the IFRS by conducting Training programs and seminars. Mr. Lok Man Maskey 1. Introduction Financia Reporting StandardsI(FRS) are accounting standards issued by the Internationa Accounting Standards Board (IASB), an independent organization based in London, U.K. They pubish a set of rues knows as IFRS to be appied fo financia reporting by pubic companies word wide. Internationa Accounting standards were issued by the IASB s predecessor organization, the Internationa Accounting Standards Committee,(IASC) estabished in 1973 by the professiona accountancy bodies in Austraia, Canada, France, Germany, Japan, Mexico, Netherands, United Kingdom and Ire and, and the United States of America. During that period, between 1973 and 2000, the IASC s rues were described as Internationa Accounting Standards (IAS) This rue-making function has been taken over by a newy re-constituted IASB. fromapri The IASB described its rues under the new abe Internationa Financia Reporting Standards, it is betterfunded, better staffed and more independent than its predecessor, the Internationa Financia Accounting Committee(IASC). 1.1 What are IFRS? Internationa Financia Reporting Standards are gobay accepted high quaity standards which are issued by the Internationa Standards Board (). They are the foowing: 1. Internationa Accounting Standards Committee (IASC ) issued Internationa Accounting Standards (IASs). 2. Internationa Accounting Standards Book (IASB 2001 to date) issued Internationa Financia Reporting Standards (IFRSs). 3. Internationa Financia Reporting Interpretations Committee (IFRCs). 4. Standard Interpretation Committee Interpretation (SIC). 1. IFRS (IASB) = 9 2. IAS (IASC) = IFIC (IASB) = SIC (IASC) = 11 Tota = 65 Athough the guiding principaes for preparation of financia Statements are same its pressentation differs from Country to contry due to its variety of socia economic and ega. Keeping that in mind IFRS are deveoped for Internationa uniformity. IASB is commited to narrowing this difference by seeking harmony in accounting standards and procedures reating to the preparation and presentation of financia statement. 1.2 Recent Standards and Deveopments IAS is no onger being deveoped, Each year it is being repaced by There are four IFRS in deveoping stage. They are as foows: Mr. Maskey is a CEO of Accounting and Auditing Standard Board, Nepa 16 The Nepa Chartered Accountant September 2011

19 accounting (1) IFRS 10 Consoidation (2) IFRS 11 Joint Arrangements (3) IFRS 12 Discosures and Interest other Entities (4) IFRS 13 Fair vaue measurement 1.3 Proposed Improvement The proposed improvements reating to IFRS:are as foows: (1) IFRS 1 First time adoption of IFRS (2) IAS 1 Presentation of Financia (3) IAS 16 Property, Pant and Equipments (4) IAS 32 Financia Instruments Presentation (5) IAS 34 Interim Financia The date of comments to be provided up to 21 October Revisions and Effectives dates of IFRSs & IASs Frequent changes of IFRSs and IASs is posing difficuties in updating the Nepa Accounting Standards. However we are bound to adopt IFRS. The foowing are amendments and effective date for impementation of IFRS and its compiance. IFRSs not permitted 30 IFRSs permitted 28 IFRS s required some domestic isted companies 6 IFRSs required for a domestic isted companies 93 Source: Deoitte IAS Pus Basis of Internationa Financia Reporting Standards (IFRS) 2.1 Framework based IFRS IASB uses Framework to set standards. It * Enhances consistency across standards * Provides benchmarks for judgments The framework is used to deveop accounting poicies in the absence of specific standards. IFRS are based on IASB's conceptua framework which sets out agreed concepts that under ies IFRS financia reporting. The Conceptua Framework of IASB are as foowing: * The objective of genera purpose financia reporting * Quantitative characteristic * Eements of financia Statements. * Recognition * Measurement * Presentation and discosures other concepts a foow the objectives. 2.2 IFRS Principe based standards IFRS principes are recognition measurement, presentation and discosures requirements for transactions are important to genera purpose financia statements. It is prepared and presented for externa users. Structure of a principe based standards Source ; Michae Wes, Director IFRS Education Initiative IFRS Foundation Source: IASB Standards Revesion and Effecvtive date 1.5 Uses of IFRS around the word Use of IFRSs for domestic reporting by isted companies in their consoidated financia statements as of May 2011 There is no exception in the scope of the standards. The principes based standards are derived from the framework. It reies on professiona judgment to appy these principes. The appication guidance expains appication of principes. The Nepa Chartered Accountant September

20 accounting CANADA First IFRS Reporting Period INDIA First IFRS Reporting Period First year of reporting : 31 March, 2012 Date of adoption : 1 Apri, 2011 Comparative year : 1 Apri, March 2011 Date of transaction : 1 Apri, Does IFRS appy to you? It appies to genera purpose financia statements of profit oriented enterprises. ICAN has announced its impementations for isted companies. 4. When does IFRS appy? 4.1 Impementation Date In Ashad 2067 Institute of Chartered Accountants of Nepa has annouced that IFRS sha be effective from the foowing fisca year. (1) 2068/69 Listed Companies (2) 2069/70 Pubic Companies (3) 2070/71 A Companies There are Currenty 202 isted companies ti It comprises 24 Commercia Banks, 71 Finance companies, 4 Hotes, 18 Construction companies, 4 Hydro-Power 20 Insurance Companies, 55 Deveopment Banks and 2 others. 4.2 The IFRS definition of dates : The Transaction Date The beginning of the eariest period for which an entity presents fu comparative information under IFRS in the first financia statement. The Reporting Date The end of the atest period covered by financia statements by a interim report. Nepa First IFRS Reporting Period 5. Chaenges The foowing are few chaenges besides others, which require immediate attention 1. Awareness Though the commitment is not given for conversion or transition to IFRS by the reguatory authority. Counci of the Institute of Chartered Accountants of Nepa has decided to impement the IFRS from the Fisca Year 2068/69. How many peope are aware of IFRS in Nepa is a big underying question. The promoters, investors, reguators, and other stakehoders are sti not aware about it. It wi be a major chaenge to bring awareness about IFRS and impact of such changes. The users of such financia statement woud need to understand the financia statements being presented as per new norms. 2. Training There is shortage of skied human resources. The professionas shoud have expert knowedge of IFRS. But it is a big chaenges to train the 7,818 Professiona Accountants (incuding 7,283 Registered Auditor), in this short period and non-avaiabiity of expert trainers is aso a big chaenge. 18 The Nepa Chartered Accountant September 2011